MINUTES OF THE JOINT MEETING OF
SENATE COMMITTEE ON GOVERNMENT AFFAIRS
AND
ASSEMBLY COMMITTEE ON GOVERNMENT AFFAIRS
Sixty-seventh Session
February 17, 1993
The joint meeting of the Senate Committee on Government Affairs and the Assembly Committee on Government Affairs was called to order by Chairman Ann O'Connell, at 1:45 p.m., on Wednesday, February 17, 1993, in Room 207 of Cashman Field Center, Las Vegas, Nevada. Exhibit A is the Meeting Agenda. Exhibit B is the Attendance Roster.
SENATE COMMITTEE MEMBERS PRESENT:
Senator Ann O'Connell, Chairman
Senator Sue Lowden, Vice Chairman
Senator Dean A. Rhoads
Senator Thomas J. Hickey
Senator Leonard V. Nevin
COMMITTEE MEMBERS ABSENT:
Senator William J. Raggio (Excused)
Senator Dean A. Rhoads (Excused)
Senator Matthew Q. Callister (Excused)
ASSEMBLY MEMBERS PRESENT:
Mr. Val Z. Garner, Chairman
Mr. Rick C. Bennett, Vice Chairman
Mrs. Kathy M. Augustine
Mr. Douglas A. Bache
Mrs. Marcia de Braga
Mr. Peter (Pete) G. Ernaut
Mr. Lynn Hettrick
Mrs. Erin Kenny
Mr. James W. McGaughey
Mrs. Joan A. Lambert
Mrs. Gene W. Segerblom
ASSEMBLY MEMBERS ABSENT:
Mr. Vivian L. Freeman (Excused)
Mr. Wendell P. Williams (Excused)
STAFF MEMBERS PRESENT:
Caren Jenkins, Senior Research Analyst
Dana R. Bennett, Senior Research Analyst
Diane Gamble, Committee Secretary
OTHERS PRESENT:
Judy Matteucci, Budget Administrator, Budget Division, Department
of Administration
Dr. Kenny Guinn, Chairman, Governor's Commission on Reorganization
Claudine Williams, Member, Governor's Commission on Reorganization
John P. "Perry" Comeaux, Executive Director, Department of
Taxation
Lynn Granlund, Granlund-Watson-Clark and Associates, Las Vegas,
Nevada
Dono Peterson, M. S. Concrete, Las Vegas, Nevada
Toni Caputo, President, Able Iron, Las Vegas, Nevada
Tom Stephens, Professional Engineer (P.E.), Manager, State
Public Works Board
Judy Matteucci, Budget Administrator, Budget Division, Department of Administration, described the handouts she included in each packet (Exhibit C through F). Ms. Matteucci introduced Dr. Kenny Guinn and Claudine Williams, both who worked on the Governor's Commission on Reorganization. She indicated that Dr. Guinn would outline the framework of the commission and possibly give some insight to the why certain recommendations were made.
Ms. Matteucci listed as other members of the commission:
Michael Dermody, Dermody Properties
Senator Virgil Getto
Tom Guthrie, Southern Nevada Certified Development Company
Ray Vega, Vega Enterprises, Inc.
Dr. Kenny Guinn, Chairman, Governor's Commission on Reorganization, stated over the past 28 years he has served on several committees involving a variety of study topics. Dr. Guinn testified that during first commission meeting it was decided not to recommend where to cut more money from the state's budget, but, rather to look at the structure of the state's organization and make recommendations on how to reach a maximum effectiveness throughout the agencies.
Dr. Guinn made general comments of the commission's discussions, paralleling the reorganization study with what may be proposed in any private industry. He likened the legislature to a board of directors. Continuing, Dr. Guinn encouraged the members to openly communicate with Ms. Matteucci, saying the changes included in the reorganization are not firm and certainly could be modified.
Senator Hickey criticized the commission's judgment in not allowing the involvement of members of the legislature to devise the reorganization plan. According to Senator Hickey, the budget office and reorganization commission have submitted a concept, not specific information and exact figures that illustrate where any savings are to take place. He told Dr. Guinn the legislators need to know what services would be cut, what positions would be eliminated and the total costs for agencies to function, in order to see any kind of savings. Senator Hickey pointed out these are necessary details needed to understand the proposed governmental reorganization.
Dr. Quinn commented the legislators may not need the kind of details they were requesting. The discussion continued between Senator Hickey and Dr. Quinn, mainly centering around the Department of Education and Health & Human Services. Dr. Quinn used as example that teacher certifications are 8 months behind, and stated these were the types of concerns the reorganization plan would address.
Assemblyman McGaughey expressed displeasure that, at the very least, the legislators who are on the money committees should have been included in the organizational study process. Dr. Quinn stated those appointed to the reorganization commission, were established at the Governor's level and appointments were not under the control of the commission. Mr. McGaughey indicated it is necessary for the legislature to feel comfortable with the details of reorganization.
Dr. Quinn pointed out that higher education, the legislative and judicial branches and the State Industrial Insurance System (SIIS) were not included as a part of the reorganization plan.
According to Senator Nevin, many legislators are frustrated because the organizational scheme has not been laid out in such a way that it ties in with the budget process. He indicated many see this as a cart before the horse scenario.
Assemblyman Garner stated there is widespread interest in the concept of greater efficiency in government. He saw room for negotiation and was under the impression all questions on the reorganization would be answered in the coming weeks.
Mrs. Lambert asked Dr. Quinn to give examples of how the reorganizational plan could be phased in, using a gradual process.
Dr. Quinn drew attention to law enforcement training programs, indicating the combination of the two state programs would eliminate one entire staff, over a period of time.
Ms. Matteucci used as an example, the combination of information technology services. This would involve the data processing and telecommunication services being brought together into a central information technology services division, within the new Department of Administration. She said the data centers would not originally be combined, but instead initiate a plan to phase them together gradually. She added the end goal would be one central unit.
At the request of Chairman O'Connell, John P. "Perry" Comeaux, Executive Director, Department of Taxation, testifying via video teleconferencing from Carson City, discussed the specific recommendations to combine business tax audits. Mr. Comeaux explained beginning October 1, 1993, the Department of Taxation would conduct audits of Nevada businesses for the Employment Security Department (ESD) and SIIS, as well as the other audits they currently conduct. He indicated the Department of Taxation would receive 14 new positions to accomplish the additional duties.
According to Mr. Comeaux, these combined audits will provide the opportunity to better utilize existing resources. Auditors from the three divisions would be cross-trained, cutting down the actual audit hours for Nevada businesses by anywhere from 5 to 8 hours.
He explained that an audit selection criteria must be developed for the payroll-based audits, to establish audit risk. He further explained audit risk to be when the proper amount of tax or premium has not been collected, and an audit list is then established derived from this information. Mr. Comeaux indicated the payroll audit list would enhance the sales tax audit list, greatly increasing efficiency.
Mr. Comeaux stated since the effective date is scheduled for October 1993, (3/4 of the first fiscal year) the proposal calls for a transfer of approximately $955,000, each, from ESD and SIIS. During the second year of the biennium, the figure would increase to $1,350,000 from each of the two agencies. He continued, "SIIS will benefit from this program by receiving a portion of the audit effort of...62 auditors, by the second year of the biennium."
He estimated the number of audits anticipated for January-February 1994, after cross-training auditors, should be between 2,840 and 3,700. During the second year of the combined audits, the number should increase to between 4,000 and 5,000 audits, the majority of which would include business tax, ESD and SIIS audits. The funding mechanism included in the budget is based on the assumption of equality of benefit to be received from the combined program. After the first biennium, it will be possible to fund the program based on actual audit hours.
Senator Lowden said the SIIS premium holders are concerned that the money currently used for audits, will go into the General Fund.
Mr. Comeaux responded to Senator Lowden's comment by saying, according to budget figures, SIIS would realize a savings of $800,000 over the 2-year biennium. Therefore, the Department of Taxation should be able to achieve the same results as SIIS audits, but with fewer staff.
Senator Nevin explained to Mr. Comeaux that legislators are uneasy about allocating stand-alone accounts to be merged with other accounts. He explained stand-alone accounts to be separate funds, identified with a specific purpose and usually not allocated for any other purpose. He saw a problem with having the combined auditors being paid with funds that have been put into the system by SIIS premium holders. He questioned the cost of the total number of auditors to be paid from SIIS funds, in comparison to the audit system used now under SIIS.
Mr. Comeaux testified that actual audit hours are being tracked according to audit type. He explained this became necessary with the business tax audits, beginning the first of January 1993, but before that time there is no record of audit hours spent. The strict tracking of audit hours will allow review of the costs allocated to the agencies for which an audit is done, Mr. Comeaux stated.
Chairman O'Connell asked Mr. Comeaux if her information was correct in that SIIS does approximately 11,000 audits yearly, with an average recovery rate of $225 per audit. She next asked if she was correct in understanding that Mr. Comeaux's plan was to be more selective in who is audited, thereby resulting in more productive audits. She indicated that currently SIIS performs an audit automatically on a two office person, when more times than not, this would not necessarily prove to be productive as far as recovery is concerned.
Mr. Comeaux agreed with Chairman O'Connell's figures and stated he asked for detailed information from SIIS on the 11,855 audits conducted in fiscal year 1992. He continued, there is confusion as to whether the reported recovery figure of $225 per audit, is the recovery amount or the billing amount.
In requesting further detailed information on the nature and specific results of the 11,855 audits, he was informed 4,268 were considered "termination audits." Audits which are done automatically when an account is terminated with SIIS. Mr. Comeaux stated the recovery on the 4,268 audits, was $2.5 million. Continuing, he stated this amount was almost the total recovery for the fiscal year 1992.
Mr. Comeaux indicated there were several questions on the figures he has been furnished, that need to be clarified with SIIS. The remaining audits that were performed, Mr. Comeaux broke down in the following manner:
1. 3,000 audits requested by prime contractors on subcontractors.
2. 1,330 desk audits (form audit).
3. 3,257 remaining audits (presumably from audit-risk criteria).
He stated further,
What we are proposing as an approach, would be to have the audit selection be the main driver of the audit program, and to make the accommodations...that we have to on auditing the prime contractors and doing determination audits. Apparently, if the information we have is correct, those termination audits are successful for them and if they are...there has to be reason for that, which would become a part of the risk assessment or selection criteria.
Mr. Comeaux said he has not yet received recovery information requested from SIIS regarding prime contractor audits.
Concluding, Mr. Comeaux stated the end result would be not to lose any audit recovery, but to try and produce, through the proper audit selection, the same or more recovery by doing fewer audits.
In response to comments from Senator Hickey, Mr. Comeaux replied:
The Department of Taxation for the last 6 years has been working toward determining what the optimum audit coverage level should be. When I first came to the Department of Taxation 8 years ago...our audit coverage was...between 2 and 4 percent. In other words, we audited on a yearly basis 2 to 4 percent of the registered accounts in the state...we have systematically ...increased our audit coverage level...we arrived at our staffing level on the basis of the audit coverage that we think that will allow us to achieve.
Senator Hickey asked if he was correct in assuming that there had been growth in efficiency up to this point, and the proposed merger of the audits system would increase the growth even further.
Mr. Comeaux answered yes and enhancing the coverage level would be the auditors the Department of Taxation would acquire from SIIS.
Chairman O'Connell asked for further comments from Dr. Quinn and Ms. Williams. According to Dr. Quinn, the proposed audit changes would be better than having four separate agencies disrupting private enterprise businesses, to perform audits. Cross-trained auditors would have better chance for promotion and add to their job stability and his overall opinion is that the proposal would be advantageous for all. Dr. Quinn added another advantage of having one large group of auditors under the same direction is the ability to implement positive audit and management programs, as compared to negative type criticism audits.
Tom Stephens, Professional Engineer, (P.E.), Manager, State Public Works Board, stated he currently head the agency and answers only to the Public Works Board. He termed this an "independent agency" due to the fact is appointed by and answers to the same board. Mr. Stephens testified it is proposed under the reorganization plan to move the majority of the duties currently under General Services to his charge. This would include Mail Services, and the Printing and Purchasing Divisions.
Mr. Stephens indicated his main focus in this meeting would be to describe how his agency would implement the reorganization plan for his agency and to explain the duties of newly proposed Construction and Facilities. Continuing, he stated this is the combination of three current groups: Building and Grounds, Property Insurance of Risk Management, and the Public Works Board.
He broke the present assignments of the divisions down in the following manner: The Public Works Board now handles planning, design and construction of facilities; Building and Grounds Division, currently takes care of operation and maintenance of facilities; while the Risk Management Division is charged with overseeing the property insurance of facilities. Mr. Stephens sees the combination of the division as a holistic approach to caring for state facilities.
According to Mr. Stephens the new Facilities Maintenance Division is not proposing to handle maintenance for the agencies not currently using the existing Building and Grounds Division under General Services. These agencies include: Employment Security Department, Mental Health Institutes, Prisons, SIIS, Transportation, University System, and Youth Training Centers. He did indicate the option would be considered to include the agencies located in the capitol complex.
Mr. Stephens stated the Construction and Facilities Division under the proposed Department of Administration was shown on the handout as five departments, but actually would only be four new departments. He further indicated the Insurance and Loss
Prevention Division was actually one employee with a budget of $1.7 million budget and would be housed with the Facilities Administration.
In Mr. Stephens' opinion, the advantages of the reorganization of the public works and construction and facilities would be to better identify deficiencies under the current warranty programs. He continued:
"...if equipment does not break down during the first year, it is turned over to maintenance. Sometimes, they do not identify it...or do maintenance...and we lose out on our warranty...everyone realizes things will break down in the first year...you would not buy a new car without a bumper to bumper 1-year warranty...and you are not surprised when you have to take the car in to be fixed...we should not be surprised when...done under facilities...when we turn the facilities over sometimes we do not hear about things that are wrong until after the first year, and then it is a maintenance problem and not a warranty problem. We will have better identification of warranties, more sensitivity in our designs...in the construction end of things...and the operation of maintenance problems.
Mr. Stephens stated an advantage to the revisions to facilities maintenance, presently Buildings and Grounds Division (B&G), was the Public Works Board's contracting expertise. This expertise would enable the division to administer service contracts, have the availability of multi-disciplined architecture and engineering professionals to solve maintenance problems. Continuing, he said they would assist in annual building inspections, and identify long-term deferred maintenance problems. He added:
"We have computer expertise that we can apply to set up management information systems, and work control systems for maintenance. Currently, they have virtually....very little computerization over at B&G. They do some utility tracking, but they do not compare it with the last year. They have four people, who they call accountants that sit in a room and account for their $7 million a year budget. They have one computer...it is a 1985 IBM PC...the first thing...to be computerized was peoples books, records and accounts...they do lots and lots of stuff by hand over in building and grounds. We are not doing it by hand at the Public Works Board and the first thing we are going to do is implement some sort of computerization to manage their utilities, facility maintenance system and a facility survey system.
Mr. Stephens moved on to discuss facility insurance. He said he would assist in analyzing the policies and contracting. Further, he said his staff would assist in property evaluation. Mr. Stephens questioned what risk management bases their insurance policies on, since his office has never been consulted on property evaluation. He added:
We can assist in installing some loss prevention projects. When we have more realization to some of these insurance risks, maybe we should sprinkler this building, maybe we should do better snow removal outside this other building, when there are lots of people slipping on the walks...we can combine the loss prevention into actually going out and doing things if we have a greater sensitivity to it.
I would hope our goals, or what we hope to see at the end...is reduce utility bills...reduce space requirements ...right now there is no space utilization study, we are not matching lease space, which building and grounds does, with the constructed space...we do a billing kind of a thing, but we do not say how many people are in the agency, or how far they went up and down, and I think we can match vacant space better, with...agencies that have a requirement, and get more agencies into owned facilities and out of leased facilities...
We will have improved custodial services with the contract administration that we have. I believe we will have a more effective maintenance program, we will certainly have a deferred maintenance back log. There is no deferred maintenance backlog in the State of Nevada because no one has ever figured it out...any state or county government can tell you what it is.
I would like to see the development of a 10-year capitol plan, so we know that 6 years from now we are going to have a certain amount of roofing work done, a certain number of air conditioners are to be replaced...reinvest in a 25-year old facility with a major remodel...it should not be based on the next biennium's capitol improvement program...
Concluding his remarks, Mr. Stephens stated:
"..I would add...this is more of a budget item, you may or may not be interested in...there are three budget accounts here, one for B&G, Public Works and risk management, once we combine these...we are going to have to transfer things back and forth...the best person to keep care of the leasing program is not B&G, its someone at facilities administration, who is currently keeping track of the construction contracts. We are going to have to blur some of the lines between the three budget accounts to get the job done...
There are great efficiencies here and great monetary savings...but I am not promising anybody any monetary savings in the first year or the first biennium...if you start managing your maintenance program and all these expensive facilities, you are going to save a lot of money.
Chairman O'Connell thanked Mr. Stephens for his presentation and enthusiasm in his proposals.
Senator Hickey asked Mr. Stephens if it would be his intention to handle maintenance for state parks, or if he envisioned being involved with that agency at all in the future.
Mr. Stephens answered no, but he did add, "If we can turn around the maintenance system, sell the program to our customers...I think they would willingly want us to help the with the maintenance program in the future. We have to start out with B&G and see what we can do there...but we need to improve the custodial service and if we cannot do that, we do not deserve to be given anything else ...we can bring maintenance into the last part of the 20th century for B&G..."
Discussion ensued between Senator's Hickey and Nevin as to the use and acquisition of computers to assist in Mr. Steven's outline of proposals.
Lynn Granlund, Granlund-Watson-Clark and Associates, voiced her concerns as a policy holder of SIIS, and premium monies being used for audits of Nevada businesses. She echoed Senator Nevin's earlier concerns of spending money collected for SIIS premiums on auditing for the business tax.
Dono Peterson, M. S. Concrete, Las Vegas, testified in order to have certificates issued to prime contractors he does business with, his company is required to have a yearly SIIS audit. Mr. Peterson stated in order to realize the savings Mr. Comeaux mentioned, a company would have to be subjected to all three audits, even if not needed. He suggested changing the requirement that subcontractors have a yearly SIIS audit, or possibly requiring the contractor rather than the subcontractor to be responsible for the industrial insurance.
Toni Caputo, President, Able Iron, expressed concern from comments made by Mr. Comeaux. Ms. Caputo explained when she works with a general contractor she is required to submit a starting certificate from SIIS, as proof of industrial insurance. At the completion of the job she is required to provide a final certificate and the general contractor withholds her money until he receives the final certificate. If SIIS will only be able to accomplish 2,800 audits a year, Ms. Caputo claims she will be put out of business, waiting to for SIIS certificates.
Chairman O'Connell reiterated Mr. Comeaux's willingness to speak to the business community in Las Vegas and address any concerns that have arisen.
There being no further testimony, Chairman O'Connell adjourned the meeting at 4:30 p.m.
RESPECTFULLY SUBMITTED:
Ricka Benum,
Committee Secretary
APPROVED BY:
Senator Ann O'Connell, Chairman
DATE:
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Senate Committee on Government Affairs
Assembly Committee on Government Affairs
February 17, 1993
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