MINUTES OF THE SENATE COMMITTEE ON FINANCE Sixty-eighth Session April 3, 1995 The Senate Committee on Finance was called to order by Chairman William J. Raggio, at 8:10 a.m., on Monday, April 3, 1995, in Room 223 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. COMMITTEE MEMBERS PRESENT: Senator William J. Raggio, Chairman Senator Raymond D. Rawson, Vice Chairman Senator Lawrence E. Jacobsen Senator Bob Coffin Senator William R. O'Donnell Senator Dean A. Rhoads COMMITTEE MEMBERS ABSENT: Senator Bernice Mathews (Excused) GUEST LEGISLATORS PRESENT: Assemblywoman Marcia de Braga STAFF MEMBERS PRESENT: Dan Miles, Fiscal Analyst Bob Guernsey, Principal Deputy Fiscal Analyst Debbra J. King, Program Analyst Sue Parkhurst, Committee Secretary OTHERS PRESENT: John P. Comeaux, Director, Budget Division, Department of Administration Ray Sparks, Acting Deputy Director, Department of Motor Vehicles and Public Safety G. Paul Corbin, Chief, Nevada Highway Patrol Division, Department of Motor Vehicles and Public Safety Gary Wolff, Nevada Highway Patrol Association Dean Heller, Secretary of State George Pyne, Executive Officer, Public Employees' Retirement System Marty Bibb, Retired Public Employees of Nevada (RPEN) Rita Hambleton, Vice Chair, State Legislative Committee, Area 9 Office, American Association of Retired Persons (AARP) Ron Lange, Deputy Administrator, Health Division, Department of Human Resources James L. Wadhams, Lobbyist, Nevada Association of Hospital and Health Systems and Nevada Rural Hospital Project Bill Welch, Executive Director, Nevada Rural Hospital Project Don Hataway, Chief Assistant Budget Administrator, Budget Division, Department of Administration Robert E. Dickens, Director, Governmental Relations, University of Nevada, Reno Senator Raggio announced two of the bills on the agenda would be heard out of order to accommodate the schedules of key witnesses testifying on those measures. SENATE BILL 250: Abolishes highway patrol special account. Senator Raggio noted the Executive Budget has recommended the highway patrol special account be abolished. Ray Sparks, Acting Deputy Director, Department of Motor Vehicles and Public Safety (DMV&PS), introduced himself and G. Paul Corbin, Chief, Nevada Highway Patrol Division, DMV&PS. He presented testimony in support of Senate Bill (S.B.) 250, which he noted was introduced at the request of the Nevada Department of Transportation (NDOT). Mr. Sparks said the highway patrol special account is funded by a transfer of $6 for every vehicle registered in the State of Nevada to the Nevada Highway Patrol Division. It was established to pay the salaries and other costs of supplementary Nevada Highway Patrol (NHP) troopers, he stated, and currently 156 of these troopers are funded by this account. In 1989, Mr. Sparks continued, the DMV&PS began to experience a problem with this fund due to a change in the way fees were assessed on apportioned motor carriers (trucks based out-of-state and traveling through Nevada). These motor carriers were paying only a portion of the Nevada registration fee. In many cases, the department was actually collecting less than $6 for the registration of these vehicles but was still transferring $6 to the highway patrol special fund. The effect of the change was to "draw down" the highway fund. In addition, Mr. Sparks stated, it is projected that given the current levels of revenue and expenditures in the highway patrol special account, an increase in the $6 transfer fee would need to be requested for this fund in the 1997-1999 biennium, or the existence of the fund would need to be addressed in some other way. Senators O'Donnell and Coffin joined the meeting. Senator Raggio noted the Legislative Commission's Subcommittee to Study the Financing of the Construction, Maintenance and Repair of Highways in Nevada (LCB Bulletin 95-2, Exhibit C. Original is on file in the Research Library.) also recommended elimination of the special account and that all of the positions currently funded by the account be funded instead through the regular appropriations process. As historical background on the special account, Senator Raggio noted there had been a problem some years ago with regard to adequately funding the highway patrol. There was also at that time a grave concern about creating a state police force, and the state was careful about expanding the highway patrol force. The agency determined that one way to maintain the required number of troopers was to create a dedicated fee that recognizes the need for funding will become greater as the number of vehicles increases. Senator Raggio said one of the reasons for the special account was to link it to the growth in the number of motor vehicles in the state. Mr. Sparks expressed the belief the special account is a rational way to fund at least a portion of the highway patrol. He pointed out that when the $6 transfer fee was originally established, it was separate from and additional to the vehicle registration fee. In 1989, when the changes were made to the motor carrier fees, the discrete highway patrol special fee ($5, at that time) was eliminated, the registration fee was increased by $6, and subsequently the problem developed in which the department receives less than the full $6 transfer fee for apportioned motor carriers than it transfers to the highway patrol special account. Continuing, Mr. Sparks acknowledged the NHP has an interest in maintaining a budgetary fund that can only be used for its own purposes, and the elimination of the transfer fee would therefore be of some concern to the highway patrol. However, he stated, in connection with the manner in which the 22 percent cap is calculated, the department's position is that the repeal of the special fund would be preferable, and the highway patrol division would simply request appropriations from the Highway Fund as do other agencies. Senator O'Donnell inquired if the proposed measure represents one-half of a two- pronged approach, the first half being to merge the special account with the Highway Fund and thereby essentially allow only 22 percent of the funds from the special account for operations of the DMV&PS. Mr. Sparks replied the senator's statement is essentially correct, but the situation is somewhat complex. He explained the approximately $10 million in annual revenue collected and transferred to the highway patrol special account would be deposited directly into the state Highway Fund. The department would theoretically be allowed to request as much as 22 percent of that amount for expenditures for the motor vehicles component of the department; the expenditures for the highway patrol are not calculated "in that cap." Senator O'Donnell asked if some other source of funding for highway patrol salaries would be necessitated [to compensate for the loss of dedicated funds]. Mr. Sparks voiced the opinion the abolishment of the special account would not result in a loss of revenue for the highway patrol since the same amount of revenue would be collected; only the accounting mechanism would differ. The other "prong," Senator O'Donnell said, is to raise the cap above the current level of 22 percent. He said this essentially would result in funds being taken from the highway patrol account. Mr. Sparks replied that raising the cap theoretically would allow the department to be appropriated for more than 22 percent of the revenues that it collects, but there is no guarantee this will occur. Senator O'Donnell inquired if the department is fairly close to reaching the 22 percent level at this time. Mr. Sparks answered yes. He said the DMV&PS has been constrained, because of the limitation of the 22 percent cap, in presenting a budget for the motor vehicle divisions that will significantly address the customer service problems the agency faces. The senator asked if the Governor supports raising the cap. Mr. Sparks said he does not know. Speaking on behalf of the Nevada Highway Patrol Division, Mr. Corbin expressed support for the overall budgetary and funding objectives of the department. From his perspective as a highway patrolman, however, he urged that the legislators take into account the need for funding sources to expand the highway patrol force in order to keep pace with the major population and motor vehicle increases in Nevada. He stated if the measure allows a compromise that enables the NHP to maintain the current size and the number of troopers required to serve the citizens of Nevada, he supports the proposal. Senator Raggio asked whether fewer highway patrol officers would be recruited as a result of S.B. 250. Mr. Sparks replied such an eventuality could occur, speaking from his prior budget administration experience with the highway patrol. His experience at that time was that it was frequently much easier to hire additional highway patrol troopers if there was a reserve in the highway patrol special fund, as opposed to having to request an appropriation out of the state Highway Fund. Mr. Sparks said the position of the Budget Division personnel at that time was that while they may not support a request for additional officers funded out of the Highway Fund, they would have no problem supporting the request if the funds were available in the special fund. In theory, therefore, it is easier to hire officers through the special fund than through competition for the highway funds, Mr. Sparks acknowledged. Senator Raggio invited John C. Comeaux, Director, Budget Division, Department of Administration, to speak to this issue from the standpoint of the impact on the budgeting process. Mr. Comeaux said the elimination of the highway patrol special account would have no direct effect on the staffing for the highway patrol in the future. The requests for increased staffing would continue to be reviewed on a case by case basis, he stated. The effect of the bill on the DMV&PS budget would be to add additional funds to the Highway Fund, which would then be available [up to the] 22 percent cap under which the motor vehicles division operates. Senator Raggio asked if the overall effect would be to allow additional funding to flow to the motor vehicles division. Mr. Comeaux said this would be the potential effect. Senator O'Donnell requested clarification of Mr. Comeaux's qualification as to the flow of funds to the motor vehicles division. Mr. Comeaux explained the pool in the Highway Fund to which the 22 percent cap is applied would be larger, but the availability of funds to the agency "up to the 22 percent level" is not automatic. The available funds therefore could be less than what would be available at the 22 percent level. Senator O'Donnell summarized the situation that would exist upon passage of S.B. 250: The funds in the special account that were designated for highway patrol officers would now be directed to the Highway Fund, and as much as 22 percent of the funds available to the DMV&PS from the Highway Fund could then be "stripped off" to pay for operational expenditures of the motor vehicles division. Senator O'Donnell inquired if the Governor supports raising the level of the cap or eliminating it altogether. He said legislation that was recommended by the interim subcommittee on highway financing proposes would eliminate the cap. Mr. Comeaux stated it has been some time since he discussed this matter with the Governor. He expressed the opinion the Governor conceptually would not oppose elimination of the cap, but this action was not recommended in the Executive Budget. Gary Wolff, Legislative Representative, Nevada Highway Patrol Association (NHPA), stated his opposition to the repeal of Nevada Revised Statutes (NRS) 481.145. As background, Mr. Wolff said in 1969 the Nevada Legislature recognized the need to ensure the safety of Nevada's motoring public as well as the safety of the NHP officers by providing funds to maintain a specific number of patrolmen provided by the Legislature for a particular fiscal year. Unfortunately, he continued, for whatever reason the specified number of highway patrol officers has not been attained. For some time the NHP has been understaffed by 36 positions, Mr. Wolff said. Recently an NHP academy was instituted with 13 replacement troopers, still leaving the division 23 officers below the previously recommended level. Mr. Wolff said the 13 troopers attending the academy are in training and the NHP will therefore not be able to utilize these personnel for NHP operations for at least 1 year, so in a sense the division is still understaffed by 36 positions. Continuing, Mr. Wolff said it is the understanding of the NHPA the special account now contains more than $6 million, and the association poses the question of why the positions have not been filled. He said the NHPA fully understands the concept of salary savings, but leaving 36 positions unfilled far exceeds reasonable expectations. The members are expected to "pick up the slack," but are constantly reminded the agency is running out of overtime and are asked to claim, when possible, compensatory time in lieu of being paid. Mr. Wolff said as compensatory time builds, so does the additional loss of personnel for time off to reduce compensatory time on the books. This is an ongoing practice, he continued, due to statutory limitations on the amount of compensatory time an agency is allowed. The amount of allowed compensatory time has been increased because of budgetary constraints. As a result, the amount of compensatory time on the books continues to build, and when individual troopers begin to utilize their accrued compensatory time there are even fewer officers on the highways. Mr. Wolff further testified the NHP officers often lack sufficient help when cleaning up the aftermath of traffic collisions. He said the situations he described do not make sense when $6 million is available to provide the needed assistance. Mr. Wolff noted that as soon as funds become available, members of the NHPA cash in their compensatory time and thereby further reduce the agency's overtime budgets. While it is understood an academy cannot be held "for a few lost positions," Mr. Wolff continued, what could be done is to hire cadets so that when a sufficient number of positions open to justify holding an academy, additional months of delay could be avoided. He said the cadets are useful helpers and can receive on-the-job training in such areas as commercial enforcement. Currently there is a significant problem in this area, and there is a need for much more training. If there were 10 to 15 cadets in place when the time comes to hold an academy, they could immediately be enrolled in the academy and months of delay could thus be avoided. Senator Raggio inquired about the highway patrol cadet program. Mr. Wolff stated there is no cadet program per se at this time; however, when funds are available the NHP sometimes hires several cadets. He voiced the opinion the cadets could be utilized much more effectively than they are currently. For example, they could be receiving essential training in-house that would enhance the entire highway patrol, once they have completed training in the academy. Senator Raggio asked if the cadets are potential troopers. Mr. Wolff replied yes. He said at present they are working and being trained in the NHP offices and represent a pool of candidates that could be immediately placed in an academy when the time comes. Mr. Wolff said the vacant positions could be filled by cadets until an academy can be held. Senator Raggio queried whether such a practice would not be feasible with or without the special account. Mr. Wolff replied the funding to hire the cadets is required. He said the funds in the special account are lying idle and not being used for the intended purpose. Senator Raggio suggested the program advocated by Mr. Wolff and the NHPA could be accommodated within the budget. Mr. Wolff responded the problem with eliminating the special account is that if the nearly $10 million provided in this account is taken from the account and placed in the Highway Fund, the NHP will be in the position of "groveling for the money to justify our existence [to obtain appropriations from] the General Fund." He said the funds in the special account has almost guaranteed the NHP over the past years that the full complement of positions will be attained. He pointed out the NHP officers put forth their best efforts each day for the citizens of Nevada and the millions of tourists, and simply want to be treated fairly in return. Mr. Wolff emphasized the highway patrol division has been allotted 349 trooper positions, a level that for all practical purposes is never achieved. He attributed the understaffing to "salary savings" and other budgetary constraints. He reiterated the NHP's position that the funds in the special account should be used to fund the positions to the full level allotted the division. Senator O'Donnell asked Mr. Comeaux what would happen regarding the DMV&PS budget if S.B. 250 fails to pass. Mr. Comeaux replied an adjustment would have to be submitted to balance the budget, in that event. Senator O'Donnell inquired the amount of the adjustment that would be required. Mr. Comeaux did not have the information on hand. The senator asked from what source the funds would be obtained. Mr. Comeaux answered the funds would not be available from another source, and expenditures would therefore need to be reduced. Senator O'Donnell suggested the loss of funds for the highway patrol would be as much as $2.2 million (22 percent of the approximately $10 million now in the special account) under S.B. 250. In explanation of what would occur with passage of this bill, Mr. Comeaux said all of the funds currently in the special account would be transferred to the Highway Fund; as much as 22 percent of that amount could be used to fund operations of the motor vehicles division, and the highway patrol would be funded directly from the Highway Fund. Senator O'Donnell countered that under the proposed legislation, instead of $10 million that would be available to fund highway patrol positions and salaries there would be only $7.8 million [$10 million less $2.2 million]. Mr. Comeaux said this could be correct, assuming the entire 22 percent is used for operations of the motor vehicles agency. He said the level at present is slightly below 22 percent. Mr. Wolff said the amount currently in the account, approximately $10 million, would fund 156 highway patrol troopers. As stated earlier, he continued, the NHP is currently understaffed by 23 positions [not including the 13 training positions in the academy]. He predicted that if the funds are transferred from the special account, the NHP will return to the Legislature every session with the same problem of understaffing. Mr. Wolff said while being understaffed by five to 10 positions as a salary savings measure would be understandable, the effective level of 36 positions represents a significant portion of the allotted 349 positions. He asserted the understaffing is unfair to the citizens of the state, particularly in rural areas where some communities do not have 24-hour highway patrol service because of understaffing, and to the NHP officers. Further, much of the NHP's equipment is antiquated, Mr. Wolff stated. Concluding his testimony, Mr. Wolff said the NHPA does not oppose the transfer of the special account funds to the Highway Fund as long as the highway patrol division and the citizens of the state are guaranteed a reasonable complement of highway patrol troopers and adequate equipment to provide for their safety. That is the "bottom line," he stated. He reiterated his testimony that the enactment of NRS 481.145 in 1969, establishing the special account, was intended to ensure there would be an adequate number of state troopers to serve the citizens of Nevada, and he suggested the proposed measure would jeopardize that attempt to guarantee sufficient staffing of the highway patrol. ASSEMBLY JOINT RESOLUTION 19 OF THE SIXTY-SEVENTH SESSION: Proposes to amend Nevada constitution to prescribe additional restrictions on public employees' retirement system. Senator Raggio recognized Dean Heller, Secretary of State, and Assemblywoman Marcia de Braga, Assembly District 35, who presented testimony in support of A.J.R. 19 of the Sixty-Seventh Session. Mr. Heller provided a brief history of this measure. He said he and Mrs. de Braga initiated the bill during the last session in response to a number of concerns raised by persons associated with the Legislature and by public employees throughout the state at both the state and local levels. The concerns related to reports and studies from other states regarding actions being taken in those states with respect to the retirement systems of their public employees. Mr. Heller said the proposed legislation is an effort to address these concerns. Mr. Heller stated Nevada's retirement system is currently on sound footing. The purpose of A.J.R. 19 of the Sixty-seventh Session is to ensure the system remains on sound footing and to enable the retirement system to be as independent as possible, thereby avoiding decisions being made that are detrimental to the system and its participants. He reminded the legislators his concern is that ultimately the responsibility for the system falls upon the taxpayers of the State of Nevada, and everything that can be done to maintain a sound system will be advantageous not only to the participants in the system, but to the taxpayers. Mrs. de Braga testified A.J.R. 19 of the Sixty-seventh Session simply protects the Public Employees' Retirement System (PERS) and requires the use of an independent actuary. She noted the bill passed easily in the last legislative session. She said states that have raided their public employees' retirement system to bail out other areas of government have found it very difficult to return the retirement fund to solvency. Mrs. de Braga urged support for the measure. George Pyne, Executive Officer, PERS, provided written testimony (Exhibit D) in support of this measure. Highlighting testimony in the prepared text, Mr. Pyne said A.J.R. 19 of the Sixty-seventh Session was introduced to provide certain constitutional safeguards to the PERS. He noted the tremendous growth in the 1980s in the assets of public employee retirement systems nationwide. He said what has happened in many states is that sound fiscal practices associated with responsible management of the pension funds have not been followed. Many states have used funds from the public employee pension funds to balance their budgets. Some states have reduced the assumed actuarial investment return assumptions to lower contribution rates, while others have directly raided pension funds from the trust funds and put them in the state's operating budget to balance the budget. Some states have postponed the actuarily determined contribution rates necessary to fund the public employee retirement systems. In light of such actions in other states, the proposed legislation was submitted to the 1993 Legislature and passed by that body. Senator Raggio remarked the Senate Committee on Finance is fully conversant with the measure and the reason for its introduction. He said the committee has in the past actively opposed the threat to invade the PERS fund. Senator Rawson inquired if the state is currently following the proper principles with regard to this issue. Mr. Pyne replied yes. Marty Bibb, Executive Director, Retired Public Employees of Nevada (RPEN), spoke in favor of A.J.R. 19 of the Sixty-seventh Session. He said the RPEN organization was founded in 1976 expressly for protection of the retirement benefits of retirees. He said the organization's 6,500 members encourage legislative approval of this measure. Rita Hambleton, Vice Chairman, State Legislative Committee, American Association of Retired Persons (AARP), stated the AARP supports A.J.R. 19 of the Sixty-seventh Session since that organization supports the principle of protecting retirement benefits. Senator Raggio inquired if the AARP can do anything to bring about such legislation at the national level, which he said is where the problems are. Ms. Hambleton replied the association is working on this. SENATE BILL 153: Makes various changes to provisions governing planning for health care. Ron Lange, Deputy Administrator, Health Division, Department of Human Resources, testified in support of S.B. 153 referencing prepared text (Exhibit E). He said the legislation eliminates the remaining carryover provisions of the Health Systems Planning Law, Public Law 93647, federal legislation that was enacted in 1974 and mandated federal funding of health planning activities to include health systems agencies. However, he stated, since the mid-1980s many states and regions have discontinued the health planning system network because there are no longer any federal funds available for health planning. Specifically, Mr. Lange continued, S.B. 153 eliminates the State Health Coordinating Council, in which Nevada has not been active since 1982. It also eliminates the Certificate of Need (CON) review process for rural areas. Mr. Lange noted the CON for urban areas, Clark and Washoe counties, was eliminated through legislation in 1991. For rural areas, in the 3-year period 1992 through 1994, the Health Division has taken only four CON actions. Mr. Lange said the last such action involved the Churchill Community Hospital, a $14 million facility, in December 1993. Senator Rawson asked Mr. Lange if in his opinion the health coordinating council that would be eliminated with passage of S.B. 153 should be replaced by another mechanism to facilitate public input regarding health concerns in Nevada. Mr. Lange replied yes. He said any planning effort should be at the departmental level, at least with respect to the Department of Human Resources, to encompass the entire state. James L. Wadhams, Lobbyist, Nevada Association of Hospital and Health Systems (NAHHS) and Nevada Rural Hospital Project (NRHP), said he was appearing before the committee in behalf of Bill Welch, Executive Director, NRHP, due to an injury limiting Mr. Welch's mobility. (Mr. Welch was present.) He provided a letter from the NRHP expressing qualified support for the measure (Exhibit F). Mr. Wadhams said the NRHP supports S.B. 153 but interprets it somewhat differently than does the Health Division as represented by Mr. Lange. He said the bill as interpreted by the NRHP merely eliminates the medical equipment provision on the CON, but retains the Certificate of Need process for counties with populations of less than 100,000. It is very important for the rural communities, he continued, because the hospitals are community-based, and the medical establishment is quite fragile in some of the communities. The NRHP contends the CON process is needed to maintain stability in this regard and therefore should be continued. Senator Raggio requested clarification from Mr. Lange regarding the provision to eliminate the CON. Mr. Lange said there would be no CON process in the rural counties, if S.B. 153 is approved as written. Mr. Wadhams withdrew the NRHP's support and stated opposition to S.B. 153 unless the bill is amended to leave the CON intact for the rural counties for the reasons previously stated. Senator Raggio invited comment from Mr. Welch. Mr. Welch said the reason the NRHP supports the Certificate of Need process for the rural communities is that it has protected the viability of the public hospitals and health care providers. Senator Raggio elicited confirmation from Mr. Welch that the NRHP opposes eliminating the CON process in the rural counties. Mr. Welch indicated the NRHP does not object to eliminating the CON for capital purchases and equipment, but it does object to eliminating this process for new facilities. Senator Raggio stated further edification on this issue is required prior to processing S.B. 153. He asked if it is the intention of the Health Division that the CON should be eliminated for all purposes. Mr. Lange replied yes, the agency advocates abolishment of the CON entirely. Senator Raggio inquired as to which entity would be responsible for the CON process if it were to remain in place with respect to new facilities. Mr. Lange said the Health Division would have this responsibility, and the coordinating council would not be needed. Senator Raggio asked Mr. Welch if the NRHP agrees. Mr. Welch replied yes. Senator Raggio requested Mr. Lange to indicate the agency's position on amending the bill to retain the CON provision with respect to new facilities in rural counties with populations under 100,000. Mr. Lange said the Health Division would not object and would agree to an amendment toward that end. Senator Raggio requested that representatives of the NRHP and the Health Division meet to develop an amendment to S.B. 153 that would retain the CON provision under the conditions stated above. Mr. Lange, Mr. Welch and Mr. Wadhams indicated their willingness to meet as requested. SENATE BILL 206: Makes appropriation to budget division of department of administration for enhancements to executive budget system. Testifying in support of S.B. 206, Mr. Comeaux said the bill would appropriate $275,000 to the Budget Division for enhancements to the executive budget system (EBS). He said the enhancements would eliminate the most troublesome deficiencies in the system. The estimated costs were provided by the Department of Information Services (DIS). Mr. Comeaux stated the most expensive element of the plan to modify the executive budget system is conversion of the system to the mainframe computer from the division's local area network (LAN) at a cost of $200,000. He said details of the enhancements and their costs have been provided to the Fiscal Analysis Division of the Legislative Counsel Bureau (LCB). Senator Rawson inquired as to how the new system would affect the operations of the LCB's fiscal analysis staff. Mr. Comeaux replied the only enhancement that would affect the staff is the proposal requiring mainframe connect capability by the LCB to the state's mainframe (item 6, Exhibit G). He said the fiscal analysis staff would be restricted from manipulating the system, but would probably have access for review purposes, and there appears to be nothing in the bill that would place added restrictions on the LCB staff. Senator Rawson commented the LCB staff is involved in the process, and the ability of the staff to input into the system is therefore logical albeit with certain safeguards and controls. He requested Dan Miles, Fiscal Analyst, Fiscal Analysis Division, LCB, to comment on this issue. Mr. Miles said the only concern of the fiscal analysis staff is that currently a check and balance situation exists in which the information regarding the actions taken by legislative committees is provided to the Budget Division, which then inputs the information and subsequently sends the output data to the Fiscal Analysis Division. The fiscal analysis staff verifies the input has been performed correctly, in accordance with legislative intent. Mr. Miles indicated it would not be desirable for the fiscal analysis staff to lose its current capability to ensure accuracy of the Budget Division input. A further concern raised by Mr. Miles regarding the budget system is that currently, in decision units in which positions are transferred, "the FTE [full-time equivalency position] does not follow the money." He asked if this is addressed in S.B. 206. Mr. Comeaux replied the Budget Division did not recognize the problem when the list of enhancements was compiled. He said he would confer with the DIS to determine how complicated the change would be and if it would add to the cost of the EBS proposal. Senator O'Donnell commented that the committee has repeatedly been told it is essential to perform business process reengineering (BPR) in order to implement conversion or upgrading of computer systems, and he inquired if Mr. Comeaux would favor a BPR with respect to the Budget Division's EBS. Mr. Comeaux replied yes, if the process could be accomplished within the next 18 months. He said he would not oppose having the budget preparation process examined because improvements may be in order. He commented that when he submitted the proposed enhancements to the DIS and requested cost estimates for the project, that agency did not insist upon or even suggest a BPR. Senator O'Donnell remarked he is encouraged by the proposal for enhancements to the budget system, because having the Budget Division directly connected to the DIS (mainframe) computer would provide the budget office with firsthand knowledge of how the DIS functions. He stated his wholehearted support for S.B. 206. SENATE BILL 240: Deletes provisions creating or relating to advocate for insurance customers. Mr. Comeaux said the Department of Administration recommends in the Executive Budget deletion of the office of Advocate for Insurance Customers. He informed the committee the administration has changed its position on this issue and intends to provide the committee, later in the week, with a recommended adjustment to the budget that would restore the office. Mr. Comeaux requested no action be taken on S.B. 240 at this point. Senator Raggio said the bill would be held for the time being. Senator Raggio inquired as to the impact of the adjustment on the Governor's budget. Mr. Comeaux replied the cost of the office is approximately $126,000 per year, and the adjustment he intended to submit would be for that biennial amount ($252,000). Senator Coffin congratulated the administration for its decision to restore the Advocate for Insurance Customers to the Executive Budget. He voiced support for the office and said it is sometimes inexpensive to have such an entity serving as an advocate for ratepayers. He suggested the advocate can also be of value by offering suggestions to the administration of the agency involved (for example, the Division of Insurance). Senator Rawson asked if it would be feasible for the advocate's functions to be conducted in an existing office by a salaried employee, rather than establishing all of the accouterments of a separate office. Senator Raggio said a new hearing on S.B. 240 would be rescheduled once the Department of Administration has submitted its proposal to add funding for the advocate for insurance customers to the Executive Budget. Statewide Cost Allocation Plan Don Hataway, Chief Assistant Budget Administrator, Budget Division, Department of Administration, highlighted elements of the State of Nevada Statewide Cost Allocation Plan contained in excerpted portions of the plan (Exhibit H). Mr. Hataway prefaced his review of the portion of the plan related to the Office of the State Controller with the comment that many of the components, procedures and methodology used to construct the statewide cost allocation plan have applicability to the cost allocation plan for the Office of the Attorney General (Exhibit I), which he presented upon completion of the statewide plan. Mr. Hataway said the general purpose of allocation plans is to provide a means of distributing direct and indirect central service costs to user agencies. The differences between indirect and direct costs are subtle, he continued, in the sense that a direct cost plan has the ability to reduce the cost to a single unit, whether it be a per-hour charge or some other per-unit charge. The central service agencies of the Department of Administration, such as the state motor pool, the state printing office and the state mail room, fall within the direct cost category. Although in theory the indirect costs could be reduced to a per-unit charge, Mr. Hataway said, such a procedure would be exceedingly difficult; consequently, the transactions of such agencies are categorized and treated as indirect costs. Referencing the introduction to the Statewide Cost Allocation Plan (Exhibit H), Mr. Hataway explained that indirect costs are services provided by central service agencies that are not billed directly, as well as overhead costs and support costs. The reason for recovering indirect costs are threefold: (1) reimbursement of the General Fund for the cost of services provided non-General Fund agencies; (2) the federal government under certain conditions has agreed to pay its fair share of the cost of state government to provide services to federally-funded programs; and (3) to provide management information as to the actual and true costs of government services. Mr. Hataway described the third reason for indirect cost recovery as one of the most important. Mr. Hataway said the legislative policy on the allocation of indirect costs provides that the director of the Department of Administration shall annually prepare a statewide cost allocation plan distributing service agency indirect costs among the various agencies in accordance with the principles and procedures established by federal regulations and guidelines. Continuing his introductory explanations, Mr. Hataway said OBM Circular A-87, a federal document, provides the guidelines under which the Budget Division operates in determining cost allocation. One of the benefits of this, he stated, is that any governmental entity that interacts with the federal government in this area is bound by the same rules. Mr. Hataway emphasized the plan being presented is one of cost allocation rather than cost accounting, noting there is a substantial difference between the two. He said OBM Circular A-87 specifies allocation criteria must be fair and equitable. The guidelines also include a "reasonableness test." The test provides for submittal of certain information such as organizational charts, billing schedules and the state's financial document upon which the plan is based. Mr. Hataway drew attention to summary pages 27 and 28 (Exhibit H-1), which provide a summary of the allocation basis. The next page, Schedule 1.001, explains building use allocation. Mr. Hataway said under federal guidelines the state can capture the value of the buildings in which agencies are housed. Two percent of the value of state buildings is allocated to the individual agencies that occupy space in the buildings. The state can charge the agency a percentage of the building value based on the percentage of space occupied (Exhibit H-2). With respect to equipment use allocation, under the guidelines the depreciated value of equipment can be allocated to the user agencies (Exhibit H-3). Directing the committee's attention to schedule 3.001 (Exhibit H-4), Mr. Hataway stated his intention to outline in-depth the chapter of the plan pertaining to the state controller's office, to illustrate the way in which the plan is constructed. Mr. Hataway explained the table of costs to be allocated (Exhibit H-5). He said the line item "expenditures per financial statement" ($1,843,932) is obtained from the financial statement prepared annually by the controller. The Budget Division must prove to the federal government the baseline cost incurred by the controller's office for Fiscal Year (FY) 1994 for the preparation of this particular document. The equipment costs (hardware and software) must be deducted from the approximately $1.84 million because equipment costs are not eligible for allocation under Circular A- 87. Regarding the next category, "allocated additions," Mr. Hataway said before the central service agencies can allocate costs to the user agencies they must first allocate costs among themselves. For example, the Budget Division provides certain services to the controller's office and vice versa, and the cost of these services must be allocated accordingly. Mr. Hataway said the cost allocation columns theoretically could be extended to provide even greater detail, but for the sake of cost effectiveness there are only three. He said the purpose of these columns is to indicate the true costs to the central service agency, in this case the controller's office, when the various costs for services to other agencies are taken into account. The actual cost to the controller's office to provide services to other agencies was therefore determined to be $1,960,878, Mr. Hataway explained. Mr. Hataway said the next two pages, detail pages 31 and 32 (Exhibit H-6), contain the same basic information as presented on the previous page (Exhibit H-5) and essentially summarizes the information, but in a slightly different format. Continuing, Mr. Hataway said detail pages 33 through 36 (Exhibit H-7) provide a breakdown of the total cost to be allocated to the controller's office ($1,960,878) into the costs for the individual user agencies. Page 36 (Exhibit H-8) contains the total amounts for the various columns, which include allocation units, allocated percent and total cost allocation. He pointed out the allocation is based on the number of financial documents processed by the controller's office. Mr. Hataway called attention to detail page 41 (Exhibit H-9), the first page of the departmental roll forwards. He said in addition to the uniformity provided by the Circular A-87 guidelines, the roll forwards are another unique component of the guidelines. He stated that in essence what is contained in this document is the plan the Budget Division will recommend for FY 1996, and it is based on the FY 1994 actual costs. Debit and credit adjustments are made, as appropriate. For example, on detail page 41 the actual cost for FY 1994 for the Governor's Office was determined to be $8,939, while the cost for FY 1992 was $8,215. The difference of $724 has been rolled forward to obtain the estimated cost for FY 1996, or $9,663. Mr. Hataway observed this is a unique aspect of cost allocation plans, but one that is logical in light of the need to provide indirect cost recovery figures that are as accurate as possible for the purpose of reimbursement by the federal government. Exhibit H-10 presents the first page of each chapter in the plan to explain the manner of allocating costs for each of the allocation units. Exhibit H-11 contains tables of allocated costs consolidated by department. Turning to the last page (Exhibit H-12) of the State Cost Allocation Plan, Mr. Hataway discussed the changes in the current plan since the 1993 legislative session, which pertain to the state library and the law library. He said the state library costs have always been difficult to allocate. It is the largest repository of governmental documents and publications in the state and is the official repository of census information, which is used by many agencies. The Budget Division has struggled to develop a system for effectively allocating the costs, Mr. Hataway continued, and the approach reflected in this plan is the allocation by FTE (full-time equivalency) positions to a maximum of 100 FTEs. The other change relates to the law library, Mr. Hataway stated. Two years ago, 25 percent of the law library costs were allocated to the Office of the Attorney General, while 75 percent of the library's use was regarded as public and therefore entailed no cost allocations to other agencies. The new plan allocates 25 percent to the attorney general's office, 25 percent to the Nevada Supreme Court and 50 percent to the public. The reason for this, Mr. Hataway explained, is that in the past the supreme court was primarily supported by the General Fund. With the introduction of the administrative assessment process, approximately 50 percent of the supreme court's budget is now supported by administrative assessments and 50 percent by the General Fund. Since the supreme court does receive a service from the law library, it was decided the cost should be supported at least in part by the administrative assessment fees. Mr. Hataway illustrated the relationship of the State Cost Allocation Plan to the Executive Budget with explanations as to how the cost allocation applies to four entities. The Gaming Division is 100 percent state funded, he noted. If the division were to be allocated 100 percent of the costs incurred by the central service agencies for the division, an appropriation from the Legislature would be required to reimburse the General Fund. The Budget Division therefore does not charge the statewide allocation costs. On the other hand, such agencies as the Nevada Department of Transportation (NDOT), the Department of Motor Vehicles and Public Safety (DMV&PS) or those agencies that are 100 percent non-state funded, are charged 100 percent of the costs of services provided by the central service agencies. Concerning Medicaid, Mr. Hataway said 50.77 percent of the budget for this agency is supported by federal funds. The State of Nevada charges the agency 50.77 percent of the costs identified in the cost allocation plan and the federal government reimburses the state for those costs. The arts council is one of several agencies which are eligible for federal reimbursement of indirect costs, but for which the funds are not available to the federal agencies involved. The Budget Division has therefore decided not to charge indirect costs to any of the federal programs that have no ability to capture additional funds from the federal government, because the reimbursement costs would then need to be paid from program funds. It is strictly a philosophical issue, Mr. Hataway noted, and the Budget Division for years has uniformly followed the policy that if reimbursement funds must compete with program funds, the agency involved will not be charged for the services. Mr. Hataway said there are certain agencies, such as the Office of the Military, that refuse to pay indirect costs. He explained the military agency bases its refusal to reimburse the costs on the premise that the State of Nevada is fortunate to have a military presence in the state. The last issue addressed by Mr. Hataway regarding the cost allocation plan concerns interest earnings. He said legislation has been introduced to address the requirement that the federal government receive a fair share of the interest earned on retained earnings generated by indirect service agencies. Mr. Hataway noted the General Fund is the beneficiary of interest unless the statutes provide that a particular account receives interest. The federal government is requiring the Budget Division to calculate the interest the indirect service funds would have received and include these amounts in the state's calculations. If the retained earnings exceed a certain level, the federal government claims a share of the interest earned. The proposed legislation authorizes interest to accrue to the agencies. Mr. Hataway told the committee such action is "probably a proper thing to do," but the Budget Division will be required to make the calculations, regardless. Concluding his presentation of the State Cost Allocation Plan, Mr. Hataway said the Budget Division has confidence in the plan, which directly correlates the financial transactions. The same methodology, except with regard to the state library and the law library, has been used for a number of years and should therefore be acceptable to the federal government, he said. Mr. Hataway said in summary the Budget Division provided the legislative fiscal analysts with a memorandum and a master spreadsheet showing what is in the Executive Budget at present, what the budget office recommends should be in the budget, and where to debit and credit particular accounts. He reported that based upon the current information, the amount of funds to be reimbursed to the General Fund through the state cost allocation plan will be $4,176,394 in FY 1996 and $4,138,584 in FY 1997. He said this exceeds the Economic Forum's forecast of $4 million for each year of the biennium by approximately $176,000 in FY 1996 and $138,000 in FY 1997. Senator Jacobsen inquired as to the impact of the cost allocation plan on the self- funding agencies. Mr. Hataway replied these agencies are allocated 100 percent of the costs incurred; otherwise a dual rate structure would be required. Attorney General Cost Allocation Plan Mr. Hataway said the handout provided for this presentation represents two sections of the total cost allocation plan for the attorney general's office (Exhibit I). He said the document includes the summary sheet that explains the manner in which costs are allocated; a list of administrative positions categorized according to whether they are administrative or investigative, new or existing; a table of contents of the plan itself; the summary of costs to be allocated to the various agencies, and that section of the document that covers the allocation of legal services to the individual agencies. Mr. Hataway stated his intention to explain first what is not allocated, then those costs allocated to not only legal services, but also agencies within the attorney general's office, and then the detail regarding the allocation of legal services to all state agencies. In the first category, Mr. Hataway said, are the salary and fringe benefits of the attorney general. The position is considered to be a governmental function and is not a proprietary function, consequently the salary and fringe benefits are not allocated. The positions held by the three investigators within the attorney general's office are considered to be governmental, Mr. Hataway continued. These personnel handle investigations dealing with criminal and general government activities, and consequently their services are not considered appropriate for allocation to the agencies. Mr. Hataway said that with respect to the suballocations in the plan, there is a Chief of Investigations and an associated clerical position within the attorney general's budget. The salaries for the two positions are allocated to the individual agencies within the attorney general's office that have investigative staff. This includes the fraud units in the attorney general's office, the consumer advocate and all of entities in the attorney general's budget that have investigators under the supervision of the Chief of Investigations. Additionally, Mr. Hataway said, there is one investigator in the attorney general's budget that provides services solely for the Private Investigator's Licensing Board, and 100 percent of the associated costs are allocated to the board. (He indicated the purpose of the suballocations is to break out the costs within the attorney general's budget and then allocate them appropriately before allocating out to the agencies.) Regarding the Nevada Department of Transportation (NDOT) tort claims processed by the attorney general's staff, Mr. Hataway said the related costs are allocated directly to the department. Mr. Hataway introduced Marietta Grass, Chief Financial Officer, Office of the Attorney General, as the person responsible for the fiscal activities of the attorney general's office. He stated she deserves much of the credit for the attorney general's cost allocation program, explaining that the plan for the first time provides a specific allocation of costs from the attorney general's office, based upon hours. He said that in the past the allocations were based on estimates. Referencing detail pages 6 and 7 (Exhibit I-1), Mr. Hataway said after the budget office determines and deducts those costs that either are not "allocatable" or which are allocated to the special attorney general budget accounts within the agency, it uses exactly the same allocation process that is used in the statewide cost allocation plan. Mr. Hataway said the only change that has been made, but one which is very significant, is that for the first time the cost allocation plan is based upon billable hours. He stated he is pleased with the plan, and now that all of the positions and the operating costs related thereto have been transferred from the agencies into the attorney general's budget the plan should prove very beneficial because it will reveal the true cost of legal services for the state. In conclusion, Mr. Hataway said the Budget Division has recommended reducing the General Fund appropriation by $672,000 in FY 1996 and $900,000 in FY 1997 based upon the results of the cost allocation study. Senator Raggio inquired if the recommendations for reduction to the General Fund are included in the Executive Budget. Mr. Hataway replied no. He said the adjustments will need to be made as the budgets for the agencies involved are closed. Between the two cost allocation plans, Mr. Hataway noted, a savings to the General Fund of approximately $2 million will be realized over the biennium. Senator Raggio asked if any adjustments are made "midterm." Mr. Hataway said any adjustments would be made the next time the plan is prepared. Mr. Hataway was commended for his presentation, which Senator Raggio said will be very helpful and is one of the best he has heard. Mr. Miles commented that, as indicated in Mr. Hataway's testimony, the figures in the cost allocation plans are new and affect many of the agency budgets within the Executive Budget. He said that rather than focus on the individual adjustments to be made during the budget closing process, it is hoped the committee will accept the recommended adjustments in principle and allow the Budget Division to make them as appropriate. Mr. Hataway said the budget office would work with the Fiscal Analysis Division to accomplish this. Senator Raggio stated any budget closings would be subject to such adjustments, and the major adjustments should be pointed out as the pertinent budgets are closed. SENATE BILL 205: Makes appropriation to University and Community College System of Nevada for scholarships for students. Senator Raggio invited Robert E. Dickens, Director, Governmental Relations, University of Nevada, Reno to present supplemental information regarding S.B. 205. He said in a previous hearing, representatives of the University and Community College System of Nevada (UCCSN) were asked how the $7 million appropriation would be allocated. The allocation by campus is presented in a handout provided by Dr. Dickens, attached hereto as Exhibit J. Referencing the recent decision by the Board of Regents to approve a student fee increase, Senator Raggio called attention to Title IV, Codification of Board Policy Statements (in the manual for the Board of Regents), Chapter 17, Fees and Expenses, section 1.3, which deals with assessment of fees. He said if the policy is still in effect, it would indicate that beginning in the fall of 1993 an amount equal to 50 percent of all tuition and fee increases must be earmarked for student financial assistance. He requested the UCCSN system to report to the committee regarding assessments with respect to financial assistance for students. Dr. Dickens said he wished to reiterate the university system administration's position as it was previously articulated for the record. In light of the authority cited by Senator Raggio, he said, an adjustment may need to be made by the Board of Regents with reference to the student fee increase. Dr. Dickens remarked the raising of student fees is often a painful and delicate issue. He said the students acquitted themselves exceptionally well in this process, asking pertinent questions aimed at determining how their interests would be served and bargaining skillfully. Dr. Dickens said the students' position was that if the system intended to raise their fees, the students must realize some benefit from such a fee increase. He further stated the system's commitment remains to use the student fee revenues to provide equipment for student support services such as advisement, career planning and placement, and longer library and computer lab hours. Senator Raggio requested that a written response be submitted to the committee indicating the use of the student fee increase revenues in light of the policy requirements indicated above, and how such use will coordinate with passage of S.B. 205 in the event that occurs. Senator Rawson introduced David Crutchfield, a senior student at the University of Nevada School of Medicine who is participating in the Dean's honor student program and is serving with the senator in an intern capacity for several days. Senator Raggio welcomed Mr. Crutchfield. ASSEMBLY JOINT RESOLUTION 19 OF THE SIXTY-SEVENTH SESSION: Proposes to amend Nevada constitution to prescribe additional restrictions on public employees' retirement system. SENATOR O'DONNELL MOVED TO DO PASS A.J.R. 19 OF THE SIXTY- SEVENTH SESSION. SENATOR RAWSON SECONDED THE MOTION THE MOTION CARRIED. (SENATOR MATHEWS WAS ABSENT FOR THE VOTE.) * * * * * Senator Raggio announced the committee would act on budgets from Closing List 1 (Exhibit K). He said the budget closings would be subject to adjustments related to the statewide cost allocation plan and the cost allocation plan for the attorney general's office. Mansion Maintenance - Page 5 Senator Jacobsen requested this budget to be held pending his tour of the mansion, which must be rescheduled. Washington Office - Page 9 SENATOR COFFIN MOVED TO CLOSE THE BUDGET IN ACCORDANCE WITH THE GOVERNOR'S RECOMMENDATIONS. SENATOR JACOBSEN SECONDED THE MOTION. THE MOTION CARRIED. (SENATOR MATHEWS WAS ABSENT FOR THE VOTE.) Senator Jacobsen recommended committee members utilize Nevada's Washington office when they are in the nation's capital. He said the staff provides valuable assistance and excellent follow-up. Ethics Commission - Page 13 SENATOR JACOBSEN MOVED TO CLOSE THE BUDGET IN ACCORDANCE WITH THE GOVERNOR'S RECOMMENDATIONS. SENATOR O'DONNELL SECONDED THE MOTION. THE MOTION CARRIED. (SENATOR MATHEWS WAS ABSENT FOR THE VOTE.) * * * * * Science, Engineering and Technology - Page 17 This budget was held. Extradition Coordinator - Page 61 Mr. Miles noted there is a reclassification of the program officer position in the base budget, and decision unit E-175 would double the current provision for out-of-state travel to allow two persons to attend the annual meeting of the National Association of Extradition Officers. Senator Raggio inquired if the need exists for two persons to attend the annual meeting. Mr. Hataway said he budgeted for two persons to attend the meeting every other year to facilitate cross training, and this recommendation represents a compromise with the agency's request. SENATOR RHOADS MOVED TO CLOSE THE BUDGET IN ACCORDANCE WITH THE GOVERNOR'S RECOMMENDATIONS. SENATOR O'DONNELL SECONDED THE MOTION. Senator Rawson inquired if the reclassification of the program officer position entails a four-grade increase. Mr. Hataway said he believes the promotion is simply from Program Officer I to Program Officer II. THE MOTION CARRIED. (SENATOR MATHEWS WAS ABSENT FOR THE VOTE.) * * * * * Controller's Office - Page 73 This budget was held. State Treasurer - Page 91 Senator Raggio requested clarification from staff regarding the vacancy savings issue. Mr. Miles said the vacancy savings amount was reduced in the Governor's recommendations. The treasurer has requested elimination of the vacancy savings recommendation of approximately $44,000 for each year of the biennium. Additional requests by the treasurer, Mr. Miles indicated, are restoration of approximately $5,500 in each year of the biennium for the 4-year surety bond on the state treasurer, and restoration of approximately $24,000 each year in the Other Contract Services category in connection with the Blomberg financial reporting system (Exhibit K, pages 8, 9 and 11). Mr. Miles said in decision unit E-125 on page 93 of the Executive Budget, the Governor's recommendation provides funds for the Blomberg system. Mr. Hataway explained it was the intent of the state treasurer, although it was not reflected in the agency's request or the budget narrative, to ultimately have two Blomberg systems, one for the Las Vegas office and one for the Carson City office. In the proposed budget the Governor has recommended one unit in the Las Vegas office, and the state treasurer is requesting a second unit for the Carson City office. Funding the second system would address the agency's concerns, Mr. Hataway stated. Municipal Bond Bank Revenue - Page 99 SENATOR RAWSON MOVED TO CLOSE THE BUDGET IN ACCORDANCE WITH THE GOVERNOR'S RECOMMENDATIONS. SENATOR O'DONNELL SECONDED THE MOTION. THE MOTION CARRIED. (SENATOR MATHEWS WAS ABSENT FOR THE VOTE.) Municipal Bond Bank Debt Service - Page 101 SENATOR RAWSON MOVED TO CLOSE THE BUDGET IN ACCORDANCE WITH THE GOVERNOR'S RECOMMENDATIONS. SENATOR O'DONNELL SECONDED THE MOTION. THE MOTION CARRIED. (SENATOR MATHEWS WAS ABSENT FOR THE VOTE.) The meeting was adjourned at 10:25 a.m. RESPECTFULLY SUBMITTED: Sue Parkhurst, Committee Secretary APPROVED BY: __________________________________ Senator William J. Raggio, Chairman DATE:____________________________ Senate Committee on Finance April 3, 1995 Page