MINUTES OF THE JOINT SUBCOMMITTEE MEETING OF SENATE COMMITTEE ON FINANCE AND ASSEMBLY COMMITTEE ON WAYS AND MEANS Sixty-eighth Session March 24, 1995 The joint subcommittee meeting on Higher Education/Capital Improvements of the Senate Committee on Finance and the Assembly Committee on Ways and Means was called to order by Chairman William J. Raggio, at 8:00 a.m., on Friday, March 24, 1995, in Room 352 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. SENATE COMMITTEE MEMBERS PRESENT: Senator William J. Raggio, Chairman Senator Bob Coffin Senator Dean A. Rhoads ASSEMBLY COMMITTEE MEMBERS PRESENT: Mr. John W. Marvel, Chairman Mr. Morse Arberry, Jr., Chairman Mr. Lynn Hettrick Mrs. Vonne Chowning Mr. Thomas W. Fettic Mr. Joseph E. Dini, Jr. STAFF MEMBERS PRESENT: Dan Miles, Fiscal Analyst Mark Stevens, Fiscal Analyst Sue Parkhurst, Committee Secretary OTHERS PRESENT: Don Hataway, Chief Assistant Budget Administrator, Budget Division, Department of Administration Richard Jarvis, Chancellor, University and Community College System of Nevada Ronald Remington, President, Northern Nevada Community College Joseph Crowley, President, University of Nevada, Reno Rita Gubanich, Acting President, Truckee Meadows Community College Jim Richardson, Lobbyist, Nevada Faculty Alliance Anthony Calabro, President, Western Nevada Community College University and Community College System of Nevada - Pages 283 - 381 Senator Raggio noted that although all of the budgets for the university system are listed on the agenda (Exhibit A), it was not the subcommittee's intention to hear the budgets individually as they have been reviewed in detail in previous hearings. Richard Jarvis, Chancellor, University and Community College System of Nevada (UCCSN), apologized for the absence of several colleagues who were scheduled to attend the meeting but were prevented from doing so due to travel-related difficulties. They were Tom Anderes, Vice Chancellor of Finance, UCCSN; Kenny Guinn, Interim President, University of Nevada, Las Vegas (UNLV); and Larry Eardley, Budget Officer, UCCSN. Chancellor Jarvis stated his intention to highlight three key items in the university system's response to prior requests for information from the Senate Committee on Finance and the Assembly Committee on Ways and Means ("UCCSN Responses to Budget Hearing Questions," Exhibit C. Original is on file in the Research Library.). The first concerns the UCCSN's need for accountability and flexibility in its dealings with the Legislature and the public. Recognizing the compelling need for accountability to the public, to the Legislature, and to the Budget Division, Dr. Jarvis said, the university system administration is requesting to be allowed the opportunity to develop, for the new biennium, a budget monitoring and control system to provide such accountability. The proposed system calls for presenting the university system's work plan for the year, providing an opportunity for comments on budget variances if and when they develop during the course of the year, and reporting to the Legislature at the end of the year when the budgets are compared to "actuals." (The details are on the second page of the Introduction in Exhibit C.) Dr. Jarvis said such an approach would preserve the university system's flexibility while providing the necessary accountability. Senator Raggio questioned Dr. Jarvis regarding how the proposed system would provide accountability. Noting the information that would be presented to the regents at their board meetings is available to the public, Dr. Jarvis said the chancellor's office would willingly share such information with the Legislature's fiscal analysis staff and with the Budget Division's staff and would respond to any questions concerning unusual expenditures or significant departures from the budget. He said it would provide the system administration the opportunity to explain such occurrences. It was noted the proposal for accountability referenced by Dr. Jarvis is in the Executive Budget and is not a legislative proposal. Senator Raggio said the Legislature had required, in a previous legislative session, application to the Interim Finance Committee (IFC) [for non-budgeted expenditures]. He noted such application had not occurred because apparently the need had not arisen. He asked if it is the exceptional circumstance that is addressed by the university's accountability proposal and if the proposal is a matter of philosophy or principle rather than practical concern. Dr. Jarvis averred the matter is of significant practical concern to the university system. He said in discussion of this issue with university presidents he was told the new procedures created inflexibility that resulted in requests and adjustments that should have been made but were not. The UCCSN managed with an inflexible system, he remarked. During the last biennium, when budgeted funds were withdrawn, additional flexibility was accorded the university system. In the opinion of the system administration, Dr. Jarvis continued, the university has handled the flexibility well and can function better with such flexibility. The opportunity to demonstrate this is what is being proposed in the accountability plan presented by the university, Dr. Jarvis indicated. Senator Raggio requested Dr. Jarvis to relate to the committee how the proposed accountability and flexibility plan would differ from what currently exists. Dr. Jarvis said the executive proposal would return the university system to a very rigidly managed situation wherein the university personnel would be required to seek permission to make necessary transfers. What the university system is requesting with its plan is the opportunity to manage its affairs and report on them quarterly, and then to respond in a full and public manner to any questions that arise, rather than being required to seek permission in advance. Don Hataway, Chief Assistant Budget Administrator, Budget Division, Department of Administration, addressed the committee to present the views of the budget office on this issue. He said the Budget Division would not oppose "collapsing the functional dollars budgeted for the university campuses into one operating line," as has been done in the past; however, there must be a reporting system that fully informs the Legislative Counsel Bureau (LCB) fiscal staff and the Budget Division staff as to what is occurring within the budgets approved by the Legislature. Senator Raggio asked at what point the information would be required. Mr. Hataway replied he does not see a problem with the after-the-fact reporting of a non-budgeted expenditure, but the reporting requirements would have to exceed those proposed in the university's plan. In essence the reporting would be what the executive proposal calls for in terms of specific transfers related to the budget parameters. Mr. Hataway said most of the time in the past the Budget Division has not been informed of budget deviations. He said the reporting process would basically begin with the budget that is approved by the Board of Regents, which normally occurs in August of each year. Senator Raggio remarked the reporting requirements mentioned by Mr. Hataway do not seem burdensome, and in the interest of accountability there should be no objections on the part of the university system to reporting such transactions on a periodic basis. Dr. Jarvis agreed. He said this reflects the spirit of the introductory comments of the university system's responses to the committee (Exhibit C). The second item highlighted by Dr. Jarvis concerns revenue. He said the university system administration has in recent months been addressing various aspects of revenue within the system. The Board of Regents voted last year to increase out-of- state tuition fees by "a modest amount," which would bring the tuition charges for out-of-state students attending UCCSN institutions approximately in line with the average out-of-state tuition fees charged by university systems in other western states in the Western Interstate Commission for Higher Education (WICHE). The university has been addressing inequities and imbalances within the system, including reducing the extent of the discount allowed students from neighboring states (the so-called "good neighbor" policy). However, Dr. Jarvis continued, it is anticipated the increased fees will not result in additional revenues due to a projected decrease in enrollments arising from the increase in fees. The extent of decrease cannot be accurately forecast at this time. The increase is viewed as an equity vehicle rather than a revenue- generating vehicle, Dr. Jarvis stated. Senator Raggio inquired how many students are currently enrolled under the existing good neighbor policy. Dr. Jarvis estimated the number at 1,200. The senator asked if it is believed the reduction in the discount for out-of-state students from neighboring counties would be revenue neutral. The chancellor replied the university has had to "grandfather" the students presently in the university system who have been allowed the full discount and is phasing-in the increase for the new students entering the system at the rate of approximately 200 to 300 per year. Senator Raggio asked why the fee increase is being implemented if it will be revenue neutral. Dr. Jarvis explained the system is unfair because it allows students, most of whom come from California, to pursue a baccalaureate (B.A.) degree in Nevada less expensively than they can in their home state. Stating his intention to play the devil's advocate on this issue, Senator Raggio said if the fee increase is estimated to result in increased revenues of some consequence, there is clearly a reason to implement it. He said students from neighboring counties along the California-Nevada border might argue they contribute to Nevada's economy. He suggested if the increase is expected to be revenue neutral it might not be wise to change the existing fee structure. Dr. Jarvis pointed out the increase would be phased-in, and if the student stream continues (which he said it will if the California university system continues to increase its fees), the fee hike may eventually begin to generate revenue. In response to further questioning regarding the possible generation of revenue through the fee increase, Dr. Jarvis indicated no revenue from this source is being anticipated or has been built into the Executive Budget at this stage. Dr. Jarvis said another revenue-related item is residency policy changes that are to be presented to the Board of Regents shortly. The effect would be to reduce the number of students who qualify for in-state residency as quickly as they do. Senator Raggio inquired what criteria are being recommended for determination of the residency status of students. Dr. Jarvis replied there are a number of changes to be made, the most important being the establishment of a primary purpose criterion such that if a student comes to Nevada for the primary purpose of attending a university institution in this state, the person is considered an out-of-state student. The student remains in that category unless or until he or she establishes a primary purpose for being in Nevada other than to remain enrolled in one of the UCCSN institutions. Secondly, a dependence criterion would be established specifying that a student who is a dependent of a parent or guardian in another state would be classified as an out- of-state student. Senator Raggio asked how the proposed criteria compare with those in other educational institutes. Dr. Jarvis responded the criteria would bring Nevada on a par with all of the surrounding states. Senator Raggio inquired as to whether any revenue is anticipated in the budget as a result of implementing the new criteria. Dr. Jarvis said there would be no revenue impact until Fiscal Year (FY) 1996-1997. There is some question, however, as to how much of the enrollment will be lost versus how many students will remain in the UCCSN system, Dr. Jarvis stated. Senator Raggio asked if introduction of the new criteria is projected to be revenue neutral for the second year of the biennium. Dr. Jarvis said he could not at this time estimate what the revenue might be. He said the new criteria in the residency policy represent a significant change for the university system. Dr. Jarvis next addressed the subject of registration fees, which he noted is the per credit amount charged to all students. He said the system administration has examined the Executive Budget, has determined there are critical needs not provided for in the budget (particularly in the areas of equipment and support services, for which the recommended funding is 50 percent of the university's request or less), and has developed a proposal to be presented to the Board of Regents the following week that recommends a $3 per credit hour increase in FY 1995-1996 and a further $3 per credit hour increase in FY 1996-1997. Since most courses are three-credit courses, the proposal represents a $9 per course increase in each year of the biennium. If approved by the regents, the increase is projected to generate a total of slightly over $9 million during the course of the biennium, which the university would dedicate to the areas of critical need. Senator Raggio asked how the university determined the need for $9 million to be raised through the increase in course fees. Dr. Jarvis said the system administration began with the recommendations in the Executive Budget, which the university regards as very supportive in terms of instructional support and in terms of student financial aid. The fundamental dimensions of access are well served in the proposed budget, Dr. Jarvis remarked; however, the university's "tight request" of $40 million for equipment, which would have funded less than the university's priority needs, was recommended at $20 million in the Governor's budget. Additionally, the UCCSN had requested $59 million in the support service area, and the executive recommendation is slightly over $11 million, or 20 percent of the university's request. Continuing, Dr. Jarvis said equipment and support service needs are two areas of the university's budget that are increasing faster than any others. He noted the university is a high technology enterprise, and it does not serve students to train them on out-of- date equipment or to offer courses for which access to library services is insufficient. He pointed out the modern student population has drastically different service needs than students had 10 or 20 years ago, and the university's judgment therefore was that it is critical, with respect to what he characterized as the "quality gap" in the budget recommended for the university, to address the system's needs for equipment and support services. If this does not occur, Dr. Jarvis asserted, the present students will suffer with respect to the quality of their degrees; it will take longer and be more difficult to obtain the degree. Dr. Jarvis reiterated the university has judged as critical the need to address the quality gap. That is not the formula approach employed in the executive recommendation, which bears no relationship to the university's needs or to its growth, the chancellor maintained. Senator Raggio pointed out the funding formula is based on a goal of achieving full funding for education in Nevada as resources become available. He voiced the opinion the Executive Budget recommendations substantially address the university's needs in the equipment and support services areas. He noted the budget recommends an additional $2.5 million for equipment replacement, which he said is an enhancement that represents a genuine commitment. He further stated there has been a dedicated effort to meet the university's needs. Dr. Jarvis concurred. Continuing, Senator Raggio said according to staff calculations, after reviewing the recommendation for General Fund and non-General Fund revenue that would be required to meet the budget, there is a need for both years in the budget of approximately $1.4 million in non-General Fund revenues. He said it appears the $1.4 million can be easily obtained from other areas of the budget, raising the issue that based on what is known at this time, there is no need for a student fee increase. He said this is an important issue that must be explored. Senator Raggio said he does not want the message to be put forth that the Legislature is "driving" the university's request for increased student fees. Unless justification is presented for additions to the budget, it is the subcommittee's analysis that the increase is unnecessary, the senator stated. He said based on the subcommittee's analysis and the analysis of staff, action by the Board of Regents to increase student fees appears to be inappropriate at this time. Senator Raggio said if the university can justify needs that are unmet in the existing budget, that is another issue. He asked if his position is clearly understood. Dr. Jarvis replied yes and said the last point made by the senator is entirely the issue being raised by the university. Referencing the point made by Senator Raggio regarding unmet needs in the budget, Mr. Hataway said there is a gap at present between what the university originally projected with respect to revenues and what the Budget Division is recommending the system generate in revenues, but the discrepancy is considerably less than $9 million. He further stated if the Board of Regents approves the proposed fee increases, not only the revenue to be generated therefrom, but also the additional expenditures to be funded with the revenues should be brought into the budget so the university's budget activity can be monitored. Senator Raggio said there are adjustments to be made in the university budgets. He stated it is not his intention to preclude discussion on this issue, but to alert the UCCSN administration the suggested fee increase contradicts the Legislature's analysis of the budget as of the present time. He said he doubts the university system would wish to approach the students with a plan to raise their fees unless it is absolutely necessary to meet the needs of the system. Assemblyman Morse Arberry, Jr. asked if, given the Board of Regents approves the proposed fee increase, the expenditures for support services would occur only in the first year of the biennium. Dr. Jarvis responded the expenditures would occur throughout the biennium. The fees would be dedicated to the support services, which consist of library services, advisory and career placement services, and other programs that assist students outside of the primary delivery of instruction. These are areas in which the university has long had needs far in excess of the support provided in the Executive Budget, as do all universities and colleges, because the student populations and needs are changing dramatically, Dr. Jarvis said. It is the university's position therefore that in order to provide the students with the quality of services they need at this point, additional revenue is needed. He reaffirmed his previous statements the proposed Executive Budget is a very good one that he is delighted to support. He stated it is probably one of the finest, if not the finest, executive budgets anywhere in the United States today. However, he continued, his problem as a professional educator is to consider what the university system is delivering in terms of equipment, availability to students, currency of its programs and support services for the students. He said if these are found to be lacking, he needs to present the situation to the legislators. Continuing, Dr. Jarvis said the total recommendation in the Executive Budget is not based on an analysis of the abovementioned needs, but on a simple share model, a ratio of state and non-state funding that relates to what the actual budget activity was 2 years ago, in FY 1993-1994. It bears no relation to what the university needs in the next biennium, he said, and it impacts individual campuses differently. For example, campuses that happened to accept more students in FY 1993-1994 are adversely affected by this methodology, Dr. Jarvis asserted; so whereas the total figure may seem modest, for individual campuses it is significant. He said the community colleges have a substantial gap, even under the executive recommendation. Dr. Jarvis reiterated his purpose in presenting the fee increase request stems from the university system's need to improve the quality of equipment and support services for the students. He said if the revenue from the fee increase is not obtained this will not occur and the students will have to manage with what they have. Dr. Jarvis repeated the Governor-recommended budget is a good one, but it is the judgment of the university system administrators that to move the campuses in line with the nation in terms of the direction in which education is headed, the needs in the support services area must be met. The proposed increase, if approved, would still leave the university's fees significantly below the average for all of the western states, and the request is not out of line. Dr. Jarvis stated his disagreement with the executive recommendation is that the methodology that produces the so-called gap bears no relation to the university's needs. He stressed he is not making the request because he feels pressure from the Legislature or the Governor, but rather he is proposing what he thinks the appropriate contribution from the university should be to maintain the quality standards that must be met and to provide the students with the services they need. Dr. Jarvis said the request is not built on the same basis as the figures in the Executive Budget, which are derived from a simple ratio related to a condition that existed 2 years ago. Assemblyman Arberry inquired if any of the $9 million will be used for salary increases. Dr. Jarvis replied the revenue would not be used to provide salary increases or to support salaries of current staff. It will be used strictly to increase the services available to students. He reiterated that although the recommended budget is a good one, its service provision is still modest and always has been although it has improved and is much better than it was in the 1993-1995 biennium. He said while he is very pleased, he does not want the university system to fall behind 2 years from now, which is what will occur if there is no fee increase. Dr. Jarvis predicted a much bigger fee increase will be needed 2 years from now if the proposed fee increase is not approved. Assemblyman John W. Marvel asked if there is consensus among students regarding the proposed fee. Dr. Jarvis replied he has attempted to work with the students and explain to them that the university is approaching the situation differently than it did the last time a fee increase was implemented. In the last biennium, when the budget was cut, the students were asked for a fee increase to help "fill the hole, to help stop the hemorrhaging." Under those circumstances, Dr. Jarvis stated, "you take what you can, you augment the fee as fairly as you can; typically, at a time of budget constraints, students end up seeing their fee go up and their services go down." He said this time he is approaching the students with a budget that he lets them know is a very good one. Dr. Jarvis said he explains the need for the fee increase by informing students that as good as the budget is, its primary strength is in the area of instructional support. It will put more faculty into classrooms; there will be more course sections, which Dr. Jarvis said is absolutely the university's top priority. Secondly, it will greatly increase student financial aid, absolutely the university's number two priority. "It is a terrific budget on those dimensions," he stated, "but what it does not do is meet the support service and equipment needs." Mr. Marvel inquired if the revenues from the fee increase, if approved, would enable restoration of some classes that have been dropped. Dr. Jarvis responded the existing budget will help restore those classes; the $9 million would help restore the support services that underpin those classes. Mr. Marvel stated he has received complaints that some students could not graduate on schedule because classes they needed had been dropped. Some of them have had to extend their matriculation for another semester or even two semesters. Dr. Jarvis answered that the Executive Budget provides good support for instructional formulas, but it is the support service needs that the fee increase would address. He said the university does its students no favor by training them on 5-year-old computers, by offering technology programs for which new laboratory equipment is not available, or by requiring them to work three to a work station in the lab instead of one to a work station and thereby denying them the hands-on experience they need. Assemblyman Thomas A. Fettic echoed the concerns expressed by Assemblyman Arberry regarding the use of the revenues to be generated from the proposed fee increase. He asked how the university plans to protect the revenues so they are used only for the intended purpose of funding equipment and support service. Dr. Jarvis said he would propose the Board of Regents direct the chancellor to establish a series of guidelines which would specify the following restrictions with respect to the revenue from the fee increase: (1) The revenue cannot be used for any category but equipment and support services; (2) The revenue cannot be used to support salary increases; (3) Improved quality or access of students to a service, such as more computers, more counselors, more appointments and longer library hours, must be demonstrated. Dr. Jarvis proposed the guidelines would require the chancellor to report the accomplishments to the Board of Regents when tuition is next reviewed. He said the fact his accountability and that of the university system presidents would be on the line would guarantee adherence to the guidelines. He stated the opinion the regents will not approve the fee increase without such guidelines because they are sensitive to having previously said they would not seek a fee increase, and then reversing themselves on the matter. Senator Raggio pointed out to committee members there is no arbitration on fiscal matters for the university system. Dr. Jarvis affirmed this. Senator Raggio emphasized the funding recommendations for the university system in the Executive Budget represents an 18« percent increase in General Fund support over the operational costs authorized for the 1993-1995 biennium. He said he shares the committee's sentiment regarding the fact the budget provides an enhancement of over $1 million over the base budget, for each year of the biennium, for libraries at the University of Nevada, Reno (UNR) and the University of Nevada, Las Vegas (UNLV). He stated the amounts are significant and he would not wish to leave the impression with the public or the students that these concerns have not been addressed. Senator Raggio remarked the legislators had considerable concern in past biennia because they were not able to provide as much financial support for the university system as they had hoped. Therefore a concerted effort was put forth, not only by members of this Legislature but by the Governor's Office, to address the situation. He emphasized the need to have this clearly understood. Dr. Jarvis said he wished to "reemphasize in every way possible" that the increase recommended in the Executive Budget is an excellent increase for the university system, but the university hopes to provide some additional revenue through the fee increase proposal. Dr. Jarvis next highlighted the content of the section of Exhibit C labeled Question 3, which is the university's response to the subcommittee's request that the university prioritize and describe any additional requests to be presented to the Legislature. He stated his intention to present the university's response only as an indication of what the system's priority needs are. Dr. Jarvis outlined the priorities for the operating budget and for one-shot funding, which are indicated below: (a) Operating Budget: PRIORITY 1: Raise support formulas from 20 percent to 25 percent, $3.9 million PRIORITY 2: Increase support for internal and external audits, $0.3 million PRIORITY 3: Restore 50 percent of shortfall in funding for community college part-time faculty salaries, $2.2 million PRIORITY 4: Support for federal and state mandates (Americans with Disabilities Act, hazardous wastes, clean air, clean water), $3 million Regarding priority 3, Senator Raggio asked for clarification of this request and why it is felt a shortfall exists. Dr. Jarvis asked Ronald Remington, President, Northern Nevada Community College (NNCC), to respond. Pointing out the current 60-40 ratio for funding full-time and part-time faculty, Dr. Remington said the 60 percent is based on the average full-time faculty wage while the 40 percent for part-time faculty is based on a hypothetical figure that varies from college to college. He said the percentage is relatively low. At the NNCC, the hypothetical full-time equivalent faculty would earn approximately $12,593 per year. Because of the need to generate more course sections of classes than optimal, that amount becomes further diluted, Dr. Remington stated. He said the college is at a disadvantage when it attempts to recruit instructors with advanced degrees because of the salary level. Dr. Remington said the quality of instruction at all of the community colleges in the UCCSN could be greatly enhanced by increasing the part- time aspect of their budgets in the Executive Budget. Assemblyman Marvel inquired as to the current ratio at the NNCC. Dr. Remington replied there are two different ways this can be calculated, the first in terms of credits generated and the second in terms of the actual numbers of faculty. The ratio is approximately 52-48 at present. Mr. Marvel asked what the ratio is for the community college system as a whole. Dr. Remington said the ratio is comparable; the ratio at the NNCC has slipped over the last 4 years because of "budget problems." Mr. Marvel asked Dr. Remington what he regards as the optimal ratio. He said he supports 100 percent funding. He said the community college would probably always choose to utilize part-time faculty and "would look at the 100 percent funding as a funding formula." In terms of proportions, the recommended ratio would be approximately 80- 20, Dr. Remington stated. Assemblyman Marvel asked if the NNCC receives any pro bono instruction. Dr. Remington replied the college does receive some pro bono instruction. Dr. Jarvis requested Joseph Crowley, President, University of Nevada, Reno (UNR) to speak to the issue of unfunded mandates, to which the fourth priority for the UCCSN's operating budget pertains. Prior to addressing the unfunded mandates issue, Dr. Crowley expressed his views on the Executive Budget. He stated that he and all of the university presidents agree with the chancellor that the Governor's budget is very good for higher education in Nevada. However, Dr. Crowley said, it should be kept in mind the proposed budget basically restores the university to the level that existed 4 years ago. He said this is a budget that, in terms of the instructional component, meets growth for the first time in 4 years. As an example, Dr. Crowley said the proposed budget restores the level of funding for library acquisitions to the approximate level at which the university would have been in Fiscal Year (FY) 1992 ($2.9 million) had it not been necessary to return funds to the state during the budget cuts several years ago. UNR returned approximately $500,000 in library acquisition funds at that time, Dr. Crowley noted. With respect to equipment, he said the university is actually behind where it would have been had the rate of expenditure suggested in the legislatively approved budget of 1989 been continued. To restore the university to the level that was provided in the 1989-1991 biennium would require funding of $40 million, which is the basis for the UCCSN's equipment request. Continuing, Dr. Crowley stressed the university's needs in the areas of student services and security before discussing the area of unfunded mandates. He said the funding for student services is simply inadequate and cited as an example the fact that UNR's admissions office is able to manage only by hiring student-wage personnel. He reiterated the need expressed at previous hearings for additional security. Dr. Crowley said the support service funding in the Executive Budget is not adequate to hire the additional campus police that are needed. Dr. Crowley then discussed unfunded mandates. He stated the university system is at considerable risk unless something is done about the situation that exists with regard to unfunded mandates, particularly in the area of hazardous waste. He said the Executive Budget over the years has simply not provided sufficient funds for this need. He said there is a modest increment in the proposed budget for meeting ADA (Americans with Disabilities Act) requirements, which the university believes will be vastly greater than the amount allocated. System-wide and especially at the two university campuses, Dr. Crowley continued, handling of hazardous materials is a "major league" problem, and in all of the institutions in the UCCSN the ADA funding is a problem. He stated that also in that category, broadly construed, is the subject of gender athletics, which is requiring major changes in budgeting at UNR and the University of Nevada, Las Vegas (UNLV). Senator Raggio noted that under the support services formula the budget recommends 20 percent increases in each year of the biennium, for a total cost each year of $5.5 million in FY 1996 and $6.1 million in FY 1997. Additionally, there are increases in the areas of library acquisitions, equipment replacement and institutional support. Senator Raggio said he would not like to leave the impression that these concerns have not been addressed. He invited comment from Mr. Hataway. Mr. Hataway stated that in terms of the mandates, the Budget Division received two different responses from the two major campuses. With respect to UNR, the information that was received indicated UNR "basically would be replacing dollars that they are already spending in the budget now." Consequently, based on other priorities the Budget Division decided not to provide additional funds to UNR. Senator Raggio pointed out that certain areas of the university system budgets are funded at levels higher than 100 percent of the funding formula. He cited as examples the budget for UNLV for institutional support, recommended at over 100 percent of the funding formula by more than $387,000 in FY 1996 and $354,000 in FY 1997, and for operation and maintenance of the physical plant (over $600,000 each year of the biennium). (b) One-Shot Funding: PRIORITY 1: Phase I - Distance education/information network, $5.1 million (minimal configuration) PRIORITY 2: Phase II - Distance education/information network, $4.3 million (completion targeted for 2001) PRIORITY 3: Restore equipment replacement, $5 million PRIORITY 4: Set-aside earmarked for 1997-1999 student financial aid Senator Raggio asked the university representatives to state, for the record, their request for an early appropriation of half the amount of the student financial aid funds that are contained in the one-shot appropriation request, to accommodate September enrollees. Chancellor Jarvis affirmed this is the request being made by the UCCSN. Senator Raggio inquired by what date the funding guarantee must be approved to enable use of the funds for the fall semester. Dr. Crowley replied the funding approval is needed as soon as possible, but the actual awards typically are made by about the middle of April. Senator Raggio asked if it is understood by the university that the Governor's recommendation for a one-shot appropriation for student financial aid, "which is above the existing scholarships," will not be built into the base budget in the future and is strictly a onetime appropriation. Dr. Jarvis replied it is understood there is no guarantee the funding will be continued, although this area would remain a high priority for the university. He stated much of the funds involved in the one-shot appropriation request would have been raised within the UCCSN's ongoing budget, had the pattern of the last biennium been continued; so the increase, while it is significant, is not as large as it appears. Senator Raggio emphasized the need to address this issue because it is a one-shot appropriation recommended by the Governor on the basis of being a onetime circumstance and not with the intent of building the funds into the base of future budgets. Dr. Crowley responded, stating approximately $5 million of the $7 million one-shot request would have been generated by the university and it would have been part of the ongoing budget. Senator Raggio questioned the rationale. Dr. Crowley maintained if there were no one-shot appropriation request, the UCCSN would be generating $4.8 million of continuing funding for student financial aid. The senator inquired as to the amount of funds provided in the base budget for financial aid. The amount was ascertained to be $5.6 million each year of the biennium. Observing the total amount budgeted for FY 1995 is approximately $6.9 million, Senator Raggio again questioned Dr. Crowley's rationale with respect to the additional $7 million one-shot appropriation request. He referenced decision unit E-252 in the budget, which would provide approximately $786,000 in FY 1996 and $860,000 in FY 1997 in additional funds to grant out-of-state tuition waivers and is in addition to the $7 million one-shot request. Dr. Crowley attempted to clarify his remarks on this issue. He said 2 years ago, when the Board of Regents passed a fee increase, one of the rationales for the increase was that half of the revenues would be allocated to what was then called the student access fund, which provided principally need-based student financial aid. Dr. Crowley said it is his understanding that in carrying forward the actual expenditures for the first year of this biennium, in terms of the financial aid available, the university system lost additional funds that would have been generated by the fee increase during the current year of the biennium. If all of the figures are added together and projected forward for the coming biennium, the total would have been $4.8 million. Senator Raggio indicated understanding of Dr. Crowley's explanation, but said the funds referenced are not in the base budget at this time. Dr. Crowley asserted the argument is responsive to the point that the funds that are now in the form of the requested one-shot appropriation would have been raised by the UCCSN, which must be taken into account when considering the university's future funding requests in this area. Senator Raggio responded the point has been noted, but the committee must begin with the recommendations being made in the base budget at this time. He asked if the university is raising the objection at this point that the base budget as presented in the Executive Budget is not the actual base budget. Dr. Crowley replied the university system is not protesting the base budget as presented, but it must be understood that student financial aid is a major priority for the UCCSN. The university should not be taken to task if student financial aid is presented as a major priority item in future funding requests, he said. Senator Raggio said this is understood and is to be expected. However, he emphasized, the Legislature is not considering the funds as an addition to the ongoing budget. Senator Raggio noted the university's fiscal staff have pointed out technical mistakes made with respect to construction of the UCCSN budgets. He requested the university system administration or staff to present the subcommittee with its priorities for the items in question, which would have a net effect on the General Fund of over $4 million, even taking into account the offsets. Further discussion on this item was held pending receipt of the UCCSN's prioritization of the technical issues. Dr. Jarvis remarked it is the university's belief that some of the items in question are mistakes rather than policy decisions, and the items are all priorities. It was assumed they would be in the budget as it was proposed, he added. Senator Raggio said some of the technical issues are mistakes, others are omissions, and prioritization is required. Senator Raggio asked if there are some adjustments anticipated with respect to student enrollment. Dr. Jarvis replied there are none at this time. The senator said the latest computer printout available to the committee indicates some adjustments will need to be made. For example, UNLV's budget was based on a 3 percent enrollment increase, while the actual increase is 2 percent; UNR was budgeted at a 1.9 percent increase in enrollment, but the enrollment is now 3.9 percent. Dr. Jarvis invited Rita Gubanich, Interim President, Truckee Meadows Community College (TMCC), to address the matter of enrollment changes at TMCC. (Current figures indicate a 5.1 percent decrease in enrollment at the college.) Dr. Gubanich said the decline in enrollment at TMCC is being investigated and assessed by the college administration. She attributed the problem not only to the budget cuts that occurred several years ago, but also to recent difficulties related to organizational changes as a result of collective bargaining contract negotiations, and the college now has several strategies in place to address the problems. She offered assurance the enrollment will begin to rise. Assemblyman Arberry inquired how the $3 fee increase proposal to be presented to the Board of Regents will affect the enrollment at TMCC. Dr. Gubanich replied the college administration does not know at this time. Past experience at the college as well as other UCCSN institutes indicates an increase in tuition is sometimes a factor when enrollment declines. However, Dr. Gubanich reiterated, efforts are underway to recruit and retain students. Dr. Jarvis remarked the majority of the university's enrollment is generated by the students already enrolled, and a key part of the services that would be supported by the proposed fee increase would be in advisory services, transfer centers, counseling and placement and support services. The dedication of the increase to the support service area is expected to provide an enrollment growth tool for retaining and advancing the UCCSN students. Dr. Gubanich reiterated the administration of TMCC is taking steps to improve the enrollment situation. Senator Raggio explained he raised the issue of changes in enrollment because an adjustment of 4 or 5 percent change in enrollment is regarded as significant. He noted TMCC was budgeted for a 2.5 percent enrollment increase, so the 5.1 percent decrease in enrollment actually represents a total decrease of 7.6 percent. He pointed out NNCC was budgeted for 4.9 percent increase, but the enrollment has actually decreased by 1.4 percent for a total 6.3 percent decrease from the budgeted level. Responding, Dr. Gubanich attributed some of the decline in enrollment to a lack of facilities. The college has not been able to provide certain course sections required by students for their degrees, and there have been decreases in some of these areas as a result. Inadequate technology has been another factor in the enrollment decrease, Dr. Gubanich continued. She said the new advanced technology building will facilitate improvements in the college's ability to provide additional course sections for students. Dr. Remington commented on the enrollment situation at NNCC. He attributed the decrease in enrollment at that institution primarily to three factors: (1) the disappearance of Pell grants for prison inmates, who constitute a significant proportion of the total enrollments; (2) a very active reentry program, primarily for single parents; some of the funds used for tuition for access for these students have attenuated, with a resulting decrease in enrollment in this program; and (3) the adult basic education (ABE) situation, in which the college has been very active with federal funds; some of the programs had been counted by the college as developmental education in previous years, but the guidelines no longer allow this. Assemblyman Marvel asked Dr. Remington what the overall net gain or net loss in enrollment for the current semester (spring 1995) has been. The information was not immediately available. Senator Rhoads requested further explanation of the impact of prison inmates on the decrease in enrollment. Dr. Remington replied the numbers of inmates have not declined, but because Pell grant funds can no longer be used to pay for the tuition fees of inmates, many of the inmates cannot afford the tuition and therefore fewer are enrolling at the college. Referencing the UNLV Student Health Center Budget Summary in question 19 (Exhibit C), Assemblyman Lynn Hettrick requested explanation of the increase in expenditures in staff by approximately 250 percent from 1991-1992 to 1994-1995, while the increase in operational expenditures has been much less, about 50 percent. Dr. Jarvis did not have the information on hand, but said he would forward a response to the committee. Senator Raggio invited discussion by Mr. Hataway and the university representatives on the policy concerning indirect cost recovery funds. He recalled that originally the funds were allocated 75 percent to the state supported budget and 25 percent outside the state budget, but the ratio was changed to 50-50 in 1985. This allowed the university system to retain 50 percent of the funds generated to use for other purposes, Senator Raggio said. In 1989, a decision was made on the 50-50 ratio that if the actual funds generated from indirect cost recovery exceeded the projections, the university system would be allowed to retain any excess. He said according to staff analysis, since 1989 the UCCSN has held flat the indirect cost recovery funds allocated to the state supported budget and has retained all increases in this funding source for use by the campuses. The analysis indicates this action has resulted in a direct loss to the state General Fund, which Senator Raggio indicated was not the agreement made by the 1989 Legislature. The UCCSN was allowed to retain any additional funds generated by indirect cost recoveries during the 1989-1991 biennium, Senator Raggio continued, and there was no agreement to indefinitely hold the amount allocated to the state-supported budget at the FY 1990-1991 level. Mr. Hataway said the Budget Division interpreted the university's request and the Legislature's decision in 1989 to freeze the indirect cost amounts that are reflected in the state budget, and "for better or for worse," in the budgets for the 1991-1993, 1993-1995 and 1995-1997 bienniums the same level has been recommended. Dr. Crowley clearly recalled the situation that led to the policy established in 1989. He stated the ratio was at one time 50-50; during a period of economic difficulty for the state, the ratio was changed to 25-75 with the state receiving the 75 percent share. The ratio was changed to 50-50 in 1985, Dr. Crowley continued, but it has always been the university system's desire to bring the State of Nevada in line with all other western states in this regard, which allocate 100 percent of the indirect cost recovery dollars to the university. The Legislature was therefore approached in 1989 with a request that would further this goal by changing the ratio to 75-25, with the university to receive 75 percent. Dr. Crowley said this was not built into the Executive Budget and therefore had to be achieved through negotiations with the Legislature. He said those negotiations culminated in a discussion between himself and Marvin Sedway, then chairman of the Assembly Committee on Ways and Means, and the 75- 25 proposal resulted from that discussion. The ratio was kept at 50-50 for that biennium to avoid an adverse impact on the Executive Budget. However, for the long- term the ratio was to be frozen at that level so the university could progress toward its goal of receiving 100 percent of the indirect cost recovery funds. "That was the deal," he stated. He said it would make no sense "to do it per biennium, because we couldn't conceivably get there in a biennium, and indeed...we did not." Continuing, Dr. Crowley stated the UCCSN has experienced growth in research since the new policy was instituted that he said could be fairly described as a state investment. He said principally, and almost exclusively, because of the Legislature's action in 1989, the University of Nevada, Reno has seen growth of $23 million in research funds. Computed in terms of economic impact, the amount is $40 million, and the university now has a $64 million research and training grant industry with an economic impact on the State of Nevada of $110 million. Requiring that the ratio revert to the lower level would not be cost effective, Dr. Crowley asserted, because it would have a deleterious impact on research activity. He said the university reinvests all funds from the indirect cost recovery source in research. He further stated this essentially represents the state's only investment in research at both universities, and the investment is a good one. Concluding, he said the university's understanding was the 50-50 ratio did not apply to a single biennium, but was intended to enable the UCCSN to progress toward the 75-25 level and beyond. Assemblyman Marvel asked how the expenditures from the indirect cost recovery funds are monitored. Dr. Crowley replied the UCCSN can account for the funds "to the penny." He offered to provide an accounting of the expenditures that have been made from this source. Senator Raggio inquired further as to Dr. Crowley's understanding of the agreement made with the 1989 Legislature. Dr. Crowley replied the agreement was reached in the discussion with Assemblyman Sedway and was placed in the budget during the joint budget closings of the Senate Committee on Finance and the Assembly Committee on Ways and Means at the end of the 1989 legislative session. He said it was clear to him the agreement was not being made for the biennium, because the university could not have benefited that biennium. Instead, the university was making a long-term agreement that would facilitate attainment of the 75-25 goal. Assemblyman Marvel remarked the Legislature is not bound by the agreement made with Mr. Sedway. Dr. Crowley said this is understood, but a deal had nevertheless been made. Jim Richardson, Lobbyist, Nevada Faculty Alliance, came forward to testify on several issues pertaining to the UCCSN budgets. He first addressed the indirect cost recovery issue. Noting he has been serving as a lobbyist for the faculty alliance since 1985, Dr. Richardson indicated he has knowledge and recollection of the agreement discussed by Dr. Crowley. He said he was present when the "money committees" considered this issue in what he described as rather open discussions. In his opinion, the fact the agreement was honored even during the last biennium, when funds were extremely limited, is evidence that many people understood the agreement to be as recollected by Dr. Crowley. Dr. Richardson commented the State of Nevada is the only state in the West which requires that the state General Fund receives any of the indirect cost recovery funds. In all other western states the universities and research institutes that generate the funds are allowed to retain them as seed money. Dr. Richardson said the reward to the state for the Legislature's agreement in 1989 has been remarkable, in terms of return on investment. He suggested the Legislature should seriously consider, given the rate of return on the investment in research that has occurred in the last several years, allowing the UCCSN to retain 100 percent of the indirect cost recovery funds. Senator Raggio requested the committee be provided a complete report and analysis on this issue. Dr. Richardson commented on the issue of the part-time/full-time faculty ratio. He said the issue is complicated, but essentially the problem is that it is very difficult for the community colleges to be competitive in hiring part-time faculty. He noted the Executive Budget has allocated new faculty positions, using the funding formulas. Dr. Richardson parenthetically stated, for the record, the proposed budget is the best executive budget he has seen in a long time. He said the budget for the 1991-1993 biennium was exceptional, but cannot be fully counted (when comparing budgets) because some of the funds had to be returned to the state. In further testimony on the part-time/full-time faculty ratio, Dr. Richardson said the budget office calculated the costs of the 50 new part-time positions that have been budgeted at 90 percent of the average salary now paid. He said the regents have made it a very high priority to adjust the average salary upward from approximately $18,000 to nearly $25,000, simply because the current salaries do not allow the community colleges to compete for well qualified, degreed instructors. He strongly urged the committee to consider at least using the average figure in calculating the value of the new positions, and to seriously consider if at all possible helping the community colleges "that are desperately trying to teach." Dr. Richardson pointed out there are departments in some community colleges that have few if any full-time faculty, and all instruction is performed by part-time faculty. He said it is difficult to organize the hundreds of part-time personnel necessitated by this situation. Senator Raggio asked why the part-time salaries are necessarily fixed at the current levels. Dr. Richardson replied the salary figures are arbitrary and are derived from an arbitrary agreement made many years ago. Senator Raggio inquired as to the flexibility available in determining the salary. Dr. Remington responded, stating each college has a salary schedule for its part-time employees. The amount of pay varies, but there is a specified allotment for each "full-time equated faculty in the part-time area." Senator Raggio suggested a degree of flexibility exists to base the salary on such factors as the caliber of the instructor and the person's field of expertise, even allowing for the fact a funding formula is involved. Dr. Remington agreed there is some flexibility, but it is necessary to maintain a balance that is "very delicate." Assemblyman Fettic asked why it is that the university faculty positions are funded at a full-time rate while the community college positions are not. Anthony Calabro, President, Western Nevada Community College, addressed the question. He said the manner of allocation was changed a number of years ago such that only 45 percent of the community college positions were funded at full-time while 55 percent were funded at about $6,000 per year. Through efforts of the community colleges the ratio has been increased to 60-40, but the goal as established by the Board of Regents is to achieve full funding for all positions. Some part-time positions would still be utilized because it is advantageous to the colleges to hire instructors from the community, Dr. Calabro stated. Dr. Richardson noted the dramatic change in the funding of the community college positions occurred as a result of disquiet and concern about the manner in which salary funds at a particular community college were shifted into other areas such as equipment purchases. He said the current situation is very problematic and needs to be rectified so it is easier for community colleges to hire part-time faculty. Dr. Richardson testified next on the issue of enrollment decreases. He said the UCCSN institutions may face more such decreases depending on what occurs at the federal level with regard to student aid. He stated the university system currently ranks at the bottom in average need-based state contributions. Dr. Richardson said the system has been attempting to address this situation. He predicted there will be additional problems of access by needy students if the federal government cuts funding for student aid. He said the Legislature needs to recognize this when considering the decreases in enrollment and to assess the problem. He suggested the decreases might be attributable to lack of affordability. Addressing the issue of student fee increases, Dr. Richardson said that while the proposed Executive Budget is excellent and he has so stated on the record, in the media and to the Governor, there are some problems with the budget. He said the biggest problem is in the equipment area, with the need for up-to-date equipment for instructional purposes. Dr. Richardson stated a significant amount of the proposed student fee increase would be allocated for equipment-related needs to address the problem in this area. He suggested the Legislature might choose to increase the appropriation in the $20 million one-shot request for equipment to alleviate the situation for the UCCSN. He said he hoped it is recognized the UCCSN is attempting to respond to a very serious need related to equipment in the university system. Dr. Richardson said he was disturbed by the suggestion in earlier testimony that if the student fees were to be increased they might simply be counted as General Fund revenues. He maintained to do so would be to break faith with the students. Dr. Richardson reminded the committee a $3 million student fee increase was instituted after the university system was required to return $38 million to the General Fund that had been allocated for the 1991-1993 biennium. The fee increase generated considerable consternation and animosity toward the UCCSN administration, Dr. Richardson pointed out. Part of the agreement with regard to the fee increase was to allocate half of the $3 million to student access. Dr. Richardson said the regents, presidents and the faculty have supported modest fee increases in the past in an effort to deal with some very serious problems and have done so in a way that guarantees improved access of students to the system, recognizing that raising fees affects access. Dr. Richardson said the university has approved a policy that he characterized as excellent which calls for allocation of half of any fee increase to student access purposes. He said if the proposed fee increase is approved and the revenues are considered part of the General Fund, the message would be that the regents cannot keep their word in their agreements with students. This would seriously undermine the willingness of the regents to even consider a fee increase in the future and creates a problematic situation, Dr. Richardson warned. Continuing his testimony on the proposed student fee increase, Dr. Richardson referenced remarks made by Senator Raggio at a previous joint meeting of the Senate Committee on Finance and the Assembly Committee on Ways and Means (February 16, 1995). The senator noted during that meeting the fees in the UCCSN are much lower than regional and national averages for in-state graduate and undergraduate students. Dr. Richardson said this fact and the ability to tolerate a modest increase, particularly if the revenues are used to purchase equipment that will directly enhance the educational needs of the students, are recognized by the students, the faculty, the campus presidents and the chancellor. However, he reiterated, if the fee increase is approved and the ensuing revenues are considered to be General Fund contributions, the UCCSN would be placed in a very awkward position with respect to being able to work with the students on this proposal or any similar agreements in the future. Dr. Richardson said it is very difficult to raise fees unless the students agree to it, and if the regents cannot raise the fees it will eventually be incumbent upon the Legislature to do so. Senator Raggio stated his desire to have his position understood on this issue. He said he had agreed with Dr. Richardson and the system administrators that the fees for Nevada students compare favorably with those attending other institutions. As the UCCSN representatives had indicated, Senator Raggio continued, student fees are below average when compared with the fees in other western states. He emphasized he did not wish it to be understood that he has recommended a fee increase. The senator said he had raised the issue at this hearing because the legislators are already receiving comments that the Legislature is somehow responsible for the decision to request student fee augmentation. Senator Raggio pointed out the Executive Budget, as presented, does not require an increase in student fees. On the other hand, Senator Raggio stated, some valid points have been made in support of augmenting the budget, and if it is the intention of the UCCSN administration to dedicate fee increases for some other purposes not contained in the budget, that is a decision of the system administration and the Board of Regents. He said the Legislature will understand such a decision if it can be justified. He said an impression has been conveyed that the Legislature is requiring the university system to increase student fees, and he reiterated this is the reason he raised the issue. Dr. Richardson expressed appreciation for the senator's clarification. In conclusion Dr. Richardson addressed a technical adjustment item. He reminded the committee the UCCSN is apparently the only state agency for which an amount has not been budgeted for an increase in insurance for state employees. He said this has been a very problematic area because the system employees would have to pay the increase, and there is no reserve fund available for this purpose. Senator Raggio said he did not recall this item as having been requested in the university budget. He said the item has been noted as one of the issues involving technical adjustments. Mr. Hataway said technically the university did not request the funds for the insurance increase, but historically the Budget Division has provided special adjustments beyond what the university has requested. He said in both the 1989-1991 and the 1991- 1993 biennial budgets, group medical adjustments were provided and social security adjustments were provided in 1991. He further explained the budget office constructed this element of the budget on the basis that historically the UCCSN has not spent all of the funds allocated for fringe benefit adjustments. While there will probably be a fiscal impact from medical premium increases, Mr. Hataway acknowledged, the campuses alone actually spent $2.5 million less on fringe benefits than what the Legislature authorized, including an unemployment compensation fringe benefit adjustment. Historically, it appears the university system always spends less than the amount allocated in this area, he observed. He said none of the $2.5 million that was not expended by the campuses on fringe benefits reverted to the General Fund. The funds were spent by the campuses, and the $2.5 million "is built in the budget somewhere," Mr. Hataway stated. He reiterated that while it is understood there will probably be a fiscal impact due to medical premium increases, based upon the history of the UCCSN in this regard the necessary adjustments could be made by the system to handle the increases. Senator Raggio repeated the committee is aware of this issue, and it will be considered with the other technical adjustments involving the university's budget. The meeting was adjourned at 10:00 a.m. RESPECTFULLY SUBMITTED: Sue Parkhurst, Committee Secretary APPROVED BY: Senator William J. Raggio, Chairman DATE: Assemblyman John W. Marvel, Chairman DATE: Assemblyman Morse Arberry, Jr., Chairman DATE: Senate Committee on Finance Assembly Committee on Ways and Means Joint Subcommittee on Higher Education/Capital Improvements March 24, 1995