MINUTES OF THE

      ASSEMBLY COMMITTEE ON WAYS AND MEANS

 

      Sixty-seventh Session

      February 24, 1993

 

 

The Assembly Committee on Ways and Means was called to order by Chairman Morse Arberry, Jr., at 8:04 a.m., on Wednesday, February 24, 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

      Mrs. Myrna T. Williams

 

COMMITTEE MEMBERS ABSENT:

 

      None

 

STAFF MEMBERS PRESENT:

 

      Mark Stevens, Fiscal Analyst

      Gary Ghiggeri, Deputy Fiscal Analyst

      Brigit K. Baker, Program Analyst

 

 

DEPARTMENT OF FINANCE

BUDGET AND PLANNING DIVISION -- PAGE 178

 

Ms. Judy Matteucci, Director of Budget Office, provided an overview of the mission of the current Department of Administration.  She stated the mission is to plan, develop and implement cohesive policies to ensure the most efficient and economical management of state government within the available financial resources.  The current department consists of the Budget Division, Hearings Division, Risk Management Division and the Clear Creek Youth Center.  The agency administrator is also the chief of the Budget Division.  The department is responsible for coordinating the activities of the Merit Award Board, Committee on Benefits and the Victims of Crime Program.  The director serves as the Clerk of the Board of Examiners, Chairman of the Public Works Board, and ex officio member of Committee on Benefits.  She explained department staff provides policy direction, management oversight, and coordinated planning to state agency's.  The division's primary duties are preparation and presentation of the Governor's Executive Budget.  The division also acts as support staff to the State Board of Examiners.

 

Ms. Matteucci reviewed the goals and objectives for the current biennium.  The division completed the state's second strategic planning process.  The result was to accomplish one special executive issue and five critical issues facing state government for the next three to five year planning periods.  These issues are included in Perspectives, the biennial report of state agencies, (on file in the Fiscal Analysis Division) pages 1-18 (see EXHIBIT C).  The special executive issue is Education and Nevada's Families and Children.  The five critical issues are:  Nevada's Competitive Position; Environment; Population and Demographics; Health Care for Nevadans; and Intergovernmental Relationships.

 

Ms. Matteucci stated the critical issues are in priority order with Education and Nevada's Families and Children as the Governor's number one priority.  The first critical issue, Nevada's Competitive Position, is the slowdown in economic growth and the threat of increased competition from gaming in other states which poses serious threats to Nevada's future economic health.  Each issue has background, implications, and objectives listed (see EXHIBIT C). 

 

Ms. Matteucci explained the second critical issue, Environment, addresses Nevada's management policies for the protection of its water resources and environment which not only impact the quality of life of its residents, but define the limits of its population growth and economic future.  The third critical issue, Population and Demographics, addresses the changing demographic characteristics of Nevada's population, inasmuch as the population growth that leads the nation will require adaptation by state government in its role as a service provider.  The fourth critical issue, Health Care for Nevadans, addresses the issues of cost, accessibility, utilization, appropriate delivery systems and availability within the marketplace which must be addressed if the state is to provide this most basic of services to all who live and work in the state.  The fifth critical issue, Intergovernmental Relationships, addresses the need to modify the state and local government relationship in response to the growing demands upon the state, fueled by continuing population growth and increasing intervention from the federal government and the courts.  She pointed out a Council of Governments consisting of state, county, city and tribal representatives with the purpose of establishing a continuing forum to evaluate and suggest improvements in intergovernmental relationships will be a major goal over the interim.

 

Ms. Matteucci pointed out Perspectives is one of the publications produced by the Budget Division in addition to The Executive Budget and the Budget in Brief.  The division also produces the State Administrative Manual and the Nevada Statistical Abstract.  She explained the Statistical Abstract is a compilation of a variety of statistical information gleaned from the Bureau of Census and similar organizations.  Ms. Matteucci stated she would provide a copy to any committee members who requested it.

 

Ms. Matteucci cited Perspectives pages 269-270 (see EXHIBIT D).  She explained these pages review the performance measurement system established in conjunction with the SCR21 Subcommittee.   She stated good outcome measures are difficult to establish, but activity measures are necessary.  It is the agency's desire to continue to work with the IFC through the interim to increase accountability in state government.

 

Mrs. Evans asked how the legislature and budget office can work together over the biennium to develop performance indicators.  Ms. Matteucci recommended a continuation of the interim study measure and focus on the performance indicators with high level staff involvement with results reported to the money committees.  She noted less attention will be needed on the budget format, but now more focus should be placed on the performance indicators of state agencies.  She pointed out one FTE was being requested for her agency for the sole purpose of expediting performance indicators.

 

Ms. Matteucci discussed the relative value indexing system adopted from the State of Oregon's Benchmark program.  It was a grassroots level discussion on how to set goals for government.  The values are assigned to the agency's key performance measures and after activities are completed the numbers are analyzed in relation to projections or historic growth.  The budget office has adopted the relative value index system to simplify how performance is measured.  The highest potential score is 1000 and the lowest is -500, depending on how the value is assigned and the final outcome is one number which can then be evaluated against all other government agencies.  She cited pages 276 and 277, Committee on Benefits, of the Executive Budget as an example of how the value system can be applied.  She stated a value of 0 meant the agency met projections.  This system is a quick way for administration and legislators to evaluate how one agency is performing relative to another.

 

Ms. Giunchigliani asked if this system deals with input from users of the services for evaluation.  Ms. Matteucci stated town-hall type meetings and extensive outreach programs were utilized to obtain what was most important.  She explained the Oregon program is very stringent in its goals and objectives as a means to hold the government to them, and all factions have agreed and committed to the bottom line.

 

Mr. Heller asked how the total performance indicator is derived.  Ms. Matteucci explained how the relative value index weighting is applied and totaled.

 

Ms. Matteucci pointed out the Reorganization impacts on the Budget and Planning budget (see EXHIBIT E).  She noted one position, Director of Finance, was added and one position, Director of Administration, was abolished.  During the second year of the current biennium, $181,995 was placed in reversion as a result of abolishing two positions, Management Analyst and Research Analyst, reducing part-time salaries, underfilling, reclassifying or leaving vacant other positions.  Some of the funds were used for detail work by KPMG and also used about $18,000 was used to pay for printing of The Executive Budget.

 

Ms. Matteucci detailed the revenue section, agency transfers support a full time position plus costs from additional administrative assessments (see EXHIBIT F).  Board assessments cover the cost of a full-time analyst to support their budget activities obligated by NRS 353.  She stated it was the committee's intention in 1985 or 1987 to add a position to be funded by these assessment charges.  Two other agency assessments supporting the proposed Department of Finance, Information Technology and Benefits Services, are being equally assessed for their costs based on total department employees (see EXHIBIT F, PAGE 2). 

 

Ms. Matteucci discussed the base budget noting there were minimal changes.  She noted under salaries, five positions were moved from pre-audit to the proposed Internal Audit budget.  Under Operating, state-owned building rent could be decreased by $6,184 per year as a result of a rate decrease, which was not previously considered in this budget, and dues and registrations were included for the National Association of State Budget Officers and the Governor's Council on Policy Advisors. 

 

Mr. Marvel asked how the value for the Director of Finance's salary was reached.  Ms. Matteucci stated the salary was $80,950 which is the same as the salary of the current director of the Department of Transportation and was considered a reasonable amount for the expanded duties most agencies will be seeing.  The smaller agencies' directors will have a lesser recommended salary.

 

Mr. Heller asked when the pre-audit positions move to the proposed Internal Audit Division, will the individuals holding those positions be moved also.  Ms. Matteucci stated the positions would be performing pre-audit duties in the new agency and new people would be hired.

 

Ms. Matteucci stated Special Studies included the continued contact with Formetrix for macro and regional statistical information.  She noted the latest Executive Summary from WEFA is included for committee review (see EXHIBIT G).  She explained WEFA is a national forecasting, econometrix group which is part of the Special Studies program.

 

Chairman Arberry called attention to a discrepancy in the Executive Budget.  He noted a line on page 178 entitled "Government Elect Expenses" was not included in his book.  Ms. Matteucci explained NRS 223.025 requires $5,000 be appropriated to the Budget office for transitional expenses for a new Governor.  If the current Governor does run for reelection and is elected, he is not eligible for these funds.  If a new Governor is elected, he or she can use the funds for clerical and research activities.

 

Ms. Giunchigliani asked if a policy exists for an audit when a new Governor comes into office.  Ms. Matteucci stated she was not aware of a policy.  There is a physical audit, but not an immediate financial audit.  Ms. Giunchigliani stated such a policy would provide a safeguard for both the public sector and the incoming individual.

 

Ms. Matteucci discussed the data processing information (see EXHIBIT H).  This information was provided to the Department of Data Processing as the Budgetr Division's information systems plan.  All amounts have been verified by the Department of Data Processing as being necessary to continue the development of the current budget system.  Two critical components are the University/Budget System interface and agency access which will allow direct input by state agencies into the system.  This will expedite information transfer because the budget office will not need to re-key and re-format the budgets.  $110,000 is recommended for a departmental study to look at department-wide data processing needs to be integrated.  Another component would be the pre-audit automation study.

 

Chairman Arberry asked Ms. Matteucci to provide in writing how the budget office developed the amount of funds requested.

 

Ms. Tiffany noted under Data Processing the $630,000 recommended in FY1994 and $485,000 in FY1995 put in would be to get the system to the ultimate financial mainframe model.  Ms. Matteucci replied those funds were just to continue to develop the two significant budget components.  She stated the printout currently utilized is a PC-generated LAN report, not on the mainframe.  Personnel projection come from the mainframe.  Ms. Tiffany wondered if this was an existing system, why are the funds not listed under maintenance or enhancements.  Ms. Matteucci replied the definition for adjusted based is those projects which were started and are being continued.  Ms. Tiffany asked if the $630,000 listed was a mix of funding requests, such as operating, hardware, and software.   Ms. Matteucci indicated yes, $10,000 for FY94 for operating costs, $525,000 in EDP program costs, and $95,000 in equipment.  Ms. Tiffany pointed out the budget office was paying over half a million dollars for PC software development.  Ms. Matteucci noted $500,000 is for DP development and $25,000 is for monthly data processing charges in the first year of the biennium.

 

 

Ms. Tiffany asked since data processing is under the budget office's jurisdiction and it is proposed to be centralized, will the existing budget system be discarded upon completion of the centralized data processing system.  Ms. Matteucci stated this was the budgeting, not financial, system.  The financial system is run by the Controller.  Ms. Tiffany reiterated the goal presented by Ms. Karen Kavanau, Director of Data Processing, to the committee on the centralization of data processing, stated one application she was going to start with was the financial system including budgeting, accounting, purchasing, and personnel.  Ms. Matteucci stated budgeting accesses the financial system, but is not part of the actual system.  The budget system is completely separate.  Ms. Tiffany asked if the other systems are scheduled to be placed on the mainframe, why was the budget system not also scheduled.  Ms. Matteucci replied the system was too expensive to process on the mainframe. 

 

Ms. Tiffany exclaimed she had a real problem with the direction the Budget Office was going as an "isolated node" with a $1.5 million budgeting system while every other agency is supposed to be centralized.  Ms. Matteucci explained the system would be developed by the current Department of Data Processing and would not be part of the Department of Finance, but would be placed under the proposed Department of Administration.  She stated the proposed system is in line with centralization and all agencies will have access to the budget system under this proposal.  The budget system would be utilized every two years as a forward projecting system.  Once budgets are finalized, the budgets are given to the Controllers Office as an overlay system.

 

Ms. Matteucci reiterated their office and budget system would not be an isolated node.  Up to this year, they had utilized the mainframe, but the new budget format could not be pulled from the mainframe.  Therefore, the PC-based system was utilized to format the information downloaded from the mainframe.  Ms. Tiffany stated she would discuss this further with Ms. Kavanau.

 

Ms. Matteucci noted Enhancement item 420 relates back to one of the critical issues on pages 12 and 13 (see EXHIBIT C).  She stated a Demographer, an Economist, a Management Assistant and an Analyst are recommended for addition to assist with this goal.  Currently the Department of Taxation contracts with the University of Nevada for demographic services and if the department wanted to access the information other than the basic information provided by the demographer, they would have to pay for it.  Ms. Matteucci asserted it is time for the state to develop its own demographic capabilities for more specific, expanded information.  She noted the economist position would not only help with revenue forecasting, but also would provide information to water planning, Department of Human Resources relative to economic issues, i.e., poverty, etc.  The support personnel are recommended to be paid through general funds.

 

Mr. Dini asked if the demographer would be taken from the University.  Ms. Matteucci replied this would fund a full-time position separate from the University.  If contracting with the University would be more economical, that could be pursued. 

 

Mr. Heller asked if this economist would be supporting water planning.  Ms. Matteucci stated it would support water planning, but would be funded out of the Director of Human Resources budget.  Mr. Heller asked how much time would be allocated to the different areas.  Ms. Matteucci stated she did not know the exact breakdown, but water planning would be the number one priority because it is the second critical issue and very important.  He noted the current economist spends 100 percent of his time on water planning and he wondered if the new economist position would have enough time to devote to water planning.  Ms. Matteucci replied the water planning economist has been spending a great deal of time building data bases, with information from the budget office and ESD and there is quite a bit of duplication.

 

Ms. Matteucci discussed Enhancement 440 performance measures for state agencies which recommends a Budget Analyst IV position and operating expenses and is in compliance with one of the critical issues defined under Population and Demographics. 

 

GENERAL FUND SALARY ADJUSTMENT -- PAGE 183A

HIGHWAY FUND SALARY ADJUSTMENT -- PAGE 183C

 

Ms. Matteucci stated the handout (see EXHIBIT I) discusses the decision to accumulate overtime at time-and-a-half which will be expensive.  A one-shot appropriation relected on page A26 of The Executive Budget will compensate for the extra time.  The monies in the salary adjustment account are to continue to provide salary adjustment funds for any shortfalls in agencies' budgets as a result of the classifications currently being conducted by the Department of Personnel to move people into the exempt merit status.  The handout shows projections of what the liability would be if the change was not implemented from overtime to exempt merit status.  The savings will be approximately $650,000.  She noted there are some changes to the budget from this sheet, and the Executive Budget should be changed to reflect them.

 

Ms. Matteucci stated the budget office is assuming the overtime pay of those positions impacted by the Benzler vs. State of Nevada decision would be about $3 million in FY94 and $3.2 million in FY95.  When these positions were identified, the merit salary increases were frozen and were rolled out of the General Fund budgets.  In the non-General Fund budgets there is a line entitled "salary need" which is the value of those frozen merits because of the classification levels of those specific positions that qualified for time-and-a-half overtime compensation when they had not previously qualified.  The total liability to the state will be $4.7 million for FY94 and $5.8 million for FY95. 

 

Ms. Matteucci explained the formula to reach the amount in the salary adjustment accounts was the cost of a one percent salary adjustment for those impacted positions with the cost added for overtime they had worked.  She noted in order to legally take away the positions' ability to work overtime, the salary had to be adjusted to be commensurate with the same level of work which had been performed.  In addition, some merit increases would be given between zero and ten percent.  Two and on-half percent for FY94 and 1.5 percent for FY95 was used for calculation purposes, but the merit increases would not be as automatic as under the current classification system.  This results in $3.6 million for FY94 and $5.5 million for FY95.  Another KPMG recommendation, in converting from hourly to salary level, was to grant management leave at two percent of the salary level for those positions converted.  They noted about .5 percent of those individuals would not utilize this leave.

 

Ms. Matteucci stated once these exempt merit positions are created, they are essentially salaried personnel and cannot earn overtime.  Additionally, timesheet accounting is eliminated, personnel rules would be streamlined, pay steps would be eliminated and there would be broader and lower pay ranges.

 

Chairman Arberry asked concerning the Highway Fund on page 183C, how were the funds arrived at.  Ms. Matteucci cited the second sheet of EXHIBIT I gave the correct amounts.

 

Ms. Giunchigliani asked for a definition of exempt merit and wanted a clear delineation between management versus employee.  Ms. Matteucci replied the Department of Personnel is currently formulating those definitions for professional and non-professional staff through questioning and auditing the agencies involved.   She would send the list to the committee members.  Ms. Giunchigliani asked if this would impact SIIS and other agencies.  Ms. Matteucci replied if SIIS stayed under NRS 284, yes they would be impacted, but the Governor's proposal removes SIIS from NRS 284 and they would have to set up their own system.

 

INTERNAL AUDIT -- PAGE 184

 

Ms. Matteucci stated this is a recommendation resulting from the Governor's reorganization and adds four positions to the existing pre-audit section establishing an Internal Controls Division.  The purpose of the division is two-fold with minor possibilities for some trouble-shooting audits.  The Department of Finance is responsible for assuring each agency has proper internal controls.  This division will staff that responsibility.  Previously, agencies were given a checklist on establishing internal controls, and through legislative audits, it has been found agencies do not have adequate internal controls because of time and staff restraints.  The proposed division would first assure internal controls in agencies are adequate and second it would assist in auditing the reported performance indicators.  Ms. Matteucci explained agencies report performance indicators on a monthly basis, but there is no verification process in place.

 

Chairman Arberry noted the internal audit function as an organization typically reported to the highest authority, but in this recommendation they would report to the Director of Finance rather than the Governor.  Ms. Matteucci replied the Governor really does not want to be bothered with internal control procedures being developed by agencies, but internal control functions generally report to the department director.

 

Mr. Marvel asked when these controls would be in place.  Ms. Matteucci replied, in conversation with Gary Crews, Legislative Auditor, there are over two pages of agencies which lack good internal controls and this would be the starting point.

 

Mr. Price commented with this reorganization it is necessary to look beyond the individuals who are currently occupying the positions because an attempt is being made to develop good government which will last beyond this administration and legislature.  Mr. Price stated it would be his hope that the planners would view this as developing the best system, not just what the current Governor or Legislature wants.  Ms. Matteucci replied this function is not one which this or any subsequent Governor would want reporting directly to him.  She stated the statutes currently require the Budget Division of the Department of Administration, to perform management review audits.  Currently,  the budget office has neither time nor staff to fulfill this obligation with the other duties added on through the years.  She reiterated she would discuss this authority line with the current Governor to obtain his view regarding where he and future Governors would want the Internal Auditor reporting. 

 

Mr. Dini pointed out the Internal Audit is an important function to be brought on-line administratively.  He noted it can only be as good as those who record it at the agency level and he has found agencies do not have enough clerical help at the bottom level to make the entries and chase things down because of the budget cutbacks.  He explained, in order for this to be effective, there will need to be a "beefing up" in the clerical staff in the pertinent agencies.  Ms. Matteucci stated it was a good point and it is the desire to see these auditors come back as a verification with the recommendation that agencies receive more staff to accomplish and maintain adequate internal controls.

 

Mrs. Evans pointed out there would be a total of nine positions in this account and asked what the proposed scope of the internal auditors would be.  Ms. Matteucci responded the primary duty would be internal controls with secondary activities in verification of performance indicators.  This unit would not develop performance indicators, but would be in a verification position, auditing the numbers supplied to the Department of Finance by state agencies.

 

Mrs. Williams followed up on Mr. Dini's comments.  If the department is so far behind on internal audits and auditors are going to go to agencies where personnel have been cut, how are these agencies expected to catch up.  Mrs. Williams pointed out the current lack of controls would indicate shortfall of support staff and why would auditors need to report back that personnel is lacking.  Ms. Matteucci remarked the division is quite aware of the shortage of personnel as a result of the  budget cuts.  She stated the problem with internal controls did not begin in 1991 and it would be more a matter of identifying those agencies where internal controls can be helpful.  Ms. Matteucci explained she envisions this group as providing expert help to agencies in developing their own internal controls.

 

Mrs. Williams agreed with both Ms. Matteucci's and Mr. Dini's premise for this division, but her concern is over the ability to do it and of the agency to provide the auditor with what is needed,  especially when the support staff is not in place.  Ms. Matteucci reiterated she sees the auditor doing the bulk of the work for the agencies.  This group would go out and be the personnel to assist in development, recording, etc., of controls.  She remarked once the procedures are in place, upkeep would not be difficult.

 

Mrs. Williams asserted the development of controls would be intensive and additional agency personnel would be needed to assist the auditors.  She stated auditors would not know the internal workings of each agency and would need the internal personnel to provide basic information.  The agencies priorities have been in service delivery versus internal audit control development and when auditors come in, will this impact service delivery.  Mrs. Williams stated she was not questioning the need for internal controls, but voiced her concern on how to accomplish this without negative impact on services.

 

Mr. Dini stated the inherent weakness in the present system is where the administrators change all the time and when audits occur once every eight or ten years after three or so administrators.  This proposal will have every agency on line doing the job properly from the start and make agency evaluation easier.

 

Mrs. Tiffany noted audit reviews are untimely and most agencies have internal audit problems.  She asked how large the LCB audit budget and Mr. Crews' staff were and would they be sufficient to perform more frequent internal control audits or is an outside contractor being recommended.  Ms. Matteucci stated she did not know how many auditors Mr. Crews had, but he does have more auditors than she has analysts.  She currently has eight very busy analysts.  Additional positions were requested, but were not granted any by the legislature.  She believed the staff has done the best they could with checklist for agencies.  She had asked Mr. Crews if he could teach the agencies how to develop their own internal controls and he felt there was a conflict.  Ms. Matteucci responded she would not consider a contractor, because it would be too much of a project due to its ongoing factor of at least four years. 

 

Ms. Tiffany stated the reorganization is not providing better or more frequent internal control audits to the departments.  Ms. Matteucci replied reorganization would provide for more efficiency in operation, but she was unable to state how it would address the internal controls.  She noted the agencies would be able to have assistance more frequently with the proposed unit whereas they are not helping at all right now.  Once all agencies have internal controls established, the division will begin comprehensive internal audits.

 

Mrs. Evans asked regarding the Budget and Planning budget, would Ms. Matteucci's office provide a list of all contracts awarded without bid, RFPs or Board of Examiner approval and include how frequent and in what instances contracts are let outside of the established bid process.  Especially a list of any contract where a vendor is just chosen without regard to the RFP process.  Ms. Matteucci stated there are occasions when agencies do not bid and it must be indicated on the contract summary forms why a bid did not occur.  The Board of Examiners reviews the contracts and chooses whether or not to approve them.  Additionally, the Board has policies relative to dollar levels for bidding which are enforced.  She replied she would provide this information.

 

Ms. Matteucci indicated the NDOT (Nevada Department of Transportation) has an Attorney General's opinion where they are not obligated to go through the Board of Examiners for approval of contracts.  There are a number of other agencies who have specific exemptions and she would provide the list for the committee.  Ms. Matteucci explained if agencies process contracts without going through an RFP or Board of Examiner approval process, the only way the budget office would know is if they try to submit payment and no contract is found. 

 

Ms. Giunchigliani added while currently NDOT is not obligated to comply with the bid process, the 1991 Privatization Subcommittee (SCR2) made the recommendation to change the statute exempting NDOT so they would have to bring contracts to the Board of Examiners for approval.

 

BENEFITS SERVICES FUND -- PAGE 192

 

Ms. Matteucci introduced Mr. Dave Thomas, State Risk Manager, to present the budget.  Mr. Thomas introduced Ms. Jeanne Adams, Chairman of the Committee on Benefits, and Mr. Fred Suwe and Ms. Lillian Bergevin, committee members.

 

Mr. Thomas thanked the committee for the opportunity to present an organizational and budget proposal that he believed was very exciting, challenging, and, above all, fiscally and programmatically responsible.  He stated accompanying the Governor's budget instructions for this biennium was the identification of five issues critical to the state's strategic planning efforts.  One of these critical issues was "Health Care for Nevadan's."  The first of  the five objectives identified to address this critical issue is to develop a statewide comprehensive health care program that focuses on cost containment, quality assurance, public health, education, and access to care.  The current Risk Management Division is the designated lead agency for this effort.

 

Mr. Thomas testified the Governor's reorganization proposal, as it affects the present Risk Management Division, specifically addresses this critical issue and objective.  He pointed out the Risk Management Division is responsible for five budget accounts:  1338, which is the group insurance fund under the auspices of the Committee on Benefits; 1348, which is the insurance revolving fund for the more traditional risk management functions of tort claims processing and the administration of property and casualty liability insurance activities for the state; 1344 and 1345, which are the indigent accident accounts for indigent accident medical services provided by the counties; and 1329, which is the workers' compensation fund for state employees in the central payroll system.

 

He discussed chart #1 of EXHIBIT K which depicts the budgetary impacts of the Governor's reorganization proposal on the division.  The functions supported by B/A 1348 would be split with the tort claims portion going to the Attorney General's office and the remainder going to the new Construction and Facilities Division of the new Department of Administration.  The remaining budget accounts would be assumed by a new Benefit Services Division in the new Department of Finance.  Added to this new division would be responsibility for B/A 1368, the Retired Employee Group Insurance fund, and B/A 1017, the Deferred Compensation fund.  Both of these are currently in the Department of Personnel.  In addition, added responsibilities would include the centralized procurement of state medical services, as is presently being provided for the state's prison inmate population; the implementation of a flexible benefits program for state employees, which would greatly enhance the ability of employees to design their benefits program to meet their individual needs; and the administration of the Governor's proposed small employers insurance pool. 

 

Mr. Thomas explained by moving the traditional risk management functions of insurance and loss prevention to the new Construction and Facilities Division, the responsibility for identifying and analyzing risks to state property and for developing programs to minimize or eliminate those risks, as well as control and fund for losses, would be consolidated with those individuals and programs who presently have responsibility for the development, inspection, and maintenance of state properties such as construction administration, engineering, and architectural staff.  He noted physically and programmatically combining these functions will make available a tremendous array of resources and can only serve to enhance the continued implementation of an aggressive risk management and loss prevention program.

 

He stated, with respect to the new Benefit Services Division, the clear direction in which the state must move is toward an advanced integrated health care system.  Rather than continue to be a passive payer on a fee-for-services basis of health care liabilities, it is critical that the state become a pro-active manager of health care costs.  He remarked, among other things, this means pooling together the state's tremendous purchasing power as a provider of group health care coverage to effect reductions in health care costs.  It also means aggressively developing and implementing programs on the front end of the equation, such as wellness programs, to assist "customers" in becoming smarter and better maintained consumers of health care services.  He pointed out an analogy that comes to mind is that Americans spend more time, energy, and money selecting and maintaining their personal vehicles than on their own health.  This is a generalization, certainly, but Mr. Thomas stated he thought it has a large thread of truth running through it.

 

He moved his discussion to the Benefit Services Fund budget.  He pointed out the controversy generated by the actions taken by the Committee on Benefits this last fall with respect to increased premium rates for this plan year as well as benefit plan changes that were implemented.  He stated these were bold actions to assure the continued financial integrity of the health plan.  Mr. Thomas began to recap the events over the last year that led to the current state of the health plan. 

 

Mr. Thomas explained, in early 1992, the previous Risk Manager, Mr. Thorne, and he, as Benefits Manager at the time, began to question the accuracy and reliability of information being provided to the Committee from its benefits consultant at the time.  He stated a serious deficiency identified was the lack of an independent actuary under contract to assess the continued financial viability of the plan. 

 

Chairman Arberry requested Mr. Thomas to move directly into the budget.  The remainder of Mr. Thomas' written testimony was submitted as EXHIBIT J, PAGES 4-7.

 

Mr. Thomas highlighted in the revenue categories, page 192, Agency Transfers are funds earmarked as a pass-through from SIIS to the Division of Vocational Rehabilitation, the Department of Prisons for inmate medical services, B/A 1017 for the Deferred Compensation program, and from B/A 1344 and 1345 for administration of the indigent accounts.  He noted the SIIS Vocational Rehabilitation pass-through is a budgetary transfer merely to avoid federal caps imposed on the Rehabilitation Division on the amount of program income they can receive.  He stated the SIIS Vocational Rehabilitation and the Department of Prison's inmate medical services programs are merely pass-through budgetary transfers and will have absolutely no impact on the state employee group insurance fund.  He pointed out the Department of Prisons handles its own claims and the funding shown is merely for the contract services of the claims paying agency, Mutual Administrators, and access to the PPO network of Sierra Healthcare Systems.  These funds are necessarily segregated in their own separate categories.

 

Chairman Arberry asked why, regarding Operating Expenses, the Governor's Recommendation was substantially less than requested.  Mr. Thomas explained that amount comes from the reallocation of out-of-state and in-state travel as a result of the reorganization.  Chairman Arberry asked for clarification of the data processing line item.  Mr. Thomas explained these funds were for on-going costs associated with the implementation and maintenance of the division's Benefits Information System of Nevada (BISON) scheduled to go on-line in June 1993.  All development costs were previously budgeted in the current biennium.

 

Chairman Arberry inquired of Ms. Matteucci how the data processing costs fit into the new Data Processing Division.  Ms. Matteucci replied this division would also receive services, like all other agencies, from the new Information Technology Services (ITS) division.  The Risk Management Division is currently under contract with Price Waterhouse for this system and would, in the future, go through ITS.  No additional staffing will be necessary.

 

Ms. Giunchigliani asked in moving Insurance and Loss Prevention into the Construction and Facilities Division, if Loss Prevention looks solely at state facilities where there are potentials for safety hazards or does it work with training new and current employees on how to prevent losses.  Mr. Thomas stated it was strictly for property and contents.  Ms. Giunchigliani wondered if there were any programs focusing on employee training, safety measures, etc.  Mr. Thomas pointed out, in the State Employee Workers Compensation account.  insurance is purchased from SIIS, and SIIS provides training services.  Ms. Giunchigliani called attention to the fact these losses were driving costs in SIIS and the safety issue would be a precluding piece especially when government injuries are one of the highest costs in the pool and one of the highest in the stress area.  If the state does not focus on how to drive those costs down by preventive measures, then something is being missed within these components.

 

Ms. Giunchigliani inquired if experience rating will be disallowed to rate groups.  Mr. Thomas was not aware of any disallowances in this area.

 

Mr. Spitler asked what the original projected cost of the "BISON" system had been.  Mr. Thomas stated he would provide it to the committee.  Mr. Spitler recalled it had been approximately $700,000 to $800,000, but significantly more had been spent.  He asked what has been invested into the system to this point.  Mr. Thomas replied development is almost finished with less than $100,000 left on the contract totaling $1.5 to $1.7 million.  He noted it should be operational in mid-June 1993.  It is currently in the testing phase.  Mr. Spitler wondered if the system would be adjustable to the various rating tiers and the more "cafeteria style" system.  Mr. Thomas responded it would.  This system was chosen because it has the ability to adjust to change as necessary.  Mr. Spitler requested documentation on what the original projected cost had been, in order to compare it with the actual expenditure.  He noted it is very important to point out when these proposals are brought before committees asking for $800,000 and end up costing $1.7 million, it becomes a significant budgetary item especially when there is no backing out after investing the initial $800,000.  He emphasized this was a good example of understanding the commitments a bit better at the onset.

 

Ms. Matteucci commented she could not agree with Mr. Spitler more and shared the frustration of having overruns.  She emphasized data processing is very expensive and once a certain level of expenditure is reached, the entity is essentially stuck with continuing until the goal is accomplished in spite of the end cost.  She explained one of the biggest potential values of the Information Technology Advancement Section is the ability to project long-range what the entire system will do.  Forward planning is essential to do data processing plans for where the task is projected to be.

 

Mr. Spitler thanked Ms. Matteucci for the response and reiterated the state needs to move forward on this system, but if realistic budgets and systems are not submitted and acquired, the new administration or director will be left with an archaic system with no long-term value.

 

Chairman Arberry asked Mr. Thomas to discuss the Prison Medical Administration which is a new cost.  Mr. Thomas stated the program which began on September 1, 1992, was budgeted in B/A 1348 and would transfer to B/A 1338.  It allows the Department of Prisons to contract with state claims and PPO providers for negotiated discounts.  By having access to the contracted discounts, the Department of Prisons is able to save funds and enable integrated health care systems.  He emphasized inmates receive 100 percent of their health care costs through general fund allocations and have the best health care in the country.  Over $3 million annually is spent on inmate claims.  Through this program, the Department of Prisons has been able to save $240,000 since September 1992 because of access to the state contracts.

 

Mrs. Evans asked if this was a separate contract for the prisons.  Mr. Thomas replied it was.  She asked if this was awarded on a RFP basis.  Mr. Thomas responded it was not a RFP because the contracts were already in place and the Department of Prisons is just piggy-backing onto the state's contract to obtain better rates.   Additionally, the third-party administrator adjusts for the discounts, but pays 100 percent which is much easier to pay claims and the negotiated rate is much lower than what is paid even on the state's health plan side.  Mrs. Evans remarked no competitive bid was pursued and it was folded into the existing contracts.

 

Mr. Thomas emphasized the state would be going out to bid through the RFP process for the entire PPO network this year and for the third-party administrator next year with the Department of Prisons included as a component if this transfer is approved.  Mrs. Evans asked if he had the authority to expand and bring in new groups under the existing umbrella.  Mr. Thomas stated he did, with Board of Examiners approval.

 

Mrs. Williams asked why when an RFP was sent out, the third-ranked company of Legacy and WF Corroon was selected.  Mr. Thomas replied the committee narrowed down a field of ten who had presented proposals for both consulting and actuarial services to three finalists.  They selected Legacy and W.F. Corroon because it was the only proposal that would provide a fixed-price bid.  They were also a smaller company and the other two firms were large national/international firms.  The committee did not want to have the state's needs swallowed up or lost in the shuffle.  Legacy is a smaller, local firm with the State of Nevada as its largest client. 

 

Ms. Giunchigliani asked, in the original RFP selection process, did the committee request the number of people or clients or indicate a smaller firm and a fixed-price bid were desired .  Mr. Thomas responded they did.  Ms. Giunchigliani inquired in the ten companies with Mercer Co., and Wyatt as number one and two, what was the differential in size or client base.  Mr. Thomas replied both are in the top five internationally as far as benefits consulting firms with offices in every major city in the country.  When they came to make their presentations, they had representatives from their Denver, Dallas, Los Angeles, and San Francisco offices.  He stated one of the things the committee perceived was the state would not know who would be serving the clients.  He noted Mercer and Wyatt would not contract on a fixed price basis. 

 

Ms. Giunchigliani requested Mr. Thomas to clarify his previous relationship with Legacy and WF Corroon to help the committee understand the dynamics and implications involved.  She pointed out her same concern from the Intertim Finance Committee (IFC) meetings, where work programs are rubber-stamped in many instances by IFC when they are already a foregone conclusion.  In this instance, the company had already gone to work for the state "free-of-charge" with approximately $75,000 worth of business provided before the contract was brought before the Board of Examiners. 

 

Mr. Thomas replied the delay in presenting the contract to the Board was due to the Board's meeting schedule.  The Committee on Benefits was under a severe timing problem to have actuarial services completed in sufficient time to address appropriately and make rate determinations to communicate actions to employees for open enrollment.  Open enrollment was originally scheduled for October 1992, but because of timing it was excluded until November 1992.  Legacy and WF Corroon began work the day after they were selected, twenty-four hours a day for over a month work was done to provide the actuarial analysis presented to the committee on September 4, 1992, all gratis.  They understood if the Board did not approve the contract, one of the work would be paid for. 

 

Mr. Thomas addressed his previous relationship with the contractor.  He explained his previous employment as personnel director of a medium-sized county in California.  Approximately five years ago, he had been assigned the management of the county's self-funded health plan similar to the State of Nevada's.  At that time the county was paying its own claims, administering its entire plan and had not contracted with a benefits consultant.  Mr. Thomas pointed out, in working with the Board of Supervisors, the RFP process resulted in 63 proposals from companies nationwide and the firms of Norman Harris and Associates in Stockton and Mutual Administrators were selected to be the consultant and third-party administrator.  He stated he left the position and in Tulare County in April 1991 and came to Nevada in May 1991. 

 

Mr. Thomas indicated, in his interview for the Nevada position, he made it very clear that since the State of Nevada used Mutual Administrators as the third-party administrator, he had previously had a professional relationship with the firm.  Subsequently, when State of Nevada went out to bid for a benefits consultant, Legacy and WF Corroon submitted a proposal.  Legacy is owned by an individual who had previously worked for Norman Harris and Associates.  Mr. Thomas also made this very clear to the Committee on Benefits.  He noted the owner of Legacy had been his benefits consultant for Tulare County and he abstained from any public discussions and decisions regarding their selection.  He stated he did, at the Committee's request, rate the various firms based on his professional knowledge and objective analysis.  Ms. Giunchigliani voiced her concern that the committee should not have requested Mr. Thomas to rate the proposals regardless of his professional expertise.

 

Ms. Giunchigliani asked how long the company has been established and the term of the contract.  Mr. Thomas responded the firm was approximately five years old and the contract expired on December 31, 1996.  He noted the contract was for $656,056 over the four year period.  Ms. Giunchigliani stated the contract could be terminated without penalty with sixty days notice on either party's side.

 

Ms. Giunchigliani requested a brief explanation of the transfer from SIIS to the Rehabilitation Division.  Mr. Thomas stated it was solely pass-through dollars.  She asked why it was passing through this account.  Ms. Matteucci replied when the Rehabilitation Division prepared the proposal to handle Vocational rehabilitation services for SIIS, they indicated to the budget office if they received the payments for those services directly from SIIS, something in the federal law would not allow them to use the funds to leverage additional federal dollars.  The division asked the budget office to pass the funds through the Benefits Division budget.  This would provide more flexibility in their federal funding dollars.  She indicated any account could have been used as a pass-through account to make it look like state dollars, but this one was chosen.

 

Chairman Arberry noted the firm of Legacy and WF Corroon went to work August 1, 1992, yet the Board of Examiners approved the contract October 13, 1992.  He asked how could that occur when Mr. Thomas stated nothing was billed to the state prior to October 13, 1992.  Mr. Thomas reiterated the scheduling of the BOE meetings at that time did not allow submission of the contract any sooner, secondly Legacy and WF Corroon provided its services with the understanding if the contract was not approved there would be no payments.  He explained no payments were made until after contract approval.  Ms. Matteucci replied the BOE heard much of the committee's concerns and handled the contract as quickly as it could have.  It was explained to the BOE if the contract was deferred the Committee on Benefits could not meet the open enrollment requirements, nor receive the actuarial services which were desperately needed in order to provide premium evaluations. 

 

Ms. Matteucci noted this instance is not unusual.  Contracts have starting dates yet the contract specifically states it would not become effective until approved by the Board of Examiners, but because of paperwork delays, contracts are frequently approved after their effective dates.  In this particular case, the consultants were told by Mr. Thomas, if the Board did not approve the contract, they would have no recourse for the work provided.  Chairman Arberry emphasized this practice showed a very bad precedence and asked if this practice would stop or would this be a continuation.  Ms. Matteucci replied the budget office has repeatedly told state agencies they must submit contracts early in order to facilitate BOE scheduling and ensure approval prior to the contract's effective date.  Chairman Arberry stated some contracts would need to be turned down in order to stop the practice.  Ms. Matteucci encouraged the legislators and the committee to voice their opinions because quite often the budget office is accused of being too mean to agencies when they recommend contracts not be approved after their effective dates.  She explained the BOE has historically been very understanding about time lags and the need for agencies to move forward.  She recommended giving agencies more authority to contract, but not in significant amounts.

 

Mr. Spitler inquired about the Reserve in this budget and if a $3 million transfer by IFC during the interim was appropriate, and if spending down the Reserve was legal.  He noted the Risk Management Division's comment from a recent IFC meeting which stated there would be no liability in spending down the reserve.  He assumed that in 1991 and in May 1992 when IFC approved the work programs, the former contractor was the company providing the advice to spend down the Reserve.  Mr. Thomas stated this was correct.  Mr. Spitler asked if they had any financial liability for advising the state in such a way where in this biennium the projected reserve of approximately $9.9 million had been reduced to $4 million in FY1992. 

 

Mr. Thomas responded his office is pursuing this question with the Attorney General's office and they are currently in litigation over the rate increases and the benefits plan design changes which have become an issue.  Until the litigation is resolved, the Attorney General's office has advised his office not to pursue the issue of "spend-down" advice from the previous contractor.  Mr. Spitler asked what the resolution time frame would be before addressing the contractor's liability for incorrect advice.  Mr. Thomas stated because it has an impact on the litigation, it will depend on the litigation's outcome.  The Attorney General will be filing for dismissal soon.  They recently won a change of venue out of Las Vegas to the Reno/Carson City area and as soon as those records are transferred, the AG will file.  Immediately thereafter, the contractor liability issue will be addressed, perhaps within one or two months.  If the dismissal does not occur, it will go to full trial and could take several months.

 

Mr. Spitler asked who developed the formula and made the decision for determining the long-term protections.  Mr. Thomas replied the former consultant of the Committee on Benefits provided the advise upon which the committee, in good faith, acted.  He noted he was unable to find any documentation in all their records which showed an independent actuarial analysis was ever done of the fund.  If any had been done, he was unable to find the results which bothered the committee, and it was taken into consideration when the division recommended the need for actuarial services from a reputable, independent actuary.  WF Corroon provided the services and a report on whether or not the plan was fiscally sound or not.  Mr. Thomas pointed out the results from WF Corroon, summarized in the memorandum he provided as #2 of EXHIBIT K, showed the fund is, was, and will continue to be solvent.  What it does show is an underfunded reserve which, based on their estimates, should contain 2.76 months of claims costs.  He explained the federal auditors would most likely consider that too much in reserve and there is really no "magic number", but 2.76 months, which equates to approximately $12 million, is the amount recommended. 

 

Mr. Spitler commented this is the big problem with one firm advising to spend down, while another firm advises doubling the reserve and either way it is a great deal of money.  The state should know where the reserve should be.

 

Mr. Perkins asked what the rationale had been for the recommendation to increase in the state's contribution rate and if the increase will cover the increased premiums over the biennium.  He wondered if an inflationary component was included and were other governmental insurance programs investigated in regard to comparable out-of-pocket premium costs.  Mr. Thomas replied the $12.75 increase in the state's contribution for employees included in The Executive Budget is an inflationary increase for the FY95.  He explained in developing the premium rate increases for this year, they investigated other governmental employee premiums, but the premiums developed were to support the assumed claims costs in this year.  The amount other public agencies are paying really has no factor because the state's benefits plan differs significantly from other public agencies.  He stressed the state's plan has rich benefits.  The current $213.75 per month contributed by the state for all employees pays for health, dental, vision, life, LTD, AD&D, and business accident insurance while not all agencies have such a full plate of provided benefits. 

 

Mr. Heller thanked Mr. Thomas for his agency's cooperation in answering Mr. Heller's numerous questions over the biennium and Mr. Spitler for his points and questions.  Mr. Heller stated the 2.76 months reserves, etc., really did not make much sense and wondered what the exact dollar amount for the unfunded liability was.  Mr. Thomas replied the state should be at $12 million total reserve.  Mr. Heller asked if there would continue to be an unfunded liability over the next biennium.  Mr. Thomas stated he was unsure as to the level of liability, but he asserted there will be an underfunded reserve because the premiums currently being charged do nothing to rebuild the reserve.  The goal is to rebuild the reserve over the next three to five years. 

 

Mr. Heller concluded there would be two options:  raise premiums or reduce benefits.  Mr. Thomas responded yes, or some combination thereof.  Mr. Heller asked what would occur and when.  Mr. Thomas reiterated the state did both to maintain the current reserve and will look at the necessary premium increases this summer in coordination with Wf Corroon investigating other alternatives.  Mr. Thomas emphasized a lot of this fluctuates so much because the cost of health care fluctuates, such as the claims lag described as #2 of EXHIBIT K.

 

Mr. Heller questioned if there would be an unfunded liability when the next legislature meets.  Mr. Thomas stated frankly yes.  Mr. Heller wondered if Mr. Thomas thought this should be included as a performance indicator.  Mr. Thomas replied it would be a good measure, but he was not sure a valid number could be assigned.  Ms. Matteucci interjected the indicator would have to be exactly defined as to what the committee believes an underfunded liability would be.  She pointed out #2 of EXHIBIT K, item 7 shows in the last six months the underfunded reserve has gone from 2.76 months to 2.32 months.  She stressed the federal government believes a sufficient amount to carry over in a public program is 60 days and if more than that is carried, they come in and ask for their portion back.  Ms. Matteucci pointed out it all is a balancing act and if the committee chooses to select this as a performance measure, a very clear definition would be necessary.

 

Ms. Giunchigliani stated the HMO is with Sierra Health Services and asked who the PPO was with.  Mr. Thomas replied there are two HMOs:  Hospital Health Plan and Health Plan of Nevada; the PPO is with Sierra Health Care Options.  She asked how often contracts reopen and is there the ability to renegotiate.  She asked to have in writing a way to renegotiate a premium rate decrease.  Mr. Thomas stated rates are negotiated every year.  Chairman Arberry reiterated the committee would like the response in writing.

 

Chairman Arberry called for public testimony.

 

Mr. Bob Gagnier, Executive Director of State of Nevada Employees Association (SNEA), introduced himself.  He provided the committee with a handout (see EXHIBIT L).  He addressed two issues on the budget:  reorganization and the level of employer contribution to the health plan.  He pointed out this is an employer situation where Nevada is the employer providing benefits for employees and not just some other state plan.  He asserted the reorganization proposes the Committee on Benefits, created in the late 1960's as a joint employer/employee trust, should now become advisory with decisions made by the new Department of Finance.  He stated SNEA strenuously objects to this proposal.  He stated all legislators would be receiving today, from SNEA, a list of all their concerns adopted by the SNEA Board of Directors regarding the reorganization.  He emphasized they object to the Committee on Benefits becoming advisory.  It is a joint trust such as in private industry and this is how it should remain.  He pointed out SNEA does not have collective bargaining to negotiate insurance rates.

 

Mr. Gagnier moved on the to second issue of the contribution amount.  He stated he was pleased to hear Mr. Spitler refer to some of his testimony from two years ago and stressed he had stated the same concerns four years ago.  He remarked in both the 1987 and 1989 sessions, SNEA had its own bill on the level of employer contributions to their health plan and it was more than was being provided in The Executive Budget.  SNEA requests the contributions to be higher and although the Administration brought in a consultant to say the contribution was sufficient, SNEA states it is not.   In both bienniums, the amount increased toward employee health insurance has been held down for budgetary reasons and the reserves were drawn down.  SNEA objected and now the results can be seen.  There have been drastic benefit reductions for all employee health benefits and tremendous increases in the dependent rates effective January 1, 1993.  He recognized the Committee on Benefits should be commended for holding down the family rate to a more realistic amount than what had been proposed to them by the consultant.

 

Mr. Gagnier testified SNEA has their own bill, AB97, which is currently in the Committee on Ways and Means and it proposes substantial increases in the state's contribution level for FY94 and FY95.  These are justified amounts and SNEA will provide the committee with a copy of the fringe benefits study done for all 50 states and private industry.  He noted the handout (see EXHIBIT L) will show Nevada is not an overly generous employer when it comes to health insurance benefits.  He reiterated the local governments of Nevada certainly provide more and most other states provide more for family coverage.  He stressed if the legislature adopts the amounts as proposed in The Executive Budget for health insurance contributions of state employees for the coming biennium there will be two effects.  The benefit reductions and dependent premium increases will be kept in effect and a larger premium increase will probably be needed later this year as Mr. Thomas stated earlier.  Mr. Gagnier emphasized this is not even status quo, it is about going backward even more.

 

Mr. Price commented a number of risk organizations have been sued for not providing proper and good fiduciary analysis, such as the Board of Directors of SIIS considering suit against their advisors or the $400 million settlement with the federal government.  He asked Mr. Thomas if this possibility had been addressed.  Mr. Thomas stated it had been addressed.

 

Mr. Perkins asked what the out-of-pocket for employees was.  Mr. Gagnier stated he did not include those amounts, but would provide those for the committee.

 

Mr. Price asked Ms. Matteucci what the philosophy of changing the committee to advisory status was.  Ms. Matteucci responded a number of recommendations for agencies to become advisory were based on the general philosophy of the Governor and the Committee on Reorganization to have control over budgetary issues of agencies which he currently does not control.  In this specific issue, the Committee of Benefits has operating authority over the entire budget and the recommendation is to have the day-to-day operations of this program something the Governor has control over, but there would still be a need for input from the committee with expanded membership.

 

Mr. Price remarked, regarding quality management, Nevada is going against all the principle which other states and big businesses have been looking at in trying to spread out the input and responsibility of running large organizations through quality management.  Instead, Nevada is, in every case, consolidating the process as opposed to involving the decentralization process and gaining input from the bottom of the chain.

 

Ms. Jeanne Adams, Chairman of Committee on Benefits, introduced herself.  She stated she has been on the committee for eight years.  She stated the committee rigorously opposes the changes in the reorganization and budget where it affects the Committee on Benefits and the state employees and retirees benefits.  She introduced Mr. Fred Suwe, the Committee's legislative representative, to present the Committee's position and answer questions.  She pointed out Mr. Suwe is also a representative of SNEA appointed by the Board of Directors of SNEA to the Committee.

 

Mr. Suwe stated the testimony from Mr. Thomas, the Risk Manager, expresses the Governor's point of view and not the Committee's point of view.  The Committee has taken a formal stand on opposing the Governor's reorganization plan making the committee advisory to the Director of Finance.  He stressed the Committee on Benefits believes the committee and its members should remain an autonomous body which allows direct input from state employees and state retirees into the administration and design of the health insurance plan.

 

Mr. Suwe testified the committee opposes the combining of the Deferred Compensation Committee with the Committee on Benefits.  The Deferred Compensation Committee is seen as providing a dissimilar benefit and it should be composed of plan participants in the deferred compensation program.  He stated the Committee on Benefits also supports AB97 which increases the employer contribution on behalf of state employees and their dependents.  They will be testifying on AB97 at another time.

 

Mr. Suwe, as a representative for state employees, understands the decisions made by the committee as a fiduciary trust to the plan and weighing it against what is best for the employees, the problem is there are only two sources for revenue:  employer or employee.  It becomes a matter of philosophy as to who should be paying for first of all the employee and second of all their dependents.  Mr. Suwe stated, it is his opinion the employees contribute heavily in a number of ways to their pay and benefits plan, not the least of which is having to live with a hiring freeze which has caused a number of state employees to take on considerable, significant increases in their responsibilities and duties and also having to help balance the budget by foregoing cost of living increases.  Therefore, the benefits plan becomes an important component to the overall picture of what the compensation is to the employees. 

 

Mr. Suwe stressed the issue here is to rebuild the reserves by raising the premium on the employee or the employer.  It is incomprehensible to expect employees to pay $306 per month out of pocket to cover their spouse and children, yet that is what is being looked at in addition to reducing benefits if the employer does not come up with a bigger share of the pot.  Another caution, Mr. Suwe expressed, first and foremost, this is a state employee and state retiree health benefit program.  While there is no philosophical problem with local government groups and other groups being brought into the plan, they must pay their own way and not be subsidized by the money offered to the state employees.  The Committee's experience has been over the last biennium, the contribution given to state employees heavily subsidized local government employees.  He pointed out the last legislative session allowed the Committee to separately rate local governments and that portion has been taken care of that portion, for the time being, but the state must be careful not to lose sight of the fact this is a state employee and retiree plan.

 

Mr. Humke inquired if the Committee opposes both the advisory status and expansion of committee size.  Mr. Suwe reiterated the Committee opposes both issues.

 

Mr. James A. Edmondson, President of Retired Public Employees of Nevada (REPN), introduced himself.  He stated the RPEN has a membership of over 6,300 members and represents over 12,000 retirees.  He testified they support the idea of allowing non-state retirees to be accepted into the Self-Funded health insurance with no additional cost to the state.  He pointed out about one-third of the retirees do not have insurance from their former employers and will benefit greatly from being able to join this insurance plan.

 

Chairman Arberry adjourned the meeting at 10:50 a.m.    

 

                                                RESPECTFULLY SUBMITTED:

 

 

                                                _________________________

                                                Kerin E. Putnam

                                                Committee Secretary

??

 

 

 

 

 

 

 

Assembly Committee on Ways and Means

February 24, 1993

Page 1