MINUTES OF THE SENATE COMMITTEE ON GOVERNMENT AFFAIRS Sixty-eighth Session May 29, 1995 The Senate Committee on Government Affairs was called to order by Chairman Ann O'Connell, at 2:00 p.m., on Monday, May 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 Dean A. Rhoads Assemblyman Joseph E. Dini, Jr. STAFF MEMBERS PRESENT: Dana Bennett, Principal Research Analyst Teri J. Spraggins, Committee Secretary OTHERS PRESENT: Bob Seale, Treasurer, State of Nevada Carole Vilardo, Lobbyist, Nevada Taxpayers Association Darrel Daines, Controller, Office of the State Controller Mary Sanada, Chairman, Legislation Committee, Nevada Society of CPAs Tom Tatro, Administrator, Purchasing Division Marty Howard, Deputy Attorney General, Office of the Attorney General Ben Graham, Chief Deputy, Clark County District Attorney's Office Marvin Leavitt, Legislative Coordinator, City of Las Vegas Senator O'Connell opened the hearing on Senate Joint Resolution (S.J.R.) 21. SENATE JOINT RESOLUTION 21: Proposes to amend Nevada constitution to provide that state controller is appointed by and serves at pleasure of state treasurer. (BDR C-426) Senator Dean A. Rhoads testified in favor of S.J.R. 21. He told the committee this bill would eliminate the position of the controller by the year 2000. He reminded the committee the bill requires passage by the Legislature two sessions in a row and then would go to a vote of the people. He stated it would save about a half of a million dollars a year, according to 1995 figures. He said they would eliminate eight positions. He testified the state treasurer is elected in 42 states. The controller is elected in 13 states. Only 12 states have both the treasurer and controller positions as elected positions. In 13 states, the controller is appointed by the treasurer. He stated this bill would create better efficiency and decrease the size of the government. He cited examples of states that have eliminated controller positions. He provided an amendment to the committee (Exhibit C). He explained they would combine the offices and the treasurer would appoint the controller. He assured the committee there would be checks and balances. He stressed the bill will eliminate a traditional office that many people feel should not be an elected position. Bob Seale, Treasurer, State of Nevada, stated he was "conceptually" in favor of S.J.R. 21. He told the committee this bill will combine two offices of the government to create efficiency. He stated there is a nationwide trend in this direction. He assured the committee he has no problem with the language of the bill. He stated he has felt they should combine the offices since he ran for office in 1990. He provided a history of the checks and balances of the two offices for the committee. He stated: To move paperwork from the agency, to pre-audit, to the controller, to the treasurer consumes a huge amount of money. The cost of writing a check in the State of Nevada is . . . $40-50 per check. I think that is more than we need to spend . . . we can significantly reduce this by taking out a step, without risking any loss of internal control. Senator O'Connell asked what would happen if an elected person did not have expertise in either field? Mr. Seale responded that this is a risk but it has not happened in Nevada. He stated there are safeguards in place now, which will remain in place after they combine the two offices, to prevent this from happening. He stated that combining these two offices will attract qualified, interested people to serve in the positions. He provided a handout to the committee that detailed the savings which will result from combining these two positions (Exhibit D). Senator Raggio stated while the two incumbents in the controller and treasurer positions are highly qualified, he expressed concern about obtaining equally qualified people for the positions in the future. He suggested a resolution where the Governor appoints both the treasurer and controller. Mr. Seale responded that several other states have a truly executive branch where the Governor appoints the entire slate including the secretary of state and attorney general. He commented this is an approach, but he stated he feels less comfortable with this option. He informed the committee the Governor already has control over the budget and pre-audit. He urged the committee to combine the two offices, but not to let the Governor appoint both positions. A discussion ensued regarding the tasks, duties, and roles of the controller and the treasurer. The discussion included states where they had combined the two positions, and states where the Governor had appointed both positions. Carole Vilardo, Lobbyist, Nevada Taxpayers Association, stated they support the consolidation of the offices. She offered an amendment to the bill. She suggested that the effective date of the bill become November 7, 2002 to allow the people who run for office in 1998 to serve their complete 4-year term. She explained if the bill becomes effective in the year 2000, then the people who run would expend revenue to fill a 2-year office. Senator Shaffer asked for a more detailed financial statement of from where the savings will come. Mr. Seale and Darrel Daines, Comptroller, Office of the State Comptroller, both offered to give the committee the information. Mr. Seale stated he had a comfort level with the two positions being separate. Mr. Seale stated if they combine the offices, there are salary savings from the controller, a chief deputy, and one secretarial position. He explained both offices have an accounting division which is duplicative in nature. He suggested elimination of the accounting division and some duplicative data processing. He stated there are three other positions where there is overlap between the two offices which they could eliminate. This information is contained in Exhibit C. He explained the controller position would still exist, but as a deputy position. It would have new qualifications. He explained to the committee there would not be a need for two administrative secretaries. He stressed he feels these eight positions, outlined previously, are duplicative positions. A discussion ensued regarding possible collusion between the controller and the treasurer and embezzlement of funds. Mr. Seale reiterated history of the two positions. They discussed qualifications for the positions. Senator O'Donnell asked if the work relationship between the two positions would change once one of them becomes a subordinate position instead of an equitable position? Mr. Seale responded that the accounting figures have to be reconciled no matter who is in what position. Darrel Daines, Controller, Office of the State Controller, told the committee that if he issues 50,000 checks per month at the cost that Mr. Seale cited, $40-50 per check, that would equal $250,000 and he does not have that large a budget. He questioned Mr. Seale's figures. He stated the savings that Mr. Seale projected for the committee are unrealistic. He stated there may be five keypunch operators whom they could eliminate as they computerize more tasks in the office, but he could not see where they could eliminate the eight positions. He stated every person whom they would eliminate would cause tasks to be left undone. He stressed the need for all of the staff to continue. He told the committee either he or Mr. Seale could run both offices, but the staff in one office could not run both offices. He provided an exhibit for the committee (Exhibit E). Mr. Daines testified: There is a line drawn between our offices right now and we do not step over it. He does not try to tell me how to run my office and I do not try to tell him how to run his. But you know, he cannot make a single, solitary investment of the public funds unless I am willing to sign off on it, unless I am willing to issue the warrant and payment on it. Likewise, I cannot pay a single, solitary bill unless he is willing to go ahead and sign off on it. If that is not the purest form of checks and balances, then I do not know what it is. . . . If we are in control of who we appoint to fill this job, you have the ability to control the decisions they ultimately have to make . . . You give away too much and there just is not the financial gain that has been talked about here. I would be very happy to pull some of those figures together because I just do not agree with Bob's [Seale] figures at all in this particular instance. Bob [Seale] and I agree on most things, but on these we simply do not agree. Mary Sanada, Chairman, Legislation Committee, Nevada Society of CPAs, testified against this bill. She stated amazement that the state would consider merging the controller's and the treasurer's offices. She gave the committee a brief overview of accounting procedures and internal control procedures. She said, "I can assure you that if a person wanted to, and were in a position of the treasurer with an appointed controller, that they could misappropriate funds and conceal it through falsification of the accounting records. It would not be that difficult to do." Senator O'Connell asked if there have been problems in other states where the treasurer is elected and appoints the controller? Ms. Sanada responded she is unaware of any problems. She continued her testimony by stating the Legislative Counsel Bureau audits for the past 6 years have been narrow-scope performance auditing. She stated the LCB has not been doing financial audits. She stressed they cannot contribute to internal control problems. She reminded the committee that only the controller sees the check written by the treasurer every day for millions of dollars for investments. They are not seen by any other agency or person. She stated that computer hackers can find ways to make funds electronically disappear and it has happened before. She emphasized, "I feel very strongly that this is a bad piece of legislation." Senator Porter questioned Ms. Sanada about her campaign position of streamlining the controller's office by eliminating unnecessary positions. Ms. Sanada responded: Maybe you could eliminate a secretary, and one of the deputy positions, but as far as accounting personnel . . . knowing what I do about the way the two offices operate, I cannot see where they're doing accounting in their office that we are duplicating in our office. I did say that I could see efficiencies and ways to save to make the controller's office more efficient. That could be done whether or not the two offices were consolidated. Senator O'Donnell asked Ms. Sanada to explain how she could support both the treasurer and controller positions being appointed, when she opposed the controller being subordinate to the treasurer. He reminded her that if they appointed both positions, then they would both be subordinate to the Governor who appointed them. Ms. Sanada agreed they would be subordinate. She commented there are several reasons to have the offices independent and not subordinate to anyone. She stated maybe there needs to be qualifications written into statutes to prevent unqualified persons from holding the offices. Senator O'Connell closed the hearing on S.J.R. 21 and opened the hearing on Assembly Bill (A.B.) 453. ASSEMBLY BILL 453: Revises provisions governing procedure for appeal by person making unsuccessful bid for purchases by state. Tom Tatro, Administrator, Purchasing Division, and Marty Howard, Deputy Attorney General, Office of the Attorney General, spoke in support of A.B. 453. Mr. Tatro offered copies of his testimony regarding the bill (included here). He told the committee that Nevada Revised Statutes (NRS) 333.370 contains the appeals' procedure within the State Purchasing Act. During the 1993 session of the Legislature, they extended the provision to the State Industrial Insurance System (SIIS). After this expansion it became apparent there are flaws in NRS 333.370, Mr. Tatro pointed out, which face not only SIIS, but the state Purchasing Division. Mr. Tatro continued, noting there are several things defined in the statute (Exhibit F). He discussed these defined items. He also outlined those items not defined in the statute (Exhibit F). He told the committee Mr. Howard will explain the changes needed and requested in this bill. Mr. Howard explained there are two goals to be accomplished with the bill: one, when an unsuccessful bidder wishes to appeal, that appeal will be heard before a department administration hearing officer (usually trained attorneys); and two, they will develop guidelines on the hearing and appeal process. The bill will make the appeals and hearings subject to the Administrative Procedures Act, he added. He provided Exhibit G to the committee to facilitate discussion. (Original is on file in the Research Library.) Senator O'Connell asked Mr. Howard to how the bill became necessary. He told the committee of a major case involving the purchasing department. In the Reno Diagnostic Center case, which Mr. Howard explained is a case he was only slightly involved with, there was a contract for magnetic resonance imaging (MRI) awarded on March 21, 1994, then there was a notice of appeal filed on March 28, 1994. The state was unable to determine the bond amounts needed to be posted by the appellant, he explained, and they determined that the usual amount was inadequate to stop frivolous appeals. The upshot, Mr. Howard said, was the case arrived simultaneously in the administrative court, the district court, and the state supreme court. This was due to a lack of clear procedures for appeal, he said. Mr. Howard told the committee the successful bidder in the case was not even brought into the action, and left it to the state to defend the awarded bid. He opined the provision in the bill, which allows the successful bidder to become party to the appeal, will be beneficial to the process. He noted the bill is also an attempt to streamline the appeals' process. Mr. Howard told the committee of another example of how the current appeal process failed. In the Systems Furniture Case, bids were invited on February 17, 1994, on August 9, 1994, the bid was awarded to a party bidding $776,000. On August 18, 1994, the bid award was protested by another party who had bid $921,000. The state had awarded the bid to the lower bidder, he explained, an appeal's officer upheld that award on September 12, 1994. The low bid stood, Mr. Howard explained, because there was no appeal of the decision. If there had been, the process would have had to begin again from scratch. He outlined the process that would have had to be followed if an appeal of the decision had occurred. Mr. Howard explained the bill will provide a clear outline of the procedure, streamline the process, and allow full disclosure of the "rules of the game," as well as avoiding duplicitous proceedings. He offered to answer the committee's questions. Senator O'Connell closed the hearing on A.B. 453 and opened the hearing on A.B. 382. ASSEMBLY BILL 382: Makes various changes to provisions governing local improvement districts. Ben Graham, Chief Deputy, Clark County District Attorney's Office, spoke in support of the bill. He admitted he is not generally involved in this type of legislation, but observed he found this bill refreshing in its attempt to simplify a situation. The main focus of the bill, he told, addresses the situation where a large improvement is being "put together" and a landowner was unaware or not notified of the impending activity. In many such cases, the landowner will request some additional improvement, that is not contained in the original plan. This bill will allow the governmental agency or improvement district to negotiate with the landowner. It essentially waives some procedural requirements, he stated, and allows for completion of some of these unanticipated improvements while the major project is going on. He pointed out the requesting landowner is the party that must pay for the added improvement, and both parties must agree to the change in the improvement. Under section 3 of the bill, Mr. Graham noted, the language is returned that was "inadvertently removed in 1991," which simply allows an ordinance to be adopted to achieve these improvements. In section 4, page 3, subsections 6 and 7, if there are excess funds, after the improvement is completed, the funds will be refunded pro rata to the property owners whom they assessed for the improvements, he explained. Mr. Graham offered to answer questions, considering his limited knowledge of the subject. Senator O'Connell outlined a scenario where there is a general improvement district (GID) going on in an area. One of the home owners affected by the improvement is not completely informed of the situation. At the time the project starts up, the home owner asks to have his driveway repaved. She asked if the contractor and the home owner could agree for this additional work, and if there will exist a contract between the two parties regarding the additional improvement. Mr. Graham stated it was his understanding the agreement would have to be between the governmental entity and the contractor. Thus, the home owner would have to contact the governmental entity and they, in turn, would negotiate with the contractor. At this point, Marvin Leavitt, Legislative Coordinator, City of Las Vegas, arrived and attempted to address the senator's question. Senator Shaffer noted the county would not normally put in a driveway. Mr. Leavitt explained the creation of an assessment district is a lengthy process, with many notices and meetings to discuss the extent of the improvement. He asked the committee to "suppose the district is about halfway through the process" when a property owner asks for his driveway to be paved also. If the home owner goes to the government and asks if this is possible, Mr. Leavitt explained, under existing law such a change would require notice and meetings to start all again. The bill proposes to allow the home owner to have the driveway paved, the cost of the driveway is simply added to the cost of the entire project, and the home owner pays the additional cost, along with the original assessment. The bill provides a slight benefit to the home owner, who might save some costs of having the driveway paved on his own. Senator Shaffer asked what happens if the work is completed and the home owner decides he is not happy with the work and refuses to pay. Mr. Leavitt speculated that the government, since it holds the contract, is the receiver of services and it would inspect the work and determine if the contract is sufficient. Allowing the individual home owners to deal directly with the contractor would be impossible. Senator O'Connell asked if the home owner would know the price of the driveway before the work was done. Mr. Leavitt replied he would. The senator asked for confirmation that the home owner would deal with the county. Mr. Leavitt answered the home owner would deal with the improvement district personnel. The improvement district personnel would negotiate with the contractor and then report back to the home owner. The home owner would then agree with the price or not. Senator O'Donnell referred to page 3, subsection 6 of section 4. He read the provision and said his understanding is that the bonds for a general improvement district are at a fixed rate and are sold "to an extent that you are going to receive that revenue" into an account to pay for the improvement project. Why would the improvement district wish to take extra proceeds and pay the debt, when they should rightfully return the excess proceeds to the bond holders? Mr. Leavitt restated the situation will be if there is unexpended money from the bond, it can be applied against the assessment, pro rata, of the home owners. The senator asked if this would "screw-up" all of the bond holders. These bond holders expect to receive a return on their investment, he opined. Mr. Leavitt replied the provision would not "screw-up" the investors, noting another provision is one allowing prepayments. This is because every party involved in an assessment district has the right, on an annual basis, to prepay everything that is due on his assessment from that point on. For example, if the property owner had a 20-year improvement for which he was planning to pay. In the third year he decides to prepay the assessment. Normally, the government would take the prepaid amount and call in a certain number of the bonds. Otherwise, the government would not have enough cash to pay the interest on the issued bonds. Bond holders for special improvement districts, Mr. Leavitt continued, know there is a possibility their bonds will be recalled early. The bond purchaser knows this, and takes the risk on the bond. Senator Shaffer asked if NRS 271.485 covers bond definition and sale procedures. He noted there needs to be language preventing prepayment penalties. Mr. Leavitt told he has never seen an improvement bond that did not have a prepayment allowance. He suggested another possibility would be to have a debt-service fund which they would then pay back to the bond holders. The senator seemed placated by this information. He moved to another question. In section 4, subsection 7, Senator O'Donnell asked how the governmental entity can reduce the rate of interest after it has been set for bond. Does the bond holder have their interest rate reduced, simply by a vote of the county commission, he asked? Mr. Leavitt explained that normally, when they issue the bonds, the property owners pay a premium, above the interest rate of the bonds; usually this rate is 1 percent. If the fund gets to a certain point, where it becomes obvious there will be additional money there, they can reduce the rate being paid by the property owner, Mr. Leavitt told, though not below the rate paid on the bonds. Senator Raggio asked for further explanation of the scenario where the home owner wishes additional work to his home during a general improvement district. Under subsection 2 of section 1, he said, it appears the additional work would have to be of a like nature to the whole project. For example, having a patio poured when the project was for sidewalks in the neighborhood would not be possible, he opined. Mr. Leavitt agreed it would have to be within the authorized improvement and on property within the assessed district. Senator O'Connell asked if the project is for paving the street, would it be possible to have a driveway paved? Mr. Leavitt was unsure, because the driveway is directly attached to the road. Another example, he offered, would be paving curb and gutter, with the driveway directly attached. There might be nothing wrong with this situation because there is assessable property and the additional work is directly attached to the ongoing improvement project. Senator O'Connell speculated the number of requests for such work is what generated the bill. Mr. Graham concurred with this speculation. Senator O'Connell closed the hearing on A.B. 382 and opened the hearing on Assembly Joint Resolution (A.J.R.) 14. ASSEMBLY JOINT RESOLUTION 14 OF THE SIXTY-SEVENTH SESSION: Proposes to amend Nevada constitution to remove Lieutenant Governor from position of Speaker of Senate and to abolish additional expense allowance paid to Speaker of Assembly and President of the Senate. Assemblyman Joseph E. Dini, Jr., addressed this bill first. He provided a history of the bill to the committee. He explained this resolution has already passed through both houses during the last session. ASSEMBLY JOINT RESOLUTION 30: Urges Congress to give consideration to readiness of Republic of China on Taiwan for broader participation in international community. Mr. Dini testified for A.J.R. 30. He reminded the committee that the Taiwan delegation came to the Legislature 2 weeks ago to gather support for their participation in the international community. He stated this resolution passed through the Assembly with a unanimous vote. He provided Exhibit H to the committee. Hearing no further testimony on any of the bills, Senator O'Connell adjourned the committee at 4:30 p.m. RESPECTFULLY SUBMITTED: Teri J. Spraggins, Committee Secretary APPROVED BY: Senator Ann O'Connell, Chairman DATE: Senate Committee on Government Affairs May 29, 1995 Page