The Committee on Constitutional Amendments was called to order at 3:36 p.m., on Thursday, May 20, 1999. Chairman Robert E. Price presided in Room 3161 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Guest List. All Exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.

COMMITTEE MEMBERS PRESENT:

Mr. Bob Price, Chairman

Mr. Harry Mortenson, Vice Chairman

Mr. Bernie Anderson

Mr. Greg Brower

Mr. Don Gustavson

Ms. Kathy Von Tobel

COMMITTEE MEMBERS ABSENT:

Ms. Sheila Leslie

GUEST LEGISLATORS PRESENT:

Senator Dean A. Rhoads, Northern Nevada Senate District

STAFF MEMBERS PRESENT:

OTHERS PRESENT:

Senator Dean A. Rhoads, representing the Northern Nevada district, submitted a copy of his statement for the record (Exhibit C). He also referred to a packet with more detailed information (Exhibit D). The packet included a discussion of previous attempts to eliminate the office. He explained the effect of the resolution would eliminate the elected office of controller and create an appointed director of financial reporting. He said the intention was not to eliminate an office, but to merge the offices of treasurer and controller into one. Additionally, Senator Rhoads asserted the checks and balances operating internally would suffice to maintain the integrity of the fiscal system. Senator Rhoads said eight positions would be eliminated, saving taxpayers at least $500,000 per year. States with combined controllers and treasurers offices included Texas, Florida, Minnesota, and Wisconsin.

Ms. Von Tobel asked if the ballot question would come before the people in a municipal election or a general election.

Senator Rhoads answered the ballot questions would be presented in a municipal election. A similar procedure had been used when a measure on net proceeds was passed several years prior. The municipal elections would be held sooner than the general election, and Senator Rhoads felt it would be appropriate so no one would run for the office of controller in the general election. He assured Ms. Von Tobel the procedure was legal.

Ms. Von Tobel said she was not included in municipal elections because she lived in Clark County, not in a city.

Senator Rhoads responded there would be mail in ballots available for rural voters. He acknowledged an expense would be incurred to print, distribute, and count those ballots. Senator Rhoads pointed out elimination of the controller’s office would save at least $500,000 per year, and the savings could be used to reimburse the counties for administering the special mail ballot.

Ms. Von Tobel asked what the cost would be for the mail ballots.

Senator Rhoads said the cost would be approximately $800,000. He thought 50 to 60 percent of the voters would be covered in the municipal elections, with 40 percent utilizing mail ballots.

Chairman Price asked Senator Rhoads if he had submitted prior bills to eliminate constitutional offices.

Senator Rhoads responded he had bills changing the governor’s appointment powers as well as bills modifying the composition of the transportation board.

Chairman Price asked what his concerns were with the controller’s office.

Senator Rhoads said there had probably been a need for both a treasurer and controller when the original constitution was written in 1864. However, present day technology provided its own set of internal checks and balances and the need for both offices had diminished. Senator Rhoads stated most corporations and several counties and municipalities had done away with one office or the other.

Chairman Price observed not all eight people in the office would be eliminated, because some jobs were not currently duplicated in the treasurer’s office.

Senator Rhoads responded he had been working on the issue since 1995 and had input on the staffing of the controller’s office. He asserted eight jobs would indeed be eliminated.

Mr. Anderson said the office of the controller was the least understood constitutional office. It was difficult to measure the checks and balances accomplished by having a controller and treasurer. He was concerned because the public was uneducated about the function of the controller. Mr. Anderson felt the need was even stronger for a check and balance system in light of current technology. Mistakes could be made easily with computers and were difficult to track. He asked if the controller was needed to play a "watchdog" role over the state’s funds.

Senator Rhoads reiterated many states and municipalities had eliminated one of the two positions.

Carole Vilardo, president of the Nevada Taxpayers Association, supported the merger of the two offices. She felt a merger would be much more efficient, given the available technology to control funds. Ms. Vilardo said New York utilized only one of the constitutional offices. She asserted there was no need for both offices. Ms. Vilardo said in the past, a controller and treasurer were arrested and convicted after they colluded to embezzle funds from the state. When the resolution was heard in the Senate, it was to go into effect in 2008. She suggested the merger go into effect as soon as possible, so the financial benefits could be reaped before 2008. The change to a municipal election instead of a general election allowed for a sooner merger. Ms. Vilardo asserted the same practice was utilized to change the mining tax structure in 1989.

Chairman Price introduced Relman Van Danniker, executive director of the National Association of State Auditors, Controllers, and Treasurers, who was participating in the meeting through a telephone conference from Kentucky. He acknowledged the association represented both controllers and treasurers, so he did not want to take a position on one side of the issue, but simply wanted to provide information on the offices for the committee.

Kathy Augustine, State Controller, wished to clarify testimony provided by Ms. Vilardo. She said New York had both a comptroller and treasurer, however, the comptroller was elected while the treasurer was an appointed office. She submitted a packet of information that refuted statements made by Senator Rhoads (Exhibit E). The Office of the State Controller opposed S.J.R. 9. The packet asserted the cost savings and financial figures calculated by Senator Rhoads were erroneous. Section 1 outlined the current positions in the controller’s office and their salaries as well as current positions in the treasurer’s office. Ms. Augustine went on to say the controller’s office could easily justify every position in the office, which included many hours of overtime and comp time. In addition, the controller was requesting seven additional positions in the next biennium to handle the increased responsibilities of the new integrated financial system.

Section 2 covered the appointment process for the proposed director of financial reporting. Ms. Augustine said the appointment of the director would not result in any cost savings. She thought the salary would be higher for the director than for the elected controller, because salaries were generally higher for appointed positions. In addition, decisions by the courts had specified the controller as the state’s chief financial officer. She said only four states had combined the offices of controller and treasurer, and in those cases it was the treasurer that was eliminated—not the controller. Ms. Augustine pointed out several ethical concerns that could arise due to the various boards on which the controller served. She also stated a 1984 attorney general’s opinion ruled the controller was the chief financial officer of the state, while the treasurer was the chief dispersing officer. A copy of the opinion was included in the handout
(Exhibit E). In addition, the controller had many more responsibilities than financial reporting.

In section 3, Ms. Augustine described the requirement of further legislation as a result of a new title for the controller. New job titles and descriptions would have to be made. She also included a list of the current responsibilities for the controller and treasurer. Section 4 outlined costs incurred by changing the name from state controller to chief financial reporter and to change Department of Taxation to Department of Revenue. The controller asserted the reprinting of statutes would take approximately $25,000. Section 5 covered the qualifications for the Office of State Controller, which varied between states. Ms. Augustine said the qualifications were currently outlined in the constitution. She stated one of the main responsibilities of the controller was to maintain the state’s accounting system, while the legislature established state accounting principles. She pointed out there had been no discussion on the qualifications of the treasurer. Section 6 covered all the legislature’s responsibilities in regard to the controller’s office. Section 7 outlined Ms. Augustine’s concerns with the special municipal ballot. The $85,000 cost was an unfunded mandate and most voters did not participate in municipal elections. The cost to the counties amounted to $771,000, according to the Nevada Association of Counties.

Mr. Anderson observed state statutes were reprinted on a regular basis, and the cost of $25,000 was probably high. In addition, the cost of reprinting the statutes would be a one-time cost, while elimination of the controller’s office would be continual savings.

Ms. Augustine responded the savings figures presented by the sponsor of the resolution were not accurate. She said there would be no cost savings by eliminating the controller’s office.

Mr. Mortenson referred to the lists of positions in the treasurer’s and controller’s offices. He asked why there would be savings, because he did not see any duplicative positions.

Ms. Augustine said most of the positions in the controller’s office were in fact classified. She said the treasurer’s office had more unclassified positions because there were several deputies.

Patty Cafferata, former State Treasurer, testified in opposition to the resolution. She said the checks and balances in the system were very important. The treasurer held the funds, while the controller was responsible for dispersing those funds. The treasurer could never access those funds, and the controller could never be responsible for receiving the funds. She said there had been two major embezzlements in the state’s history. She acknowledged no system could prevent collusion between the two offices. However, separating the two offices provided greater protection from embezzlement. Clark County had experienced embezzlement when both the treasurer and controller had access to disbursements. Changes had subsequently been made in the state offices to ensure both offices never handled disbursements simultaneously. Ms. Cafferata expressed concern with the abolishment of a constitutional office. The accountability to the public would be lost if the director of financial reporting was appointed. She acknowledged many constitutional offices were eliminated prior to the turn of the century. However, the state executive branch was a cabinet style organization at that time. As the state grew, those positions were eliminated as new directors and chairmen were created. The fewer elected officers in the executive branch, the more powerful the governor became. She did not understand why the legislature would want to give the governor control over the fiscal process by giving him authority over the state’s revenues and expenditures. Ms. Cafferata also pointed out many municipalities had eliminated their special June elections and moved to the general election cycle in November.

Mr. Van Danniker remarked states utilized the treasurer and controller separation to ensure monies were protected. He agreed every state used a different method for collecting and dispersing funds. Mr. Van Danniker acknowledged most states that merged the offices eliminated the office of the treasurer rather than the controller. He said the internet and other computerized financial systems had accelerated financial tracking and planning to a large extent. Some states were in fact considering eliminating both offices because of the increased efficiency in financial systems. In fact, Microsoft was on the verge of closing the accounting on a daily basis with complete financial statements. He suggested a study on the need for either office would be appropriate. He urged the state to find the most efficient approach, which may include eliminating both offices or keeping both offices. Mr. Van Danniker felt it might be better to wait 2 to 3 years before making any changes so the effects of new technology could be more properly evaluated. He said any changes made would impact local government the most. Mr. Van Danniker also stated it was not necessary for the treasurer or the controller to be a certified public accountant.

Darrell Daines, former State Controller, submitted a written copy of his testimony for the record (Exhibit F) as well as a political commentary on the office of the controller (Exhibit G). He provided testimony in opposition to the resolution. Mr. Daines gave a brief overview of his career, including his 16-year tenure as controller. He argued it would be difficult to codify the skills he had as requirements for the office of controller. He said no other states required any skills or education of their controllers. Mr. Daines also argued the cost savings alleged by the resolution’s sponsor were false. He reiterated separation of the two offices was critical for providing a check and balance system. Mr. Daines observed the governor’s powers had been increasing slowly through the appointment process. He controlled most boards and commissions because of that process. Mr. Daines said being an elected controller allowed him more flexibility and independence to protect the interests of the state—not the interests of the governor.

Robert J. Gagnier, executive director of the State of Nevada Employees Association, testified in opposition to A.J.R. 9. He reiterated the need for both offices to perform checks and balances. Mr. Gagnier said reorganization had not proved efficient in state government in the past, and would not be efficient in that case. His association had extensive contact with the controller’s office, and saw a continued need for the office. Mr. Gagnier also said the Department of Personnel did not classify many of the positions outlined in Senator Rhoads’ presentation, and he did not recognize them to be functioning in the controller’s office.

Mr. Daines remarked Mr. Van Danniker was one of the most knowledgeable individuals in the country on governmental accounting. He was instrumental in improving governmental accounting standards. Mr. Van Danniker was an asset to all auditors, controllers, and treasurers in the United States.

Ken West, Chief Deputy State Controller, was concerned about the cost estimates made by Senator Rhoads in support of the resolution. He was not aware of any requests for staff information for the controller’s office. He had not provided that information to anyone, and did not see how the figures were calculated. He did not feel any of the positions in the controller’s office were duplicated in the treasurer’s office. The integrated financial system, approved by the legislature in 1997, would require for more employees in both offices. Mr. West commented the controller was even more important in the electronic age, because investments and bonds were transmitted so quickly. The states with combined treasurer/controller offices had moved investments to another office to provide for a check and balance.

Mr. Van Danniker said the treasurer and controller were combined in Texas for political reasons. The treasurer ran on a platform of abolishing his office. The controller did not support taking over the functions of the treasurer because of the investment aspect. However, the measure passed and the controller now monitored investments. There was a concern in the state about the separation of functions.

Janine Hansen, president of Nevada Eagle Forum, expressed her opposition to the resolution.

Mr. Anderson commented the check and balance system provided by the treasurer and controller was not widely understood. He appreciated the job performed by Ms. Augustine as well as the State Treasurer.

The committee presented a gift to Chairman Price for his service during the 70^th Session.

The meeting of the Assembly Committee on Constitutional Amendments was adjourned at 5:05 p.m.

RESPECTFULLY SUBMITTED:

Kelly Gregory,

Committee Secretary

APPROVED BY:

Assemblyman Bob Price, Chairman

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