MINUTES OF THE
SENATE COMMITTEE ON FINANCE
Sixty-seventh Session
April 5, 1993
The Senate Committee on Finance was called to order by Chairman William J. Raggio, at 8:00 a.m., on Monday, April 5, 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 Bob Coffin
Senator Diana Glomb
Senator William R. O'Donnell
Senator Matthew Q. Callister
STAFF MEMBERS PRESENT:
Dan Miles, Fiscal Analyst
Bob Guernsey, Principal Deputy Fiscal Analyst
Marion Entrekin, Committee Secretary
OTHERS PRESENT:
Kathleen Olson, Executive Director, Governor's Committee on Employment of People with Disabilities
Judy Matteucci, Director, Department of Administration
Larry D. Struve, Director, Department of Commerce
John P. Kuminecz, Commissioner, Consumer Affairs Division, Department of Commerce
Brooke Nielsen, Assistant Attorney General, Office of the Attorney
General
Colette L. Rausch, Deputy Attorney General, Consumer Affairs Division, Office of the Attorney General
Steve Sisolak, American Distributing Company, and Board Member, State Board of Telephone Sales Communications
Andrew J. Yurcho, Corporate General Counsel, Gerovicap Pharmaceutical Corporation, Las Vegas, Nevada
John P. Comeaux, Executive Director, Department of Taxation
Randy C. Day, Commissioner, Office of the Nevada Commissioner for Veteran Affairs
Senator Raggio requested a bill draft request (BDR) be drawn for the Department of Transportation (NDOT) to amend Nevada Revised Statute (NRS) 408.240 to exclude payroll advance checks, received biweekly from the state controller/treasurer to cover the NDOT payroll, from the monetary limitations imposed on the account by the statute, and to require the interest earned in the highway revolving account to be transferred to the highway fund.
SENATOR COFFIN MOVED TO PETITION A BDR BE DRAWN AS REQUESTED BY THE DEPARTMENT OF TRANSPORTATION.
SENATOR JACOBSEN SECONDED THE MOTION.
THE MOTION CARRIED. (SENATOR CALLISTER, SENATOR GLOMB AND SENATOR O'DONNELL WERE ABSENT FOR THE VOTE).
* * * * *
Senator Raggio commented that on April 3 and April 4, 1993, he and Senator Jacobsen, Senator Callister, and Senator Rhoads completed a tour of the majority of the honor camps in the eastern part of Nevada. They had the opportunity to meet not only with prison staff and forestry personnel but also with many of the residents of Ely, Elko, Pioche, Tonopah and Winnemucca. He found the tour to be enlightening and very worthwhile.
Committee to Hire Handicapped - Page 1116
Senator Raggio welcomed Kathleen Olson, Executive Director, Governor's Committee on Employment of People with Disabilities, and invited her to provide information concerning the activities of the committee, the impact of the reductions they have experienced, and any recommendations she may have in regard to the reductions.
Ms. Olson said the purpose of the Governor's committee, established in 1975, is to assist disabled individuals in Nevada in becoming independent and productive members of society. They function as a voluntary public and private sector partnership. This committee advises the Governor's Office on various employment issues, provides technical assistance to employers and employees, develops and disseminates public education materials, formally recognizes outstanding contributions which increase employment opportunities of disabled persons, and coordinates special programs to eliminate attitudinal and architectural barriers to employment.
Ms. Olson further commented the committee is composed of 10 voluntary members appointed by the Governor who represent business and industry and people with disabilities. They also have 18 advisory members appointed by the chairman.
With the passage of the Americans with Disabilities Act (ADA), Ms. Olson said their work load has increased greatly. The committee has been called upon to assist private sector employers with rewriting job descriptions, making site reviews, recruiting, training and placing people with disabilities. Architects and engineers call upon them to guarantee they design accessible buildings. Unfortunately, said Ms. Olson, there is only herself as director and a management assistant in the Reno office as well as a regional representative in Las Vegas, who works with no secretarial assistance, to perform all of these duties.
Ms. Olson referred to the Gifts and Donations category reflected in the Base budget which requires the committee to raise $31,000 in 1994 and $41,000 in 1995. This was due to the budget reduction and resulting targets established by the Budget Division.
Senator Raggio asked how much was actually raised from gifts and donations during the current biennium, and Ms. Olson replied the committee does not raise money because they do not charge for their services. Ms. Olson further clarified the committee does receive donations that vary from about $200 on up. The donation is "whatever the company wants to give".
Senator Raggio asked how the committee proposes to raise the amount of $31,000 for fiscal year 1994 and $41,000 for fiscal year 1995. He stressed the committee will need to raise these amounts if they want to keep their present staff of three employees.
Ms. Olson said it will be difficult, but the committee plans to develop a fee schedule for various activities such as training, site reviews, training regarding the ADA, assisting companies to write job descriptions to include people with disabilities, and reviewing architectural blueprints.
Senator Raggio wondered if Ms. Olson had received some indication from companies regarding their willingness to pay a fee for services.
Ms. Olson said many companies have called upon her committee for assistance and they have always given this as a free service. However, the committee is aware these companies need considerable help since they receive over 60 telephone inquiries each day regarding the ADA and related issues. She is certain that if a fee were charged, the companies would be willing to pay the fee.
Ms. Olson admitted there are many consultants who have established businesses and have asked companies to hire them for services and her committee would be competing with them, but she believes her committee would have more information to offer, especially regarding the ADA, than a private consultant would have.
Senator Raggio asked Ms. Olson if she was suggesting the committee is not needed since there are private consultants available.
Ms. Olson answered, "No, the consultants are people who may have been to one or two workshops and think they are experts and provide poor information... and we are still called to rectify the problems established."
Senator Raggio said he is trying to determine if Ms. Olson feels comfortable with the budget structured in that manner since her staffing will be contingent upon the committee raising the additional funds from gifts and contributions.
Ms. Olson answered there will be no way of knowing until they start the process, but she believes the committee has the capabilities and a good rapport with the business community on ADA-related matters to enable them to raise the necessary funds.
Ms. Olson referred to Exhibit C, a letter dated April 2, 1993, written to Senator Raggio by Bernard Kaufman, Chairman of the Governor's Committee on Employment of People With Disabilities, asking for assistance in restoring the budget for this committee.
Senator Raggio also referred to Exhibit C and pointed out Mr. Kaufman believes with a staff of only three individuals, raising $31,000 and $41,000 during the next biennium will be an impossible task, and asked if this issue had been discussed with the Budget Division.
Judy Matteucci, Director, Department of Administration, remarked:
We did not discuss it because this was the agency's proposal to meet their budget target, and we were given the impression they were comfortable with it....The only problem is the executive order needs to be changed to allow them to have donations, which we are in the process of doing.
Senator Raggio stated a copy of Exhibit C should be given to Ms. Matteucci because Mr. Kaufman indicated there would be no way the Governor's committee can live with the proposal to raise money from donations.
Ms. Matteucci commented it is unfortunate they [Governor's Committee on Employment of People with Disabilities] suggested this method of balancing their budget if their committee chairman and Ms. Olson did not feel it was viable.
Senator Raggio remarked, "Sometimes we find out things we do not find out otherwise."
Senator O'Donnell asked, "Judy, you gave them a target?"
Ms. Matteucci replied:
Senator O'Donnell, if you will recall our discussions every agency had a spending target with the exception of the Distributive School Account and the Medicaid budgets because it was impossible for these to develop a program within a target....Every other agency had a General Fund target and were asked to come up with proposals, and we invited them to either suggest new fees if they believed them to be reasonable and/or to suggest to us legislation to drop duties and responsibilities they felt they could no longer accomplish under the new targeted amounts...and this agency brought forward this proposal....They are carrying the same percentage reduction that was carried in their behalf in the budget reductions for the 1991-1993 biennium.
Senator O'Donnell remarked:
My point is, you are the ones that gave them the target. They did not give themselves a target. You are the ones who told them how much money you were not going to let them have. You call it a target...let us be real here...you told them how much money you were not going to let them have.
Ms. Matteucci responded:
The way we developed the targets was to continue forward the established budget levels after budget reductions based upon our projections of general funding so that they were not signaled out to have to do anything different than any other agency.
Senator O'Donnell replied, "I understand but I think they proposed they needed the money and asked if they could go to the private sector to get this money. You agreed they could, is that correct?"
Ms. Matteucci replied, "This is correct."
Senator Raggio remarked:
I think it is almost an impracticality to deal with some of these very small budgets....This committee has had a number of letters dealing with the handicapped, and I believe their function is of extreme concern because of the implementation of the ADA. Ms. Olson's committee has been in existence since Governor O'Callaghan created it, and I believe it is a committee of sufficient importance. We need to see if there is not someway to insure their staffing, at least at the present level. If there is no practical way to obtain this kind of money through donations or gifts, we had better find out. I think this is one [budget] we had better take a second look at.
Ms. Matteucci responded:
I agree, Senator Raggio, but let me express to you some of the frustration we have in the budget office....When agencies were given targets we did not accept their recommendations without asking them if they believed the targets were viable. This agency told us this [plan] was absolutely viable, everybody was in accord, and something that could quite easily be accomplished. They come before you and now their chairman is representing he has serious and grave doubts about it. I appreciate that circumstances may have changed but nothing has been shared with us.
Senator Raggio reiterated he believes the committee should look at some of the smaller budgets where an agency is being asked to fit into a pattern that results in a choice that is impractical.
Ms. Matteucci said:
The state agency that was given the responsibility for coordinating ADA is the Rehabilitation Division, and they have done some work in that area. You need to keep that in mind as you look at the budget because this [the Governor's Committee on Employment of People With Disabilities] is not the only agency doing ADA work.
Senator Raggio specifically asked, "Is the committee needed?"
Ms. Olson clarified the Rehabilitation Division is the lead agency for the state agencies and the Governor's Committee on Employment of People with Disabilities is the lead agency for the private sector.
Senator Glomb asked if the various companies or businesses will need a certificate of compliance to show they are in compliance with ADA regulations.
Ms. Olson said they do not need such proof because ADA is an ongoing issue that needs to be updated each year.
Senator Raggio asked Ms. Olson to meet with the Budget Division and speak with some of the major companies her committee deals with to determine the practicality of setting a fee to obtain revenue for her budget.
Senator Callister arrived for the meeting at 8:23 a.m.
Telemarketing - Page 433
Senator Raggio noted that on March 3, 1993, the Senate Committee on Finance heard this budget at which time they asked the director of the Department of Commerce to develop an alternative budget in recognition of the increasing backlog of this agency. On March 8, 1993, (Exhibit D), an augmentation of Telemarketing budget 3845 was given to the committee.
Senator Raggio also noted that on March 12, 1993, Exhibit E, a memorandum from Colette L. Rausch and Margaret M. Stanish, Deputy Attorneys General, providing a telemarketing fraud budget update, was sent to the money committees. He pointed out this memorandum also requested additional funding for the Office of the Attorney General. A copy of Exhibit E was given to Ms. Matteucci.
Senator Raggio welcomed Larry D. Struve and asked him to review the recommendation prepared for the Department of Commerce's telemarketing budget.
Larry D. Struve, Director, Department of Commerce, introduced John P. Kuminecz, the new commissioner for the Consumer Affairs Division of the Department of Commerce and said he had asked Mr. Kuminecz to carefully review the figures that will be discussed today and to assist in the presentation of this proposal before the committee.
Mr. Struve mentioned Senator Raggio asked him to return before the committee with an augmented budget that would fit within available resources. He distributed Exhibit F, Scenario One, and Exhibit G, a memorandum dated April 2, 1993, to John Kuminecz, and stated these handouts are an attempt to illustrate what the department sees as available resources to fund any augmentation of this budget.
Senator Raggio clarified, "Actually our direction was for you to come back within available resources to present a budget that would allow you to deal with the backlog and the problems that you are having difficulties with."
Mr. Struve agreed and said he feels they have fairly addressed the concerns of the committee in preparing the [handout] material. He has had meetings with his staff to determine what type of positions would help them deal with the backlog in line with the primary mission of the Consumer Affairs Division. He stated their mission is to license companies that want to do business in the telemarketing field and to take action against licensed companies if they are violating law, and if there is restitution that has to be recovered in behalf of consumers.
Mr. Struve turned the committee' attention to Exhibit F and said in order for the committee to fully consider what he is about to say they will have to ponder the next item scheduled on the agenda (Exhibit A) which is Senate Bill (S.B.) 277.
SENATE BILL 277: Requires excess money in account for regulation of telemarketing to be transferred to state general fund at end of each fiscal year.
Mr. Struve stated S.B. 277 was very much a part of the department's discussions and deliberations in trying to determine what the available resources were to support their augmented budget. Exhibit F illustrates what the department sees as available resources under two scenarios. He explained Scenario One is what the department has to work with using a Current Services budget plus the augmentation of three new positions and the passage of S.B. 277 in its current form. Mr. Struve proceeded to cover Exhibit F with the committee.
Mr. Struve pointed out that this budget is completely self-funded and in order to pay the ongoing personnel expenses there has to be at least a $250,000 carry-forward reserve until the department can start collecting the revenues as licenses are renewed or enforcement actions bring in other revenue. Therefore, Scenario One of Exhibit F describes conditions as if everything had been approved which would include the Current Services budget on page 433, acceptance of the three new positions, and passage of S.B. 277, and would indicate that by the second year of the biennium the department would have to find additional revenue.
Senator Raggio asked if what was described would result in the $170,000 shortfall reflected for 1994-1995.
Mr. Struve answered this would be a shortfall in the sense the department would have to take this amount out of their carry-forward reserve of $250,000 leaving $80,000 for the department to carry into fiscal year 1995-1996, and is inadequate.
Scenario Two of Exhibit F was described by Mr. Struve as the Current Services budget, the augmentation of the three new positions, and is based on no enactment of S.B. 277. This would result in all reserves currently available being carried forward to support the telemarketing budget and under this scenario there would be available resources, but this option would not contemplate any revenue to the General Fund which he knows is a concern considering all the budgets for the state.
After discussing the options with the Budget Division, Mr. Struve stated the department's recommendation is Scenario One-A reflected on page 1 of Exhibit F which he described to the committee. He stated this would insure if S.B. 277 is passed, this would allow for authority on the part of the commissioner to increase the fees charged to licensees if it is necessary to fund the budget that is determined to be necessary for enforcement and still result in a $250,000 balance forward necessary for cash-flow purposes.
In the first year of the next biennium there would be sufficient money to fund the division and any augmentation without adding to the fees, but in the second year of the biennium it would probably be necessary to bring in additional revenue of about $200,000 in order to make certain the authorized expenditures for the department of $1,045,915 are covered by the revenue they would collect and leave the department with a $250,000 reserve.
Senator Raggio asked what type of fee increases are being suggested and if $250,000 was the amount.
Mr. Struve said $250,000 is the amount generated from what the department charges companies or sellers. Currently by statute sellers pay $5,000 each year for a license. Additionally, the department collects fees from salesmen who each must pay about $100 per year. According to projections made by Mr. Kuminecz, the department should generate about $875,000 in each year of the next biennium but this projection is below what it was when he [Mr. Struve] last appeared before this committee and below what they believed it would be when the budget was prepared. The $1.6 million previously discussed will not be as high based on current renewal rates for companies and salesmen.
Senator Raggio asked what specific fee would need to be enhanced in order to reach the $200,000 approximation for the second year of the biennium.
John P. Kuminecz, Commissioner, Consumer Affairs Division, Department of Commerce, responded there are four revenue areas. One is the seller or company-licensing fee currently at $5,000, the salesperson-licensing fee currently at $100, fines collected, and the fourth is reimbursements of investigative costs. The latter two revenue areas, according to Mr. Kuminecz, are unpredictable areas.
To reach $200,000 in the second year of the biennium, Mr. Kuminecz suggested the salesman-application fee be increased to about $125 and the fee for the seller application be increased to about $7,500 or $8,000.
Senator O'Donnell referred to Scenario One of Exhibit F and inquired:
I see you have a transfer of minus $250,000 for fiscal year 1993-1994 predicated on the fact that S.B. 277 will pass. When you look at fiscal year 1994-1995 you have another minus $250,000. Is that also predicated on the fact S.B. 277 will pass? I believe the bill says anything in excess of $250,000 shall be transferred to the General Fund. The $80,000 obviously is not in excess of $250,000.
Mr. Struve replied: "The $80,000 is the excess of revenues over expenditures."
Senator O'Donnell responded, "That is correct...and it states anything left or in addition at the end of each fiscal year...the department shall transfer any balance in excess of $250,000."
Mr. Struve pointed out, "With only $80,000 there is no transfer to the General Fund and the only amount we can carry forward is the $80,000 since we do not have $250,000."
Senator O'Donnell answered, "Correct, but you show a shortfall of $170,000."
Mr. Struve replied:
The reason I explained that [$170,000] as a shortfall is we need $250,000 as a balance forward for cash-flow purposes. Revenue does not all come in at once at the beginning of the fiscal year but we have ongoing expenses and we have to get into fiscal year 1994-1995 to cover those expenses until our revenues start coming in.
Ms. Matteucci said, "The negative he [Mr. Struve] is trying to show is actually the negative going into 1995-1996 to get his budget rolling."
Senator O'Donnell stressed, "We have to realize that this [negative amount] has to be made up. Why is it not made up in the year 1993-1994? If it is a shortfall going into the year...you need $250,000 as a cash-flow buffer....Is not the buffer made up somewhere?"
Mr. Struve replied:
No, because the way the bill was written you start the fiscal year with no more than $250,000 in your account. Everything in excess of that $250,000 goes into the General Fund. In order to pay our ongoing bills, we would have to collect revenue from day one starting in the fiscal year in order to pay the expenses of the division....We need to start that year with $250,000 to get us to the point where revenue will carry the budget.
We do not believe a carryover of $80,000 is sufficient
to pay the expenses for the division. I have asked Mr. Kuminecz and the accountant for the Consumer Affairs Division to go through month-by-month to show what the outflow is compared to revenue based on historical trends, and they have concluded that we need to begin the fiscal year with a $250,000 carry forward in order to insure there is no cash-flow problem.
Before continuing his testimony, Mr. Struve outlined Exhibit G with the committee proposing that S.B. 277 be amended to allow the commissioner for the Consumer Affairs Division to set fees above those that have already been set to insure a $250,000 balance forward to the beginning of each fiscal year. In addition, he has requested the committee pay close attention to the effective date of S.B. 277. As this bill currently reads it would be effective upon passage and approval, and the balance-forward reserve the commission has contemplated working with in fiscal year 1993-1994 would not be available if that money had already been transferred into the General Fund at the beginning of fiscal year 1994.
Senator Raggio asked Mr. Struve if this proposal had been discussed with the State Board of Telephone Sales Communications.
Mr. Struve responded the State Board of Telephone Communications (Telemarketing) had not discussed this specific proposal but at their last meeting recently, they did say they do not feel a $250,000 reserve was sufficient.
Senator Raggio again asked, "Is this board in support of the proposal to increase the fees?"
Mr. Struve answered:
No, I cannot represent that because it has not been discussed and there has been no board action regarding it. This is a proposal to your committee to respond to your demand that we bring back an enhanced budget to improve our enforcement capability...but within available resources.
Senator Raggio remarked:
But your amendment indicates that any increase would be made by the commissioner and approved by that board. As a practical matter, is this something you would expect the board to approve if the commissioner recommends it? If not, we are just wasting our time on it.
Mr. Struve explained:
Under current law the telemarketing board has to approve any regulations proposed by the commissioner. The proposed change would be to enhance the area in which the commissioner can enact regulations to include additional fees to support the enhanced-enforcement activity that we have been discussing. When the board met last month, they shared the same concerns that many of you have shared in this committee....We think the best way to approach this is to give the commissioner those tools that would allow the revenue to be developed to give us the resources to fund the budget...
Senator Raggio interjected:
I disagree. The question is whether or not your board will endorse this amendment where they will be required to approve the increase in fees. As a practical matter, I am asking whether or not they have indicated they are willing to do this...otherwise Scenario One-A (Exhibit F) is not going to fly.
Mr. Struve stated he understood Senator Raggio's comments and said, "They have not had an agenda item where they have discussed this, but based on the individual comments I have heard I think they will be supportive of anything that would enhance the capabilities of the division, even if it means adding additional revenue."
Senator Glomb inquired, "If you did not have to turn any of the money over to the General Fund, would you have the funds available to regulate the issues and the agency?"
To respond to this question, Mr. Struve referred Senator Glomb to page 2 of Exhibit F and said the information contained therein was based on current projections.
Senator Glomb reiterated, "I just would like a yes or a no. If you did not have to carry money into the General Fund but had the money within your account to police some of the problems, would you have sufficient money to regulate this industry?"
Mr. Struve answered, "Yes, for fiscal year 1993..."
Senator Raggio asked Mr. Struve if he had any comments concerning the memorandum from the Office of the Attorney General, Exhibit E, indicating that without additional staff their office would be unable to pursue the businesses they deem unscrupulous.
Mr. Struve stated the Consumer Affairs Division works as a team with the Office of the Attorney General. He has discussed these matters both with the Office of the Attorney General and the Budget Division and after these discussions, the augmentation to the Telemarketing budget was prepared.
Senator Raggio pointed out under the best scenario the committee heard this morning, there will not be available funds to both augment Mr. Struve's staff and the attorney general's staff.
Senator Raggio invited Brooke Nielsen, Assistant Attorney General, Office of the Attorney General, to speak before the committee but cautioned her that none of the proposals discussed today will raise sufficient funds to honor her request for additional staffing for the Office of the Attorney General. In the absence of funding, he requested Ms. Nielsen to explain what her office will be able to do to "get the job done".
Senator Callister interjected, "How much excess does your division have that was generated over the last biennium that was generated from telemarketing fees?"
Mr. Struve answered, "We have used the figure $1.3 million as that available amount that has been building up over the years."
Senator Callister asked, "That (the $1.3 million) is sitting there being unused today?"
Mr. Struve answered, "Right. It is available for both augmentation of our budget...or whatever decisions you might make. Keep in mind the $1.3 million has been reduced by the amount of our augmentation and the amount of the $250,000 carry forward we have discussed."
Senator Callister declared:
That has not occurred yet...but the point is there is $1.3 million in revenue that has been generated in the 4 years that this law has been in effect....I understand the need to either get it into the General Fund or do something with it. I believe it is important for the members of the committee to understand that there is $1.3 million that has been generated and has not been devoted towards policing the industry...to the extent that both the attorney general and yourself...as well as the industry...do not believe represents an adequate level of policing. If there had been an adequate level of policing, we would not have constant, chronic federal intervention...yet we are sitting on $1.3 million that has come from this industry. That is what is troubling the industry. Instead of seeing their money placed into the General Fund, which is like a tax, they would like to see it used to police the industry. That is what they pay these fees for. It is in that context that we need to understand these various proposals we have before us.
Brooke Nielsen, Assistant Attorney General, Office of the Attorney General, introduced Colette L. Rausch, Deputy Attorney General, Office of the Attorney General, assigned to the Consumer Affairs Division in Las Vegas.
Ms. Nielsen referred to Exhibit E written by Ms. Rausch and Deputy Attorney General, Margaret M. Stanish, on March 12, 1993, and said it was written based upon the existence of a $1.3 million reserve. She further commented their office was asked to design what they believed would be needed to carry out adequate civil, criminal, and administrative enforcement of the telemarketing laws.
Ms. Nielsen stated the proposal, Exhibit E, suggests five new positions and one upgrade of an existing position for the Office of the Attorney General and with these positions, enforcement required by this industry would be in place.
Ms. Nielsen stated her office is concerned about the federal action that has taken place recently in the area of telemarketing which points to a greater need for state enforcement. She said when federal action had taken place, her office could not participate simply due to the lack of staff.
Based upon the figures mentioned today and S.B.277, Ms. Nielsen has noted there will be no money for additional staffing in the Office of the Attorney General. However, she strongly feels if there is an increase in staffing for Mr. Struve's office (Consumer Affairs Division), consideration should be given to the Office of the Attorney General as well since they work as a team.
Ms. Nielsen pointed out the Office of the Attorney General currently has a legal staff of 1.5 attorneys and 1 secretary assigned to telemarketing who are presently putting in a great deal of overtime to process cases. Ms. Nielsen asked the committee to consider giving the attorney general additional staff to provide greater enforcement in the telemarketing area.
Senator Callister referred to section 1 of page 2 of Exhibit E wherein it was noted there are over 20 licensed companies that are or recently have been the subject of actions by other state attorneys general and asked if it is common for Nevada to have 20 of their state licensees under investigation by other states or by federal investigators.
Colette L. Rausch, Deputy Attorney General, Consumer Affairs Division, Office of the Attorney General, replied at any one time there are approximately six cases involving Nevada licensees under investigations by other state attorneys general. The 20 cases mentioned in Exhibit E are an accumulation over a 1-year period.
Senator Callister asked how many federal actions are presently occurring. Ms. Rausch answered there are three separate actions involving the Federal Bureau of Investigation (FBI) and the Federal Trade Commission (FTC), but one action could involve four of five companies and a few individuals.
Senator Callister asked:
Are you contacted by other state attorneys general? Are there inquiries made to the division or our attorney general to inquire whether or not we are adequately policing this industry? It is an interesting phenomenon to have our licensees subjected to a constant level of scrutiny by other state attorneys general. Is this a function of something that is legal in our state and not legal in other states?
Ms. Rausch answered other state attorneys general performing the same job she is doing have contacted her and where other states are taking action, Nevada is not. These states do not understand why their senior citizens are being victimized by our licensees, and we are not doing anything to prevent this from happening.
Senator Callister inquired, "You have recommended, and the Budget Division also agreed to support, a new deputy commissioner, a new chief investigator and a compliance investigator II, is that correct?"
Ms. Rausch replied, "That is correct."
Senator Callister then asked:
The other positions you had recommended that were rejected were two new deputy attorneys general, an upgrade of an existing deputy to senior deputy, and one legal secretary. As justification you referenced the increase from one to two deputy attorneys general in February 1991 and commented about a significant increase in both civil and administrative actions and funds recovered. Could you explain this?
Ms. Rausch explained:
About one year ago the former commissioner in our office realized something had to be done. We looked at a few companies that needed action to be taken against them. I explained to her that our office could not as currently staffed...one-half of my time in telemarketing...do much. We went before the Interim Finance Committee and requested a new deputy who started in February 1993. Immediately after she started action was taken. Having her handle much of the telemarketing freed me to get involved in multi-state activities. As a result of that effort...without restitution and without money brought into the division...reimbursement for their costs but actual penalties that came in...totalled $256,939...that is the total between deceptive trade and telemarketing. When it was just me working without assistance we were only able to bring in $44,302. The dramatic increase came in telemarketing. In 1991 approximately $13,496 was brought in from penalties. With the addition of that one deputy attorney general, the total went to $195,809 involving actions we would not have been able to take without that one additional attorney working with the division.
Senator Callister asked, "Were we to fund these two new deputy attorney general positions as well as the additional investigators and the secretary, will we continue to receive that kind of significant return on our investment?"
Ms. Rausch replied this would certainly be the division's goal, but she would not want to promise this would be the case. It has been the experience of their office the more action taken the more income that can be brought into the state.
Senator Callister asked if there is a large backlog of complaints, and Ms. Rausch replied in the affirmative.
Senator Raggio asked Ms. Nielsen:
During this difficult budget period, is it feasible to press into service some deputies or investigators from some other areas of the attorney general's budget....Has this been explored?
Ms. Nielsen replied, "The short answer is no. I do not think we can do it. We already provide some assistance to the telemarketing deputies when they are desperate to get something done...the way our office is funded every position is dedicated to certain clients..."
Senator Raggio insisted, "That problem can be worked out...somebody might have a light work load. Cannot they be assigned temporarily, over the next 18 months, to do some of this work?"
Ms. Nielsen answered her office monitors the work load very carefully by performing surveys and remaining in constant communication with the deputies to determine if an area exists with a light work load where they could take a deputy and assign that individual somewhere else. However, the office cannot afford the luxury of taking a particular deputy for a lengthy period of time
and assigning that individual to another area. Ms. Nielsen pointed out the Office of the Attorney General has only one investigator in the Las Vegas area and many cases that this individual is called upon to handle involve telemarketing as well as other matters. Ms. Nielsen said, "Realistically, no, I do not think we could steal or borrow from other divisions to get this job (telemarketing) done."
Senator Raggio remarked:
I will accept what you say but I am not convinced because I really believe if push comes to shove, in a large organization such as yours, you have a number of personnel and in difficult times some reassignments could occur....I think if we need to get this program enhanced everybody is going to have to make an extra effort to do it, and that includes the attorney general, this agency, this legislature, and the Governor as well....People might have to work Saturdays...
Ms. Nielsen replied, "Senator, they already do. All of our deputies have a full caseload and if we assign a deputy to this effort...that would result in that deputy's work load being reassigned..."
Senator Raggio voiced:
In this committee it gets a little tiring hearing all the reasons why something cannot be done....It would be helpful to hear how something can be done...sometimes without having to throw money at it. Everybody in state government has been asked to make a significant effort. They have had to deal with decreased budgets....Obviously we are not going to have the money even if we enhance the fees to meet both of these requests. I am simply asking if there is some way, on an interim basis, an extra effort can be made to deal with this....This [telemarketing] is a very significant public problem.
Ms. Nielsen agreed but said it would be difficult to borrow at the level that would be needed to achieve a good result.
Senator Raggio answered, "Difficult is not assigned as impossible. Is it possible something could be done even if it is difficult?"
Ms. Nielsen replied, "I suppose anything is possible. It would be something we could look at. I do not know if we could give the type of dedication required from our other deputies without their clients and assignments suffering to some degree."
Senator Callister opined:
I think there is a significant distinction to be made. These [fees] are not public taxes and they are not traditional General Fund revenue. There is a regulatory contract that is made between every regulatory agency whether it is the bar association, contractor's board, or this group. We are happy to take their fees, the industry's money, in return for which the industry expects reasonable regulation. I fear we have breached our portion of that bargain and it troubles me to establish the precedent of now willingly taking this industry's fees and, in fact, asking for more of their fees...which strikes me as clearly nothing more than a disguise tax...yet winking our eye and turning our head to the abuses that some other state on their budget, or the federal government on their budget, must police.
I am deeply troubled by this precedent of both increasing fees in order to not adequately regulate, and to divert existing money that has been built up...call it a fee and kick it into the General Fund like a tax.
Steve Sisolak, American Distributing Company, and Board Member, State Board of Telephone Sales Communications, testified the last time he appeared before the legislature was on March 3, 1993. On March 4, 1993, federal investigators raided five Nevada telemarketers and on March 5, 1993, a new commissioner was appointed to the Consumer Affairs Division.
Mr. Sisolak distributed three handouts to the committee. Exhibit H is a series of newspaper articles dated in 1993 regarding telemarketing fraud, including comments made by members of the Senate Committee on Finance. Exhibit I is another series of newspaper articles containing the same basic information as in Exhibit H, but dated in 1989. Mr. Sisolak proceeded to read passages from Exhibit I to the committee and remarked, "Here we are 4 years later, and unfortunately many of the same things are happening today that happened in 1989 regarding telemarketing fraud."
Exhibit J is a memorandum dated February 1, 1989, from Shari B. Compton, the former commissioner, Consumer Affairs Division, and a letter dated February 27, 1989, from Larry D. Struve, both concerning telemarketing fraud. Mr. Sisolak read portions of Mr. Struve's letter to the committee in which he referred to telemarketing enterprises as "boiler rooms." He advised the committee that not everybody in the telemarketing business is operating a "boiler room." Many individuals operate legitimate companies and desire regulations and enforcement of these regulations, and the intent of the telemarketing law that was passed in 1989 was to protect the legitimate companies.
Mr. Sisolak said Mr. Struve's letter (Exhibit J) also mentioned in the 2-year period 1987 to 1989 nine lawsuits were filed by the attorney general in behalf of the Consumer Affairs Division. Mr. Sisolak pointed out when the division was under the control of the attorney general and there was no law to regulate telemarketing fraud, more action was taken than has taken place in the last 4 years since the law was passed.
Continuing his testimony, Mr. Sisolak once again referred the committee to the last page of Exhibit J, March Complaint Statistics, and pointed out there were 221 complaints against licensed Nevada telemarketers in March 1993. Some of these companies have as many as 58 complaints filed against them each month. He said these are from people who complain to the Consumer Affairs Division only after they had been unable to obtain satisfaction by dealing with the company.
Mr. Sisolak remarked the telemarketing industry agreed to pay fees established by the 1989 legislature, but he is certain they will not be receptive to paying additional fees as suggested by S.B. 277. He is against the passage of this bill. He further commented:
I keep hearing there is no money....I do not understand why there is no money. There is $1.3 million. That [regulation] is what this money is for, but it is simply not being used for this purpose. The agreement was...we want the regulation. There are five Nevada telemarketers at the present time who have federal action pending against them. I have gone to some of these actions...these telemarketers have more attorneys defending them than the entire staff of the Consumer Affairs Division....You have talented attorneys general, but there is not sufficient resources to adequately prosecute. These companies find the money to pay million dollar fines to the federal government, but they have no money to pay to the State of Nevada.
In 1989 the legislature determined that all the [fee] money would go into a fund to regulate and control telemarketing....The idea of transferring the money [to the General Fund] is ridiculous. There were supposed to be two fees at the time. Now there are more fees than there were originally in the beginning. I question, on the advice of my private legal counsel, whether or not the state legally can collect some of the fees they have been collecting from the telemarketers...which accounts for one of the reasons that there is such a surplus in this budget in the first place. We were not supposed to be paying these fees when the law started....The legislature did not see fit to pass this....The Consumer Affairs Division just instituted it. We are just paying fees that were not part of the deal in the beginning and now there is a budget surplus, so somebody says let's move it. That does not make any sense.
Senator O'Donnell inquired, "You are saying in 1989 when Assembly Bill (A.B.) 142 [of the Sixty-fifth Session] was passed, between 1989 and 1993 we amassed $1.3 million in surplus?"
ASSEMBLY BILL 142
OF THE SIXTY-FIFTH SESSION: Provides for regulation of
solicitation by telephone.
Mr. Sisolak replied,"Yes, sir."
Senator O'Donnell remarked this amount of over one-quarter of a million dollars a year over and above the operating expenses of the agency or approximately one-half of the entire agency's expenses for the year is going into reserve.
Mr. Sisolak concurred with Senator O'Donnell's statement.
Andrew J. Yurcho, Corporate General Counsel, Gerovicap Pharmaceutical Corporation, Las Vegas, Nevada, testified his company is a licensed telemarketer in the State of Nevada and they are opposed to the passage of S.B. 277.
Mr. Yurcho said he shares Senator Callister's frustration. He noted the Consumer Affairs Division is asking for additional funds when there is $1.3 million sitting in a bank, and commented:
I think it is obvious the State of Nevada has advocated its enforcement responsibilities to the federal government. The state is in need of additional revenue, and the industry is prepared to give them this money, but they [the state] should be required to do their job.... If we are going to make this a revenue-producing area we should call it that and do so. If the fees collected will be used for regulatory controls, then there is absolutely no basis for transferring funds into the state's General Fund.
Senator Raggio opened the hearing for discussion of Senate Bill (S.B.) 277 and stated all of the testimony presented in reference to budget page 433 concerning telemarketing will be considered as testimony with reference to S.B. 277.
SENATE BILL 277: Requires excess money in account for regulation of telemarketing to be transferred to state general fund at end of each fiscal year.
Senator Raggio invited the Budget Division to provide the committee with information concerning the impact of the passage of S.B. 277, particularly with reference to the suggested amendment, what the results will be if the bill is passed, as amended, and its impact on the General Fund.
Senator Raggio referred to Scenario One (Exhibit F) and asked Ms. Matteucci to advise the committee how this will impact on the budget.
Ms. Matteucci said if S.B. 277 is passed as originally conceived in the Governor's Executive Budget, section 2 that states the act becomes effective upon passage and approval will have to be changed to become effective in fiscal year 1993-1994 and not upon passage and approval.
Ms. Matteucci stated:
In working with Mr. Struve, we came up with the proposals that were presented to you today. The value of reverting the accumulated surplus...was estimated as income to the General Fund in fiscal year 1993-1994 of $1.4 million and $287,000 in 1994-1995 as shown on page A4 of Volume 1 of the Governor's Executive Budget.
After your request to do so, we put forward the proposal that you see as Scenario One-A, Exhibit F. The transfer to the General Fund would be $667,000 in 1994 and $29,000 in 1995.
I want to clarify and be certain it is on record...in our review of the proposals when the Office of the Attorney General brought forward their proposals...and I am not sure we have seen any numbers other than the explanation that we were just provided this morning of the memorandum (Exhibit E)....Our concern was not the reversion amount. Our concern was if you expend that amount of money for both the telemarketing budget and the Office of the Attorney General, you will be living well without your resources.
Senator Raggio commented he believes the committee has to understand that if both augmentations are made it would be outside of existing revenue.
Ms. Matteucci continued:
Another part of the problem...we have had to revise downward the revenue estimates because the number of companies that were shown in September through December [1992] has significantly dropped as well as the number of salesmen...that is the problem and why we are asking for the authority not to have these amounts established in statute but allow the commissioner and the board to approve the fees....If regulatory activities increase and the number of those licensed leave...which may be something that is desired if these people are not living within the law...then they will need the flexibility to keep their budget whole.
Senator O'Donnell asked, "If we transfer that money and federal action to intervene with telemarketers occurs, are we trying to balance the budget or using budget numbers coming from an industry that is extremely volatile?"
Ms. Matteucci replied:
That is why we are suggesting to you we need more flexibility in dealing with it...you are right, the numbers of businesses and sellers has already dropped significantly from the numbers we were dealing with in December....You may not want to leave the fees cast solely in statute because the agency...if there is significant action that drives some of these licensed people away...would not be able to live within the budget that you approve after it has been revisited.
Senator O'Donnell said:
...what you are saying is to take the $667,000, move it into the General Fund, and if we need to raise the revenue to accommodate the attorney general and whatever regulatory action we need, then we will be allowed to do that as well because we will not have it in statute anymore. Seems to be that is analogous to a Robin Hood. We take from somebody and give to somebody else, and then if we need more money we will just raise their fees or raise the taxes again.
Ms. Matteucci answered:
Even if you did not revert five cents to the General Fund, with the two proposals you have before you and the lower-revenue estimates as the result of the decrease of sellers and salesmen...you will have to raise the fees anyway....You are going to spend through your one-time accumulation of money....Because we have not been afforded the absolute numbers from the Office of the Attorney General, you may not even get out of this biennium without having to..."
Senator O'Donnell interjected:
I would submit the reason the fees are going down is not a function of what the Office of the attorney General has done. It is a function of what the FBI and the FTC has done. That is why the fees are going down because they are putting these guys out of business.
Senator Glomb commented:
I am troubled. Earlier I asked Mr. Struve based on his current budget and without money reverting to the General Fund, would that be enough to regulate or police the industry and he indicated that was adequate funding. I understand he indicated it may not be enough going into the next biennium, but for this biennium it would be enough. Now I am hearing information that is not the case. IS that what you are saying?
Ms. Matteucci replied, "I am suggesting we have not been provided numbers regarding the five new positions requested by the attorney general in terms of cost....Even with the $1.3 million you may not be able to get out of this biennium..."
Senator Glomb asked if it would be possible to get this information before we make a decision.
Ms. Matteucci agreed to provide this information.
Mr. Sisolak stressed he still does not understand why both budgets cannot be implemented if there is $1.3 million available. He does understand the Office of the Attorney General is asking for five new positions but he does not believe the cost of their salaries could prevent both budgets from being implemented at the same time.
Addressing the area of reduced licensees, Mr. Sisolak said not one of the companies that have been subject to federal actions have closed. They pay their fines, sometimes change their business name, but go right on operating as in the past.
Senator Raggio concluded discussion on S.B. 277 and stated it would be held pending the receipt of additional information.
Senator Raggio opened the hearing for discussion of Senate Bill (S.B.) 335.
SENATE BILL 335: Extends date of reversion of certain money appropriated last session to department of taxation.
John P. Comeaux, Executive Director, Department of Taxation, stated S.B. 335 was requested to extend the reversion date from June 30, 1993, to June 30, 1994, of a $500,000 appropriation approved during the last session of the legislature for the purchase and installation of computer hardware and software for an automated collection system. Due to budget uncertainties that became evident immediately after the 1991 session, his department delayed their acquisition process until April 1992 at which time they began their Request for Proposal (RFP) process which was just recently completed. Work is scheduled to begin on April 13, 1993, and the work should be concluded in eight or nine months from that date. It is for this reason the department is asking their approval of S.B. 335.
In response to an inquiry by Senator Raggio regarding the amounts involved, Mr. Comeaux said the original appropriation was for $500,000 and the department currently has approximately $495,000.
Senator Raggio asked, "The contract that was approved by the board of examiners was for a maximum of $831,433?"
Mr. Comeaux replied that contract was for two phases of data processing work. The first phase, which covers the automated collection system, is for a total of approximately $433,000 with a contractor plus additional costs involved with the Department of Data Processing. The second phase is for the balance and is contingent upon the department receiving approval of the data processing enhancement request that is included in the Governor's Executive Budget for the next biennium.
Senator Raggio asked if this would be changed by the proposed reorganization and Mr. Comeaux replied it would not. His department worked very closely with the Department of Data Processing in putting their RFP together, and the software they will acquire is in the kind of language the Department of Data Processing is moving toward so they are not in conflict with anything contained in the reorganization. The software will operate off of the Department of Data Processing's mainframe computer.
Senator Raggio concluded discussion on S.B. 335 and stated action on this bill will be held at the request of Senator Coffin.
Senator Raggio opened the hearing for discussion of Senate Bill (S.B) 336.
SENATE BILL 336: Allows commissioner of veteran affairs to collect fee for acting as guardian of certain estates.
Randy C. Day, Commissioner, Office of the Nevada Commissioner for Veteran Affairs, testified S.B. 336 was written at his urging and if approved, the fees generated would be an enhancement to their budget as well.
Mr. Day said his office is currently in charge of the estates of approximately 50 veterans. He is petitioning the courts for an additional five incompetent individuals and within the month of April 1993 will petition for five more which will bring the total number of their charges to 60.
Mr. Day remarked his office is currently in control of assets totalling $1.6 million. S.B. 336 proposes that if a person for whom the commissioner acts as guardian receives a monthly income of $500 or more, a fee of 5 percent can be charged to pay for the expenses of providing the guardianship service. Because the question came up during prior budget hearings, Mr. Day clarified the 5 percent fee would not be assessed on the total estate, only on the total income in the year.
Senator Raggio asked where the $1.6 million assets would be placed, and Mr. Day stated this would be an enhancement to the budget and used for inmate labor at two veterans' cemeteries.
Senator Rawson commented:
We want to be certain we have adequate controls on this account...that there will be a good paper trail and we will have no confusion or problems regarding the funds. If S.B. 336 were passed, would this allow this to be done in a more efficient manner? In other words, is it important to safeguarding the accounts?
Mr. Day stated within the agency they have an internal auditor who will be monitoring the accounts along with the Budget Division. Also, the commission must provide an annual accounting to the court system at which time they must present a total amount of expenses and income for the year. When his office petitions the courts for guardianship purposes, the commission must receive approval of the 5 percent fee.
Senator Rawson asked how much Mr. Day estimated the commission would raise on a yearly basis, and Mr. Day responded approximately $30,000 to $35,000 annually to be used for inmate labor at the cemeteries.
Senator O'Donnell referred to the guardianship law as defined in Chapter 117 of Nevada Revised Statutes and asked if the 5 percent fee as legal guardian is consistent with the fees charged by a public administrator for a county.
Mr. Day responded the 5 percent annual charge is consistent with the fees charged by public administrators, attorneys, or private individuals performing a guardianship function. The big difference is his office would assess a 5 percent annual fee only whereas a public administrator or attorney would charge for court appearances, notary service, and affidavits.
Senator Jacobsen asked how much time, in a year, Mr.Day spends in dealing with guardianship cases.
Mr. Day replied within the commission they have a program assistant who spends approximately half of her time with guardianship or estate matters. Mr. Day also devotes a considerable amount of time in this regard.
SENATOR RAWSON MOVED TO DO PASS S.B. 336.
SENATOR JACOBSEN SECONDED THE MOTION.
THE MOTION CARRIED UNANIMOUSLY.
* * * * *
Senator Raggio stated the committee was furnished copies of the first proposed budget closing lists 1 - 4 and requested they review the lists prior to the hearings and closing actions for these budget items.
Senator Raggio adjourned the hearing at 9:47 a.m.
RESPECTFULLY SUBMITTED:
Marion Entrekin,
Committee Secretary
APPROVED BY:
Senator William J. Raggio, Chairman
DATE:
??
Senate Committee on Finance
April 5, 1993
Page 1