MINUTES OF THE

      ASSEMBLY COMMITTEE ON WAYS AND MEANS

 

      Sixty-seventh Session

      June 9, 1993

 

 

The Assembly Committee on Ways and Means was called to order by Chairman Morse Arberry, Jr., at 8:05 a.m., on Wednesday, June 9, 1993, in Room 352 of the Legislative Building, Carson City, Nevada.  Exhibit A is the Meeting Agenda.  Exhibit B is the Attendance Roster.

 

 

COMMITTEE MEMBERS PRESENT:

 

      Mr. Morse Arberry, Jr., Chairman

      Mr. Larry L. Spitler, Vice Chairman

      Mrs. Vonne Chowning

      Mr. Joseph E. Dini, Jr.

      Mrs. Jan Evans

      Ms. Christina R. Giunchigliani

      Mr. Dean A. Heller

      Mr. David E. Humke

      Mr. John W. Marvel

      Mr. Richard Perkins

      Mr. Robert E. Price

      Ms. Sandra Tiffany

 

COMMITTEE MEMBERS ABSENT:

 

      Mrs. Myrna T. Williams              (Excused)

 

STAFF MEMBERS PRESENT:

 

      Mark Stevens, Fiscal Analyst

      Gary Ghiggeri, Deputy Fiscal Analyst

      Steve Abba, Program Analyst

 

 

ASSEMBLY BILL 290-     Requires state board of education to establish pilot program for increased management of public schools by educational personnel.

 

Assemblywoman Jan Evans, District 30, testified AB 290 was an effort at school reform.  It would provide schools the opportunity to experiment with site-based decision making.  She explained this was not a new concept and was happening in many jurisdictions throughout the country.  AB 290 proposed a pilot program which was modest, permissive, not mandatory and not prescriptive.  She invited State Superintendent of Public Instruction, Eugene Paslov, to provide additional testimony.

 

Dr. Paslov stated the Department of Education supported AB 290 with the proposed amendments.  He indicated the department had worked closely with Assemblywoman Evans to develop this legislation to encourage innovation throughout the state.  The bill proposed implementing a pilot program of 10 schools throughout the state to demonstrate how school-based decision making could take place.  The State Board of Education would set general guidelines for the program to indicate its strong support for the program.  Beyond that involvement, however, the State Board was only interested in encouraging some excellent work which was already being done in the area of school-based decision management.

 

Dr. Paslov pointed out there was a fiscal note attached to the bill in the amount of $2,000 per school.  This funding would pay for planning and training.  He encouraged the committee to support this legislation.

 

Vice Chairman Spitler asked what was currently being done and what had been learned from current programs.  Dr. Paslov responded the principals of participating schools had indicated they were able to involve teachers and parents more in curriculum development and delivery of services.  They had joint decision making authority over the distribution of funds at the school building level.  Results of the current programs were excellent and the principals wanted the programs to continue.

 

Mrs. Evans noted the pilot program would allow the schools to be responsive to their own neighborhoods.  Administrators, teachers and parents would have the opportunity to come together to work on school problems.  The proposal was not to ignore the guidelines of the state, the State Board of Education or local school boards but to allow the schools the latitude to design their programs in a manner which would reflect community needs.

 

Vice Chairman Spitler stated he supported the concept.  He asked how current programs were funded.  Mrs. Evans responded all schools would have an equal opportunity to apply for funding.

 

Mr. Marvel said he would like some assurance the program would not diminish the role of the school boards.  Dr. Paslov said the proposal would not diminish the role of the school boards.  He said this effort could not work without the strong cooperation of local boards.  The pilot program would require authorization by local school boards.

 

Chairman Arberry called for public testimony. 

 

Ms. Debbie Cahill, Nevada State Education Association, testified in support of AB 290.

 

Ms. Carolyn Edwards of the Clark County School District expressed support for AB 290.  She indicated the Clark County Board of School Trustees had included this program in its strategic plan.  She added she was personally dedicated to this issue.

 

Mr. Greg Betts, speaking on behalf of the rural school districts, stated AB 290 was an excellent first legislative statement about an important concept which was emerging across the country.  He urged the committee's support.

 

Mr. Henry Etchemendy of the Nevada Association of School Boards expressed support for AB 290.  He noted site-based decision making was currently taking place in Nevada.  He urged the committee's consideration of the bill.

 

ASSEMBLY BILL 445-     Provides for creation of earthquake safety council.

 

Assemblyman Rick Bennett, District 16, testified he had served on a preliminary advisory group regarding seismic safety.  One of the recommendations of that group was to establish an earthquake safety council.  He explained the cost of the program would be $20,000 over the biennium to fund travel and other meeting expenses.

 

Mr. Jim Hawke, Director, Division of Emergency Management, said he was appearing in support of AB 445.  He said this legislation was timely and appropriate.  He noted the Division of Emergency Management was prepared to provide support staff for the earthquake safety council.  He urged the committee's support.

 

Chairman Arberry questioned whether the legislation was supported by local entities.  Mr. Hawke said local entities were generally supportive.  They did have some concerns, however, regarding designing programs which would be appropriate for each geographic region of the state.  He suggested the council include representatives of the local entities.  He noted there were not enough seismologists in Nevada to have more than one seismic safety council.

 

Mr. Hawke noted the five preliminary meetings of the council had been held in northern Nevada because there was no funding for travel expenses.  The requested funding would allow meetings to be held in southern Nevada.

 

Chairman Arberry asked Mr. Hawke to provide the committee with an itemization of projected travel and other incidental expenses.  Mr. Hawke agreed.

 

Ms. Tiffany asked if this program was modeled on an existing program in another state.  Mr. Bennett said the program was based on discussions held by the advisory group as well as information from other states, such as California, which had councils in place.

 

Ms. Tiffany questioned how the effectiveness of the council could be measured.  Mr. Hawke said the council would develop a scope of services and schedule of tasks to perform.

 

Ms. Tiffany noted the purpose of state reorganization was to reduce the number of state boards rather than to add new boards.  She questioned why the function of this proposed board could not be handled by the Division of Emergency Management.  Mr. Hawke responded the 15 members of the council would serve without salaries.  The only cost of the legislation would be to reimburse council members for their out-of-pocket expenses.  If the legislation was not passed, the Division of Emergency Management would write an earthquake mitigation plan but there would not be an opportunity to have a variety of professionals review the plan.  He pointed out preparedness was key to emergency plans.

 

Ms. Tiffany suggested Nevada was not as at risk for earthquake damage as California was.  Mr. Hawke noted Nevada ranked third for earthquake danger in the United States.

 

Ms. Tiffany said she felt experts could be accessed to review the plan without the need for a full board of 15 members.

 

Chairman Arberry indicated Mr. Marvel had suggested that the agencies and boards which had professional representatives seated on the council might contribute toward funding the council expenses.  Mr. Hawke said he could not make that offer on behalf of those organizations.

 

Mr. Jim Goodfellow, Earthquake Program Manager, Division of Emergency Management, stated the bill included a five-year plan, which was required by the Federal Emergency Management Agency.  One of the purposes of the plan was to recommend the activities, goals and objectives for Nevada to improve its earthquake risk management.  He pointed out this legislation would provide an opportunity to solicit funding from other non-governmental agencies which was not currently available.  He noted the mining industry might be interested in supporting this program.

 

Chairman Arberry questioned whether the program could be implemented without the $20,000.  Mr. Hawke said without the funding, the program could be implemented at a modest level.  One or two meetings could be held per year and participants would have to donate their time and travel expenses.  He mentioned the value of voluntary contributions was used for matching grant funds.

 

Ms. Tiffany said she did not understand why the council was necessary if there was already a federally-mandated plan in place.  She suggested holding an annual earthquake conference where the experts could review the plan.  She said she was against more organization.

 

Mr. Hawke said that would be an approach which could be considered.  He noted it would be difficult to develop consensus at a conference.  He explained there was not currently a consensus on what the extent of earthquake hazard was in southern Nevada and it would be useful to develop a consensus.

 

Ms. Tiffany reiterated the need to be able to measure the outcome of the plan.

 

Mr. Goodfellow said the plan proposed specific action items and a means of documenting actions which have been accomplished.

 

Mr. Darrell Rasner, Chief, Bureau of Health Protection Services, Health Division, testified he was appearing on behalf of Dr. Donald Kwalick, State Health Officer, who was unable to attend the hearing.  He asked the committee to consider amending AB 445 to include the State Health Officer in the membership of the earthquake safety council.  He explained the State Health Officer was the chief public health official in Nevada and his participation on the council would provide input regarding potential public health problems associated with natural disasters such as earthquakes.

 

ASSEMBLY BILL 474-     Requires registration of employee leasing companies.

 

Assemblyman Tom Collins, Clark County District 1, testified AB 474 would close a loophole in the statutes.  He explained some employee leasing companies were not paying worker's compensation insurance premiums and unemployment taxes or obtaining appropriate licenses.  AB 474 would correct this problem.  He noted this legislation was supported by the State Industrial Insurance System, the Employment Security Department, the Insurance Commissioner and the Secretary of State.

 

Mr. Collins said the state investment in AB 474 would be returned indirectly.  There would be an up front cost to the state for staffing in the Secretary of State's Office.  The return on that investment would be in keeping fraudulent leasing companies outside Nevada.  He urged the committee's support for AB 474.

 

Mr. Mike Griffin, Deputy Insurance Commissioner, stated the Department of Insurance supported AB 474 and if the legislation passed, the Insurance Commissioner, in concert with the Manager of the State Industrial Insurance System, would develop accompanying regulations.

 

Mr. Scott Young of the State Industrial Insurance System (SIIS) testified SIIS also supported this legislation.  He noted some other states had experienced problems with unregulated employee leasing companies.  This type of legislation would allow legitimate companies to function while controlling potential abuses.

 

Chairman Arberry asked for information regarding the fiscal note.  Mr. Dale Erquiaga of the Secretary of State's Office, responded there was no current staff within the Securities Division to handle a new program.  A General Fund appropriation was requested to fund the program.

 

Chairman Arberry inquired how much revenue approval of this legislation would generate.  Mr. Erquiaga replied the Secretary of State had been unable to determine how many leasing companies would be affected.  He explained several hundred companies would be required to pay the $75 license fee to generate appropriate revenue.

 

Chairman Arberry asked Mr. Erquiaga to provide a schedule of revenue projections as soon as possible.  Mr. Erquiaga said he would submit a report the following day.

 

Ms. Giunchigliani asked how many staff positions would be required to handle the program.  Mr. Erquiaga replied the request was for two positions.  Ms. Giunchigliani questioned whether the leasing companies could be monitored via computer.  Mr. Erquiaga said he understood there was also a compliance function involved and one of the positions would be a compliance investigator.

 

Ms. Giunchigliani suggested the compliance function could be handled by the Contractor's Board.  Another approach might be prohibiting employee leasing companies from doing business in Nevada.

 

Mr. Collins noted Utah had recently approved similar legislation.  The benefit to the state would not be in the form of General Fund revenue.  Rather, it would be money paid to SIIS and the Employment Security Department which otherwise would be lost.  Losses in other states have amounted to millions of dollars.

 

Ms. Giunchigliani questioned whether the investigative function of the program could be absorbed in some non-General Fund account in order to reduce the General Fund impact.  She suggested that possibility be investigated.  Mr. Collins reiterated this was a coordinated effort of many agencies.

 

SENATE BILL 422   -     Increases license fees for real estate brokers, broker-salesmen and salesmen.

 

Mr. Larry Struve, Director, Department of Commerce, testified in support of SB 422.  He noted this legislation had already been processed through the Assembly Commerce Committee and was included in the Executive Budget.  The bill was designed to raise fees for real estate professionals and was projected to increase General Fund revenue by $459,000 and would provide funding for the Real Estate Division budget.

 

Mr. Struve pointed out there was a discrepancy between the proposed fees and the statutory provisions regarding late fees (NRS 645.840).  He stated if the fee increase was approved, the statute would have to be adjusted accordingly.  The adjustment to the statute would result in a minimal increase in revenue (approximately $5,000) but it would make the statute consistent.

 

Mrs. Chowning asked when the fees were last increased.  Mr. Struve said his recollection was the last fee increase occurred in the early 1980s.  He added the bill had been discussed with representatives of the real estate industry, who recognized the necessity of the increase.

 

      BUDGET CLOSINGS

 

SUBCOMMITTEE REPORT ON WELFARE, CHILDREN'S AND AGING BUDGET

 

Mrs. Evans reported the subcommittee's recommendations to the committee.  She thanked the members of the subcommittee, Mr. Price, Ms. Chowning, Ms. Tiffany and Mr. Humke, and fiscal staff, Steve Abba and Mark Stevens, for their hard work.

 

Mrs. Evans noted the Governor had recommended a major Welfare reform plan in AB 580.  The Governor's Welfare reform proposal emphasized the importance of education and training, which would be accessed through the Job Opportunities and Basic Skills (JOBS) program.  Participation in the JOBS program would be mandated for all recipients of Aid to Dependent Children (ADC) with children age 1 or older on a phased-in basis.  She said while she supported increasing employment and training opportunities for Welfare recipients, neither she nor the committee could support the sanction methodology to fund and to make the Governor's proposals cost-neutral.  The Governor's recommendations included a time limit on ADC benefits of two years, after which a 25 percent grant reduction would be imposed; sanctions for non-compliance with proposed preventive health care measures; sanctions for not abiding by school attendance requirements and sanctions for non-cooperation with employment and training stipulations.

 

Mrs. Evans said the subcommittee, as well as the committee, had heard a great deal of testimony questioning whether the Governor's proposals were counterproductive and whether true Welfare reform could be accomplished with the disincentives proposed.  Many witnesses who appeared before the committees endorsed an alternative Welfare reform measure--"fill-the-gap budgeting"--which is provided for in AB 276 currently before the committee.

 

The subcommittee recently heard testimony on an alternative Welfare reform proposal which blended the Governor's proposal to expand the JOBS program with a modified fill-the-gap budgeting program and eliminated most of the sanctions proposed in AB 580.  The alternative proposal also provided for a pilot test project for a small number of recipients who could receive ADC grant reductions if the recipient remained on the ADC rolls longer than a specified period of time or opted for community service work.  The alternative proposal was not cost-neutral.  Although the proposal had some attractive features, the estimated cost over the coming biennium would be approximately $3.4 million.  Nevada Legal Services testified before the subcommittee that the Senate was exploring options which might save state funds in the Medicaid budget to offset that cost; however, there was no guarantee those savings would be realized.  The subcommittee also heard testimony from the Welfare Division which indicated it would be impossible at this time to modify the Nomads system to accommodate major Welfare reform measures without jeopardizing the projected completion of the project by the federally mandated deadline (October 1995).  It was uncertain what federal sanctions might be imposed if that deadline was not met.

 

Mrs. Evans reported the subcommittee unanimously agreed, lacking a viable cost-neutral Welfare reform alternative to AB 580, to close the Welfare Division's Aid to Dependent Children and Employment and Training Budgets as currently recommended by the Governor.  She pointed out the Executive Budget did not embody the Governor's proposed Welfare reform measures.  The Governor's proposal was contained within AB 580.  Therefore, the two budgets did not include the fiscal implications of the Governor's proposal.

 

The subcommittee also recommended closing the Welfare Administration and Medicaid budgets with several technical adjustments.

 

In closing the ADC and Employment and Training budgets, the subcommittee unanimously agreed to recommend issuing a letter of intent instructing the Welfare Division to conduct a study of Welfare reform and suggest how comprehensive Welfare reform could be implemented in Nevada.  The intent of the subcommittee recommendation was for the Welfare Division to commission a working group of participants to develop a viable Welfare reform plan with well-formulated objectives and reform measurers which would realistically meet the stated objectives for reforming Welfare recipient behavior.  The plan would include accurate and documented costs and/or cost savings for implementing Welfare reform for consideration by the 1995 Legislature.  The subcommittee also recommended the Welfare Division provide a status report of the study's progress and deliver a concept paper of reform measures agreed to by the working group to the Interim Finance Committee in the spring of 1994.  The subcommittee recommended the Welfare reform study be completed by September 1, 1994, prior to the beginning of the 1995 Executive Budget process, so the working group's proposals could be included within the budget.

 

Mrs. Evans expressed disappointment that Welfare reform would not come from the 1993 Legislature because the Governor's plan was not viable and alternative plans did not reach a stage of development which would allow for legislative approval.  She said Welfare reform needed to take place in Nevada as it was in other states and the Legislature had to stop the biennial exercise of having the Welfare Division and members of the ADC coalition struggle over their respective positions.  The subcommittee's recommendation envisioned the two factions coming together to formulate a plan to be presented jointly to the 1995 Legislature.

 

Mrs. Evans stated the subcommittee was also requesting the committee's consent to reopen the Welfare Administration, ADC, Medicaid and Employment and Training budgets to allow further consideration of the alternative Welfare reform plan only if the Senate could identify savings which might theoretically offset costs.

 

Mrs. Evans explained adjustments recommended in the Welfare Administration and Medicaid budgets would reduce the General Fund appropriation to the Welfare Division over the 1993-95 biennium approximately $8.5 million.  She noted the recommended reductions were not punitive.  They were simply adjustments which could be made based on recent updates of projected hospital tax benefits, recent caseload data and technical budget corrections.

 

WELFARE ADMINISTRATION

 

Mrs. Evans reported the Executive Budget included funding to continue development of the Welfare Division's federally-certified data processing project commonly referred to as "Nomads".  In reviewing the funding recommended for Nomads, the subcommittee learned the Welfare Division's staff costs associated with the project were not appropriately cost allocated to take full advantage of available enhanced federal match funding.  Additionally, a greater portion of Nomads' costs could be shifted to federal program components, which would participate in paying for project costs at a higher federal match.  Those two factors, as well as reevaluation of project cost estimates and milestones, would allow for a General Fund reduction of approximately $858,000 over the 1993-95 biennium, which the subcommittee recommended.  Mrs. Evans assured the committee this recommendation would not impede the Welfare Division in its progress to complete the Nomads project and receive federal certification by October 1995.

 

Mrs. Evans noted the Executive Budget did not recommend funding to initiate the Medicaid Management Information System (MMIS), which was an integral and logical link to the Nomads project.  Currently, every state in the nation had either developed or was in the process of developing a federally-certified MMIS system.  She explained the opportunity to access enhanced federal matching funds could be jeopardized by waiting until the next budget cycle to initiate this program.  The subcommittee explored various alternatives which would allow the Welfare Division to initiate the project this biennium.  In subcommittee hearings, the Welfare Division testified it was not feasible to initiate the MMIS project in fiscal year 1993-94 due to overwhelming demands on staff and other division resources to complete the Nomads project.  However, the division indicated the MMIS project could realistically be initiated in January 1995.  The subcommittee unanimously supported the proposal to initiate the MMIS project in the coming biennium and recommended startup funding in the amount of $91,378 be provided to begin the project January 1, 1995.

 

The subcommittee recommended approval of the Executive Budget's proposal to increase Welfare eligibility staffing by 84 new positions for the 1993-95 biennium.  Mrs. Evans advised this recommendation would provide much needed staff support to the Welfare Division to process ADC and Medicaid applications.

 

Based upon review of the recommended funding to maintain the Welfare Division's existing data processing system, the subcommittee recommended a General Fund reduction of approximately $175,000 for the 1993-95 biennium.  Projected data processing costs were based partially on inflated Welfare caseloads which were subsequently not recommended in the Executive Budget.  The recommended adjustments would not result in reductions in services.

 

The subcommittee recommended approval of the Executive Budget's new initiative for school medical screening funded in the Welfare Administration and Medicaid budgets.  The subcommittee recommended, however, that the one-time state cost to develop and implement the computerized monitoring and tracking system for Medicaid eligible students be absorbed by the participating school districts--Clark County and Washoe County school districts--which would receive the benefits from this program by leveraging federal Medicaid funds for qualifying health services provided to Medicaid eligible students.  This recommendation would save $50,000 in fiscal year 1993-94.

 

MEDICAID

 

Mrs. Evans noted the joint money committees had heard testimony on SB 494, which would continue the Medicaid hospital tax program initiated by the 1991 Legislature but would alter the hospital tax  program to meet more restrictive federal regulations.  The Department of Human Resources estimated the hospital tax program would generate approximately $50.4 million over the 1993-95 biennium.  The Executive Budget included benefits from the proposed hospital tax program in the Medicaid budget; however, the Governor's projections were approximately $4.3 million less than the department's projections.  The subcommittee recommended the additional projected revenues be included in the Medicaid budget to allow for a reduction in the General Fund appropriation of $4.3 million.

 

In reviewing the Medicaid budget, the subcommittee found the state match requirement for child welfare Title XIX Medicaid costs was budgeted in both the Medicaid budget and the Children's, Youth and Family Division's Community Services budget.  The double match was unnecessary since child welfare recipient medical costs were no different than other Medicaid recipient costs which only require an approximate 50 percent state match.  Therefore, the subcommittee recommended the match in the Medicaid budget be reduced by $722,505 over the biennium.  This recommendation was simply a technical budget correction to eliminate the duplicated state match.

 

In reevaluating the most recent Welfare Division Medicaid caseload estimates, the subcommittee learned a reduction of approximately 2,200 ADC post-medical recipients per month was projected but the projected disabled caseload population--which is an expensive component of the Medicaid budget--was projected to increase by approximately 200 recipients per month over the biennium.  By making appropriate caseload adjustments for the ADC post-medical group and the more expensive disabled recipient group, the Medicaid budget could be reduced by $792,541 over the biennium.

 

The subcommittee recommended a technical adjustment to the Medicaid program's recommended fiscal agent funding based upon a reevaluation of projected line item costs which took into consideration increases for Medicaid caseload and provided a rate increase comparable to that recommended in the Executive Budget for other Medicaid medical providers.  The recommendation would provide for a savings of approximately $629,000 over the biennium.

 

The subcommittee recommended approval of the Executive Budget's proposal to significantly enhance the Maternal Obstetrical Management Services Program ("MOMS") for the biennium.  The MOMS program was designed to provide case management services to pregnant women determined to be at high risk for pregnancy complications which might result in the birth of low birth weight babies.  The Welfare Division projected savings could be realized by lowering the number of low birth weight babies and the associated hospital-related costs of caring for them.  Those projected savings were not included in the original Medicaid budget but were included in the revised Medicaid budget submitted by the Budget Division in March 1993.  The subcommittee recommended approval of the identified savings, which would provide for a General Fund savings of $679,524 over the biennium.

 

The subcommittee recommended several technical budget corrections to the Medicaid budget, including eliminating the General Fund match for the privately funded "Baby Your Baby Program", which would provide for a savings of $415,760 over the biennium.  Technical adjustments were also recommended in the federal match participation levels for the drug utilization program and the Director's Office cost allocation, which were budgeted at lower federal participation levels than could actually be accessed.

 

Mrs. Evans explained while she had not specifically discussed several Welfare Division budgets, they had received comprehensive subcommittee review.  The subcommittee recommendations for the various other Welfare Division budgets were generally of a technical nature or to recommend approval of the budget as proposed by the Governor.

 

      MR. HUMKE MOVED THE WELFARE, CHILDREN'S AND AGING BUDGETS BE CLOSED PURSUANT TO THE RECOMMENDATIONS OF THE SUBCOMMITTEE.

 

      MRS. CHOWNING SECONDED THE MOTION.

 

Chairman Arberry complimented Mrs. Evans and the subcommittee for a job well done.  He said he knew these were difficult issues.

 

      THE MOTION PASSED.  MS. GIUNCHIGLIANI WAS OPPOSED.

 

      BUDGETS CLOSED.

 

Mrs. Williams thanked Mrs. Evans for her work.

 

Mrs. Evans thanked Mrs. Williams for her supportive words.  She pointed out the difficulty was in funding a budget which came to the Legislature unbalanced.  The Legislature was forced to fund reorganization and plug holes in the budget because it was the Legislature's responsibility to produce a balanced budget.

 

Chairman Arberry said he concurred with Mrs. Evans' analysis.

 

Ms. Giunchigliani inquired how much the Governor had proposed for Welfare reform.  Mr. Steve Abba, Program Analyst, responded the Governor had proposed using savings from various sanctions within the ADC and Medicaid programs.  The first two years of the five-year program would be cost neutral.  After the second year of the biennium, a $10,000 savings was projected.

 

Ms. Giunchigliani questioned whether the school districts would lose money as a result of the subcommittee's recommendation.  Mr. Abba said the school districts would have an opportunity to leverage federal dollars.

 

SENATE BILL 494   -     Makes various changes relating to provision of medical care to indigent persons.

 

Mr. Chris Thompson, Chief, Health Care Financial Analysis Unit, Department of Human Resources, explained SB 494 represented a continuation of the provider tax bill from the 1991 Legislature, except the program was now limited to hospitals due to changes in federal law.  Benefits which the state would derive were also limited.  Nevertheless, the Department was able to increase its projections from $46 million to slightly over $50 million over the course of the biennium.  In addition, payments to the hospitals would be increased $21 million over the course of the biennium.  He noted the benefit would not accrue to all hospitals.

 

Mrs. Evans added it was important to involve the hospitals and the counties in future planning.  She noted in joint hearing she had recommended issuing a letter of intent stating that on July 1, 1994, all affected parties should meet to begin working on the plan for the following biennium.  She requested the bill be amended to require quarterly reports by the hospitals and counties to the Interim Finance Committee.

 

Ms. Tiffany expressed support for Mrs. Evans' proposal.

 

DEPARTMENT OF TAXATION - PAGE 205

 

Mr. Stevens said fiscal staff had developed a list of possible options for funding tax audit functions.  He suggested the committee review the options and take action at a later time.

 

Mr. Stevens stated the first option was to adopt the Governor's revised recommendation to retain auditor positions in the Employment Security Department (ESD) and the State Industrial Insurance System (SIIS) budgets through September 30, 1993.  Four of 14 new auditor positions recommended for implementation of consolidated tax audit teams within the Department of Taxation would be eliminated and one auditor would be added to perform SIIS desk audits.  ESD would reclassify 12 positions to conduct non-payroll audit functions.  Adoption of option #1 would require transfers from ESD of $793,381 in fiscal year 1993-94 and $1,120,501 in fiscal year 1994-95 and from SIIS of $958,622 in fiscal year 1993-94 and $1,351,584 in fiscal year 1994-95.  The General Fund impact would be zero.

 

Mr. Stevens explained option #2 would be to retain the audit functions at ESD and SIIS, or retain the status quo and not consolidate the tax audit teams.  A total of 20 positions at ESD and 39 positions at SIIS would be retained by those agencies and the agencies would conduct audit activities independently.  Fourteen new audit positions recommended to implement the consolidation of tax audit teams within the Department of Taxation would be eliminated.  There would be no transfer of funds from ESD or SIIS.  The estimated General Fund impact of option #2 would be $3.5 million over the biennium.

 

If the committee wished to retain the audit functions at ESD and SIIS but lower the cost, an alternative to option #2 would be to eliminate 12 additional new auditor positions recommended for the Department of Taxation but retain the new administrative fee on net proceeds of minerals and centrally-assessed properties, which was tied to those positions in the Executive Budget.  This alternative would reduce the General Fund impact to approximately $2.5 million over the biennium.  He noted the audit positions would generate sales and use tax audit recoveries of approximately $1.4 million in the first year of the biennium and $2.6 million in the second year which would be lost if the positions were eliminated.

 

Mr. Stevens indicated option #3 represented a middle ground proposal.  It would consolidate audit functions within the Department of Taxation and reduce audit coverage for ESD accounts.  He reminded the committee federal Department of Labor, Region 9, representatives had testified the state would be at risk of creating a federal audit exception if the Governor's original proposal was approved because too much money would be transferred from ESD to the Department of Taxation.  The Department of Labor targeted 2 percent audit coverage.  Audit coverage was much higher in the Governor's recommendation.

 

Mr. Stevens said the Department of Taxation had utilized the assumptions that audits would take 33 hours if sales and use tax, business tax, ESD and SIIS audits were performed individually but only 23 hours if the audits were combined.  The average hourly audit cost would be $33.53 with an overhead factor of 21.1%.  The estimated number of combined audits would be 2,346 for nine months of fiscal year 1993-94 and 4,708 for 12 months in fiscal year 1994-95.

 

Mr. Stevens noted for ESD option #3 was based on 3 percent audit coverage.  He reminded the committee the Department of Labor funded 2 percent audit coverage.  The percentage could probably be increased somewhat and still remain acceptable to the Department of Labor.  The average length of time for an ESD audit was estimated at 5.5 hours rather than the Department of Taxation's assumption of 6 hours to account for increased efficiency.  Based on the other foregoing assumptions, transfers from ESD would be $160,795 in the first year (9 months) and $222,879 in the second year.

 

Mr. Stevens pointed out any number of factors could be altered in making these calculations.  In addition, audit coverage could be increased by utilizing funds from ESD's penalty and interest account as a funding source.

 

Under option #3 the General Fund impact for ESD would be $632,586 in the first year of the biennium and $897,622 in the second year.  If audit coverage was increased an additional 3 percent funded from ESD's penalty and interest account, the General Fund impact would be $471,791 in the first year and $674,743 in the second year.  Over the past several years, penalties and interest had averaged over $500,000 per year.  Mr. Stevens pointed out ESD was trying to save those funds for construction of a building, however.

 

For SIIS, using the Department of Taxation's estimate of audits to be conducted, reducing the number of hours per audit from 7 to 6.5 and allowing SIIS to retain desk audits, the General Fund impact would be $306,428 in the first year of the biennium and $64,663 in the second year.

 

The total combined General Fund impact for both ESD and SIIS would be $939,014 in the first year and $962,285 in the second year at 3 percent audit coverage for ESD.  At 6 percent audit coverage for ESD, the totals would be reduced to $778,219 in the first year and $739,406 in the second year, or approximately $1.5 over the biennium.

 

Mr. Marvel asked Budget Division staff if the Governor was still comfortable with option #1.  Mr. P. Forrest "Woody" Thorne, Deputy Budget Administrator, Budget Division, responded the Governor believed the state would remain in compliance with federal regulations if option #1 was approved.  He pointed out federal regulations called for a minimum of 2 percent audit coverage.  There was no indication what the maximum amount should be.  Further, increases in audit coverage and audit recoveries inured to the state and employers, not to the federal government.  The greater the amount of recoveries, the lower the rate would be to employers.

 

Mr. Marvel questioned whether the Budget Office had rethought its position based on the testimony of the Department of Labor.  Mr. Thorne said the Budget Division had not changed its position.

 

Mr. Stevens noted John Humphries of the Department of Labor had contacted him to determine if the budget had been closed.  At that time, Mr. Humphries indicated he had sent a letter to the Governor informing him $150,000 to $160,000 would be an appropriate transfer to the Department of Taxation based 2 percent audit coverage.

 

Mr. Price questioned whether the Budget Division believed Mr. Humphries' testimony was inaccurate.  Mr. Thorne said Mr. Humphries had represented that the Department of Labor's position was that 2 percent audit coverage was the limit.  The Governor had been in communication with the Department of Labor and believed $160,000 was extremely low.

 

Chairman Arberry inquired whether the Budget Division had received approval from the Department of Labor to proceed with option #1.  Mr. Thorne said it had not.

 

Chairman Arberry asked the committee to consider the various options.

 

Ms. Giunchigliani noted for the record that public testimony from employers before the Committee on Labor and Management indicated opposition to the shift.  Further, the Committee on Labor and Management voted unanimously to oppose the shifting of the auditor positions from either ESD or SIIS.

 

Ms. Giunchigliani noted business licenses were still not required in all counties, which created disparity in collections.  She asked what the Administration planned to do to close that loophole.  She also noted investigation procedures appeared to be lax.  She suggested the budget shortfall could be made up by improving enforcement policies rather than by increasing employers' premium tax assessments.

 

Mr. Heller said his understanding was option #2 would leave ESD and SIIS whole and option #1 was the proposed shift.  He asked what would happen to the ESD and SIIS positions under option #3.  Mr. Stevens replied under option #1, the positions targeted in the Executive Budget would be eliminated on September 30, 1993, and 12 new positions would be added to the ESD budget account to perform non-payroll audit functions.  Option #2 would be the status quo.  Option #3 would be the same as option #1, with the payroll audit function being done at the Department of Taxation but at a lower audit coverage percentage.  The non-payroll audit functions would be retained by ESD and performed by the 12 added positions.

 

ASSEMBLY BILL 19  -     Makes various changes regarding public employees.

 

Mr. Stevens explained AB 19 provided for variable group insurance benefits for retired state employees based on number of years of service up to a maximum of 20 years.  He stated the fiscal impact would be $4.5 million in the first year of the biennium.  Cost estimates ranged from an increase of $500 per month to $2,000 per month.  In addition, it would cost $48,000 to revise the risk management data processing system to accommodate the bill if it was approved.

 

Mrs. Evans questioned whether the programming cost could be absorbed.  Mr. Stevens recommended the $48,000 be transferred from the reserve account.

 

Mr. Thorne pointed out the initial cost of this legislation would increase each year.

 

Mr. Stevens noted the legislation included a July 1, 1993, effective date.  He suggested delaying implementation to October 1, 1993, with a 90-day open enrollment period and coverage becoming effective on January 1, 1994.

 

      MR. PERKINS MOVED AMEND AND DO PASS ON AB 19.

 

      MR. HELLER SECONDED THE MOTION.

 

      THE MOTION CARRIED UNANIMOUSLY.

 

Chairman Arberry requested a committee introduction on a bill to increase fees imposed by and to make an appropriation to the Real Estate Division of the Department of Commerce.

 

      MR. SPITLER MOVED FOR COMMITTEE INTRODUCTION.

 

      MS. GIUNCHIGLIANI SECONDED THE MOTION.

 

      THE MOTION CARRIED UNANIMOUSLY.

 

      BUDGET CLOSINGS

 

RETIRED EMPLOYEE GROUP INSURANCE - PAGE 199

 

Mr. Stevens explained this account was directly affected by passage of AB 19.  He noted prior testimony on this account had indicated funding in this account was insufficient.  He pointed out if the committee increased assessments to fully fund this account, every budget account would go out of balance and the preparation time for the appropriations act would be increased.  However, if the committee adopted the Governor's recommendation, the assessment increase would have to be made up by the agencies from vacancy savings.

 

Mr. Thorne advised closing the budget as recommended by the Governor.  He noted this budget account typically required some minor adjustment up or down, depending on the number of state employees who retired.

 

      MR. SPITLER MOVED TO CLOSE THE RETIRED EMPLOYEE GROUP INSURANCE BUDGET AS RECOMMENDED BY THE GOVERNOR.

 

      MRS. WILLIAMS SECONDED THE MOTION.

 

      THE MOTION CARRIED UNANIMOUSLY.

 

      BUDGET CLOSED.

 

The meeting was adjourned until 1:00 p.m.

 

                                                RESPECTFULLY SUBMITTED:

 

 

                                                _________________________

                                                C. Dale Gray

                                                Committee Secretary

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Assembly Committee on Ways and Means

June 9, 1993

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