MINUTES OF THE

      ASSEMBLY COMMITTEE ON WAYS AND MEANS

 

      Sixty-seventh Session

      March 9, 1993

 

 

 

The Assembly Committee on Ways and Means was called to order by Chairman Morse Arberry Jr., at 7:36 a.m., on Tuesday, March 9, 1993, in Room 352 of the Legislative Building, Carson City, Nevada.  Exhibit A is the Meeting Agenda.  Exhibit B is the Attendance Roster.

 

 

COMMITTEE MEMBERS PRESENT:

 

      Mr. Morse Arberry, Jr., Chairman

      Mr. Larry L. Spitler, Vice Chairman

      Mrs. Vonne Chowning

      Mr. Joseph E. Dini, Jr.

      Mrs. Jan Evans

      Ms. Christina R. Giunchigliani

      Mr. Dean A. Heller

      Mr. David E. Humke

      Mr. John W. Marvel

      Mr. Richard Perkins

      Mr. Robert E. Price                

      Ms. Sandra Tiffany                 

      Mrs. Myrna T. Williams

 

COMMITTEE MEMBERS ABSENT:

 

      None

 

STAFF MEMBERS PRESENT:

 

      Mark Stevens, Fiscal Analyst

      Gary Ghiggeri, Deputy Fiscal Analyst

 

 

CONSUMER AFFAIRS - PAGE 428

 

In opening remarks, Larry Struve, Director of the Nevada Department of Commerce, pointed out the Consumer Affairs Division had had a vacancy for the past seven months as a result of the hiring freeze and budget reductions.  Referring to Gebler and Osborn's book, "Reinventing Government," chapter 9, page 251 and 254, Mr. Struve read, "In today's world things simply work better if those working in public organizations have the authority to make many of their own decisions.  To return control to those who work down where the rubber meets the road, entrepreneurial leaders pursue a variety of strategies.  They use participatory management to decentralize decision making; they encourage teamwork to overcome the rigid barriers that separate people in hierarchial institutions; and they create institutional champions to protect those within the organization who use their new authority to innovate and they invest in their employees to ensure that they have the skills and morale to make the most of their new authority."  Philosophically, Mr. Struve said he had always believed government was about people helping people, and ultimately, the government would be judged on its output.  In a department such as Commerce, using the principles of decentralizing authority set forth in "Reinventing Government" had been very effective.

 

Mr. Struve then introduced staff members Joanne Gierer, Accountant for Consumer Affairs Division, Jolene Rose, Deputy Director of Commerce, and John Kuminecz, the new Commissioner of Consumer Affairs for the State of Nevada.

 

 

Mr. Kuminecz mentioned he had spent most of his life in public service in the field of national defense and economic development.  He said he had worked at Nellis Air Force Base and had been six years with the Nevada Development Authority.  In working for the economic well being of Nevadans, Mr. Kuminecz said his particular goal was to attract diversified new business into Nevada which would create quality long-term jobs and job security and promote the state as a quality place to live and work; and he also intended to vigorously enforce the fair trade and telemarketing statutes of the state. 

 

Proceeding with the budget discussion, Mr. Struve drew attention to Budget 101-3811, beginning on page 428 and submitted Exhibit C, a handout entitled "Statistical Report for the Deceptive Trade Unit." Basically, he said, budget 3811 combined two budgets from the current biennium.  The Director's Office, processed during past sessions as budget account 3810, was being eliminated under the reorganization plan.  The position of Director of the Department of Commerce was being transformed into a position titled Chief of Consumer Services.  The other positions in the Director's Office, Deputy Director, Management Assistant IV and a Legal/Clerical position, were also being transferred from 3810 into 3811 and those positions, as well as the reduced budget amounts after reorganization savings, were being added to the positions and other expenses in budget account 3811 (Exhibit D).

 

Continuing, Mr. Struve said in the expenditure column under "Personnel Expenses," the $518,000 in the first year of the new biennium included reorganization savings.  The amount of the savings was calculated by taking the amount of the salaries of the half-time Deputy Director position (paid out of budget account 3810) and the Commissioner of Consumer Affairs and adding the two which made a total of over $65,000 the first year and $89,000 the second  year.  This created the net figure stated in the budget. 

 

Thus, Mr. Struve explained, because the Director of Commerce became Chief of Consumer Services it was anticipated that person would be in charge of managing the affairs of the Consumer Division and the Consumer Services section under the reorganization plan.  Speaking to the funding, Mr. Struve pointed out under "Resources" the three general categories funding the combined budget:  1) the general fund appropriation of $406,000 (first year); 2) the category "other" which comprised two sources of income, approximately $142,000 in a transfer from the telemarketing budget and $18,161 which represented the amount of money earned by Consumer Services officers in enforcing the deceptive trade laws under their jurisdiction which results in a total of $160,544; and 3) agency transfers coming from the Manufactured Housing Division ($4,700), which would report to the Director of Commerce for one quarter of fiscal year 1994, $44,629 from the Nevada Housing Division (within the Consumer Services section under the reorganization plan) and $18,401 from the telemarketing budget, which continued a home office fee established in the last biennium to support the activities of the administrative unit which oversaw the Consumer Services section.

 

Other expenses affected by reorganization were in travel, operation, legal and current services, Mr. Struve reported.  The positions authorized were listed at 13.5, but it was anticipated there would be a net savings of one and a half positions throughout the budget.  Basically, the performance indicators and the handouts were self-explanatory, Mr. Struve said.  Drawing attention to Exhibit C, he noted the department received approximately 4,807 complaints each year, served as a mediator and had ultimately returned approximately $1,519,935.  This amount, Mr. Struve hastened to say, was not deposited in the state treasury but was largely returned to the consumer from the business involved.  Only if the division received money to hold in trust for restitution would they deposit it in the state treasury where it would then be dispersed by court order.

 

Mr. Struve told the committee in the 91/93 biennium they were able to transfer monies from the telemarketing budget into budget account 3811, allowing deceptive trade staff to enforce the telemarketing law and also paying a portion of salaries from available funds in the telemarketing budget.  This policy was continued in the present budget.

 

Chairman Arberry questioned what would happen to the 10 existing positions.  Mr. Struve said the 10 positions in the current Consumer Affairs budget (paid out of 3811) were retained under the same budget and would be housed where they are currently located.  There were three people in the Reno office (2 consumer service officers and one clerical), and the other seven were housed in leased facilities in the Las Vegas office.  Those positions remained under this budget.  The Commissioner's position was the one used to calculate reorganization savings and whether this position would continue would depend on a decision made by the new Director of Business and Industry.  The positions being transferred into the budget came from the Director of Commerce budget.  Current plans would not change the physical location of any position.

 

Referring to Exhibit D showing consolidation of the Director of Commerce and Consumer Affairs, Chairman Arberry noted there was a $2,000 item recommended by the Governor but not by Mr. Struve.  Mr. Struve referred this question to Rochelle Summers, Principal Budget Analyst in the Budget Division, who said the data processing category was a transfer from the old Department of Commerce.  They continued to provide maintenance contracts for the existing computers purchased during the past biennium.  She added when the  Department of Commerce Director's office budget was merged with the Consumer Affairs budget, they had included the expenses of the Commerce Director's office. 

 

Ms. Giunchigliani asked Ms. Summers to explain the Intra-Agency transfers shown on Exhibit D.  Ms. Summers said the $67,820 was the original transfer which went into the Department of Commerce Director's office budget prior to its consolidation with this budget.  She said she had a handout which showed figures before consolidation and after consolidation.  Ms. Giunchigliani asked her to provide that.  Ms. Giunchigliani then asked her to explain the Deceptive Trade Fees and Administrative Fees categories.  Ms. Summers said the $18,161 shown for Deceptive Trade Fees which traditionally came into this budget.  The other $142,383 was the transfer from the telemarketing division to the consumer affairs division to support the staff in the consumer affairs division which performed telemarketing duties.

 

Commenting to Ms. Giunchigliani's question regarding the impact of the reorganization to the telemarketing budget, Mr. Struve said it should have no impact as far as the next biennium was concerned as the impact was realized in the current biennium.  When the Governor reduced the budget and set appropriate targets, he was concerned they not lose their staff capability in consumer affairs.  Therefore, this budget absorbed the additional work so the deceptive trade deputies so they could give their efforts to the telemarketing enforcement.  By transferring the funds, they did not have to cut staff.

 

Ms. Giunchigliani suggested in the future the telemarketing budget would have to be reinforced.  Mr. Struve agreed this would have to be monitored, but opined the present personnel would be able to handle the work load in the deceptive trade area under the present arrangement.

 

Chairman Arberry noted the separate category for Special Purchases Investigations reflected a work program amount of $4,000 but this was not recommended for continuation.  Mr. Struve said this account authorized the Consumer Service officers to verify truth in advertising.  Ms. Gierer commented as part of the budget reduction in FY 91 they had used this account rather than lay off staff.  Thus, in 1992, when faced with further budget reductions, they opted not to use the account and it appeared they had now lost it.  Chairman Arberry acknowledged the point and asked how they intended to deal with the fact they no longer had those funds.  Mr. Struve said they would be able to continue if they had the authority to earn and use money obtained through their investigations. 

 

Chairman Arberry asked Mr. Struve to provide his recommendations to resolve the situation in writing.

 

In response to a question from Ms. Giunchigliani, Mr. Struve said the intent was to move Consumer Affairs from its leased facility into the Bradley Building for the last few months of this biennium, and this was reflected in the budget.  The Department of Commerce would also be housed in the Bradley Building.  Questioning the cost of moving, Ms. Matteucci told Ms. Giunchigliani all the moving costs were covered in the Buildings and Grounds budget. 

 

Chairman Arberry asked how the move to the Bradley Building was being handled and funded.  In response, Ms. Matteucci said she would have to get back to the committee later to answer the question, however, since it was presently an office building she did not think there was a need to significantly remodel or modify the building.

 

Referring to Exhibit C, Mr. Heller questioned a predicted 25 percent rise in consumer complaints from a projected 4,807 in 1992 to 5,717 in 1995.  Mr. Struve said those figures were based on past history and represented the their staff's best estimate as to how the growth in complaints would occur over the next biennium.  Mr. Heller and Mr. Struve discussed whether there were preventive programs to educate the public in avoiding risks and scams which then generated complaints.  Mr. Struve insisted his agency was not able to control the behavior of consumers -- the agency could only help them protect themselves.  Mr. Heller insisted there should be some way the agency could work to reduce the number of complaints.  Describing problems with survey-based comparison price advertising, Mr. Struve countered there was a program he had been involved in which used the regulatory authority of the Commissioner of Consumer Affairs in Chapter 598 and conducted industry workshops throughout 1992.  Also the industry had designed some rules to protect consumers. 

 

CONSUMER AFFAIRS RESTITUTION - PAGE 432

 

Mr. Struve said this budget was basically a holding account.  If Consumer Affairs held bonds or other security interest which was forfeited through consumer restitution, Consumer Affairs Division could deposit money into the account and thereafter reimburse the consumer pursuant to a court order or some other type of distribution plan worked out under the Division's authority.  The budget had been raised from $5,000 in FY 91/92 to $200,000 because the potential existed for greater amounts of money coming into the fund and additional authority was needed to hold and disperse these monies.

 

TELEMARKETING - PAGE 433

 

Referring to Exhibit E, Mr. Struve explained this budget was being presented in two parts.  The budget on page 433 was the recommendation in the Executive Budget which presented a Current Services budget.  This budget was entirely funded by license fees and various other income received in the course of administering Chapter 599(b), the telemarketing law passed in the 1989 Legislative Session.  The second part (as presented in Exhibit E) contained an augmentation to this budget prepared in response to a request from the Chairman of the Senate Finance Committee for an enhanced budget addressing some of the performance indicators listed in the Executive Budget. 

 

Thus, in addition to the Current Services budget shown on page 433 the Telemarketing budget would fund 12 positions, 6 in the enforcement area and 6 in the licensing which was a level authorized by the 1991 Legislature.  Mr. Struve reminded committee members  five new positions had been authorized in the 1991 Session.  During the interim a new attorney general had been added and all these additions were continued in the Current Services budget.

 

In response to Chairman Raggio's request, Mr. Struve said the Department was proposing the addition of three more positions, which were described in Exhibit E.  The deputy commissioner/

hearings officer position was being requested because they wished to improve on the number of administrative hearings conducted if there appeared to be evidence a certain firm was no longer eligible for licensing or was subject to some kind of disciplinary action.  To conduct the hearings the Department wished to have someone on staff with the ability to handle rules of evidence, conduct the hearing in an efficient manner and to guide the Commissioner in developing new regulations to streamline the procedures and to handle the administrative work load involved in a licensing agency. 

The second position being recommended was Chief Investigator for Compliance Enforcement.  The rationale for this request was to provide better field direction of work being done in the rooms which were currently licensed.

 

The third recommendation was to add a Compliance Investigator to aid in inspecting rooms on a weekly or monthly basis and to assist in serving search warrants if there was evidence to believe there were violations occurring.  This would substantially address the increase in the performance indicators as noted on page 435 and 436.  Mr. Struve pointed out there was an estimated increase in the number of license applications being issued from the present 8,121 in FY 92 to 10,939.  This increase could generate additional work in monitoring and enforcement.  Drawing attention to page 436 of the budget, Mr. Struve pointed out the number of complaints was projected to rise from 2,843 in FY 92 to 4,178 in FY 93 and 5,065 in FY 95.  This represented a healthy increase and justified the requested positions for investigators. 

 

Then drawing attention to Exhibit F, Mr. Struve remarked this was a report card of what had been accomplished with existing staff since October 1989.  Mr. Struve commended his staff in what had been accomplished.  Restitution obtained for consumers had increased to $300,000 more in the seven months of the current fiscal year than in all of fiscal year 1991-92.  This reflected the effects of adding staff positions authorized by the 1991 Legislature and becoming familiar with the issues needing to be addressed in the enforcement arena, Mr. Struve concluded.

 

By adding the recommended staff and with the approval of the Budget Office, Mr. Struve thought the agency would be able to improve other statistics such as the number of rooms inspected each month, the number of administrative hearings held and the number of search warrants served.

 

Recalling testimony heard before the Senate Finance Committee, Chairman Arberry asked about a statement made to the effect the absence of the Commissioner's position had a negative impact on the regulation of the telemarketing industry.  Mr. Struve remarked this was a statement made by Steve Sisolak who was a member of the Telemarketing Sales Board (Exhibit G).  Based on his statistics, Mr. Struve said he did not necessarily agree with this premise.  By instituting a team approach in Consumer Affairs the Division had performed the work they performed before the Commissioner left and which continued after the Commissioner resigned. 

 

Considering the wide range of responsibilities in the Consumer Affairs Division, Mrs. Williams questioned how effective the Telemarketing Commission, supposedly the regulatory board, had been.  She said she had received many phone calls from constituents, primarily auto repair complaints, despite the Legislature's efforts to address problems of that nature.  Mr. Struve said this would have to be addressed by the new Director of Business and Industry and he assumed this would be taken into consideration.  As to how effective the Telemarketing Board was, Mr. Struve said this was not a policy-making board.  It had been set up as an appeals board with two primary statutory functions:  1) consideration of appeals from people who had license applications denied or revoked; and 2) the approval of any regulations the Commissioner proposed to implement in the telemarketing program.

 

Continuing, Mr. Struve said he had recommended to a former Commissioner for the board to adopt a regulation allowing the Commissioner to bring matters involving the administration of the telemarketing law to the board for advice.  In this way it could become an advisory board.  Ultimately, the effectiveness of the board was a reflection of the Commissioner. 

 

Mr. Humke asked Mr. Struve how many sellers and salesmen there were and how many individuals came forward for licensure.  Mr. Struve answered when the budget was built in 1989 approximately 40 companies were anticipated, each of which would pay a $5,000 annual license fee, and a few thousand salesmen each paying an annual fee of $100 with additional transfer fees of $10.  There were now 67 companies and 22,000 salesmen applications being processed since the program began.  Currently there were 14,575 salesmen with current licenses.  This figure divided by 12 gave an indication of the monthly volume being experienced.  Mr. Humke wondered if the $100 annual salesmen's fee was sufficient.  Ms. Gierer said an upcoming audit would help determine whether the rates were appropriate; and she did not believe there was the degree of regulation in other states as there was in Nevada.

 

Speaking to the number of salesmen, Mr. Humke asked how the figure compared to real estate sales persons.  Mr. Struve answered a recent conversation had revealed the Real Estate Division listed a total of 15,000 licensees.

 

Mr. Spitler agreed with Mrs. Williams to the importance of having a Commissioner or some administrative head to maintain a high public visibility and help the public to better understand the issues.  Mr. Spitler also questioned material in Exhibit E regarding augmentation for new positions.  He said he understood the need for holding a $250,000 reserve, the need for $1.4 million to revert to the general fund in the first year of the biennium and approximately $200,000 for the second year of the biennium.  Mr. Spitler noted they were proposing to pay this out of the reserve, however, if the legislation passed this money would not be available.  Mr. Struve answered under current law the reserve was obligated by NRS 599(b)(2), the enforcement program of the Consumer Affairs Division.  Mr. Struve conceded they would have to be careful to provide an adequate reserve to extend from one fiscal year to the next.  This budget which would reduce the reserve $162,000 the first year and $143,000 the second year was workable within the available reserve.  Even with the additional funds being added to the Current Services budget, it would fit within the anticipated revenues the Division hoped to collect in FY 94 and FY 95.

 

Mr. Spitler did not think this was what Mr. Struve had proposed, nor was his concern answered.  Ms. Matteucci came forward to clarify.  She said potentially, if the legislation was passed, the reversion to the general fund would be less than what was originally anticipated.  Basically, Ms. Matteucci said Telemarketing could fully fund its needs and then revert anything in excess of $250,000 at the conclusion of FY 94.

 

Mr. Marvel questioned what was included in the cost recovery category.  Ms. Matteucci said this included $183,800 of attorney general's services.  Speaking to the cost recovery figures of $220,000 and $205,000, Mr. Marvel asked if this included the attorney general's cost.  Ms. Matteucci answered in the affirmative, adding it also included all the regular cost recovery items customarily considered.  Mr. Struve agreed with Ms. Matteucci and added they were already paying for the deputy attorneys general out of the Telemarketing budget.  The other items in the state cost recovery were properly attributable to this budget because the agency used the services of the other agencies. 

 

Reiterating, Mr. Heller asked if the primary responsibility of this budget was preventive or responsive.  Mr. Struve said this was not a simple answer.  He said he would like to see a preventive effect but telemarketing was a big nationwide industry.  Therefore, prevention was probably being subsumed to efforts in dealing with the flood of complaints received and enforcement problems.  Thus, the enforcement, deterrent and preventive aspects were so large they could not be accomplished without a network of many federal and state agencies. 

 

Mr. Heller stressed his desire to see the function of telemarketing control as preventive as opposed to responsive

 

Returning to her previous questions, Mrs. Williams again expressed concern whether Consumer Affairs would have the time and staff to do anything other than telemarketing investigation.  She questioned whether the other responsibilities of Consumer Affairs would suffer.  Mr. Struve answered the Department would continue to make an effort to deal with all complaints in the other areas, although he candidly said they did have to set priorities by considering the most effective way to deal with the complaints.  This did not mean, however, the Department could not take new approaches in handling the complaints more efficiently.  Mr. Struve added they had received many complaints regarding automotive repairs and he hoped to be more effective in that area as well.

 

Continuing, Mrs. Williams reminded Mr. Struve of her support of Consumer Affairs since 1985.  She said she had also supported the telemarketing regulations passed by the Legislature although it was a separate issue from Consumer Affairs.  In hindsight, had she thought her support of the telemarketing investigatory function within the Consumer Affairs organization would have a negative impact on Consumer Affairs, she would not have supported telemarketing -- and there would, indeed, be a negative effect if priorities dictated Consumer Affairs suffered.  Mr. Struve hastened to assure Mrs. Williams he had no intention of giving the complainants on the deceptive trades authority any less priority than those on the telemarketing side.

 

Mrs. Evans commended Mr. Struve on the development capital fund which was due for hearing in April.

 

ENERGY CONSERVATION - PAGE 437

 

Coming forward to review budget 4868, Jim Hawke, Director of the Office of Community Services, submitted Exhibit H, a background paper on the agency.  He indicated this budget comprised Nevada's energy conservation and renewable energy programs. 

 

Giving a brief overview of the program, Mr. Hawke told committee members his suggestion to eliminate budget account 4860 had been accepted as fitting well within the Governor's reorganization plan.  This was the administrative account encompassing his position, the Senior Accountant position, an Account Clerk and a Management Assistant III position. 

 

He told the committee the State Energy Conservation Program (SECP) was federally funded with no general fund appropriation.  The SECP provided energy management information to homeowners, businesses, industry, agriculture, motorists and local governments and was funded by a categorical grant from the U.S. Department of Energy.  The program also allowed support of the statutory requirements placed on his office by the Legislature beginning in 1977 when the first Department of Energy was created. 

 

Continuing, Mr. Hawke said the Energy Extension Service Program was also a U.S. Department of Energy categorical grant having a broad goal to encourage energy conservation and to promote alternative energy such as solar, geothermal, wind, etc. 

 

Turning to a discussion of the reorganization, Mr. Hawke told the committee it was their plan to transfer reserve and anticipated balance forward monies from prior years funds to Economic Development in the amount of $97,130 in FY 93 and $96,810 in FY 94.  This was a substantial hole in the budget for Small Business, however, Mr. Hawke thought with efficient management this could be accomplished.

 

Mrs. Evans asked what budget account the $97,130 (mentioned for FY 93) would go into.  Ms. Matteucci told her it was transferred to the Small Business and Procurement Outreach account (page 508) within the Department of Business and Industry.  In the original budget, Mrs. Evans noted, there was indicated a $50,000 transfer to the Department of Administration, however, the revised budget did not show this.  Mr. Hawke indicated these were requested changes. 

Mrs. Evans asked Ms. Matteucci if the transfer in the revised budget to Economic Development would, indeed, go to the Small Business budget.  Ms. Matteucci answered, "Yes."

 

Chairman Arberry noted the Energy Conservation Program budget and the Petroleum Overcharge Rebate had been placed in two different budgets.  Ms. Matteucci said they had attempted to combine programs of like services and they perceived Energy Conservation to be a Consumer Services effort coming out of Business and Industry.  As for the Petroleum Rebate program, this had a number of contacts with the Welfare Division, thus, the transfer to Welfare.  She indicated a significant share of the funds had to be directed to disadvantaged individuals in order to be a legitimate expenditure. 

Chairman Arberry then pointed out this had not been a recommendation made by KPMG Peat Marwick.  Ms. Matteucci corrected Chairman Arberry, saying the abolition of the Office of Community Services had, indeed, been recommended by the Peat Marwick report; and in addition Petroleum Rebate was part of Community Services.  Thus, once the program was abolished a decision had to be made on what to do with the residual of Petroleum Rebate money.

 

Addressing the subject of revenue resource, Mr. Hawke thought the amount recommended for minerals was somewhat optimistic, but was balanced out in other areas.  As for mineral resources, the state of Nevada currently received a net 50 percent of the money collected by the Mineral Management Service (MMS) branch of the Bureau of Land Management from geothermal and oil development on federal lands.  Mr. Hawke suggested the Legislature watch for an opportunity to have the state collect the revenues rather than the federal government.

 

UNCLAIMED PROPERTY - PAGE 252

 

Larry Struve, Director of the Department of Commerce, again came forward to explain budget 3815.  He said currently the Unclaimed Property Division was in the Department of Commerce and under the reorganization plan would be moved to the Department of Administration.  Mr. Struve then introduced Jim Start, Acting Administrator of the Unclaimed Property Division, who had previously acted as the Chief Auditor for the Unclaimed Property Division.  Recognizing their accomplishments, Mr. Struve told the committee in the 12 1/2 years the program had been in existence in the Department of Commerce, $29 million had been deposited in the state General Fund from the Unclaimed Property Trust Fund.  An additional $12 million had been returned to consumers and owners of abandoned property who had filed claims through the Unclaimed Property Division, making an average of $2.3 million/year deposited in the General Fund.

 

Mr. Start then provided an overview and background of the Unclaimed Property Division.  The budget being presented, he added, was a status quo budget with no new programs or requests for personnel.

 

Mr. Heller asked Ms. Matteucci the justification for the change from Commerce into the Department of Administration.  Ms. Matteucci replied the consultants had opined they saw Commerce as a regulatory or consumer services agency.  Mr. Heller then asked where the stock funds were now held.  Mr. Start responded these were held in a broker account while in state custody, for at least a year and after that were sold.  He assured Mr. Heller this same process would continue.

 

INSURANCE REGULATION - PAGE 339

 

Opening the testimony on budget 3813, Teresa Rankin, Insurance Commissioner for the state of Nevada, introduced Michael Griffin, Deputy Commissioner, John Wiles, Advocate for Insurance Customers and Tobi Riggs, Senior Accountant.  Ms. Rankin referred to Exhibits I and J, asking the committee to follow along with Exhibit J as she described the Summary and Exceptions to the budget.  Seven of the eleven budgets administered by the Department, she said, had changes for FY 93 and FY 94 caused by the proposed reorganization.  

Budget Account 3813 included a reduction in the general fund appropriation of approximately $1.4 million in FY 94 and FY 95 made possible by transfers from the Examination fund (3817, page 358) and the Cost Stabilization fund (3833), which totalled approximately $1.1 million in each year of the 1993/95 biennium.  Some of the changes, Ms. Rankin said, resulted from their quest to reestablish and intensify the standards for solvency regulation of insurers through changes in staffing and budget levels.  To assure the state had achieved the appropriate level of solvency regulation, Ms. Rankin said the Department intended to seek accreditation by the National Association of Insurance Commissioners (NAIC). 

 

Ms. Rankin called attention to a two-page explanation and booklet delineating the standards and functions of the NAIC included within Exhibit J.

 

A preliminary review by NAIC staff had identified deficiencies in the qualified personnel available for financial review and in certain statutes.  The statutory changes had been addressed in a bill requested by the Department and the staffing deficiencies were addressed through six new positions being requested in the budget.  Salary expenses for the new positions, including benefits, would total approximately $184,000 and $248,000 for each year of the biennium.

 

Ms. Rankin stated there appeared to be concerns in the Senate regarding the advocate for automobile insurance, a new department program founded in 1991.  She then asked Mr. Wiles to come forward to testify.  Mr. Wiles submitted Exhibit K, Performance Indicators, for his office.  He told the committee his main function was to review the rates for Nevada automobile insurance.  Mr. Wiles opined the direct benefits to Nevada consumers were conservatively $262,000.  He said he had also proposed reductions in rates totalling nearly $8 million, which would be derived from Farmers' Insurance and State Farm Insurance.  These matters were pending review before District Court in Las Vegas and before the Commissioner.

 

Attention was drawn to page 9 of Exhibit K, Consumer Advocate Report, which delineated in more detail the functions of his office.  Mr. Wiles said they were trying to educate the general public for a better understanding of what kind of insurance they were purchasing, and through a better understanding be wiser and more knowledgeable consumers.

 

Continuing with a review of changes generated by the proposed reorganization, Ms. Rankin reported savings were budgeted totalling $92,000 in FY 1993/94 and $125,000 in FY 1994/95 by the loss of two department employees; the Commissioner of Insurance and an Accountant Technician I.  Ms. Rankin indicated support of the consolidation of the Department of Insurance (DOI) and the Department of Industrial Relations (DIR).  Reference was made to a functional flow chart, Exhibit L, regarding the merger of the Department of Insurance and the Department of Business and Industry.  Ms. Rankin reported the reorganization balanced insurance regulation and workers' compensation regulation, and then merged the two similar technical functions in their Departments.  She added three positions would be transferred (an insurance examiner (tax), a tax examiner and a clerical) to the Department of Taxation in order for the Department of Taxation to assume responsibility for collecting the premium tax assessed on net insurance premiums written in Nevada.  This tax had generated in excess of $67 million in FY 92 and a predicted $71 million in FY 95.  Ms. Rankin reminded committee members of the troubled times regarding tax collections during the 1991 Session.  She assured committee members enforcement deadlines had been reduced from three years to three months; and premium tax estimates were within $20,000 on a $14 million projection.  Coordination with the Department of Taxation would allow the state's cash management system and other revenue interest accounts to be handled more efficiently and effectively.

 

Mr. Marvel questioned the amount of late payments presently being carried on the books.  Ms. Rankin said she would have to provide this information at another time as she did not have the figures with her, however, she said all late payments were fully collected and enforced within three months of the due date. 

 

In budget 3813 the other operating change was to reflect the federal grant for the Insurance Counseling Program on Medicare Supplement Insurance, $100,000 and related expenses, an Attorney General cost allocation increase and telephone equipment expenditures.

 

Pointing out errors on the performance indicators on page 344 of the budget, lines 5 and 6, projected fiscal 94, it was seen the projected FY 93 $3.5 million for consumer collections was incorrectly shown as $35 million.  On line 6 the projected fiscal fines and penalties showed $478,000 and in the next column was shown as $4.8 million.  The correct figure was $480,000.

 

NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS - PAGE 345

 

Ms. Giunchigliani asked Ms. Rankin to more fully explain the accreditation process with the NAIC.  In response, Ms. Rankin said there were three major functions reviewed by NAIC:  1) the statutory structure for solvency; 2) the examination functions and how the reviews were performed; and 3) internal controls for solvency review within the department.  Ms. Rankin also indicated they certified solvency for worker's compensation self-insureds.  Any other kind of self-insured health or liability was not under their regulatory structure.  In terms of time, Ms. Rankin said the Department had already had their pre-review for accreditation in preparation of the Session and the budget; however, in order to be accredited and not incur penalties imposed by other states, accreditation was required by January 1, 1994.  This would be a close deadline to meet.  If accreditation was not received by that time, the Nevada examiners participating in examinations in other states for a non-domicile company could not be the examiner in charge but could only participate.  Thus, domestic insurers in Nevada could not go to another state without being subject to new examination or financial standard requirements.

 

Ms. Giunchigliani asked Ms. Rankin to describe what the pre-review had revealed as to solvency needs.  Ms. Rankin said the pre-review was a large and specific document, and she would be happy to provide a copy for committee perusal.  Ms. Giunchigliani also questioned if enough revenue could be generated to fund the operating budget.  In reply, Ms. Rankin said for the first year of the biennium the Department was carrying close to enough reserves to make the transfer into the operating account, whether or not they were accredited.  If not accredited, she said the Department presently had 23 contract examiners and it was possible many would not stay with Nevada lacking accreditation.  If this occurred they would not be able to generate the income necessary for the following year's transfer.  Additionally, the Examination budget presumed an escalation of certain income in the sum of $400,000 - $500,000.

 

When asked by Ms. Giunchigliani if under the merger of DIR into the Department whether the DIR examiners would be doing the same type of examinations.  Ms. Rankin said the DIR examiners were not qualified to perform insurance company examinations, nor did they have any authority over determining solvency of the self-insured component under workers' compensation.

 

Ms. Giunchigliani stated she had a problem with this concept of like functions under the reorganization plan.  She acknowledged there was still philosophical debate regarding SIIS and DIR regarding whether SIIS was an insurance company -- although it was being treated as an insurance company.  Ms. Rankin and Ms. Giunchigliani further discussed how the Department of Insurance regulated insurance companies and solvency for self-insureds.

Discussing the NAIC budget, Ms. Rankin said this was an assessment against insurers of $25 each which provided for the travel and education expenses related to participation in the NAIC. 

 

INSURANCE FRAUD - PAGE 347

 

Reviewing the Insurance Fraud budget, Ms. Rankin indicated two material enhancements:  1) An approximate $129,000 increase in the Attorney General's cost allocation, which was funded by an assessment on each of the 1,450 licensed Nevada insurers, raising the current assessment from about $300 to about $460 per insurer; and 2) six new positions to operate the new provider fraud investigation group.  It was recommended in the Executive Budget to fund these salaries of approximately $209,000 and $275,000 for each year of the 94/95 biennium by a transfer from DIR to the insurance fraud budget.

 

Mr. Humke asked if the fraud agency would be located in the Attorney General's office or in the Department of Insurance office.  Ms. Rankin answered this had not been determined.  She said their fraud staff currently hired by the Attorney General's office was physically located in the Attorney General's office.  She also clarified the existing budget, without the enhancement of the six new positions was insurance fraud only -- it did not deal with SIIS or Medicaid fraud.  The proposal coming into DIR was for provider fraud related to either self-insurance or SIIS or workers' compensation.  Ms. Matteucci explained there were details yet to be worked out regarding whether the proposed SIIS fraud unit would be included in the Department of Insurance or whether it would be included in the Attorney General's office.

 

Questioning the $2,000 item for out-of-state investigations shown on page 349, Chairman Arberry asked for clarification concerning why it was not a maintenance item.  Ms. Matteucci told the Chairman the base budget on page 347 showed no expenditures.  This was not related to caseload, but was simply a contingency for out-of-state travel and was thus placed and recommended in the enhancement budget. 

 

Mr. Perkins asked what the Insurance Fraud Division did.  Ms. Rankin replied under the insurance fraud statutes in Chapter 679(b) and 686(a), any fraudulent claim activity or fraud against an insurance company could be reported by the company or some other person and these could be prosecuted with criminal penalties. 

 

INSURANCE COST STABILIZATION - PAGE 351

 

Three changes were being proposed in the Cost Stabilization budget (page 351) Ms. Rankin reported:  1) An approximate $55,000 transfer to the Department's operating budget to fund the salary (and benefits) for the consumer advocate for auto insurance; 2) $30,000 enhancement to fund contract services (consultants) to be used by the Consumer Advocate during auto rate proceedings; and 3) $17,000 enhancement to fund contract services for the actuarial review of property casualty and health rate and form filings.  Ms. Rankin stated the listed enhancement would not increase the present assessment.

 

Chairman Arberry asked Ms. Rankin to comment regarding the request for $60,000 as opposed to the recommendation of $30,000 for actuarial services for rate case filing.  Ms. Rankin responded in current activities for the Consumer Advocate there was no funding beyond the salary for the advocate, yet the actuaries had told her given the size of some of the rate filings received, the Advocate should receive contract services of $60,000, but this had, indeed, been reduced to $30,000.  Chairman Arberry asked what impact the reduction would have.  In reply, Ms. Rankin said she thought the hiring of experts by Mr. Wiles would have to be quite judicious in which cases he wished to have expert testimony.

 

SELF-INSURED WORKERS' COMPENSATION - PAGE 355

 

Ms. Rankin stated the Self-Insurance Workers' Compensation budget, funded by a transfer from the Department of Industrial Relations from their assessment on self-insured employers and the SIIS under Chapter 232, contained two important changes:  1) Reduction by approximately $42,000 each year of the biennium of the amount provided by DIR; and 2) savings of $42,254 and $56,678 for each year of the 1993/95 biennium by the merger with DIR eliminating the coordinator (supervisor) position.

 

Chairman Arberry questioned the enhancements on page 356 which indicated one additional position which had been denied.  Ms. Rankin told him there had been a substantial increase in the number of self-insured employers filing for certification.  In 1993 there had already been requests for over 200 applications.  Thus, it had been felt the increased work load warranted an additional position; but this had not been approved.

 

Chairman Arberry then asked what the impact would be in eliminating the coordinator position.  Ms. Rankin said this was the CPA performing the primary financial review and the Department would experience difficulty in completing those reviews; however, it would be the choice of the new head of the agency to determine whether that position should be abolished.

 

It was noted by Mr. Heller there was a bill in Labor and Management, AB 187, which placed a three-year moratorium on industries leaving the present Industrial Insurance System.  He asked what the impact would be on this budget.  Responding, Ms. Rankin explained the current yearly financial reviews were desk audits, and at least every three years they were done on-site (depending on employer need).  Any decertification of employers would continue.  This activity had also increased.  Mr. Heller asked if there had ever been any employers decertified.  Ms. Rankin responded, "yes," and volunteered to obtain the numbers for Mr. Heller.

 

Returning to a discussion of the coordinator position lost, Chairman Arberry asked who would manage the duties presently assigned to the position.  Ms. Rankin replied it would be up to the manager of the new Bureau of Insurance to make the determination.  Despite a new manager, Chairman Arberry suggested the duties remained.  Ms. Rankin responded these should be viewed as automatic built-in savings in the salary category, and it would be up to the manager to decide how to generate the required savings.

 

Chairman Arberry asked Ms. Matteucci to also respond to the question.  Ms. Matteucci explained, ". . . there are 18 positions that are supervisory in the combined department.  When the new director comes on they will have an opportunity to review which supervisory positions they want to eliminate and which ones they do not.  We are proposing that agency administrators be given the flexibility to transfer money from one account to another if they choose not to eliminate that particular position.  With the combination of DIR and Insurance there is going to be some overlap, I think, as the organizational chart that Terry showed you indicates; so that organizational structure will be having to take into account -- it will have to be assessed before there is a determination as to which positions are eliminated. . . .I don't know that you need necessarily to worry about this particular program as you look at the entire combination of two departments -- I think there's 180 positions in these two departments that are coming together, so I think that they'll have the necessary flexibility to manage."

 

Mr. Price asked Ms. Matteucci if it was going to be possible for a manager to readjust at a future time, if certain eliminated positions were found to be vital.  This depended on the Legislature, Ms. Matteucci replied.  The Senate had indicated once the directors had finally decided which positions to eliminate, they did not want to see those again placed in the budget.  Ms. Matteucci suggested if the Ways and Means Committee felt differently, there should be an opportunity built in to have the position reinstated by the Interim Finance Committee.

 

Since the DIR budget was driven by premiums and not general fund monies, Ms. Giunchigliani asked if Ms. Matteucci would be able to delineate the breakdown from the two divisions.  She said she was concerned regarding the commingling of funds.  Referring to Exhibit L, Ms. Matteucci told Ms. Giunchigliani this was probably a decision to be evaluated when the new director was chosen.  As to commingling of funds, those functions were currently in separate budget accounts and the budget accounts did not necessarily have to be commingled. 

 

Also concerned regarding commingling of funds, Mr. Heller asked how the DIR would become more effective through the consolidation with the Department of Insurance.  Ms. Matteucci thought the new directors, Ms. Rankin and Ms. Jackson, Director of the Department of Industrial Relations, saw a more effective operation by the combination of staff and the overlap of duties.  Ms. Matteucci assured Mr. Heller commingling of budget accounts was a common practice although she was not suggesting it was necessary.  This would be a decision which would be made budgetarily by cost accounting. 

 

Following along the same line, Mr. Heller asked if SIIS premiums were being used for insurance programs and vise versa insurance premiums being used for DIR functions.  Ms. Matteucci cited the example of the budget being discussed, workers' compensation.  This was funded by a transfer from DIR, which represented premium payments from the employers or SIIS, which was, by constitution, a trust fund. 

 

INSURANCE EXAMINERS - PAGE 358

 

The new licensing fees raised last Session from $500 to $2,450, were recommended to be transferred to the general fund in the amount of approximately $3 million, Ms. Rankin explained.  In lieu of this there would be a transfer from the Examination fund of $1.1 million to the Department's operating fund during each year of the 1993/95 biennium.  Also, there would be an increase of $60,000 to fund a new Examiner education program.  This program was a part of the solvency standards proposed by the NAIC.  Funding for this would be supported by an increase to the insurance company in the Examiner's per diem charge by $9.00.

 

Chairman Arberry asked Ms. Rankin to explain the accreditation process.  Did the Department have to be accredited before it could  conduct examinations?  In reply, Ms. Rankin told him the Department could conduct examinations without being accredited; however, if not accredited those examinations would not be accepted by other states for the domiciliary companies.  Also, if Nevada was the examiner in charge on a non-domicile company, those examinations would not be accepted, and Nevada could only participate but not be the examiner in charge.  Chairman Arberry asked if this affected the revenues recommended.  Ms. Rankin said the Department would probably continue to generate revenues, but she opined they would be substantially reduced without accreditation because examiners would not wish to stay as contractors with an unaccredited state.

 

Chairman Arberry then questioned continued education credits for the contract examiners.  In response, Ms. Rankin said under the Society of Financial Examiners there were standards for retaining certification as certified financial examiners.  In addition, the NAIC wanted to ensure the state not only encouraged but also assisted in the participation of the education for the examiners.  Unlike some other states, Nevada examiners were contractors, making for the awkward position of paying for the education of a contract person.  Nevertheless, it was part of the standards and Ms. Rankin expressed strong support regarding the education.  Thus, it was proposed the insurers being examined should pay the cost for the examiner's attendance, per diem income and education. 

 

COMMISSION FOR HOSPITAL PATIENTS - PAGE 361

 

Ms. Rankin reported the Commission for Hospital Patients, a new program from the 1991 Session, was not consistent with statutory requirements (NRS 679B.500).  The budget had an assessment amount assessed against Nevada hospitals, and the revenue amount stated in the budget was incorrect; thus, new documents needed to be submitted.  The amount of revenue was stated in the statute and increased by the CPI each year.  Instead, there was a transfer from reserve.  The Department had assumed a 3 percent and 5 percent CPI growth for fiscal years 1994 and 1995.

 

Ms. Rankin assured Chairman Arberry that a new position had not been requested.  However, Chairman Arberry pointed out there was a request shown under enhancements on page 362.  Ms. Rankin thought this reflected what was termed an insurance investigator or compliance office which Ms. Jarmon had requested for additional personnel.  Given her caseload, Ms. Rankin did not think it was justified and the request had been dropped from the budget.  When Chairman Arberry asked why it was dropped if, indeed, Ms. Jarmon had thought there was a need, Ms. Matteucci explained this account was capped based on the money which could be generated.  A change in statute would have to occur before the cap could be raised. 

 

Mr. Perkins asked Ms. Rankin to explain the Commission.  In response, she told him by law the Commissioner was required to file quarterly reports which could be supplied if requested.  Primarily, the Commissioner reviewed and aided consumers with hospital in-patient hospital bills and arbitrated disputes regarding the hospital bills between the hospital and the patient.  Since the inception of the program in February 1991, the Commissioner had recovered approximately $500,000 as of the end of last quarter, for consumers by finding errors in their billing.  Mr. Perkins asked if there, indeed, was a need for additional personnel in this area.  Ms. Rankin stated in reviewing the Commissioner's work load, it was determined the request for additional personnel was not warranted.  Mr. Perkins then questioned how information was disseminated to the public regarding the existence of the Commission.  Ms. Rankin said Ms. Jarmon had used the media -- brochures, print, press, radio, TV and public service announcements -- and also had many speaking engagements in both English and Spanish. 

 

Questioning Exhibit L, Mr. Humke asked if the footnote ". . . suggest move to Consumer Services Division." was referring to the Commission for Hospital Patients and the Advocate for Automobile Customers, and whether this suggested a possible reorganization.  Ms. Matteucci responded when this was first developed it appeared the Commission for Hospital Patients and the Advocate for Automobile Customers might be more appropriately placed in the Consumer Services Division of the Department of Business and Industry, thus the footnote.  Mr. Perkins asked if this would be delineated in the reorganization bill.  In response, Ms. Matteucci said this depended much on how extensive the Legislature wanted the bill to be.  If the Legislature wanted each Division completely spelled out, the bill would show it, however, this was not what the administration was proposing.  She said they were suggesting all the duties and responsibilities be vested with the Director of the Department and this would allow that person to set up his/her own organizational structure.  However, this was entirely up to the Legislature.  Mr. Humke saw a need for the details of each department to be spelled out.

 

INSURANCE EDUCATION - PAGE 365

 

The Insurance Education budget, Ms. Rankin explained, was a companion to the "Insurance Recovery" budget.  Each agent paid a fee to cover claims against him when his license was renewed and this was deposited in the Insurance Recovery Fund.  The balance over $40,000 was placed in the Education budget.  There was a request for one clerical position with an increase of approximately $25,000 for each year of the biennium.  Although this was not an enhancement, Ms. Rankin pointed out there was a transfer in this budget to UNLV for scholarships to the Risk Institute.  A brochure was provided in Exhibit J to show what was being done with some of the scholarship money.

 

Noting the initial request for two new positions, Chairman Arberry questioned why the Governor only recommended one new position.  Ms. Rankin indicated that the Management Assistant I position was originally titled a Public Relations Officer.  The number of consumer publications which were published had increased from approximately three to six or seven publications per year.  Ms. Rankin said she felt very strongly that one of their primary functions was to provide insurance information to consumers.  Thus, they wanted someone responsible for those types of publications, but it was not recommended by the Governor.

 

INSURANCE INSOLVENCY FUND - PAGE 368

 

This fund, Ms. Rankin indicated, was a parallel program to the Workers' Compensation Self-Insured and contained the insolvency fund deposits from the self-insured employers in cases of bankruptcy where the claims had to be paid by the Department.

 

INSURANCE RECOVERY BUDGET - PAGE 370

 

This budget contained the insurance recovery fees paid by the agents to the sum of $40,000 by law, Ms. Rankin explained.  The balance of monies was transferred to the Education budget on page 365.

 

PREPAID FUNERAL AND CEMETERY FUNDS - PAGE 371

 

These funds were regulated by her Division, Ms. Rankin said, along with the endowment funds for cemeteries.  In 1991 this budget was changed to allow the addition of examination costs for the review of those funds in and out of the Examination fund.  Presently, the money going into the fund was only the fees from renewal of licenses for funeral and cemetery pre-need sellers and agents.  She said they recommended this budget be abolished and the money placed in the general fund.

 

Summarizing, Ms. Rankin stated she was excited about the reorganization and the benefits to be gained.  She felt many previous problems had been resolved, and their performance indicators reflected the increased work load and changes made.

 

 

PUBLIC TESTIMONY

 

Opening the hearing for public testimony, Bruce Hutchison, Vice President and President Elect of the Sierra Nevada Association of Health Underwriters, which in turn represented health insurance agents and brokers in Northern Nevada, informed the committee the Association had grave concerns regarding the direction of the Department of Insurance.  Under the current Commissioner there had been great moves toward protecting consumers and regulating companies.  However, they were concerned regarding the staffing of investigators for the state.  He said Nevada currently had 18,000 agents in and outside Nevada, with approximately 50/50 resident agents and agents from outside the state.  There were 1,450 insurance companies and currently there was only one investigator in the north and one in the south.  Each investigator handled an average of more than eight complaints per day, which presented an overwhelming caseload.  Mr. Hutchinson conceded there were continuing problems with certain disreputable agents and companies.  A continued lack of funding for investigators would encourage more disreputable agents and companies.

 

An additional concern revolved around a proposal in the new budget for a year's projected tax estimate payment.  Unfavorable regulatory systems in some states caused companies to leave; however, Nevada had gained 70 additional companies in 1992.  If the state charged insurance companies a year in advance, based on estimated premium taxes, Mr. Hutchison said he could guarantee many companies would leave the state.

 

They were also concerned about downgrading the Department to a Bureau level, although he conceded there were reasons to do this.  However, this would result in 49 insurance commissioners and supervisors and one bureau chief, which would project the wrong image to companies and insurance agents alike. 

 

There being no further business, the meeting was adjourned at 10:35 am.

 

 

                                          RESPECTFULLY SUBMITTED:

 

 

 

 

                                                                 

                                          Iris Bellinger

                                          Committee Secretary

 

??

 

 

 

 

 

 

 

Assembly Committee on Ways and Means

March 9, 1993

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