MINUTES OF THE
ASSEMBLY COMMITTEE ON WAYS AND MEANS
Sixty-seventh Session
March 8, 1993
The Assembly Committee on Ways and Means was called to order by Chairman Morse Arberry, Jr., at 8:00 a.m., on Monday, March 8, 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
BUSINESS AND INDUSTRY ADMINISTRATION - PAGE 512
Rochelle Summers, Department of Administration, stated the Department of Business and Industry was a new budget account recommended as a result of reorganization. She stated the budget contained funding for a director and a management analyst, in-state travel, operating, equipment and purchasing assessment expenses. The Department of Commerce budget account for Administration was recommended for elimination. The budget would then transfer legal expenses and water development bond expenses from the Department of Commerce Administration to the new Department of Finance.
Chairman Arberry asked what duties the requested Management Analyst II would provide to the proposed Department of Business and Industry. Mrs. Summers explained the position would be responsible for coordinating information for boards and commissions within the Department and assisting smaller boards to comply with NRS 353. The position would be funded through an assessment on all of the boards and commissions within the proposed Department.
Chairman Arberry asked why the two requested transfer positions were not listed in the Executive Budget and why no clerical support had been provided for the requested Department. Mrs. Summers stated there were no requested transfer positions into the budget currently. The budget for the proposed Department was constructed to allow the director the flexibility to assign personnel and determine staffing needs. Subsequently the Director would present staffing suggestion to the Interim Finance Committee for approval of positions.
Mr. Spitler asked what the current boards were assessed. Mrs. Summers stated all boards were currently assessed to support a position within the Department of Administration. Funding for the new Management Analyst II position would carry an additional assessment. She explained the Management Analyst II would coordinate information between the commissions and the administration, store records and respond to administrative questions of smaller boards. Mr. Spitler asked if these functions were currently provided by a member of the Governor's administrative staff. Mrs. Summers stated one purpose of the reorganization was to lessen the administrative responsibility of the Governor. Mrs. Summers confirmed the Management Analyst II would be responsible for informing the Governor of the completion of term appointments, disclosure forms, and notifying appointees.
Speaker Dini asked if it would be possible to have an autonomous Dairy Commission in the Department of Business and Industry. Ms. Matteucci stated the intent of the proposal was to include the Dairy Commission within the Department of Agriculture with additional duties assigned to the Dairy Commission. The regulatory duties of the Dairy Commission would remain unchanged. The proposal suggested the Dairy Commission should be directed by the Bureau of Agriculture. Ms. Matteucci stated the Budget Office was currently meeting with members of the agricultural industry. She asked Speaker Dini to review the bill draft request.
Mr. Marvel asked if the bill draft request would articulate the number of members and qualifications for members of the Dairy Commission. Ms. Matteucci stated the proposal would not change the statutory requirements to be a member of the Dairy Commission. Mr. Marvel asked if the composition of the Board of Agriculture would change. Ms. Matteucci stated she was meeting with members of the Farm Bureau to ensure all interested parties were represented. She explained this might cause the composition of the Board of Agriculture to alter slightly but she would not recommend significant change.
Ms. Giunchigliani asked how the two could be merged without additional staff since the Labor Commission focused on the private sector and the Employee Management Relations Board (EMRB) focused on the public sector. Ms. Matteucci stated members of the Labor Commission and the EMRB were meeting to discuss how the transition would take place. She stated the EMRB would remain regulatory. Ms. Giunchigliani asked if staffing would be increased. Mrs. Metteucci stated the Labor Commissioner had not expressed a need for additional staff.
Ms. Giunchigliani asked if the Department of Industrial Relations (DIR) would be transferred to the Insurance Department. Ms. Matteucci explained DIR and the Insurance Department were recommended to be combined. This recommendation was based on the significant overlap in their duties such as examination of self insurance, workers' compensation and private insurance agencies. Ms. Matteucci commented the recommendation did not assume the duties and responsibilities of either of the agencies would change. She stated if the Legislature significantly changed the duties of either department the recommendation would need to be amended.
Ms. Giunchigliani asked if the administration would be supportive of strengthening the requirements for self insurance. Ms. Matteucci stated she would request information from the Governor's office.
Mr. Marvel asked when the committee would see the reorganization bill draft request. Ms. Matteucci explained the skeleton bill draft request was with the Assembly Leadership office. The Budget Office was currently developing a detailed bill draft request which would include information about the membership for many of the boards and commissions.
Mr. Price asked if the Budget Office could provide a list of the names of employees who would be eliminated by the reorganization. Ms. Matteucci explained the "value of" the positions were eliminated not the positions themselves. Mr. Price withdrew his request.
Speaker Dini asked if the functions of the Taxi Cab Authority would change if transferred to the proposed Department of Business and Industry. Ms. Matteucci stated the functions would not change.
Speaker Dini asked if the Taxi Cab Authority could be affiliated with the Public Service Commission. Ms. Matteucci indicted the Public Service Commission would be better able to answer the question. She stated originally the Peat Marwick consultants recommended the Taxi Cab Authority become a county function, however, after clarification of duties and responsibilities the recommendation was abandoned.
Mrs. Williams asked if agencies attempted to meet budget targets by reducing clerical staff to a level which would impair the mission of the agency, how reorganization savings would benefit the state. Ms. Matteucci explained the proposed reorganization attempted to eliminate mid-management and duplicative positions which would result after agencies were combined. She stated agencies would be foolish to reduce support staff and the Governor's Office would be concerned about such decisions. The Budget Office did not specify which positions would be eliminated in order to empower department directors. IFC would have to approve the positions the Directors selected for elimination.
FINANCIAL INSTITUTIONS - PAGE 394
Scott Walshaw, Commissioner, Financial Institutions Division, gave an overview of the budget. He stated the Financial Institutions budget had been exempted from budget reductions and reorganization savings because it was a revenue neutral budget. Mr. Walshaw indicated the Division assessed the institutions which it regulated a fee equal to the cost of regulation and subsequently returned all General Fund appropriations to the state at the end of each year. Over the last biennium $1,064,855 was the General Fund appropriation and $890,509 of the appropriation was deposited to the General Fund. The revenue to the General Fund was funded by fee assessments, licensing fees and examination fees charged during the course of the fiscal year. Mr. Walshaw stated the program had been in place for three bienniums and had worked extremely well in accommodating the regulatory needs of the Division.
Mr. Walshaw noted an increase in the out-of-state category was no longer requested because the agency found funding through other means. The increase requested in operating expenses resulted from the internal funding of computer service contracts. This was accomplished by allocating a small portion of the original computer allocation to computer maintenance and service rather than using an outside contractor to repair the equipment at a much higher rate. He commented if the maintenance allocation was not used it would be returned to the General Fund. Enhancement 702 would provide for the increased training and travel for the two unfilled examiner positions which would be filled over the 1993-95 biennium.
Mr. Marvel asked what impact bank mergers had on the fees assessed by the Division. Mr. Walshaw stated the mergers had increased the responsibilities of the Division and fee assessments increased concurrently. He commented Bank of America and U.S. Bank of Nevada were both state chartered banks. Mr. Marvel asked how the Division assessed banks. Mr. Walshaw explained the assessment was based on a sliding scale of total assets of the institution. Assets were determined by examining the actual expenditures of the bank for the year. As a result, smaller banks paid a much lower assessment than larger banks.
Chairman Arberry asked the Division to explain their role and the role of the federal examiners when reviewing of Nevada financial institutions. Mr. Walshaw stated the Division regulated banks, savings and loans, other types of depository institutions and financial intermediaries. Financial intermediaries consisted of mortgage companies, small loan companies and collection agencies. Traditionally the Division worked jointly with the Federal Reserve and the Federal Depository Insurance Corporation (FDIC) to examine state chartered banks. Last year congress passed the Federal Deposit Improvement Act of 1991 which required the FDIC to examine all insured financial institutions annually. Mr. Walshaw explained this was an impossible task, so the states were asked to examine all banks which were not considered "problem banks". Mr. Walshaw stated Nevada had no state chartered "problem banks", which meant the Division would be doing independent examinations of all state chartered banks over the next biennium. Because of the new agreement the Division would require additional computer equipment and two currently approved examiner positions.
Mr. Walshaw stated the occupational study recommended a grade increase for examiner positions. Enhancement 701 would provide computer equipment, $33,991 in FY 94 and $26,310 in FY 95, necessary for the increased work load associated with the increased monitoring of non-problem banks. The enhancement would provide compatible computer equipment with the FDIC and the Federal Reserve. He said the computer equipment would allow for electronic transmission of call report data which was now hand prepared.
Mrs. Williams asked how many state chartered banks Nevada had currently. Mr. Walshaw explained 12 state chartered banks existed. He stated there were three banks currently organizing, one in Elko and two in Las Vegas.
Chairman Arberry asked if confidentiality would be preserved with the new computer system. Mr. Walshaw stated the computer system was shut down during non-working hours to prevent unauthorized entry. He said report and call information was accessed with specific passwords.
Mr. Marvel asked if the data processing functions of the Division would be transferred to the Department of Data Processing. Mr. Walshaw stated the data processing functions would not be transferred in order to maintain the highest level of confidentiality.
Mrs. Evans asked how many vacant positions were maintained in the agency. Mr. Walshaw stated there were six vacant examiner positions. He explained five of them had been maintained for the past two bienniums. He remarked the positions were maintained with the proviso if they were needed to be filled the funds would be replaced with increased examination and assessment fees through the course of the biennium. Mr. Walshaw added the new FDIC agreement would facilitate the need to fill at least two of the vacant positions.
Mrs. Evans asked what was a "problem bank". Mr. Walshaw explained the banks were internally rated on a five point scale. Anything rated three, four or five would be considered a "problem bank". He commented the state did not have any "problem banks" at this time.
Mr. Perkins asked if the three applications for state chartered banks would facilitate a need for additional staff. Mr. Walshaw stated additional staff would not be necessary since the FDIC or the Federal Depository completed a through examination of all new banking facilities. He explained newly chartered banks were examined each quarter by state and federal regulators. He stated if new banks were chartered after the biennium began there might be a need for additional staff.
Mr. Perkins asked if the recession had impacted Nevada's banking industry. Mr. Walshaw assured the committee very little impact was felt by Nevada banks. He commented the only notable change was how the banks had restricted lending during the economic slowdown.
Mr. Marvel asked if the Division's only concern was the safety and soundness of Nevada's banks. Mr. Walshaw confirmed the Division focused on the safety and soundness of Nevada's banking industry. He commented the federal compliance examiners specialized in the Community Reinvestment Act Compliance and other consumer regulations. Mr. Marvel asked how many mortgage companies the Division supervised. Mr. Walshaw stated the number fluctuated and currently 122 licensees were supervised.
FINANCIAL INSTITUTIONS INVESTIGATIONS - PAGE 399
Mr. Walshaw commented the investigations account was carried forward from year to year and was funded by application fees. For example each mortgage company application had a non-refundable fee attached which would be deposited directly into the investigations account. The purpose of the fund was to provide a reservoir of funds which would provide for investigations of receiverships and special investigations in situations where the Division had no recourse in billing the licensees for the cost of the investigation. The fund also allowed for the a full-time Gaming Control Board Investigator assigned to provide all background investigation work for the Division. The investigator had been in place since 1985 and Mr. Walshaw commented Exhibit G would provide an overview of the performance of the investigator. He explained background investigations were performed on shareholders, directors and officers. Investigations were also performed when a bank went through a change in control. For example if a private party wanted to buy an institution they had to submit to the background investigation.
Mr. Humke asked when the statewide trustee receivership became statute. Mr. Walshaw stated the receivership capability was part of the statute for the Division. The Independent Escrow Act, NRS 645(a) as approved by the 66th Session, was the provision which allowed the Division to place companies into receivership. The procedure was similar to a bankruptcy receivership except the Division applied to the State District Court and asked for an appointment of a receiver. The purpose of the receivership was to attempt to minimize the cost to the potential victims. Mr. Humke commented the program was working extremely well.
AUDIT PROGRAM - PAGE 401
Mr. Walshaw stated the Financial Institutions Act was established in 1985. The purpose of the budget was to account for funds used to pay the costs associated with the certified public accountant who supervised licensees. The accountant was responsible for the troubleshooting and reviewing financial statements submitted by the licensees. The fund carried forward from year to year. The assessment fees were determined by the amount expended out of the account each year.
Chairman Arberry inquired what types of audits were performed, the results of the audits and how accurately the performance indicators measured the activities of the agency. Mr. Walshaw stated the Division had been monitoring the audit efficiency for many years. The results had been used to determine the staffing needs of the Division and provided a base for the amount of the fee assessments.
Mr. Heller commented the performance indicators only showed the basic work load of the Division. Mr. Heller suggested the performance indicators should include results of the audits and investigations. Mr. Walshaw stated the performance indicators were broken down by the number and type of examinations performed and the required manhours.
Mr. Heller asked why a $2,200 enhancement had been requested in budget account 3805 when the number of investigations performed were projected to decrease. Mr. Walshaw explained the number of investigations represented a historical average. Mr. Heller commented historic averaging did not predict the future requirements for the investigator position. Mr. Walshaw commented historical work load was the only means of predicting future needs. Mr. Walshaw commented the results of investigations could not be included in the performance indicators because the information would jeopardize confidentiality.
Mr. Marvel asked Mr. Walshaw if he agreed with the cost recovery assessment for administrative expenses. Mr. Walshaw stated he accepted them in full.
Mrs. Williams asked how many savings and loans institutions were currently operating in the state. Mr. Walshaw explained one state charted saving and loan institution existed; however, five non-chartered savings and loans institutions were currently operating in the state.
REAL ESTATE ADMINISTRATION - PAGE 404
Larry D. Struve, Director, Department of Commerce, stated the Department was comprised of eight Divisions and the proposed reorganization recommended the Department be eliminated. Mr. Struve stated the Real Estate Administration had been without an administrator since 1991. He stated after the resignation of Lynn Luman, George Whitney had been assigned as acting administrator. Mr. Whitney was employed as Chief of Projects Registration and the acting administrator of the Real Estate Division concurrently. The subsequent hiring freeze and budget reductions prevented the employment of a permanent administrator. Mr. Struve commented at the end of 1991 Mr. Whitney encountered health problems and was no longer able to perform as acting administrator. The Attorney General ruled the Director of Commerce had the authority to carry out any act or duty of the administrator and could delegate duties as desired; so he as the Director of Commerce decided to take a team approach. Jolene Rose, Deputy Director, Department of Commerce was given the responsibility of managing the Real Estate Division and Joan Buchanan was given budget responsibility for the Division. He stated the Real Estate Division was funded through the General Fund, however, it also generated a substantial amount of revenue through licenses and fees.
Joan Buchanan, Education Coordinator, Real Estate Division presented the budget. Mrs. Buchanan stated the mission of the Real Estate Division was to issue real estate licenses and ensure real estate transactions were lawful. The authority of the Division had expanded to include land registrations, appraisers, and time share projects. The Carson City office currently had a staff of 15 and the Las Vegas office had a staff of eight. She stated vacancy savings resulted from the Administrator and the Deputy Administrator positions. She referred to page 404 of the Executive Budget and stated the $100,000 reorganization savings in the personnel category was a result of the transfer of a data processing position to the Department of Data Processing and the elimination of an accounting position. Mr. Struve interjected the budget did include the Administrator and Deputy Administrators positions and requested the committee preserve these positions. Mrs. Buchanan explained the $67,000 decrease in the operating expenses had occurred because of the reallocation of the Attorney General expenses. Mrs. Buchanan stated maintenance item 525 requesting $5,125 would be used for structural changes in the Las Vegas office to comply with the Americans with Disabilities Act. She stated the amount was removed from the Division's budget and allocated to the Public Works Department's budget.
Chairman Arberry asked where the individual would be physically located after the data processing personnel were transferred to the Department of Data Processing. Mr. Struve commented the individual was currently located in the Real Estate Division. However, after the reorganization the Administrator of the Department of Data Processing would decide were to locate the position.
Mr. Marvel asked if the EDP System Programming expense would be the transfer to the Department of Data Processing, the Micro Computer Specialist III. Mr. Struve explained the position would be transferred. The Division would then pay the Department of Data Processing for EDP Sys Programming services.
Chairman Arberry asked for an explanation of the increase in real estate fees which would generate approximately $459,000 over the 1993-95 biennium. Mr. Struve explained the budget targets set by the Budget Office allowed only two choices: (1) Reduce staffing levels by eliminating the Director and Deputy Director of the Division; or (2) generate another source of revenue. He stated the Division chose to raise the license fees, last adjusted in 1981, paid by brokers, broker/salesman and salesman. The proposal would raise the fees as follows: salesman from $100 to $130 per biennium and broker/salesman and brokers from $130 to $170 per biennium. The net increase to the General Fund would be approximately $459,000 which was the amount the Budget Office had advised was necessary to fund the Real Estate Division and maintain the Director and Deputy Director's positions. Mr. Struve stated increased fees would remain 35 percent below the national average.
Mrs. Buchanan referred to the fingerprint maintenance item, $12,447, which reflected a $7,260 increase. The increase was facilitated by the need to submit fingerprint cards not only to the Federal Repository but also to the state. Mrs. Buchanan commented the Division had to request additional funding from the Interim Finance Committee for the increased cost of fingerprint cards over the last biennium. Mrs. Buchanan noted the $11,745 Appraiser Report Fees request which was not recommended.
Mr. Spitler asked why the Division had not increased the fees paid by escrow agents, time-share sales and camp-ground membership sales. Mrs. Buchanan responded personnel changes and time constraints had prevented the original proposal from being changed. Mr. Spitler asked the agency representative to provide an analysis of the cost to administer the account and the fees generated by the account.
Mr. Marvel asked how much appraisers were charged in fees. Mrs. Buchanan stated $150 for interns, residential certified appraiser $275 and general appraisers $350. Mr. Marvel asked how much revenue the appraiser fees generated. Mr. Struve stated $68,000 was generated annually and approximately $68,000 was anticipated over the next biennium.
Mrs. Evans commented she could not find the $459,000 increase with in the budget. Mr. Thorne indicated the amount was totalled over the biennium with approximately $200,000 annually. Mrs. Evans stated the allocations provided in the budget did not total $459,000. She asked the fiscal staff to meet with the Budget Division and discuss the discrepancy.
Chairman Arberry asked to receive an update on the regulation of real estate appraisers and if this program had added to the Division's caseload. Mrs. Buchanan stated the regulation had increased the administrative caseload. The Division was currently working with the Appraisal Commission to form regulations. Mrs. Buchanan commented the program was working very well.
Mr. Spitler asked how many complaints the agency received from time share and campgrounds. Mrs. Buchanan stated approximately 800 complaints had been filed in FY 93 and most originated from the Las Vegas area. The Division had improved the pre-licensing education for time shares. She stated the current projects in the Las Vegas area were attempting to comply with time share regulations.
Mr. Perkins asked why only 52 percent of the Division's complaints were investigated. Mrs. Buchanan stated many of the complaints were non-jurisdictional. Mr. Perkins asked why the number of investigated complaints was projected to increase to 90 percent over the next biennium. Mrs. Buchanan stated she would research the question and provide information at a later date. Mr. Perkins suggested the agency include a performance indicator which would detail the number of revoked licenses. Mr. Perkins asked whether performance indicator number 6, legal actions taken, were civil or criminal. Mrs. Buchanan stated the Division went before the District Court, Real Estate Commission and the Appraiser Commission to resolve legal actions. Mr. Perkins suggested the agency include the results of the legal actions as a performance indicator.
Mrs. Tiffany asked if the Division received many complaints about the Board of Contractors. Mrs. Buchanan stated the Division licensed 90 owner/developers which needed to possess a contractors license to build. The Division referred contractor complaints to the Board of Contractors.
REAL ESTATE EDUCATIONS AND RESEARCH - PAGE 409
Mrs. Buchanan stated all broker and broker/salesmen paid $40 in addition to their license fees for the education and research fund. The account was used for continuing education units for real estate licensees. Currently the Division was participating in a property management research project with the University of Nevada, Las Vegas. The recovery fund was used to compensate victims of real estate fraud. Since 1967 the fund had paid out approximately $490,000 in claims.
REAL ESTATE INVESTIGATIVE FUND - PAGE 412
Mrs. Buchanan stated the investigative fraud account was a holding account for developers who had submitted a filing for a project. None of the proceeds were returned to the General Fund, however, the Division had reserved $11,266 for reversion.
REAL ESTATE RECOVERY ACCOUNT - PAGE 414
Mrs. Buchanan stated the budget was the account which paid for court awarded damages to persons defrauded by real estate licensees.
Chairman Arberry asked approximately how many persons had been defrauded by real estate licensees over the past biennium. Mrs. Buchanan stated approximately 20 cases had come before the real estate commission over the past year. She added approximately 50 percent of the cases resulted in disciplinary action. Mrs. Buchanan stated the Division had transferred an investigator to Las Vegas to assist with the increased caseload in the area.
MANUFACTURED HOUSING FUND - PAGE 416
Joan Clements, Administrator, Manufactured Housing Division, read from prepared testimony (Exhibit C). Page 416 of the Executive Budget was referenced for this budget. The agency request was based on maintaining the current level of daily services. The Division was a non General Fund agency its revenues came from user fees and non-grant federal funds. Exhibit D, shows a complete breakdown of fees. There was a decrease in inspections, plan reviews and ownership certificates issued. However, there was an increase in the number of licenses, exams and complaints. The projected for FY 94-95 agency request reflected FY 91-92 actual expenditures. Funds were transferred from this budget to mobile home parks budget to pay for 25 percent of the cost of two field representatives and 50 percent of the cost of one Program Assistant I. The fees collected were not sufficient to cover payroll and expenses. Ms. Clements explained by assigning duties and transferring funds the Division was able to meet consumer demand.
Chairman Arberry asked what the agency had done to improve the safety of manufactured homes. Mrs. Clements anticipated there would be some changes in the federal regulations for manufactured homes. She said all of the homes were currently being constructed to the federal construction standards. Over the next biennium the National Commission would be making suggestions to Housing and Urban Development (HUD) for new regulations and that states regularly submitted complaints to HUD.
Mr. Marvel asked why the cost recovery plan had increased from $255 to $8,951. Mr. Thorne explained every three years the Budget Division evaluated how much each non General Fund agency used central administrative services. Any increase or decrease in usage was adjusted at the end of each cycle. Mrs. Summers interjected the Division's four other budgets would be responsible for their share of the cost recovery plan.
Mrs. Chowning asked for the breakdown of inspections done on new versus used manufactured homes. She also asked what action was taken when the agency received a complaint. Mrs. Clements stated she could indicate the types of inspections performed: (1) 3,273 installation inspections which included electrical, gas, plumbing and sewer inspections; (2) 579 factory housing inspections including a third 2 party inspector for all imported homes; and (3) 52 abatement inspections which regulated landlords who did not respond to tenant complaints. Mrs. Clements commented most manufactured home fires were a result of human error not faulty construction.
Ms. Giunchigliani asked Mrs. Clements to provide written information about inspections on new versus used manufactured homes.
Mr. Perkins asked if most inspections were generated from initial inspections or complaints. He asked if the Division was able to perform all of the inspections. Mrs. Clements stated all complaints were investigated. She added occasionally an occupied home was investigated because it lacked the proper seal of approval in the window. Mrs. Clements stated utility companies were mandated to refuse utility activation on an uninspected home.
Ms. Giunchigliani asked if the Division cited a rental whether the landlord was responsible for paying for the repairs. Mrs. Clements stated the landlord would be responsible for the repairs.
Mrs. Evans asked if the transfer funding to support the Director's Office was based on the percentage of support provided by the Director's Office. Mrs. Clements stated the funding was based on support provided by the Director's Office. Mrs. Clement stated she would be concerned if Attorney General services were no longer available to the Division. She commented the Budget Office had assured her the Attorney General services would continue to be available.
Mrs. Evans asked why the amount of the reserve had decreased. Mrs. Clements explained this was a result of the slow economy. She stated the Division had an inspection agreement with HUD and received an allocation per unit shipped into Nevada. She explained when the number of units decreased so did the amount of the allocation. Mrs. Clements commented the reserve was based on a conservative three year average.
Mrs. Evans asked the Budget Office why the reserve had been reduced from $95,000 to $63,000. Mrs. Summers commented after the revenue was generated and the excesses allocated out the balance was placed in the reserve account. She stated the budget also anticipated a $20,000 increase in the amount to be transferred to the Mobile Home Parks budget.
MOBILE HOME PARKS - PAGE 420
Mrs. Clements read from prepared testimony (Exhibit C). The sole source of revenue for this program was an annual mobile home park space fee the Division collected from each park. The fee set by statute, NRS 118B.185, was $3 for each lot within each park. The budget request was based on current revenue and expense collections and transferred funds from the Manufactured Housing budget. Page 6 in the handout (Exhibit D) reflected an increase in the number of complaints the Division handled.
Mrs. Clements commented the transfer from Manufactured Housing was necessary to fund three positions she felt were imperative to completing the workload of the budget. She stated she assigned 25 percent of the time of the each of the field representatives and 50 percent of the time of the clerical position from the Manufactured Housing budget to the Mobile Home Parks budget. The $37,964 transferred from the Manufactured Housing budget to the Mobile Home Parks budget would cover the cost of the positions.
Chairman Arberry asked how often the Division had to reallocate resources between budgets and reassign the duties of Division employees. Mrs. Clements commented she had performed a similar transaction over the last biennium; however, it was a lesser amount of money. Mrs. Clements stated such transactions would be necessary as long as payroll increased.
Mrs. Williams asked the agency to comment on why the number of complaints received was projected to decrease. Mrs. Clements stated the number of complaints were based on a historical average.
LOT RENT TRUST SUBSIDY - PAGE 423
Mrs. Clements read from prepared testimony (Exhibit C). She explained during the 1991 legislative Session AB451 of the 66th session created a new trust fund for assistance to low-income mobile homes owners by supplementing their monthly space rent. The Division collected $12 for each occupied mobile home lot. Mrs. Clements commented distribution of the subsidy would begin after July 1, 1993. The Division rented office space, ordered data processing and office equipment and was planning to hire two employees. The agency would begin accepting applications May 1, 1993. As of February 12, 1993 the Division had collected $344,052.45 for the program. Mrs. Clements explained the Division had allocated $240,000 for lot subsidy payments which was an average of $50 per month for 400 individuals.
Mrs. Clements commented applicants for the program could not have an income above $750 per month. She stated it had been speculated persons with a $750 per month income could not have maintained a mobile home.
Chairman Arberry asked if the two new positions had been filled. Mrs. Clements stated the Personnel Department had advertised for the positions which should be filled by April 1993. Chairman Arberry commented the positions were approved based on a January 2, 1993 hire date. Chairman Arberry asked if the lot rent subsidy applicants could apply by April 1, 1993 if the positions were not filled. Mrs. Clements explained the regulations had been drafted and an April 5, 1993 hearing date was set. Chairman Arberry asked if the application forms had been printed. Mrs. Clements stated the Division would use a draft application form until the final version was developed. Chairman Arberry asked if the new employee would have an adequate amount of training given the time constraints. Mrs. Clements commented the employee would be given the best possible training.
Chairman Arberry asked since performance indicators were not provided for the program could the agency discuss the projected caseload. Mrs. Clements explained the Division had budgeted $240,000 which would subsidize 400 persons at $50 per month for the first year.
Mr. Heller suggested the performance indicators be included in this budget. Mr. Heller asked the agency to provide the source and calculation of the $240,000 projection to the committee.
Mr. Perkins asked how the program would be advertised. Mrs. Clements stated the Division planned to advertise in several mobile home newspapers, submit public information announcements and attend home owner meetings. Mr. Perkins asked if the agency would be able to accept applications April 1, 1993. Mrs. Clements stated the date had been adjusted to May 1, 1993 because delays had occurred in the Department of Personnel's processing of the two positions. Mr. Perkins commented accepting applications May 1, 1993 and distributing checks July 1, 1993 seemed to be a hectic schedule.
Mrs. Williams commented the lot rent subsidy did not appear to be sufficiently funded to help needy persons because many applicants' rent was higher than $200. Mrs. Clements commented Mr. Struve had always been concerned about depleting the subsidy's resources. The Deputy Attorney General ruled the applicants would be subsidized on a first come/first served basis. Mrs. Williams requested the Division provide the average monthly space rental for single, double and triple wide mobile homes by county.
Ms. Giunchigliani commented the focus of the committee should be directed toward the overall need for each budget and not on the detailed line item details.
Mrs. Tiffany asked the Division to submit a business and implementation plan for the new program.
MANUFACTURED HOUSING EDUCATION/RECOVERY FUND - PAGE 426
Mrs. Clements read from prepared testimony (Exhibit C). Mrs. Clements explained NRS 489.4971 assigned license issuance and renewal fees. The budget provided funds to satisfy claims against persons licensed by the Division and could be paid only upon court order. The account also provided for an education program when funds exceeded $500,000. The current balance in the fund was $549,698. However, the agency had not projected an education program because of continuing education programs which were added to the statute during the 1991 Legislature. Mrs. Clements requested one year to observe and audit available education courses in order to determine how to supplement existing courses.
HOUSING DIVISION - PAGE 441
Charles Horsey, Administrator, Nevada Housing Division, read from prepared testimony (Exhibit E). Mr. Horsey introduced Mamie Chinn-Hechter the Division's Deputy Administrator, and Lon DeWeese, Chief Financial Officer. Mr. Horsey explained the Housing Division was essentially the state's version of a large financial institution without the savings accounts.
Mr. Horsey commented the source of lendable proceeds came from the sale of tax exempt bonds on Wall Street. He emphasized the Division exercised prudent lending and investment practices. Mr. Horsey noted the lendable proceeds were used to avail below market rate mortgages to Nevada's low and moderate income first time homebuyers. Mr. Horey noted the Housing Division was entirely self sufficient and received no General Fund support.
Mr. Horsey advised the last biennium had been most unusual for the Division because of declining interest rates; declining investments rates; abnormally high levels of re-finances and a general loss of public confidence in the real estate market all of which affected the agency's performance indicators.
Mr. Horsey commented the Housing Division developed performance indicators based on the current biennium. However, the agency assumed new lending activity would closely parallel 1990 and 1991, and refinances would approximate historical averages.
Mr. Horsey explained the agency had experienced the same kind of lending activity as the private sector because borrowers had taken advantage of declining mortgage rates. He commented the agency spent a significant amount of time processing loan pay offs and refinances. This was reflected on page 445 of the Executive Budget which showed only 277 loans had been originated as compared to the 583 which had been projected. Mr. Horsey explained processing loan payoffs and delinquency activity offset the lack of new loan activity.
Mr. Horsey commented performance indicators for the next biennium estimated new lending activity would increase to 1991 levels because most refinances had already taken place and sales of new and existing homes were on the upswing. If forecasts were correct a budget augmentation would be requested for the cost of issuance category.
Mr. Horsey commented the Housing Division's budget was essentially one of status quo. Enhancements were limited to new areas of responsibility such as the administration of the federal HOME Program and the state's Low Income Housing Trust Fund. The new responsibilities were extremely complex and labor intensive. Mr. Horsey explained two requested positions were essential to the administration of these programs. Mr. Horsey asserted if the Division did not have such effective personnel a greater number of positions would have been requested.
Mr. Horsey stated budget number 3841 requested one position which would be assigned to the HOME Program, and a second position assigned to the Low Income Housing Trust Fund located in budget account number 3837. These positions would provide assistance to the Chief Assistant who had immediate supervisory responsibility for both programs. By adding the positions in this order, the Division would utilize federal dollars before any additional state dollars would be necessary.
Chairman Arberry asked who would perform the duties of the Deputy Administrator if the position was eliminated. Mr. Horsey explained the proposed reorganization recommended the elimination of the half time Deputy Director in the Department of Commerce and the elimination of the full-time Deputy Administrator of the Housing Division. Mr. Horsey stated the Deputy Administrator was directly responsible for the Multi-Family Program which included the Tax Credit Program and the HOME Program. Mr. Horsey commented the elimination of the position would require extensive reallocation of staff and would weaken the Division's response time for these programs. Mr. Horsey explained the Deputy Director's position was a member of the Housing Division's Executive Committee and was responsible for advising Mr. Horsey on the timing and sizing of bond issues.
Mr. Horsey read from prepared testimony (Exhibit E). Mr. Horsey explained the amounts recommended in the budget reflected additional work associated with the implementation and administration of the federal HOME Investment Partnership Program. HOME was created as part of the National Affordable Housing Act of 1990. HOME encouraged the state and participating local jurisdictions to collaborate with private organizations to expand the supply of affordable housing and increase the number of families who could be served with affordable housing. Funds could be used for acquisition, construction, moderate and substantial rehabilitation which promoted affordable rental housing and ownership housing. The funds could also be used for tenant-based rental assistance programs. The state of Nevada received $3 million during federal fiscal year 1992 and would allocate a minimum of $3 million for the next two federal fiscal years.
Mr. Horsey explained prior to receiving any HOME funds, the Division had prepared a Comprehensive Housing Affordability Strategy (CHAS). Once the state CHAS was approved, a Program Description was also prepared which described the use of the HOME funds. In conjunction with the HOME program, the Division was also responsible for the implementation of the Cash Management Information System. Preparation of additional CHASs and annual reports would be required over the next four years under HOME program regulations.
Mr. Horsey commented the state received over $6.1 million in requests during the first year of funding. Mr. Horsey referred to (Exhibit F) the "History of Loan Payoffs" and explained the current work load on HOME had been conducted primarily by the Chief Assistant.
Mr. Horsey advised once the preliminary review had been completed and funds had been allocated, all HOME-assisted housing units must conform to various federal requirements including equal opportunity and fair housing, affirmative marketing, displacement, relocation, acquisition, flood insurance, and others. Due to the various federal regulations involved, the Division had requested a loan officer position which would be used exclusively for the HOME program as well as associated operating and travel and equipment expenses.
Mr. Horsey explained the Division intended to pass on a certain portion of the $300,000 to the local participating jurisdictions (City of Las Vegas, City of Reno, Clark County) within the state in order to help defray their respective administrative HOME costs. See page 442 of the Executive Budget.
The other recommended costs reflective the cost of implementing the fiscal management and staff services occupational study which affected the Division (loan administration officers, loan officers, accountants).
Mr. Horsey mentioned in order to assist lower income households to enter the homeownership market, the Division had been working on its "Good Neighbor" lending program which included a down payment assistance program. With the addition of a down payment assistance program, it had been anticipated that there would be a resurgence of activity in mortgage loans originated. Mr. Horsey noted a recent survey which stated the number one problem facing potential first time homebuyers was the money needed for closing costs and down payment. The additional legal expenses, $3,000, for this program were reflected on page 444 of the Executive Budget.
Chairman Arberry asked how the $3,000 figure for legal expenses was calculated. Mr. Horsey explained the charge was an estimation of the total hourly charges from the National and Local Bond Counsel, Deputy Attorney General and a local real estate attorney which would be needed to get the new program started.
Chairman Arberry asked what impact the Division would feel if the $1.5 million FY 93 and $1.8 million FY 94 requests for enhancement funding were denied. Mr. Horsey stated a minor component of the amount was a raise for the Division's Chief Assistant which has responsibility for the HOME program and the Low Income Housing Program. However, the majority of the funding would be used for the upfront costs associated with bond issuances. These costs included the Bond Counsel, Grant Thorton, printing of official statements and ratings from Standard and Poors 500. The upfront costs of the bond issuance would be eventually recovered. Therefore, when the Division devised their performance indicators they estimated the number of bond issuances required and calculated the cost of issuance. The cost of issuance was the majority of the enhancement request. Mr. Horsey commented the cost of issuance projections were based on FY 93 levels and if the economy continued to improve the Division would go before the Interim Finance Committee and request additional funding.
Mr. Spitler commented it was unclear to him how reorganization had helped this Division. He asked if the administration had been consulted about the negative impacts the loss of the recommended positions would have on the overall operations and effectiveness of the Division. Mr. Horsey explained the positions recommended for elimination were not cast in concrete and it was his understanding the Division would have an opportunity to appeal the recommendations to the Director of the Department of Business and Industry. Mr. Horsey stated the Division was researching alternative suggestions for the Department of Business and Industry. Mr. Spitler requested the committee be provided a copy of the report upon its completion.
Ms. Tiffany commented Mrs. Chinn-Hechter was an extremely valuable employee and the loss of such a high caliber employee would certainly impact the services provided by the Division. Ms. Tiffany asked when the 1993 tax credits would be allocated. Mrs. Chinn-Hechter stated President Clinton had included in the economic stimulus package an extension of the Mortgage Bond Revenue Program and the Low Income Housing Tax Credit Program. Mrs. Chinn-Hechter stated the anticipated date Congress would pass the stimulus package was unknown. She did indicate, however, Washington sources had estimated late August or early September as a possibility. She stated the Division could not administer the Low Income Housing Tax Credit Program until congressional approval was given. Ms. Tiffany asked what level of funding was anticipated for the Low Income Housing Tax Credit Program. Mrs. Chinn-Hechter explained the amount of the allocation would be based on a $1.25 per capita figure and the population figures for the state had not been released. Mrs. Chinn-Hechter stated the Division had estimated approximately $1.7 million would be received.
Mrs. Tiffany asked what steps had been taken to ensure low income housing projects awarded to developers would be started in a timely manner. Mrs. Chinn-Hechter explained if the developer did not start the project within a two year period the Division could notify the Internal Revenue Service and the developer could be penalized. The Division also had the authority to revoke funding and award the project to another developer.
Mr. Marvel asked why the $12,000 CHAS program was eliminated from the agency's request. Mr. DeWeese explained the one-time CHAS study had been completed during the last biennium. Annual updates had been internalized and did not require additional funding.
Mr. Marvel asked the Budget Office why the cost recovery plan had increased from $3,600 to over $100,000. Mrs. Summers explained the cost recovery plan also included costs associated with Attorney General expenses which had been previously charged to the operations category. She stated the increase appeared higher because the agency employed a full time Deputy Attorney General.
Ms. Giunchigliani asked why the mortgage default rate was projected to be so high. Mrs. Chinn-Hechter stated the Division had 7,600 outstanding mortgages with only 167 delinquencies. She added the Division had a 2.67 percent fourth quarter average for defaults while the national average was 3.25 percent for mortgage defaults. Ms. Giunchigliani asked the agency representative to provide an analysis of the socio-economic make up of applicants served by the Division's programs.
Ms. Giunchigliani asked why the value of multi-family projects developed, performance indicator number 6, had fallen from $39 million in FY 92 to $10 million in FY 93. Mr. DeWeese explained the timing of the financing had allowed the Division to avoid charging against its own existing caps.
Ms. Giunchigliani asked the agency to provide an analysis of the BDR she was drafting on the extension of revenue bonds to non profit agencies.
Ms. Giunchigliani asked the agency to provide the percentage difference between the number of loans granted by the banking industry and Housing Division programs to low income people. Mr. DeWeese informed Ms. Giunchigliani the cost to gather such information would require a budget augmentation. Mr. Horsey interjected the agency was currently working on a $5 million bond which would provide a 5 percent, 30-year fixed rate mortgage to targeted groups in southern Nevada.
Ms. Giunchigliani asked if the Division allocated flow through monies to such agencies as the Clark County Economic Opportunity Board. Mr. Horsey stated the allocation would be budgeted out of the HOME fund.
Ms. Giunchigliani asked the Budget Office why the Housing Division was proposed to be placed under the Department of Business and Industry rather than Finance. Mr. Thorne explained the proposal was made because of the consumer services component of the Housing Division.
Mr. Marvel asked if the agency had reserves in the agency budgets. Mr. Horsey stated every time a bond issue was made reserves had to be established. Mr. Marvel asked how much money was in reserve currently. Mr. DeWeese indicated the amount fluctuated but it was approximately 8 percent of the $800 million outstanding. The total amount currently in reserve was $100 million. Mr. Horsey interjected the reserves were legally mandated to ensure payments to bond holders.
Mr. Marvel asked if a mortgage went into default did the agency provide an alternative payment plan for the mortgage holder. Mr. Horsey stated the agency had one of the lowest foreclosure and delinquency rates in the nation. Because all the loans were FHA and VA insured, the Housing Division's losses were under $15,000 on a 7600 loan portfolio. Mr. Marvel suggested the agency put this type of information into the performance indicators.
Mrs. Evans referred to Exhibit F and asked if participation in the loan program was voluntary. Mr. Horsey stated the Division received the equivalent of $6.1 million in applications for a program which only funded $3 million. He added some local governmental agencies had HOME funds as well. Participation in the program was voluntary.
LOW INCOME HOUSING TRUST FUND - PAGE 447
Mr. Horsey read from prepared testimony (Exhibit E). Mr. Horsey explained the creation of the Low Income Housing Trust Fund in 1989 was the centerpiece of recommendations made by a legislative subcommittee in a report submitted to the Nevada Legislature. The purpose of the fund was to provide financial resources for low income housing projects. There was no dedicated revenue source of capital provided initially. In 1991, the Legislature committed funds from the state's real estate transfer tax; $.10 per $500 unencumbered assessed value was collected by the counties. The Legislative Counsel Bureau estimated the tax would generate approximately $1.2 million per year. Nevada Housing Division also made a one-time contribution of $292,000. The trust fund may also be used as the state source of matching funds for the federal HOME program. Mr. Horsey commented because the position would be federally funded the first year of the biennium the agency projected one position would be needed in the second year of the biennium to administer the HOME fund program.
Mrs. Evans asked for information on the anticipated number of loans to be made and the criteria for those loans. Mr. Horsey indicated a one-year delay had enabled the fund to reach its $1.5 million threshold and the dispersement of HOME funds was permitted. He indicated 15 percent of the total funds were required to be allocated to the Emergency Assistance Program at the Welfare Division. He projected in subsequent years a prorated portion of the trust fund would be identified for specific projects. An advisory committee, comprised of seven representatives of the housing community and low income persons, would make recommendations to the Nevada Housing Division on the criteria for distributing funds to competing projects. Mrs. Evans asked the agency to provide some suggestions for evaluating the program in the future.
Mrs. Chowning asked what criteria needed to be met for the Emergency Assistance program. Mr. Horsey stated the 15 percent would be automatically transferred to the Welfare Division. He indicated the applicant to the Emergency Assistance Program would have to meet the regulations set forth by the Welfare Division. Mrs. Chinn-Hechter stated the program would be reinstated by the Welfare Division in May and the Housing Division had received approval from the Budget Office to transfer the funds.
Mr. Heller asked how many applications the agency had received for the Low Income Tax Credit Fund and how many of the requests were not filled. Mr. Horsey stated the pre-screening process was completed by the participating lenders such as banks, mortgage companies and savings and loans. Mr. Heller asked for information on the number of applicants to be provided to the committee.
There being no further business, the committee was adjourned at 10:50 a.m.
RESPECTFULLY SUBMITTED:
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Courtnay Berg
Committee Secretary
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Assembly Committee on Ways and Means
March 8, 1993
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