The Joint Hearing of the Assembly Ways and Means and Senate Finance SubCommittee on General Government was called to order at 8:10 AM, on Friday, February 26, 1999. Chairman Vonne Chowning presided in Room 3137 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.

ASSEMBLY COMMITTEE MEMBERS PRESENT:

Mrs. Vonne Chowning, Chairman

Mr. Bob Beers

Mrs. Marcia de Braga

Ms. Chris Giunchigliani

Mr. David Goldwater

COMMITTEE MEMBERS ABSENT:

None

Senator Lawrence Jacobsen, Chairman

Senator Joseph Neal

Senator William O’Donnell

STAFF MEMBERS PRESENT:

Chairman Chowning opened the hearing with discussion on the Public Employees Health Program under the Division of Risk Management.

Randy Waterman, Chief, Division of Risk Management presented both Mikel Gray, Plans Actuary for William M. Mercer Company and Karen Rasner, Staff Accountant for Risk Management.

Mr. Waterman averred the changes concerning the division’s budget for the Public Employees Health Program revolved around two critical issues. First, the budget attempted to increase the accountability of the plan and it’s management. Second, the division’s budget for the program concentrated on improving solvency. Mr. Waterman explained both of those issues were addressed through the re-configuration of the Committee on Benefits and the management structure of the Benefits Services staff.

Mr. Waterman then remarked the division considered expanding the Benefits Services staff to improve technical expertise and intensify oversight on vendors who utilized the plan, to increase division accountability. Solvency was specifically addressed by additional state subsidies, commencing July 01, 1999 and increased dependent rates, which were implemented January 01, 1999.

Before delving into greater detail concerning the program’s budget,
Mr. Waterman reported a number of insurance plans in the state, not only the Public Employees Health Program, had increased program rates. For instance, Blue Cross of Nevada recently announced a 27 percent rate increase across the board. That rate increase was 3 percent greater than the rate increase instituted by the state’s insurance program. Placing the issue into greater perspective, Mr. Waterman argued the Public Employees Health Program was not isolated from factors affecting the rest of the country and he said the rate increases were necessary to keep the plan solvent.

Mr. Waterman next pointed out that rumors depicting the program as hemorrhaging uncontrollably, were false. He related previous program costs of $50,000 to $60,000 per day had diminished to a fraction of that amount. New figures indicated program costs had continued to decrease significantly. Costs for the month of February were also expected to be favorable to the program’s solvency. Specifically, Mr. Waterman felt plan changes made by the Committee on Benefits were instrumental in staving off the rampant increases in program costs. He emphasized the predicted costs for the coming months were favorable and hopefully marked the beginning of a trend.

Welcoming questions from committee members, Mr. Waterman first heard from Senator O’Donnell.

Senator O’Donnell felt the most obvious question was the disparity between the rumored hemorrhaging of the program, which amounted to $3 million a month and Mr. Waterman’s assessment, which had concluded an insignificant loss.

Mr. Waterman answered the Third Party Administration (TPA) business had its busiest month in January. Commonly, the number of claims paid in January was significantly greater than claims paid during the rest of the year. In addition to the increase in the frequency of claim requests, the claims themselves were considerably larger than normal. For example, the program compensated costs for liver transplants, a broken neck, and a set of premature triplets. He concluded all of those larger-than-normal claims added to the extraordinary program costs In January.

Mr. Waterman then explained plan changes, such as increased deductibles, would have more of an immediate effect in the beginning of the plan year because plan holders did not meet their deductibles right away. Thus, an effect would not be readily visible in February.

Mr. Waterman reiterated costs might continue to be slightly heavier in subsequent months, but the high costs experienced in January would definitely not continue. Mr. Waterman also cautioned the credibility of the high program costs projections because February was only a 28-day month.

Senator O’Donnell asked what dollar amounts the division expected program costs to reach for the following months. Mr. Waterman divulged the program had expended over $7 million in claims for the month of January. The division presaged expenditures in February to be less than $5 million.

Senator O’Donnell felt that figure was still a significant figure. Mr. Waterman agreed. Confused, Senator O’Donnell referred to Mr. Waterman’s previous testimony where he had stated program costs were rumored to exceed $60,000 a day, but had claimed the true numbers were a mere fraction of that.

Mr. Waterman clarified the program’s income and its expenditures were convoluted issues. Part of the program’s cash flow problem concerned advance payments made by state agencies. Advances could only be relied upon until the agencies paid the full amount of their premium. Therefore, he felt the program’s deficit was somewhat artificial. Mr. Waterman expected the program to expend less than $6 million a month in claims and in order to break even he expected the program to receive as much in income.

Furthermore, Mr. Waterman explained the division had already requested advances from agencies because of the extraordinary amount of claims the program had to compensate in January. Mr. Waterman said that even if $3 million in agency advances were collected, the program would still have a deficit of almost $3 million. He believed the deficit could be alleviated by the collection of the total amount of agency premiums.

Senator O’Donnell understood Mr. Waterman’s explanation but he did not concur. He exclaimed he was hearing two alternate assessments. There either was or wasn’t a significant problem with the program’s solvency.

Mr. Waterman summarized the program had experienced losses, but those losses would not continue to increase. He thought if the current trend continued favorably, the program would realize a deficit of $15 million, excluding the appropriation that had been requested in the budget. He did not believe the deficit would grow any larger and the program would break even throughout the rest of the year.

Mr. Gray also addressed Senator O’Donnell’s concerns. He explained when forecasts had been made in September 1998, which were used to guide the Committee on Benefits in making plan changes and increasing both the dependent premium rates and the state contribution rates. The rate increases became effective July 01, 1999. Until that time, forecasts indicated the program would not be able to pay current costs. Thus, the division knew the program would run a deficit between September 1998 and July 1999. Mr. Gray felt no other reasonable action could have been taken at that time to undo the problem.

As a result of the Committee on Benefit’s actions in September, Mr. Gray related the program had operated on a slight deficit. If the program operated as projected, it would generate a slight surplus after July 01, 1999. He concluded that although the program was still hemorrhaging the relative size of the deficit would decrease primarily because of plan changes and increases in dependent revenues.

In terms of claims activity, Mr. Gray disclosed no specific instance gave the Committee on Benefits any indication the program would not be operating as projected on July 01, 1999. In January 1999 the program experienced an extraordinarily high claim month and it augmented the forecasted $12.7 million deficit into a $15 million projected deficit. Nevertheless, Mr. Gray believed fluctuations in the forecasted deficit occurred frequently and could change to the program’s benefit in February.

Mr. Gray emphasized that until July 01, 1999, when the state received a 23.7 percent increase in the state contribution, the program would continue to operate at a deficit.

Referring to requests made by committee members during the
January 29, 1999 hearing before the Legislative Commission’s Budget Subcommittee, Chairman Chowning asked if utilization data had been provided. She argued the division had presented actual cost data, but had failed to detail the determinants of the increases in program costs. Therefore, she desired data concerning provider services by month and summarized by year in order to completely understand the causes behind the program’s exorbitant cost increases. For example, was the problem caused by increases in pharmacy costs or by high hospitalization rates?

She reiterated that without a basis for determining costs, the Committee on Benefits could not develop an adequate solution to the problem at hand. Because the program was at a critical stage and would not be given the opportunity to request additional funds in the interim, additional input concerning costs and the plan for solving the program’s solvency problems were needed immediately. Chairman Chowning repeated that utilization data specifying the services provided during each month were needed.

Mr. Gray answered the division had provided a utilization report. Since that time, he pledged to update that report as information came available.

Frustrated, Chairman Chowning interrupted and criticized that the division provided a summary of costs, not a detailed list of the specific determinants of the increase in claims.

Mr. Gray replied he did not understand what details the Chair was interested in receiving however he would be happy to work with staff to provide the type of utilization data she requested.

Chairman Chowning was bothered the data had not been provided already. She did not understand why the data she was requesting was so difficult to provide. Mr. Gray should have been able to break costs down into categories of provider and date of service.

Mr. Gray submitted a summary utilization report had already been provided. He then explained the data, which he had received to complete the report, was in the form of a tape from UICI, the program’s TPA. He had not yet received new data for the month of February. He also relayed that after a data tape for the month of March was received, the report would be updated and presented to committee members.

Chairman Chowning opined the report should have included figures accumulated from the beginning of the biennium and those figures should have been broken down into categories of services provided per month. She stated the program could not overcome its obstacles and move forward without clearly understanding what had caused the problem in the past.

Mr. Gray claimed the new tape would include figures for the 1998 calendar year. Those figures would illustrate past months, however they would only reflect incurred services paid through February. There would still be incurred services from 1998 that would not be paid through February.

Chairman Chowning felt utilization data from July 1997 to the current date should be accessible.

Mr. Gray said he did not have data for services incurred from July 1997 to December 1997. He stated he would ask for an update on the 1998 services and he would also request data on 1997 services. Mr. Gray expected data on the 1998 services could be retrieved within a few weeks. He also hoped to provide an update on the 1997 services within a week or two.

Chairman Chowning directed Mr. Gray to provide data from July of 1997 to February 1999, depicting the type of service by month and the date the service was incurred. She then asked upon which factors was the $15 million deficit based.

Mr. Gray indicated the deficit was based on paid claim data that included incurred data. Though the data was not broken down by type of service, it was the single most important piece of information the division relied upon. The monthly claim data he received from UICI was paramount to the utilization report.

Chairman Chowning opined although solutions to the program’s money problems were being implemented, they could not accurately treat those problems because the causes had not been identified. She specified if the data was not broken down by type of service provided, the viability of those solutions could not be determined. Once again, the Chair sternly advised the division to evaluate past statistics to create future solutions.

Mr. Gray agreed utilization data was instructive. He was confident, though, the forecasted $15 million deficit would not be altered because of utilization data.

Chairman Chowning exclaimed it was the prerogative of the subcommittee to request such data regardless of Mr. Gray’s opinion concerning its usefulness. She felt the information was extremely important and asked when it could be provided.

Mr. Gray answered that within the month of March, an update for 1998 would be provided and by late March an update for July 1997 through December 1997 would be provided. He based those dates on the production of a data tape by UICI.

Chairman Chowning stated that by the end of March, Mr. Gray should provide every piece of data that had been requested. She was frustrated the data would take thirty days to compile.

Ms. Giunchigliani did not want to belabor the issue, however she did not feel Mr. Gray comprehended the importance committee members placed upon the utilization data. In his own words she asked, what data Mr. Gray would provide.

Mr. Gray replied he understood a utilization report from July 1997 to
December 31, 1998 by provider type was to be provided.

Next, Ms. Giunchigliani asked why Mr. Gray did not receive a data tape from UICI in January. She wondered if there was a contracted date or a required time frame in which UICI should have compiled the data. Mr. Gray replied negatively.

Ms. Giunchigliani then asked if there was some way to ensure that information would be provided in time for committee members to assess the program’s budget requests.

Mr. Waterman answered the contract with UICI stipulated monthly tapes would be provided by an unspecified date. Ms. Giunchigliani followed by asking what penalty was assessed if those monthly tapes were not received.

Mr. Gray replied monthly tapes were received from UICI, however the February monthly tape, needed for the utilization report, was not specified by the contract.

Ms. Giunchigliani was surprised the division had not specified the type of information required while negotiating the contract with UICI. Mr. Waterman replied the type of information required was specified in the contract, but the type of information requested on a monthly basis was not the utilization data to which she was referring.

Ms. Giunchigliani then remarked the division was foolish not to request the additional information that was needed to properly complete actuarial studies. She felt the monthly tape requested was not as useful as specific utilization data would have been.

Mr. Gray disagreed with Ms. Giunchigliani. He felt the information provided by UICI had been adequate for him to complete the necessary reports needed to complete budget work. The problem with utilization reporting concerned a lag in reporting at the time that he could compile a utilization report on a monthly basis.

Ms. Giunchigliani argued the contract stipulated the provision of monthly data every quarter. She then remarked when the division had realized a problem in claim expenditures was evident, it was their responsibility to request additional information from UICI to determine the causes of the program’s hemorrhage. She wondered how one would know what benefits should be cut or eliminated, if the division was not even cognizant of utilization rates for specific services. Furthermore, she asked how Mr. Gray advised the division to redirect funds if he did not know what was driving the increases in costs.

Mr. Gray attempted to assuage committee members by explaining the initial data tapes provided by UICI were specifics. However, he had not realized a utilization report including those specifics was needed until 1 year ago. He argued that without paying the outstanding claims, only theoretical data was available. He thought the monthly tape provided by UICI would be sufficient to produce the utilization report, but obviously it was not the case. Once the data had been accumulated in July, it was still not sufficient to create a conclusive report. Thus, the first utilization report was not a credible reflection of the increases in costs.

From July 1998 to December 1998, the division worked with UICI to correct the structure of the data provided on the tapes. In December 1998, UICI reconstructed the data tape so that the utilization tape and the incurred analysis tapes became distinctly different sets of information. He would attempt to comply with committee member’s requests, but because of those technical problems, compliance would be difficult.

Ms. Giunchigliani asked if that information had been translated to committee members. Mr. Gray replied the Committee on Benefits continued his contract because they realized he was providing them with the best interpretation of the data provided to him. Ms. Giunchigliani thought neither Mr. Gray nor UICI were performing their duties as stipulated and questioned the continued employment of Mr. Gray as the program’s actuary. She continued to criticize the division for over-billing issues, especially concerning the previous actuary, L & H.

Ms. Giunchigliani insisted the reason why the Committee on Benefits had the budget director on staff was so that when they foresaw a problem with the program they would be able to act swiftly to rectify it. She felt no member of the Committee on Benefits took charge and handled the problem, as they should have. She then questioned the credibility of the deficit projections made by Mr. Gray.

In his defense, Mr. Gray explained the incurred analysis conducted by his company, William M. Mercer and Company, impacted the decision making process at the time. He explained any actuary would review the incurred data to determine claim volumes and to determine what financial action was necessary to correct the situation. Until the backlog was paid for, Mr. Gray felt the single biggest problem was that they could not predict how large the financial difficulties would become. He believed his forecast withstood scrutiny because when it was made in September and subsequently adjusted through the current period, the actual size of the deficit remained close to his projections.

Ms. Giunchigliani demanded to know what caused the financial hole. Mr. Gray replied the utilization summary illustrated that no single area could be singled out as the sole contributor to the program’s financial difficulties. Problems were caused by factors across the board. As a result, plan changes made by the Committee on Benefits were also across the board. Deductibles were increased, the pharmacy plan was augmented, and out-of-pocket limits were increased.

Ms. Giunchigliani clarified the rate increase was 23.7 percent and she wondered if benefit increases had been tracked since the 1995 Legislative Session to determine if any of the benefit increases were tied to the program’s cost hemorrhage.

Mr. Gray replied that in the last budget process, memoranda had been generated that isolated the costs of the benefit changes. He said that issue had been brought up in the 1997 Legislative Session.

Ms. Giunchigliani asked if Mr. Gray, as an actuary, would consider that information useful. Mr. Gray said that information had been evaluated and he noted the out-of-pocket limits seemed to be a significant determinant. Thus, those limits were changed. The extent to which those limits had generated the cost increase had been mitigated by action taken to reverse those benefit increases effective January 01, 1999.

Chairman Giunchigliani asked if the Committee on Benefits had also extended benefit coverage to dependants at that time. Mr. Gray was unsure if coverage was increased.

Mrs. de Braga joined the discussion by stating the issue was a difficult one, as people were already made uncomfortable by the increase in private TPA rates. She felt individuals perceived the rate increase as a direct result of the program’s mismanagement, not as a result of increases in costs. She expressed concern that the legislature was considering extending additional funds to bail the program out without proper information. In addition to not having sufficient utilization data, no one knew how many protested claims and old claims still needed to be resolved. Also, no one could predict the amount of duplicated or overpaid payments that would be refunded. She felt extremely uncomfortable with the lack of accountability. She needed an accurate understanding of projections before she could proceed intelligently.

Next, Mrs. de Braga asked who had paid the $2 million in returned claims. She wondered if the money would rightfully return to UICI or was it to be re-directed to patients who had paid in excess of their proper deductible.

Mr. Waterman replied individual providers had voluntarily returned $2 million in overpaid funds. He felt there might be additional funds that had been overpaid and that could be collected. In fact, an electronic audit had been completed which identified monies that were possible recoveries, both in the form of duplicate payments and potential third party liability claims. Even though there was uncertainty concerning the exact amount, Mr. Waterman remarked his staff was working diligently to identify all of those areas and the division would attempt to retrieve those funds as soon as possible.

Mrs. de Braga still felt there was doubt concerning to whom those collected funds belonged. Mr. Waterman explained the collected funds should rightfully be returned to the program because the program plan was the entity that had expended the funds in the first place. Indirectly the retrieval of those funds would impact all of the plan’s participants.

Mrs. de Braga asked if Mr. Waterman was comfortable with the unpaid claims and protested claims projections. Mr. Waterman replied he felt it was a moving target that fluctuated day to day due the nature of the claims business. For a variety of reasons, UICI had a large number of pended claims. He felt that was a normal amount of claims waiting for adjudication. The Public Employees Health Program processed 40,000 claims per month, thus he felt 2,000 to 3,000 unprocessed claims was an acceptable amount.

Chairman Chowning commented on an instance where she had heard that physicians, who had been overpaid by the program, had refunded money to employees instead of to the program. She asked Mr. Waterman to elaborate upon the procedure for collecting double payments.

Normally, Mr. Waterman stated once the TPA identified a double payment had occurred, they would seek reimbursement from the provider or from the participant. He had no knowledge of physicians providing direct reimbursement to participants, although the instance did not surprise him.

Senator O’Donnell asked when the division discovered the program first had a fiscal problem. Mr. Waterman began by stating the division had received its wake-up call concerning the programs fiscal health in January 1998, but it wasn’t until well into the year that the division comprehended the magnitude of the problem. Mr. Waterman summarized part of the fiscal difficulties were attributed to the program’s trouble with L & H, the program’s former TPA. Before the termination of the L & H contract, L & H had processed a large number of small claims, but left the larger claim amounts unpaid. The backlogged, larger-than-normal claims were subsequently processed by UICI and the problem’s size was revealed.

Senator O’Donnell asked if Mr. Waterman had requested authority to move
$19 million to the medical claim category from the Interim Finance Committee (IFC) in May 1998. Mr. Waterman replied affirmatively. Then Senator O’Donnell thought the Committee on Benefits should have realized a problem existed with the program’s solvency at that time, otherwise why would Mr. Waterman have requested the funds?

Mr. Gray answered from July 1997 through December 1997, the program had stockpiled claims and built inventory for the UICI takeover from L & H. At that point, they had realized claims had been left unpaid by L & H, but there was no clear indication of the actual size of outstanding claims.

Mr. Gray explained that by the time UICI had completely taken control over the program, in December 1997, the backlog in unpaid claims had grown to 140,000 claims. Up until that point, the program had never experienced such a high backlog of unpaid claims. By March and April, some of that inventory had been liquidated and Mr. Gray felt the program’s managers had been able to estimate the size of the problems that ensued. He noted no claim tapes had been issued until the end of January 1998. Therefore, he said that by spring 1998, the division finally had a good idea of how bad the problem was and how much money was going to be needed to keep the program solvent.

Senator O’Donnell felt the division should have been more forthcoming with its plan to correct the problem, if it was known in May of 1998. Mr. Gray answered the timing of the division’s strategy was both a function of the amount of solid data available and a scheduled planning meeting in July. In July, the onus to develop a solution had been placed on the division.

Senator O’Donnell asked if the IFC had been notified. Mr. Gray replied the program’s fiscal problems had been disclosed in the Committee on Benefits meetings in May. The division understood the program had been running a deficit, yet the dollar amount was unknown.

Mr. Waterman also noted that division staff had attended the monthly IFC meetings and had kept committee members abreast of the program’s difficulties with as much detail as was available to them at the time. As early as May 1998 or June 1998, Mr. Waterman explained plan changes were even discussed.

Senator O’Donnell then wondered where the bottleneck in the flow of information had occurred. Why was the utilization data, which was the information needed to determine the cause of the deficit, not available or requested by the division in May.

Mr. Gray thought the bottleneck was the result of the division’s failed attempt to solve the problem. The division did not request utilization data until it became obvious the division’s solution was not viable. Thus, Mr. Gray was currently waiting to receive the utilization data from UICI.

Mr. Waterman then told committee members the delay in data from UICI occurred because the company was waiting until a more comprehensive collection of data, which included the 1998 data, could be completed. He felt it could be collected very shortly.

Speaking metaphorically, Senator O’Donnell lectured that when a business owner expended funds without any knowledge of who was billing the owner, extreme concern would consequently induce him to request the missing information in a timely manner. He felt there was a poor attitude managing the program’s finances. He then reminded Mr. Waterman that other areas within the state’s budget would have to be cut or eliminated in order to give the program funds it was subsequently paying out to an unknown entity. He did not feel it was feasible or logical to do so.

Mr. Gray explained UICI provided data, on a month to month basis, describing the actual amount of funds expended by the program. However, the tape driving the utilization report was not received in the same manner. The division was struggling to receive and interpret the utilization data accurately. He emphasized the division had proposed action to solve the program’s deficit problem, yet they were waiting for the updated utilization data to complete the report per the subcommittee’s request.

Mr. Waterman added that he agreed with subcommittee members, stating the utilization data was critical, but it had not been the primary consideration of the division or the Committee on Benefits when attempting to solve the deficit.

Chairman Chowning appreciated the division’s pledge to provide the information but she felt that their pledge was not good enough. The past information was important and the division must treat it as so.

Ms. Giunchigliani stated 1995 to 1996 utilization data had already been submitted, but repeated 1997 utilization data was not available. Analyzing the data, which she had available to her, she argued there was only a 3 percent difference between the 1995 and the 1998 statistics. Therefore, she could not understand how the division encountered a $52 million deficit. She reiterated the 1997 utilization data, broken down by provider type, would be extremely helpful in determining what drove the high cost of the deficit.

Mr. Gray explained he had not asked for the 1997 utilization data initially because the 1997 data included all of the denied discounts, waived deductibles, and duplicates rendering analysis an onerous task.

Mr. Gray also noted he would not receive utilization data from January to June 1997 because of the L & H fiasco. He said after the electronic audit, it was evident that only one data tape existed. He thought it might be possible to retrieve some figures from that time period on the tape, however it would take longer than a month to research.

Mr. Gray clarified for committee members an unreadable tape had been received by UICI from L & H. The division was unable to create a utilization report from the tape and the history of L & H claim payments, which the division had on hand. Thus, the first 6 months of 1997 were problematic. Mr. Gray acknowledged his pledge to provide 1997 utilization data, did not include those dates.

Ms. Giunchigliani asked if there was an alternate method of retrieving information from that tape. Mr. Gray said the L & H tape might have the data for the time period and that it could be used to generate the utilization report. Ms. Giunchigliani felt that information would be helpful as the Office of the Governor dealt with the issue of the deficit. She still felt the small difference between payments made in 1995 and 1998 indicated that something had occurred in 1997 that caused the program to hemorrhage financially.

Mr. Gray agreed the single most important year in the analysis was 1997. However, he remarked he had been discouraged by unsuccessful attempts to gather those statistics.

Chairman Chowning was dismayed that 20 months after the data had been incurred, it was still unable to be collected. Also, she did not understand how any factor in the 6-month period in 1997, would continue to drive the program’s deficit 2 years later. She then requested that weekly reports be provided to subcommittee members in order to ensure the proper information was being collected.

Next, Senator Neal followed with two questions. First, he asked if under the present contract with UICI, a succession clause had been included. Mr. Waterman replied there was a succession clause in the current contract, which went into effect in January 1999. The state also had the right to review a contractor bought out by another company. Also, contract cancellation provisions had been extended to 6 months rather than 60 days.

Mr. Neal’s next question took issue with duplicate claims. He said the program had sent him a letter concerning an accident he had had in 1998. Senator Neal explained he had additional insurance with AAA. Apparently, the hospital had charged the Public Employees Health Program instead of AAA, and he wondered how he should contact AAA to receive reimbursement for those expenditures.

Mr. Waterman said it was the responsibility of the TPA to analyze accidents in order to determine if other insurance was available to pay the medical costs incurred. He said recovery might or might not be forthcoming.

Ms. Giunchigliani returned to the issue of over-billing. Citing the contracted rates of $200 and $250 for actuarial services she asked Mr. Waterman to verify the billings for out-of-scope work to determine compliance with the contract. According to data she had on hand, individual companies had charged the division between $200 and $475.

Mr. Waterman was unaware of the $400 billed rates to which Ms. Giunchigliani had referred. She then clarified Coyle, Dick, Frazzini, and Hulbert were contracted at $200, while Meister was contracted at $285. However, the division was billed rates of $250 and $260 for Dick and Hulbert; $125 for Frazzini; and $425 and $475 for Meister. She said staff had requested monthly billing statements for calendar year 1998 and it had only been received that morning. She did not feel it left subcommittee members much time to analyze the issue properly. She then asked why the division was paying more than its contracted rates.

Mr. Waterman answered the division paid contracted rates but he did not have the information at hand to explain why the division would have paid more that that amount.

Chairman Chowning next called attention to the Governor’s task force on the Public Employees Health Program. She desired a timeline and list of objectives to be accomplished.

Providing subcommittee members with a general timeline, Mr. Waterman relayed the task force had met on various instances. Foremost, the taskforce strongly believed the process needed leadership. Because most taskforce members already held full-time positions elsewhere, a leader specifically responsible for directing the actions of the taskforce needed to be identified. Mr. Waterman hoped to have a taskforce leader chosen by the next meeting.

Additionally, Mr. Waterman noted the taskforce in conjunction with the Office of the Governor, was focused on the development of the Department of Administration’s Bill Draft Request (BDR). He believed the BDR would be presented to the legislature shortly following the next meeting of the taskforce. In fact, subcommittees had been designated to concentrate on specific areas of the issue. He concluded the next meeting would be critical.

Despite their alternate full-time responsibilities, Chairman Chowning commented the problem merited the full attention of the members of the taskforce.

Mr. Waterman suggested the subcommittee seriously consider the solutions or plans, which emanated from the taskforce. They were innovative and invaluable to alleviating the program’s financial pain.

Chairman Chowning assured Mr. Waterman the subcommittee would scrutinize all of the proposed solutions very closely. In the future, she averred the division would not have the luxury of requesting emergency funds to fix the program’s deficit because there would be no additional money to rescue the fund.

Next, the Chair quizzed J. Perry Comeaux, Director of the Department of Administration, concerning the $26 million needed to restore the program’s solvency. She asked if the Budget Office had thoroughly reviewed all of the program’s accounts to ensure that the program could meet its projected obligations. She was concerned that some state agencies like the Public Defender and the Department of Motor Vehicles (DMV), Field Services division might not be able to meet an additional financial obligation.

Mr. Comeaux explicated Budget Office staff had been assigned to review the level of reserves in the non-General Fund, non-Highway Fund agencies. He professed the Budget Office knew what assessments would be made to each of those agencies. The only account reported to have a problem in meeting the financial obligation was the Office of the Public Defender.

Chairman Chowning divulged staff had uncovered problems in agencies other than in the Office of the Public Defender. She wanted assurance that financial obligations could be met and she then requested Mr. Comeaux to report back to staff with results of a thorough analysis of the issue.

The Chair questioned staff if the Office of the Public Defender and the DMV Field Services were the only agencies likely to have trouble paying the special assessments.

Debbra King, Deputy Fiscal Analyst, responded that a potential problem in the Parole and Probation budget due to a projected $200,000 cash shortfall in supervision fee collections.

Chairman Chowning wondered how those agencies were able to meet the additional financial responsibility required to rescue the Public Employees Health Program and if they currently projected shortfalls in their budgets.

Mr. Comeaux conceded potential problems existed in several areas, however he avowed the only account where an arrangement could not be made to pay the additional assessment was in the Office of the Public Defender. He reiterated the department had evaluated all remaining agencies and was confident the funds could be collected. Nevertheless, he would have Budget Office staff report to the subcommittee in one week concerning the feasibility of the proposal.

Chairman Chowning wanted solid assurance from Mr. Comeaux that those agencies could meet their obligations. She cautioned if evaluations were incorrect, the Governor would have to call a special session to meet in order to rectify any problem.

Mr. Comeaux was adamant the issue had to be decided in the current year because the $26 million had to be directed towards the program almost immediately. The department would either collect the assessment or they wouldn’t. He revealed his confidence in the Budget Office’s agency evaluations had been unshaken until the Chair had expressed her concern over the other agencies. He affirmed his intention to re-evaluate the situation thoroughly.

The Chair questioned what alternate plan the Budget Office proposed, should the assessments not be collected. She articulated the Seventieth Legislative Session would have ended by the time the assessments could be collected. Therefore, if a shortfall occurred, what action was to be taken?

Mr. Comeaux replied the Budget Office could not make an assessment until the legislature expressed approval. Before it had been amended, specific language in Assembly Bill 176 would have allowed the Budget Office to make that assessment. Once again, Mr. Comeaux stated his belief that all agencies with the exception of the Office of the Public Defender would be able to meet the assessments. If a significant amount of the $7 million assessment could not be collected, then there would be an insufficient amount of funds to direct towards the program and the program’s reserves would not be funded to the level they should. For that reason, he elaborated, the Budget Office had conducted a careful review before making the proposal.

Chairman Chowning corrected Mr. Comeaux and said the total assessment value was worth almost $8 million.

Senator O’Donnell quickly commented he hoped the Budget Office paid considerable attention to the issue. He then asked when Mr. Waterman had joined the division. Mr. Waterman replied he had been with the Risk Management Division for 1 year. Senator O’Donnell commented even though, Mr. Waterman had inherited the program’s deficit problem, he still expected answers and assurance the deficit problem would be solved.

Mr. Waterman thanked Senator O’Donnell and insisted that it was the subcommittee’s responsibility to grill the division for answers. He then professed the division had worked diligently to uncover the cause of the program’s hemorrhage and would continue to work until the hemorrhage had been staved off.

Next, Mr. Goldwater asked how closely involved the William M. Mercer Company was in finding a solution to the deficit problem. He was concerned an inherent conflict of interest existed between an actuary and a consultant working for the same company. He felt it might affect the search to find a solution to the deficit crisis and he indicated some individuals believed legal action should be taken against the companies with which the program had out-sourced contracts.

Mr. Waterman did not feel either the actuary or the consultant could "cover their tracks" as their actions had been well documented. Mr. Waterman divulged the division continued to work closely with Mr. Gray, the actuary, and he felt it was important to continue doing so.

Mr. Goldwater agreed to the necessity of the actuary’s services, however he doubted the need for the consultant.

Mr. Waterman replied the division dealt less with the consultant. In a transition phase, Mr. Waterman said the Mercer Company was acutely uncomfortable with the situation, too, as their reputation was being affected. Mr. Goldwater questioned if the division was compensating the consultant less. Mr. Waterman replied affirmatively.

Next, Mr. Goldwater asked if the consultant had ever pressured the actuary to make changes in his sound actuarial advice to the benefit of the consultant component of the company.

Mr. Gray replied negatively. Even if the consultant had pressured the actuary, Mr. Gray explained he was a Fellow in the Society of Actuaries through which he was bound by a strict code of professional conduct.

Mr. Goldwater asked Mr. Gray if he was aware of any action of Mercer that violated his code of conduct. Mr. Gray replied absolutely not.

Mr. Waterman added the division was compensating the actuary from Mercer Company more because he had worked a greater number of hours. However, because the consultant from Mercer Company was billing the division on time and expense, the consultant was being paid less. He reiterated the overall amount paid to Mercer might have increased, but the proportion paid to the consultant had declined.

Mr. Goldwater asked if the option existed to separate those two entities. Mr. Waterman answered the option had been considered and it was something the Office of the Governor was currently evaluating.

Moving on to the presentation of the budget accounts for the Department of Business and Industry, the subcommittee was introduced to
Charles L. Horsey III, Director of the Department of Business and Industry (B&I).

Mr. Horsey began by expounding upon the purpose of the director’s office for B&I. The director’s office was responsible for supervising and guiding the 27 diverse agencies within the department including the Division of Agriculture, the Insurance Division, the Unclaimed Property Division, the Division of Financial Institutions, the Real Estate Division, the Housing Division, and the Manufactured Housing Division.

Next, Mr. Horsey summarized the forthcoming budget presentations for the department represented the most absolute, lean, and necessary requests the department required to operate as intended.

Beginning with M-200, in the Administration budget account, Mr. Horsey cited a request for a part-time student to assist a visually impaired employee in southern Nevada with various tasks such as filing and other reception duties.

Next, Mr. Horsey called attention to M-525, where funds to purchase certain equipment need to provide an accommodation under the Americans with Disabilities Act (ADA) were recommended. The equipment would assist the visually impaired employee to improve the efficient functioning of the office.

Bill Maier, Administrative Services Officer for B&I, articulated the M-525 decision unit would expend the employee’s personal computer to access Microsoft Windows files, and to fax documents. In conjunction with the equipment, the decision unit would support consulting fees to review procedures and make recommendations as to what type of equipment would assist that employee best. Working 8 hours per week, the consultant would cost the department $16,000 during the first year.

Chairman Chowning asked why funds for the M-525 decision unit had to come from the General Fund. She wondered if other department agencies could be assessed. She also asked if the decision unit funded solely the activities of the one impaired employee. Finally, she returned to the M-200 request, and asked what duties the impaired employee completed when the half-time student was out of the office.

Mr. Maier first addressed the question concerning the M-525 decision unit’s funding. Since the impaired employee was a state employee and since ADA accommodation was a legal issue, he felt it was appropriate to fund the request through the General Fund. Mr. Maier also indicated the employee performed tasks that were related to services provided to all of the agencies within B&I. He conceded the M-525 decision unit could also be funded by agency assessments.

In regard to the Chair’s second and third questions concerning M-200, Mr. Maier related functions affecting the personnel files that could not be coded in Braille for the impaired employee as well as the distribution of mail had been performed by the Deputy Director in the office. The half-time position would perform those particular functions.

Mr. Horsey explained the most important recommendation made in the Administration budget account was included in the M-201 decision unit. Mr. Horsey explained that with a department as large as B&I, a number of computers and computer systems existed. Currently, each division or agency within the department had to remove individuals from their specific responsibilities in order to deal with computer difficulties. More importantly, the smaller agencies did not have staff proficient enough in computing to effectively handle their agencies computing systems. Those agencies were subsequently forced to borrow Mr. Maier or others from the larger divisions to trouble-shoot computer problems. Therefore, M-200 recommended funding a Computer Network Specialist.

The Computer Network Specialist, Mr. Horsey revealed, would serve a variety of functions within the department. The position would coordinate communication between the different inter-departmental computer systems. In addition, a network trouble-shooter would assist the smaller agencies with their computer operations. The ultimate goal of the position was to eliminate downtime amongst computer systems and to facilitate the efficient day-to-day computer operations of each agency.

Mr. Horsey explained that a Department of Information Technology (DoIT) staff member would fill the position, but B&I would have the responsibility of compensating the employee. The employee would be exclusively devoted to B&I. Painfully aware of the tight budget situation, in which the state found itself, Mr. Horsey concluded the position was absolutely critical to the supervision of the department’s 27 agencies.

Chairman Chowning asked if Mr. Horsey had been assured the DoIT employee would serve only B&I. Mr. Horsey replied that was correct. The department had worked with DoIT and the Budget Office to reach an accord that stipulated the DoIT employee would work only on B&I issues.

Mr. Horsey commented the one Computer Network Specialist position would not completely solve the department’s networking needs and Mr. Maier would have to continue to work with the DoIT employee to handle the department’s computer systems. However, he felt that it was a start and he was comfortable with the cooperation he had received from DoIT and the Budget Office. Without a doubt, B&I would be able to carry out its mandates with the help of the position.

Also, Chairman Chowning asked if smaller agencies had previously had trouble receiving assistance from DoIT. Mr. Horsey felt DoIT had been extremely responsive to the needs of the department. However other issues such as the Year 2000 compliance problem and employee turnover within DoIT had limited the access some agencies had to DoIT services.

Chairman Chowning then asked Mr. Horsey to describe the manner in which the amount of the transfer from the Industrial Development Revenue Bond (IBRD) account to the Office of Business and Finance and Planning was determined. She was uncertain why the General Fund had been recommended to support a larger portion of those costs.

Mr. Horsey responded the Office of Business and Finance and Planning was part of the Office of the Director for B&I. Its primary function was to administer the state’s Industrial Development Revenue Bond Account. Because the transfer of the account was complex, he deferred to Mr. Maier.

Mr. Maier expounded the department had asked for the authority to transfer monies from the trust account to support the bond program. In the past, the department had transferred monies for both salaries and operating expenses. He clarified what had looked like a reduction of funds in the department’s base budget was in reality a request to receive the monies through E-275 and E-710.

Basically, Mr. Maier felt the transfer reflected the department’s authority over the account’s operations, whereas the salary portion of the account would be paid for by the General Fund allocation to the Office of the Director. Mr. Maier remarked in previous circumstances, a similar amount of monies had been transferred over and the office had supported the difference. Thus, the current budget request for General Fund dollars illustrated the costs of the account and tied those costs to the actual fixed expenses related to operations, and to the variable expenses related to staff time.

Chairman Chowning wondered why the transfer was completed differently than in the past.

Mr. Maier replied he had hoped the new method of transfer would simply be more easily understood. Subsequently then, the Chair asked if the General Fund would eventually support a greater proportion of the bond account program. Mr. Maier answered the General Fund monies, which the Office of the Director received, were filtered to the office through the various B&I agency assessments. In the past the office had authority over $42,000, but had never accessed that full authority. In the current situation, the office was requesting $37,500 and by the time the allocation was complete, the office would be able to access those funds. Refining his explanation, he articulated the General Fund allocation would be similar to the previous allocation, but it would be reflected through the office’s operations. The transfer was mainly a bookkeeping change.

Chairman Chowning asked Mr. Maier to work further with staff in order to elucidate the complex technical adjustments.

Mr. Horsey next called attention to E-125, a decision unit, which called for the elimination of the Center for Business Advocacy. Originally domiciled in the Economic Development Commission, the center was a three-person office whose programs were initiated 6 years ago. Mr. Horsey explicated the severity of the current budget crisis foreshadowed the elimination of funding for the center. Fortunately, the University of Nevada, Las Vegas (UNLV) and the University of Nevada, Reno (UNR) had business centers which performed similar functions and provided similar services to the public. Although, Mr. Horsey did not think the university system provided all of the same services as the Center for Business Advocacy, he thought the Commission on Economic Development would assume the operation of programs like Made in Nevada, to ensure the continuation of all of the center’s services.

Chairman Chowning was delighted to see the successful Made in Nevada program continued.

Mr. Horsey repeated the Commission on Economic Development expressed their desire to see the program preserved within their auspices. The other program UNR expressed interest in preserving was the ACEnet program, which was an Internet operation that assisted state entities in finding investors with available venture capital. ACEnet linked those investors with Nevada businesses who needed venture capital. Mr. Horsey indicated a meeting would be held with members of the university system to explore the possibilities of preserving similar programs.

Next, Mr. Horsey intimated the ancillary goal of the department was to retain the three employees who had formerly worked for the Center for Business Advocacy. Currently, they were attempting to find alternate positions within B&I for those employees.

Chairman Chowning asked if Mr. Horsey was confident the services formerly provided by the Center for Business Advocacy would be assumed by the university system and other B&I agencies.

Mr. Horsey was confident most of the center’s activities would be assumed. Furthermore he was hopeful because the university system had initiated the discussion concerning preserving some of the center’s functions under its auspices.

Chairman Chowning remarked many of Nevada’s small businesses had been able to market their products through the Made in Nevada program and she was pleased to see it preserved. Also, she was glad to see the department had attempted to relocate the three employees within other B&I agencies.

Mr. Horsey mentioned it was the department’s prerogative to retain the skills of those employees.

Next, Chairman Chowning pointed out that decision unit E-711 recommended hardware and software upgrades for the Center for Business Advocacy that was being eliminated in decision unit E-125. She did not see why the equipment was needed if the center was being eliminated.

Mr. Maier clarified the request was an error and should not have been placed in The Executive Budget. The function served by that equipment would be eliminated with the elimination of the Center for Business Advocacy.

Mr. Maier then commended the Center for Business Advocacy because it had been instrumental in developing the department’s Internet presence.

Mr. Beers asked if the equipment used by the three employees whose positions had been eliminated could be transferred elsewhere in the department. Mr. Maier replied that was possible and he hoped the equipment would be utilized within the department.

Mr. Beers also wondered how many computer workstations existed within the department and its umbrella agencies. Mr. Maier replied 64 enterprise systems had been identified. There were 560 employees who each had a personal computer and a number of network systems each with their own servers, all existing within B&I, but he did not have a precise figure at the time.

Mr. Beers was concerned an efficient Network Specialist would capably deal with a 500-workstation entity within 6 months. He felt the variety of network problems, once rectified, left only programming difficulties and user problems, which required expertise a Network Specialist did not have. Once stabilized, a network was a fixed operation, and with the exception of occasional service calls, no additional help was needed.

Mr. Maier understood Mr. Beers’ concern. He explicated the true purpose of the position, which had been recommended in the Business Processing Re-engineering (BPR) Study and encouraged by DoIT, was to determine if the various networks were being used efficiently throughout the department. Alongside Mr. Maier, the Network Specialist would comprise a review team that could review the business cycles and develop consistent operations within the department.

Mr. Maier relayed he hoped the services would become combined within the department’s umbrella, rendering B&I’s services more user friendly. If the system was created correctly, a constituent would be able to go to any B&I agency and the system would recognize the transaction. In that manner, B&I would function as a unitary body that could respond to outside pressures. Thus, he felt the position was more of a management position than that of a simple technician.

Mr. Beers commented he did not fully understand how the position would function and he wondered if it was mislabeled. It seemed more logical to him to fund a network consultant by the hour and to allow Mr. Maier to utilize different department personnel to serve the re-engineering phase.

Mr. Maier remarked the department would still need technical assistance from DoIT. Each agency had been charged $35 an hour for such assistance. Also, free planning support had been provided. What the department lacked however, was a centralized figure that could ensure that each of the re-engineering processes communicated with one another. He remarked the last BPR had cost $223,000 and he thought the current re-engineering process the department had undertaken was not something he wanted to contract out. He believed the department could complete the process.

Ms. De Braga remarked on the previous day a bill had been passed that would remove the Division of Agriculture and a few other agencies from the B&I umbrella.

Mr. Horsey stated the department’s position on the bill was to take whatever action best served the public. However, the transfer of those divisions would generate an insignificant fiscal note because the divisions submitted assessments in the amount of $63,000 to the Office of the Director. Thus, the department would have to make a minor adjustment.

Ms. De Braga argued, though, the department would not have the administrative costs derived from those divisions. Therefore the cost allocation would then exceed the actual cost to the department for administrative operations.

Mr. Horsey responded certain fixed costs would not disappear regardless of how many agencies they supervised.

Chairman Chowning noted Mr. Horsey should also work further with staff on the cost allocation for the department. Next, she referred to the performance indicators and asked if others existed to better illustrate how the department performed.

Mr. Horsey responded he was not totally convinced the performance indicators for the IBRD adequately reflected the amount of work the account accomplished.

The Chair was dismayed the departments performance indicators for the budget account focused solely on bonds. She wondered what other activities the Office of the Director completed. She asked Mr. Horsey to develop other indicators and to submit them to committee members.

The Chair closed the discussion on the B&I Administration Budget Account and moved to the Real Estate Administration Budget Account.

First, Chairman Chowning disclosed she was a licensed Nevada realtor.

Joan Buchanan, Administrator for the Real Estate Division, began her presentation by stating the division recognized the budget was a lean budget.

Foremost, Ms. Buchanan related to the subcommittee, the dynamics of the division’s operations and the number of constituents served by the division had remained almost static since the last legislative session. Appraisals had declined somewhat due to changes in appraisal requirements.

Next, Ms. Buchanan pointed out the division had implemented the Home Inspector Program as well as the Property Management Trust Account Reconciliation Program and the division had become heavily involved in various homeowners association issues, all in the last year.

In regard to decision units, Ms. Buchanan called attention to M-200, which requested a $6,000 increase in funds to use court-reporting services for the division’s hearings. The unit also included a recommendation for $5,823 to rent additional office space in the Bradley Building and $960 to fund 10 employee’s Internet charges. She noted it was critical for compliance staff to have Internet capability to oversee real estate advertising throughout the state.

Next, Ms. Buchanan cited a $2,500 request for copy machine upgrades. Because of the division’s enormous caseload and large number of educational programs, the division’s current copy machines had deteriorated.

Chairman Chowning was concerned the $960 Internet funding request would not be sufficient. She felt Internet capability was vital to the division due to the influx of out-of-state real estate agents who attempted to conduct business in Nevada. She feared a problem, like that experienced by the mortgage industry, would erupt regarding out-of-state agents.

Ms. Buchanan answered the problem of out-of-state agents taking advantage of Nevada’s real estate business was being attended to by a bill, sponsored by Mr. Humke on behalf of the Nevada Association of Realtors. The bill required the escrow and title companies to acquire the agent’s license number before closing the deal. She felt that would help to enforce Nevada’s real estate laws.

Mr. Beers was confused by the rent allocation for the division’s computer LAN system. Ms. Buchanan explained the mailroom was moved into the employee lounge area so that the LAN system could be placed in the former mailroom. Mr. Beers felt the LAN was small enough to be housed in a smaller room.

Ms. Buchanan clarified the LAN system and an employee would be housed in the additional space.

Chairman Chowning then asked how many additional square feet the office gained. Ms. Buchanan did not have that figure available. She explained the division had almost no space left in the office to allow for mobility, in fact, they had even lost their conference room.

Chairman Chowning asked if the division had used court-reporting services in the last biennium. Ms. Buchanan replied court reporters were always used for commission hearings. Additionally, motions for continuance required meetings using court-reporting services as well. However, the largest cost stemmed from the provision of transcripts when a case was appealed. That was required by law.

Next, Chairman Chowning asked why a half-time position was eliminated. The position had handled the certification of home inspectors. If the position was successful, she wondered why it had been eliminated.

Ms. Buchanan replied the division still requested hard cost expenditures in place of the position. For the division to continue to parcel out the activities of the Home Inspector’s program, compensation for hard costs was necessary.

Chairman Chowning indicated the request for those hard costs could not be found in the budget. Ms. Buchanan replied the request had been taken out, but she had prepared a hard cost sheet detailing the amount of funds needed.

Chairman Chowning expressed alarm because the law required the certification of all inspectors. The division would need funds to cover the costs of continuing the program without the half-time employee.

Ms. Buchanan noted the Inspector Certification program in E-125 reflected the division’s request for $36,729 for the half-time position. However because it was felt that the 59 inspectors certified in FY 1998 would decline to 20 new inspectors certified in the next two years, the half-time position was eliminated. The revenue generated from the Inspector Certification did not support the division’s request.

Chairman Chowning clarified the division did not need the half-time position, but it did need the funds to meet the expenses of the continued certification of these inspectors. Ms. Buchanan answered the program had been well developed by the former employee who had certified inspectors. She believed the Governor recommended eliminating the position due to the division’s performance indicators, which indicated a low utilization rate.

Chairman Chowning desired to know if Ms. Buchanan believed the program useful. Ms. Buchanan said with approximately 120 people, certification of inspectors could be completed easily by the Licensing section of the division. She said the deputy administrator of that section would have to oversee the program. However, she was not sure the program would operate as well without a person dedicated to the industry.

Chairman Chowning said it was up to the legislators to decide if the position would be eliminated, but she emphasized the program’s expenses were still needed.

Ms. Buchanan estimated $6,000 in hard costs would be needed each year. She said support from the Attorney General’s Office was also necessary for the program’s survival. That office gave 18 hours per month of legal support in the last year.

Mr. Goldwater was confused about whether or not the program could be operated with or without the half-time position. He asked what the division specifically needed to continue the certification program.

Ms. Buchanan replied she needed assistance from the Attorney General’s Office and $6,000 in hard cost expenses to support the Inspector Certification program.

Chairman Chowning then asked Ms. Buchanan to provide the hard cost report to staff.

In regard to the certification program, Ms. Giunchigliani asked Ms. Buchanan to track the workload of the program to determine its effectiveness. She indicated the legislators, not the Department of Administration, had the ultimate decision concerning how agency budgets should be funded.

Chairman Chowning next addressed the seller property disclosure form, which was addressed in E-125. $20,000 was recommended for public service announcements to inform sellers that they were required to provide the property disclosure form to prospective buyers. The Chair wondered how the division knew sellers were not providing the disclosure forms to buyers.

Ms. Buchanan said the information was retrieved from the public. For instance, upon learning a neighbor had completed a For-Sale-By-Owner sale,
Ms. Buchanan checked to see if a disclosure form had been provided. The form hadn’t been filled provided.

Ms. Buchanan explained even though the legislature had passed a law requiring the disclosure form to be completed, the public was still unaware of the law and its terms. She stressed there was an obligation on the part of the division to educate the public and she noted a booklet had been created on the subject, but there was no way to distribute it.

Chairman Chowning said the consumer was cheated if such a form was not completed.

Senator O’Donnell then disclosed he was also a licensed realtor in Clark County. He related an experience where a broker had charged a fee, taken a property listing, and then disappeared from the process. He found himself in the awkward position of representing a client, but dealing directly with the seller. He felt he was unable to communicate effectively.

Ms. Buchanan believed that type of business was called transactional, where no fiduciary responsibilities were attached. She indicated the division’s position concerning transactional brokering was that a real estate agent had a minimum set of duties, which could not be given away. She felt the licensee was not fulfilling their duties if they simply placed the listing on the property brokering database. In fact, she had listed the minimum set of duties a licensee should perform. She also said she would relate the issue to the Real Estate Commission.

Senator O’Donnell asked if the division had proposed legislation to prohibit transactional activity. Ms. Buchanan believed previous legislation rendered the activity illegal. She also had a memorandum from the Attorney General concerning the issue. She advised Senator O’Donnell to file a complaint.

Chairman Chowning asked if transactional licensees were fined or if other action was taken. Ms. Buchanan stated she had heard of 350 complaints in regard to transactional brokering. The division was currently evaluating the issue from a legal standpoint.

The Chair felt since the licensee was not submitting the disclosure form they had broken the law.

Next, E-175 recommended funds for the continuing education of the administrator. The Chair wondered if the expense was a one-time expense, what course the administrator would be taking, and why the administrator needed continuing education courses.

Ms. Buchanan replied the terminology was misleading. The course to be funded for the Administrator was an administrative law course offered by the National Judicial College. Because there were a variety of disciplinary actions and laws the administrator dealt with, Ms. Buchanan felt it a necessary tool to find new methods of disciplinary actions. The expense would be a one-time expense.

Going back to the performance indicators, the Chair cited 954 complaints regarding the activity of real estate licensees had been received, yet the division had rectified only 175 complaints. She felt there was a tremendous backlog.

Ms. Buchanan explained that in order to resolve a complaint, the two parties worked out difficulties between themselves. She indicated 526 complaints had been investigated and 175 had been resolved. Additionally, 17 complaints went to commission hearings and 3 cease-and-desist letters had been issued. Although performance indicators concerning the issue had been completed, she thought some indicators reflecting administrative sanctions were missing. Ms. Buchanan would provide those as soon as possible.

The Chair then complimented the division on its effort to increase public awareness.

Finally, Ms. Buchanan related a list of items the division wanted, should the Economic Forum predict favorable budget projections. First, she asked that a Management Services Systems position be funded to ensure computer equipment was utilized effectively. Second, an integrated licensing and accounting system and an imaging system would also assist the division in providing services. Next, she submitted the request for an increased allocation for the Sellers Property disclosure form requirement to increase public awareness. Last, she thought that a program officer could supervise time-share and community manager programs.

Chairman Chowning clarified those items had been requested but not recommended in The Executive Budget.

Ms. Buchanan replied that was correct. She would submit the list of those requests as well as details concerning their justifications to staff.

As the Senate Floor Session was ready to convene, the Senators allowed the hearing to be concluded by the remaining Assembly members.

Steve Ghiglieri, Chief of the Office of Business, Finance, and Planning, stated he had come to the office 18 months ago. He felt IBRD program had already been summarized and so he opened discussion to questions from committee members.

Chairman Chowning asked why the ten applications in 1998 did not result in a bond issuance during FY 1998. She also referred to three bond applications, which were supposed to result in a bond issuance in FY 1999, but had resulted in only one issuance. She wanted to know how the program was marketed, what assisted the promotion of the program, if a marketing plan had been implemented, and an update regarding the current applications.

Mr. Ghiglieri indicated that he had provided a marketing plan, which was requested by the 1997 Legislature. Since he began managing the program initial modest steps had been taken to improve the promotion of the program.

He went on to state that in a letter of intent, the previous legislative session had expressed concern the lack of a cohesive marketing plan would limit the IBRD program from attracting manufacturers and other types of industry to the state. Mr. Ghiglieri had agreed with the concerns of that letter and had consequently taken decent strides in developing a marketing plan the agency hoped to fully implement in the near future. For instance, an Internet site had been developed where applications could be downloaded and where other information was provided via e-mail resulting in a negligible turnaround time. IBRD was also beginning to work more closely with other agencies, like the Commission on Economic Development, as well as with local economic development authorities. Also, Mr. Ghiglieri believed he had been a much more visible figure in the office and thoroughly explained IBRD’s program to applicants.

Mr. Ghiglieri explicated additional contacts with banks, underwriters, and investment groups were sought to network throughout the state in order to make the program more visible. The result was an increase of 14 in the number of applications since February 1998.

For smaller bond issues, Mr. Ghiglieri explained an application packet containing program applications, instruction guides, back-up material, and a generic cover letter had been created.

Mr. Ghiglieri next addressed the concern over the dearth of applications. Initially, he had been frightened by the complete lack of response to the program during the first eight months he had been employed. However, he felt the initial marketing efforts of IBRD had started to pay off and he believed the applications would continue to increase. In fact, during the calendar years 1996 and 1997, only four applications had been submitted compared to the program’s 14 current prospects. He noted the economic conditions during the two periods were similar, thus he attributed the increase in applications to the marketing efforts of the program.

Mr. Ghiglieri conceded applications had not been closed in 1998. Nevertheless, because the program operated on a calendar year basis, he argued the performance indicators, which were based on fiscal years, distorted the program’s true performance.

The Chair wondered how many jobs had been created as a result of the bonds issued. Mr. Ghiglieri explained the program expected a return, however he told subcommittee members the program could be cyclical. He stressed the marketing plan was beginning to produce the intended results. In fact, 140 jobs had been created from the bonds already issued. Furthermore, Mr. Ghiglieri believed IBRD would finance three additional projects amounting to a total
$32 million in bonds, which should create at least 258 jobs. The average salaries resulting from those bonds ranged from $30,000+ per year without benefits to $50,000+ per year.

Mr. Ghiglieri felt data on those projects reflected an increased interest throughout the state. Also, different ranges of projects were being submitted, as the program became more visible. He cited a monorail project requesting $300 million in financing had just been submitted.

Chairman Chowning requested Mr. Ghiglieri to provide the updated information to staff.

Next, Ms. Giunchigliani asked how long IBRD had operated. Mr. Ghiglieri replied the program had operated since 1981. Ms. Giunchigliani then asked how long the $500 application fee had been in place. Mr. Ghiglieri explained he desired to amend the regulation concerning that fee. He was unsure when the fee structure was implemented.

Mr. Horsey added the $500 application fee was assessed in 1983.
Ms. Giunchigliani then requested Mr. Ghiglieri to amend the regulation to more properly reflect what that fee should be. She then asked if a marketing plan had been submitted. Mr. Ghiglieri replied affirmatively.

Next, Ms. Giunchigliani stated the number of applications received and subsequently processed, in addition to the value of each of those applications, would be helpful in analyzing performance indicators. She also felt figures describing the number of jobs created, as a result of the bond disbursement, would be helpful.

Furthermore, Ms. Giunchigliani commented the monorail application should be reviewed with caution, as she believed no civilized society utilized a monorail system in place of a fixed transit system.

The Chair next asked if the application fee could be refundable should the applicant be successful in receiving the bond. Mr. Ghiglieri explained the fees were lowered when the bonds were issued.

Mr. Ghiglieri explained that the agency had retained an individual, who had worked with over 150 bond issuers throughout the U.S. on industrial development bonds and was the primary advisor to the Council on Development Finance Agency in Washington, D.C., to work on the IBRD marketing plan. That person had advised against adding costs up front. In that manner the program would be promoted and able to attract a wider range of applicants. Initial high application fees might turn applicants away.

IBRD’s marketing plan addressed other issues too. For instance, Mr. Ghiglieri explained federal law had been changed to help applicants overcome some of the onerous obstacles to the bond process. He felt Nevada’s state laws needed to undergo a similar change.

Mr. Horsey observed the quality of the applicants that Mr. Ghiglieri had received was an excellent representation of the companies investing in Nevada. Secondly, he stressed the program’s importance as a vital tool of economic development as Nevada did not have the breadth of enticements which other states offered to attract investment. Third, Mr. Horsey communicated most states had experienced similar declines in applications for their respective industrial development bond programs because interest rates were at historically low levels. Thus, many companies had relocated to Nevada with the help of private capital. In actuality, the situation was not as foreboding as the performance indicator’s suggested.

Mr. Ghiglieri noted another proposal had been submitted by the New York Stock Exchange Oil-Dri Corporation for a project in Washoe County. Again, he claimed the applicants to IBRD were strong viable companies. So even in a low interest rate environment, the spread between the conventional and tax-exempt rates was valuable. In the last five years, the average interest rate savings from the IBRD account had amounted to 242 basis points, a significant amount of savings when dealing with bonds totaling millions of dollars. Mr. Ghiglieri summarized corporations such as Oil-Dri Corporation depended upon IBRD financing because of the competitive positions of certain industries. He stressed the state needed to concentrate on marketing and promoting the IBRD program. Mr. Ghiglieri also pledged to implement new ideas, building upon the solid structure the program already had.

As no other questions for the IBRD budget surfaced, the Chair moved to the next budget account. She indicated the budget account for Minerals would be addressed at another time.

Kathleen Olsen, Administrator for the Governor’s Committee to hire the Handicapped, said the committee had been established in 1975 by Executive Order. Two offices, one in Reno and one in Las Vegas housed four staff members. Ms. Olsen explained the committee consisted of ten members appointed by the Governor. Also, the committee was an affiliate of the President’s Committee on Employment of People with Disabilities.

Ms. Olsen then summarized the committee’s functions. Essentially the committee was formed:

• To serve as an advocate for people with disabilities;
• To provide training to employees on ADA;
• To give technical assistance to employers;
• To formally recognize people who promoted the employment of people with disabilities;
• To promote public awareness;
• To serve as a clearinghouse for information and referral;
• And to provide materials to those hiring people with disabilities.

Ms. Olsen then explained committee members served 1 to 3-year staggered terms. The program had successfully trained corporations, personnel associations, unions, hospitals, builders, apartment managers, state agencies, rural businesses, disability groups, business associations, and many others.

Addressing the agency’s budget requests, Ms. Olsen said committee members had requested funds to continue the four full-time positions as well as funds for in-state travel, which was needed to coordinate two required committee meetings per year. Staff travel was also needed to complete training activities and to attend other meetings.

In terms of operating expenses, Ms. Olsen disclosed committee members had requested $768 to pay rent for the new Reno office space. The committee had relocated its former Reno office space because the location had been annexed by Truckee Meadows Community College (TMCC).

Ms. Olsen said the agency also requested funding to lease a copy machine for the Reno office space. The committee had previously used a copier owned by TMCC and had reimbursed them for use. Once the office had been completely relocated, the committee would share its copier. She indicated the copier would cost $214 a month to lease.

Finally, in terms of replacement equipment, Ms. Olsen said the Las Vegas office needed a new fax machine.

The Chair interrupted to ask why the $1,500 agency request to fund training activities was needed if the number of people trained was expected to decline. Ms. Olsen answered the committee had taken on additional projects following the actions of its parallel federal entity. One project was the National Youth Forum, which trained youth on legal issues. The second new project was the Business Leadership Network, which involved a distinctly new type of training.

The Chair then noted the lack of outcome based performance measures in the agency’s performance indicators. She requested figures that could denote the agency’s success in completing its objective.

Ms. Giunchigliani asked if the charges would be shared for the Reno office copier. Ms. Olsen related that because the other tenant paid more rent than the committee, an agreement had been reached to allow for uncompensated copier use. Ms. Giunchigliani requested the rent and copier lease amount in order to determine the agreement’s fairness.

Second, Ms Giunchigliani asked what job duties Ms. Olsen performed. Ms. Olsen replied administrative duties, training, and other activities comprised her job description. Ms. Giunchigliani asked her to break down, in detail, the activities of the remaining staff between the northern and southern offices. She then indicated she was sponsoring legislation on school construction that might affect the agency’s budget. She was also concerned that the southern office was unsupported by Ms. Olsen and that the agency concentrated too much on the business, rather than the private sector. She then asked if the agency had the jurisdiction to check plans, or to conduct reviews of ADA compliance in schools.

Ms. Olsen answered the agency was an advocate for any person who requested their assistance. After the ADA had been passed, however, the agency was no longer permitted to inspect buildings for ADA compliance, as the responsibility had been transferred to the Public Works Board.

Ms. Giunchigliani thought new legislation might bring those responsibilities back to the agency. She mentioned there might also be a fiscal note to the legislation as well because it called for the certification of individuals as ADA reviewers.

Chairman Chowning then closed the discussion on the agency’s budget. She mentioned staff should work with the Division of Minerals to determine if there was industry support for the increases recommended by the Governor. Finally, the division had requested a decision unit recommending $2,000 per year for training. The Chair wondered if the training was absolutely needed because expenses needed to be paired down based on the division’s revenue problems.

There being no future business the meeting was adjourned at 11:25 a.m..

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RESPECTFULLY SUBMITTED:

Janine Marie Toth,

Committee Secretary

APPROVED BY:

Assemblywoman Vonne Chowning, Chairman

DATE:

Senator Lawrence Jacobsen, Chairman

DATE: