MINUTES OF THE SENATE COMMITTEE ON GOVERNMENT AFFAIRS Sixty-eighth Session January 18, 1995 The Senate Committee on Government Affairs was called to order by Chairman Ann O'Connell, at 1:30 p.m., on Wednesday, January 18, 1995, in Room 227 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. COMMITTEE MEMBERS PRESENT: Senator Ann O'Connell, Chairman Senator Randolph J. Townsend, Vice Chairman Senator Jon C. Porter Senator William J. Raggio Senator William R. O'Donnell Senator Raymond C. Shaffer COMMITTEE MEMBERS ABSENT: Senator Dina Titus, Excused STAFF MEMBERS PRESENT: Dana Bennett, Senior Research Analyst Tanya Morrison, Committee Secretary OTHERS PRESENT: Norm Starrett, Northern Nevada Consortium for Cooperative Purchasing (NNCCP) John Balentine, Northern Nevada Consortium for Cooperative Purchasing (NNCCP) Basil Moreto, Northern Nevada Consortium for Cooperative Purchasing (NNCCP) Ande Engleman, Nevada Press Association Carole Valardo, Nevada Taxpayers Association Henry Etchemendy, Nevada Association of School Boards Kurt Fritsch, Assistant City Manager, City of Henderson Steve Hanson, Finance Director, City of Henderson Marvin Leavitt, City of Las Vegas Larry Nair, Building Superintendent, City of Carson Chairman O'Connell called the meeting to order at 1:30 p.m.. She began the meeting with introductions of committee members and staff. Chairman O'Connell had all members of the committee read the rules for the 1995 session (Exhibit C). SENATOR SHAFFER MOVED TO ADOPT THE RULES IN EXHIBIT C FOR THE 1995 SESSION. SENATOR RAGGIO SECONDED THE MOTION. THE MOTION CARRIED. (SENATORS TITUS, TOWNSEND AND O'DONNELL WERE ABSENT FOR THE VOTE.) * * * * Chairman O'Connell asked Dana Bennett, Senior Research Analyst, to give her presentation to the committee. Ms. Bennett explained the Issue Brief (Exhibit D) to the committee members. She stated the Assembly Committee on Government Affairs collaborated with the Senate Committee on Government Affairs on this issue brief so both committees could attain similar goals. Ms. Bennett also presented the committee with a detailed listing (Exhibit E) which shows the titles and chapters of the Nevada Revised Statutes (NRS) for which this committee will be responsible. She explained Chairman O'Connell wanted all the members of this committee to become familiar with the large number of issues which come before this committee. Ms. Bennett stated this issue brief graphically illustrates the broad spectrum of issues by listing all the chapters of the NRS which would affect this committee. Chairman O'Connell presented the committee with a sample of what the proposed amendments would look like (Exhibit F) for this committee. She explained these would not be the official amendments. They would be typed proposed amendments which she felt would make the changes easier to understand for the committee members. Chairman O'Connell asked all the committee members working on amendments to take them to Ms. Bennett who would return the proposals to the committee in written form to be voted on by the members. Ms. Bennett explained to the committee the bills which would be heard today. She briefly explained Nevada already has many state emblems in the Nevada Revised Statutes (NRS). She briefly explained the three proposed bills to the committee. Ms. Bennett told the committee there had been dances previously proposed for the official state dance and they did run into some controversy over these proposals. Chairman O'Connell opened the hearing on Senate Bill (S.B.) 19. SENATE BILL 19: Exempts purchase by local government of items commonly for sale to public in retail stores from requirement of competitive bidding. (BDR 27-525) Norm Starrett, Northern Nevada Consortium for Cooperative Purchasing (NNCCP), spoke in favor of S.B. 19. He told the committee he is the chairman for NNCCP. Mr. Starrett stated this bill is primarily proposed for golf professionals and gift shops belonging to government agencies to purchase those items which are most attractive to the public. He explained this is usually done directly from the manufacturer, particularly with a golf course in which the professional running the shop will decide which brands of golf equipment he wants to carry. Chairman O'Connell asked Mr. Starrett if there was a reason there was no ceiling put on the amount of purchases in this bill. She explained this bill opens a very big hole into any purchasing agreement and this bill should include a limit. Mr. Starrett stated there was no ceiling on the already existing NRS so it was not included in this bill as well. He told the committee he did not feel this bill presented any larger hole than already existed with the statutes. Chairman O'Connell stated she felt where the bill states, "commonly for sale to the public in retail stores," it could be an automobile, a tractor trailer or any other large purchase depending upon which agency was buying from the retail store. She explained it seems to her this bill is very loosely worded and could present problems later on. Senator Townsend asked Mr. Starrett if he questioned the general language in this bill and why it was drafted that way. Mr. Starrett stated it was drafted the way it was submitted. Senator Townsend stated this confused him because the testimony here states there is a problem with the golf courses and gift shops and the bill is not specific to those businesses. Mr. Starrett stated some other agency may have a gift shop in conjunction with their activities. He explained his agency was not looking at selling automobiles to the public. Chairman O'Connell stated she understood what Mr. Starrett was explaining but, she told him if the law was changed as it is written in this bill, it will open quite a large hole for the sale of anything as long as it is a retail operation. John Balentine, Northern Nevada Consortium for Cooperative Purchasing (NNCCP), told the committee the items purchased to be sold to the public in a retail environment which would be the golf professional shop, a souvenir stand or in a hospital. He explained that was what the NNCCP was hoping to accomplish with this bill. He further explained the three environments he mentioned were the only environments they were aware this bill would affect. Mr. Balentine stated possibly a state park gift shop environment would fall under this category also. Senator O'Donnell stated if a sale is a contract it would be covered under Nevada Revised Statutes (NRS) 332.035 and would then take into effect that particular sale contract. He explained this statute has a $5,000 limitation which may apply to S.B. 19. Mr. Starrett explained this bill deals more with the purchase of the items which the retail store is going to sell. He stated this would allow them to select those items which they feel are most attractive to the public. Chairman O'Connell asked for a background of NNCCP and how they got their standing to request bills. Mr. Starrett stated the legislature in the early 1970s established a commission in counties of over 100,000 population to advise the legislature on matters relating to purchasing. He explained the commission was formed in both Clark County and Washoe County. He stated both those counties created purchasing consortiums which may submit bill drafts as the Public Purchasing Study Commission. He told the committee they used the consortium letterhead so the bill draft request states it is from NNCCP, but it is actually from the Public Purchasing Study Commission created by NRS 332. Mr. Starrett explained they have not been active in advising the legislature on much since the commission was first created in the 1970s. Basil Moreto, Northern Nevada Consortium for Cooperative Purchasing (NNCCP), spoke in favor of S.B. 19. He stated he feels this bill would be a more cost- effective process for state purchasing operations. Chairman O'Connell closed the hearing on S.B. 19 and opened the hearing on Senate Bill (S.B.) 20 so the same testifiers could speak on behalf of this bill. Senate Bill 20: Revises provisions governing required advertising of contracts for local government purchases. (BDR 27-526) Mr. Starrett told the committee the dollar limit for formal advertising of bids back in the 1970s was at $5,000 originally, with informal bids at $2,500. He stated in 1981 the formal advertised bid limit, under the local government purchasing act was raised to $10,000 and informal bids were at $5,000. Mr. Starrett stated in the last legislative session the formal bid limit, for counties over 100,000 population, was raised to $25,000 with informal bids at $10,000. He further explained the smaller counties are at $10,000 with the informal bids at $5,000. He told the committee this has created a real erratic threshold for formal advertised bids. He explained, at this time, Nevada State Purchasing has to formally advertise at $7,500. He stated Washoe County and Clark County have to advertise at $25,000 and small counties at $10,000. Mr. Starrett pointed out when a construction project is up to $20,000 it becomes a Public Works Act and is formally bid at $100,000. He explained the Public Works Board formally advertises at $25,000 and the federal government formally advertises at $25,000 and he reiterated the NNCCP wants to legislatively bring some of the formal bid dollar amounts into some degree of consistency. He told the committee the decision as to whether or not a small county can go to $25,000 without a formal bid will still rest with the county commissioners. He pointed out he is merely asking the legislature, at the state level, establish $25,000 as a common bid limit. He maintained it is very confusing to vendors who deal in both commodities and public. Basil Moreto, Northern Nevada Consortium for Cooperative Purchasing (NNCCP), told the committee Carson City is barely 50,000 in population and he feels they have been left by the wayside. He explained Carson City is neither small like some of the other counties nor considered very large like Washoe and Clark counties and since the bid limit is based on population, Carson City is right in the middle. He stated when there is a contract of $10,500 it has to go to competitive bidding because it is $500 over the limit. He reiterated this is not cost-effective and it creates a lot of paperwork which is unnecessary. He told the committee all the departments need to do to expedite the delivery of services to the public is to raise the maximum from $10,000 to $25,000. Mr. Starrett told the committee the Elko County School District submitted a separate bill draft request to do exactly what S.B. 19 is asking. He explained the NNCCP did not know of this hearing soon enough to get anyone from Elko County in to represent them, but they are requesting the formal bid limit be raised to $25,000. Chairman O'Connell closed the hearing on S.B. 20 and reopened the hearing on S.B. 19. Ande Engleman, Nevada Press Association, spoke in opposition to S.B. 19. She told the committee this bill would allow local governments to purchase anything that is commonly for sale to the public in retail stores, without going to bid. She explained her concern is accountability of local government which she stated needs checks and balances. Carole Valardo, Nevada Taxpayers Association, spoke in opposition to S.B. 19. She stated she opposes the bill as it is written, but she feels there may be some merit on consumable and small purchases that have very specific dollar amounts. She explained to the committee this bill is not specific enough and the way it is written is totally unacceptable. Marvin Leavitt, City of Las Vegas, told the committee S.B. 19, as it is written, can be interpreted two different ways. He explained, the first interpretation could be for an item to be purchased by government which is intended for resale to the public. He further explained, the second explanation could be an item bought by the local government that is intended for use by that local government. He pointed out as this bill is written it is not specified that local governments are buying for later resale to the public. He told the committee the intent of this bill is not clarified. Mr. Starrett stated there was an error in the wording on S.B. 19. He told the committee the correct wording should be, "purchases of items for resale to the public in a retail environment." He explained this was intended for gift shops, golf pros and so forth. He emphasized it could be a revolving fund or initially paid for with tax dollars, but the cost of the item is reimbursed by the public when it is purchased. Chairman O'Connell closed the hearing on S.B. 19 and reopened the hearing on S.B. 20. Henry Etchemendy, Nevada Association of School Boards, told the committee this bill is the outcome of a legislative process that the School Boards Association and the School Boards Superintendent's Association jointly developed. He explained S.B. 20 essentially does the same thing as the bill requested by the School Board Association which is Assembly Bill (A.B.) 37. Assembly Bill 37: Makes uniform in all counties certain provisions governing advertising of contracts for purchases by local governments. (BDR 27-655) He told the committee the current law for local governments in the counties which exceed 100,000 or those less than 100,000 appear in the Nevada Revised Statutes (NRS) 332.039 and 332.045. He explained the difference between S.B. 20 and A.B. 37 is the bill drafter who prepared S.B. 20 chose to amend the section which affected Nevada Revised Statutes (NRS) 332.035 and deletes NRS 332.045, but the drafter of A.B. 37 did just the opposite and deletes NRS 332.035 and amends NRS 332.045. Mr. Etchemendy feels it is very important there is a uniformity in the population categories for the local governments involved and for that reason he supports this bill. Larry Nair, Building Superintendent, City of Carson, testified on the bill. He told the committee when the city has to have work done by an outside contractor they must get bids for little construction jobs and remodel jobs. He explained he administers many of these small contracts per year and the statute as it exists creates a lot of extra work for government officials. He iterated he was not speaking formally for all the individuals in the city, but he stated he knows the other superintendents in the parks department feel the statute needs to be changed. Mr. Nair stated the dollar value is not keeping up with today's values. He explained there is a tremendous amount of work in preparing a document to go out to bid and he feels S.B. 20 would help alleviate a lot of this excess paperwork. He stated with this bill the competition and fair opportunity for all contractors would still be protected because anything over $10,000 will still require several competitive prices, which he feels is fair. Mr. Nair insisted another problem with the existing statute is in working with very large contracts. He stated oftentimes there is some small item in the way and which impedes the progress of the contract. He gave an example of the new fire station on Stewart Street. He explained there was a small building on the property which needed to be demolished, but that was not included in the original contract and it exceeded $10,000 to have it removed, so it had to go out to bid again. He maintained this small removal process held up the original contract which was worth $250,000. He told the committee this type of problem costs more money. Mr. Nair read a memo from Steve Kastens, Director of the Parks and Recreation Division to Butch Moreto, Purchasing Agent, Carson City, Exhibit G. Ande Engleman, Nevada Associated Press, told the committee she is also a taxpaying citizen of Carson City and she maintained none of this has ever been discussed in a public meeting of the Carson City Supervisors, which is accessed on the local cable access station. She stated she is opposed to raising the limit to $25,000. She explained $25,000 buys a lot in some of the smaller counties. She clarified the bid process is not just there for equal competition, although she emphasized it is a very important role of the bid process, but she stated the bid process is also there for accountability and to ensure the government is getting the lowest possible price. She stressed this law puts some sort of checks and balances on how taxpayer dollars are handled by local governments. She told the committee there is a lot of opportunity for abuse in the whole government purchasing situation and she feels there should be limits and checks and balances. She recognized it is burdensome on government and she stated she knows the government cannot operate as efficiently as a private business because there are checks and balances, but government was never meant to be a private business and it was always meant to have the checks and balances. She gave the committee one example which happened in Douglas County where items were being sold from a local government agency by an employee who would then buy more goods to replace the ones he sold with the money from that same local agency. Mr. Starrett explained to the committee the incident to which Ms. Engleman referred happened 6 years ago and there was an investigation. He pointed out he was put into his position in Douglas County at that time to help with the checks and balances in public purchasing. Chairman O'Connell closed the hearing on S.B. 20 and opened the hearing on Senate Bill (S.B.) 24. Senate Bill 24: Revises provisions governing sale of certain bonds by City of Henderson. (BDR S-750) Kurt Fritsch, Assistant City Manager, City of Henderson, told the committee this bill is a charter change for the City of Henderson. He stated they are asking specifically in section 2 for the option for the city public improvement trust board and the city council to offer industrial development bonds for public or private sale. He explained in the past 20 years the city has had the public improvement trust board and they have had industrial development bonds, but they have never had a public bid on any of the offerings. He iterated these are not general obligation bonds and they are not rated bonds, but they are bound by the project itself and there is a leveraging formula in the bill that directs that. Steve Hanson, Finance Director, City of Henderson, explained the bill to the committee. He stated in 1969 the state legislature created the City of Henderson Public Improvement Trust and since that time the trust's general purpose has been to administer and issue the city's share of industrial development bonds that were exempt from federal taxation. He pointed out the trust board consists of five members who are appointed by the city council and the trust is also considered a separate agency from the City of Henderson. He explained they have their own separate independent audit and financial statements. He told the committee historically the trust has issued in the range of $6 to $8 million industrial development bonds. He explained a couple of the projects they financed were the Gold Bond Ice Cream Facility and Berry Plastics which are located in Henderson. He reiterated the bonds would not be secured by the City of Henderson, they are unrated and they are generally secured by the projects being constructed by the bond proceeds. He told the committee currently the trust is required to first sell the bonds at a competitive bond sale and if no bids are received then the trust may negotiate a bond sale through a selected bond underwriter. He pointed out due to the general complexity of the industrial development bond issues, there has never been a bond buyer submitting a bid for a bond sale through the public trust, rather all bond issues by the trust have been subsequently issued on a negotiated basis through a selected bond underwriter. He stressed their request is to allow the trust the same flexibility as other Nevada governments to competitively negotiate a bond sale subject to the approval of the city council. He explained this change would not affect any public hearings or reduce any number of public hearings. In conclusion he added, as a finance director he is a very strong proponent of competitively issuing general obligation and revenue supported bonds. He stated most studies over the past 20 years have indicated, generally speaking, general obligation bonds, revenue supported general obligation bonds and insured bonds or bonds backed by the State of Nevada would get a lower rate of interest on a competitive basis as opposed to a negotiated basis. Chairman O'Connell asked what criteria the city council would use in order to determine which way the bond sales should be. Mr. Hanson stated anything outside of a general obligation bond issue, an insured bond issue or a revenue supported general bond issue not backed by the State of Nevada would be considered to be negotiated through an underwriter. Everything else would be competitively issued. Senator O'Donnell asked how much money this bill would save the City of Henderson. Mr. Hanson stated that was a difficult question to answer. He pointed out it would cut down on the length of time it takes to issue an industrial development bond. He explained, at this time, the city has to go to the competitive bid process and when no bids are received they must select an underwriter and negotiate the bonds sale. He told the committee the interest rate is lower on competitive bid bonds than it is on negotiated bonds, which would save the city some money. Mr. Fritsch explained to the committee the real savings would be the ability for the city to get into the market at a particular time rather than having to go through the advertising and the 60-day waiting period which is required right now. Chairman O'Connell asked Mr. Hanson if the bonds are backed by the actual property of the contractors and she also inquired as to how many existing bonds they have. Mr. Hanson stated the bonds are backed by the property of the contractors and he told the committee there are between $40 and $50 million outstanding at this time. Chairman O'Connell asked if there was ever a problem with this type of bonding and whether or not the city is looking at particular projects at this time to use these bonds. Mr. Hanson stated there have been no defaults and they had no particular projects in mind at this time. Marvin Leavitt, City of Las Vegas, told the committee general language regarding bond issues will probably come before them later in the session. He explained the only problem they might have with this bill is being inconsistent with the other bills which will follow. Chairman O'Connell asked Mr. Leavitt to clarify some information for the committee members. She stated it was her understanding the City of Henderson is the only city which has a charter which allows this type of bonding and it seems as though they were grandfathered in through the statutes. Mr. Leavitt stated there are certain types of industrial development bonds that are currently allowed in the general statutes. He explained the restrictions in the internal revenue code is more stringent than it used to be, which has eliminated a good share of the industrial development bonds that were used for many years. He stated if the legislators referred to the City of Henderson's Charter, specifically the general law regarding bonds, those laws could be utilized within state law. He explained this would enable all bond issues to be consistent throughout the entire state. He emphasized this would be adapted to all bonds that are issued by local governments for whatever purpose throughout the state. He told the committee the individual charters already state the city has the authority to issue bonds in accordance with the requirements of NRS 350. Chairman O'Connell asked Mr. Leavitt if there were enough safeguards built into the system in case of a default and who would the responsibility fall to if there was a default. Mr. Leavitt stated the general law will require, if they are general obligation bonds, they will have to go through the normal process as long as it is possible to get a rating on the bonds. He explained on all types of bonds of this nature the buyer is put on notice these are not a general obligation entity issuing them, but they are restricted to payments coming in from a particular revenue source or for the property that backs them up. He emphasized even if there is a default, proper notice was given when the bonds were issued. He stated it does not matter if the bonds were sold privately or publicly since it has no effect on the ability of the government, special district or whatever entity to repay. Senator Porter asked Mr. Leavitt what is the worst case scenario for the City of Henderson community if this law is changed. Mr. Leavitt stated there have been problems, particularly in the eastern United States, with private sales of bonds and because of that there has been a feeling that sometimes bonds which could be sold on the public market competitively have been sold privately at a higher interest cost. He stated this simply rewards individuals who make campaign contributions, which caused the scandals. He told the committee that is why the state of Nevada is trying to identify those situations under which bonds should be privately negotiated and those situations where they should be competitively bid. Chairman O'Connell closed the hearing on S.B. 24 and adjourned the meeting at 2:50 p.m.. RESPECTFULLY SUBMITTED: Tanya Morrison, Committee Secretary APPROVED BY: Senator Ann O'Connell, Chairman DATE: Senate Committee on Government Affairs January 18, 1995 Page