MINUTES OF THE meeting
of the
ASSEMBLY Committee on Commerce and Labor
Seventy-Second Session
April 9, 2003
The Committee on Commerce and Laborwas called to order at 2:10 p.m., on Wednesday, April 9, 2003. Chairman David Goldwater presided in Room 4100 of the Legislative Building, Carson City, Nevada, and, via simultaneous videoconference, in Room 4401 of the Grant Sawyer State Office Building, Las Vegas, Nevada. Exhibit A is the Agenda. Exhibit B is the Guest List. All exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.
Note: These minutes are compiled in the modified verbatim style. Bracketed material indicates language used to clarify and further describe testimony. Actions of the Committee are presented in the traditional legislative style.
COMMITTEE MEMBERS PRESENT:
Mr. David Goldwater, Chairman
Mr. Morse Arberry Jr.
Mr. Bob Beers
Mr. David Brown
Mrs. Dawn Gibbons
Ms. Chris Giunchigliani
Mr. Josh Griffin
Mr. Lynn Hettrick
Mr. Ron Knecht
Ms. Sheila Leslie
Mr. John Oceguera
Mr. David Parks
Mr. Richard Perkins
COMMITTEE MEMBERS ABSENT:
Ms. Barbara Buckley, Vice Chairwoman (excused)
GUEST LEGISLATORS PRESENT:
Assemblyman Jerry Claborn, Clark County, District No. 19
Assemblyman Jason Geddes, Washoe County, District No. 24
Assemblyman Joe Hardy, Clark County, District No. 20
Assemblyman Garn Mabey, Clark County, District No. 2
STAFF MEMBERS PRESENT:
Vance Hughey, Principal Research Analyst
Wil Keane, Committee Counsel
Diane Thornton, Senior Research Analyst
Sharee Gebhardt, Committee Secretary
OTHERS PRESENT:
Susan Chandler, M.S.W., Ph.D., School of Social Work, University of Nevada, Reno
Joe Edson, Field Organizer, Progressive Leadership Alliance of Nevada
Heather Molina, Student, School of Social Work, University of Nevada, Reno
Suzie Hutchison, Student, School of Social Work, University of Nevada, Reno
Jessica Totans, Student, School of Social Work, University of Nevada, Reno
Michael Gittings, Secretary-Treasurer, United Food and Commercial Workers Union, Local 711 – AFL-CIO
Stan Fortune, United Food and Commercial Workers Union, Local 711, AFL-CIO
Danny Thompson, Executive Secretary-Treasurer, Nevada State AFL-CIO
Myla Florence, Director, Department of Employment, Training and Rehabilitation, State of Nevada
Ben Contine, Legislative Advocate, Las Vegans for Affordable Health Care
Helen Foley, Legislative Advocate, Clark County Health District
Robert Sack, Division Director, Environmental Health Division, Washoe County District Health Department
Daren Winkelman, Environmental Health Director, Carson City Environmental Health Department
Larry Osborne, CEO, Carson City Area Chamber of Commerce
Michael Pettington, Public Policy Director, Reno-Sparks Chamber of Commerce
Craig Hudson, Western Regional Director, Independent Community Bankers of America
Denyette DePierro, Legislative Advocate, Independent Community Bankers of America
Dennis Flannigan, Executive Vice President, Great Basin Federal Credit Union
Mendy Elliott, Vice President, Wells Fargo Bank Nevada
Donal Hummer, Vice President and General Counsel, Harley-Davidson Financial Services; Director, Nevada Thrift, Eaglemark Savings Bank
Robert Barengo, Chairman of the Board, Western Thrift and Loan
Scott Walshaw, Commissioner of Financial Institutions, State of Nevada
Philip LaChapelle, Founding President and CEO, Security State Savings Bank, Las Vegas
Richard Cullen, Assistant Vice President, Operations for an Affiliate of John Deere Capital Corporation
Ray Masayko, Mayor, Carson City
Ron Trunk, Executive Director, Citizens for Affordable Homes, Inc.
Dan Reaser, Legislative Advocate, Toyota Financial Services
Steve Holloway, Executive Vice President, Associated General Contractors, Las Vegas Chapter
Russell Rowe, Legislative Advocate, Focus Commercial Group, Inc., and University & Community College System of Nevada
Randy Robison, Legislative Advocate, Associated Builders and Contractors
John Ellerton, M.D., Oncologist, Southern Nevada Cancer Research Foundation
Robert Miller, Private Citizen
Anita Patton, Private Citizen
Jack Kim, Director of Legislative Programs, Sierra Health Services, Inc.and Nevada Association of Health Plans
Christine Petersen, M.D., Vice President, Medical Affairs, and Chief Medical Officer, Sierra Health Services, Inc.
Jay Keystone, M.D., Medical Director, Hometown Health, Reno
Fred Hillerby, Legislative Advocate, Hometown Health Plan and Nevada Association of Health Plans
Bob Ostrovsky, Legislative Advocate, Nevadans for Affordable Health Care
Renny Ashleman, Legislative Advocate, Nevada Health Care Association
Christina Dugan, Director, Government Affairs, Las Vegas Chamber of Commerce
Helen Foley, Legislative Advocate, PacifiCare Health Plans of Nevada
Alan Blumenthal, Medical Director, PacifiCare Health Plans of Nevada
Jim Jeppson, Risk Manager, Washoe County
Buffy Martin, Government Relations Director, American Cancer Society
Greg Smith, Deputy Administrator, State Purchasing Division, State of Nevada
Michael Lasko, Senior Project Manager, Transportation, CH2Mhill
Jack Jeffreys, Legislative Advocate, Southern Nevada Builders & Construction Trades Council
Jim Laing, Project Manager of Reno ReTrac Project, Granite Construction
Chairman Goldwater:
I’d like to bring the hearing on Commerce and Labor to order. Please have the record reflect that everyone is present, save Ms. Buckley, who is excused on business and will not be joining us today. Note for the record a quorum is present as well. This is one of the last two days in which we will have a long agenda, and it is long. Everyone is welcome here. Those of you who are not here very often, welcome to the Commerce and Labor Committee. We deal with some interesting issues and we are very happy to have you. I see that there is a sign-in sheet and you all have signed in. We are excited to hear your testimony on your bills. You will note that we have seven bills on our agenda, as well as nearly a dozen bills on our work session. We will go through all the bills, so we could be here until very late. Every bit of testimony you have is important, and as I mentioned before, we are anxious to hear it. If you hear something that you want to say, already stated, you just need to review and emphasize it. There is no need to go over it again. I will leave it at that.
I’ll open the hearing on Assembly Bill 356, sponsored by Ms. Giunchigliani.
Assembly Bill 356: Revises various provisions relating to establishment of living wage and certain benefits for certain employees in private employment. (BDR 53-682)
Assemblywoman Chris Giunchigliani, Assembly District No. 9 (Clark County):
[Introduced herself and spoke from prepared testimony, Exhibit C.] There is a national move to develop self-sufficiency standards. It was originally developed for Wider Opportunities for Women (WOW). It is timely for Nevada to consider this legislation because of our uncertain economy, along with changes in welfare and workforce development. As parents leave welfare and enter the workforce, they become part of the large number of families who cannot stretch their wages to meet basic necessities. They are working poor and are living in poverty or just above poverty.
States have not tracked the necessary information to help us determine what an adequate or living wage is, so that we can make good policy decisions. Therefore, the need for defining and developing a self-sufficiency standard is necessary, and this bill attempts to address it. The self-sufficiency standard measures how much income is needed for a family of a given composition in a given place to adequately meet its basic needs without private or public assistance.
[Assemblywoman Giunchigliani continued.] We need a standard that focuses on Nevada, is consistent in the assumptions made, and is as objective as possible. Usually, we look to the federal poverty measure to determine that a family is poor, if their income is below a certain threshold, and not poor, if above a certain threshold. Simply setting a poverty measure, which does not look at the costs of child care and health care, does not give a complete picture. Also, the federal level is not high enough. That is why amendments have been made to CHIP (Children’s Health Insurance Program), which now makes the standard 200 percent above the poverty level, and Medicaid is extended to families at 133 percent of the federal poverty level. The federal poverty level has been adjusted both by the federal government and Nevada because it does not meet the needs that we believe families and children should be entitled to.
There are other problems with the federal threshold. The measure is based on the cost of a single item, not the market base. Second, the demographic model from 40 years ago based it on a two-parent family with a stay-at-home mom. It is a one-size fits-all measure that ignores where someone lives, whether it is in New York City or Bolivar, Missouri.
Therefore, we are attempting to change the policy to one that turns the policy around. It does not ask where poverty ends, but rather where economic independence starts. The standard assumes full-time working adults and includes costs associated with employment such as transportation, taxes, and child care. It takes into account the size of the family, the composition, and the age of the children. It incorporates regional and local variations. It includes the net effects of taxes and tax credits. Finally, it assumes a fixed ratio between food and non-food.
The poverty rate of children helps us paint a picture of the need. I have given you some documents (Exhibit D) that address, or at least give a picture of, the poverty rate for our children in Nevada. Many of our constituents deserve the opportunity to earn a living wage and become self-sufficient.
I have provided to you a copy of an article in the Las Vegas SUN (Exhibit E) regarding how difficult it is to find housing, especially apartments, on a $6-$7 hourly wage. Then, as I was working on this legislation and wondering if I could even get you to support a $1 increase in the minimum wage, I came across this article, dated February 3, 2003, commenting on the chairman of Harrah’s being paid a $3.8 million bonus, which was up from a $900,000 bonus paid to him in 2001. I am not trying to single anyone out, and I do not begrudge anybody his pay, even though this bonus was in addition to his pay. I am sure he is not the only executive or chairman that makes that kind of money, but I think this might show you how miniscule a dollar is to some, yet how important and how much a difference it can make in the lives of the working poor.
[Assemblywoman Giunchigliani continued.] Health care is also one of the largest costs a family has these days. The costs for uninsured workers continue to burden all our taxpayers because they use public hospitals and clinics, which then drive everyone else’s costs up. Many people also catch their illnesses at work, such as teachers and grocery clerks. Teachers have health care, but not everyone in a grocery store has coverage. They are handling food that consumers buy, which then can spread the diseases or illnesses, as well. The back section of this bill does not mandate that if you are a large grocery store retailer, you need to provide health care coverage. What it does say is that in order to receive a permit from a health authority, they must meet certain standards. That language is in Section 8 of this bill.
I have also provided amendments to the bill (Exhibit F). We worked with Bob Shriver to deal with some of the concerns that he had. If I might, Mr. Chairman, I would appreciate walking through the amendments for you.
Basically, I am suggesting to amend Section 1(a) and 1(b) to take out, at this point, because of our economic uncertainty, the $1 increase. However, I am suggesting that we leave in that the Labor Commissioner, in 2005, may at least choose to look at a CPI [Consumer Price Index]. We have always had the language in there for the flexibility, but I think, at least, a cost-of-living increase should be reviewed every so often, and we should not wait every 10, 15, or 20 years for the federal government to make a determination regarding the minimum wage law.
In addition, I am suggesting we amend Section 1, subsection 2, to go back to the current language regarding the Consumer Price Index. I am suggesting deleting Section 5. That was at Bob Shriver’s request, and we agreed that it probably was not pertinent on the tax abatement issue, although we were concerned about that area. He is doing a pretty good job regarding how to recruit businesses, and they are actually paying an average of $12 an hour or upwards. I am also suggesting amending page 11, Section 8, line 26 at the end of “employee” by inserting “except courtesy clerk.” Finally DETR (Division of Employment, Training and Rehabilitation) has done an analysis of this legislation (Exhibit G), and I will get you a copy of that as well. But by deleting Section 5, they are suggesting that they refer to Chapter 231 [of Nevada Revised Statutes] within that language. As the other individuals are discussing the bill with you, I will get copies for the Committee to consider.
Assemblywoman Gibbons:
I want to understand what you took out in Section 1, because my interns, particularly my male interns, were concerned that the employees under age 18 were being paid less. They thought that everyone should be paid the $6.15 an hour.
Assemblywoman Giunchigliani:
That would be fine by me.
Assemblywoman Gibbons:
I guess maybe I am concerned more because you are taking it out.
Assemblywoman Giunchigliani:
Are you talking about Section 1? [Received confirmation.] Basically, that would be the actual increase and that is for this Committee’s decision to make. My recommendation is, because of the tax increases and because we are asking businesses to pay more this session, maybe this is not the time to request a dollar increase in the minimum wage. That is what those two sections refer to. I’m taking those out, or at least I’m recommending that the Committee consider that. In addition to that, Mrs. Gibbons, if you go to page 2, subsection 2, I’m suggesting changing “shall” to “may” for the Labor Commissioner, or you could choose to leave “shall” in there, but on July 1, 2005, [I’m suggesting we] prescribe by regulation the CPI, extending out to the next biennium for the purpose of looking at a CPI increase.
That is still your policy decision. I believe a dollar increase is a very minimal increase, and that we should take a look at it. We are trying to deal with the politics of it as well. If I might, I believe Dr. Chandler, Joe Edson, Helena Molina and Suzie Hutchinson wish to address this.
Susan Chandler, M.S.W., Ph.D., School of Social Work, University of Nevada, Reno:
[Introduced herself and spoke from prepared testimony, Exhibit H.] I am on the faculty of the School of Social Work at the University of Nevada, Reno.
For the last four years I have been studying Nevada workers and the state’s economy. I am the author of Working Hard, Living Poor, which you have in front of you (Exhibit I). My studies have taken me to a world of many statistics, but more importantly into the lives, homes, and workplaces of Nevadans who make our economy run.
[Ms. Chandler continued.] A.B. 356 is, I believe, a real opportunity for our state, and I urge you to support it. Close to 50,000 Nevadans of all ethnicities, genders, and ages would benefit from a dollar raise in the minimum wage and I hope we can include that.
I would like to tell you the story of a woman I met two years ago. “Alma” is a 50-year-old janitor in one of northern Nevada’s casinos. She cleans bathrooms and banquet rooms every day from 6:00 p.m. until 2:00 a.m. Then at 2:00 a.m. she heads for her second job, cleaning a fast-food restaurant. When she finally returns home at 11:00 a.m. the next morning, she sleeps for a few hours, but by 2:00 p.m. she’s up cooking her grandchildren’s dinners. Then it’s back to the casino at 6:00 p.m. Alma, who is 50 years old, has worked two full-time jobs for most of the last eight years. Alma’s story is one that I heard again and again and again.
Nevada boomed throughout the 1980s and 1990s. The contradiction between that boom and the stories of Nevadans like Alma motivated the research for Working Hard, Living Poor (Exhibit I). In it, we spent a good deal of time constructing family budgets for Nevada. Our families are very frugal – they never go out, they cook all their own meals at home, drive 8-year-old cars, spend nothing for recreation or entertainment, and never take vacations. We then calculated the wage a full-time worker would need to make in order to meet his or her family’s basic expenses. In Nevada, this “living wage” is $8.53 an hour for a single person; for a single parent with two children, it is $14.57.
In 1938 when the original minimum wage law was passed, it was designed to enable a worker to pay his family’s basic expenses, and for many years it did just that. But then inflation mounted and Congress failed to raise the minimum wage. Now the minimum wage is $5.15 an hour, or a little over $10,000 a year. This does not cover basic costs; it does not come close.
In the last decade, ten states and the District of Columbia have raised the minimum wage above the federal level. Sometimes they did this legislatively, and sometimes they did it as a result of a popular referendum.
I would like to make two points about these ten states’ experiences: First, as you can imagine, raising the minimum wage was a highly popular move. All kinds of people turned out to organize the campaigns and to vote yes in the referendums – elderly people, young people, women, minorities, people with disabilities, unions, people of faith, et cetera. Wage issues touch a nerve. Americans overwhelmingly believe that a person who works a 40-hour workweek should be able to live on his or her wages. This first point is designed to assure you that a vote for this bill will be a popular vote.
[Ms. Chandler continued.] Second, researchers have now had a chance to look at the economies in those ten states and determine what the impact of raising wages was. Did bad things happen? For example, opponents invariably argue that if you raise the minimum wage, employers will be forced to lay off workers. In no state has that proved to be the case. Opponents also claim that raising the minimum wage will discourage companies from relocating to their state. That is not true either. In fact, employers are not looking for the opportunity to pay their employees rock-bottom wages. They are looking for livable, energetic communities with a high quality of life.
Here another note is important. Nevada’s economy has a split personality. In the south, on the Strip, organized workers in culinary and construction [unions] have won good wages with good benefits. That is something that we as Nevadans can be very proud of. Off the Strip, in the northern and rural parts of the state, low-wage workers face a much harder row. On the Strip, a maid makes $14.00 an hour and has excellent benefits; in Reno, she would start at $6.50 an hour. Those unionized Strip workers are one reason that Nevada’s rate of poverty is lower than other states. In fact, as Assemblyman Beers will probably point out, we have the third-lowest percentage of people below poverty level in the nation. That is good. But remember, one of the reasons for that is those union wages. If you like that statistic – third-lowest rate of poverty in the nation – then you will surely vote for A.B. 356 and work to ensure that more Nevadans are unionized.
Finally, I would like to speak of dignity. We are at an important historical juncture. The state is asking a great deal of our working men and women. Nevada workers work tremendously hard. They are serving in the armed forces. They are raising the next generation. Hard work deserves just rewards. We can build an economy where we squeeze low-wage workers out of every nickel, out of every benefit. But, it is an economy that we do not want to build. It benefits no one: not the workers, not their children, not the taxpayers, not the state, not the business community. The low road path is not one that Nevada should take. Please vote yes on A.B. 356.
Chairman Goldwater:
I read your executive summary and it looks like a good report. Did you, by any chance, study the effect this would have on state and local government programs that we have? There are so many programs we have that are means-tested. If we actually paid people a living wage, is there any quantifiable measure of how that would relieve the state and local government programs?
Susan Chandler:
I do not have a number, but your point is absolutely true. Taxpayers end up picking up the bill for employers who do not pay living wages and who do not provide adequate benefits. I know in Las Vegas, there was one study done by Jeff Waddoups of UNLV (University of Nevada, Las Vegas), in which he calculated that taxpayers ended up paying $10 million a year for the University Medical Center (UMC) because employers were not providing adequate benefits.
Joe Edson, Field Organizer, Progressive Leadership Alliance of Nevada (PLAN):
[Introduced himself] PLAN supports wholeheartedly A.B. 356 and, in fact, over the last couple of years has invested a major amount of our time and resources to the development of the three reports that this bill draws upon: the Working Hard, Living Poor, parts I and II, authored by Dr. Susan Chandler at the University of Nevada, Reno; Alicia Smalley, also of the social work department there; and the Nevada Self-Sufficiency Standard that Assemblywoman Giunchigliani referenced in her opening statements, which was authored by the Wide Opportunities for Women and Dr. Diana Pierce of the University of Washington at Seattle.
As Assemblywoman Giunchigliani discussed, the calculations of the family unit budgets will reflect the real cost of living in Nevada. It will provide a baseline for the evaluation of jobs brought into Nevada. The Department of Economic Development already works diligently to bring in good corporate citizens that provide good jobs and benefits in return for their incentives and abatements. The data collection and tracking provided for in A.B. 356 will prove to be an invaluable baseline for their future efforts in establishing living wage standards in Nevada.
Unfortunately, our studies found that, despite the efforts of the Department of Economic Development, over 57 percent of the current jobs in Nevada pay less than a living wage for a three-person family. Among the fastest growing segments of jobs in Nevada, nearly 90 percent will pay less than a living wage for a three-person family.
In reference to Chairman Goldwater’s concerns about the draw on the budgets and the social services of the state to provide for services for people who do not have the fortune to work for a living wage, this bill will serve to develop those baselines that might be used as future benchmarks in planning for those services. Those kinds of adjustments to what it takes to live, and how much of a wage is needed, are brought forth in the self-sufficiency standard that we released in March of 2002. For example, if child care is both affordable and readily available for a worker, then you need less of a working wage to cover that. However, if those kinds of services are not available, then the living wage goes up.
[Mr. Edson continued.] For these reasons, PLAN stands squarely in support of A.B. 356 and urges you to adopt the bill in its entirety. There are others here who have submitted written testimony in lieu of spoken testimony (Exhibit J), which I know the Committee will appreciate. But, there are also a great many of our alliance here that have shown up in person to show their support of the bill. If it so pleases the Chair, I would like to have them stand in acknowledgement of their support of the bill.
Chairman Goldwater:
The Chair would appreciate that very much. Those of you here supporting A.B. 356, please stand and wave to the Committee. We have all of your names who signed in, and you will all be included as supporting this bill in our permanent record and in the minutes of this meeting.
Joe Edson:
I believe some students from Dr. Chandler’s social welfare policy class would like to present some of the studies that they found in reproducing Barbara Ehrenreich’s Nickel and Dime study, as well as a couple that will speak to their experiences with minimum wage workers.
Heather Molina, Student, School of Social Work, University of Nevada, Reno:
[Introduced herself and spoke from prepared testimony (Exhibit K).] I am from the University of Nevada, Reno, School of Social Work. I am here with many of my fellow colleagues who have probably just stood up.
We fully support all aspects of A.B. 356, the legislation that proposes an increase in the minimum wage by $1 per hour.
Last semester my policy class was given a project to complete. The reasoning behind it was to discover how low-wage individuals and families make it or don’t. We created a fictional family that consisted of a mother and her three children. I was in the group that needed to find her a job. This job would provide the income to find the family housing, child care, access to health services, and cover all other miscellaneous expenses.
We explored many ideas for her job and finally decided on her becoming a cocktail waitress, making $6.01 an hour, which is $0.86 over the minimum wage, plus tips. Based on interviews with other cocktail servers, it was estimated that she would probably make about a minimum of $30 in tips a day.
[Ms. Molina continued.] After taxes, our fictional character’s monthly net income was $1,808.04. She has $1,800 to provide housing, child care, food and medical services for her family. Her estimated monthly expenses were figured to be roughly $1,972.63. That is $165 more than she makes in a month, not to mention the budget that was created was the bare minimum, with no perks, and her being very frugal.
An increase in the minimum wage can help these working individuals and families. We strongly urge you to support A.B. 356.
Suzie Hutchison, Student, School of Social Work, University of Nevada, Reno:
[Introduced herself.] I am here to relate to you a personal experience that I recently had with my daughter. She just got back into the work force. When she did, she approached me and asked if I could assist her in doing a budget that would suit her income. That was when reality really set in for us; $5.15 an hour just wasn’t a livable wage. When we sat down and did her budget, we found out that she earns $206 gross per week, which is an annual income of $10,712. Her rent, per month, is $450 with annual sum of $5,400. She has one child, and the cheapest daycare that we could obtain was $90 per week, which totals $4,680, annually.
If you total just her rent and daycare costs, she spends annually $10,080. We subtracted that from her gross annual income of $10,712 and that left her $632 annually for other expenses. We further broke that down and divided that by 12 which left her with $51 per month that she has left over to pay utilities, obtain food, gas to go to and from work, a car payment, and insurance for her car. When we finished her budget we decided that this just wasn’t a living wage. When you are considering A.B. 356, I ask that you think about these figures for those families who are trying in earnest to be self-sufficient. Than I ask you to ask yourself, could you or your family survive independently on $5.15 per hour?
Jessica Totans, Student, School of Social Work, University of Nevada, Reno:
[Introduced herself.] I would like to tell you my story. Since I graduated from high school, I have been working full-time and going to school full-time. About a year and a half ago I had to work part-time because of my class schedule so I can graduate sooner and actually make a living for myself. I tried to work one semester part-time and I couldn’t do it; I racked up my credit card bills and everything like that. So I had to pick up a second job. I make a little over minimum wage at my second job. I go to school full time; I work two jobs; and I work over 55 hours a week. Every aspect of my life suffers just a little bit. I don’t do as well as I should on my homework, or even at work; I don’t sleep enough. I live at home and I have no children. I don’t understand how families that have three or four kids can make a living off of $5.15 an hour. I urge you to support A.B. 356.
Michael Gittings, Secretary-Treasurer, United Food and Commercial Workers Union, Local 711, AFL-CIO:
[Introduced himself.] Local 711 is definitely in support of A.B. 356 and I would concur with all the comments by the speakers who have already testified. I would especially like to address Sections 7 and 8 of A.B. 356, which deal with the requirements for health permits for large grocery stores. A.B. 356 would require that grocery operators indemnify the state for health care costs incurred by their employees.
Our local union represents grocery store and drug store workers all over Nevada and Utah. The operators we have contracts with, Albertsons, Smith’s Food and Drug, Vons, Food for Less, Safeway, RiteAid in Las Vegas, and Meyer’s Market, already provide good, affordable health insurance to their employees, which are our members. Members don’t have to pay premiums to have coverage; it is all employer paid, which is what our contracts require throughout the state. Now if all other operators did the same, Sections 7 and 8 of this bill would not be necessary.
Unfortunately, some companies, like Wal-Mart that now is getting into the grocery business in a big way, don’t provide affordable insurance for their employees. If an employee at Wal-Mart wants to buy a family plan for medical insurance only with a $350 deductible, they have to pay $118.50 out of their paycheck every two weeks. That is pretty tough to do when you only make $7 an hour. In fact, according to the most recent information we have from the Department of Labor, 62 percent of over one million U.S. Wal-Mart employees were not receiving health insurance. That means someone else is probably paying the cost.
You all know that the state Medicaid budget and the county hospitals have been hard hit by the cost of indigent care, or uncompensated care, and that means that taxpayers are footing the bill. Also, when doctors or hospitals can’t collect their bills from someone without insurance, they have to charge more for everybody else. That means we all have to pay more for health care. We have higher doctor bills. An individual who wants to buy health insurance has higher premiums, and the responsible employers have to pay more to provide insurance for their employees. In fact, it is estimated that 30 percent of all medical costs are shifted costs; that is, shifted from indigent care, those who can’t pay their bills, and shifted by companies like Wal-Mart onto the taxpayers and everyone else. That is really shameful because Wal-Mart is the largest employer in America and had over $220 billion in sales in 2002.
[Mr. Gittings continued.] Our union and our members have felt the effects of Wal-Mart firsthand. Last year, one of our major grocery chains, Raley’s, sold all 18 of its stores in Las Vegas. We know, and all the experts in the industry agree, that the reason they sold was because of competition from Wal-Mart. Some 1,400 Raley’s employees lost their jobs, jobs that had good wages, good health care, and pension benefits that were paid for by Raley’s through the union contract. Fortunately, a lot of those people were able to get jobs with our other union stores, especially at Smith’s, which bought ten of the Raley’s stores. But about 500 of those employees did not. Every store that Wal-Mart opens means fewer jobs for our members and fewer workers with health insurance in our state.
Passage of A.B. 356 would guarantee that companies like Wal-Mart would not be able to take advantage of taxpayers. Really, at the same time, it would help protect the public from diseases, because when their employees get sick, they could get treatment instead of going to work and dealing with the public and handling their food.
Stan Fortune, United Food and Commercial Workers Union, Local 711, AFL-CIO:
[Introduced himself.] I want to thank the Assemblywoman who sponsored this bill for having the foresight to see its need. I was employed for 17 years by Wal-Mart Stores, Inc. The majority of this time was in management in various locations throughout the country, including Las Vegas from 1993 until 1998. My time of employment with Wal-Mart ran from 1984 until the year 2001. During my tenure with Wal-Mart in Las Vegas, I worked at three different job assignments. The first was a district loss prevention supervisor. In that job position, a complete understanding of the store’s profit-and-loss statements, company accounting procedures, et cetera, was needed in that job. The second position was as an assistant store manager. In this capacity, I was responsible for understanding the cost structure running one of these stores and the overall profitability of an individual store. My third and final position in Las Vegas was as a salaried personnel manager.
It was in this position that I first began to realize how Wal-Mart was changing from the company that it was, into the profit-hungry company that it is today. When I moved to Las Vegas at the end of 1993, I began to see how far my company was falling behind on one of its founding ideals, that of taking care of the associates. We call our employees “associates” and I still find myself in the habit of calling employees by that name. It was in Las Vegas that I saw we did not offer a living wage or head of household wage, as I called it then. Another lesson that followed shortly after that was when my wife went to work for MGM Grand. It was when she came home with her benefits book that I began to realize just how far behind my company was in taking care of its associates. The insurance program that she had is comparable to the one the UFCW (United Food and Commercial Workers) local in Las Vegas has for its members.
[Mr. Fortune continued.] There was an incident where one of my wife’s coworkers and one of my associates had a similar problem with a pregnancy. Luckily, both of these women survived the complications with their pregnancies and delivered healthy babies. My shock came when I became aware of the health care bills that each of them were responsible for. The woman who worked with my wife at MGM paid out less than $300 for the extensive bills she received. Our associate at our store paid out well over $3,000. I remember thinking at the time that it was over 30 percent of her take-home pay for that year. I could go on for hours and hours with stories similar to this of our associates and their families.
I began to question our health care plan. During one trip to Las Vegas, the regional personnel manager had a conversation with me about the health care issue. I showed him the benefits book from MGM, and he just looked at me and said, “For someone who understands our books as well as you do, why am I having to tell you that we cannot, as a company, afford to do this?” He handed me the book and told me to think about where my store’s profits would be if we had to supply this type of coverage and walked away from me, like I was some kind of idiot. I asked him where he thought these associates would be able to get the necessary medical treatment that they needed and he replied, “Let the state take care of them.”
As Wal-Mart began to expand their operations into the grocery business, they had several advantages over a traditional grocery store. These advantages translate into a big profit margin that Wal-Mart could [use to] take care of their employees by giving them a living wage and good health care. Instead they continue to pass the health care costs to the state, pay inadequate wages, and keep the extra profit for their own corporate greed.
What these workers face is beyond some people’s imagination. Currently they have to wait until they are so sick that they have to go to an emergency room to see a doctor. For the cold and runny nose that your children may have, you can call your family doctor and get treated; they cannot. The really scary part is that as Wal-Mart expands into the grocery business, these workers will be the ones handling your produce, meat, and groceries. It is rather scary to think about that. Is that a cold that the produce handler has, or is it the early signs of a very infectious disease?
[Mr. Fortune continued.] I no longer work for Wal-Mart. I am currently working for the United Food and Commercial Workers Union and with Wal-Mart associates to help them improve their wages, benefits, and working conditions. During the past couple of years, Wal-Mart has taken steps to reduce their costs of health care benefits that it has paid to its associates. An employee must now work an average of 34 hours a week for six months to even be able to buy benefits. An associate who works under 34 hours a week must work for two years before they are eligible to buy reduced coverage.
The company’s goal is to reduce the number of associates per store who qualify to buy the benefits. While I was in management at Wal-Mart, the district manager instructed me to reduce the number of associates who averaged, at the time, more than 28 hours a week, because too many were eligible to buy benefits. In addition, premiums have been raised, and the benefits have been reduced in the past several years. Premiums went up 30 percent in the year 2002 for the associates’ medical plans and another 18 percent in 2003. For a family medical-only plan with a $350 deductible, if the associate is lucky enough to be making $7 an hour, that is over 25 percent of his annual take-home wage, going to pay the premiums on his insurance. Most employees I know at Wal-Mart cannot afford that. These increases were not accompanied by an increase in wage, but they were accompanied by greater profits in the company, and they were accompanied by an increase in the uncompensated health care that the associates receive from the state. Wal-Mart claims, in statements to the press, that they have industry-average health care. Do you want this lack of coverage to become the industry average? This bill would do the right thing by raising the standard of living for these workers, and, at the same time, help reduce major costs to the state.
Assemblywoman Giunchigliani:
We have never met, so I appreciate your being here to testify. Thirty-four hours a week, and you have to . . . I have never been in a Wal-Mart and don’t plan on ever setting foot in one, but they have to work 34 hours a week for 6 months before they can even buy the reduced benefit? Is that what you said?
Stan Fortune:
Currently, to qualify to buy the health care benefits Wal-Mart offers, you have to be full-time associates. They have raised the qualifying hours for a full-time associate to 34 hours a week, average, and you have to be there for six months before you can buy the package, as it is. Then, it was two years for the people who do not work 34 hours a week. And they are eligible, basically, for medical only.
Assemblywoman Giunchigliani:
I think the comment from the one manager to you sums it up. To me, you [need] good business partners working within the community. From the ones that you mentioned – it is a false competition actually. What’s going to happen is that they are going to drive down the costs for the other individuals. They would at least take care of their associates. And then dump it, not only on the state, but I would see UMC (University Medical Center) as being one of the biggest impacts with the care, because individuals don’t have any kind of health insurance. I am proud to have introduced this section into my bill and that we are having this discussion. Whether the Health Division is the right property to do it, or there is a better mechanism of who goes in and reviews it, but I do believe there needs to be a standard that is upheld. The other company should be commended for treating their workers well. I just hope that Wal-Mart will come along in the same way.
Chairman Goldwater:
I recommend to all my colleagues that we do constituent services. We will be doing more and more of them. Ask a little bit of those constituents: who they are, where they come from, what they do. You are going to find that there is a trend that their employer probably doesn’t offer a living wage. Do a little census of your own constituents. Someone is going to end up paying for [social programs], and it is usually going to be the state, county, or city.
Danny Thompson, Executive Secretary-Treasurer, Nevada AFL-CIO:
[Introduced himself.] For the record, I would like to indicate that the Culinary Union, Local 226, is here today in support of A.B. 356, as well as their Local 86 in Reno. They brought 300 members, from both Las Vegas and Reno on buses. They are here today in favor of the bill and they want the record to reflect their support of the bill in its entirety. We do a lot of organizing with workers who are paid minimum wage. You will find that Dr. Chandler’s story about someone who did an eight-hour job and then went home and ate and went back to work is the norm. Certainly it is the norm in Reno, and [it] is very prevalent in Las Vegas. Adding insult to injury, you will find also that if you get one of the E-Z income tax forms with no deductions and no dependents and you are paid minimum wage, you will end up owing the government at the end of the year, unless you have extra money taken out of your check, depending on what your claims are on your W-4. Wal-Mart is the largest employer in the world, with over a million employees. Sixty-two percent of those people have no health insurance, and the comment “Let the state pay” is you.
[Mr. Thompson continued.] Last night I sat in the Senate Taxation Committee until well after 10:30 p.m. and we started at 1:00 p.m. Every one of those Senators sat in those seats and they have to be commended for that. We talked about taxes in Nevada. What it boiled down to was not if there is a structural deficit in Nevada; there is, and not if we can’t pay for the schools; we can’t, and not if the Rainy Day Fund is gone; it is. The issue was, who is going to pay? A proposal was put forth to put a tax on services.
I can tell you that my 165,000 members debated this issue last year. We all decided that we already pay enough taxes. We pay sales tax, property tax, insurance premium tax, gas tax, and real estate taxes. I went down the list. There was a whole page that we sat in the audience last night and recreated. We already pay another tax. It is a line item in your property tax bill called indigent care. You can draw a direct line from that tax, which we all pay, to Wal-Mart. Wal-Mart, who pays substandard wages, who does not provide health insurance to their employees, and who is dependent on the state to pay the bill, is creating the problem. I don’t need to tell you about the Medicaid budget and where it’s going. Anybody who is from southern Nevada knows that the University Medical Center is $30 million upside down a month, and there is no end in sight for that. That is not going to change, and that $30 million goes to those people who do not have health insurance.
This bill opens a needed discussion about if an employer has the ability to pay, then pays substandard wages, and [thereby] drives the competition out of business. Those 1,600 workers at Raley’s all had health insurance, every one of them. Even the courtesy clerks had health insurance. So you can do a mathematical formula and say that now they are going to be replaced with 62 percent of 1,600 people who aren’t going to have health insurance. That Medicaid budget is going to be impacted even more. UMC is going to be impacted even more. UMC is a vital hospital to southern Nevada because it is the only trauma center that we have in southern Nevada. You all saw what happened when it closed because you all came to the special session to solve that problem. We think that A.B. 356 provides an opportunity to do something about that and that is why we are all here today to support this.
Chairman Goldwater:
I appreciate your impassioned testimony. [Invited other proponents forward.]
Myla Florence, Director, Department of Employment, Training and Rehabilitation, State of Nevada:
[Introduced herself.] We are in support of the bill with the amendments that Assemblywoman Giunchigliani mentioned. She also indicated to you that she will be providing our analysis of areas that we feel could benefit from some technical changes (Exhibit L). In Section 3, subsection 1, we would recommend that, in lieu of the word “households,” use “family units” since that would be more consistent with definitions provided by the Census Bureau, Department of Labor, and Health and Human Services.
[Ms. Florence continued.] In Section 3.1, we would recommend on line 5 to insert after “budgets” the words “based upon acceptable self-sufficiency standards.” That would take us to the methodology used by WOW and PLAN, because that is an acceptable standard. We think the bill would benefit with that clarity.
In Section 3.3, we would recommend excluding item (g), “savings and investment,” because we are not aware of any standards that incorporate that in their livable wage studies and, indeed, it was not included in the study cited earlier.
In Section 3.4(a), we would recommend a definition for livable wage, such as a wage sufficient to support each type of family unit without public assistance based upon an acceptable self-sufficiency standard.
In Section 3.4(b), we understand that it is not contemplated that the livable wage be calculated for every geographic area within the state. If that is the case, there is no real fiscal impact to our department. If the expectation is to make those computations for every geographic area within the state, we think there would be a minimal impact of about a quarter of an FTE [full-time equivalent] or about $25,000. We would recommend, at least as we begin this process, that the Department only provide a statewide standard for the family units defined.
Assemblywoman Giunchigliani:
Did I get it correct, Myla? Because we took out Section 5, Section 2 on page 3, lines 12 through 33, should just be referenced with a prelude to [NRS] Chapter 231? Look at Section 3.2 on your document. Did you recommend we put that into Section 5, because we deleted that? I think your staff recommended that we reference subsection 2 of Section 3 with Chapter 231. [Ms. Florence provided confirmation.]
Ben Contine, Legislative Advocate, Las Vegans for Affordable Health Care:
[Testified from Las Vegas via videoconference. Introduced himself.] Las Vegans for Affordable Health Care is a diverse coalition of groups and individuals working to preserve UMC and UMC Quick Cares for southern Nevada. To date, over 35 individuals and 18 groups have signed on to our campaign to preserve UMC and the Quick Cares, including minority groups, labor organizations, religious leaders, and neighborhood and homeowner associations.
[Mr. Contine continued.] UMC and the Quick Cares are in trouble. Last year Clark County and UMC bore costs in excess of $50 million caring for the uninsured. Already, during the first two quarters of 2003, UMC has more than $35 million in costs associated with caring for the uninsured. The individuals and groups in our coalition have signed on because they know that over 20 percent of southern Nevadans are without health insurance. They know that many southern Nevadans have jobs that do not provide affordable health insurance. UMC provides services that you cannot find anywhere else in the community, including a world class trauma center, an HIV, AIDS, and wellness center, and the burn center. Our public hospital has an obligation to provide these services to anyone, regardless of their ability to pay, but working families and taxpayers cannot continue to subsidize this health care at current levels.
A.B. 356 ensures that more members of the community contribute their fair share to providing health care for the community. A.B. 356 is fiscally responsible. It would ensure that more people would have access to health insurance, providing them access to the primary and preventative care they need, as opposed to ending up in the emergency room where they will cost taxpayers even more.
Our public hospital and quick care units are busting at the seams. We cannot continue to make cuts and put a band-aid on an open wound, ultimately costing taxpayers more and putting our families’ health care at risk. We must deal with this crisis in a fiscally responsible way by insuring that more Nevadans have access to real health coverage. We encourage you to support A.B. 356.
Helen Foley, Legislative Advocate, representing the Clark County Health District:
[Introduced herself.] While we do not support the bill, we also do not oppose it. I did not want to get behind all of those that do oppose it. We just have a problem with the health district being the group that would decide whether or not they had appropriately insured their employees. When the health district inspects grocery stores, they look at the temperature of the meat and dairy counters, the packaging, the cleanliness of the kitchen, making sure that the frozen foods are frozen enough, and the hot foods are hot enough. They don’t have actuaries; they don’t have accountants. It seems to me that if you attempt to go in this direction, there might be another government agency that is better equipped to look at all of these things as to the appropriateness of health insurance.
Robert Sack, Division Director, Environmental Health Division, Washoe County District Health Department:
[Introduced himself.] I would like to echo Ms. Foley’s comments. Also, there are some substantial changes that it would cause for us. Our billing cycles are permanent renewals, and these right now are automatic. It would take a rewrite of our computer system, which can be done, but it will be at a substantial cost.
Daren Winkelman, Environmental Health Director, Carson City Environmental Health Department:
[Introduced himself.] We also echo both Ms. Foley and Mr. Sack. I do have some written comments, but we believe that it would affect our department. My staff is trained to do disease investigation, disease outbreaks, and routine inspection of food facilities, not to look at insurance records or employee plans.
Chairman Goldwater:
Let’s bring the opponents up for A.B. 356. Who is here opposing it?
Larry Osborne, CEO, Carson City Area Chamber of Commerce:
[Introduced himself.] I am here to oppose A.B. 356, specifically that section of the bill that requires an increase in the minimum wage over that federally mandated, for a litany of business and economic reasons. However, it is my understanding that the bill is to be amended taking [out] paragraphs (a) and (b) of Section 1. Then we would not stand in opposition to this bill.
Michael Pettington, Public Policy Director, Reno-Sparks Chamber of Commerce:
[Introduced himself.] Because of the testimony of Ms. Giunchigliani, we do not stand opposed to the bill in lieu of those amendments. We did sign in opposed.
Chairman Goldwater:
[There were no further questions or testimony regarding A.B. 356.] We will close the hearing on A.B. 356. We will open the hearing on A.B. 389.
Assembly Bill 389: Prohibits control of thrift companies by certain persons. (BDR 56-1099)
Assemblyman Jerry Claborn, Assembly District No. 19 (Clark County):
[Introduced himself.] A.B. 389 is important legislation. It closes a loophole on our state law, which allows the mixing of banking and commerce. It brings our state law into conformity with the federal law. It prohibits a person from acquiring control of a thrift company unless the person is engaged only in the activities permitted for a financial holding company pursuant to federal law, or, under certain circumstances, is a credit union. You are going to hear quite a bit of testimony. Let me start out by introducing Mr. Hudson, the executive director of Independent Community Bankers Association of America; Denyette DePierro, the legislative representative of the Independent Committee Bankers Association of America; and on my left, Danny Thompson. I think I will turn this over to Mr. Hudson.
Craig Hudson, Western Regional Director, Independent Community Bankers of America:
[Introduced himself.] This is a national issue that you will be deciding and the eyes of the nation are [watching] as you make this decision. The historic issue that you will decide is whether you are going to allow the hundred-billion dollar Toyota corporation, a commercial firm, slip through a loophole in the law and buy an industrial loan bank and thereby breach the wall that has been long established in this country between banking and commerce. This wall has been in place since the Great Depression. It is in place to protect depositors’ money. Or, are you going to vote for A.B. 389 and close this loophole in the law, which will preserve the safety and soundness of our diverse national banking system? It will bring your state law into conformity with federal law.
Let me just answer very briefly the questions: What do we mean by the mixing of banking and commerce? Why is it dangerous? And why is it such a bad idea? Let me give you a historic example, and then I will turn to my colleague, Denyette, who will give you a more modern example. We have forbidden, at the federal level, the mixing of banking and commerce since 1933 in the Bank Holding Company Act, which came about because, prior to that time, commercial firms could own banks.
I will give you one example, the Broadway Corporation, which was a retail outfit that purchased a bank. That was perfectly possible prior to 1933. When its assets began to weaken on the exchange, it simply reached across this wall and took depositors’ money, which was not insured by the federal government at the time, and used depositors’ money to support those weakening assets in the commercial firm. When that commercial firm finally went over the cliff with the crash of the market in 1929, it took depositors’ money with it and it took the bank with it. That’s the reason we had bank holidays in this country at the time. So in 1933, our legislators decided they had had enough of these “go-go” banking days and they were going to see that the separation between banking and commerce was strongly maintained. Denyette, give us an example that is more recent of the mixing of banking and commerce and its inherent dangers.
Denyette DePierro, Legislative Advocate, Independent Community Bankers of America:
[Introduced herself.] The most recent example we have of the dangerous mix of banking and commerce is the Asian financial crisis in the 1990s. If you have noticed, Japan was the “up and coming country” back in the 1980s and we haven’t heard much from them recently. What occurred in the mid 1990s in Japan, [which] is actually a perfect model case of what could happen here, is that banks were directly investing into corporations and corporations directly investing into banks. When one went under, they pulled everyone down. If you have noticed, Japan has been in a recession ever since.
Actually, on this issue of the Asian financial crisis, when Alan Greenspan, Chairman of the Federal Reserve, was testifying to the Senate Banking Committee on the Gramm-Leach-Bliley Act on June 17, 1998, he stated that the Asian crisis has highlighted some of the risks that can arise if relationships between banks and commercial firms are too close. More specifically, he states that it demonstrated the interactions of complex structures that could make it extremely difficult to monitor, analyze, and manage financial exposures. This means that at the state level, considering this is a state charter, it will be the obligation of the Nevada Department of Financial Institutions to monitor, analyze, manage, and actually assure the account holders that the thrift company that would be owned by this corporation would be a safe and sound depository for their accounts. It would be extremely difficult, considering that Alan Greenspan, Chairman of the Federal Reserve, finds it difficult at the federal level to do this kind of regulation. It would be extremely difficult for us, at the state level, to not only regulate the administrative headquarters, which would be in Hawthorne, California, but the North American subsidiary, which is also located out of state in California, as well as a Japanese parent corporation, which is located overseas. The regulatory burden is extreme.
Craig Hudson:
Let me just pose a simple question about the fair allocation of credit. Would Toyota’s bank make a loan to a person buying a Chevrolet or Buick? That is the kind of conflict of interest that we would like to avoid. There are a number of federal officials who have come out publicly in support of the division between banking and commerce. Alan Greenspan wrote a letter on March 11 of this year, and he said:
The Federal Reserve Board opposes the mixing of banking and commerce. Mixing banking and commerce would alter the structure of banking in the United States and would be contrary to two national policies that Congress has reaffirmed recently in the Gramm-Leach-Bliley Act. One prohibits the mixing of banking and commerce, and the other establishes a federal prudential framework to assure that companies that own insured banks operate in a safe and sound manner.
[Mr. Hudson continued.] That’s Alan Greenspan. This next comes from Senator Paul Sarbanes, the former chairman of the Senate Banking Committee. He says in a letter of August 30, 2002:
I have long supported the separation of banking and commerce as one of the foundations of the U.S. financial system. As Alan Greenspan, Robert Rubin, and Paul Volcker have pointed out, affiliations between federally insured banks and commercial companies pose great risks of the safety and soundness of our financial system. They also distort credit decisions and lead to concentrations of economic power that should not be permitted.
Finally, let me quote from Jim Leach, the former chairman of the House Banking Committee. He is addressing the issue of the separation of banking and commerce:
Commerce ultimately determined to maintain the separation between these two activities, a determination with which I strongly concurred. Avoiding the slippery slope allowing the combining of banking and commerce would represent, and following the advice of individuals like Alan Greenspan, Robert Rubin, Paul Volcker, the decision was made not to transform the American system into one like that of the Japanese, in which the kirutsu-like conglomerates are the rule, which generally mix banking and commerce.
We have established here today a rather broad coalition in support of this legislation, A.B. 389. Let me just run through those who are part of that coalition: the Independent Community Bankers, the Nevada Credit Union League, the Consumer Federation of America, the AFL-CIO, and the Food and Commercial Workers. We have letters from individual auto dealers, and the representative from Wells Fargo will speak to you in a moment. Let me turn now to the AFL-CIO for a few comments.
Chairman Goldwater:
I think you are opposed to commercial ownership of banks. I get that sense.
Danny Thompson, Executive Secretary-Treasurer, Nevada State AFL-CIO:
[Introduced himself.] While this may seem like an odd alliance, it really is not. I think we all know the history of banking; certainly this Committee has heard it more than once. I want you to imagine for just a minute that WorldCom had bought a bank. Imagine if Enron had bought a bank and they were able to reach across that fence and drag those depositors’ monies into their venture and spend it. Believe me, based on everything that happened with Enron, I believe that they would have done that. This loophole has to be closed.
[Mr. Thompson continued.] Last year in California, Wal-Mart tried to purchase one of these banks because they want to get into the banking business for a lot of reasons. There is an interesting fact about Wal-Mart. Did you know that Wal-Mart, last year, had more sales than the top three American financial corporations, CitiGroup, American National Group, and Bank of America combined? Do you really want a company like that in the banking business? Do you really want to allow [this]?
By the way, Wal-Mart still is trying to purchase a bank; they want a bank; they would like to be here today buying this bank that Toyota has applied for. The reason that we don’t support an amendment to this bill that would allow Toyota to buy a bank has been pretty well stated already. Other car dealers and other businesses could not compete with them on a fair ground in Nevada. If they are given a bank in Nevada, they won’t spend any money in Nevada. There won’t be an office in Nevada. This is a loophole that has to be closed. It is a loophole that only you can close. It is a loophole that you need to close to protect your constituents from those things that you all know about companies like Enron and the WorldComs of the world.
Craig Hudson:
We have circulated amongst the Committee a letter (Exhibit M) signed by a number of the community banks here in the state in support of A.B. 389, and we have a few [people] in the audience too. We have a gentleman, Roger Stone, from SunWest Bank. Would he stand up and be recognized. Also there will be forthcoming, written statements from Ed Allison, who is chairman of the Nevada Security Bank; Hal Giomi, who is president of that bank; Ty Neede of Northern Nevada Bank, and Denny Williams of First National Bank of Nevada. Those statements will be forthcoming.
Dennis Flannigan, Executive Vice President, Great Basin Federal Credit Union:
[Introduced himself.] I am chairman of the Nevada Credit Union Lay Government Relations Committee. I have provided Assemblyman Claborn with a letter of our strong endorsement of A.B. 389.
Through a loophole in Nevada law, a commercial firm can own thrift companies. Federal law, since the banking crash in 1929, has prohibited commercial firms from owning banks. This bill simply closes the loophole in Nevada law that allows thrifts to be owned by commercial firms. The serious problems with commercial firms owning banks include, first, preferential and biased treatment in granting credit. For example, a corporate executive receiving a preferential loan from a commercially owned bank and refusing credit to competitors of the commercial enterprise that owns the bank.
[Mr. Flannigan continued.] Also, [there is] the temptation to commingle commercial and bank assets. For example, if one business unit is not performing to expectations or is losing money, the commercial business is given the potential to quietly exercise the issue through its own bank. We should not create a situation that tempts corporate officers to tap the reserves of their bank unit to save their business unit. The riskier operations of a commercial unit create a greater threat to the safety and soundness of the banking unit, subjecting depositors’ money to greater risk. For example, commercial firms are not subject to regulations that banks and credit unions are controlled by, including special capital requirements, reserve requirements, limitations on investment funds, auditing procedures, automatic safety triggers allowing a series of increasingly intrusive measures by financial regulators.
Community banks and credit unions are not afraid of competition. We successfully compete with the largest banks every day. The mixing of commerce and banking threatens the safety and soundness of our banking system and could jeopardize consumer confidence. This does threaten community banks and credit unions and is the reason we ask for your “aye” vote. Close the loophole in the law; prevent breaching the traditional separation between banking and commerce. My last comment is that the only reason we are having this discussion here in Nevada is because on the federal level it is not allowed.
Mendy Elliott, Vice President, Wells Fargo Bank Nevada:
The testimony that has preceded me absolutely conveys the same message, so I am not going to reiterate. Wells Fargo is in favor of A.B. 389 and we appreciate your vote.
Chairman Goldwater:
Mendy, I don’t know which experts you have, but to me it seems like there is plenty of liquidity in the current banking system. I don’t know of anybody who is worthy of credit who can’t somehow raise capital.
Mendy Elliott:
You probably receive 10 or 15 opportunities a week, I would imagine.
Chairman Goldwater:
I am just saying there is plenty of liquidity in the system, if we close this loophole. It is not going to be that we are going to be cutting off liquidity for businesses or capital. We’re just simply saying we are shutting off a potential conflict here.
Mendy Elliott:
I would concur with that and I would also add that I think that the testimony here discusses the fact that one thing about banking is that we have the responsibility to have unbiased, truthful, thoughtful decisions. I think that is a concern as a depositor into a financial institution. We want to make sure that our deposits are safe and sound. We owe that to your constituents; we owe that to our savings account holders.
Chairman Goldwater:
That is a very important check in the system. [There were no other questions or testimony from proponents of the bill.] Is there opposition to A.B. 389?
Donal Hummer, Vice President and General Counsel, Harley-Davidson Financial Services; Director, Nevada Thrift, Eaglemark Savings Bank:
[Introduced himself. Spoke from prepared testimony, Exhibit N.] As many of you know, Harley’s Financial Services (HDFS) has its national operation here in Carson City, Nevada, with over 500 employees in this city, along with a satellite office in Reno that currently has 30 employees, with the ability to expand to 150. We are the second largest employer in this city, after the state.
I am here today to testify against A.B. 389, for its passage will make it unlawful for HDFS to operate its thrift in this state. Period. There is no discussion; there is no interpretation. It prohibits us from having a thrift in the state. Not only would its passage force all other major thrifts in Nevada to close their doors and move someplace else, but it will forever foreclose the possibility of other finance companies from coming to this state.
The major misconception is that thrifts hurt community banks. That statement could not be farther from the truth.
Harley-Davidson Financial Services makes 99.95 percent of its revenue from loans outside the state of Nevada. This means that the money we pay in salaries and benefits to Nevadans is from income imported into this state. Last year alone, HDFS paid in salaries and benefits to those constituents, just in Carson City, $19.96 million.
[Mr. Hummer continued.] Our employees were able to build up their credit, open savings and checking accounts, and buy CDs (Certificates of Deposit) at community banks. With their stable and well-paying jobs, they were able to get loans from community banks to buy their houses.
HDFS, like so many other thrifts, is not in competition with community banks at all, and it never will be. We finance motorcycles in all 50 states from our one location in Carson City. We have no tellers or checking accounts. Other thrifts, like us, USAA in Las Vegas, soon-to-open Toyota Financial Savings in Henderson, and John Deere Savings Bank, are also not traditional banks. Thrifts, which everyone has been speaking so poorly about so far this afternoon, are not the problem; we are a solution.
In the last six years there have been three thrift charters approved while at the same time the state has approved 15 de novo community bank charters along with 24 branches associated with those.
I think what we should talk about is what thrifts bring to the state. The first area is diversity. Currently, Nevada is in its worst economic shape since 1980. What the Governor and many in the Legislature have publicly stated is that Nevada needs to diversify its economy and its job base. Thrifts allow the state to do just that. Nevada has the ability to be the Delaware of the West, even overshadowing Delaware itself. All of the thrifts that would have to close their doors because of A.B. 389 have one thing in common: we earn our money from outside the state to provide challenging and high-paying jobs to Nevadans. Our thrift business is not dependent on gambling, on tourism, on travel restrictions, or other concerns. It is the diversification this great state desperately needs. I don’t have an issue with community banks and have always thought they were complementary to our business. However, they do make all their money off Nevadans and do not import dollars and revenue to this state.
A second area where thrifts benefit the state is in the quality of jobs and opportunities. HDFS, as well as other thrifts, provide above-market jobs. Not a single job at HDFS is at or near minimum wage. Our starting wage alone is over $11 per hour. Our average wage is $16.50 an hour. All our jobs in Nevada have benefits, such as 401(k) matching; medical, dental, optical, orthodontic, and even LASIK surgery; life insurance; short and long-term disability; and college education reimbursement programs. We pay to send those employees that want to get a higher education to college, no strings attached. [We also provide] paid time off for community involvement. Companies and jobs like this keep the best Nevadans in our state, working and prospering, and, furthermore, attract other high-caliber people to this state.
[Mr. Hummer continued.] Another area where we help the state is community benefits. We are greatly involved in the community on numerous fronts. Many of the officers of the company, including myself, donate time and expertise sitting on the boards of many local organizations, including but not limited to, WNCC (Western Nevada Community College), Boys and Girls Club, Boy Scouts, and the Advocates to End Domestic Violence.
In addition to the physical involvement, HDFS provides economic help to Advocates to End Domestic Violence; American Lung Association Tahoe; Boys and Girls Club; Carson Advocates for Cancer Care; Carson City High School; Carson Homeless Advocates; Friends in Service Helping; Children in Transition Program; Citizens for Affordable Housing; and Race for the Cure in Northern Nevada. We have provided numerous donations to WNCC for scholarship funds, along with a sizable donation to help with the completion of the new astronomy complex, which is due to open May 15. Last year alone, we donated over $200,000 in the community in which we live and work.
Chairman Goldwater:
I applaud, and I think everyone on this Committee applauds your corporate citizenship and the good things you do for the state of Nevada. Could you speak to the bill, specifically to the proponents’ points, that there is potential conflict in these cases and it can be a problem for the overall banking system?
Donal Hummer:
I can certainly speak to that. First of all, on March 5, 1987, Congress amended the Bank Holding Act to prohibit non-bank banking; that is, to have retail and manufacturers owning federal banks. However, in that amendment, they specifically excluded – they thought about, they came up with specific provisions that excluded the state-chartered ILCs, which are industrial loan companies and thrifts. It was a loophole; it was not something they forgot about. They went through this whole process and specifically carved out this area because they knew the states had the proper regulators for their banking divisions in place that could regulate and properly oversee thrifts.
The other issue is, from statements that were made today, we’re not unregulated. First of all, we atone to the same department of banking that the other community banks do here in the state of Nevada. In addition, we are also required to have [an audit by] the FDIC (Federal Deposit Insurance Corporation), and we are audited by the federal government. That happens, as they schedule for any other federal or state bank. They [the proponents] threw out a lot of what I would really consider to be smoke screens, with regard to Gramm-Leach-Bliley. Yes, Mr. Greenspan made a bunch of comments and all of those comments were considered, but there was not a single change to the Bank Holding Act to reflect his comments. They thought about it; they caucused about it. But in the end, the Bank Holding Act stayed the same and allowed states that had thrift or ILC charters on their books to maintain those charters. The only thing they possibly did was broaden the powers that they allowed the thrifts to have at this point. With regard to those issues, it is a complete fallacy that Gramm-Leach-Bliley, or Sarbanes-Oxley, or any of these other laws they are talking about, had any impact or that there was some oversight that would say they missed this loophole. It is not a loophole; it was there, it was calculated, and it was left as an exception because there were already other areas that they could be regulated under.
[Mr. Hummer continued.] I would like to end with one sobering note. California passed a bill modifying its ILC law, and they are now out of the game. If A.B. 389 passes, that only leaves Colorado and Utah out here in the West. While it is questionable what Colorado might do in the future, one thing is certain, Utah will never modify its law. It is their cottage industry. You would have a better chance of revoking gambling in the state of Nevada than you would ILCs in Utah. Their whole state banking model is predicated on the viability of thrifts and ILCs. They would like nothing better than to be the only player in a potential $500 billion game with literally tens of thousands of jobs at stake. I don’t like Utah that much, and I don’t want to see them prosper at our expense.
Assemblyman Beers:
[Regarding] the proponents of this bill, the point that struck me was the potential for depositors’ funds to be, in your case, routed into the operations expense should Harley-Davidson, the manufacturer, have a problem. Whose money do you loan today?
Donal Hummer:
Actually we loan; we don’t take any deposits.
Assemblyman Beers:
So, I couldn’t give you money for you to pay me a good rate of interest because you have these excellent loans?
Donal Hummer:
That is not our model. We get all of our funding internally, or we go to the open markets, the securities market, and then we will sell our loans in those kinds of things. But in addition to that, even if we did take deposits, because obviously the charter would allow for us to do that, we are subject to the same rules and regulations of any other bank. We have to have FDIC insurance. We have to have all of our deposits insured. We are subject to the same scrutiny with regard to filing monthly call reports to the Federal Reserve and the FDIC to let them know what our structure is, where our money is, what we have taken in, what we have spent, and what we have on deposit. To say that somehow we could take all these deposits and flush them into a losing business is impossible. Just as impossible as a federal bank in the state who could do the same thing.
Assemblyman Beers:
You mentioned a couple of other operations similar to yours, one in Henderson. Is that John Deere?
Donal Hummer:
I believe that is going to be Toyota Financial Services or Toyota Savings Bank. I’m not sure what its name is going to be. I think they are going to be talking on their own behalf today.
Robert Barengo, Chairman of the Board, Western Thrift and Loan:
[Introduced himself.] I am the director and a shareholder. My other shareholders are my president, Peter Patrie, and Dick Rottman, the former Insurance Commissioner for the state of Nevada. I first became familiar with the Thrift Act in 1975, when I was a member of this body, and we passed the Thrift Act. Subsequently, I was hired six years later to do legal work to incorporate and get licenses for Western Thrift and Loan. At that time, I became a member of their board of directors and worked with them. When the other shareholders decided to sell, I purchased it, and Mr. Rottman, who had been a director of City [inaudible], Nevada’s first thrift, came along with me and we bought Western Thrift and Loan. We have been operating it for the last six years now. We are trying to build the business. We are concerned about the effects this bill will have upon our ability to build a business and to take in different models and forms should this be changed without some further additions to the bill.
Let me give you some history as to what has been happening here. Not to belabor the point, but the section that we are talking about, 12 U.S.C. 1843 [United States Code] is this long off the computer [illustrates]. It is some 25 pages that I have printed off and I will leave these for you (Exhibit O). The section that has been chosen to look at is this little section here, some 15 lines. It is a section that is truncated. By that, I mean what it says here is:
Engaging in activities that are financial in nature in general, notwithstanding subsection (a) of this section, a financial holding company may engage in any activity, and may acquire and retain the shares of any company engaged in any activity, that the board, in accordance with paragraph (2), determines by regulation or order (A) to be financial in nature or incidental to such financial activity; or (B) is complementary to a financial activity and does not pose a substantial risk to the safety or soundness of depository institutions or the financial system generally. (Exhibit P)
[Mr. Barengo continued.] That is the specific section that we are dealing with here. That determination is already there. These kinds of commercial businesses have to be sound and not cause a problem to the system.
Now, why I said it was truncated is because it goes on and talks about the role of the Federal Reserve Board and the role of the Treasury in how they would apply those last subsections, (a) and (b). This truncates the system that was set up by Congress. The best place I have found that described the effects of the Gramm-Leach-Bliley Act was in Texas (Exhibit Q). They have a whole Appendix A that deals with what these activities should be, may be, and could be. By the way, they have decided to look at this as an opportunity to have another industry in their state. It also goes on about the advantages and disadvantages of filing a federal holding company election. They go through and describe, at that site, all the steps that must be gone through.
The last sentence is illustrative of the thought that Congress put into this: “In [making] a determination regarding a new financial activity, the Federal Reserve Board must consult with the Treasury and the Treasury has a veto power” (Exhibit Q). So, they have decided what kinds of commercial activities can get into banks. It is not an open loophole, “willy-nilly” can happen. There has to be a lot of discussion and rule-making processes, and various standards that are in the law already. But they have chosen to truncate.
Chairman Goldwater:
I think we get the gist of your testimony. I speak for myself, but I, personally, would want as many checks and balances without regulation inherent in the banking system. I know, based on what I have read from Mr. Greenspan, he believes similarly. There are a lot of excellent checks and balances that exist. This seems to be a potential lack of check, where there is not a Chinese Wall, so to speak, in between a corporate ownership of a financial company. What I need to hear from you is, do you think there’s not enough liquidity in the system? Besides our regulation, what is keeping you solvent, or the potential for misdeeds, the potential for failure? What is stopping that?
Robert Barengo:
I think you are asking me a couple of questions. Liquidity is a different question from regulatory stopping, commingling, fraud, or any of those other things. Liquidity is a different thing. This state has been capital-poor since the Bryan Administration commissioned the Four Corners Report. That was done by a Harvard professor who said this state has no cash and should import these kinds of institutions. That hasn’t changed. This state is illiquid. In terms of the banking industry, are there sufficient – in the Thrift Act itself? There are a lot of provisions in the Thrift Act that require the risk ratios, the reserves have to be there, the inability to give loans. We can’t give loans to any members of the Thrift Board or officers.
Chairman Goldwater:
Of the Thrift Board? But how about of the corporate board of which a thrift –
Robert Barengo:
It would be the same credit risk as any member of the public coming in and requiring a loan. They would have to be underwritten to the same standards that you write any loan to anyone else. You can’t say we are going to have one underwriting standard for the member of the parent company and another for the general public. That is not allowed. There is also the Federal Reserve Board. For those companies that are FDIC-insured, the FDIC has its whole risk relationship they have to comply with and look at. There is a tremendous amount of oversight and reviews and auditing on an ongoing basis that looks at all of these issues. This bill [is similar to] A.B. 551 of the California Legislature. I would read to you an interesting part of that bill, which the proponents of this bill supported: “Notwithstanding any other provision of this article, except for those persons approved by the commissioner prior to September 1, 2002, and for those persons who control industrial banks as of September 1, 2002” (Exhibit R). They grandfathered the existing industry in California, and to my knowledge there are only four licensed companies that would be gouged. If it is a good policy for California, why can’t it be a good policy for Nevada to grandfather those of us who are already here?
Lastly, to go through the bill, and all due respect for the credit unions, I understand why they are supporting this bill. In California, thrift companies are credit union service organizations; in Nevada they are not. So, why should credit unions be allowed to buy this thrift company when they haven’t done so before? That changes the whole mix of various powers and privileges of the banks, savings and loans, thrifts, and credit unions. To allow a credit union not to come back and buy a bank or thrift, I don’t understand why that should be there as a policy issue. There is no reason it should happen in Nevada. We are different from California in that regard. I hope I have answered your questions.
Chairman Goldwater:
I think so. I think what you said was that there is not sufficient liquidity in the state of Nevada. We need some state institutions including thrift companies to provide that liquidity.
Robert Barengo:
In this state for that business, yes.
Chairman Goldwater:
For the check and balance in the system, I guess the check here is federal regulatory oversight.
Robert Barengo:
Federal regulatory oversight, or Mr. Walshaw’s department, who deals with my company on a regular basis, audits us and to whom I have to report. Our own chapter has rules and regulations, plus Mr. Walshaw audits us and reviews everything that we do.
Assemblywoman Gibbons:
Is Mr. Walshaw here? We would like to hear from you. Could you tell us your thoughts on this bill, please?
Scott Walshaw, Commissioner of Financial Institutions, State of Nevada:
[Introduced himself.] My department would be officially neutral. I would point out a few interesting points, some of which have already been mentioned here. Specifically, federal law, as it has already been discussed, allows for these kinds of institutions and the ownership that has been referred here today. More importantly, the issue of checks and balances has continually been raised.
Notwithstanding the fact that the licenses are issued by my office, we jointly supervise these institutions with the FDIC. As an example, the application that is pending before us right now, from Toyota, is going through a process which would do exactly what the Chairman seems to be concerned about, and that is create the kind of checks and balances and ensure those are in place. I can assure you that the FDIC’s rules and regulations on creating the kind of firewalls and protections against intercompany transactions are being addressed in this application.
Toyota has had to jump through a number of hoops to get to the point where they can be recommended for an FDIC insurance charter. Once that charter has been issued, the FDIC is not going to sit back and allow them to just run amok any differently than we do now in the supervision of state-chartered banks, state-chartered credit unions, and state-chartered thrift and loan companies. They are going to be examined by both our office and the insurer. In this case, they are going to be examined just like a federally insured bank would be examined.
Chairman Goldwater:
From an underwriting standpoint, is the insurance that the FDIC provides any more expensive for these thrifts than they are for other financial institutions of comparable size?
Scott Walshaw:
If I understand you correctly, the insurance charter applies and they pay the same premiums that a bank [pays]. I think it’s also been testified here today by the people from Eaglemark that they don’t accept deposits from the public. Interestingly enough, even though these charters allow for that, some of our thrift and loan charters are not owned by commercial firms; they function more or less like a community bank would function, although most of them have specific models they are following and people here today would testify to that.
But the Toyota model and the Harley-Davidson model don’t want to accept deposits from the public. That’s not why they’re trying to get into the business. Although that is a possibility, and as I have already testified, the FDIC is prepared, along with our office, to ensure that those checks and balances that we’re concerned about here today are imposed on these types of operations. Even in the case of Toyota, they’re being asked to represent and make statements and adopt policies that would, in fact, address the issue if and when they ever decide to address their business model and accept deposits from the public. Those issues are going to be in place and be addressed as part of the charter before it ever gets issued, even though their business plan does not call for that right now, for at least the first five years of their operation.
Philip LaChapelle, Founding President and CEO, Security State Savings Bank, Las Vegas:
[Introduced himself. Spoke from prepared testimony, Exhibit S.] Security State Savings Bank (Security State) is a Nevada-chartered “thrift” pursuant to NRS Chapter 677. In my testimony today, I will provide solid, strong reasoning and purpose in testifying against A.B. 389. The record should reflect that our opposition is based upon both issues related specifically to Security State, as well as on general public policy grounds. Passage of this bill will diminish the value of my company to its investors and shareholders, who thoughtfully and purposefully selected the Nevada Thrift Charter to best fulfill their investment objectives and the benefits for Nevada consumers. The passage –
Chairman Goldwater:
Mr. LaChappelle, they just handed me your testimony, and it is four pages long. We can include all of your written testimony as part of the record. If you want to read your summary and highlight it, that would be very helpful to us, because we have a very long agenda.
Philip LaChapelle:
If you don’t mind, I would like to cover an issue before that. One of the exhibits that I provided you is Exhibit “A” (Exhibit S), which is a recent World Savings advertisement in the Las Vegas Review-Journal comparing money market rates. On the right-hand side, you can compare our rates to the financial institutions listed, and as you can see our customers enjoy significant benefits. If you will look at Exhibit “B,” which is an internal rate comparison of local financial institutions that include both money market rates and long return certificates of deposit, you’ll again see that Nevada customers enjoy a significant advantage.
The point I want to make here is that we’re a small thrift, about $47 million. We’ve been in operation about three years; [we’ve got] a very strong community commitment; [we’re] very highly rated on a risk basis. We are an outstanding CRA, or Community Reinvestment Act, rated institution. We do provide retail rates to Nevada residents, which I think is different from what the other people who are sitting here [provide], and very, very significant.
Another point that I would like to highlight is that I have been in banking for over 33 years. I have been with very major institutions, including Citicorp, Citibank, Fannie Mae, Bank of America, and small institutions. I have run the smaller ones very successfully. I would like to point out that in the previous testimony you heard about federal comments, Leach and those people, you didn’t hear any comments regarding FDIC Chairman Powell, who is on the record as addressing questions and stating that he is very capable of managing the risk of very complex financial institutions including that of Citicorp, Wells Fargo, Bank of America, as well as including the safety and soundness of thrift organizations.
I would also like to comment on Wal-Mart, because I think what hasn’t been said is what Wal-Mart stated: It only wanted to capture its own ACH (automated clearinghouse) business through the Federal Reserve Payments Processing System by ownership of a thrift charter and thus save the corporation over $300 million in payments and processing costs. I am not here to debate that with anybody, but I am here to emphatically state that California’s actions have nothing to do with the welfare of this state. That is the welfare of Nevada.
[Mr. LaChapelle continued.] In summary, where I wanted to walk through the testimony, I will conclude that A.B. 389 is an unwise and unneeded piece of legislation for the future vision, job growth, financial products and services growth, and state economic growth in Nevada. It is a bad bill and needs to die right here. I believe your focus should be on attracting strong ownership of the thrift Charter and requiring these retail or commercial companies to contribute to the state economy and growth of Nevada, including benefits to the local communities in which they are headquartered. Diversification stabilizes the economy, making it more resilient, recession-proof and, ultimately, much stronger.
Chairman Goldwater:
I appreciate it and I didn’t mean to cut you off. We’ll include this written testimony (Exhibit S) as part of the record. I think we are covering the issue fairly well.
Larry Osborne, CEO, Carson City Area Chamber of Commerce:
[Introduced himself.] I can only support the summary that Mr. LaChapelle gave. A.B. 389, we feel, is not the type of bill that we want because it doesn’t help the economy of our state. The previous bill we just heard addressed some of the concerns that we have of some employers. This bill would prevent the type of employers that we want in the state of Nevada from locating here and staying here, those that pay good wages, benefits, and provide employment. A bill that prevents that type of an economic diversification is a bad bill.
Philip LaChapelle:
Regarding the comments made previously about Enron and WorldCom, the Sarbanes-Oxley Act was the result of what happened there. The banks are already under a strict corporate governance of requirements and regulations. Now they have become much more excessive, and very costly. I want you to know that while that was a good comment to make, as it relates to what happened to those companies, it really is irrelevant as it comes down through the banks. Corporate governance is extremely strong. The other thing that I would say, as it relates to Japan, [is that] it’s totally irrelevant. What’s wrong with Japan’s economy is that the banks have not recognized their losses on their balances. It has not been done and until they do that, their economy will not improve. I’m not an economist, but I will say in the United States, we do recognize, through our risk allocations, what our loan losses are expected to be.
Richard Cullen, Assistant Vice President, Operations, for an Affiliate of John Deere Capital Corporation:
[Introduced himself and read from prepared testimony, Exhibit T.] The capital corporation, which currently provides financing opportunities for farmers, construction customers, and homeowners, has been located at the same location in downtown Reno for nearly 33 years. Currently, there are approximately 30 John Deere employees located in the Reno area, including those at our regional sales office.
Chairman Goldwater:
Mr. Cullen, we appreciate your written testimony. That really makes it easy. Can you summarize it for us?
Richard Cullen:
Okay. I think the key thing is the purpose of this. On March 21, we filed an application for a Nevada thrift company. The purpose of the bank is to enable John Deere to provide a broader offering of financial services, which includes the taking of retail deposits from its existing customers. The bank also intends to offer operating loans primarily to businesses and large rural customers. John Deere Credit has been offering these types of loans to that same customer base for several years, but from a location in the Midwest.
We believe that the proposed bill under consideration, if passed, will not discourage non-bank entities, such as retailers, from owning banks. On the contrary, if retailers or companies like John Deere are not allowed to start these banks in Nevada, they would have to pursue opportunities in another state. We believe that this bill will certainly cost Nevada jobs today, and reduce job growth in the future for the state. Passage of A.B. 389 may force banks that are already located in Nevada today and that employ hundreds of Nevada residents to move their operations to other states.
We certainly expect to add employees in the years ahead in our credit office, our proposed banking operation, as well as our division sales office. Passage of this bill would force John Deere to look elsewhere for much of that growth. In summary, this is an important issue, and for the reasons cited, our company does not support the passage of A.B. 389.
Assemblyman Beers:
Since you are just in the process of starting this up, do you know what other states you have open to you?
Richard Cullen:
I think if we lost out here, we would probably go to Utah.
Ray Masayko, Mayor, Carson City, Nevada:
[Introduced himself.] [I have] something new, or at least to look at it from a local government perspective. I am here at the behest of Mr. Hummer to discuss the economic impact A.B. 389 could cause if passed as written. I am certainly not an expert on banking and thrift regulations, but I am here to say to this Committee, whether it is Carson City or whether it’s Las Vegas or Reno, a 500-employee base, and I’ll put my economic development hat on, with primary jobs bringing in their resources or dollars from outside of this state contributing to the local economy – if A.B. 389 requires additional regulation, I would urge this body and this Committee to very carefully craft it.
I think Mr. Hummer was very direct in his conversation. Harley-Davidson credit would certainly leave the state of Nevada if a bill like this prohibited those people from owning a thrift. That is a $20 million-a-year payroll for Carson City. That is also a blow to what I consider Nevada’s economic diversification strategy to get companies with jobs like Harley-Davidson credit, diversified from gaming, that pay benefits, that pay relatively high wages, that support their employees and support a community. Again, I urge this Committee that the local communities are the beneficiaries of these types of economic activities. I urge you to craft carefully, because we certainly cannot afford to lose these primary jobs.
In closing, if Harley-Davidson Credit located to another state, such as Utah, certainly those jobs would go and I would say also to this Committee that probably the people who purchase Harley-Davidson products are still not going to go to the local banks to get the loan. They still will go to Harley-Davidson credit. The dollar would go to another state.
Ron Trunk, Executive Director, Citizens for Affordable Homes, Inc.:
[Introduced himself.] I am just going to follow along with the honorable mayor. I’m here to support Harley-Davidson because of all the support they have given us. A year ago, we were in very deep financial trouble and because of Harley-Davidson, we are a strong, viable organization today. We build homes for families with low and very low incomes. Because of their CRA program, they were able to prop us up and we now have other partners. I am here very much in support of Harley-Davidson. I think this is a bad bill. If we lose them, we lose a lot of operating support.
Chairman Goldwater:
Are these thrifts subject to CRA?
Donal Hummer:
Yes, we are subject to the same rules and regulations, depending on our size, as big banks and small banks would be.
Chairman Goldwater:
And the Federal Reserve audits that?
Donal Hummer:
The FDIC audits that.
Dan Reaser, Legislative Advocate, Toyota Financial Services:
[Introduced himself.] We provided to you prepared testimony on behalf of Toyota, which we will ask that each of the Committee members consider (Exhibit U). I will not repeat the same things you’ve heard before, but I want to bring you a very different perspective. In 1997, as a partner of Lionel, Sawyer & Collins, I was engaged by a number of banks and thrifts to rewrite Nevada’s banking and thrift law. The law that you are being asked to amend today is that law. It is not a loophole. It was a thoughtful process that the state of Nevada went through in revising its banking law and its thrift law. We streamlined it; we made it, as one speaker earlier this afternoon indicated, a Delaware of the West, a law that encouraged national banking to come to this state.
Soon, a new national bank will situate itself in the state of Nevada. To encourage the creation of thrifts to broaden what, as one witness told you earlier today, is a capital deficit state, among the states in the Union – I believe that to be heartily true. We are a net importer of capital. When I was in the state of Nevada’s government, that was a definitive problem that then-Governor Bryan was struggling with to try to create an environment where we would be a state that could foster additional financial service industries.
In the 1997 Legislature, both the Assembly and the Senate heartily endorsed those changes. Today, you are being asked to go backwards, to adopt a law that is unnecessary. As you have heard this afternoon, there are sufficient regulatory schemes in place, both at the federal level, in Chapter 677, which the Commissioner of Financial Institutions administers, and the FDIC. Depositors, if they are in these types of institutions, are protected by the FDIC. They are protected by the auditing standards of both federal and state government. We are not Japan; we have not been Japan since the 1930s. As we indicated a moment ago, these thrifts are required to comply with the Community Reinvestment Act requirements. They are great corporate citizens; they provide a niche in the financial institutions market; and we should be encouraging them. As one individual indicated to you earlier, Utah has stepped up to this in a big way. It is now a $100 billion industry in that state with approximately 30 charters. Corporations such as American Express, Merrill Lynch, BMW, Volkswagen, GMAC, GE Capital, and others hold those charters.
Chairman Goldwater:
Why did they go to Utah and not Nevada?
Dan Reaser:
Because, frankly, as a lawyer whose practice is to encourage financial institutions to consider Nevada, we haven’t done a very good job of telling people that we have that kind of a regulatory scheme.
Chairman Goldwater:
I am interested to hear you say that, given the amount of tax money we spend supposedly touting Nevada’s greatness, which I am never in favor of and have been opposed to for a long time. But are they doing an awful job?
Dan Reaser:
I don’t know that they are doing an awful job on all things. I would be careful, as former counsel to the Department of Economic Development and Tourism, but I will say that I don’t think this is one of the areas in which they are out there pushing. Utah has turned this into a cottage industry. They’re out trying to get people to locate these facilities in their state, bring the high-paying jobs, the good benefits, and the financial capital that runs to the state. It was after much deliberation on the few states that do provide this scheme of regulation that Toyota decided to file a thrift application in this state. It did so in the fall on October 28, and it filed its FDIC application on December 3, 2002.
Toyota is serious and it is not fanciful in its interest in the state of Nevada. It has already leased its main offices in Green Valley Corporate Center where it intends to maintain its corporate offices. It is just the type of financial service industry business that Nevada should be trying to target for our future. You have heard a number of other concerns about this bill. I just want to indicate to you that we think it is very important for you to remember that this is not a loophole. This was an intentional revision of the 1997 banking and thrift laws, where we set up this exact procedure, the statutory scheme to encourage these types of entities. We ask that you at least, if you are going to proceed down this line, think very carefully about what you are doing. You need to at least preserve those existing charters and those people who have already placed their investment to come to Nevada and are in the process. We think that, long-term, it is not in the state’s interest to discourage the diversification of its financial sector by allowing continued thrift applications, and we ask that you not endorse A.B. 389.
Chairman Goldwater:
It’s your belief that the current regulatory structure is adequate?
Dan Reaser:
Thank you for asking that question. I represent not just thrifts, but all types of financial institutions that are regulated in the state of Nevada. I can tell you, to get a charter, whether you are a national bank or a state bank or a thrift, you go through the basic same process. In Nevada, the scheme is very much like going through a gaming application and I can tell you that with great authority, because I used to be general counsel to the Gaming Commission. It is a very similar process. We know the backgrounds of these people; their capital structures are regulated; their deposits are regulated. It is a fully regulated industry and the suggestion that it is not, is just not truthful.
Chairman Goldwater:
[There were no further questions or testimony.] I will close the hearing on A.B. 389. Do you want to do A.B. 316, Mr. Claborn?
Assembly Bill 316: Requires owner of real property to provide security for certain works of improvement to real property. (BDR 54-646)
Assemblyman Jerry Claborn, District No. 19 (Clark County):
[Introduced himself.] A.B. 316 is a bill intended to correct the injustice done to subcontractors in Nevada by requiring a security deposit to guarantee payments to the subcontractor for his work and services. This bill is for private work only. Let me reiterate; this work is for private work only with a threshold of $5 million. At this time, if it pleases the Chair, I will turn it over to Mr. Holloway, Director of the Association of General Contractors in Las Vegas. I believe Mr. Holloway has an amendment or two to this bill (Exhibit V). We think this is a real good bill. We know how some of the subcontractors had to go out of business a couple of years ago on one of the hotel jobs in Las Vegas, which was private, and we don’t want to see that again.
Steve Holloway, Executive Vice President, Associated General Contractors:
[Introduced himself.] I do think we are going to be brief because I think those affected in the construction industry have all reviewed this bill. We do have two amendments to offer as a result of that review. I really don’t expect a big dogfight over this one.
Chairman Goldwater:
Is the sponsor all right with the amendments?
Steve Holloway:
The sponsor is all right with the amendments. [Spoke from prepared testimony, Exhibit W.] We do refer to A.B. 316 as the “show me the money bill.” It is modeled after a California statute. It addresses three problems with our current laws. First, it addresses a problem with our current lien law. Simply stated, a mechanic’s lien will not be upheld if the owner declares bankruptcy. There is therefore no real security for a contractor who provides labor, materials and equipment on a construction project for an owner who then declares bankruptcy. In southern Nevada, this has been a frequent occurrence as evidenced by the Aladdin, Regency, and numerous smaller projects.
Secondly, it addresses the problem that all owner/developers, developers, and contractors have with lessees who engage a contractor to construct a tenant improvement. If the tenant walks off, neither the owner/developer nor the contractors who have provided labor, materials, and equipment have any recourse. They are, in effect, left holding the bag. This occurred recently on a couple of occasions at the Fashion Show Mall, for example.
Finally, it must be noted that if a prime contractor is not paid, then as a general rule, he is not obligated to pay his subcontractors. A.B. 316 ensures that both the prime contractor and his subcontractors will be paid.
We believe that A.B. 316 is an important piece of legislation that will do much to ensure the financial solvency of the construction industry in this state. I have given you a written summary (Exhibit X), Mr. Chairman. Would you like me to go through that?
Chairman Goldwater:
No, that’s not necessary.
Steve Holloway:
There is one amendment being offered that has my name on it. Actually this originated with some of our larger developers down south, where we would lower the limitation from $5 million to $1 million. In the case we’re the owners, the owner in fee simple, we would lower the limit from $1 million to $250,000.
Chairman Goldwater:
What’s the effect of numbers 3 and 4?
Steve Holloway:
[Regarding] 3 and 4, public works and residential projects are exempted from this bill. Also exempted from having to provide a bond, set up an escrow account, or provide letters of credit are publicly owned companies with over $50 million in assets, as well as privately owned companies with over $50 million in assets in their subsidiaries. We had originally included in the bill that the parent company must guarantee the construction contract for a subsidiary. We’ve taken that out because it really is not necessary. We do call this the “show me the money bill.” All this bill does is make sure that the money is there for a construction project before you start it.
Chairman Goldwater:
All right. And you are with the contractors, so they won’t be having too many capital problems then in these private jobs?
Steve Holloway:
We would hope that is the outcome of this.
Assemblyman Beers:
Mr. Holloway, could you go over the tenant improvement piece of that? I’m not sure that I tracked that whole thing.
Steve Holloway:
Okay. On a tenant improvement, like the Fashion Show Mall, you bring tenants in, Tom & Jerry’s, large department stores, and smaller stores. At that point, the shell is there. At that point, the contract for that tenant improvement, for that construction for Tom & Jerry’s, for example, is between the tenant, the franchise owner of the Tom & Jerry’s, and a prime contractor to construct that facility within the Fashion Show Mall. At that point in time, the owner of the Fashion Show Mall, which would be Howard Hughes or the Roscoe Corporation or parent, would file a notice that they were a disinterested owner, and that they were not responsible for that kind of improvement. That means that any lien filed against the Fashion Show Mall, as a result, would then, technically, be no good. Then the contractor does not have any lien rights in that case and has no other recourse against that owner if they walk off. Not only is the contractor stuck in that case, but then, oftentimes, the owner, Howard Hughes or Roscoe Corporation, is also stuck. They may end up in a lawsuit battling one another, the contractor and Howard Hughes. This would eliminate that problem by requiring the franchise owner, Tom & Jerry’s, to either provide a bond for the construction, show letters of credit, or set up an escrow account.
Russell Rowe, Legislative Advocate, Focus Commercial Group, Inc., and University and Community College System of Nevada (UCCSN):
[Introduced himself.] I am actually wearing two hats today. One is for Focus Property Group in Las Vegas, Nevada. They are one of the largest residential developers and I am here on behalf of them to support this legislation. We thank Mr. Holloway for working with us on that. Secondly, I’m here on behalf of the University System. We have a small amendment (Exhibit Y) that we’ve given to the sponsor. As he stated, this bill is intended for private projects and there is a specific exemption for public works projects. However, when the University System gets private funding, they could actually fall out of that. Obviously that is not the intent of this legislation. This amendment would correct that.
Chairman Goldwater:
Why is that not the intent of this legislation?
Russell Rowe:
As I just stated, the intent of the legislation is to address private projects, and as the University System projects are normally public works projects, they would be exempted from this bill.
Chairman Goldwater:
All university projects are public works projects? Not all of them.
Russell Rowe:
That is correct.
Randy Robison, Legislative Advocate, Associated Builders and Contractors:
[Introduced himself.] [We want to] just indicate our support for the legislation with the proposed amendments.
Chairman Goldwater:
[There was no further discussion.] We will close the hearing on A.B. 316. [A brief recess was called.]
We’ll bring the Committee back to order. We’ll open the hearing on A.B. 502. It is a Committee introduction.
Assembly Bill 502: Requires certain policies of health insurance and health care plans to include coverage for certain medical treatment provided in clinical trial or study. (BDR 57-1196)
John Ellerton, M.D., Oncologist, Southern Nevada Cancer Research Foundation:
[Introduced himself.] Thank you, Mr. Chairman, and I thank the Committee members for their time and interest in this important bill. I am a cancer specialist. I live in Las Vegas. I have a private practice. I am also a professor of medicine at the University of Nevada, School of Medicine. I am the principal investigator of a National Cancer Institute (NCI) sponsored grant, which is globally called the Clinical Cooperative Oncology Group. That’s the Southern Nevada Cancer Research Foundation, although our involvement takes in northern Nevada as well. This is funded by the National Cancer Institute to bring clinical trials of all kinds of cancer to patients in the state of Nevada. In addition to that, I am a member of the Board of Directors and the Executive Committee of Acute Leukemia Group B, the oldest clinical cancer cooperative group in the United States. That cooperative group process I put in your packet (Exhibit Z) if you want to read it sometime. These are groups of institutions put together either for general cancer or specific cancer purposes, funded by the National Cancer Institute to conduct basic and clinical cancer research.
[Dr. Ellerton continued.] As a member of the Executive Committee, I am one of the people responsible for developing and improving new concepts for that group. In addition to that, I serve on one of the review committees of the Financial Cancer Institute that meets for peer review of grants for clinical trials. I’m giving you this background because I think I have a very good understanding of clinical trials in my role. In the Cancer and Acute Leukemia Group B (CALGB), we have been active in looking at the costs of clinical trials, not only on the patient but economically and on the system as part of our research.
People with serious and life-threatening illnesses deserve to be afforded the opportunity to participate in clinical trials. The reason is, of course, to afford the appropriate treatments and to approve those treatments. When you are looking at this, you always want to make sure they’re protected from treatments that are not effective or would be harmful in this particular system. I think that most of us who do clinical research, especially in cancer, feel it’s an ethical form of behavior to offer patients clinical trials, and it’s unethical, if clinical trials are available, to not offer them.
The final piece I would like to give you in this section of my testimony is that there are a number of studies that demonstrate that the physicians who participate in clinical trials have better overall results with all of their patients, not just the patients on the clinical trials. This was a theoretical concept when the kind of grant I have was put together 20 years ago. It’s been subsequently demonstrated that the patients of physicians participating in clinical trials have better outcomes overall.
I’d like to, before I say any other extraneous things, move on and discuss the bill a little bit. I would like to start at the beginning with the fiscal notes. I did look at the fiscal notes, and I was a little confused and disturbed. This morning I did speak with Mr. Valentine and Mr. Riley at Clark County and asked them if they would “re-review” this fiscal note, which they were unaware of. I’m concerned that what’s happening here is the fact that clinical trial costs in general are substitutive, not additive, was not taken into account. If you have a patient with acute leukemia who is going to receive intensive therapy anyway, you’re going to have to pay for that. But, if I say I am going to put them on a clinical trial, and they are going to receive intensive therapy, you are going to pay for that. That’s what we are asking for here today. The cost of that, and I’ll come to that in a few minutes, may be the same. The difference would be that you have substituted the clinical trial for the standard, if there is such a thing [as] standard treatment.
Chairman Goldwater:
Does this cover qualified plans? ERISA (Employee Retirement Income Security Act) plans?
Dr. John Ellerton:
No. I don’t believe it does.
Chairman Goldwater:
So we would have to specifically say that it covered the state and/or the county plans?
Dr. John Ellerton:
I am not an expert on that part. I don’t know the answer to that question. In Section 1, Part 1, it talks about – first of all, let me tell you that this bill is modeled on two things. One of them is the statement and policy of the American Society of Clinical Oncology, which is the professional organization of cancer therapy. It is also based on Maryland state law, which is basically similar to the American Society’s statement, considered to be a model law in this area as far as cancer researchers are concerned. It says the medical treatment is provided in Phases I, II, III, and IV of clinical trials.
Phase I is the first phase that’s usually [used] to determine dose and toxicity. Sometimes there’s a misunderstanding about Phase I. Patients on Phase I trials are patients with a serious disease. They are receiving the treatment for us to identify in humans what the appropriate doses are and what side effects we may expect. In addition to that, the patients may benefit from responding to the therapies. All therapies go through Phase I. We don’t do a lot of Phase I trials here because they are mostly done under contract with big institutions requiring all sorts of specialized work. It’s not certain that in the near future we won’t be doing Phase I trials. Phase II trials are, in the traditional view, looked at [to determine] is this drug active in this cancer? So you take a drug and you test it against all sorts of kinds of cancers. Sometimes you test it against two or three other new drugs, but the purpose there is, does it work? We do a lot of Phase II trials. This is a common trial. Phase III trials take the new therapy and compare it against the standard.
[Dr. Ellerton continued.] The bill provides, as does the professional society and our own ethical comments, that we are not going to treat anybody with something that’s worse. We will have scientific expectations that the therapy will work. Therefore, we are trying to improve the situation. [The bill] further says “the clinical trial” approved by an “agency of the National Institutes of Health,” and there are a number of those, including the National Cancer Institute, a cooperative group, which is specifically defined as being under the National Cancer Institute later in the bill. As I said, I put in a couple of pages explaining what the clinical trials cooperative group program was, which is now almost 50 years old.
The Food and Drug Administration has an application for an investigational new drug. This is very common, especially with many of the new biological therapies where the drug is coming on the market and being tested as a new drug. The United States Department of Veterans’ Affairs specifically participates in trials. As a matter of fact, our research group includes the VA clinic in Las Vegas. The Department of Defense has hundreds of millions of dollars that it invests in cancer research, particularly breast cancer research and prostate cancer research. [They include] a review board or institutional review board of a medical facility or organization that has been certified, and the Office of Human Research Protection at the Department of Health and Human Services, which is the ethical oversight body for research. All of us have to be educated, certified, and inspected by them on a regular basis.
[Subsection] (c) says that the provider has to be a provider of health care. [Subsection] (d) is now part of the protection. There is no medical treatment available which is more appropriate than what is in the clinical trial. [Subsection] (e) is that we have a reasonable expectation that the clinical trial will be as effective as anything else. Now remember that, in cancer and in HIV disease particularly, we are dealing with a lot of patients who don’t have standard therapies, who don’t have effective therapies. Success in many cancers is extremely limited, although there have been some great successes. The successes can be limited in many cancers. Clinical trials are the only reasonable way to treat people. So if you say, “What’s the standard,” the standard may be morphine and death, as opposed to trying some active treatment.
Section 2(a) [of A.B. 502] has an important point. It comes about because drugs approved for sale for a specific reason by the Food and Drug Administration may be denied reimbursement because they do not have a specific food and drug approval for that treatment. Let me explain to you, first of all, in terms of federal case law from years ago, physicians can use drugs that have been proven in the literature to be effective. This Legislature passed the law similar to that a few sessions ago. Secondly, all of these trials are, in fact, overseen by the Food and Drug Administration. If I get a cancer trial using an already approved drug for a new purpose, it is covered by an agreement with the Food and Drug Administration. This is not a rogue use; this is a carefully identified, scientific use.
[Dr. Ellerton continued.] Section 2(b) says that the cost of any medically necessary health care is required as a result of the medical treatment provided in the clinical trial or study. That’s hospital costs, physician costs, the kinds of things that would be accrued, even if the patient wasn’t on the trial. Appropriately, Section 3 identifies items that should not be covered. If the drug was paid for by the manufacturer, we get the costs of managing the research from the Cancer Institute. It wouldn’t be reasonable to ask the insurance company to pay for that or the cost of an investigational drug or device.
Let me stop there for a minute. There’s a couple of definitions in Section 6 specifically talking about a cooperative group. It is a network of facilities that collaborate on research projects and has established a peer review program approved by the National Institutes of Health. That includes the clinical trials cooperative group program that I’ve talked about, the AIDS clinical trials group, the Community Clinic Oncology Program, to which my grant belongs, and the community programs on clinical research on AIDS.
I would like to give you just a little more information. If I propose a trial to my cooperative group, it goes to the executive committee; it goes through other committees; it’s massaged and looked at carefully; and it goes to the Cancer Institute for concept review. If they like it, it comes back. We write the protocol. It goes back to the Cancer Institute for scientific, legal and ethical reviews on three levels. By the time the trial is finally approved and put out, it has been extensively looked at, in terms of its scientific value, its value to the patient, and its safety to the patient. These trials are not just dreamed up in the backyard and we’re going to start a trial today. They were very aggressive, and it’s even more bureaucratic than it used to be, with more layers of review of these trials.
The pharmaceutical industry has become very active in the past few years. The number of new compounds being discovered is increasing exponentially. They need patients to test them on, and they sometimes do this in cooperation with the Cancer Institute, and sometimes they do it on their own under the auspices of the Food and Drug Administration. Often there are other monies and they provide the drugs, but still these are clinical trials. The only way that the clinical trials were available to the patients for drugs that were effective and useful was through the pharmaceutical industry providing those clinical trials.
[Dr. Ellerton continued.] A second thing is that most of the advances we have are due to clinical trials. The great success in childhood cancer is due to incremental clinical trials, one after another. Our successes in cancer, testicular cancer, ovarian cancer, breast cancer, et cetera, have all been on the basis of clinical trials. I’m going to repeat this. Many of us consider it unethical to not offer patients clinical trials. Something like 80 or 90 percent of children go on clinical trials with cancer. For adults, it’s in the 2 to 4 percent range. One of the problems with adults is that if the adult thinks their insurance company won’t cover it, they often are put off choosing to participate. I would remind the Committee that the Veterans’ Administration (VA), the Department of Defense, and Medicare cover the costs of clinical trials. Medicare does not cover the cost of prevention and early detection trials, only treatment trials, but some of the other government organizations, specifically the VA, do cover the costs associated with prevention trials.
Chairman Goldwater:
Does Medicaid cover it?
Dr. John Ellerton:
I think Medicaid covers it. I’ve never had any trouble with Medicaid.
We have included the VA in our prostate cancer prevention trial. Let me say in advance, this is a mandate. I think if you developed any rational health care policy that was global or universal, [it] would be part of that mandate, that is, in order to provide clinical trials for patients for serious diseases, [you have] to try to work through a scientific way of treating the patients and improving their lives. Then there is the question of costs, and I know this is always the case.
For example, I do external reviews for companies in other states. One of the major things I see from the external reviews is insurance policies that specifically prohibit experimental therapy. Experimental is defined as any kind of clinical trial. They routinely deny therapy for patients for whom there is no standard therapy because they can’t go on a clinical trial. That disturbs me because I am not sure what you do for the patient when the clinical trial is the best choice. Remember, I pointed out that doctors that participate in clinical trials are liable to look after their patients better. There are costs associated with clinical trials. There are patient care costs. Obviously the patients are getting treated, so there are physician costs. There are hospital costs. There are sometimes drug costs. For drugs that are already on the market, generally speaking, the clinical trials do not pay for them, but that is not always true. There are big examples of large national trials where the drugs were provided by the trials at enormous savings to patients who would normally get treated. [You] put them in the trial, and you don’t pay for the drugs.
[Dr. Ellerton continued.] I’ll end by saying there have been a number of studies. I provided a copy of one of them indicating that the cost differential could go either way. It’s minimal. As a matter of fact, the study I included for you is Kaiser of Northern California, which has an extensive clinical trials program. They do a lot of clinical trials. In conclusion, the appropriate way to treat patients is on clinical trials. I don’t think it’s appropriate to deny them that care and I would appreciate your support on this bill.
Robert Miller, Private Citizen:
[Introduced himself and spoke from prepared testimony, Exhibit AA.] I am here today to support A.B. 502. I don’t get out in public much anymore, but I would like to take this opportunity to say thank you to all the military and their families serving our country at this time.
On behalf of the doctor, I would like to say thank you to the National Cancer Institute for all of its hard work. I’ve had some personal dealings with it for a number of years and I will go into that momentarily.
I am one of six siblings in my family, and I support this bill based on my family’s history of disease and involvement in clinical trials. Over 40 years ago, my younger identical twin sisters, who were born with Wilms’ tumors, which is a type of kidney cancer, were treated at Sloan Kettering Hospital with what were at that time experimental treatments of radiation and chemo. They each lost one kidney. The kidneys were removed with the tumors, and then they were given early forms of radiation and chemotherapy. My parents were presented with a choice to allow doctors to use experimental treatment, which could possibly harm my sisters further, or it could possibly give them a few more years of life. Without that treatment, they would not have lived for more than a few months.
My parents made a tough decision to allow Sloan Kettering to use my sisters in their medical trials. At that time, Sloan Kettering shouldered the costs of the treatments. There were 48 children with the same type of cancer at the hospital then, and I’m sorry to say that my sisters were the only two children who survived. My sisters never led normal lives, but because of Sloan’s dedication to medicine and my parents’ willingness to participate, they did have life. My sister Debbie lived to be 30 years old before succumbing to a life on dialysis, and Diane lived to be 40 years old before dying from another type of kidney cancer.
[Mr. Miller continued.] My eldest brother has been getting experimental treatments in Florida for the last six years to treat his terminal cancer. Not only has he benefited from radiation treatments that are now far more refined and advanced than when my sisters were young, but he has been given a combination of cutting-edge chemotherapy drugs that have given him years more to live than his doctors predicted upon diagnosis. The cancer is still there, but my brother and his doctors continue to battle, trying new treatments as technology and medicine move ahead. Some of the costs of his treatment are being absorbed by the hospital and some by the state of Florida. He will never be out of medical debt, even though he is participating in experimental trials that will help future patients, as well as him.
Lastly, I am currently participating in a clinical trial. I have had Chronic Fatigue and Immune Dysfunction Syndrome (CFIDS) since the 1980s. The illness had me bedridden and unable to work for most of the 1990s. It weakens my immune system and makes me even more susceptible to things like cancer on top of my family history. Before getting sick, I was a leader in my profession and an avid exerciser. There are no approved medications that treat this illness, and only one medication that is being tested in an FDA-approved clinical trial. That drug is called Ampligen. Dr. Peterson, my doctor, enrolled me in a double-blinded, placebo controlled clinical trial of Ampligen, in which the company testing the drug paid the costs. The point of a placebo-controlled trial is that half the patients get a sugar pill to truly test its effectiveness. So, at the end of the trial, the company gave all participants six months of Ampligen. In those last six months, I responded to the drug. I saw a glimpse of my old life and health. I was stronger, had more energy, and began to dream again.
When that trial ended, I had a choice. I could stay on the medication, but I would have to pay for it myself under the FDA’s cost-recovery program, which allows companies testing treatments to recover their costs. The cost of my twice-weekly infusions, the medication, and the testing ranges from about $20,000 to $30,000 a year. This is the only treatment available, so I really have no choice.
I have been on Ampligen for three years now, and am able to do some of the day-to-day activities that most people take for granted. For example, driving here today was, for me, a major accomplishment. I have twin boys who will soon be 3 years old, and while I am very grateful that I am one of only 100 people who can access this treatment, I am torn that I have taken away from my boys’ financial future. I have attached a copy of a petition that was submitted to Congress and the FDA last year, signed by all of the patients on Ampligen in Nevada. These participants are all paying for their own treatments, and some have had to stop due to the lack of funds.
[Mr. Miller continued.] In closing, I wish to say that without all those who participate in clinical trials, advances in medical treatments would come to a halt. We will all be touched by the benefit of medical advancements at some time in our lives. For those who can participate, clinical trials are often a link to a life that otherwise would not be there. But the financial costs are considerable, sometimes financially devastating, and that’s why I think it is imperative that you approve A.B. 502 and set an important example for others to follow. Insurance companies are an important part of paying for medical treatments, and I believe that progress in treating illnesses ultimately benefits insurance companies as well as we learn to treat illness more cost-effectively. I also think it is most important to tell everyone that the person or patient’s life is more important than the money it takes to make them well.
Chairman Goldwater:
Mr. Miller, I think I speak for the Committee when I say we’re sorry for your loss and we wish you the best of luck in recovery with your new medication. I appreciate that testimony.
Anita Patton, Private Citizen:
[Introduced herself. Spoke from prepared testimony, Exhibit BB.] I have had an immune dysfunction disease, Chronic Fatigue Syndrome (CFS), for the past 16 years. I had a sudden onset at the age of 24 when I was working as a legal word processor for a large Denver law firm while putting my husband through graduate school in 1986. My immune system crashed and I was unable to walk within two weeks and went on disability. I used an electric cart for getting around inside and outside of the house. For 11 years, I had no medicine available to help my muscles get stronger or to fight infection.
In 1997 I was blessed to be a recipient of an immune modulator, double-stranded RNA medicine, Ampligen, which I have taken by I.V. twice a week for the past 5 years. I infuse at my doctor’s office in Incline Village. Dr. Daniel Peterson is one of the world’s experts on CFS, and he has many publications as to how the drug works and why my body needs it.
The treatment is part of a Phase III clinical trial, cost-recovery program, AMP‑511 with the FDA. The medicine costs each patient about $30,000 per year, which is $15,000 for the drug and $15,000 for infusion and nursing costs. So far my insurance has not paid for the treatment. There is no other available treatment.
Now, I will tell you how much it has helped me. My clinical laboratory tests have improved to normal; it makes my immune system strong and gives me the ability to make ATP in my muscles so I can walk, ride my bike, ride horses, and care for my three children. I have tried, unsuccessfully, to stop taking the medicine three times, but each time I crash again and lose natural killer cells, T-cells, and the ability to fight infection. Each time I lose the ability to walk. When my body is without the medication, I’m a sitting duck for cancer, as natural killer cells are the one thing an immune system needs to fight cancer growth.
[Ms. Patton continued.] I need this medicine, but I am having trouble paying for it. At such high costs, it is almost unavailable, and I do have medical insurance.
I plead for you to approve A.B. 502 so that my insurance can assist me in getting this medicine my body so desperately needs to remain healthy. If I can never get off the drug, I do need assurance that I can one day get off disability.
Did you get a copy of the chart (Exhibit BB)? [Received an affirmative.] It’s just an example. We have to keep records every 8 weeks of all of our activities, laboratory tests, questions of how much effort it takes to brush teeth or pick up the children or different daily activities. We have to keep very careful records for ourselves. The lines coming down [on the chart] are the times that I was off the medicine, so [it was] a significant drop in activity. These two drops, one at 6 months, and one at about 54–55 months was when I had a tooth infection, which is a severe infection for me. I can’t fight it off, so it goes to the bones. If they take the tooth, they [may] eventually take the bone, but I did recover from it, where before Ampligen, I would not recover from those types of things. I have dated this in January, so I had 12 weeks off again and I had to go back on a month ago. I’m not quite up to the level at the top, but I am getting there. I hope this will help you understand why I would like to continue taking the medicine, but I need my insurance to help me pay for it.
Chairman Goldwater:
I understand very well. Good luck, and I hope it goes well for you. Let’s see how it goes. Are there any questions for these witnesses? I don’t see any. Thank you very much for your testimony. We really do appreciate it. That’s the best testimony we get. It’s usually from people who are not here every day, but make an effort to get here. It is good anecdotal evidence.
[Invited the opposition to come forward to testify.]
Jack Kim, Director of Legislative Programs, Sierra Health Services, Inc.; and Nevada Association of Health Plans:
[Introduced himself.] We are here today on A.B. 502. As you know, NAHP (Nevada Association of Health Plans) and the Plans have typically and consistently opposed mandates. That does not mean that we oppose clinical trials. In fact, we are in support of clinical trials. We think clinical trials that are done safely have an important place in the health care field. However, in reviewing A.B. 502, it has raised a number of concerns with our organizations, ours in particular, and NAHP. At this point, let me introduce the people at the table with me. I have Dr. Christine Petersen, who’s our chief medical officer for Sierra Health Services. I also have Dr. Jay Keystone with Hometown Health Plan, and Fred Hillerby. As I said, A.B. 502 had raised some concerns for us. At this point I would like to turn it over to Dr. Petersen, who can go over some of those issues.
Christine Petersen, M.D., Vice President, Medical Affairs, and Chief Medical Officer, Sierra Health Services, Inc.:
[Introduced herself. Distributed Exhibit CC.] Let me give you just a little snippet of my background. I am a physician. I did my training at University of Colorado Medical School a long time ago. During my whole medical school career, actually that whole four years, I participated in clinical research on cancer, particularly in leukemia. I did my internal medicine residency and oncology fellowship at the University of Colorado and practiced oncology in Grand Junction, Colorado, for a number of years. I, like Dr. Ellerton, participated in clinical trials, not CALGB as he did, but Southwest Oncology Group, NCI trials, mainly through academic centers such as University of Colorado and University of Utah. I do have a familiarity, also, with clinical trials.
As Jack has said, at Sierra Health we are very supportive of clinical trials. We do cover limited clinical trials for cancer, and just last week, I authorized two patients to go to California for a particular colon cancer trial. Virtually all of the pediatric oncology cases are likewise in clinical trials. Additionally, many of our AIDS patients are in clinical trials. However, I think it is very important that all of us understand there are inherent dangers in clinical trials, and we should at least recognize what those dangers are, whether we are a clinician recommending that a patient go into it or whether it’s a legislator looking at the possibility of a mandate. I want you all to remember, if you will, that some states, and Nevada was not one of them, did put in mandates [that insurers] cover bone marrow transplants for breast cancer before all the data was in for clinical trials. It was subsequently found that this particular treatment was harmful to some of the women. People had stopped doing the study, and then it was found out that one of the reports from the institutions had very flawed data, and it was probably fraudulent.
Let me go into some of the problems I see with the bill. I do have concerns about covering Phase I trials. As Dr. Ellerton said, Phase I trials are really not treatment trials. They are to determine what is the maximum dosage that a human can tolerate of a particular drug or therapy. Dr. Ellerton did relate that patients do occasionally get cured. The complete remission rate from Phase I trials is reported as 0.3 percent. The [drug] toxicity of these trials can be quite significant. The death [rate] from Phase I trials due totally to drug toxicity is 0.5 percent higher than the complete remission rate.
[Dr. Petersen continued.] Also in the bill, it says that it includes all health care providers. There’s no provision to make sure the provider doing the clinical trial has any experience at all with the procedure, the drug, or the device.
The next piece that concerns me is the organizations that are approved. I totally agree with Dr. Ellerton regarding the National Cancer Institute (NCI), the NIH (National Institutes of Health), and cooperative groups. Their studies are rigorous; they’re well done; they’re well managed; they’re reported well; they’re very scientifically disciplined. But I do have issues with Section 6 that talks about facilities or boards that have this assurance from this Office of Research Protection. Over the past few years, there has been considerable criticism from academic institutions, from government agencies, the Office of the Inspector General (OIG), the General Accounting Office, and from all sorts of private parties about the lack of oversight of these IRBs (Institutional Review Boards). There are currently over 5,000 IRBs in the country.
Chairman Goldwater:
Dr. Petersen, can I stop you for one second, just for the edification of the members of the Committee. Did you discuss these concerns with Dr. Ellerton before your testimony?
Dr. Christine Petersen:
I actually attempted to discuss my concerns with Dr. Ellerton before the testimony.
These institutional review boards have to, in order to get certified, document that they are going to follow all the rules and regulations. There’s no oversight unless there’s criticism or numerous complaints. This new office is really backed up with complaints. In 1998, the OIG produced this report, called “IRBs: A Time for Reform.” They really picked up on the fact that this insurance document was just an institutional commitment and there was no assessment of performance. They went as far as to say that the IRBs’ limited efforts in conducting this continuing review was a serious national issue and there was compromising of protection of human subjects. Since then, the Institute of Medicine (IOM), which wrote the [inaudible] safety report has recommended that all of these institutional review boards get accredited.
This accreditation program is not ready yet. The OIG findings were quite disconcerting. I’ll just name five of them: 1) failure to obtain prospective approval of an IRB before an institution started a trial; 2) failure to minimize the risks for the human subjects; 3) failure to obtain legally correct informed consents; 4) failure to provide oversight; and 5) failure to eliminate or minimize conflicts of interest.
[Dr. Petersen continued.] Let me give you a few examples of some institutions where the seriousness of the OIG report has been reflected. There were 20 deaths at Fred Hutchison Cancer Hospital, a very well-known hospital in Seattle. This was reported in June 2001. There were concerns that there was a lack of disclosures of the doctor’s financial interest in the drugs being tested. That is a serious thing; there’s a conflict of interest. The research programs at John Hopkins and Duke Universities were suspended in 1999 because of issues at these prestigious institutions with some of their clinical research programs. In January of 2000, the Office for Human Research Protection (OHRP) halted 550 human trials at the University of Alabama. In March of 1999, the Department of Veteran’s Administration suspended all clinical trials in the Greater Los Angeles VA Hospital because they said they failed to meet ethical guidelines. This VA is one of the nation’s largest research hospitals.
Very recently, in October of 2002, the New England Journal of Medicine (NEJM), a very prestigious journal, reported concern over patient safety in clinical trials in academic institutions because of conflicts of interest. These are serious concerns. Additionally, just last week, the New England Journal published three more articles on clinical trials. They talked about an NIH trial; it was a non-cancer trial that was put on hold by the Office of Human Research Protection. They had two articles about the conflict and the controversy between the scientific objectives of a trial and the physician’s role in individualizing care. As a physician sees a patient, he may be adjusting treatments, depending on how the patient is doing and what the patient’s preferences are. If a patient is in a clinical trial, unless the patient exits that trial, their treatment program is very proscribed.
Let me conclude by saying that despite all of these issues, there are many clinical trials that are very good, and clinical trials are very important. Sierra has chosen to cover clinical trials for Phase II, Phase III, and certainly Phase IV trials, but not for Phase I trials. We have patients in all phases. We certainly cover any pediatric [study], and we do have advanced drug studies for AIDS. Not all trials are created equally and even in the best academic institutions it’s sometimes difficult to tell what is what.
On the cost issue, information is limited, but there have been three studies about costs in certain cancer clinical trials. The Mayo Clinic demonstrated a 3.5 to 13 percent increase in clinical trial costs over a comparable non-clinical trial group. Group Health of Puget Sound had about 20 percent, and Kaiser Study was approximately 10 percent. Rand [Foundation] has been commissioned by the NIH to do a more detailed study, but this is not available yet. There are no studies right now about the comparable cost for non-cancer trials. One very important thing, certainly for us as a health plan, is that, although, as Dr. Ellerton said, some of the costs may be easily substitutable, they would be if the patient stays in the network, but the way this bill is written, patients could go anywhere in the country, and we would have no control over the costs. The services might be the same, but the actual costs would be very different.
Chairman Goldwater:
But don’t you feel that Section 1, Paragraph 1, (d) and (e) addresses [this]? What you just said “not taking care”? No?
Dr. Christine Petersen:
No, not the way I read the bill.
Chairman Goldwater:
“Medical treatment is provided by a provider of health care; there is no medical treatment available which is considered a more appropriate” –
Dr. Christine Petersen:
Therapy. But that’s not all that easy to determine. I was just discussing costs and participating providers in Phase I trials, trials that are run by these institutional review boards and trials that may take people out of area. In some cases you do need to do that, but if the door is wide open, you have absolutely no control over costs at all because you don’t have contracts.
Chairman Goldwater:
But it doesn’t seem wide open to me with those two paragraphs, or does it, Jack?
Jack Kim:
In reading the provisions of (d) and (e) in context with the rest of the bill, it requires coverage of Phase I trials and other trials and includes cancer and other life threatening conditions. Reading that in combination with Sections (d) and (e), I think it’s more open. I think there are incidences where safety really becomes an issue and whether that trial is more appropriate or not. How do you determine in the Phase I trial whether the likelihood of death is higher than getting better? When they’re trying to determine toxicity level, is there an expectation that they will be better? While this bill has been used as a model in many states, it has been amended by many states in order to address some of these concerns.
Chairman Goldwater:
By the way, does Sierra [Health Services] cover the drug, Ampligen, that the previous witnesses [referred to]?
Dr. Christine Petersen:
I have never seen a request for it and I don’t know that much about the drug. We’d have to look into it.
Jay Keystone, M.D., Medical Director, Hometown Health, Reno:
[Introduced himself.] A word about my background. I spent 13 years at the University of Michigan. I have been a reviewer for the Journal of Clinical Allergy and Immunology. I have worked with the Rand Corporation physicians establishing protocols for the most over-utilized medical and surgical procedures in the country. I have been in the managed care area for 14 years and most recently here in Reno. I just wanted to underline a couple of issues.
First of all, let me say that I agree with what Dr. Petersen has mentioned. Phase I trials are particularly dangerous. No dosage for these very toxic poisons, which is what they are, has been established. The therapeutic index, which is the ratio between the therapeutic benefit of a drug and the bad side effects, has not been established. So you don’t know whether you are dealing with an extremely narrow therapeutic index or a very wide therapeutic index. I think that you are putting patients at risk in Phase I trials, and because of that, around the country, the types of patients who take advantage of Phase I trials are usually terminally ill patients or patients who have volunteered from prisons.
Secondly, when we say “clinical trials,” immediately we think of Mayo Clinic, University of Michigan, Stanford, and other such reputable places. But the Committee should understand that clinical trials are carried out on thousands and thousands of drugs every year by every stripe of physician, not all of whom are of the caliber that we tend to ascribe to those prestigious institutions. Not all clinical trials are as well-controlled or thought-out as we would like to have them be. In actuality, as Dr. Petersen referenced, only a handful of drugs ever come out of those clinical trials that have been found to be both safe and effective. I think that my reading of this bill seems to contradict the patient protection aspects of what I read in the rest of the law.
Chairman Goldwater:
Even (d) and (e) in Section 1?
Dr. Jay Keystone:
Yes, I want to address (d) and (e) in a moment, because I think that’s a particularly vague area. I believe that the essence of the law is that you do not put patients at undue risk unnecessarily. I think that’s wise and I think that’s what the protection aspect should pertain to. Today we have patients, not a few, many, who see something on the Internet or search the Internet, go to their physicians and request a particular clinical trial, or particular drug, and essentially put a lot of pressure on their physicians to send them hither or yon without adequate medical background to be able to evaluate what they’ve seen.
With regard to (d) and (e), the first question I have is who is going to define “life-threatening?” Is life-threatening hypertension? Diabetes? Obesity? Asthma? A dozen others that come to mind? This is an open book and by whose definition are we defining “life-threatening?” We talk about reasonable expectation that the treatment will be at least as effective as others that are already available. I could tell you that the statistics bear out that the vast majority of these clinical trials do not yield drugs that are as effective as what we have out there right now, and they do have a considerable danger to the patients. The patients may be willing to risk that danger in an area of hopelessness, but there are a lot of people who might be prevented from actually taking advantage of well-known, effective treatments because they have decided to take advantage of a clinical trial that has a much lower capacity to be of value to them. In my view, this bill is too broad in its comments regarding early detection and prevention. How do we prevent cancer? How many clinical trials could we have around that idea of preventing cancer? Who would be the people who might conduct those trials, under what kinds of controls, under what kinds of expectations, with what kinds of results?
In summary I would just say that, to me, the bill seems dangerous to patients. It seems to be contradictory to the protective aspects of the rest of the already-written law, and in my view, there are too many generalities that have not been well defined.
Chairman Goldwater:
Even if we got rid of the Phase I trials and the review boards, it still would not be acceptable to your standards?
Dr. Jay Keystone:
That is correct.
Fred Hillerby, Legislative Advocate, Hometown Health Plan, and the Nevada Association of Health Plans:
[Introduced himself.] This is not in opposition in total to the idea of clinical trials. Clearly they are important. I think it’s the broadness of the bill [that concerns us.] You have mentioned, too, that it would be helpful, obviously to Phase I. As Dr. Petersen said, all the problems with these review boards, of which there may be thousands, and the controls over those have been documented not to be working. It seems to me that this is an opportunity. We need to look at how this bill could be more focused and would deal with some of the issues that Dr. Ellerton discussed, yet avoid some of the pitfalls to the patients because it’s now covered by insurance.
There’s one point that has not been made, that was my responsibility to make, and that is the liability of a health plan that now has said, “That’s covered for you,” and the patient said, “My health plan said it was okay.” [The patient] goes to the trial and he has an unfortunate response to [the procedure], the worst being death, the other being additional injury or harm. Is the health plan now liable for that? That is a concern that we clearly would have. The broader the bill, the more concern that generates for us.
Bob Ostrovsky, Legislative Advocate representing Nevadan for Affordable Health Care:
[Introduced himself.] We will give to your secretary a list of companies that we represent – over 300 companies and 110,000 employees in this state (Exhibit DD). We’re concerned about health care costs. We’re also concerned about the uninsured. You’ve heard my pitch before, so I’ll say it in plain terms. You’ve heard from the insurance companies who are going to pay the bills. They’re not the ones paying the bills. The people who are paying the bills are the employers of this state. Whatever this mandate costs, and we’re going to hear some testimony about what those costs might be, those costs are going to be borne by the small employers in the state of Nevada. The big guys are covered by ERISA; they’re self-insured; they’re not covered by any law you pass here, even though there are some court challenges to that, what you have are local governments and small employers who are going to be stuck with this bill. Many of these small employers, who can’t even afford to buy insurance as it stands now, would be affected by this bill. As much good as can be done, other harm will result on the other end.
Chairman Goldwater:
We understand.
Bob Ostrovsky:
Dr. Ellerton, who I have a lot of respect for and have met with before, is probably doing what he thinks is most appropriate for his patients. He suggested that the answer is global or universal insurance, and maybe that is the answer. We’re certainly not there yet. To saddle the smallest employers and those least able to pay in the state with a cost of another mandate, on top of the 27 that we think exist on the books today, is just putting more weight on a system that is already overburdened.
Renny Ashleman, Legislative Advocate, Nevada Health Care Association:
[Introduced himself.] I will confine myself to what I believe is a new remark. We’ve already filed our fiscal note and most of our testimony would be repetitive. The one angle that I think might be new is that we’re opposed to legislation that mandates services in the county health plan. The benefits of the plan are now established by many local agreements of the participating entities and subject to negotiation with our case, SEIU (Service Employees International Union). It undoes the priorities that the SEIU set in conjunction with our folks, to have something like this, so that’s our concern.
Christina Dugan, Legislative Advocate, Las Vegas Chamber of Commerce:
[Introduced herself.] We represent almost 7,000 businesses throughout Nevada and we are also members of Nevadans for Affordable Health Care and we reiterate what Mr. Ostrovsky has already said and oppose mandates in general in the health care system as they increase the price of insurance for employers.
Chairman Goldwater:
It is always a struggle on these issues.
Helen Foley, Legislative Advocate, PacifiCare Health Plans of Nevada:
[Introduced herself.] I have in Las Vegas Dr. Alan Blumenthal who has been there all afternoon. I appreciate his attendance. He had many concerns that have been addressed, and some that have not. If this bill goes to some type of subcommittee or work session, he would be more than happy to work to find some type of bill that could be acceptable, if that’s the desire of the Committee.
Chairman Goldwater:
That would be good.
Alan Blumenthal, Medical Director, PacifiCare Health Plans of Nevada:
[Testified via videoconference from Las Vegas. Introduced himself.] Most of the things that we were concerned about have been mentioned. I may want to underscore one or two of the additional points that may seem redundant. PacifiCare does not support the bill as written. As Helen mentioned, we are ready to work with the Committee if the legislators thought that a mandate, which we are naturally against, would provide some necessary consumer protection or benefit. However, we can’t support the bill as written.
[Dr. Blumenthal continued.] There are four general areas that we had concern about. Most of them have been mentioned. The scope of the trial should be limited to cancer only. The life-threatening illness [language] was too broad. We believe there also should be a therapeutic intent similar to other areas where we have worked with Medicare in California and Arizona. Their language requires a therapeutic intent.
Secondly, routine patient care costs needs to be addressed.
Thirdly, reimbursement is not mentioned in the bill and it needs to be added. We believe, especially in this area, that reimbursement would have to be at participating rates, and if a participating provider offers the services, they would naturally have priority.
I echo the comments on liability protection. That is one of our concerns.
Finally, everything else would be redundant. We believe that we have not had time, in the event that a bill like this was to go forward, to accommodate the cost impact with these benefits. We believe a delay would be necessary, preferably past July 4, 2004. I really would like to express my appreciation for the ability to make comments to you today. The four elements that I mentioned were our areas of major concern. We echo the concerns of my medical colleagues who have previously testified.
Jim Jeppson, Risk Manager, Washoe County:
[Introduced himself.] Among my other duties, I administer the health benefit plan for Washoe County employees, their dependents, and retirees. In response to an earlier question that the Chairman had, Section 13 of the bill does extend this mandate to the benefit plans administered by local governments. I’m sure your researchers have pointed that out.
Chairman Goldwater:
That’s what Renny just said.
Jim Jeppson:
Like Clark County, the benefit plan for Washoe County is determined through bargaining with the eight unions. We just concluded our bargaining last week and I commend the good-faith efforts of our unions to recognize the limited pool of funds that are available to Washoe County for the health benefit plan. The members voted in several plan amendments to help contain some costs, but I found it interesting that there was one particular procedure that was recommended for inclusion in our plan and this procedure is no longer experimental and it has become very popular. It does, however, have some negative outcomes and in many cases does not provide a long-term benefit. The union membership voted to not include this benefit in the plan. They wanted their health care dollars –
Chairman Goldwater:
Which benefit was that? What was the benefit?
Jim Jeppson:
It was gastrointestinal bypass. It’s become very popular, but it does have some negative outcomes. The union representatives heard much testimony about it, but they elected not to include it. I believe that points to their decision that they wanted their health care dollars to be focused on proven efforts, and not on research.
Buffy Martin, Government Relations Director, American Cancer Society:
[Introduced herself. Spoke from prepared testimony, Exhibit EE. Distributed cancer brochures, Exhibit FF and Exhibit GG.] Nationally, more than 1.2 million new cancer cases are expected to be diagnosed this year alone, and we can expect to lose 555,500 people to cancer in 2003. In Nevada, 10,300 new cancer cases will be diagnosed this year. About 4,300 Nevadans will die from cancer in 2003. We can no longer ignore the opportunities and the hope that clinical trials provide cancer victims and their families. Cancer is a disease that affects the whole person, the whole family, and the whole of our society. Only by exercising every treatment possibility can we begin to curb the rates of cancer incidence and death.
Phylecia Wilson, who is an American Cancer Society volunteer, was diagnosed with chronic myeloid leukemia last year. She was enrolled in a clinical trial to test a new drug that targets cancer cells at the molecular level, called Gleevec. Gleevec was developed by Dr. Brian J. Druker, a scientist at Oregon Health Sciences, University of Portland. Since Gleevec only targets cancer cells, Ms. Wilson has experienced very few side effects. She says, “Without clinical trials, 90 percent of childhood cancers would not be curable; without clinical trials, new or improved treatments would languish in the laboratory, never reaching the patients who need them.”
Sitting before you is a bill that could dramatically change the lives of cancer victims in our state. Each year our nation invests more than $15.5 billion in biomedical research. One of the most important ways we can advance and increase cancer treatment knowledge is through clinical trials. Clinical trials offer unique opportunities for testing the viability of certain cancer treatments, while at the same time providing opportunities for improved quality of life and survivorship. The American Cancer Society is in full support of A.B. 502, which would increase clinical trial access for Nevadans, and perhaps, through increased access and participation, we can find a cure for cancer.
[Ms. Martin continued.] I was to be joined this afternoon by an American Cancer Society volunteer and two-time cancer survivor, Jerry Crum, but unfortunately Mr. Crum was recently re-diagnosed with cancer and is currently preparing to enter a clinical trial in San Francisco. He said to me this morning that if he survives this next journey with cancer, he would assist in any way possible to pass A.B. 502.
As a lawmaker, you make decisions every day that impact Nevadans. Rarely do you have an opportunity to provide such support and hope to those whose lives have been affected by cancer. Assembly Bill 502 would do just that, provide hope and perhaps a new treatment, or even a cure for cancer.
On behalf of the American Cancer Society and our 6,000 statewide volunteers, we urge you to support A.B. 502.
Chairman Goldwater:
Dr. Ellerton, what about the Phase I trials?
Dr. John Ellerton:
First of all, I would be happy to meet with these people and work out some of these issues, which, I can see, are concerns. I firmly believe in the heart of the bill. Secondly, as time goes on and as we develop more biological therapies, most of them have very limited toxicity. It makes a very unusual circumstance. The final thing I will say is that I understand the concern about IRBs setting up their own protocols, and somebody in his office deciding he wants to do something. I am an auditor for the Cancer Institute. I go around the country and we have shut people down because their IRBs have been not operating properly. I have participated in that; I understand that issue. We could work to limit the scope, perhaps, but I still think the heart of the bill is key.
Chairman Goldwater:
Okay, here’s what I need you to do. We have until Friday to get bills out of here. You know that we are constrained as a state Legislature; we can’t touch ERISA plans; we usually can’t touch Medicare. The bill does extend this benefit to Medicaid, which I think is worthwhile. The concept of the bill to me is essential. It is just essential and I believe the testimony is compelling, both yours and other people’s. Can you work with the parties to see if we can’t get something worthwhile, knowing the constraints we are under? [Dr. Ellerton agreed.] Can you get it back to me by Friday? [Dr. Ellerton agreed to the Friday date.] Did you know everybody that was here?
Dr. John Ellerton:
Yes, I will speak with the people from Sierra. We did have a preliminary conversation before, but it was only a couple of days ago.
Chairman Goldwater:
That would be good. We will put it before the Committee for their consideration.
Dr. John Ellerton:
You know I belong to the Chamber, and I’m a small businessman, so I know those issues too.
Chairman Goldwater:
All right. And even the liability concerns?
Dr. John Ellerton:
That’s a much tougher issue. I’m not sure about that. Okay.
Assemblyman Beers:
Dr. Ellerton, clearly these are in experimental phases and the potential for harm exists as well as the potential for cure. Has there been any success in moderating any liability that is attached to that? [Is there] any place in the country that you know of? [Is there] any hope there?
Dr. John Ellerton:
I don’t like to speak for what I don’t know. I don’t know case law in every state. I can tell you that I’ve been personally threatened with lawsuits that went away because patients were on clinical trials, which require some rigor in the investigation and treatment of the patient and are state of the art. We do not create clinical trials that are worse than what is already available. We’ve discussed this at meetings. It doesn’t mean it doesn’t exist. I haven’t had anybody come forward and say they got sued and taken to task because they had clinical trials. It may have happened, but my own experience and many other doctors [believe] it’s a more exact way to treat the patients.
Assemblyman Beers:
Patients aren’t given a waiver to sign before they go in for a clinical trial that says, “I realize that this is experimental and may kill me. Hope it doesn’t, but I won’t sue”?
Dr. John Ellerton:
All clinical trials require a consent form. The consent forms have to contain certain elements if you are dealing with the FDA; they have to contain certain other elements if you are dealing with the Cancer Institute. For the Cancer Institute, those elements include saying that it may not benefit them. It includes listing all of the toxicities that are known in detail. [It includes] telling them that there may be costs that may not be covered, telling them that they have the right to withdraw at any time, making it absolutely clear that it’s voluntary and that they are under no obligation, and making it clear that if they choose to not participate or to withdraw, they will still be cared for and their cancer treated appropriately. There’s a whole list of essential elements that must be in every one of these consent forms. When we audit these programs, we go through the list and they had better all be there, including, if that’s a possibility, severe toxicities, including death.
Chairman Goldwater:
All right. You’ll work on that. Thank you, Dr. Ellerton. [There were no further testimony or questions.] We’ll close the hearing on A.B. 502. [We’ll open the hearing on] A.B. 424.
Assembly Bill 424: Revises provisions relating to public works and state purchasing. (BDR 28-959)
Assemblyman Jason Geddes, District No. 24 (Washoe County):
[Introduced himself.] A.B. 424, as it was originally drafted, was a horrible bill, and that is entirely my fault for giving LCB bad instructions. What you have today are my proposed amendments to A.B. 424 (Exhibit HH). It has three provisions. The first one says if you have a contract with the state and you are in litigation on that contract, you can’t win another contract from the state.
The second change is at the end of Section 2. It states there will be a five percent in-state residency preference on the purchase of printed materials not printed by State Printing. This is the intent of the bill. There’s a handout (Exhibit II) that shows how that gets worked out in legal language. I don’t even want to try to attempt the legal language, so I will let them do it. Basically, the section NRS 338.1389 is what passes the constitutional muster for putting in these preferences.
[Assemblyman Geddes continued.] The third part of the bill puts in a reciprocity agreement whereby if another state has a preferential agreement, we use that as a negative against them when we are putting together our bids. That is A.B. 424 and it only applies to state purchasing.
Assemblyman Beers:
Would you run over point 3 again?
Assemblyman Geddes:
Point 3 says if you are an out-of-state bidder on a project, and the state you reside in has a preferential treatment, such as a 5 percent preferential treatment, you would get a minus five when they’re putting together the qualifications for your bid. It’s not a straight preference on contracts, unless another state has a preference. It just tries to equalize it for those states that have preferential bidding policies. Did that make sense? [Received confirmation.] Greg Smith may be able to answer that better than I.
Assemblyman Beers:
So what you are suggesting is that the 15 states that end up with preferential treatment for in-state bidders would all respect each other’s in-state bidders? Or would all push the other states’ in-state bidders away?
Assemblyman Geddes:
If Utah had a plus ten and they were bidding on a Nevada project, when they were tallying up the point total, they would get a minus ten for their state having a preferential treatment.
Chairman Goldwater:
How do you define “in-state”?
Assemblyman Geddes:
That’s the issue. When you say “in-state” and “resident,” I understand the definition is based on what taxes you pay, and the combination of sales and use tax and so forth. This is the way they worked it out for Public Works and it would be very similar to that for Purchasing. Frankly, I don’t know beyond that, other than this is what they’ve shown that works and stands up constitutionally when they’re trying to establish that you are in-state. [Introduced Greg Smith.]
Chairman Goldwater:
How we define in-state versus out-of-state? If somebody’s incorporated some place, or they’re residents here, or they pay taxes here?
Greg Smith, Deputy Administrator, State Purchasing Division, State of Nevada:
[Introduced himself.] That has been the discussion over the last couple of days. There was some discussion over some language in a competing Senate bill that talked about having paid some type of tax imposed by this state over a consecutive two-year period, and a certification of CPA language. There was also something as simple as you had a place of business within Nevada and were transacting business on the day that the solicitation was released. We are beginning to look at the NRS Chapter 338 language that’s already been proven to be legal and constitutional to define an in-state vendor. That language has been used for sometime in construction projects.
Assemblyman Brown:
What is it we’re trying to fix? I’m kind of missing it. Anytime I hear if there’s on-going litigation you can reject a bid. There are all kinds of reasons to have litigation. It’s such a gray area. I have some real hesitation on that.
Assemblyman Geddes:
[There are] three things we’re trying to fix. One is the reciprocity. The second section with the State Printing is basically dealing with the Nevada Magazine issue where an out-of-state bidder won the contract for the Nevada Magazine and we weren’t able to consider in-state preference in that case. We’re talking about a $1.8 million annual bid, and having to send all of that money out of state. We’re trying to look at a way to address that issue. The first part of the issue is in the Purchasing rules and regulations. If they currently have somebody who has a contract to provide services and they’re not providing those services or they haven’t met their contract requirements, and they’re trying to get them to correct the problems, there’s currently nothing in statute that prevents them from winning another bid.
Greg Smith:
I think that’s very good. I think the main gist of this legislation is preferential treatment for in-state residency vendors, as Assemblyman Geddes alluded, the issue of the Nevada Magazine being printed in Minnesota. I attend regularly the Board of Examiners’ meetings on behalf of the Department of Administration. The Governor and Frankie Sue del Papa, the Attorney General at that time, were very concerned about coming up with some type of a way to recognize the value of a dollar spent within the state of Nevada having more value to our economy than a value spent outside of the state of Nevada. I can tell you from a pure purchasing perspective, professionals in the purchasing arena are opposed to preferences. However, the philosophical and political discussions, which are for your legislator to decide, again attempt to recognize this discussion is being held nationwide. Well over 30 states have some type of preferential treatment, whether it be industry-specific, like printing, or across the board, and many legislatures are attempting to address the issue of how to treat in-state vendors and give them a slight competitive edge through evaluation scores. One of the discussions has been that Nevada vendors inherently have many advantages because of their proximity, and so on and so forth, in competing for these contracts. Again, purchasing professionals across the board are very concerned about doing this.
Chairman Goldwater:
I got you, Mr. Smith. Mr. Geddes? This is one of those bills, because the amendment came so late, and because it is kind of an issue that should be ameliorated over time, we might want to work on over the interim rather than do here. There will be a lot of concerns, and it doesn’t sound like there’s a pressing problem that we need to solve necessarily here. Do you agree?
Assemblyman Geddes:
On items 2 and 3, I wouldn’t call it a pressing problem. Item 1 is a bit of a pressing problem. If no one is comfortable with the other two sections, I would definitely recommend moving forward with the first section to address some real issues that Purchasing is running into right now, but I will leave it up to you and the wisdom of the Committee.
Chairman Goldwater:
It’s just getting tough from a time perspective.
Assemblyman Brown:
So where are we going with the bill?
Chairman Goldwater:
It’s just that I think it’s a very difficult issue. This late in the game, to not have the bill out and circulated and to just get this now, given that we have until Friday, it’s going to be rough.
Assemblyman Geddes:
Very well. If anybody is comfortable with moving with just Section 1, I think that would be a great help to our State Purchasing and we can work on Sections 2 and 3 during the interim.
Chairman Goldwater:
Okay. That may be workable. We’ll put that on work session for Friday. [There was no further discussion.] I’ll close the hearing on A.B. 424. We’ll go to A.B. 401.
Assembly Bill 401: Allows public body or Department of Transportation to authorize private entity to acquire, construct, improve, maintain or operate transportation facility. (BDR 28-798)
Assemblyman Joe Hardy, District No. 20 (Clark County):
I have the mock-up proposed amendment (Exhibit JJ) and an introduction (Exhibit KK) for you to read in your leisure time. I would like to start with the genesis of the bill. I come from Boulder City, which is on the only road between Phoenix and Las Vegas that has a bridge that goes over a dam. Therefore, we have a lot of trucks and we’ve looked at how to get rid of the truck traffic through Boulder City. When I asked myself, “What can I do?,” I discovered that Mike Lasko, who I knew as a young man, knows all sorts of things. I enlisted his help in generating an improvement in our design/build law that we have in the state of Nevada. I’d like to give special thanks to Susan Martinovich, Deputy Director of NDOT (Nevada Department of Transportation), who really made this happen, as well as Steve Holloway, Steve Hill, Jack Jeffreys, Las Vegas Monorail, Reno ReTrac, Jake Snow, Bruce Woodbury, Arizona Department of Transportation, and the list goes on. What A.B. 401 will do is support the prevailing wage on design/build projects. It will allow a private entity to develop, construct, improve, maintain, or cooperate, or any combination thereof, a transportation facility that is so defined in the bill and on your memorandum or introduction. It will also allow a single-step selection process, thereby decreasing the time involved, and will allow for unsolicited proposals and public/private venture proposals with requiring a detailed finance and operation plan. NDOT will also be able to authorize a private entity to be involved with a public entity and immediately begin delivery of a project when it’s accepted. It will require a private entity to provide long-term quality of the transportation facility, thus meeting a level of performance over a sufficient duration of time to provide a value to the public. It will amend [lower] the design/build contract from $5-$30 million to $2.5 and $20 million, thus ensuring that smaller general contractors have the opportunity to go into design/build concept and bring them along.
I would tell you that the parties who are supporting this are listed on page 1. If you go to page 2 of the introduction of Assembly Bill 401, you’ll see examples of design/build or public/private ventures include the Reno ReTrac, which is operating right now. It is selected as the “best value,” and that technically came down to a low bid. It also had a stipend offered to the losing teams that submitted a bid or proposal. Clark County Public Works did a wonderful Summerlin, Nevada, applied public/private partnership. The bottom line on that bullet point [shows it] saved $60 million and 5–10 years in allowing that to go forward on the road through Summerlin. Las Vegas Monorail does the design/build and is a public/private partnership, as well, and is decreasing the time it takes to get a project started and saving money and is on time and on budget.
[Assemblyman Hardy continued.] California has completed their eastern transportation corridor, completing 14 months under schedule and open to the traffic within 3 years, whereas normally it would have taken 10 to 15 years. Arizona Department of Transportation (ADOT) did their [U.S. Highway] 60 Superstition Freeway and, likewise, they were able to have a best value and were able to have in place, just like Reno ReTrac has, the agency that supervises them and the agency that is involved with the designing and building. So there is a very close harmony. Also, when I talked with the ADOT people, [they reported] they saved $60 million in their construction on that particular project. Colorado is an example of design/build.
What you will see in the bill is this brings our design/build law up to the standard of the federal government that was instituted in the December 2002. The last page that has the comments in color shows graphically what a design/build project does. It shortens the project duration; it saves money; and it allows things to happen quickly and more efficiently. With that I would have you go to your mock-up bill and answer any questions that you would like, knowing full well that there are other people who would like to testify about how wonderful this really is.
Michael Lasko, Senior Project Manager, Transportation, CH2Mhill:
[Introduced himself.] We are in support of what Dr. Hardy has presented to you today and also have been working in concert with the Regional Transportation Commission, the Department of Aviation, the Las Vegas Monorail Company, and the Nevada Department of Transportation to make sure that the words that you have in this mock-up bill in front of you are appropriate and provide input from that coalition, as well as the other interested parties.
Assemblyman Hardy:
I also have a faxed letter from Jake Snow who is in support of this and can be read into the record or just given to you.
Chairman Goldwater:
We’ll put it in the record (Exhibit LL).
Jack Jeffreys, Legislative Advocate, Southern Nevada Builders & Construction Trades Council:
[Introduced himself.] I’ll give you the short version. We support the bill.
Steve Holloway, Executive Vice President, Associated General Contractors, Las Vegas Chapter:
[Introduced himself.] Mr. Chairman, we support the bill.
Jim Laing, Project Manager of Reno ReTrac Project, Granite Construction:
[Introduced himself.] We’re here in support of the bill. We think design/build is the way to go.
Assemblyman Hardy:
If I may make a correction, Mr. Chair, the letter being handed out is from the fax machine of Jacob Snow, but comes from Bruce Woodbury (Exhibit LL).
Chairman Goldwater:
Thank you, and it will be included as part of the record. [There was no further discussion.] I’ll close the hearing on the bill.
ASSEMBLYMAN BEERS MOVED TO AMEND AND DO PASS A.B. 401.
ASSEMBLYMAN GRIFFIN SECONDED THE MOTION.
THE MOTION CARRIED. (Assemblywoman Buckley was absent.)
Chairman Goldwater:
Let’s go to the last bill of the day, A.B. 312.
Assemblyman Beers:
Mr. Chair, have we got eight more bills for Friday?
Chairman Goldwater:
To hear? [Received confirmation.] [There are] two more bills to hear and then it’s mostly work session. I tried to do it that way, and I tried to make sure that we didn’t have a Saturday, which is the main reason we are going long today. Is Assemblyman Mabey coming? While we’re waiting, we’ll go to the work session document (Exhibit MM).
Assembly Bill 81: Authorizes award for treble damages, attorney’s fees and costs in certain civil actions relating to marks. (BDR 52-366)
Diane Thornton, Senior Research Analyst, Legislative Counsel Bureau:
[Introduced herself.] A.B. 81 authorizes award for treble damages, attorney’s fees, and costs in certain civil actions relating to marks. Under Tab A you will find Assemblyman Oceguera’s amendments.
Assemblyman Oceguera:
I think that this bill has worked out really well. We’ve got all the parties concurring. We changed the language to “willful and wrongful acts” to satisfy the concerns of some people. After a lot of work that Legal [LCB] did on this, we came up with a good definition of “intellectual property,” which hasn’t been included in our statutes as of yet. Everyone seems to be happy with it.
Chairman Goldwater:
Is there anybody here who thinks this is the worst thing in the world?
ASSEMBLYWOMAN GIBBONS MADE A MOTION TO AMEND AND DO PASS A.B. 81 WITH THE AMENDMENTS AS PROPOSED BY ASSEMBLYMAN OCEGUERA.
ASSEMBLYWOMAN LESLIE SECONDED THE MOTION.
THE MOTION CARRIED. (Assemblywoman Buckley was absent.)
Assembly Bill 185: Exempts certain sports officials from certain provisions governing compensation. (BDR 53-1110)
Diane Thornton:
Assembly Bill 185 exempts certain sports officials from certain provisions governing compensation (Exhibit MM). The amendment, which is on your blue sheet addendum (Exhibit NN), deletes several sections leaving only the provisions governing worker’s compensation, occupational diseases and defining “employee” under there. That addresses several concerns as far as the conflicts with FUTA, the Federal Unemployment [Tax] Act and PERS (Public Employees Retirement System).
Chairman Goldwater:
I was assured by the sponsor that that was okay by him. What’s the thought of the Committee?
ASSEMBLYWOMAN GIBBONS MADE A MOTION TO AMEND AND DO PASS A.B. 185.
ASSEMBLYWOMAN LESLIE SECONDED THE MOTION.
THE MOTION CARRIED. (Assemblywoman Buckley was absent.)
Chairman Goldwater:
Assembly Bill 212 we’re going to hold until Friday because I know Ms. Buckley had particular concerns, and we’ll wait until she gets here (Tab B, Exhibit MM).
Assembly Bill 212: Revises provisions relating to Account for Education and Recovery Relating to Manufactured Housing. (BDR 43-462)
Not discussed.
Chairman Goldwater:
A.B. 261, Vance?
Assembly Bill 261: Requires certain policies of health insurance and health care plans to provide coverage for continued medical treatment by provider of health care under certain circumstances. (BDR 57-814)
Vance Hughey, Principal Research Analyst, Legislative Counsel Bureau:
[Introduced himself.] Assembly Bill 261 was brought forward by Assemblyman Mabey to provide continuity of health care when a patient’s doctor was terminated from a provider panel under certain circumstances. During the hearing on this bill, Assemblyman Mabey offered some clarifying amendments, which are contained in Exhibit “C” of your work session document (Exhibit MM). In addition, Charles Duarte from the Division of Health Care Finance and Policy suggested an amendment to exclude Medicaid and Nevada Check Up from the provisions of this bill, and those are attached as Exhibit “D” of your work session document (Exhibit MM). It’s a letter from Mr. Duarte to the Chairman, which includes his suggested wording.
Chairman Goldwater:
Okay, it seems all right to me.
ASSEMBLYMAN HETTRICK MADE A MOTION TO AMEND AND DO PASS A.B. 261.
ASSEMBLYWOMAN LESLIE SECONDED THE MOTION.
THE MOTION CARRIED. (Assemblywoman Buckley was absent.)
Chairman Goldwater:
We’ll stop the work session and go to the hearing on A.B. 312.
Assembly Bill 312: Requires issuance of certain limited licenses to practice medicine, dentistry or osteopathic medicine. (BDR 54-1137)
Assemblyman Garn Mabey, District No. 2 (Clark County):
[Introduced himself.] I submitted this bill by request, and I’m not sure if Dr. Shonderas, or whoever wanted me to submit it, is here. I wasn’t prepared to support it or oppose it.
Chairman Goldwater:
Is there anybody here to testify in support of A.B. 312? I’ll close the hearing on A.B. 312. We’re back to the work session. A.B. 296 (Tab E, Exhibit MM).
Assembly Bill 296: Excludes tires from definition of "biomass" for purposes of energy policy, public utilities, portfolio standard for renewable energy net metering and optional pricing. (BDR 58-1163)
Diane Thornton:
A.B. 296 is Assemblywoman Weber’s and Assemblyman Geddes’ bill.
Chairman Goldwater:
We’re going to wait for the whole Committee to be present on all of the [renewable energy bills]. We’re going to hold that until Friday. Okay, A.B. 369.
Assembly Bill 369: Revises provisions governing trade practices between suppliers and dealers of certain equipment and machinery. (BDR 52-1059)
Vance Hughey:
Assembly Bill 369 is Assemblyman Grady’s bill to require a supplier to repurchase farm equipment and machinery from a dealer to whom it was sold under certain circumstances. Attached to your work session document (Exhibit MM) as Exhibit “F” is a mock-up that includes the technical amendments to which Assemblyman Grady referred during the hearing on this bill. You will recall from testimony that similar legislation had been enacted in every state except Alaska, Hawaii, and Nevada.
Chairman Goldwater:
What’s the will of the Committee?
ASSEMBLYMAN HETTRICK MADE A MOTION TO AMEND AND DO PASS A.B. 369.
ASSEMBLYWOMAN LESLIE SECONDED THE MOTION.
THE MOTION CARRIED. (Assemblywoman Buckley was absent.)
Chairman Goldwater:
We will hold off on A.B. 431 and A.B. 433 (Tabs G and H, Exhibit MM).
Assembly Bill 431: Establishes program to provide incentives for installation of certain solar energy systems. (BDR 53-723)
Not discussed.
Assembly Bill 433: Makes various changes to provisions regulating persons providing check-cashing and deferred deposit services. (BDR 52-935)
Not discussed.
Chairman Goldwater:
[A.B. 393] was a retention bill I proposed to the Committee. I was able to achieve a compromise. Why don’t you come up, Mr. Holloway and Mr. Jeffrey, [and] outline our compromise?
Assembly Bill 393: Revises provisions governing payments on public works. (BDR 28-996)
Steve Holloway, Executive Vice President, Associated General Contractors, Las Vegas Chapter:
[Introduced himself.] All of the parties, including all who opposed this bill at your last hearing, have been meeting. We have arrived at a compromise agreement. I’ll just run through that very quickly (Exhibit OO). We amended Section 1 by deleting paragraph 1 and making a change in paragraph 2 that will simply say “[E]xcept as otherwise provided in NRS 338.515 and NRS 338.525, a public body and its officers or agents awarding a contract for a public work shall not withhold payment except for any and all liquidated damages from the contractor in excess of retainage.”
We also, because we were changing the payment of retention, agreed that we would amend subsection 5 of NRS 338.1385. That paragraph 4, subsection 5, simply lists those things for which a public works agency or public body may reject a bid. In other words, the bidder is not responsive et cetera. We added one provision there. Because of the change in retention, they can reject the bid if the bid is unbalanced, or the bidder unbalanced his bid or schedule of values in one or more public works contracts during the previous three years. That’s the only change there.
On the second page, what was Section 3 becomes Section 5. That is the crux of the dispute. As you remember, we had put a $50,000 cap on retention.
Chairman Goldwater:
Do you have a copy of this? I’m getting some made. Do you happen to have some extras? I think the general outline for the compromise is no front-loading of bids, 5 percent retention, and then . . .
Steve Holloway:
Five percent for the first 50 percent.
Chairman Goldwater:
First 50 percent of the project and up to 10 percent if the local government body decides that the work isn’t coming along as . . .
Steve Holloway:
Just to clarify that, it’s 5 percent retention for the first 50 percent of the bid; it’s now 10 percent for the first 50 percent of the bid. This would change that to 5 percent. If the contractor’s doing satisfactory work, after 50 percent of the project is complete, there would be no more retention withheld. If the contractor is not doing satisfactory work at the end of the first half of the project, then the public body would have the option of increasing that retention up to 10 percent of the value of the entire project. In other words, back to the original 10 percent retention if they’re not doing satisfactory work. And that’s the crux of the change.
Chairman Goldwater:
Without having that and the language in front of you, we can take a motion and move this compromise forward, and I’ll send it out to you for your review before a second reading. If anybody has any questions, we can put it on the desk.
ASSEMBLYMAN BROWN MOVED TO AMEND AND DO PASS A.B. 393.
ASSEMBLYMAN PARKS SECONDED THE MOTION.
THE MOTION CARRIED. (Assemblywoman Buckley was absent.)
Chairman Goldwater:
I’ll get that to you members before it hits second reading so that you can review the language. Is there anything else before the Committee today? We have two bills on agenda for Friday. It will be mostly work session and we will be full Committee, so please try to be here. The earlier we get started, the earlier we finish. [Our meeting will start upon] adjournment of the Floor.
We are done. Thanks. [Adjournment at 6:26 p.m.]
RESPECTFULLY SUBMITTED:
Sharee Gebhardt
Committee Secretary
APPROVED BY:
Assemblyman David Goldwater, Chairman
DATE: