MINUTES OF THE
SENATE COMMITTEE ON FINANCE
Sixty-seventh Session
February 22, 1993
The Senate Committee on Finance was called to order by Chairman William J. Raggio, at 8:00 a.m., on Monday, February 22, 1993, in Room 223 of the Legislative Building, Carson City, Nevada. Exhibit A is the Meeting Agenda. Exhibit B is the Attendance Roster.
COMMITTEE MEMBERS PRESENT:
Senator William J. Raggio, Chairman
Senator Raymond D. Rawson, Vice Chairman
Senator Lawrence E. Jacobsen
Senator William R. O'Donnell
Senator Diana M. Glomb
Senator Matthew Q. Callister
COMMITTEE MEMBERS ABSENT:
Senator Bob Coffin (Excused)
STAFF MEMBERS PRESENT:
Daniel G. Miles, Fiscal Analyst
Robert A. Guernsey, Principal Deputy Fiscal Analyst
Birgit Baker, Program Analyst
Judy Jacobs, Committee Secretary
OTHERS PRESENT:
Judy Matteucci, Director, Department of Administration
David Thomas, State Risk Manager, Risk Management Division, Department of Administration
Robert J. Gagnier, State of Nevada Employees Association
Fred Suwe, Quality Control Manager, Employment Security Department
Martin Bibb, Lobbyist, Retired Public Employees of Nevada
James A. Edmundson, Lobbyist, President, Retired Public Employees of Nevada
Bryan A. Nix, Senior Appeals Officer, Hearings Division; Senior Appeals Officer, Appeals; Coordinator, Victims of Crime, Department of Administration
Sue Naumann, Legal Office Manager, Appeals; Legal Office Manager, Hearings Division; Legal Office Manager, Victims of Crime, Department of Administration
Senator Raggio asked the committee to consider four bill draft requests (BDRs) for possible committee introduction.
BILL DRAFT REQUEST 1-411: Provides for certification of court interpreters for persons who are deaf or who do not know English language.
SENATOR JACOBSEN MOVED FOR COMMITTEE INTRODUCTION OF
BDR 1-411.
SENATOR RAWSON SECONDED THE MOTION.
THE MOTION CARRIED. (SENATORS COFFIN AND CALLISTER WERE ABSENT FOR THE VOTE.)
* * * * *
BILL DRAFT REQUEST 43-1264: Increases licensing fees for motor vehicle manufacturers, distributors, dealers, rebuilders and lessors.
Senator Raggio voiced his belief the bill was an agency bill submitted by the Department of Motor Vehicles and Public Safety.
SENATOR O'DONNELL MOVED FOR COMMITTEE INTRODUCTION OF
BDR 43-1264.
SENATOR RAWSON SECONDED THE MOTION.
THE MOTION CARRIED. (SENATORS COFFIN AND CALLISTER WERE ABSENT FOR THE VOTE.)
* * * * *
BILL DRAFT REQUEST 43-1263: Makes certain changes concerning licensing with regard to sale or lease of vehicles.
Senator Raggio stated the bill had been proposed by the Department of Administration.
SENATOR O'DONNELL MOVED FOR COMMITTEE INTRODUCTION OF
BDR 43-1263.
SENATOR RAWSON SECONDED THE MOTION.
THE MOTION CARRIED. (SENATORS COFFIN AND CALLISTER WERE ABSENT FOR THE VOTE.)
* * * * *
BILL DRAFT REQUEST 20-151: Revises manner in which salaries of county sheriffs are calculated.
Senator Raggio noted the BDR would provide for an increase in sheriff's salaries. He said the bill was requested by Sheriff Paul B. McGrath of Carson City on behalf of the Sheriffs and Chiefs Association.
SENATOR RAWSON MOVED FOR COMMITTEE INTRODUCTION OF
BDR 20-151.
SENATOR JACOBSEN SECONDED THE MOTION.
THE MOTION CARRIED. (SENATORS COFFIN AND CALLISTER WERE ABSENT FOR THE VOTE.)
* * * * *
In the absence of any other bill drafts, Senator Raggio proceeded to call attention to matters of the proposed Department of Finance and Administration as scheduled. He pointed out approximately two-thirds of the Executive Budget had been presented to the committee during the previous two weeks of intensive hearings.
Senator Raggio invited Judy Matteucci, Director, Department of Administration, to give an overview of her department.
Judy Matteucci, Director, Department of Administration, stated the duties and responsibilities of the Budget and Planning Division under the new Department of Finance and Administration will not be substantially changed under the government reorganization plan. She commenced with an overview of the budgets of the Department of Finance and Administration.
Ms. Matteucci declared:
The mission of the department is to plan, develop and implement cohesive policies to ensure the most efficient and economical management of state government within available resources.
She said the current Department of Administration consists of the Budget Division, the Hearings Division, Appeals, the Risk Management Division, and the Clear Creek Youth Center. She noted the agency administrator is also the chief of the Budget Division. She added the Department of Administration is responsible for coordinating activities of the Merit Award Board, the Committee on Benefits and the Victims of Crime Program.
Ms. Matteucci continued to say the director serves as the clerk of the State Board of Examiners, chairman of the State Public Works Board and as an ex-officio member of the Committee on Benefits.
Ms. Matteucci asserted the staff of the Budget Division provides policy direction, management oversight, and coordinated planning to state agencies, while the primary duties are preparation and presentation of the Governor's Executive Budget. The division also provides support staff for the State Board of Examiners.
Ms. Matteucci reviewed activities of the Budget Division during the current biennium. She stated:
The division completed the state's second strategic planning process. The result was the compilation of one special executive issue and five critical issues facing state government for the next 3- to 5-year planning period.
Ms. Matteucci passed out copies of the biennial report, called Perspective, A Biennial Report of Nevada State Agencies, 1992. (Exhibit C. Original is on file in the Research Library.) She said the front section of the publication includes a summary of the special executive issues and critical issues referred to above. The introduction commences with a review of the strategic planning process. It is followed by a list of the critical issues, including background information to support each issue.
The first critical issue addressed in the volume is "Education and Nevada's Families and Children." Ms. Matteucci said the identification of the issues and the objectives delineated came about as a result of collaboration between the Governor's office and the Nevada Family Academy.
The next issue addresses "Nevada's Competitive Position" which concerns the slowdown in economic growth and increased threat of competition from gaming in other states. She again called attention to the background which supports the statement, and to the recommended objectives.
Ms. Matteucci turned to page 8, which concerns Nevada's management policies regarding protection of the environment. That section is followed by a discussion of growing population and changing demographics which she alleged had dropped from a first position to the third issue of concern to the state since the last legislative session.
The next issue addressed concerns health care. Ms. Matteucci acknowledged Nevada has been engaged in debate on how best to provide affordable care. She averred issues of cost, accessibility, utilization, appropriate delivery systems and availability within the marketplace must be addressed if the state is to provide basic health services to all who live and work in the state.
The final issue studied was "Intergovernmental Relationships." Ms. Matteucci read:
The historic relationship between state government and its local units of government must be modified in response to the growing demands upon the state, fueled by continuing population growth and increasing intervention from the federal government and the courts.
Senator Raggio asked:
That being one of the objectives, the intergovernmental relationships, it becomes increasingly aware that we are balancing our budget at the expense of local government. How do we justify that with these kinds of objectives?
Ms. Matteucci took issue with the supposition that the budget is being balanced at the expense of local government. She promised to provide him with a listing of all activities included in the Executive Budget that affect local government. She asserted local governments will be positively affected, with resultant savings, by the Executive Budget.
Senator Raggio asked if honor camps were included. Ms. Matteucci replied, "We put honor camps on the list, but it's difficult for us to estimate what the costs are, because those are economic impacts that are derived as a result of the location of them." Senator Raggio declared he wanted to call attention to the fact that "more and more we are shifting the burden, whether it's direct or indirect. The counties are struggling just like we are."
Ms. Matteucci responded, "I don't know that the main purpose of honor camps was to assist in local economic development. That is certainly...a sideline benefit, that the local entities that are housing those...facilities have enjoyed...." Senator Raggio reiterated his concern that there are areas where costs are being shifted to counties and cities. He pointed out it is ultimately the taxpayers who must pay, regardless of whether the taxes are levied by the cities, the counties or the state.
Ms. Matteucci declared there are other areas in the budget which will provide benefits to the counties. She specifically called attention to the provider tax presented at an earlier date by Jerome F. Griepentrog-Carlin, Director of the Department of Human Resources. She said, "The local agencies are going to be held harmless...in their payment for indigents at the 1991-92 level, plus be given $3 million for administration as a result of the provider tax."
Senator Raggio said he looked forward to receiving Ms. Matteucci's analysis of the impact on local government. He suggested the discussion should be renewed at that time. Both agreed fairness is the object. Ms. Matteucci said she has had a number of discussions with Robert S. Hadfield, the lobbyist representing the Nevada Association of Counties, on the subject. She said one recommendation, which did not receive specific funding, would establish a council of governments. The council would hold a forum
to discuss issues of mutual importance to local entities and the state.
Senator Raggio drew attention to one objective listed which would strengthen the state's ability to defend itself against increasing federal mandates with no accompanying funding. He likened the problems faced by the counties in regard to state mandates to that faced by the state in regard to federal mandates.
Senator Glomb asked if the issues regarding Nevada's families and children was considered the top critical issue. Ms. Matteucci replied:
It is the Governor's.... As you read all of the issues you will see that there are some intermingling of issues, primarily...in the health care for Nevadans.... You talk about some health issues for children, so it does cross over those lines, but it is the Governor's number one issue.
She reiterated the information in the biennial report had been the result of work being done by the Nevada Family Academy. She said, "They did some...exemplary work trying to define exactly...what the definition of Nevada's families should be, and...what the state should do."
Ms. Matteucci said she participated in a subcommittee established by a Senate Concurrent Resolution (S.C.R.) of the sixty-sixth session of the legislature to study the budget process.
SENATE CONCURRENT RESOLUTION 21
OF THE SIXTY-SIXTH SESSION: Requires interim study of state budget process.
Ms. Matteucci said the format of the budget was changed and definitions of Base, Maintenance and Enhancement budgets were determined as a result of the subcommittee's recommendations. She opined the committee made significant strides in streamlining the budget process. The committee also designed performance measures for about 49 budget accounts, which should give a better indication of outcome than previous budgets. She asked the subcommittees to make written lists of recommendations regarding performance indicators.
Ms. Matteucci made reference to the publication, the Executive Budget in Brief, Fiscal Years 1993-94 & 1994-95 which had been distributed to the committee several weeks earlier, and to the Nevada Statistical Abstract, published in 1992 by the State of Nevada, Department of Administration, which contains an abundance of statistical and demographic information that forms the basis for many decisions of the strategic planning process. She called the abstract very important to the planning process. She said a copy of the Nevada Statistical Abstract is available for any committee member who needs one. Senator Rawson indicated he would like a copy.
Senator Glomb asked who works with the state demographer in the preparation of the statistical abstract. Ms. Matteucci replied the planning division works closely with the demographer, who is under contract with the University of Nevada, Reno, to provide basic information to the Department of Administration.
Ms. Matteucci stated because it is a university contract and much of the information is used for cigarette tax distribution based on population figures, the Department of Taxation pays for much of the demographer's budget. Costs for specific requests of the demographer that are not in the budget must be paid by the requesting agency. Thus, Ms. Matteucci said, the Department of Administration is making a recommendation that a full-time demographer be added to the Budget Division.
Senator Raggio inquired how often the abstract is updated. Ms. Matteucci replied it is updated every 2 years.
Senator Raggio asked who provides the information for the volume, Perspectives. Ms. Matteucci answered the boards and agencies included provide information on performance indicators, accomplishments, key long-term objectives, publications, and similar data. Senator Raggio judged the volume will provide a lot of valuable data on each budget for the committee.
Ms. Matteucci called attention to page 269 in Perspectives on which much valuable information on performance indicators begins. She said:
How do you really rate whether an agency is doing a good job or a bad job, in combination with all the other agencies in state government. The State of Oregon has...gone through a very complex, very public process of developing and designing performance measures.... It's called the Oregon benchmark process, and that we essentially took a method of evaluation on performance indicators from, and tried to put it against the pilot agencies that were reporting to the S.C.R. 21 [of the Sixty-sixth Session] committee.
Ms. Matteucci said page 269 lists the agencies studied and on the following pages the agencies are rated according to their projections or historical averages. Numeric values were assigned to the most significant performance indicators. She said the highest score is 1,000, while the lowest is minus 500. Using the figures on page 277 for the Department of Administration as an example, Ms. Matteucci explained:
In one number you can get a total performance index, it's the last number on that page, and the Department of Administration has a performance index number of 10. That means it was slightly above the median, but that's all we are.... That's for the Clear Creek Youth Center, and the Committee on Benefits is 50,... and Risk Management is 133...
Ms. Matteucci said Oregon uses a historic average for a base. Because Nevada has no historic base, measurements were made against projections. She acknowledged projections may sometimes be good or bad, and they each must be evaluated. The figures used were actual performance figures compared with actual projections.
Senator Raggio asked what conclusion should be made for the Risk Management Division with a score of 133. Ms. Matteucci replied the division is slightly above their projections, because zero is the base figure. Just meeting projections would provide a score of zero.
Senator Glomb inquired who determines the figures, and whether there were any subjective values included. Ms. Matteucci responded the agencies make the projections and then report actual performance to the Department of Administration which evaluates the performance. The only subjective values included were the result of deciding how much weight to give to each performance indicator. She added she hopes the legislature will help make the determination on which performance indicators are the most important. She suggested outcome indicators are probably more important than activity indicators.
Senator Raggio asked how Oregon had established a benchmark. Ms. Matteucci replied:
They went through...about a 4-year process, and the Governor had extensive grass-root discussions about what agencies were important and what their goals should be.... They set very specific goals, and everybody agreed that those were absolutely the goals, and those were absolutely the important agencies. Now in Oregon, if you didn't get weighed as an important agency, you didn't get funded.... Then they used this particular measure to try and value whether the agency was indeed performing.... We have only taken their relative value index, we have not taken their benchmarks.
Senator Raggio suggested there could be a danger that an agency might purposely lower its projections in order to look good. Ms. Matteucci agreed that was a possibility. She said an average needs to be developed over time for use as a baseline. She added one reason an internal auditor is needed is to determine if agencies are reporting valid projections and accurate performance.
Senator Rawson asked if it would be practical to change a projection without reaching a consensus. As an example, he asked how the Senate Committee on Finance could suggest a change if they felt the waiting list for an agency such as Services to the Blind should be sped up, or if the committee wished to set a target goal. Ms. Matteucci surmised the process would not work unless the agency agreed the change was appropriate. She suggested if the finance committee deemed a projection was too low, and the agency insisted it could do no more without additional funding, more funding would probably have to be provided.
Ms. Matteucci reminded Senator Rawson that the performance indicators are designed for accountability to the legislature as well as a management tool. She declared the legislature must be the driving force behind the measures used as standards.
Ms. Matteucci said during the interim staff support was provided to the Governor's Commission on Reorganization, and the Department of Administration served as a primary coordinating unit for budget reductions implemented during the 1992-93 biennium. She described the goals and objectives of her department for the next biennium, "to complete the development of qualitative performance measures within the time frames established to complete the strategic plan." She added the department intends to integrate the strategic plan, the budget process and ongoing agency performance. Finally the department wants to guide the restructuring of government relative to recommendations made by the legislature.
Budget and Planning Division - Page 178
Ms. Matteucci called attention to significant changes in the Base, including revenue items. Highway Fund appropriations have been increased to cover salary and costs of a principal budget analyst position. Previously only the salary was included, while the payroll or other operating costs were not charged against the Highway Fund. She said administrative assessments against boards were increased to cover a principal analyst position to do budgeting for boards and commissions. She handed out a document (Exhibit D) showing how much each board and commission will be assessed.
Senator Raggio asked, "Is that going to mean...that amount of money, $288,000 and $321,000 respectively, that boards and commissions are not now paying?... How does that affect the boards and commissions?" Ms. Matteucci replied the Board Assessment is $63,978 for each year of the biennium, which is the value of one position. She stated it is not a new cost, it is the charge that has been charged to boards and commissions in the past to pay for the time of an analyst. She recalled in 1989 or earlier the legislature authorized a position to oversee the budgets of boards and commissions and gave the Budget Division the authority to make assessments based on the cost to do so.
Ms. Matteucci noted an assessment will be made coming from the Information Technology Advancement (ITA) budget to pay for time for herself, her deputy and a program officer for a total of $61,000 during the first year and $81,700 in fiscal year (FY) 1995. She explained the ITA handles telecommunications and data processing located within the Department of Finance. She added, "And then there's $87,000 the first year and $95,000 the second year for Benefit Services."
Senator Glomb asked if ITA was transferring money into the Budget and Planning Division account. Ms. Matteucci responded:
What we did we cost-allocated out the director, the deputy director and the program officer's time based on full time equivalent (FTE) positions in both the ITA budget and Benefit Services. It comes to about 21 percent for ITA and Benefit Services about 30 percent of our time.
Senator Glomb asked, "Are you going to, in turn, be transferring money to them for technology services to your division?" Ms. Matteucci answered, "Yes, ITA? We're paying a data processing charge just like everyone else."
Returning to the Base budget, Ms. Matteucci pointed out there will be a position from the Department of Industrial Relations (DIR) to cover costs and salary of one principal budget analyst, plus operating costs to oversee all the State Industrial Insurance System (SIIS) hearing appeals and DIR budget activities.
Ms. Matteucci passed out a summary of changes proposed under reorganization (Exhibit E). She declared, "There aren't any significant changes in salaries." She said five positions will be transferred from the budget and planning division into the Internal Audit budget. Also there will be a new director under the Department of Finance, with the elimination of the current director of Department of Administration.
Ms. Matteucci turned to changes in operations under the Base. She said, "I'd like to draw your attention [to] one change you can reduce the Operating...category by $6,184 each year. We've got some double-billed rent in there." She said the numbers in the Operating budget will fluctuate in the second year of the biennium to cover costs of printing the budget, the Nevada Statistical Abstract, the Perspective, a Biennial Report (Exhibit C), and the Executive Budget in Brief.
Ms. Matteucci stated dues and registrations must be paid for two organizations, $6,200 for the National Association of State Budget Officers, and $4,700 for The Council of Governors' Policy Advisors. She pointed out she is the president of the National Association of State Budget Officers, and their annual meeting will be held in Sparks in August.
Ms. Matteucci said the funds requested for Training would allow one analyst to be sent to a training session at the National Association of State Budget Officers. She alleged the training is very valuable, and she would like $2,400 in the FY 1994 to train the staff in new computer programs.
Ms. Matteucci said the funds under Special Studies are requested to continue projected costs for Formetrics, an economic forecasting group used by her office and by the Fiscal Analysis Division of the Legislative Counsel Bureau. She disbursed copies of an article from a publication by the WEFA (Wharton Economic Forecast Associates) Group (Exhibit F) she felt might be of interest to the senators. She said payment is also included for the National Council on Crime and Delinquency inmate population projections, and $1,800 is included each year to continue a copayment for a federal fund information service, which is also shared with the Legislative Counsel Bureau and the state Welfare Division.
Ms. Matteucci said:
In data processing, we've...included...$500,000 to pay the data processing, $95,000 for equipment to continue the work on the completion of the budget system. You recall there was a $300,000 one-shot that was provided last year for development of the new budget system. We spent all of that and more in order to get the system up and running and the additional...money is needed to complete the component pieces of getting the university system on-line, and also to allow the agencies to have direct input.
Senator Raggio asked if Ms. Matteucci was referring to a contract with Compass Information Technology. She affirmed it was, but added the contract is complete and the funds are sought to complete work through the Department of Data Processing. Senator Raggio asked if the sum $300,000 that had been allocated failed to complete the system. Ms. Matteucci said it did not complete the system, and another $595,000 would be needed to complete the system.
Senator Raggio asked her to review the purpose of the $300,000. Ms. Matteucci affirmed the $300,000 was supposed to design and develop the new budget system. In reference to the $595,000 she said:
We're adding other component pieces. The $300,000 was intended to give you the format you see before you.... It did that, barely.... As we go through here, we have to work out with you how it is that you want to see positions. Part of the problem that we encountered in developing this budget format is that we go into an incredible amount of detail on positions, position by position. Essentially, we calculate the cost, the fringe rates of positions, each position at a time, which requires huge tables. So what we ended up having to do is to leave the positions on the main frame.
She concluded:
The $300,000 was never able to provide on-line, it was never able to provide an upgrade to make the university system interactive. We asked the Department of Data Processing to estimate that for us when we put together our finding document for them, and that's the number they have given us to complete the system....
Senator Raggio asked if Ms. Matteucci was referring to the $630,920 on page 178 under Data Processing in the Base. She confirmed the figures were included. She declared: The adjusted base to upgrade the budget system is $500,000 to Data Processing, and $95,600 in equipment in `94.... And for FY `95 it's $215,00 for Data Processing, and equipment is $168,500."
Senator Raggio asked how the figures conform with the plan to consolidate data processing. Ms. Matteucci responded:
This really doesn't have anything to do with it.... This payment is made to data processing.... We aren't fighting the proposed transfer to ITA, we expect them to do this work for us. So this is what they gave us as an estimate to get that work done.
Senator Raggio asked, "If we budget this, what will it allow us to do? Tell me in lay language what we're paying for, and what we're going to get with the $300,000 you've already expended and the additional $800,000." Ms. Matteucci replied:
When the agencies submit their budget requests, they write them all down on pieces of paper and send them to my office and they key punch them. We'd like to give the agencies on-line keying ability, so that they can key into our central...data base and change, interactive with the agency as opposed to having all sorts of paper being transferred back and forth. They would have to submit their narrative, certainly, but not things that look just like this [referring to Exhibits D and E]. They would do this themselves on-line with us.
Senator Raggio inquired why it should be worth another $800,000 above what had already been expended. Ms. Matteucci replied:
I think you've got to get the agencies more involved in the process.... Right now part of this confusion is that they have to sit down and write out their budget one way, and then we have to take it and key it and massage it. It takes us a long time....
Senator Raggio asked if it was not possible to change the format used by the agencies without the new system . Ms. Matteucci replied:
It isn't necessarily the format,...it's the fact that they have to, on a computer printed sheet, sit down and write everything out. We have to then key it, then we have to send it back to them, not on-line, but in paper form. So it's time consuming, there's a great deal of room for confusion, misunderstanding.
Ms. Matteucci suggested a new system would make the agencies much more involved in the budget process.
Senator Raggio suggested the subcommittees should closely review the situation. Ms. Matteucci interjected the university is not connected to the state system, but she added it is a major component of the budget.
Ms. Matteucci affirmed Senator Glomb's question that the $800,000 would bring the university system on-line with the state.
Ms. Matteucci explained the $50,000 listed under Reorganization Commission had been donated by the business community to pay for mailings of the first study on reorganization in 1992. The funds collected from the commission by the Budget and Planning Division are included as part of the line item Other under Resources.
Ms. Matteucci called attention to Governor Elected Expenses. She said, "As you know, the Governor will be running for reelection...." Senator Raggio interrupted to ask if that was an announcement. Ms. Matteucci said, "Somebody's going to be running for reelection." Senator Raggio quipped, "Not for reelection....We are assuming you're making an announcement." Ms. Matteucci said:
Making an announcement. Well, that's what he told me. But to ward against any bad things that might happen, for luck we always put in that there might be a new governor, and NRS 223.025 [Nevada Revised Statutes] requires that $5,000 be provided for the governor-elect expenses for transition purposes....
Ms. Matteucci said the Purchasing Assessment is used to fund purchasing as a result of recommended changes in the budget. The assessment is based on an estimate of equipment needed to implement the budget recommendations.
Senator Glomb asked if the Purchasing Assessment was to be used for the actual purchases or to implement purchases. Ms. Matteucci replied the item is paid to the Purchasing Division to cover the costs of contracting. She indicated the line item is included in most of the departmental budgets. She said, "That's the means by which we were able to support purchasing as a result of the significant changes that we're recommending in the Governor's reorganization report."
Senator Glomb wondered if the reorganization plan was scheduled to give each department more autonomy over the determination of purchases. Ms. Matteucci responded:
The recommendations...require that the Purchasing Division now go out and do master contracts with some of these large warehousing firms that can offer goods at very cheap costs.... So even though you're not totally wiping out the Purchasing Division you really are changing their focus. So with these master contracts, then the agency can go purchase from those particular vendors. And we need to still support the people that are left there.
Ms. Matteucci said $2,712 under Cost Allocation is designated for the attorney general's office for non-general fund portions of the budget. She said:
As you recall, we have a cost-allocation distribution that significantly alters the way that the attorney general's office is funded. All the former general fund charges are just directly appropriated to her budget.
Turning to the Enhancement on page 180, Ms. Matteucci explained module 420 recommends centralizing demographic and population information for more accurate use in planning budget determinations. She charged:
One of the biggest problems we have in the executive branch is a lack of communication and coordination relative to significant issues that are...affecting agencies throughout state government. What we want to do here is get...together a group of folks that are in the technologically related agencies and talk about
population trends, demographic changes, things that are coming down that may affect agencies....
She pointed out the Enhancement calls for a demographer, an economist, a management analyst and a management assistant to be added to develop more cohesive planning. She reiterated the demographer had previously been paid for through a contract with the Department of Taxation.
Ms. Matteucci said there will be a transfer of funds from the Department of Human Resources to pay for an economist. During the biennium the Department of Human Resources was charged with putting together a master plan, much of which was economic and demographic in nature. She said:
When I spoke with Director Griepentrog-Carlin [Jerome F. Griepentrog-Carlin, Director, Department of Human Resources] he indicated he'd be happy to support the transfer of, I believe it's federal legalization impact aid money, an economist position that would be directed to help...cipher out some of the economics of both managed care...and also the demographics relating to the various populations that impact the Department of Education, Health and Human Services.
The other positions would be funded through general funds, she said.
Ms. Matteucci described the Enhancement 440 Performance Measures for State Agencies. She referenced the recommendation which provides for development of a system of performance measures for state agencies, including the university system and the community colleges through joint executive and legislative branch action.
Because of the difficulty in establishing performance measures, Ms. Matteucci opined a full-time position is necessary to get the project started.
Senator Raggio inquired if a permanent position would be necessary. Ms. Matteucci replied she felt it was necessary. She said she had difficulty obtaining results when she attempted to get the agencies to submit quarterly performance indicators. She said, "If we do go to the matrix evaluation system, the relative value index...I think you have to have somebody that stays on top of that."
Senator Glomb asked how many people already work in the office of budget and planning. Ms. Matteucci replied there are 20 after two positions were lost during the budget cuts. Senator Glomb asked for clarification. Ms. Matteucci said, "We were at 22, we're now at 20. We're suggesting that the five positions in Pre-Audit be transferred to the internal control division which is the next budget." Senator Glomb repeated her query about the figures on page 181. Ms. Matteucci said, "We're eliminating five positions, then we're adding four positions under Enhancement 420 and one position under Enhancement 440."
Ms. Matteucci repeated her allegation it is very difficult to determine whether those within the Budget and Planning Division are achieving their goals. She admitted the performance indicators include many measurements of activities and not as many measurements of results as she would like.
General Fund Salary Adjustment - Page 183A
Ms. Matteucci called attention to the Governor's salary recommendations of $4.1 million in FY 1994 and $5.9 million in FY 1995. She said the recommended funds are the result of an attempt to estimate the impact of changing the identification of jobs which are currently designated as classified to exempt-merit. She said several positions were identified as those which should be salaried through the Benzler v. State of Nevada decision. She stated the Department of Personnel is in the process of evaluating those positions to determine what the ultimate salaries should be.
She called attention to the calculations on Exhibit G. She said:
We started with the half-time costs. In fiscal year `91 you see $867,000, fiscal year `92 $908,000, fiscal year `93 estimated $963,360, calculated at time and a half....
Senator Raggio asked why the figures in the first column of Exhibit G were multiplied by 3. Ms. Matteucci explained the calculation represented time and one-half.
Ms. Matteucci continued, "The exempt-merit freeze value was for positions that were identified by state personnel as being impacted by the Benzler decision, and should be changed into the exempt-merit." She said salary increases were frozen at the level that would have included exempt-merit increases at a value of $1.7 million in 1994 and $2.5 million in 1995. She said:
That was removed from the general fund budget. In the non-general fund budget you'll see a line item in the salary piece called Salary Need. We simply left that particular item in there because both agencies are going to have to come up with the salaries to pay for whatever the salary levels are for exempt-merit that are going to get determined....
Ms. Matteucci estimated the total general fund salary budget for FY 1994 was $4.7 million and nearly $5.8 in FY 1995 under the old system. She proposed using a 1 percent value adjustment for those positions that were impacted by the exempt-merit proposal, which would cost $752,107 the first year and $757,665 the second year. She admitted the overtime-based rate adjustment is a calculated guess. She said:
We took the value of the overtime in fiscal year `93 and compared it to what the value of a 1 percent salary increase was, and it was 1.47, and we rounded it up to 1.5. And then that 0-10 percent merits we just put in at 2.5, that's the usual amount that we estimate for merit salaries, the value of which we fund, essentially, is to come to 4 percent, times the fringe costs in fiscal year `94 of 21 percent came to $3.6 million. Then in the packet you got on Fair Labor Standards...they indicate that these positions that are being transferred into the exempt-merit you really need to make some adjustments in addition to salary and so they're suggesting and we're recommending that you give a week of management leave.... They seem to think that 2 percent of the people would be eligible for the management leave and only three-quarters of that 2 percent or 1 1/2 would take it, so this would be the payment because they would be entitled to payment for that management leave if they did not take it....
So that came to our total costs of $4,015,349, that's the new number I just gave, and $5,898,574. The total savings as a result of changing to this particular approach on exempt-merit over the course of the biennium is $656,000 when you compare it to what the liability was up above.
Senator Raggio asked if Ms. Matteucci was indicating adoption of the exempt-merit system would result in a savings of $656,000 for the biennium. She affirmed his statement, and added, "You won't have to pay those positions that...were identified as a result of Benzler time and a half for all their overtime."
Senator Raggio asked, "Is the total net effect of adopting this exempt system only $656,000?" Ms. Matteucci replied, "That's the total savings based on these projections here."
Ms. Matteucci continued to say that the exempt-merit system would take away the ability of people in those positions to earn overtime pay. She called attention to the list at the bottom of the first page of Exhibit G which delineates the changes. She explained:
One of the agencies that's going to get impacted most by this is the Budget Division. We are far and away disproportionately represented on comp time as a result of the work that my analysts have been doing since September through...January.
She explained when evaluations are made by the personnel department of an identified position, calculations must be made for the overtime or compensation time earned by the position on a regular basis. She asserted there must be enough flexibility to give merit pay for those who actually earn it through meritorious service, not based upon standard performance such as is the case now. Thus she proposed the sliding merit scale from 0 to 10 percent.
Ms. Matteucci pointed out the money committees should be receiving input from the personnel department soon on their findings as to which positions would be impacted by the change to exempt-merit
Senator Raggio asked if everyone who was moved into the exempt-merit status would receive a 1 percent raise in salary, and to what the cost of a 1 percent cost adjustment would amount. Ms. Matteucci replied they would not all receive a raise. She explained the figure was only a base figure to assure sufficient funds would be available. She said, "We just are trying to cover our base to have the money so the agencies, because we took out their merit...the merit freeze value up above, those are out of their budgets. So this would act similar to a salary adjustment."
Ms. Matteucci acknowledged the cost for the exempt-merit freeze value may be overfunded or underfunded. She admitted she really would not know until the personnel department gave her specific recommendations.
Senator Raggio again asked:
Why is there a recommendation that personnel is going to come up with? You have 100 positions that are now entitled to overtime. You're going to reclassify them into exempt-merit. What recommendation is personnel going to come up with for those identified positions?
Ms. Matteucci replied:
Personnel is going to go through, look at how much overtime those particular positions usually get, they're going to look at what merits they usually get, they're going to establish a salary which may be higher or lower than what they're getting, most likely higher.
Senator Raggio inquired if that meant they legally could not be left at the same base salary. Ms. Matteucci responded that would be unfair to some of those in upper management positions. Senator Raggio asked if there was an entitlement that would make it illegal to transfer those people to a base salary and then put them in the new classification. Ms. Matteucci responded there is no entitlement, but she assumed that many of those people would not want to be promoted into salary positions if they did not receive an adjustment equal to the pay they had been earning previously. She called it "an equity issue."
Admittedly acting as devil's advocate, Senator Raggio continued his questioning in an attempt to understand the driving force behind the proposal. He declared, "Obviously it's being driven because the state did not anticipate having to pay an additional $3 million for overtime, and we recognize that the overtime was used and was performed."
Senator Raggio pointed out that many people, particularly professionals such as attorneys in governmental service, do not receive overtime. He asked what was so different about the positions under discussion compared to the professionals and what the legal liability might be. He wanted to know if it was simply a question of fairness to be resolved by a one-time adjustment. Ms. Matteucci confirmed his statement. She explained the change would only occur during the transition period and would not recur in succeeding years. She concurred it is an issue of fairness.
Ms. Matteucci cited, as an example:
In the Budget Division...my analysts get paid the same as any other analyst in the agencies. They work tremendous amounts of overtime...from September of each odd numbered year to...probably, June. If I were to just pay them just to take their...automatic merits away, and just pay them the flat amount and say you can't get overtime, I couldn't get anybody to work for me.
Senator Raggio rephrased her explanation:
You will look at the positions...and look at the history, and determine that ordinarily that position has carried with it an average amount of overtime, and then you will make a...one time adjustment in this biennium. ...and the individuals will know that they have been given an adjustment that's going to be carried through forever in their base salary, but they're not going to be eligible for overtime.
He asked what would happen if they ultimately, through some legal means, determine that they are entitled to overtime. He asked, "Then we're stuck with this in the base salary...?" Ms. Matteucci acknowledged he could be correct, adding that is why the personnel department is being so diligent in research of the positions that should be salaried. She declared that any position in a gray area would be put into nonexempt-merit employment which she indicated is the same as classified employment.
Senator Raggio cautioned if the exempt-merit classification is put into place it must be carefully crafted into the law. He averred the law should make clear the adjustment will have to come out of their base if it ever should be determined those positions are entitled to overtime.
Senator Raggio asked if a separate bill would be introduced regarding the changes in salary classifications. Ms. Matteucci answered, "Yes, I suggested that as personnel gets closer to knowing what we're doing that number may be up or down."
Highway Fund Salary Adjustment - Page 183C
Ms. Matteucci said the Highway Fund Salary Adjustment makes the same changes as the previous budget.
Internal Audit Division - Page 184
Ms. Matteucci said the proposal for an Internal Audit Division is the result of the Governor's reorganization plan. She declared the division would be given the ability to audit projections and performance indicators to be sure they are correct. She explained when it is suspected an agency is having problems the division would assist in resolving the problems before they became insurmountable.
Ms. Matteucci stated she became convinced the division was needed when problems arose during the interim with the State Public Works Board. She asserted she had to assign two of her analysts to review the paperwork of the board and it took them six weeks to make recommendations. She suggested the problem would have been identified much earlier by an Internal Audit Division.
Ms. Matteucci advocated establishment of the Internal Audit Division to assist in developing internal controls. She said the legislative auditor is prohibited from helping agencies develop internal controls. She declared the flow charts and other systems an internal auditor would develop, as well as measures of performance, can be of great benefit.
Senator Raggio asked what the role of the inspector general would be. Ms. Matteucci answered, "The inspector general...would be in the exempt-merit service, and would be the supervisor of both the Pre-Audit section and the principal auditor and the auditor II that are recommended in this...account."
Senator Raggio inquired if the Internal Audit Division would have independence. He suggested an internal audit function is completely independent and would report only to the highest authority. Because the proposed division would report to the Director of Finance he inquired how that would make it independent. Ms. Matteucci replied there are agencies with internal auditors who report to the director of each department. She denied there would be a problem of independence.
Senator Raggio asked what would happen if the Internal Audit Division felt the need to audit the Department of Finance. Ms. Matteucci replied:
I don't think that they would really be able to audit the finance department. If someone wanted to audit the finance department then I would think that the legislative auditor or some other group could come in and audit the finance department.
Senator Raggio agreed the legislature always has that ability, but he reiterated his concern regarding proposals for internal auditing. Ms. Matteucci responded:
Well, the finance department would have to then say that we need to be audited, and frankly the finance department probably needs help on its internal controls just like every other agency. We just had an audit for the [State] Board of Examiners which I think we came through in relatively good terms, but if we thought we were having problems we'd be on the list for developing of internal controls. This is really not an audit function in the classic sense of finding out significant problems.... It's really more of a helping function to get the agencies in compliance with the requirement to have internal controls.
Ms. Matteucci reminded the committee the 1989 legislature passed a requirement that the Department of Administration oversee and be responsible for insuring all agencies have internal controls. She complained no personnel positions had been provided for the department to follow through on the mandate. She admitted not much had been accomplished other than to issue a checklist on how to develop internal controls. She made the accusation most agencies have not succeeded in establishing good internal control procedures.
Senator Raggio asked what the source of the audit positions would be. Ms. Matteucci replied they would be new positions.
Senator Glomb asked how the new audit department functions would differ from the internal audit functions already in place within agencies. Ms. Matteucci replied:
I can't think of how internal audit functions are being used in agencies other than generally. And generally those positions...go back and look at problems within the department and report to the department director. This really is going to look at problems within the executive branch relative to internal controls and performance measures and report back to the director of the Department of Finance.
Ms. Matteucci alleged legislative auditor Gary Crews has a list several pages long of agencies that do not have proper internal controls. She declared her first priority would be to assign members of the Internal Audit Division to those agencies. She said:
Unless there's an agency that's having major problems, like the [State] Public Works Board did,... that's not going to be the focus, to go out and hunt and search and destroy. It really is to be of assistance....
Senator Glomb asked if the division would help agencies such as Medicaid. Ms. Matteucci replied the new division would assist the Department of Welfare to develop internal controls. If problems were discovered the audit division would bring them to the attention of the Department of Finance. She repeated the primary objective is not to run roughshod over agencies, but to be of assistance to agencies in meeting requirements that the legislative auditors may find are needed.
Senator Jacobsen posed a question based on an example. He said the Department of Wildlife had been audited three times, each time with poor results. He asked if the new division could return for a second review, and then what kind of enforcement would be available. Ms. Matteucci replied:
When you do the first audit, you have a number of audit recommendations that we are required by law, the Department of Administration, to see that the agency follows up on. The agency does a 6-month report that says what they are doing. We...review that, the budget analysts do. That would be turned over to this particular audit subgroup who would...sit down with the agency and help them develop their responses as opposed to leaving the agencies...on their own.
She described the Internal Audit Division as a supplement to the functions of the legislative auditor. She agreed the division could audit more frequently than is presently done, but she pointed out the objective was not to take over duties of the legislative Audit Division. She asserted the legislative audit would continue to be the primary audit. She said the new division would make a cursory follow-up audit and assist the agency in complying with the recommendations.
Senator Raggio invited public testimony on any of the budgets heard so far and asked anyone desiring to speak to so indicate to the chair. There was nobody desiring to give testimony.
Benefit Services Fund - Page 192
Ms. Matteucci introduced David Thomas, State Risk Manager, Risk Management Division, Department of Administration, who came forward to review the Benefit Services Fund budget. His testimony is attached as Exhibit H. He discussed issues critical to strategic planning.
Mr. Thomas cited development of a statewide comprehensive health-care program as a prime issue and listed the budget accounts for which the Risk Management Division is responsible.
Mr. Thomas distributed a chart (Exhibit I) depicting the impacts the Governor's proposed reorganization would have on the Risk Management Division. His written testimony (Exhibit H) describes the chart.
Senator Glomb inquired about Mr. Thomas' reference to the prison fund. He explained risk management handles the financing mechanism and contract negotiations for prison inmate medical services. The prison utilizes Mutual Administrators and Sierra Health Care Services to pay claims for inmates.
Mr. Thomas advocated pooling together health-care purchasing power as a method of reducing costs.
Senator Rawson pointed out the state was already shopping for reduced health-care costs. He asked if there was much more to be gained. Mr. Thomas envisioned gaining more advantage by an even larger health-care pool. He admitted there has been no demonstrated proof that enlarging the health-care provider pool would result in lower costs.
Mr. Thomas reminded the committee of the controversy that followed the increase in premium rates by the Committee on Benefits. He reviewed the events that led to the current state of the health plan, as set forth in Exhibit H.
Senator Glomb interrupted to point out she was unaware that actuarial services were not being provided. She asked if those services were part of the contract in effect in early 1992. Mr. Thomas replied actuarial services were a very specific part of the contract, but analysis showed no actuarial reports were being provided. Senator Glomb asked if that meant the consultants were not fulfilling the terms of their contract. Mr. Thomas agreed that might be a legal question that should be examined.
Mr. Thomas distributed a five-page memorandum (Exhibit J) which described the findings of the benefits consultants that were selected in 1992. The consultant selected was Legacy Enterprises, (Legacy) and their actuary was W.F. Corroon-Facciani (Corroon). The memorandum is summarized in Mr. Thomas' written testimony
(Exhibit H). Mr. Thomas' testimony includes recommendations made by Corroon and directives of the Committee on Benefits.
Mr. Thomas handed out another exhibit (Exhibit K) comparing the current ratios with those of the proposed ratios in premium rates. He described the handout:
On the left hand side are the 1992 ratios amongst the various groupings of employees and retirees that we have. On the right hand side is the 1993 recommended ratio.... The column entitled "Current Relative Value," that's the ratios that were existing in 1992 in the then premium rate structure. EE means employee only coverage at 100 percent.... EE+1 is employee plus one dependent.... EE+2+ is employee plus two or more dependents.
Senator Raggio asked, "...employee only plus two or more dependents, you get a current relative value of 141.26 percent...is that not a current monthly premium of $292.90? What do we discern from that?"
Mr. Thomas replied, "All that is showing you is the ratio of that employee plus two or more premium to the employee only premium. It is...almost one and a half times as much as the employee only premium, 141 percent."
Senator Raggio asked for an explanation of the column labeled 3-Tier Appropriate Relative Value. Mr. Thomas replied, "If we stayed with the three tiers, employee, employee plus one, employee plus two or more, the actuary's recommendation was that a more appropriate ratio in that three tier structure was the one, the 198 and 260s."
Senator Raggio asked if the actuarial study in the example meant instead of the premium being 141.2 percent it should realistically be 260 percent. He asked for an example of the fourth tier. Mr. Thomas replied EE means employee only, EE+Sp means employee plus spouse, EE+Dep(s) means employee plus dependents, and EE+Sp+Dep(s) means a full family, a four tier structure. He said, "The four tier appropriate relative values within that structure are one, 200, 190 and 290."
Senator Raggio asked for clarification. Mr Thomas replied:
On the left you have employee plus one. That one dependent can be a child or a spouse. Our 1992 premium rates were assessing those with employee plus one coverage, 137 percent of employee only coverage. In actuality, what the actuary was saying, if that one dependent is a spouse, it ought to be paying twice as much.... A child ought to be paying less, because a spouse is going to cost more than a child.
Senator Raggio asked why the Legacy and Corroon firm was selected when they were ranked third on the list. Mr. Thomas responded:
They were one of the three finalists chosen. They chose them based on their experience. They were not the lowest bid, that was clear. Based on their experience and their history, that fact that Corroon is a nationally recognized actuary. Legacy is local, to the extent that any of our bidders were local; they are located in Stockton.... They were the only ones who would give us a fixed-cost, flat bid.
Mr. Thomas said copies of the report could be made available to the committee if they so desired.
Senator Glomb asked if anything was being done because the previous consulting firm may not have fulfilled the terms of their contract. Mr. Thomas replied the state is in litigation over the premium rate increases and the benefit plan design changes. The attorney general's office is representing the Committee on Benefits, and the particular issue addressed by Senator Glomb, failure to fulfill terms of the contract, has come up in the litigation. He said the attorney general may pursue her concern but intends to complete the earlier litigation before proceeding.
Mr. Thomas returned to page 6 of his written testimony (Exhibit H). He called attention to his fourth handout (Exhibit L) which shows the effect of the planned design changes on both the plan and the employees. The first page of the exhibit shows how a representative claim for a 7-day inpatient adult ICU (Intensive Care Unit) stay in the hospital would be paid under the 1992 plan design using preferred provider organizations (PPOs) only and then using non-preferred providers only. He explained:
I showed the PPO specialist charges, lab and X-ray, and the hospital inpatient charges. The...narrative down the middle...describes how that claim...would have been paid, what the plan would be responsible for, and what the employee would be responsible for. And you can see, under last year's plan design, there was relatively little difference to the plan whether one used a PPO or not. More specifically, if you look at the PPO specialist charges, the plan is paying the same, whether that specialist is a PPO or not, paying the same 80 percent. There is a 10 percent discount in there, but after that the plan is paying 80 percent.... The difference to the employee...was approximately $2,000 in out-of-pocket costs, more with the non-PPO.
Mr. Thomas turned to pages 2 and 3. He said:
I take that same example...with the 1993 plan design changes, and you can see, compared to 1992 that if one uses a PPO today there is a significant difference over whether one uses a non-PPO to the extent of almost $8,000 in out-of-pocket costs additional for using the non-PPO to the employee.
Mr. Thomas averred the plan design changes would provide a greater incentive to employees to use the PPO facilities. Use of the PPO would save them out-of-pocket costs and would be a savings to the plan.
Mr. Thomas continued with his written testimony. During a hearing in October state employees voiced substantial objection to the proposed increase in family coverage, so the committee took action to reduce the rate. Mr. Thomas explained:
The state contribution is currently $213.75. The actual cost of employee only coverage is approximately $187. They took that difference off of all that's being paid on behalf of all employees towards their employee only coverage and applied that to those with full family coverage, and that translated into a $100 decrease in the full family premium.
He continued with his written testimony in which he pointed out that the amount used to decrease full family premiums would
otherwise have been allocated to rebuild the plan's "underfunded" reserves.
Mr. Thomas distributed three more handouts for informational purposes. The bar chart (Exhibit M) shows enrollment changes after implementation of rate increases and plan changes. He pointed out it shows a net gain in the number of participants in Health Maintenance Organizations (HMOs) and a net loss to the self-funded plan when there is a shift from the three tier structure to the four tier structure. He said there was increase in HMO enrollment from 17.7 percent of total enrollment to 19.3 percent, which approximates the Performance Indicators in the Benefit Services Fund budget.
Senator Rawson recalled an insurance survey was done during the interim to determine the number of uninsured people in Nevada, which numbered around 62,000. He asked if an analysis had been done to see if there has been a shift by families to no longer take out insurance on their children. Mr. Thomas said there has not been a study to determine if that was the case, but telephone calls and questions from participants received by the Risk Management Division have not indicated much of a shift in which employees have dropped their dependents. Senator Rawson suggested the issue should be studied. Mr. Thomas emphasized most situations in which dependent coverage had been dropped occurred where there was a two-income family and coverage was shifted to the other spouse.
The next exhibit (Exhibit N) Mr. Thomas described as a comparison of the 1992 premium rates with the 1993 premium rates. The exhibit shows the components of the premiums, such as dental and vision, and premiums for state agency employees, retirees, and non-state agency employees participating in the plan.
Mr. Thomas said his seventh handout (Exhibit O), recently received from the actuary, shows the actual plan performance over the last year based on actual claims experience. The handout analyzes how close actual claims were to projections. He noted the projections for enrollments were within 2 percent. Claim projections were off 9 percent, but that was to the good of the state, he declared, because the numbers of claims were less than projected.
Senator Raggio asked how the proposed rate increase for employees from $213.75 to $226.50 in 1995 was computed. Mr. Thomas said he would go into detail on that point further along in his prepared testimony. Senator Raggio opined it appeared that claims were going down while the state contribution rate was going up.
Mr. Thomas pointed to the figures for the column labeled "Months of Claim Lag" on his seventh handout (Exhibit O). He said, "while the actuary projected 2.76 months, which is...the reserve level he had initially projected, it's actually right now at 2.32, so his recommendation will be coming down as to the amount of reserves we need to maintain."
Mr. Thomas continued with specific highlights relating to page 192, budget 1338 of the Governor's Executive Budget, which may be found on page 7 of his written testimony.
Senator Glomb inquired what the reasoning was to include the SIIS rehabilitation account and the prison medical account in the Benefit Services Fund. Ms. Matteucci replied:
The only thing that this budget does for the SIIS transfer is receive the money from SIIS and then give it back to rehab [rehabilitation]. That was done at the request of vocational rehab because they can use the money...to match other federal dollars. There is no programmatic reason for, or any manipulating things going on in here, it simply is a pass-through purely to identify the budget as not a payment for services for voc-rehab [vocational rehabilitation].... Essentially this particular transfer...when it comes into the voc-rehab budget allows the voc-rehab budget to use this money to provide further services that are federally matchable.
She stated SIIS would not make a direct payment to vocational rehabilitation. She offered to provide Senator Glomb with a set of SIIS regulations. Senator Glomb indicated she would appreciate seeing the information.
With respect to the prison medical funds, Mr. Thomas said the program had been in place since last September. He said:
It's a program whereby the prisons can, for their inmate medical services,...leverage off the contracts we have with Sierra and Mutual for claims paying and access to their PPO network.... Since September...there's been a 3.6 to 1 in return on their costs. The hospital inpatient PPO and UR [Utilization Review] savings alone has been $240,000 to the Department of Prisons claims accounts.
He explained the savings are the result of allowing the prisons to take advantage of the better discounts and the volume available through Benefits Services.
Senator Glomb said she thought the prisons had their own medical account for the over 300 employees. She asked if other medical personnel serve the 6,000 persons in the prison. Mr. Thomas said a significant number of inmates are sent for treatment outside the prisons.
Ms. Matteucci interjected this is an attempt to hold down inmate medical expenses. She asserted the new program is cost effective because so many inmates are sent outside for treatment.
Mr. Thomas continued to read page 8 of his written testimony, Exhibit H. He offered to provide the committee with more information if so desired.
Senator Raggio asked for what services the $50.7 million was paid under the self-insured program. Mr. Thomas replied $50.7 million went for actual health and dental claims, and $3.3 million was spent for the purchase of policies for life insurance, long term disabilities (LTDs) and travel accidents. Another $9.8 million was paid to HMOs and $2.9 million for the purchase of administrative services.
Mr. Thomas interjected his department works very closely with the data processing department. He stated one data processing staff member is assigned to him full-time for the development of Benefits Services program.
Senator Raggio asked if Corroon had initially suggested around $12 million be kept in reserves. Mr. Thomas concurred the initial suggestion had been $12.1 million. Senator Raggio asked what the rationale was to change it to $6.3 and $8.5 million. Mr. Thomas replied, "In the first year that's strictly the carryover that will be available...for reserves. These are amounts of reserves that will be available." He pointed out when the initial premium rate determination was made the 1993 rates were estimated so high that an alternative approach was used to maintain a cash position sufficient to pay ongoing claims and at the same time rebuild the reserves. The figures used should build up sufficient reserves over a 3- to 5-year period, he said.
Mr. Thomas read his testimony regarding the Maintenance Budget on page 193. Senator Raggio asked him to explain how the Inflation factor at $8.6 million and $14.1 million was computed. Mr. Thomas responded it had been computed by using medical trends at a rate of 6.3 percent which includes medical inflation, dental trends at a rate of 12 percent, and vision trends at 5 percent in each year.
Senator Raggio inquired why there was such a large jump between fiscal years 1994 and 1995. Mr. Thomas replied the figures were cumulative. He then continued his prepared testimony regarding Inflation factors.
Mr. Thomas interrupted his reading to explain the state's deferred compensation program is in excess of $50 million, yet it has never had a financial audit.
Senator Raggio took a minute to welcome students from E.C. Best and Northside schools in Fallon. He gave them a brief explanation of the proceedings and explained the matters heard by the committee will cost the state nearly $5 billion in state funding appropriations and authorizations over the next two years.
Ms. Matteucci called attention to the Performance Indicators for the Benefit Services Fund. She boasted those indicators give a particularly good account of the way the fund is performing.
Senator Raggio asked Mr. Thomas if the figures which indicated 103.5 percent was paid in for premiums were actually an excess of premiums, and if projections would be to pay about 94 percent for FY 1993. Mr. Thomas affirmed the senator's appraisal.
Senator Raggio noted the loss ratio for dependents amounted to over 200 percent in 1992 and it would be brought down to 98 percent by 1995. Mr. Thomas stated the dependent loss would be favorably impacted by the emphasis on using PPOs.
Senator Raggio invited public testimony on the Benefit Services Fund.
Robert J. Gagnier, State of Nevada Employees Association, voiced the opinion there are a number of problems in the budget according to the employees association. He suggested the legislature may have difficulty determining its proper role in such matters. He submitted legislators may look at the budget as to what will be provided for the public. He asked legislators to keep sight of their role as employers, and what level of benefits will be provided to employees "not the public, but people who work for you and have a benefit structure."
Mr. Gagnier asserted one problem with the budget is the proposed reorganization and especially the proposal to make the Committee on Benefits an advisory body only to the Department of Finance. He voiced strong objection to that proposal. He said a position paper on the reorganization adopted by the board of directors of the Committee on Benefits will be distributed to legislators later in the week.
Mr. Gagnier admonished the committee members to view the Committee on Benefits as a labor-management trust from the standpoint of the employer. He noted private industries put together trust committees with representatives of both labor and the employer. He suggested health plans should be administered by a Committee on Benefits as a labor-management trust, and he asserted making it advisory would make the committee useless.
Turning to specific line items, Mr. Gagnier discussed the proposal that no increases be made in the first year of the biennium for either employees or retirees. He alleged the increased cost to dependents may become worse, and that benefits which had been reduced will stay reduced for the biennium. He declared the increase in the rate structure of $12.75 would be insufficient to restore any benefits or to curtail costs.
Mr. Gagnier asserted the current level of benefits is less than the average level of benefits enjoyed by employees of most large public employers in the State of Nevada. He stated a survey done last fall indicated the employees of most public jurisdictions have a higher level of benefits than those enjoyed by state employees. He asked that those benefits be restored. He asked the committee to support Assembly Bill (A.B.) 97 when it reaches the senate.
ASSEMBLY BILL 97:Specifies amount to be paid by certain public employers for group insurance for public employees for next biennium.
He said the amounts in A.B. 97 are substantial. He recalled the legislature authorized the Committee on Benefits to become self-funding in 1983. He asserted the benefits committee became a leader in the field of medical cost containment in the state through implementation of methods which were considered novel and unique at that time.
As a result of the cost containments, Mr. Gagnier alleged, requests by the Committee on Benefits have been less for the past two sessions because they were confident they could function with less. He said, "The problem is, they couldn't, and that's one of the principal reasons we had the problem this past year, was the fact that we'd only gotten a $10 increase in each year of the last biennium, and that was insufficient to take care of rising costs."
Mr. Gagnier contended the surplus which had been built up had been eroded which contributed to the necessity for drastic action last fall. He implored the committee to put more funding into the budget than what the Governor recommended, which he claimed would be more in line with what the current actuary deems necessary to fund the program and restore benefits.
Senator Raggio asked why the committee should ignore the recommendations of the actuary. Mr. Gagnier said the actuary based recommendations on the current level of contributions from the state. He declared the level of contributions from the state is not sufficient and should be increased for both active employees and for retirees. He said a separate bill, A.B. 19 is being introduced which would provide a sliding scale for retirees that would allow longer-term employees to receive more than those who were employees for just 5 years.
ASSEMBLY BILL 19:Makes various changes regarding public employees.
He indicated an employee with only 5 years of service now receives the same benefits as an employee with 20 years of service.
Senator Glomb asked how Nevada benefits compare to those in other states. Mr. Gagnier said he would be glad to provide a publication which would outline benefits. He suggested she contemplate not only the amounts provided, but also the benefits provided. He asserted that not only are the costs of medical benefits higher in Nevada but also the benefits provided by other states are better. As an example, he said Massachusetts pays $463 per month for each employee.
Fred Suwe, Quality Control Manager, Employment Security Department,
testified he had been a member of the Committee on Benefits for 5 years. He spoke on behalf of the Committee on Benefits when he declared his opposition to the Governor's reorganization plan in which the committee would be made advisory. He voiced the opinion direct input from employees and retirees is essential and can only be accomplished as long as the committee has the authority to make decisions relative to group insurance.
Mr. Suwe offered general opposition to the combination of the Committee on Deferred Compensation for State Employees with the Committee on Benefits, also part of the Governor's reorganization plan. He stated his belief members of the deferred compensation committee should only be those who contribute to that plan, and who should be given responsibility only for that aspect of benefits.
Mr. Suwe went on record as saying:
I am not aware of any time that the committee set rates without having what they believed to be actuarial analysis, financial plans and financial projections of expenditures. While I don't think it's a question of whether or not the consultant we had fulfilled his contract, it might be more a matter of how competent he was in fulfilling that contract.
Mr. Suwe admitted the committee had not anticipated the rise in claims over the past two years. He pointed out "the committee is only as good as the information it gets." He noted one of the most significant things that happened over the past two years was the underestimation of what local government participation would cost the plan. He stated local government plan participants contributed $2 million less between January 1991 and June 1992 than they received in benefits. He claimed the State of Nevada in essence subsidized local government groups.
Mr. Suwe declared his belief that the group insurance plan should be primarily for state employees and their families, not a plan for all public employees. He said he would not oppose others being included in the plan if they paid their own way. He noted the last legislature agreed to allow separate rates for non-state agencies who participated and to pool them into risk groups in which they would pay their own way. He contended the non-state group was a very expensive group.
Mr. Suwe said his second significant concern was expansion of the pool of participants to include prison inmates, Medicare and Medicaid patients, and SIIS patients. In such an event he said he would want assurance that they would pay their own way and would not be subsidized by contributions from state employees.
Mr. Suwe said, "Whether or not there's enough money depends on who pays it." He asserted a state employee would have to pay $306 per month to cover a spouse and children if the committee had not taken steps to reduce the family rate. He admitted that may have been the real cost based on actuarial analysis, but he felt that state employees contribute in many other ways and should not be obliged to pay the higher rate. He stated:
No less is the lack of keeping up with costs of inflation with costs of living increase, hiring freezes, which causes everyone to have to take on a greater burden and responsibility for performing the work at the work site, and then to be hit with a tremendous increase in the premium for dependents is really causing a problem in morale for state workers....
Mr. Suwe contended that an employee should never have to pay a portion of his own coverage. He also endorsed A.B. 97 on behalf the Committee on Benefits.
Martin Bibb, Lobbyist, Retired Public Employees of Nevada, offered support for the proposal to allow retired public employees to participate in the state group insurance program at their own expense.
James A. Edmundson, Lobbyist, President, Retired Public Employees of Nevada, echoed Mr. Bibb's statement. He stated there are 6,300 members of the Retired Public Employees of Nevada and asserted he represented over 13,000 retirees. He declared many retirees had no continuation of medical insurance benefits from their employers at the time they retired. He estimated as many as one-third have no insurance.
Mr. Edmundson endorsed a program which would allow uninsured retirees to participate in the group insurance program at their own expense if they qualify. He alleged a more favorable rate would be available to the retirees and thus more of them would be able to afford insurance.
In the absence of further testimony on the Benefit Services Fund, Senator Raggio turned to the next budget.
State Employees Worker's Compensation - Page 197
Mr. Thomas returned to his written testimony, Exhibit H, and commenced reading an explanation of the worker's compensation budget on page 10.
Senator Raggio inquired if the cost of the premium paid to SIIS would be based on a maximum salary of $36,000. Mr. Thomas replied the maximum had been rolled back to $27,000, with $3,000 increases annually. Senator Raggio wanted to know if the rate per $100 of gross salary would be changed. Mr. Thomas responded the rate per hundred would be $4.27 for FY 1994 and $4.65 for FY 1995, on a maximum salary of $36,000.
Ms. Matteucci said, "It might change the rate.... We would have to go back and run the entire payroll. We'll see if we can calculate it for you."
Senator Jacobsen asked which agency has the highest accident rate. Mr. Thomas replied there is a lack of information from SIIS, and thus he was unable to provide a clear answer. He offered hope the dissemination of information from SIIS will improve.
Senator Rawson offered the opinion the information should be available from SIIS when SIIS is the agency that establishes a rate. He asked if SIIS had failed to comply with requests for information. Mr. Thomas responded, "In many cases, and the rates that we develop are a composite rate, so that we can spread the risk amongst the exposures that we cover, rather than charge them individually...."
Ms. Matteucci said she could provide a list of separate rates per group. She stated, "We have...kept it as a composite rate because it maximizes federal dollars.... Your largest problem is going to be in...mental health institutions and prisons."
Senator Rawson declared the performance indicators should be included. Ms. Matteucci said, "Occasionally...when the division has problems getting specific information when they get onto a specific problem from SIIS, but we can...draw inferences from the rates as to where the accidents are occurring."
Senator Glomb asked for an explanation of the involvement of SIIS in the State Employees Worker's Compensation budget. Mr. Thomas responded workers' compensation insurance is purchased from SIIS. Ms. Matteucci interjected, "For those payroll centers...we just make a payment to SIIS for workers' compensation coverage just like a regular business."
Senator Raggio warned that another hearing might be necessary if major changes are made in the rate schedules.
Due to the late hour, Senator Raggio recessed the hearing until immediately following the adjournment of the senate floor session.
Senator Raggio reconvened the meeting at 11:37.
Retired Employee Group Insurance - Page 199
Mr. Thomas returned to page 12 of his written testimony. He stated, "The performance indicators for this program...are tied back to the retiree loss-ratios in budget account 1338."
Senator Raggio asked what the monthly contribution assessment rate would be. Mr. Thomas replied it is currently $119.35 and a raise of $8.26 is proposed for the second year which would bring it up to $127.61.
There was no public testimony, so Senator Raggio continued to the next budget on the agenda.
Insurance and Loss Prevention - Page 291
Mr. Thomas again consulted his written testimony (Exhibit H) to delineate the coverage included in the budget. He added, "In that category of insurance premiums of the $753,000, that excess property coverage is approximately $400,000 of that."
Senator Raggio asked Mr. Thomas to review his first exhibit (Exhibit I) and explain where tort claims will be handled under the Governor's reorganization. Mr. Thomas replied those would be handled by the attorney general's office, under budget 1348, and not under the Insurance and Loss Prevention budget.
Senator Raggio asked Mr. Thomas to expand upon the types of insurance that will be included in the Insurance and Loss Prevention budget. Mr. Thomas answered:
Fidelity bond coverage for employees or dishonesty bond coverage as we sometimes call it, boiler and machinery coverage, aircraft hull and liability coverage, contractors' equipment coverage, and most importantly, the property coverage for the property and contents of state buildings.
Senator Raggio pointed out the chart (Exhibit I) depicts Insurance and Loss Prevention under budget account 1348, whereas the designation for it under the proposed Governor's Executive Budget is 1347. Mr. Thomas explained there was an error on the chart and the budget account should be 1347, and the account going to the attorney general's office should be 1348.
Senator Raggio asked what insurance would be purchased for the tort claims fund. Mr. Thomas replied none would be purchased because it would be self-insured.
Senator Jacobsen inquired if a theft of all the equipment from the shop at the workcamp at Pioche last year had been covered. Mr. Thomas confirmed that it had been covered.
In the absence of further testimony, Senator Raggio turned to budget 101-1015.
Hearings and Appeals Division - Page 308
Bryan A. Nix, Senior Appeals Officer, Hearings Division; Senior Appeals Officer, Appeals, Department of Administration, explained the Hearings Division is responsible for hearing contested industrial insurance issues. Those may come from SIIS or from self-insured employers. He said the system is a two-tiered appeal system.
Mr. Nix said first level of appeal goes to hearing officers in Las Vegas and Carson City. Those officers are laymen, not attorneys, and any appeal by either an employer or complainant is heard on a very informal basis. He said approximately 16,000 appeals are scheduled at that level annually. He estimated the number could go from 18,000 to 22,000 appeals annually if the structure of the appeals division is not radically changed.
Mr. Nix noted the Performance Indicators on page 311 revolve around the number of requests for hearings filed, the number of hearings held, and the decisions rendered. As required under the indicators, Mr. Nix said five new clerical positions were approved by the Interim Finance Committee which enabled the division to be in compliance with all the statutory mandates.
Mr. Nix asserted the growth in the number of hearings "has been astronomical in the last few years." Thus he indicated the division has had to undergo significant internal structuring changes in order to deal with the increased demand for hearings and to be able to comply with the statutes. He said a computer system was installed which allowed the division to speed up noticing and to coordinate information. Streamlining some procedures at the hearing officer level were also instigated.
Mr. Nix said several proposals have been made to change the appeals process which may result in significant changes in budget requests.
One proposal before the Senate Committee on Commerce and Labor would involve the elimination of the hearing officer level and would modify the nature of the types of appeals that would go to appeals officers. He indicated the outcome of that proposal would give the division a better idea if the two-tiered appeals process will be continued.
Senator Raggio asked how many appeals officers there are at this time. Mr. Nix replied there are three full-time appeals officers in Las Vegas and two in Carson City, and he fills in on emergencies, for those on vacation or to accommodate fluctuations in work load.
Senator Raggio asked how many full-time employees work for the division. Mr. Nix responded there are 36 full-time employees. Ms. Matteucci interjected the reduction from 37 to 36 eliminated one management analyst position.
Senator O'Donnell asked how many cases progressed beyond the appeals level to district court. Mr. Nix directed the senators to turn to a chart on the third page of a handout (Exhibit P) which he distributed. The chart showed 10,028 requests for hearings had been filed at the hearing officer level in 1991. The first column on the next page showed 3,061 went to the appeals officer level. Of the 3,061 which went to the second level of appeal, 134 cases went to the district court. He calculated 75 to 80 percent of all cases filed were resolved by the end of the hearing officer process.
Mr. Nix declared the administrative appeals process effectively weeds out the number of cases that go to the district court. He explained the district court does not hear a trial but it sits as an appellate court and reviews the record.
Senator O'Donnell asked if there were statistics available showing how many cases were adjudicated in favor of the plaintiff. Mr. Nix said those statistics were in the process of being compiled for the last year and should be complete in about 2 weeks.
Sue Naumann, Legal Office Manager, Appeals; Legal Office Manager, Hearings Division, Department of Administration, stated no changes have been recommended for the Base budget. An increase of $56,794 was requested for Operating Expenses under Demographics/Caseload Changes to accommodate processing the number of claims filed. She said the increase would cover supplies and none of that figure was for personnel expenses. The Interim Finance Committee had already authorized five new positions.
Ms. Naumann said her division had requested 13 computers under Program Improvements to bring the hearing officers on-line with the rest of the network. She averred the $90,000 allocated during the last session of the legislature had enabled streamlining of the computer network operations. She reported she had cut the original request for Program Improvements from 13 computers to four computers.
Senator Jacobsen stated the audit subcommittee had identified three areas of concern. Those included timeliness of hearings and appeals, the lack of a management information system and written procedures and regulations, and the lack of uniformity between the north and south hearing officers.
Mr. Nix declared procedures for uniformity in scheduling and conducting hearings are being implemented. He said the decisions are now all recorded on the same format, and the management information from the north and south is now the same. He acknowledged there had been criticism because the type of information gathered from Carson City was different from the type of information from Las Vegas. He stated it had all been standardized and procedures are now identical for north and south. He admitted new regulations have not been adopted yet, although they have been drafted and are awaiting a public hearing. He pointed out it would not make sense to change the regulations if major changes are made in the structure of the hearings division.
Worker's Compensation Hearings Reserve - Page 313
Ms. Matteucci described the budget as one which would provide for unanticipated growth if needed during the interim. It would provide for additional hearings by appeals officers or additional attorneys for the Nevada Attorney for Injured Workers.
Victims of Crime Program - Page 315
Bryan Nix, Coordinator, Victims of Crime, Department of Administration, dispersed a document (Exhibit Q) which he said includes a breakdown of the sources of revenue for the Victims of Crime Program. He stated the program provides compensation to innocent victims of violent crime. He said only those who were Nevada residents and who were victims of crimes which took place in the state were eligible. The maximum award is $15,000 which provides for a variety of benefits, primarily medical care, psychological counseling, lost wages, funeral benefits, and some property damage.
Mr. Nix claimed the number of requests for benefits from the program has grown substantially.
Sue Naumann, Legal Office Manager, Victims of Crime, Department of Administration, explained the first page of Exhibit Q is a summary of the Governor's recommendations prepared from the actual budget. The following pages include charts and tables demonstrating the history and projections on the number of claims filed, the types of crimes involved, the distribution of revenue and the sources of revenue.
Senator Glomb asked for an explanation of the two types of child abuse listed on page 3. Ms. Naumann told her those referred to Child Abuse-Sexual and Child Abuse-Physical.
Ms. Naumann said the projected distribution of revenues for FY 1994 and FY 1995 reflected in the handout differ slightly from the Governor's budget. She explained, "The original figures that are included in the budget were prior to the actual figures that were provided to us for balance forward and so forth." She indicated the figures in the handout are the correct figures.
Ms. Naumann said the figures on charts in the handout at 0 percent were designated as 0 when they were actually less than 1 percent.
Senator Raggio asked if there was a maximum total amount which could be paid out. Ms. Matteucci responded:
What we do quarterly is report to the [State] Board of Examiners as to what our estimates are as to how much money we're going to have and quarterly they'll allocate what the distribution is, if it's 100 percent of claims or 90 percent of legal or 90 percent right now. We just moved up from 80 percent payment for all the claims that come in during that quarter.
Ms. Matteucci affirmed Senator Raggio's statement that the claims are prorated and paid based on a quarterly estimate. She asked the senator to look at page 318 of the Governor's budget on which Performance Indicators depict the average amount of each award and the total amount of compensation awarded in addition to other factors regarding the claims filed.
Senator Raggio said he would like to see figures on the percentage awarded to each classification of crime. Ms. Naumann said information was being gathered based on the types of crimes, but she did not have those figures available yet.
Asked if the program was being extended to other types of crimes, Ms. Matteucci responded there are no proposals to effect any change. She noted the program is closely connected with the hearings and appeals process, so any material change in one program would have to be reflected by change in the other. She stated the program will stay with the Department of Administration under the Governor's reorganization plan, but the State Board of Examiners will remain the final adjudicatory body.
Mr. Nix said the Hearings Division and Appeals receive less than one appeal per week from the Victims of Crime Program.
There being no further testimony Senator Raggio adjourned the meeting at 12:12 p.m.
RESPECTFULLY SUBMITTED:
Judy Jacobs,
Committee Secretary
APPROVED BY:
Senator William J. Raggio, Chairman
DATE:
??
Senate Committee on Finance
February 22, 1993
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