MINUTES OF THE JOINT MEETING OF THE
ASSEMBLY SELECT COMMITTEE ON GOVERNMENT REORGANIZATION
and
SENATE SPECIAL COMMITTEE ON GOVERNMENT REORGANIZATION
Sixty-seventh Session
February 2, 1993
The Joint Meeting of the Assembly Select Committee on Government Reorganization and Senate Special Committee on Government Reorganization was called to order by Co-Chairman Val Z. Garner, at 4:36 p.m., on Tuesday, February 2, 1993, in Room 119 of the Legislative Building, Carson City, Nevada. Exhibit A is the Meeting Agenda. Exhibit B is the Attendance Roster.
ASSEMBLY COMMITTEE MEMBERS PRESENT:
Mr. Val Z. Garner, Co-Chairman
Mr. Robert Sader, Co-Chairman
Mr. Morse Arberry, Vice Chairman
Mr. Rick Bennett
Mr. Joe Dini
Mrs. Jan Evans
Mrs. Vivian L. Freeman
Ms. Chris Giunchigliani
Mr. William Gregory
Mr. Dean Heller
Mrs. Joan A. Lambert
Mr. John Marvel
Mr. Gene Porter Absent/Excused
Mr. Bob Price
Mr. Larry Spitler
Mrs. Myrna Williams
Mr. Wendell P. Williams
SENATE COMMITTEE MEMBERS PRESENT:
Senator Ann O'Connell, Co-Chairman
Senator Raymond Rawson, Co-Chairman
Senator Matthew Callister
Senator Bob Coffin
Senator Diana Glomb
Senator Thomas Hickey
Senator Mark James
Senator Mike McGinness
Senator William O'Donnell Absent
Senator William Raggio
Senator Dean Rhoads
Senator Hal Smith
Senator Randolph Townsend Absent
OTHERS PRESENT:
Judy Matteucci, Director, Dept. of Administration
John P. Comeaux, Executive Director, Dept. of Taxation
James T. Spencer, Sr. Deputy Attorney General,
Personnel Division
Glenn B. Rock, Director, Dept. of Personnel
Following roll call, Co-Chairman Garner turned the meeting over to the budget director, Judy Matteucci.
Ms. Matteucci brought attention to the organizational handout originally introduced in the joint meeting in Assembly Chambers on Monday, February 1, 1993 (attached hereto as Exhibit C). Co-Chairman Sader reminded committee members this handout had been received by committee members at least once previously. He asked the members to be certain to have a copy available at each successive meeting as they would not be supplied again.
Co-Chairman Sader informed committee members there was the intention to begin these meetings on government reorganization by discussing departments and areas in which a consensus could possibly be developed more quickly than some of the more controversial areas.
Specifically, Ms. Matteucci said she wished to begin by focusing on the Department of Taxation. The functions recommended to be included in the Department of Taxation were as shown on page 6 of the reorganization plan, Exhibit C. Additional to the proposed structure of the Department of Taxation, Ms. Matteucci said there were two recommendations, i.e., that they, 1) elongate the local assessment review time, thereby eliminating four positions over the course of the biennium, and 2) eliminate the local government budget review activities.
Although she recognized the money committees would have to review the recommendations, Ms. Matteucci pointed out the total savings in the Department of Taxation as a result of the recommended reorganization changes, would be $1.6 million in the first year of the biennium, and $2.3 million in fiscal year 1995. She reported the savings in the Employment Security Department (ESD) would be a "wash" with $16,000 the first year and $107,000 the second year. Additionally, there were savings in the State Industrial Insurance System of $343,000 the first year and $558,000 the second year, which was indicated on the matrix (page 3 of Exhibit D). This document, which gave specific line-by-line demonstrations of where particular savings were, had been provided to the money committees, Ms. Matteucci told the committee.
In response to Senator Rhoads' question whether the makeup of the State Board of Equalization and the Nevada Tax Commission would change, Ms. Matteucci responded this would not change.
Mr. Heller questioned whether there was a cost just to perform the reorganization itself. Ms. Matteucci said on the detailed sheets provided to Ways and Means there was a break-down of the additional costs of the reorganization, as well as the savings.
Ms. Matteucci then asked John (Perry) Comeaux, Executive Director of the Department of Taxation, to report on the reorganization proposed for the Department of Taxation.
Mr. Comeaux assured the committee the Tax Department's primary mission was the administration of a consistent, fair and efficient system for collection of tax revenues. Also, within the Tax Department's structure was the Division of Assessment Standards whose function included not only revenue collection, but also some monitoring of the local assessors' activities and provision of certain other services such as coordination of training for local appraisers. Currently there was also a Local Government Finance Division whose main functions involved reviewing local government budgets, approving their tax rates and reviewing audit reports from independent auditors.
Continuing, Mr. Comeaux reiterated the Governor's plan for reorganization actually had four separate impacts on the budget for the Department of Taxation (as was shown on page 6 of Exhibit C). The first two were aimed toward reducing the state's role in monitoring the activities of local governments.
Reorganization in Local Government Finance, Mr. Comeaux explained, would remove most of the Department's (Taxation) responsibilities in the area of budget review, tax rate approval and audit report review. This would eliminate two local government budget analysts the Department of Taxation now employed to provide those services.
In the second area, Division of Assessment Standards, Mr. Comeaux explained the responsibility of the Department (Taxation) to conduct a ratio study over a two-year period would be extended to a four-year period. The ratio study was basically a test performed by the Department of Taxation on the results of the local assessor's evaluation practices. This test required the selection of sample properties which would be physically reappraised and the results obtained by the Department of Taxation would then be compared to the results obtained by the county assessors. Following this the Department of Taxation would issue a report indicating whether the assessment ratio was within the parameters laid out in the statute. All other services or functions in the Division of Assessment Standards would remain unchanged.
The third impact of the reorganization plan would transfer responsibility for administration of the insurance premium tax to the Department of Taxation. In this area the Department of Taxation would receive three positions. Additional funding would be necessary for equipment, operation and the data processing needed to take over billing and collection functions. This phase would be implemented as of July 1, 1993.
Effective October 1, 1993, Mr. Comeaux continued, the Department of Taxation would implement combined business tax audits. These audits would be designed to provide more efficient and less intrusive tax audits of Nevada businesses. Specifically, the Department would conduct audits for Employment Security Department and the State Industrial Insurance System, as well as the other various taxes such as sales tax, business tax and use tax. Fourteen positions would be transferred from ESD and SIIS to the Department of Taxation to accomplish this.
Senator O'Connell asked how many layoffs would be anticipated in the incorporation of the two departments. Mr. Comeaux said he thought the documents prepared by the budget office indicated there was a total of 59 audit-related positions in those two departments combined. If 14 positions were transferred to the Department of Taxation, the net loss would be 45 positions.
The key to combining the tax audits, Mr. Comeaux explained, would be that when the Department of Taxation sent an auditor, or auditors (whichever was necessary), to a business that auditor or audit team would audit for sales tax, use tax, business tax, ESD, SIIS and any other taxes administered by the Department of Taxation.
Responding to Senator O'Connell's question regarding the reduction in positions, Ms. Matteucci opined between a combination of the continuation of the hiring freeze and Personnel's efforts to relocate the people affected, it was hoped there would not be mass layoffs. Indeed, as soon as there was approval from the Legislature, they would begin trying to provide jobs for those affected by the reduction. Ms. Matteucci added there would be a recommendation for the establishment of an early retirement program. To make this operable a statutory contingency fund had been suggested to establish some payments for up to two years to encourage those who would like to retire early, as long as the retirement was directly related to the elimination of a position through reorganization.
Mr. Marvel said he was still somewhat concerned regarding auditors transferred from SIIS and ESD, departments in which the sole funding was federal money (as in the case of ESD) or premium money (as in the case of SIIS). How could they track these monies in order to be certain the same performance level was maintained? Also, how would the funds be kept out of the mix of general funds? After having read a letter from the Department of Labor, Mr. Marvel said he was not confident the State would not be subject to sanctions if federal and/or premium monies were not properly spent.
Replying to these concerns, Mr. Comeaux said the mechanism employed in the budget for the funding of the audit activity by ESD and SIIS called for a transfer of funds. Their plans to implement the combined business tax audits would call for the Department of Taxation, during the transition period from July 1, 1993 to September 30, 1993, to develop audit selection criteria which preserved the sales tax selection criteria and also reflected the proper criteria for selecting audits for ESD and SIIS. Ultimately, in that process, he said, there would be accounts selected which would be audited for sales tax, business tax, ESD and SIIS.
Again Mr. Marvel asked if this would withstand a federal audit or scrutiny. Answering, Mr. Comeaux said they had not at this point thoroughly reviewed all material relating to this problem; however, he thought it was a question of understanding what the requirements were and then meeting those requirements. Mr. Comeaux was confident the Department could do that.
If the Department of Taxation would no longer have responsibility for setting local government tax rates, Mrs. Lambert questioned how these would be negotiated in the event of disagreement between the local governments and the Department of Taxation. In response, Mr. Comeaux allowed that issue did occasionally come up and in the last several years, with the participation of the Department of Taxation, local governments would meet and attempt to adjust tax rates below the caps. Past disputes not resolved at that level would go to the Tax Commission. However, this had happened very infrequently. Mr. Comeaux thought it would be possible to provide for the Tax Commission's participation to the point where local governments could handle it themselves.
Senator Rawson questioned whether each auditor generated far more revenue than their salary, which led to the premise that fewer auditors would mean less revenue generated and less State efficiency in providing funds. Mr. Comeaux explained over the past six or eight years the Department of Taxation had worked toward the optimum audit coverage by monitoring a gradually increasing number of auditors in order to determine the recovery rate per auditor. Presently, he reported, each of their auditor's cash recovery was seven to eight times the cost of the auditor. Mr. Comeaux opined they should continue to increase the number of auditors until they reached the point where recovery-per-auditor was in the range of three or four times the cost of the auditor. Below this rate, it was questionable whether the recovery balanced against the disruption of the business. As proposed, Mr. Comeaux added, an audit coverage on sales tax, business tax, ESD and SIIS was designed to produce somewhere in the 7 to 7.5 percent range.
Returning to the subject of eliminating the final authority for resolving disputed property tax rates, Mr. Price asked how competing entities, whether a school district, a city, or a county, would resolve their differences without a final arbiter. Mr. Comeaux replied that normally the financial people in the disputing entities would meet to decide what kind of "trade-offs" were needed to resolve the issue. Mr. Price insisted squabbles over tax rates in years past had always been settled by the final arbiter. Although in the recent past there had been few disputes of that nature, Mr. Comeaux replied, what disputes had occurred had been settled at the local level.
Senator Hickey asked how many people were being transferred from SIIS and ESD. Replying, Ms. Matteucci said a total of 59 auditors were being transferred into the Department of Taxation, 39 from SIIS and 20 from ESD.
Mr. Sader questioned the problem of providing space for employees being transferred, and whether it was intended for ESD and SIIS employees to remain in their current offices. Mr. Comeaux explained the transfer of all 59 positions into the Department of Taxation's budget, effective July 1, 1993, when combined with the positions to be eliminated September 30, 1993, would be only a "paper" transfer as certainly the Department of Taxation could not house 59 additional positions. However, provision had been made in the budget to house the 14 employees who would be permanently transferred to the Department of Taxation. These positions might not all be in Carson City, but could involve the district offices as well.
There were additional questions posed by Mr. Dini regarding: 1) Whether auditors would be engaged in a "team" effort whenever in the field, or whether each auditor would be cross-trained. Mr. Comeaux assured Mr. Dini each auditor would be cross-trained. 2) Where the particular business would see a cost savings. Mr. Comeaux replied based on information from SIIS and ESD the average length of time required to conduct an audit for the business tax was approximately four hours. One auditor looking at all three taxes would probably spend not much over four hours, which would mean a savings for a business in time and disruption, as well as providing a much more efficient audit for the State. Ultimately, one auditor looking at all three taxes would cost much less than three auditors from three separate agencies.
Following a short break, Ms. Matteucci provided a historical review regarding the proposed reorganized Department of Administration, recommendations included in the state budget regarding the Department of Personnel and the situation the state found itself in relative to compliance with the Fair Labor Standards Act (FLSA). Recent court decisions, she stated, had affected employees previously earning overtime at straight time, as opposed to time and a half.
Following introductory remarks, Jim Spencer, Deputy Attorney General for the Department of Personnel, explained the recent decision in the lawsuit of Benzler v. State of Nevada, Civil 91-62-ECR(PHA), wherein the Nevada Federal Court held Nevada State law did not comply with the Fair Labor Standards Act. After an attempt by the Legislature in 1991, to pass legislation to comply with the FLSA, the Ninth Circuit Appeals Court had rendered a decision in Abshire v. Kern County. Unfortunately, Mr. Spencer said, since the last session of the Legislature there had been intervening federal law interpretation by several courts within the Ninth Circuit. These had generated new causes of action by the Employees' Associations of the State. These lawsuits were subsequently found to be valid causes of action under recent court authority. According to Judge Edward Reed, Mr. Spencer reported, a salary reduction could not be based on a reduction in hours, and if a state employee's time was kept showing a reduction for reduced hours, compensatory time accrual, annual leave usage, etc., the "salary basis" test failed and these employees were eligible for time and a half. All of this had resulted in a major retroactive accrual of liability to the State of Nevada.
Continuing, Mr. Spencer said another element was a line of district court decisions stating a policy of disciplinary suspension would fail the salary basis test and create another line of liability for the State of Nevada. Ultimately, the Department of Administration had requested the study "Commission on Governmental Reorganization -A Review of the Organization Structure of Nevada State Government," prepared by Peat Marwick. An early review of the Peat Marwick recommendations had shown statutory changes were needed to put Nevada into compliance with the FLSA. This study, Mr. Spencer reported, had been scrutinized more in depth by the Director of the Department of Personnel, Glen Rock.
Coming forward, Mr. Rock reiterated Peat Marwick had been hired to consider the entire issue of the Benzler case, as well as recommending options the state had available to come into compliance with FLSA. The Peat Marwick study had revealed two tests to the Fair Labor Standards Act, i.e., the salary test (which had failed in the Benzler decision), and the "duties" test. If the salary test failed, no compliance was available until this was resolved. Thus, there was a need to study and
work on the statutes in order to withstand federal scrutiny with the Department of Labor.
Continuing, Mr. Rock stated one necessity was to remove compensatory (comp) time accrual, making nearly all employees "hourly" employees qualifying for time and a half. The only categories excluded from this would be attorneys, teachers, doctors and appointees of elected officials.
Also now included in the statutes which would have to be changed, Mr. Rock explained, was the provision that people could be suspended without pay. The court again had decided if people were suspended without pay, they were not truly "salaried" employees -- they were "hourly" employees and therefore eligible for time and a half. This was further discussed by Mr. Rock.
Senator Raggio commented on the "exemption" status of attorneys. He asked Mr. Rock if in creating the "exempt - merit" classification it would be looked at as a method to circumvent the FLSA. Also, would this present a potential liability for evading the clear principles of the Fair Labor Standards Act? Responding, Mr. Spencer said potential liability would depend on how closely the Nevada State law was structured to comply with each element of the Fair Labor Standards Act as it had been interpreted through the recent cases. He thought there was an excellent chance to pass the present "salary basis" test by working with the Legislative Counsel Bureau's counsel, Lorne Malkiewich, to draft legislation. There was also the possibility that federal law would continue changing and this would affect statutory proposals.
In an effort to understand, Senator Hickey wondered if the proposed legislation would be taken back to the Department of Labor to determine whether the "salary" test had been met. Mr. Rock replied it was their intention to have State counsel determine whether it met the requirements of the FLSA. After some discussion, however, Mr. Rock agreed the Department of Labor should consider whether the proposed legislation was appropriate, as soon as there were proposals to put forward.
Asked whether Nevada was one of the few states encountering this problem, Mr. Rock told Senator O'Connell Nevada was on the "leading edge" and was probably the only state in which a court decision had gone to the extent of Benzler. Since this type of case presently appeared to be a "west coast problem," no consensus between the courts had been reached. Therefore, Nevada was subject to the whim and fancy of the Department of Labor's interpretation of the Fair Labor Standards.
Ms. Matteucci indicated the subject of the next meeting would be the reorganization of the Department of Administration, e.g. Division of General Services, Purchasing, Capitol Planning, Buildings and Grounds and Information Technology Services.
There being no further business, the meeting was adjourned at 6:19 p.m.
RESPECTFULLY SUBMITTED:
Iris Bellinger
Committee Secretary
APPROVED BY: APPROVED BY:
__________________________ _____________________________
Assemblyman Val Garner Senator Ann O'Connell
Co-Chairman Co-Chairman
_____________________________
Senator Raymond Rawson
Co-Chairman
??
Joint Assembly Select Committee on
Government Reorganization and
Senate Special Committee on
Government Reorganization
Date: February 2, 1993
Page: 1