MINUTES OF THE SENATE COMMITTEE ON GOVERNMENT AFFAIRS Sixty-eighth Session March 29, 1995 The Senate Committee on Government Affairs was called to order by Chairman Ann O'Connell, at 2:40 p.m., on Wednesday, March 29, 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 Dina Titus Senator Raymond C. Shaffer GUEST LEGISLATORS PRESENT: Senator Mike McGinness, Central Nevada Senatorial District Assemblywoman Marcia de Braga, Assembly District No. 35 STAFF MEMBERS PRESENT: DeLynn Gillentine, Committee Secretary Jan Needham, Senate Bill Drafting Advisor OTHERS PRESENT: Maureen D'Ambra, Special Improvement District Coordinator, Clark County Public Works Irene Porter, Lobbyist, Executive Director, Southern Nevada Home Builders Association Howard Barrett, Lobbyist, Research Director, Nevada Taxpayers Association Kathy McClain, Legislative Analyst, Clark County David P. Pursell, Chief, Division of Assessment Standards, Department of Taxation Marvin A. Leavitt, Lobbyist, City of Las Vegas Richard N. Brewer, President, White Pine County School Board G.P. Etcheverry, Lobbyist, Smith Capital Markets Karla M. Hansen, Board Member, White Pine County School District Jane Lemos, Business Supervisor, White Pine County School District Senator O'Connell opened the hearing on Senate Bill (S.B.) 279. SENATE BILL 279: Authorizes special assessment for maintenance, repair or improvement of local improvement projects. (BDR 21-705). First to testify in favor of S.B. 279 was Maureen D'Ambra, Special Improvement District Coordinator, Clark County Public Works. Ms. D'Ambra discussed and presented Exhibit C. Senator Raggio inquired in regard to her statement that this could only be done with property owner approval and the fact that 10 percent must object in writing for it to be stopped. Ms. D'Ambra stated that if this were approved she would like to strike some of the language. Ms. D'Ambra explained: On page 1, line 8 [it says] `an interest equal to or exceeding 10 percent of the assessable property.' We would prefer that it say 10 percent or more of the assessable property. . . As it reads, it sounds like a property owner with 10 percent interest in one piece of property could oppose it; therefore, it wouldn't go. . . Senator O'Connell asked if Ms. D'Ambra looked this bill over before it was printed. Ms. D'Ambra responded she had signed off, but does not like the way it reads. Senator O'Connell suggested Ms. D'Ambra was saying the initiation of any such product is done by the property owners not by the county. Ms. D'Ambra concurred. Senator O'Connell asked for the definition of "cost of maintaining." Ms. D'Ambra replied it would be defined by an engineer. Senator O'Connell said the way she understands the bill they could assess anew on a yearly basis. Ms. D'Ambra pointed out that it is not a tax and it could go up or down. Senator O'Connell asked who decides yearly as to whether it is going to be continued. Ms. D'Ambra said the property owners would decide because there would be a hearing and at that hearing they could come and protest. If they protest there will not be a special assessment district. Senator O'Connell asked if since the projects they are talking about are identified in the Nevada Revised Statutes (NRS) usually as streets, flood control, lighting and parks, does she think this is already being paid for? Ms. D'Ambra reiterated her statement that property owners want to pay for this maintenance. Senator Shaffer asked, "line 23 through 25 on the first page, suggests that after the public hearing that the governing body may adopt a resolution . . . no matter what the results of the hearing is." Ms. D'Ambra answered, "statute 271 . . . stipulates there will be hearings and if there are protests that the district doesn't go." Senator Shaffer clarified, "It definitely doesn't go if just one person protests?" Ms. D'Ambra responded, ". . . It takes 10 percent. . . of the represented frontage." Senator Townsend asked Ms. D'Ambra to explain how the strip beautification project was handled versus "how this would affect what you are attempting to do." Ms. D'Ambra said, "There is a statute 244A that applies to maintenance for beautification which we used in order to do the project." Senator Townsend stated, "Except there wasn't any beauty there to start with so you used a maintenance authority to create a beauty and then maintain it." Ms. D'Ambra insisted, "Actually we did it the opposite way. We used that statute to actually do the beautification project because 271 is mostly for roadways not beautifications. 244A deals with beautification projects so that is how we did that." Senator Townsend suggested, ". . . Anytime you propose something like this that might be for the good of all, we have to remember that you have to go very carefully." Ms. D'Ambra stressed, "I agree. That is why the 10 percent is a very low percentage on this to defeat it. . . " Senator Townsend declared: . . . 10 percent is a lot more than I am probably willing to go. . . Based on what I saw and how certain people were treated . . . on [the] last experience [with this issue], it's government at its worst. . . But this would affect something that is very near and dear to Senator Raggio's and my heart and that is the fact that we are now putting water meters in new projects . . . The issue of how to maintain [the water meters] is now in front of us. . . Senator O'Connell questioned, "On the back, line two . . . it talks about `by the same officers.' I didn't pick that language up anywhere. Can you tell me who those officers are?" Ms. D'Ambra responded, "The treasurer. . . " Senator O'Connell asked, "Did I understand you to say . . . that you had taken care of the strip through the redevelopment?" Ms. D'Ambra said, "[Yes] except it is not a redevelopment project." Senator O'Connell remarked, "I know that. . . you went through the redevelopment, but this doesn't fall into the redevelopment. . . How did you do that? Would that not apply simply to the redevelopment area?" Ms. D'Ambra answered, "No, we went through statute 244A which is specific to beautifications. That gave us the method to do it." Senator O'Donnell asked what kinds of special improvement districts they were discussing. Ms. D'Ambra reiterated prior testimony stating the types of improvement districts are extraordinary maintenance districts. Senator O'Donnell asked how far reaching the statute is and Ms. D'Ambra said that from testimony she heard today she thinks it is far reaching, but that was not her intent. Senator O'Donnell stated he had to discuss this with some other individuals before taking action on this bill. Senator Raggio remarked: In fairness and for some clarification, checking NRS chapter 271 which is the local improvement statute. 271.265 does set out a laundry list of projects which already can be done under this authority. . . What this refers to then is the authority under that chapter and what it is saying is the governing body may create a separate improvement district to pay the cost of maintenance, repair, and improving any project pursuant to this chapter. This area that I asked you about . . . would be in effect a veto provision if at least 10 percent of the assessable property [owners] object, then they can't create this. Under the existing law, in order to trigger this it does require 90 percent of the entire cost of the project . . . and it has to be two-thirds of the frontage . . . Senator O'Donnell asked, "It says a transportation project, it doesn't necessarily have to be a roadway?" Ms. D'Ambra concurred. Irene Porter, Lobbyist, Executive Director, Southern Nevada Home Builders Association, testified. Ms. Porter stated her opposition to S.B. 279. Ms Porter thinks the bill adds a new section to the assessment district law which would allow them to create a special assessment district specifically for maintaining or repairing any project. Ms. Porter discussed different procedures that are now in use for maintaining landscape and improvements. Senator Raggio discussed his thoughts on the reasons why the bill has been presented to the committee. Ms. Porter agreed with Senator Raggio's thoughts. Howard Barrett, Lobbyist, Research Director, Nevada Taxpayers Association testified in opposition to S.B. 279. Mr. Barrett thinks the bill is too wide open and if considered further should be amended to tighten it up. Senator O'Connell closed the hearing on S.B. 279 and opened the hearing on S.B. 280. SENATE BILL 280: Authorizes additional counties to establish medical scholarships for persons who agree to return to the county to practice medicine. (BDR 20-722) Kathy McClain, Legislative Analyst, Clark County, testified in favor of S.B. 280. Ms. McClain said this bill would allow the rural communities of Clark County the opportunity to participate in the scholarships that are administered through the rural health district of the University of Nevada, Reno. Senator O'Connell asked how the money will be generated to support the students and what the cost will be. Ms. McClain responded that there is federal funding, state funding and local funding. Ms. McClain explained that if a rural community funds a scholarship, then that individual would be required to return to that rural community for the same number of years. Senator Porter questioned the 100,000 number in the bill. Ms. McClain suggested the purpose for the number is to target rural areas. Senator O'Connell closed the hearing on S.B. 280 and opened the hearing on White Pine County. David P. Pursell, Chief, Division of Assessment Standards, Department of Taxation, testified: . . . At this time we have a budget analyst that is at the school district central office reviewing the accounts and trying to determine exactly what the shortfall for this fiscal year is going to be for the operation of the school district. What has come to light so far is that there is approximately $200,000 of warrants and checks that have been written, but not mailed. They concern . . . all types of bills. One of them is for the monthly payment on the Nevada State Bank for the lease of the equipment. There is a $41,000 check for the buy-down that was passed by the [19]93 Legislature to keep the tax rate at or below $3.64. There was a bill for the . . . power company, the hot lunch program, the accountant for the school district, but these checks are from 3 months ago . . . We have been able to verify there is equipment that was purchased by the contractor that was in the bid of $7.8 million to build the school. It was purchased and installed by the contractor and it has also showed up as leased equipment on that master lease from Nevada State Bank . . . Senator Raggio asked, "What was your comment about the check for the pay-down of the school district's requirement? What is the status of that check?" Mr. Pursell answered, "It has been written, but it has not been mailed yet. . ." Mr. Pursell continued: If you will recall there was a question . . . concerning busses that were being purchased. We thought that the busses were being purchased in the next fiscal year and this week [we] found out that three or four of them were for delivery this fiscal year. I understand that when this came up and we told the school district representatives about it, . . . those were canceled. . . We are still trying to identify where we are at. What is the dollar amount that is going to have to be loaned to the district to make sure we can meet payroll, debt payments and the operating expenses of the school district. . . Senator O'Connell questioned, ". . . I don't think you mentioned it, but something that really puts everything into perspective is the fact that the electric bill has not been paid for 3 months and that they had been threatened with the fact they were turning off the lights in the schools . . . " Mr. Pursell said: My understanding is that the utility company did say if they did not get payment on the utility bill that they were going to turn off the power. . . We think there is approximately $140,000 in the main checking account. The reason I say we think, is because there is a certain amount of posting that has not taken place. . . There are certain . . . bills that can mailed out . . . Right now they are in default of that lease if they don't pay the monthly payment on that master lease. That would be another bill I suggest be paid if there is money in the bank right now to cover that. Senator O'Connell stated, "I think the other item to the electric bill is that the electric company has agreed to keep the lights on through June, but the concern is that they are going to require both penalty and interest be charged on the amount through June . . . Do we have any idea what the amount is of that electric bill?" Mr. Pursell responded, "No, . . . I don't know the exact amount on that. . . " Marvin A. Leavitt, Lobbyist, City of Las Vegas, was next to testify. Mr. Leavitt presented and discussed Exhibit D. Senator Townsend asked if the state would be the guarantor to the financial institution that makes the loan. Mr. Leavitt clarified: . . . What the state would be doing, I don't think is serving as the guarantor. The state treasurer has an obligation to make the payment out of the monies available that would otherwise be given to the district. I suppose that if we had the situation . . . where the monies available in the fund were not sufficient to pay the loan, then I suppose that would be . . . a straight obligation of the district. Maybe we should say it does not become an obligation of the state, but there should be enough money in the fund. . . Senator Townsend asked, "I guess what I am missing is that the perception we have is the financial deficit is so substantial. Where do you generate additional monies to make payment on the loan unless you sell assets or unless the state increases its contribution to the fund. . .? " Mr. Leavitt answered: There is a basic timing problem and I think we alluded to this the other day, but maybe didn't go into it full enough. The problem is . . . we do not at the present moment have a budget for the White Pine County School District for the next fiscal year. We do not know . . . how much it will cost to operate the district. We also do not have . . . a budget that specifies how much revenue they are going to get in the next fiscal year. . . The superintendent made representations at the last hearing before the tax commission that there would be sufficient revenues to operate in this next year. We don't know if that is true or not . . . The second of the two bills that you passed today is one that attempts to look into the future and define this. The problem is that we are short of operating money right now and they are not going to be meeting payroll for the next 3 months unless they have an infusion of cash. If we are going to provide some means for the infusion of cash, we almost have to do it before we have the opportunity to go through and do the long-term analysis. There just simply isn't time to do it. . . Senator Townsend suggested, "Based on what you just told us, we have to be prepared . . . to pick that tab up in case the analysis comes up short." Mr. Leavitt replied, "I don't think . . . you would want the commitment that the state would pick up the tab. You might have to provide in some method for the levy of additional taxes . . . in White Pine County. . . " Senator Townsend said, ". . . Someone is going to be obligated to pay a financial institution if the revenues come up short. Based on my understanding . . . it's going to be the state treasurer [who] is going to pay this directly, and we have to make the policy decision whether we would want [to] remain on that note. Because if not, the financial institution . . . [is] going to come directly to us." Mr. Leavitt responded: The way I see it happening, there is going to be more money due the White Pine County school district from the state treasurer than the amount of obligation on the note. . . I think if we look at the amount that is going to come out of the state . . . school fund and the probable amount of the note, we can say that the amount coming out of that will be greater than the payments that are due on the note. . . What will happen . . . is the state treasurer would make the payments on the loan. The amount going to White Pine County school district would be less than it otherwise would be. That difference would have to be made up from some other source. There is going to be enough money in the hands of the state treasurer to guarantee the loan. The problem is going to come after the fact where [the] White Pine County school district [has] got operating problems because they don't have the full amount of the distribution. Senator Townsend stated he wants to make sure before voting who is responsible for the note. Mr. Leavitt suggested for clarification purposes listing specifically the loan is not an obligation of the state of Nevada. Senator Townsend said that the obligation has to be somebody's. Mr. Leavitt suggested the loan become the general obligation of the county. Senator O'Donnell stated: . . . You have got a situation whereby you have an assessed value that is lower than would be in the following year. At the same time, you are going to have debt service that you are going to have to make up and whatever that interest rate is we don't know at the present time. My question would be, how do we know that by allowing you to get this loan . . . how does White Pine [County] know at this point and time whether or not, with the debt service and the principal on the debt, what kind of shape is that going to put the school district in, in terms of providing a quality education to the kids? . . . We have to have a minimum threshold . . . and we have to establish that we need education for the kids in White Pine County. At the same time, how much do we have left over. . . that we can service the debt on the money that we borrow. Can we do that? If the answer is no, then we have a real big problem. If the answer is yes, then I will go ahead and give my vote for this thing. I need to know what that minimum threshold is going to be for the teachers and the school kids. . . You have got a school board and a superintendent of schools and if . . . you don't make a change here . . . then . . . we are going to put this mechanism in motion . . . and we are going to put the same wheels on the car, if you will. And we are going to have the same results down the road, I think, if the past is any indication of the future. I think . . .you need to make a decision whether you agree with this superintendent of schools or whether you want to part company. . . Mr. Leavitt responded: The problem is . . .we do not know. The budget has not been prepared. We have the operation of a new high school that has never been operated before. . . As far as I know, no one has yet taken all of these various obligations . . . and projected them into the future and combine all of this on the tax rates on the new property so that we do know. That is one of the things Dave [Pursell] and his group are going to be trying to do between now and the middle of May. I just don't think there is any way possible that we can know all of that before we have a need for cash and we know that if we don't have cash fairly soon that we are not going to be paying teachers and such in the months in April, May and June. I think we have an unpalatable situation, but I don't know how to make it any better. Senator Raggio stated: . . . I think we all agree that somebody has to step in at some point and do something. . . Teachers have to be paid, children have to go to school and this suggestion that you have come up with . . . rides on two . . . concerns. One is, we have to establish the amount a little better than we have now. We need to know secondly, . . . some assurance that the distributions from the DSA [Distributive School Account] are in fact adequate for these repayments as well as other operating ongoing costs that may not be covered by this amount. . . I also want to make sure that the early invasion of these proceeds would not put them in a deeper rut then they are in for the next biennium. . . Mr. Leavitt said he hopes they can time these initial payments on the borrowing for the debt. Senator Raggio expressed his concern over their increased debt service and assuring there is sufficient funding. Mr. Leavitt stated that by April 10 he hopes to have a good number on the cash- flow problem and the distributions from the state fund. Senator Raggio questioned in regard to the time frame and if the White Pine County School District has the "ability to make payroll at this moment?" Mr. Leavitt said he thinks they do not have the ability to meet payroll for the month of April. Senator Raggio asked if White Pine County had any discussions with lending institutions. Mr. Leavitt responded the "indication is that under the provisions that I have discussed here, [the lending institutions] would be willing to lend money. . ." Senator O'Connell questioned Mr. Pursell, "What happens with the $140,000 they have in the bank? Do we have any idea yet what the payroll is?" Mr. Pursell responded: . . . The cash projection for this fiscal year and through July of next fiscal year, averages right around $600,000 a month. I was just shown a statement . . . [and] the school district is indicating that [there] is $148,788 in the checking account and as I have said, there are some bills that have to be paid. The utility bill, the lease payment, and so forth. There is not going to be enough money to cover payroll and then the other lease payment that is going to come due in April. As Marvin [Leavitt] has said, this is an immediate concern. This has to happen pretty quick to cover payroll in April. I believe the teacher's pay date is the 23rd of the month. Senator Raggio asked, "When do you think we can get the realistic number?" Mr. Pursell answered, " . . . The budget analyst at the department has it right now and he is going through the accounts. . . Last night he told me it might be the middle of next week [before we have the numbers]." Senator O'Connell said: . . . Let me . . . share with you the feelings of a group that met last night when Dave [Pursell] called and said that there were some additional problems. . . In talking about it, . . . we felt that you immediately need to get rid of your . . . superintendent and we felt that probably the school district as a whole needs to go into receivership. The Legislature should appoint a person that would go in and manage the day- to-day operation of your school . . . There were two gentlemen's names who came up. Both of them have been financial advisors on the school staff and were known amongst the group. Both of them were very highly spoken of. . . That was the feeling of the people who met and the committee now will be offered that proposal. Jan Needham, Senate Bill Drafting Advisor, presented Exhibit E and testified: Essentially, . . . the suggestion was made to put the school district into receivership. That seemed like a cumbersome method of doing it. . . So . . . this outlines a plan where the Legislature would provide for the appointment of a financial manager for the district who would assume the duties of the superintendent and who would carry out the duties outlined in this memo. Essentially, he would be responsible for the fiscal management of the school district and perform the duties that you as a committee, or the Legislature would require him to perform. The bill would also set forth the reporting system that he would have to follow so you would get updates on what he was doing. The basis for a final accounting of the school system's financial management and the return of the fiscal management back to the school district . . . Senator Townsend asked, "Has this ever been done in the district or a political entity in the state?" Ms. Needham responded, "Not that I am aware of. . . " Senator Townsend questioned, "[Would] the appointment of this person . . . help the district in obtaining this loan because there would be a certain comfort level that they would be on their way to a more solid financial footing?" Mr. Leavitt responded, "I think that anything that is done to make the operation out there better is going to help give assurance to someone that is lending money, that they have a better chance of being repaid. . . I think . . . there is a certain amount of skill . . . [and] knowledge necessary to be able to take one of these districts and operate them from a financial standpoint. . . You need somebody . . . who has some experience and training and such to make them qualified to be able to [have a fiscally responsible operation]." Senator Townsend asked Ms. Needham in regard to Exhibit D if this "is going to be a special act, are they going to be removed from any ceiling on interest rates?" Ms. Needham answered, "I think that would be up to the committee or the Legislature to decide." Senator Townsend said, "It says . . . the maximum rate to be paid shall be in accordance with Nevada Revised Statutes (NRS) chapter 350." Mr. Leavitt responded: That is the index of 20 bonds plus 3 percent." Senator Townsend continued, "The problem there is in the previous paragraph you said you will take into consideration certain things based on the proposals. You may only get one or two proposals and they may be 30 percent, because there is no guarantee they are going to get their money. That is the problem you are facing here with financial institutions. . . What happens if you get something that is bonds plus 3 [percent], plus 10 [percent] and that is your only offer? That is the problem you are facing here, because it prohibits you from paying anything more than bonds plus 3 [percent]. . . Mr. Leavitt replied: I would think . . . that when we provide the payment mechanism that comes from the state treasurer out of money that is available, and once we determine that the money that is available is more than enough to cover the debt . . . then I think that will guarantee us an interest rate that we can live with. Now if we do not have that provision in there, I would think the index plus 3 percent, plus 10 percent might be accurate. When we have a guarantee of payment that is coming, not directly from the school district, but from the state treasurer and they can look and see that the money that is allocated to the White Pine County School District . . . is more than the annual payment on the debt than I think the lender will be somewhat [assured]. The nervousness will go away because he is guaranteed. . . Senator Townsend stated: Let me make two points. . . First of all, banks have been characterized as someone who will loan you an umbrella on a sunny day and as soon as it rains they want the umbrella back. Second of all, you may have to ask the lending institutions . . . to create a consortium of 10 percent each. That way their risk is absolutely minimum even though you are getting it from the private sector. I am not sure one group is going to want to get involved in this. . . Mr. Leavitt said: One of the reasons the provisions . . . are somewhat vague and somewhat general, [is] the group has to have the ability to negotiate. You have got to be able to come up with varying terms . . . periods of maybe multiple interest rates over a 4 or 5 year period to get a loan. There has to be some discretion. I put the maximum interest rate provision in here, [which was] requested of me at the last meeting. Maybe if you are getting an independent group that is going to be negotiating the maximum interest rate it is not quite so important. . . Senator Townsend maintained: I think that is a crucial element because [of] the time factor here. [If] we were to adopt something that has a statutory restriction and you go out to the marketplace and the marketplace says fat chance, then you have to come back to us, we have to change that. . . I think we should be a little flexible. Senator O'Donnell mentioned: . . . When we decided to do this interest rate cap, it was predicated on the fact that we were not going to change operators . . . To my objection, I knew we needed to get some new management in there. . . If you have a management team that doesn't know what they are doing, and they are going to go ahead and negotiate a rate, points and terms that they have no clue what they are doing and put the county in a worse financial position, then I was desirous of having a cap on that interest rate, at least. I think Senator Townsend makes a good point. If we establish a set rate and the market says no, then they are going to have to come back to us and we will have to revamp. If we put a new management team in there then I feel a . . .lot more comfortable letting that management team negotiate whatever rate they can, but if they negotiate a rate that impinges upon the school district's ability to operate and manage a school . . . then I think we are solving a problem over here and creating a problem over there. Mr. Leavitt agreed because they do not know what the end result will be. Senator O'Donnell asked if anyone has talked to the teachers in regard to this situation. Richard N. Brewer, President, White Pine County School Board, testified in response to Senator O'Donnell's question. Mr. Brewer stated, "Yes, they do know. As a matter of fact, the only thing they have asked us [is] . . . if they are getting paid next month. They were in our meeting Wednesday . . . so they do know what is going on." Senator O'Donnell questioned whether the representatives have talked to the teachers about negotiating a new salary or working with them to help solve this problem. Mr. Brewer said they were getting ready to negotiate with the union representatives. Senator O'Connell requested Mr. Brewer share with the committee the board's position on the present superintendent. Mr. Brewer stated their first knowledge of what was actually going on, occurred on December 30, 1994. The board had no idea that they were in financial trouble. During the board meetings they would discuss the bills and if they asked if there was money to cover a bill they were always told yes. Mr. Kahill, the source of their information, always said there was no problem funding any sort of expense. Senator O'Connell stated, "Now this has been told to you by Mr. Kahill. I think this is important for the committee to hear that Mr. Kahill always told them that there was enough money to cover any of the bills they were discussing." Senator Shaffer asked, ". . . Didn't [Mr. Kahill] say he was resigning?" Senator O'Connell said, "He is resigning on June 30." Mr. Brewer continued: Yes, we have already accepted his resignation as of June, 30. . . We didn't realize we were in this situation until I was called by our bookkeeper on December 30 [because] we couldn't cover payroll. I did get that same call, but from the bank a month previous that we were about . . . $220,000 short in the bank. So I immediately went down to the central office and was led to believe that there were transfers to be made that weren't done. . . My statement was . . . that we shouldn't be writing checks out unless the money has been transferred. So I assumed that there was no problem. . . Then again, on December 30 it came up that we were . . . short and a lot of it was our payroll checks. At that time we contacted Jan [Kahill] . . . he indicated to me at that time that was totally impossible and he had no idea [what happened]. . . Our biggest concern was . . . no matter what we had to arrange that everybody's payroll was met. . . We had to do some transfers, which at the time . . . probably wasn't the way to do it, but we had no choice. . . After investigating and getting ahold of Mr. Pursell, actually he got in touch with me, and asked me about some stuff that he had requested months prior to this that had not been forwarded to him. . . Senator O'Connell said, ". . . For the record, the tax commission had requested many of the books and records to try and follow up on the concerns they had brought to Mr. Kahill. What month was that Dave [Pursell]?" Mr. Pursell responded, " . . . Off the top of my head I can go back at least a year. The example is there is an indebtedness report that gives us a snapshot view of the obligation to the district that was due last July. I still haven't seen it. . . " Senator O'Connell continued, "I just wanted, for the record, to show that these records had been requested and not yet received. Mr. Pursell had been in contact with the chairman, Mr. Rick Brewer, and this is the first time that he had even known that the request had been made." Mr. Brewer agreed: . . . Dave [Pursell] did get in touch with me over that. . . From everybody else that I have been talking to . . . [has] been telling me the same thing. . . The people at the state knew we had financial problems before we did. Talking with some of our employees . . . I learned a few more things . . . We get a board packet every week that has an agenda and everything that goes along with it. . . I understand that some of the stuff that was put in by some of our employees never made it to the board members. . . Basically, the board has been kept in the dark the whole time that this has gone on. . .We have got things that were put in other schools that was done through the bonding. . . The board themselves takes full responsibility . . . for what has happened. We put all our trust into one person that we hired approximately 5 or 6 years ago. We trusted him enough that 2 years ago we gave out the first 4 year contract to a superintendent. Now we find out that not everything was done according to standard. The way we wanted it. The way the state wanted it. The board now has . . . pulled together . . . We have made a lot of cuts . . . Senator O'Connell questioned, ". . . What you are telling us right now is that Mr. Kahill is not in charge of the school district, but the board has actually taken charge and he is just there?" Mr. Brewer replied, "No, we have not notified him that is the case. I think . . . the board . . . has taken it upon themselves to do more. They are spending more time there . . . learning what has been going on, what is going on now. . . " Senator Porter questioned, ". . . I understand how you put a lot of trust in your staff. . . but I have some questions in regard to that. . . I know that someone appeared before this committee 2 years ago. Was that [a] board member or was that the superintendent?" Senator O'Connell asked G.P. Etcheverry, Lobbyist, Smith Capital Markets, to answer the question. Mr. Etcheverry said the superintendent was present and so was the chairman of the board. Mr. Etcheverry said he did not recall who else was there. Senator Porter asked, "If I understand right . . . it was pretty obvious at that time there was a problem, to that panel, correct?" Senator O'Connell answered, "Absolutely, there wasn't any question as to the direction the committee gave the county [and] what they were not supposed to do as far as floating any more debt." Senator Porter questioned, "So I am to assume . . . that the chairman, at that time, did not share with the rest of the board what happened here?" Mr. Brewer asked for clarification of which meeting they were discussing. Senator O'Connell said it was during 1993. Senator Porter said they had representatives here 2 years ago from the board. Mr. Brewer responded they only had Jan Kahill and there were not any board members present. Senator O'Connell questioned whether the board was aware of the meeting in 1993. Mr. Brewer said the board had not been informed. Senator Porter asked if their accountant pointed any discrepancy out to them. Mr Brewer explained the accountant only audits the district. There were some warning signs, but nothing to indicate the problem. Senator Porter asked if there were recommendations made by their accountant over the past few years to make some adjustments to the business practices of the district. Mr. Brewer stated he did not know the answer. Senator Porter questioned why the superintendent is still working for the district. Mr. Brewer stated they have no grounds for termination and are trying to avoid a lawsuit. Senator Porter asked if Mr. Kahill has support from the board. Mr. Brewer responded that in his opinion, "absolutely not." Karla M. Hansen, Board Member, White Pine County School District, was next to testify. Ms. Hansen stated the board has a split vote for the reason that some would have liked to have seen a firing at the time. "A lot of us felt that he needs to remain in the district for a longer length of time until we actually find out what the cause of the problem is so some of the blame can be put where it should be. That was the reason . . . immediate firing wasn't done. . . The split vote was because there were some that felt even though the blame wasn't where it should be. We didn't want him to be controlling our school district for the remainder of this year." Senator Porter asked, "I also heard that there are possibly some purchasing problems. Do you have any feelings of improprieties that have happened internally? . . . Do you feel there has been someone messing with the funds?" Mr. Brewer answered, "No, that was one question . . . that was asked by me by our legal counsel. . . As of right now, I don't feel that way and from all audits and everything that is going on; no, it doesn't look like there has been any funds disappearing. It all . . . is just overspent." Senator Porter queried, " . . . There has been discussion before this panel of a possible investigation . . . Do you think there has been any other improprieties internally?" Mr. Brewer responded, ". . . The only improprieties other than just overspending . . . there were a lot of things that were put in [to the high school] that the board didn't understand [and] didn't even know. . . " Senator Porter asked if when the tax commission drafts letters to local entities, do they also copy the chairman of the board? Mr. Pursell stated the tax commission does not copy board members. Only after it got to the point, in the White Pine County case, that the commission was not receiving the information they needed; only then did they start copying a lot of people. Senator Shaffer inquired, " . . . I am curious about the size of the lending institutions that are capable of loaning $ 4,000,000 in White Pine County, besides Nevada State Bank." Mr. Brewer said he didn't know if anybody there is that big. Senator Shaffer asked how many banks service the area that could loan this amount and if they could get a couple of banks to look at loaning this money. Mr. Brewer answered yes, they "have First National Bank of Ely, Nevada Bank and Trust, Bank of America." Senator Shaffer expressed concern over getting funding for a loan and mentioned the idea of finding three or four institutions to share the loan might be a good idea. Senator O'Connell agreed, "It is probably going to have to be done piecemeal. We do have two sources that are looking at it. What kind of interest they are talking about we don't know yet." Senator Townsend asked: . . . When the district went out to buy busses or equipment for the new school, unless you paid cash you had to make arrangements for financing. There has got to be a point at which somebody looked at the financial statement of the district and the numbers didn't add up. It is either the financial officer of the district or the superintendent or the credit lending group. Did anybody ever say . . . we don't think you can make the payments on this and we are not going to give you any credit? . . . Jane Lemos, Business Supervisor, White Pine County School District, testified: We did receive several calls when they were working on the financing. . . Of course, they wanted up to date audits. . . For an audit they had to talk to me, so I told them we hadn't finished ours. We were extremely behind times. My guess for a good audit report would be September/October. During this time they were requesting a lot of information, but never from me. It was always from Jan [Kahill]. Many different times they called and requested financial data. I don't have any idea what they were requesting. Typically, the only time I heard about it was if they couldn't get something that they felt was extremely necessary. . . Senator Townsend questioned, ". . . Nevada State Bank is one of your creditors, is that correct?" Mr. Brewer replied, "Yes. They are our leasers. We owe $936,000." Senator Townsend asked if this was the bus lease and how long the lease lasted. Mr. Brewer responded, "No, . . . Just to let you know, we did . . . cancel . . . 3 of the busses that were coming in June. . ." Senator O'Connell inquired, "You have been able to cancel the baby grand piano and I believe there is some $44,175 in instruments. Have those been canceled?" Mr. Brewer said, "I don't know anything about the instruments being canceled, no. . . The grand piano, I have a copy of the check that was just received by us yesterday. So we did get the monies back for it. . . " Senator O'Connell asked: . . . With the information that you have read, that you have in front of you, as far as the action of the Legislature is concerned; will you make some comments on if this did not take place, and I am talking specifically about the receivership, what would the school board then do? Do you feel that you are capable of handling this and getting it straightened out? Do you feel that you need us to go forward with this action? We need some input from you. Mr. Brewer answered: As far as . . . the financial part of it . . . absolutely not. We just don't have it. As far as, if we get the monies, whether we can take care of this, absolutely. I think the board has learned an awful lot over this. . . and we are in firm agreement with somebody coming in and overseeing our finances. The minute we found out we were in financial trouble we went public with it. . . Mr. Pursell said: . . . I would like to respond to that on behalf of the Department of Taxation because as you are aware right now, the department through statute has placed the district in financial difficulty. I am responsible for watching what is going on in that district and I can tell you right now that there is a kink in the hose. We can work with the individuals . . . but [Jane Lemos] doesn't have all of the information and it is obvious to me now that I am not going to get it from the superintendent. . . If there isn't a change . . . we won't get the information we need to keep this thing on track. . . From the department's perspective it is going to be difficult if there isn't a change. Senator O'Connell questioned, "Do you have any direction from the tax commission as to the receivership and us sending somebody in that we know is going to work with you? Do we have any direction from them at all? Do they address this area?" Mr. Pursell responded, "Not the receivership. They supported the department's decision to put the district in financial difficulty at that March 22 meeting, but I have not talked to them about the receivership." Senator Mike McGinness, Central Nevada Senatorial District, testified: I am glad to hear Mr. Brewer say they support the receivership, but I would like to see them take control of this rather than the Legislature sending somebody to run the school district. That will be perceived as, whoever that person is, . . . that is now the person they can put all of the blame on. I would like to see some sort of a resolution from the school board asking for a person to come in and do that, taking Mr. Kahill out of the office . . . I feel very uncomfortable . . . about mandates coming down from on high and I see this in that same light. I would like to charge this school board with asking us to help them do this . . . I know there is a split in the community, but I think the school board has seen the seriousness of this problem. . . Senator O'Connell stated, "Just for the record I want to say that, Mike [McGinness], you have changed your position from last night." Senator McGinness replied, ". . . We mentioned on the phone that the receivership should be done, but I think I mentioned last night that I would rather see them ask for it or request it." Senator O'Connell responded: I guess I don't recall that coming up specifically and I just want the record to be clear what we had agreed to last night and knowing that you were going to be here today, we were hoping that you were going to request something of us, but stating that our goals and the bottom line is the same. So, how do you feel about the suggestion Senator McGinness has made? Mr. Brewer said, "Once again, . . . as a school district or the whole board, we are looking for any and all the help we can get. No matter whether it would be financially or in the office. . . " Senator O'Connell stated, "He is specifically asking you to request of us somebody to come in and manage your school district." Mr. Brewer replied, ". . . Now of course I have to take this to the board, but personally, yes. I would go along with that 100 percent and I don't have a problem asking." Ms. Hansen added she would support that also. Senator O'Connell asked, "Now you do know that we are running on a very tight time line. . .How soon would you be able to meet with your board and to get that information back to us?" Mr. Brewer answered, ". . . Probably next Tuesday. . . As soon as that is done and over with, we can fax it right over." Senator O'Connell requested that information be faxed to Senator McGinness and Mr. Brewer agreed to do that. Assemblywoman Marcia de Braga, Assembly District No. 35, testified: . . . I guess my question would be what works better for the board, us proceeding with the receivership . . . or putting them in the position of their asking us. I am not sure how that plays back home. Whatever accomplishes what we need to accomplish and lets the school board still be able to do their thing . . . , but it is all contingent [on] Mr. Kahill being gone by whatever means and whether or not they have the support to do that or want to take that risk in light of a possible lawsuit. . . Mr. Brewer responded, ". . . My feeling as one of seven board members. . . the belief is whatever it is going to take is going to have to be done . . . " Senator O'Connell said, "I think that Senator McGinness . . . is concerned that it be perceived by the population in White Pine County that you have the state dictating to you what is going on. He would much rather have the people from White Pine [County] asking the state. Because we have just gone through this with the Governor and with [Attorney General] Frankie Sue [Del Papa], it is a very tender spot . . . with everybody. However, my position . . . is to get this done. . . " Mr Brewer replied, ". . . I don't think that is a problem dealing with [the people of White Pine County] because it is either that or the district is done. . . I hate to say they don't have a choice, but they don't have a choice. The fact of the matter is we are where we are by mistake. We have to straighten it out. . . I would request right now the state's help." Senator Townsend stated: A couple of things that should be clear. Whatever is done will have to go through our committee process, our floor process and a couple of things . . . are high on my list. This is a local issue in which all of your citizenry . . . must be made aware of, if they don't already know. They should be the ones who determine what course of action you are going to take as a board. . . Unfortunately, without board authorization . . . you can't come in front of us and say this is the help we need. You are going to vote on that in a public forum. Otherwise we can't react to it, we can only react to you personally. . . You need an authority from your board to state something here. . . The Legislature, I am not sure, is in a position with regard to anything concerning the superintendent, so you have to make that determination on what you want to do with that person. . . Thirdly, . . . I can't vote on anything that is going to obligate this state to your bills. I am glad to have them as an underwriter, but I am not going to have them as the last resort. . . So if in fact, Marvin [Leavitt], your rosy projection doesn't come true, someone has to pick up the difference. That shouldn't be the . . . general population. The general population didn't create the problem and shouldn't be responsible for the problem. The state should not be obligated if there is a shortfall that should fall back on the general obligations of White Pine County. . . Senator Porter said: I want to reiterate Senator Townsend's comments on your superintendent. I don't feel we are in a position to mandate to you that we are only going to help you if you get rid of your superintendent. It is for you to decide. You have an idea of the direction we are going. I certainly cannot, based on hearsay, insist you remove this individual. . . I also share a concern that the obligation by not going into receivership via the courts and going via the state whether that does give us liability that we don't want to assume. Maybe looking at the NRS on receiverships there are certain procedures and certain reasons, but I question whether or not we want to be in that position. If we are assuming liability by giving that help. Ms. Needham suggested, "I think with this provision where you would provide for a financial manager the district would still be obligated for their debts and their bills. You would just have a person in there fiscally managing the district. So we can write it or we can make it very clear that the state would not be obligated for those debts." Senator McGinness emphasized, "I just wanted to make clear and apologize to Senator O'Connell and Assemblywoman de Bragga if I wasn't clear. In operating on the speaker phone yesterday [I was at a] slight disadvantage, but we had kicked around everything from the grand jury investigation and I indicated then that I would like to see that come from White Pine County so that it wasn't again the mandate on high. If my viewpoint wasn't clear, I apologize." Senator O'Donnell asked, ". . . What do you think you should do to solve your problems?" Mr. Brewer answered, "First off reorganization of our leadership that would be the first step. . . Realignment of the district office. Basically, I see only one place that needs to be realigned. It comes right down to the point where we are not getting our information and that is [from] our leader the superintendent." Senator O'Donnell inquired, "So what you are saying to me is that you would like to see is the superintendent leave . . . " Mr. Brewer responded, "Basically, to go a little farther with that, being that we are where we are now and know what we know, I would like to get started on getting this problem straightened out. The only way we are going to do that is with the person who is going to be here for the next year, 2 years, 5 years whatever it is. I feel with somebody leaving in that short of time that this is not the person we want setting it up for obvious reasons. . . " Senator O'Donnell continued, "Okay, so that occurs. Now what?" Mr. Brewer said, ". . . Number one, we do need the money to get by with now. . . The other thing is we have to align our own budget, . . . make our own cuts. . . " Senator O'Donnell stated, "I sense a district fear of doing what you want to do out of the fear of getting sued. . . " Mr. Brewer replied, "Personally no, I am not concerned about it for myself. We have been sued a lot and I have never had to come up with anything out of my pocket. . . " Senator O'Donnell asked, "If you got rid of the superintendent what would you do? Would you put someone else in that position?" Mr. Brewer answered, "We are looking . . . at putting on the agenda to go out for advertisement for a new superintendent." Senator O'Donnell continued, "In the meantime, would you want somebody to step in as an interim superintendent?" Mr. Brewer replied, "We do need somebody in there. There is no doubt . . . " Senator O'Donnell questioned, "So if you got board approval to put a temporary superintendent of schools to manage the books. . . do you think that might solve the problem allowing you to negotiate with the bank . . . in order to make your payroll? Mr. Brewer answered, "Yes, I do. . . One thing is after all of this we have gone through, I never again want to see a superintendent involved with our finances. I don't feel they can do their job and finances together. . . to a degree. . ." Senator O'Donnell said: . . . I think your plan is good. I think it's pretty reasonable . . . I think what you need to do is go to your board and say this is what we have to do. We need an interim person. We need to get rid of this other person. We need to have new management, someone with an accounting background, short-term until we go out long-term and get somebody. We also need to request from the Legislature that the Legislature give us the empowerment to go out to a financial institution and borrow some money. I think that will solve the problem. Senator O'Connell stated: I am not comfortable with these people doing the loan negotiations. I don't think they have the expertise and that is why we put it in the local government committee's hands because that is a group of financial people throughout the state. . . Mr. Brewer concurred, ". . . I think you are right. None of us are financial experts. . . " Senator O'Donnell suggested, "That would solve the problem of us getting involved and telling you how to do your business. That will at least get somebody that we feel more comfortable with from our standpoint. . . " Senator O'Connell stated: . . . I don't get the feeling, [Richard Brewer], . . . that you know the full scope of everything that Mr. Kahill has done. He has broken at least 12 and perhaps many more laws, with his financial mingling and mixing of money. Something that you should never. . . do is allow one person to sign a check. . . If you go back on Tuesday [and] hold your public hearing, I don't know if you need somebody from the tax commission to go through the entire thing so the public will know what you are addressing, and then you tell the board . . . I don't feel we have many choices here. We know that the state is ultimately responsible and so we have the choice of letting them come in and handle this for us or we have the choice of asking them for the help we think we need. . . That is what Senator McGinness and I am sure Marcia [de Braga] too would be much more comfortable with you doing. We need to hear from you, if not that night, the very next morning so that we know what we are doing with acting on this bill and which way we are going to go. What alternatives are open to us. We are working with such a narrow gauge here because we don't have a lot of [time]. We have got to get your payroll for you. We have to make sure that whoever comes in is going to have an invoice to match a check . . . They know also that money has been spent from bond issues that cannot be spent according to the law. . . Senator O'Donnell asked how much money White Pine County would need to make one payroll. They responded $751, 000 for one payroll. Senator O'Connell commented, "[If you don't make that payroll] then the teachers have a suit against you. We know that you were sued about 7 or 8 years ago by the teacher's union. . . They won the suit. It had to do with being concerned about the way the money was spent. . . You should be aware of that. Anything that you want to add to this discussion before we leave it today?" Ms. Hansen said, "I would like to address . . . the issue that as a board we haven't sat back idly by for the last year and [done nothing]. We have asked our superintendent several times for lots of information. . . " The committee discussed the procedure that Mr. Brewer should take and how to contact the committee again once the board decides what they plan to do. Senator Porter said, ". . . I want you to know from my perspective and I am sure the rest of the panel, that we are here only to help. If you don't want our help . . . let us know after your meeting on Tuesday and we will be happy to back off and let the wolves take care of it. . . " Senator O'Connell, "I think it is important that your people understand that there is going to be a tax. They are going to have to pay for this. . . I know they wanted that high school, but they have got to realize there is a pricetag on that high school. You bonded for a 7.8 million dollar bond [and] you are now well over $10,000,000 in the high school." Senator O'Connell closed the hearing on White Pine County and adjourned the meeting at 5:00 p.m. RESPECTFULLY SUBMITTED: DeLynn Gillentine, Committee Secretary APPROVED BY: Senator Ann O'Connell, Chairman DATE: Senate Committee on Government Affairs March 29, 1995 Page