The Committee on Commerce and Labor was called to order at 1:15 p.m., on Friday, May 14, 1999. Chairman Barbara Buckley presided in Room 4100 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:

Ms. Barbara Buckley, Chairman

Mr. Richard Perkins, Vice Chairman

Mr. Morse Arberry Jr.

Mr. Bob Beers

Ms. Merle Berman

Mr. Joe Dini, Jr.

Ms. Chris Giunchigliani

Mr. David Goldwater

Mr. Lynn Hettrick

Mr. David Humke

Mr. Dennis Nolan

Mr. David Parks

Mrs. Gene Segerblom

COMMITTEE MEMBERS ABSENT:

Mrs. Jan Evans

GUEST LEGISLATORS PRESENT:

Assemblyman John Lee, Representing Assembly District 3

STAFF MEMBERS PRESENT:

OTHERS PRESENT:

Following roll call, Chairman Buckley opened the hearing on Senate Bill

322.

Senator Michael A. Schneider, Senate District 8, noted in Las Vegas timeshare projects were proliferating and the conditions of resale were very important to the community and the real estate industry. Senator Schneider introduced Shirley Penzel, Real Estate Projects Chief, Real Estate Division, Department of Business and Industry, who would review the bill.

Ms. Penzel provided Exhibit C to the committee as background information. The bill under consideration amended timeshare law to provide for timeshare resale brokers to have a small registration process to provide a record of resale activity. Registration was not currently required, which created a problem. She felt that the bill evened the opportunity between timeshare developers and timeshare resales. Although a filing fee of $500 was in the bill, the Real Estate Division was amenable to eliminating the fee.

Chairman Buckley revealed the committee had approved a fee, which had been vetoed, and they were not favorably inclined to approve another fee. Ms. Buckley asked Ms. Penzel to relate the problems justifying the need for the bill.

Ms. Penzel replied individuals who were timeshare owners had experienced problems such as having paid a $500 advance fee, which was not returned and they were not able to utilize their timeshare because it had been rented out. Developers in northern and southern Nevada with timeshare projects were being harmed by false advertising from those who sold timeshare resales. There was no regulation at all and the practice was flagrant. A simple record was being requested to ensure the timeshare resale agents were known.

Chairman Buckley inquired about the statement on page 3, which stated a person was not required to register if they had acquired fewer than 12 timeshares, and wondered if that applied to the owner/seller as an exclusion. Ms. Penzel replied affirmatively.

Stephen J. Cloobeck, President, Polo Resorts, Inc., revealed his organization controlled Polo Towers, The Jockey Club, and the Carriage House in Las Vegas. They had 48 percent market share of all the vacation ownership sales in Las Vegas and the surrounding area, and represented approximately 40,000 homeowners. They were in support of the bill because of personally suffering numerous consequences from some owners being "taken" by advanced fees. Mr. Cloobeck felt that the state should take on the regulation to enhance tourism customer satisfaction. It was the intention of Polo Resorts to initiate a resale operation of their vacation ownership sales in the near future. Resale timeshares were a long standing problem in the industry. Mr. Cloobeck asked the committee to approve the bill and move it forward as quickly as possible.

Foster Mullen, QM Resorts and Century 21 Real Estate, announced they operated in northern Nevada and managed four resorts located in Lake Tahoe and Reno. Mr. Mullen stated they supported the bill for the protection of the tourists and the bill merely required disclosures by the resale broker. The same rules would then apply to the developers and resale brokers of timeshares.

Chairman Buckley closed the testimony on S.B. 322.

Chairman Buckley opened the work session (Exhibit D). She informed those in attendance testimony was not heard from the public in a work session unless it was in response to a question from the committee. S.B. 38 was the first bill to be reviewed.

Crystal Lesbo, Committee Policy Analyst, reviewed the basic changes the bill made to industrial insurance. Section 12 of the bill dealt with the automatic closure provision and the amended language of the bill provided that within 6 months after a claim was opened, the written notice that explained the circumstances under which a claim would be closed automatically, must be disclosed to the claimant. Danny Thompson requested the automatic closure provision of that section be amended.

Chairman Buckley asked Mr. Thompson to address the committee since it had been his amendment.

Danny Thompson, Representing Nevada State American Federation of Labor-Congress of Industrial Organizations (AFL-CIO), announced he wanted to withdraw the amendment.

Chairman Buckley replied the amendment would be considered withdrawn. She stated it was her belief the amendment was originally introduced in order to ameliorate the harshness of previous enactment and to provided more notice. There was some question about whether the wording would cause additional problems and she believed Ms. Leeder had testified to that in the original meeting. She had asked her to return to the witness chair in order to clarify the issue and wanted Ms. Leeder to address whether additional refinements needed to be made by the committee if they intended to ameliorate what was previously done, and not cause any additional questions or litigation regarding the meaning of the section.

Nancyann Leeder, Nevada Attorney for Injured Workers, responded she believed the committee intended to ameliorate the problem. The original problem began in 1993 when automatic closure began and then automatic closure was changed to 12 months. At that time, a requirement of written notice was added so the claim would not be closed without the claimant actually having notification of what could be taking place. Originally when the notice provision was added, there was no word "additional." The word "additional" remained on line 34 of the bill. Ms. Leeder believed an argument could be made that the word "additional" meant additional medical was required after the notice.

Chairman Buckley asked if the word "additional" was removed, but the rest of the bill kept in current format, would that accomplish the goal of the committee without causing additional confusion in the future. Ms. Leeder replied, yes.

Assemblyman Hettrick was not certain the language had been specified. He did not perceive a problem with the word "additional" and did not believe the word changed anything. He was not opposed to removing the word.

Chairman Buckley said the attorney felt there was a problem with the word, so it would be removed and the question resolved in conference.

Chairman Buckley turned to Senate Bill 42 for the committee’s review.

Crystal Lesbo, Committee Policy Analyst, informed the committee the bill revised provisions governing payment of worker’s compensation for subsequent injuries from Subsequent Injury Funds. Several amendments had been proposed. The amendment from Michael Lynch, Representing Builders Association of Nevada, provided phasing out the Subsequent Injury Funds based on the date of employment so that employees hired prior to July 1, 1999, would be eligible to participate in the Subsequent Injury Fund.

Additionally, Susan Dunt submitted a memo with several proposals. She requested the Legislative Committee on Worker’s Compensation continue its study of the cost and benefits associated with phasing out or retaining the Subsequent Injury Fund. She also requested the deletion of section 1 of the bill, which phased out the Subsequent Injury Fund for the State Industrial Insurance System (SIIS). Ms. Dunt also sought deletion of section 6 of the bill, which repealed the provisions for the Subsequent Injury Fund for private carriers to be established on July 1, 1999. Finally she requested deletion of the bill as a whole and adding new provisions. Those provisions would: 1) assign the responsibility for administration of the Subsequent Injury Funds for the system, private carriers, and self-insureds to the Division of Insurance; 2) eliminate the board for the administration for the Subsequent Injury Fund for self-insured employers, and 3) authorized the Division of Insurance to establish the regulations necessary to determine fund assessments.

Chairman Buckley reminded the committee it was very difficult to make a decision based on previous conflicting testimony. Leonard Ormsby, General Council, Employers Insurance Company of Nevada (EICN), suggested a possible solution for consideration after the committee hearing and she invited him to come forward to present the solution.

Mr. Ormsby related the self-insured groups sought to eliminate their Subsequent Injury Fund in the Senate. The private carriers had replied if the self-insured groups eliminated their fund, then the private carriers’ fund should also be terminated. He stated it was really a public policy issue. Americans with Disabilities Act (ADA) was not a pure match for subsequent injury.

Mr. Ormsby phrased the position of the Office of the Governor was there were two ways in which to proceed. All three funds could be eliminated, the issue studied for the 2-year interim period, possibly with an interim committee, and return in 2001 with a design that encompassed all employers in the same program with an assessment. An alternative would be to leave all three funds, study the issue during the interim, and attempt to combine them under the Division of Industrial Relations or the Insurance Commissioner, rather than having three separate Subsequent Injury Funds with different rules and different procedures. All employers would benefit if there was only one entity administering the funds for all injured workers. Scott Scherer, General Counsel, Office of the Governor, told him that the governor’s office had not taken a position but, if forced to take a position, would choose to leave all three as is, review them during the interim, and attempt to develop one plan made effective in the 2001 session.

Assemblyman Goldwater agreed the ADA did not come close to taking the place of the Subsequent Injury Fund. He interpreted the role of ADA as prevention of discrimination. He agreed the suggestion of reviewing and maintaining the current status with new legislation in 2001 was the most desirable.

Assemblywoman Segerblom agreed with Mr. Goldwater’s conclusion.

Assemblyman Hettrick identified the fact that Risk Management’s concern was the loss of $100,000 a year to the state. He believed the problem was the inequity between the small employers who paid while the larger employers benefited. Mr. Hettrick stated he was an employer who paid into Employers Insurance Company of Nevada (EICN), but was not able to access the Subsequent Injury fund. That exemplified the issue as one of fairness for Mr. Hettrick. In his opinion, employers should be covered by the insurance they paid for and not by someone else’s premium dollars.

Chairman Buckley asked what was the assessment and if it was a sliding fee or the same rate for everyone. John Wiles, Division Council, Division of Industrial Relations, responded the Division of Industrial Relations worked with two Subsequent Injury Funds established for self-insured employers and associations of self-insured employers. Assessments were based upon anticipated claims for the year and at the end of the year "zeroed out." There was a mechanism to adjust how much an employer paid based upon the assessment that funded the overall agency. The mechanism was based upon expected annual expenditures and a self-insured employer that had a large number of claims under the Worker’s Compensation System paid significantly more because of the proportion of overall claims of self-insured employers. Self-insured employers paid approximately $200,000 per year into their own fund, with the remainder returned at the end of the year.

Assemblyman Dini invited additional explanation from Mr. Hettrick or Mr. Parks. Assemblyman Hettrick stated anyone who was insured by EICN paid into a Subsequent Injury Fund. He did not know how the assessed amount was calculated.

Continuing, Mr. Hettrick revealed employers who hired a worker with an injury and knew about the injury at the time the person was hired, had the ability to go back to that fund if the person was subsequently injured. Testimony had demonstrated that, for the most part, only large employers knew how to access and benefit from it. The larger employers had the staff, time, and resources to submit and resubmit their claims. The claim’s handled through the company’s process, but in order to receive reimbursement, one had to return to the Subsequent Injury Fund. It was a huge benefit to the State of Nevada of $1 million per year or more, but as a private employer he had been unable to access the fund as most small employers experienced. The issue was whether small employers should be covered under their own worker’s compensation policy with everyone bearing their own risks, or whether there should be a Subsequent Injury Fund that benefited only a few. The injured worker’s benefits were not affected. The only potential impact would be that an employer might not hire a previously injured worker if they anticipated the worker to be injured again. The employer would not have recourse to the Subsequent Injury Fund. He said the small employer generally was not involved and added it was a very difficult decision but the interim committee concluded they probably should eliminate it.

Chairman Buckley said the testimony concluded the intent was to encourage employers to keep and retain individuals with disabilities, and the fund was a way to encourage employers to do that. If the employers retained someone who was subsequently injured, their loss would be minimized.

Assemblyman Dini shared he had been involved in several cases whereby the Subsequent Injury Fund played an important role. The individuals involved had been taken care of and he could not see the benefit of eliminating the fund and did not believe the costs were exorbitant.

Assemblyman Goldwater opined they had been arguing process over policy. The policy of the Subsequent Injury Fund was valid and had benefited employees and employers of the state. He believed if the process did not work, then the process should be fixed. The policy should not be thrown out because the process was broken.

Assemblyman Beers wondered how an employer accessed the fund. He thought the insurance carrier accessed the fund because the carrier provided the funds to take care of the injured worker. Mr. Ormsby replied that it was the worker that sought the credit, which removed the loss for that employer for the subsequent injury. Benefits were paid because of the subsequent injury and, therefore, had a direct effect on the employers’ loss experience for that year. Losses still occurred and were factored into overall claims or rates for the next year if the employer was experience rated. Under the new plan effective July 1, 1999, there were approximately 18,000 employers who were experience-rated. The experience rating was compared to a personal report card of the employer, which determined the assessment. All employers paid the assessment and all benefits were the same. By reducing the benefits paid during the year, an employer could benefit by having a lower assessment. The premium cost was spread to all policyholders in the fund.

Continuing, Mr. Ormsby said with the Subsequent Injury Fund, the injured worker’s claim was not charged against the employer’s experience rating effecting a more accurate employer report card. The employer did not have a risk by allowing the injured worker to continue to work for him. Prior to the time that a person was hired, an employer could not ask about any disabilities according to ADA. A prospective employee could only be asked if they could perform the central job functions of the position for which they had applied with or without reasonable accommodation. Once that individual was hired, then the employer could ask if that person had any disabilities. If the person replied they did, and the employer retained them, that information had to be documented and the employer became eligible to apply for Subsequent Injury Relief should the employee be injured a subsequent time. He agreed Mr. Hettrick was correct in pointing that out a disparity existed between the number of employers who tried to get relief and those who had to pay for it.

Assemblyman Beers asked if the experience factor was given an employer only after that employer had reached $50,000 a year in premium payments. Mr. Ormsby declared that was not true. The threshold for being experience rated beginning July 1, 1999, had decreased dramatically under the National Council on Compensation Insurance (NCCI) program, which used a different formula than used by EICN.

Mr. Ormsby did not remember the exact amount of the threshold and asked Cliff King for that information. Cliff King, Representing the Division of Insurance pronounced the threshold amount was about $3,000 per year. When the experience-rating period was considered, the premium cost was $6,000 for a 2-year period or $9,000 for a 3-year period.

Assemblyman Beers wondered what happened if the bill did not pass and no action was taken. He asked what needed to be fixed. Mr. Ormsby indicated Assemblyman Goldwater’s statement was very accurate. The public policy issue was whether or not there should be subsequent injury relief for any employers. The practical issue was how to manage those three separate funds during the interim.

Continuing, Mr. Ormsby said the question was whether or not it made sense for an interim committee to consider combining the three separate funds. With all funds left in place, many problems were created. He explained that a study could identify one fund that would integrate everything. If the bill was killed, it would result in those funds remaining the same, and beginning July 1, 1999, there would be four funds.

Assemblyman Hettrick commented the process that functioned was worker’s compensation whereby premiums were collected and claims paid. The process that had been broken was in premium collections. Premiums were being collected from everyone, but only a few were able to make claims, which was the issue. He wanted to make sure it was clear the committee was allowing the masses to pay for the few, which he believed was the right thing to do.

Assemblyman Dini remarked everyone had access if they had a problem. Assemblyman Hettrick said currently an employer had to have experience rating in order to be eligible for access to the fund.

Assemblyman Dini questioned what percentage of people did not have experience rating. Mr. Ormsby declared there were approximately 44,000 employers with EICN policies. There were 9,000 employers with experience ratings. Under the NCCI formula effective July 1, 1999, it was estimated that between 18,000 and 20,000 of the 44,000 policyholders would have experience ratings. Access to the fund was available to everyone who could apply for subsequent injury relief. The individual employer was affected by whether they were currently experience rated or would be rated at some subsequent time.

Chairman Buckley clarified the testimony by commenting anyone could apply; however, the real benefit depended upon having an experience rating. Mr. Ormsby replied that was correct. It was the individual loss experience rating.

Assemblyman Dini interjected with the new rules, twice as many people would have access directly by being rated. Mr. Ormsby remarked they would not access to it, but will reap the potential benefit. When the number experience of rated employers was doubled, the effect on those employers would be greater than under the current system.

Chairman Buckley suggested the committee was not prepared to eliminate the fund and wanted the interim committee to review it. She then requested a motion be made.

Chairman Buckley reiterated the letter of intent to the statutory committee over the interim allowed the committee to consider the issue with thoughts of combining the funds, consideration of the effectiveness, and whether or not the process needed to be changed.

Chairman Buckley stated since S.B. 133 was recently considered, she did not believe it was necessary for Ms. Lesbo to review the bill again. There had been questions regarding section 9, which allowed an "opt out" by contractors who elected to obtain their own workers compensation coverage and she polled the committee regarding their wishes. That verbiage was currently in the bill and proposed to be removed by amendment. She informally polled the members of the committee, which had resulted in four of those members voting to keep section 9 in the bill.

Assemblyman Beers testified the problem he had was a person who earned twice the industrial insurance wage limit and who worked half of that for his employer, and half under Owner Controlled Insurance Programs (OCIPs), resulted in the world’s insurance companies being paid twice for the same amount of risk. Allowing the "opt out" prevented that from happening; however, the "opt out" only prevented that from happening to self-insured groups. Section 9 allowed any employer with any insurance to "opt out."

Chairman Buckley asked how many committee members wanted to remove section 9. Six committee members voted for removal, which resulted in the committee being evenly split.

Assemblyman Goldwater contended the arguments for removing section 9 were valid. He believed that the subrogation, confusion, and safety plan issue were important. He referred to the example provided previously about the subcontractor who continued to look back in order to determine who was to pay for the injury he received on the job. When anyone was allowed out, the arguments resurfaced of who was responsible for payment. He said the purpose for the product was uniformity, bundling, and comprehensive coverage and excepting anyone out of that, violated that uniformity and the purpose of the bill in general.

Assemblyman Beers wondered if the no fault presumption removed Mr. Goldwater’s concern. Assemblyman Goldwater replied the no fault payment regarding the credit awarded for the injury was very important. "No fault" meant that someone had to pay and that no determination had to be made over liability. The only decision was which employer would pay.

Assemblyman Nolan revealed the issue was never raised by any individual or group in the context that it appeared in the amended bill. The alternative way to fund occupational insurance established by the legislature over the past two sessions was a success. The self-insured group had the opportunity to competitively bid into the contracts and negotiate with the primary contractor who wrote the principal policy. Therefore, in examining the bill currently, he would vote to remove it.

ASSEMBLYMAN PARKS SECONDED THE MOTION.

THE MOTION FAILED.

* * * * *

ASSEMBLYMAN DINI MOVED TO AMEND AND DO PASS S.B. 133 RETAINING SECTION 9.

ASSEMBLYMAN PERKINS SECONDED THE MOTION.

THE MOTION CARRIED.

Chairman Buckley suggested the proposed amendments that were not acted upon in Senate Bill 451 needed to be outlined. The first proposed amendment submitted by Senator Rawson, suggested the preamble contained in the original version of the bill be reinstated. She asked if there were any questions or concerns on including the preamble. (Exhibit E)

Assemblyman Hettrick stated he was not in favor of including the preamble, and most statutes were not written with preambles.

Chairman Buckley informed the committee Senator Rawson had introduced the bill for several homeowners associations in his district and felt strongly about including the preamble if the committee agreed.

Assemblyman Humke thought it was a signal to the state that the associations were not wholly private corporations but represented a quasi-governmental function. He believed the preamble did a good job of pointing that out to the citizens.

Chairman Buckley announced most committee members agreed to keep the preamble. Section 2 of the bill was then considered. Amendments had been submitted by the Lawrence Ruvo Trust (Exhibit F) earlier.

Chairman Buckley voiced her personal opinion it had to be made clear in the bill any policy statements or laws made could not abrogate existing easements, restrictive covenants, court decisions, party agreements, contracts, codes, covenants, and restrictions (CC&R’s), as well as decisions already in the jurisdiction of local governing bodies, such as zoning boards or any other permit or approval process. Although section 2 was a true statement, it could not be considered in isolation if there was an easement, restrictive covenant, court decision, or contract that allowed an association to restrict the use of a property. Therefore, she would want that amended in any action taken. There was no disagreement from any member of the committee. On the amended version of section 2, the committee would further amend the bill with those suggested caveats.

With regard to section 3, Chairman Buckley stated the section indicated an officer or member could not serve for a term to exceed 2 years, but may be elected to succeed himself. That provision was in S.B. 451 and she asked of the committee members if they desired to eliminate or keep the section within the bill, which resulted in the elimination of the section.

Chairman Buckley read section 4 regarding association meetings. Senator Rawson suggested deleting that portion of the bill, as it was not needed.

Assemblyman Perkins testified associations were quasi-governmental agencies and in order to play fair, they should be subject to the open meeting laws. He said conducting meetings according to Roberts Rules of Order was not burdensome.

Assemblyman Beers pointed out the preamble to be included in the bill specifically addressed the value of open meetings.

Assemblyman Humke was convinced by the fact the sponsor suggested it was not needed. Many professional homeowner associations and real estate agents had suggested it was too detailed for a quasi-governmental organization.

Chairman Buckley personally agreed with Assemblyman Humke and observed the small homeowner associations could not keep up. The consensus was to delete section 4.

Chairman Buckley revealed that the proposal was to retain section 5 and added the word "pier" to residential use.

Assemblyman Hettrick expressed his belief the language used in discussing the Ruvo Trust Amendment covered section 5.

Chairman Buckley opined it had changed, and the committee work further changed how that was utilized; however, the proposal was to continue to include the verbiage. She articulated it was her personal opinion to strike "pier" from the legislation altogether.

Assemblyman Beers asserted the law already had marina boat slips and wanted to know the difference between a "slip" and "pier." He voiced the opinion to strike both slips and piers.

Assemblyman Humke agreed with Mr. Beers that there was no distinction and he had no objection to leaving it in the bill.

Assemblyman Perkins asserted the media discussions regarding the bill had applied some pressure on the committee. He agreed that marina boat slips and piers appeared to be duplicative; however, he was concerned that without the specific distinction, litigation would not be prevented.

Chairman Buckley clarified the committee had deleted the section that read "within the Lake Tahoe area if the owner wants to build a pier." She repeated part of the discussion might be moot because if there was an easement, court decision, contract, or any local governmental body with jurisdiction, then the committee would not be changing those decisions. With that as a premise for the bill, others may feel that it did not matter how residential use was defined because those caveats would be in every section.

Assemblyman Goldwater indicated that made perfect sense. There had been questions regarding the interpretation of the easements and what they did or did not cover. He chose to support specifically for what the easement was granted and nothing beyond the scope of that easement to be inferred.

Chairman Buckley referred to the information submitted by the lawyers for the Glenbrook Homeowners Association and the information supplied by the Ruvo Trust. There was a dispute regarding the recreational easement given to the homeowners association that was disputed for many years, and she stated everything the committee did was subject to easements so nothing they did would affect the court cases.

Assemblyman Goldwater agreed the court decision should not be interfered with. He referred to the language in the bill whereby it was stated "easement does not prohibit." That kind of language had repercussions far beyond the current situation. Good public policy stated take one side or another if it specifically did not prohibit.

Chairman Buckley believed the committee votes were there to keep the language in the bill despite her and Ms. Segerblom’s dissent.

Chairman Buckley revealed the proposal in section 6 was to delete all the language pertaining to Lake Tahoe and, instead, use the language submitted by the Ruvo Trust. She informed the committee she wanted to further modify that language to say: "unless the terms of an easement, restrictive covenant, CC&Rs…".

Chairman Buckley also wanted to remove the word "specifically" in order to prevent an argument that because something was general it was not covered. Additionally, it would clarify that the bill did not supercede any governmental approval at any level. The committee agreed to her proposed amendment.

Chairman Buckley explored section 7 that dealt with the change to 75 percent of the votes. She admitted she did not understand the need for the section, and it would be agreed the section would be removed unless Mr. Hughey’s research gave a rationale to revisit the issue.

Chairman Buckley addressed section 8 and commented it had been covered in S.B. 451. The sponsor determined he wanted it deleted from the bill. Section 9 addressed proxies and absentee ballots in the first part and in the second part covered residency requirements. The committee desired to delete the section.

Chairman Buckley indicated section 10 was merely cleanup language. Section 11 dealt with assessments and was covered sufficiently in S.B. 451. The committee proposed to delete that section.

Chairman Buckley asked if anyone in the audience could address the need for section 7. No one was available. Mr. Hughey found nothing in his notes that supported the section. Section 7 was deleted.

The proposal for section 6 was to accept the basic premise that an owner of a property could use their property in any manner permitted by law except if there was an easement, restrictive covenant, CC&Rs, contract agreement, court decision, or unless approval was needed by any other governmental entity. It also included striking all references to Lake Tahoe and the "pier." The word "specifically prohibit" was deleted in order to prevent an argument about whether a document was specific enough.

Assemblywoman Segerblom inquired whether S.B. 192 applied to the entire state and not to just one area. Chairman Buckley replied that was right. The bill in original form was rejected, and the bill under consideration was not site specific and was generally applicable to all. The bill was further amended and made very clear that if any other agreement or document existed, those agreements or documents were not disturbed by the legislature. The research staff confirmed there were many other planned communities with homeowners associations.

Assemblyman Goldwater stated that the legislature had used specific examples to answer broad-based policy questions in the past. He felt the current bill was similar and was good public policy.

Assemblywoman Segerblom wanted to know if Senator Rawson, who authored the bill, was satisfied with the committee’s actions. Chairman Buckley disclosed Senator Rawson was satisfied.

THE MOTION CARRIED UNANIMOUSLY.

Senate Bill 417: Creates appeals panel for industrial insurance to hear certain grievances of employers. (BDR 53-1080)

Ms. Lesbo briefed the committee on the bill and referred to the attachment "I" in the work session document (Exhibit D). The deletions remove from the bill the provisions that the salaries and expenses of the appeals board were to be paid from the fund for workers compensation and safety. The amendment also requested deleting section 9, subsection 1, which provided that each member of the appeals board was entitled to receive compensation of not more than $80 per day. In addition, a new section would be added to the bill, which stated: "Expenses of the members of the appeals board as set forth in section 9 of this act and the expenses of the advisory organization for administration of the board shall be paid by the advisory organization. The advisory organization may recover these expenses from insurers as defined in Nevada Revised Statutes (NRS) 686B1759 in accordance with the formula filed with, and approved by, the commissioner."

Finally, Mr. Jeppson’s amendment included amending the bill as a whole; replacing throughout the bill the words "appeals board" with "appeals panel."

Chairman Buckley commented when the bill had been originally heard Ms. Giunchigliani and Mr. Goldwater had expressed some concerns. The Insurance Commissioner’s Office felt strongly about the bill and brought forth proposed amendments to reduce the fiscal note. She asked the representatives to come to the witness table to outline the proposed amendments and explain how those amendments addressed the policy concerns brought up by the committee in the original hearing.

Alice A. Molasky-Arman, Commissioner of Insurance, State of Nevada, and James R. Jeppson, Chief Insurance Assistant, Division of Insurance, Department of Business and Industry, State of Nevada introduced themselves. Mr. Jeppson had submitted the proposed amendment. Ms. Molasky-Arman asserted one of the concerns was the expense of the process, which affected the assessment charged to insurers; therefore, they proposed those expenses be absorbed in the same manner that other similar boards and panels used. It was an existing right of all policyholders to come to the commissioner and request a hearing if they felt threatened by any act of the commissioner. Because of the numbers of individuals affected by the change in classifications and by experience modification, the request for hearings before the commissioner were anticipated to increase.

Ms. Molasky-Arman said by establishing that type of mechanism, it would relieve the Division of Insurance from having to hear many of the cases. The majority of the cases could be resolved by the employer contacting the advisory organization in order to determine whether or not a mistake was made in applying the classification or experience modification. If the employer wanted to pursue a change in that determination the panel process would be available. The right existed for all policyholders regardless of the kind of insurance they had. The provision that entitled the members to compensation was deleted. Members who sat on those types of panels or boards ordinarily did not receive compensation.

Assemblyman Perkins questioned Ms. Molasky-Arman regarding the deletion of compensation to establish that it was still the proposed amendment. Ms. Molasky-Arman replied yes. Additionally, they proposed to replace the word "appeals board" with "appeals panel" in an attempt to clarify that it was a panel and not a state board.

Assemblywoman Giunchigliani asked if the decision of the panel was binding, to which Ms. Molasky-Arman responded that it was not.

Assemblywoman Giunchigliani inquired if it was binding with any of the other groups that currently had access to an appeal. She wanted to know if the groups that handled the appeal process elsewhere were binding. Ms. Molasky-Arman replied no, they were not. That was a screening process which diverted the majority of the cases the commissioner’s office would have to hear.

Assemblywoman Giunchigliani wondered if it would be sensible to establish a time period for this to phase out. Ms. Molasky-Arman related during the original hearing there was discussion on a sunset provision. In most states these were perpetual. The committee could consider a sunset provision and then the Division of Insurance would return in 2 years to report on the effectiveness of the program.

Assemblywoman Giunchigliani stated she would personally feel more comfortable with that. She wanted to make sure the assistance was provided as desired and that another mechanism was not created which was not needed.

Chairman Buckley inquired if the committee was comfortable in proceeding with the amendments including a sunset clause.

Assemblyman Goldwater observed considering the way that rate structures were currently done with NCCI, he did not comprehend the need for another board in the state when that board’s decision would not even be binding. The sunset provision made it a better bill; however, beginning in July the opportunity existed for individuals to shop for a better deal. Ms. Molasky-Arman responded the employers experience modifications and classifications would not change regardless of the insurer that wrote the business. Those were assigned to them by the advisory organization and not by the insurer.

Chairman Buckley opened the motion for discussion.

Assemblyman Perkins observed the commissioner had requested a new section of the bill, which discussed the expenses of the members of the appeals board as set forth in section 9. He wanted to know if that juxtaposed with the prior suggestion to delete subsection 1 of section 9 that provided for that compensation, or was it in conflict. Jim Jeppson answered no. They still believed the board members did not need to be compensated with a daily rate. There would be other expenses such as travel expenses. The advisory organization would have expenses to prepare agendas, minutes, and decisions.

Chairman Buckley remarked that only the per diem compensation would be deleted and inquired if that was correct. Mr. Jeppson replied that was correct.

Assemblyman Goldwater stated he would vote no because the Division of Insurance would be doing that. He wanted to draw that to everyone’s attention again, that as premiums were slowly burdened for employers, and expenses added, rate-creep resulted.

Chairman Buckley reiterated that Assemblyman Goldwater would vote no and proceeded to take the vote on the motion.

THE MOTION CARRIED. (ASSEMBLYMAN GOLDWATER VOTED NO.)

Mr. Hughey noted the summary of the bill was almost as lengthy as the bill itself, and contained a number of provisions. He addressed the proposed amendments in Exhibit D. Margi Grein, Representing the State Contractors Board, had offered the first set of amendments.

Assemblyman Perkins inquired if Senator Schneider was in accord with those amendments. Senator Schneider responded he was.

Mr. Hughey continued and stated Robert Maddox, Representing the Nevada Trial Lawyers Association, proposed one amendment that related to the provision in section 16. His wording was: "A certificate of occupancy shall not be used as evidence in a civil action that any construction is in actual compliance with the applicable building codes." The third set of amendments had been proposed by James L. Wadhams, Lobbyist, who proposed to amend section 3 to require that the program for continuing education included specific classes in current code compliance, statutes and related regulations, and mechanic lien law. Mr. Wadhams also proposed deleting the warranty provisions in section 11 of the bill. Additionally, he suggested removal of the provisions concerning homeowner warranties in section 14, and to remove references to section 14 that were in section 15. He also proposed to amend section 16 to require that the Certificate of Residential Occupancy be issued at the time of final inspection. Section 16 was to be amended to require a copy of the certificate be provided at the close of escrow not before the close of escrow. Section 17 was to be amended to provide that section 3, regarding continuing education requirements, and section 16 regarding the Certificate of Residential Occupancy, became effective at a later date with no specific date identified. Mr. Robert Cantor proposed an amendment to section 14 concerning warranties, which appeared as attachment "M" in Exhibit D.

Chairman Buckley began by suggesting striking suggestion number 4 from Mr. Cantor because the issue of warranties was a complex issue that needed to be worked on over the interim. She said Ms. Porter from the homebuilders association had made that one of her projects and had invited her to participate.

Chairman Buckley asked Mr. Barengo if he had any comments on any of the other amendments. Robert R. Barengo, Representing Nevada State Board of Contractors, addressed the contractors board amendment under paragraph 1, page 7, and paragraph 5, page 2 of Exhibit D, that were not meant to be mutually exclusive. One was to be used in a civil action and the other was to be used in a proceeding under the contractors board chapter for disciplinary purposes.

Chairman Buckley observed if the committee adopted the concept, it needed to be clear was for both purposes. Mr. Barengo stated the Nevada State Board of Contractors would prefer not to have anything limited. If the committee chose to use 3A of Mr. Wadhams’ amendment, then he suggested the wording be: "may include but not limited to." They also wanted to discuss financial responsibility laws, cash management, and many other topics of which contractors should be aware.

Chairman Buckley communicated it would be noted also. She asked Mr. Barengo if there were any other suggestions from Mr. Wadhams with which he did not agree. Mr. Barengo pronounced everything else was fine.

Assemblyman John Lee, Assembly District 3, presented several amendments to S. B 423 in Exhibit G. He revealed he had Assembly Bill 259, with which the Senate was experiencing problems. At that late session, he decided to bring the committee the portion of that bill that had been resolved to date.

Assemblyman Lee said his proposed amendment was to the contractors board to have three general contractors, three subcontractors, and one member who represented the public. Ninety percent of the problems in the contractors board were residential type problems. Having general contractors on the board would be helpful and they would be sympathetic, and more understanding of the problems of the smaller contractors who preyed on the residential customers. Also included was a term limit for serving on the contractors board. Two 4-year terms were permitted, followed by a required change with the possibility of reappointment after that. Staggered terms for board members were suggested so that the board did not change completely at one time in order to maintain continuity.

Continuing, Assemblyman Lee revealed that his goal was to see the contractors board reflected the people that came before it. He believed those changes would allow the board to work more efficiently in the future. He pronounced these were good amendments to be added to S.B. 423.

Chairman Buckley inquired if Mr. Lee had been able to "get anywhere" in conversations with the contractors board regarding their position. The contractors board position was they responded quickly and did not want to break their momentum of trying to be more responsive. She asked him to inform the committee regarding the discussions he had with the contractors board.

Assemblyman Lee disclosed originally he proposed a different contractors board, which included an architect, engineer, and other professionals. Through testimony and hearings, it had been determined contractors should be on the contractors board and the individual representing the general public would remain. The contractors board’s opinion was many members would be retermed soon and the governor had the right to reappoint those individuals. He did not intend to force the government not to put anyone back on the board; however, there were many good contractors available to serve on the board who could make a major contribution. The second position of the contractors might be that this would disrupt a continuation of leadership that they were experiencing. He said he believed that might be true now but the future required more representation of the residential contractor rather than an abundance of large subcontractors on the board.

Senator Schneider stated a portion of the bill had been removed and he wanted to discuss the roofers.

Chairman Buckley asked if that had been addressed in the original testimony of the bill. Senator Schneider replied affirmatively.

Peter D. Krueger, Representing Roofing Contractors Association of Nevada declared that initially S.B. 423 was a roofing bill. They supported all amendments discussed there. The Roofing Contractors Association of Nevada wanted to go on record as having agreed with the contractors board that roofers would have sufficient regulations to insure reroofing and reroofing contractors were required to have, and identify, available warranties to the customer prior to the time the reroofing began.

Chairman Buckley invited a motion from the committee.

Assemblywoman Giunchigliani remarked she would motion to amend the bill using all those amendments except those that had been specifically deleted by the committee, with the clarification that the proof of the Certificate of Occupancy may not be utilized either in a civil action or disciplinary action, including, but not limited to, being added to those amendments proposed by Mr. Wadhams and Mr. Lee. She also proposed to amend the bill by deleting the amendment proposed by Mr. Cantor.

Mr. Hughey reviewed Senate Bill 437 for the committee and stated no amendments had been proposed to the bill. Testimony indicated the bill was designed to assist Nevada contractors receive preferential bidding without having to obtain that preference annually.

ASSEMBLYWOMAN SEGERBLOM MOVED TO DO PASS S.B. 437.

ASSEMBLYMAN HUMKE SECONDED THE MOTION.

THE MOTION CARRIED UNANIMOUSLY.

Mr. Hughey noted during the last work session there were some questions about the provisions, which were proposed to be deleted, whereby accepting and paying commissions had been addressed. Assemblyman Beers had submitted Attachment "N," which was a statement regarding commissions and contingent fees issued by the American Institute of Certified Public Accountants (AICPA).

According to the statement, the AICPA Governing Council voted in May 1997, to allow CPA’s to accept commissions with full disclosure except in situations where the CPA performed a test service for a client. The document also included a table that illustrated which states had adopted the new AICPA rules and allowed acceptance of commissions and contingent fees, and which states had statutory or regulatory prohibitions regarding acceptance of commissions and contingent fees.

Assemblyman Beers informed the committee he was a Certified Public Accountant (CPA) and the bill would not affect him more than any other CPA. His practice did not have potential for earning commissions in any way and, therefore, he did not believe that he had any kind of conflict. The bill under consideration was the culmination of a fairly long national effort. Over half of the states had the provisions, including most states surrounding Nevada. There was considerable sentiment that failure to pass the bill would put Nevada in a disadvantaged position in the competitive field to attract CPAs to the state both in business and universities. He urged passage of the bill.

Assemblyman Goldwater expressed appreciation of the documents provided by Mr. Beers. He called attention to the fact that CPAs had registered lobbyists, an association, and professional board. There were still a number of states, which prohibited acceptance of commissions and contingent fees by statute or by regulation. The people of the State of Nevada thought the prohibitions of commissions was important and have held that belief for a very long time and for good reason.

Assemblyman Goldwater felt there was no compelling testimony or evidence given which would indicate that long standing state policy should be changed. He had spoken with several friends in the accounting business regarding the provision, and those friends expressed concerns that they could not advertise themselves as CPAs if they were providing investment advice. He noted if that was the concern, he did not have a problem with a CPA revealing that he was a CPA and still offering investment advice, provided he was a registered investment advisor. If that individual was in a commission business in addition to being a CPA, he did not believe there was a problem. Prior legislatures had noted the abuses, which were very offensive. Current testimony did not give compelling information or evidence to support a change; therefore he urged passage of S.B. 439.

Assemblywoman Giunchigliani requested clarification on the issue of commissions and asked how a commission worked versus a contingency. Assemblyman Goldwater observed the proponents would argue the commission would be built into the product sold. Opponents such as himself, had argued that a CPA had a unique relationship. When that commission or referral fee was paid, the CPA extracted that commission because of his unique relationship with the client. The person making the referral informed the individual to whom he was referring his client, that if his client purchased from him, then the person making the referral was owed a fee by the seller.

Assemblyman Goldwater said the referring person then solicited many others and referred his client to the person who provided the highest fee for his referral, which might not be the best solution for his client. However, the client followed the suggestion to use the services of, or purchase from, a particular individual because of the trust between client and CPA. Therein lay the abuse.

Assemblywoman Giunchigliani asked Mr. Beers if it would be possible to establish the commission by regulation. Assemblyman Beers responded a commission based on doing a tax return was specifically prohibited under the bill.

Assemblyman Beers asked for clarification of Assemblywoman Giunchigliani’s question regarding regulation of commissions. Assemblywoman Giunchigliani explained in the back of the handout in Section "N" provided by Mr. Beers, there were listings of states that regulated and other states used statutes.

Assemblywoman Giunchigliani wanted to know if the prohibition against commission was repealed, then how were the regulations established or determined. Assemblyman Beers replied the State Board of Accountancy would make that determination.

Assemblywoman Giunchigliani asked if there were parameters or a cap established in the bill. Assemblyman Beers said there were not.

Assemblywoman Giunchigliani continued by reiterating tax returns were specifically prohibited and she wondered if anything else was specifically prohibited. Assemblyman Beers declared there was a prohibition of taking a commission arrangement on a client that was given a test service, which was an audit or review.

Assemblywoman Giunchigliani requested a recap in order to consider why the repeal had not been granted in the past, and why it should be granted currently.

Assemblyman Goldwater commented on another important point regarding the language of the repeal. Accepting a commission for the referral of a client for the products or services of another were prohibited by other boards. Doctors were used as an example where the prohibition existed. Actually the commission was a "kickback" and the law existed to prevent the abuses. The precedent had been well established in Nevada statute and there was no reason to remove it.

Assemblyman Beers asserted he had a hard time imagining the relationship of trust between a CPA and a client was any different than between an investment advisor and a client. The investment advisor worked on a commission basis. That law required the CPA to disclose the commission arrangement to the client although that was not a requirement for investment advisors.

Randel E. Walker, Certified Public Accountant, Immediate Past President of the Nevada Society of CPA’s provided Exhibit H. He began his testimony by noting the association of professionals worked directly with the state board. Members appointed to the state board by the governor took the position of being the watchdog for the industry and as protectors of the public very seriously. That was especially apparent during the past 2 years when they worked together on the legislation. The State Board of Accountancy introduced the bill, which included the repeal of the provision. The provision had been in the statutes since 1984 and in the past 4 to 5 years, most of the states had moved to allow commissions. If Nevada, and the three other states which had bills under consideration, passed new legislation, then 42 states would allow payment of commissions or the charge of a commission by a CPA.

Continuing, Mr. Walker stated Certified Public Accountants were governed by the AICPA and the Code of Conduct. Included in the Code of Conduct were rules established by the State Board. Those rules stated CPAs who performed financial statement work would not receive commissions or referral fees. He revealed that he had maintained a Nevada State Brokers License for the past 5 years and was prohibited from charging his clients a commission for real estate transactions because of the way the current law was written. They were working for the right of individuals, who did not perform test services, to be allowed to charge a commission when the work was outside the general realm of work performed by a CPA. Most states had moved to allow CPAs to charge a commission.

David Turner, member of State Board of Accountancy, and Certified Public Accountant pointed out S.B. 439 provided there must be an up-front, written disclosure regarding the calculation of the commission, or alternatively the amount of the commission, before the accountant could receive a commission. He did not know of any insurance agent that disclosed, to a client, how much he earned by selling that client the policy. According to state law, a CPA must be an insurance agent in order to share in a commission on an insurance policy. A CPA must have met all licensing requirements of the Real Estate Division of the State of Nevada before he could receive a commission in a real estate transaction. That would also apply to the securities transactions.

Mr. Turner informed the committee he was not informed regarding federal law. In many cases the standards for CPA’s were stricter than those of other professions. If a CPA wanted to practice real estate, he could choose not to call himself a CPA and to work in the real estate business and collect commissions. If he wanted to cease practicing as an accountant and work for another company, he could not call himself a CPA. When an individual "holds himself out as a CPA" he must meet the threshold of the ethics rules in every part of his practice as a security salesman even though not acting as a CPA.

Assemblyman Goldwater announced those were excellent points and the exact reason he believed that was a compromise. If a CPA held another designation or license and wanted to advertise himself as a CPA that was fine. The abuses came with the referral fees. He added he had no problem with an amendment that stated if an individual was a CPA and a realtor, then that individual could state he was a CPA.

ASSEMBLYMAN DINI MOVED TO DO PASS S.B. 439.

ASSEMBLYMAN HUMKE SECONDED THE MOTION.

* * * * *

ASSEMBLYMAN GOLDWATER MOVED TO AMEND S.B. 439.

ASSEMBLYWOMAN GIUNCHIGLIANI SECONDED THE MOTION.

THE MOTION FAILED.

* * * * *

ASSEMBLYMAN DINI MOVED TO DO PASS S.B. 439.

.

ASSEMBLYMAN HUMKE SECONDED THE MOTION.

THE MOTION CARRIED.

There being no further business before the committee, Chairman Buckley adjourned the meeting at 4:00 p.m.

RESPECTFULLY SUBMITTED:

Cleone Bujalski,

Committee Secretary

APPROVED BY:

Assemblywoman Barbara Buckley, Chairman

DATE:

S.B.322 Revises various provisions governing resale of time shares.

(BDR 10-1234)

S.B.38 Makes various changes concerning industrial insurance.

(BDR 53-379)

S.B.42 Revises provisions governing payment of workers’

compensation for subsequent injuries from subsequent injury

funds. (BDR 53-389)

S.B.133 Establishes provisions governing consolidated insurance

programs. (BDR 53-384)

S.B.192 Makes various changes concerning common-interest

communities. (BDR 10-70)

S.B.417 Creates appeals panel for industrial insurance to hear certain

grievances of employers. (BDR 53-1080)

S.B.423 Makes various changes to provisions concerning contractors.

(BDR 54-1479)

S.B.437 Makes various changes with respect to eligibility of contractor to

receive preference in bidding on public works. (BDR 28-52)

S.B.439 Makes various changes concerning accountants. (BDR 54-807)