The subcommittee was called to order at 2:55 p.m., on Monday, May 3, 1999. Chairman Chris Giunchigliani presided in Room 3137 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Guest List.

COMMITTEE MEMBERS PRESENT:

Ms. Chris Giunchigliani, Chairman

Mr. Lynn Hettrick

Mr. David Parks

COMMITTEE MEMBERS ABSENT:

None

STAFF MEMBERS PRESENT:

Chairman Giunchigliani announced the subcommittee would hear simultaneous testimony on the bills, as all dealt with the issue of state employee sick leave. She also noted Mr. Parks was sitting in place of Mrs. Chowning. Chairman Giunchigliani reminded the subcommittee and the audience that the bills had previously been heard before the Committee on Ways and Means, and the subcommittee would attempt to resolve certain issues and report back to the full committee. She informed the representative from the Department of Personnel that the subcommittee wanted to know if there had been a fiscal note prepared on A.B. 446. Chairman Giunchigliani then invited persons in the audience to present brief statements and/or introductions regarding any one of the three bills.

Gary Wolff, representing the Nevada Highway Patrol Association, advised he wanted to make a final appeal on A.B. 246. Mr. Wolff disclosed he wanted to point out a few facts for the subcommittee. He also noted that information had previously been supplied to the full committee regarding percentage factors, et cetera, and he wanted to mention that the association would, of course, like to have 100 percent compensation for accrued sick leave. That would be the best method of rewarding state employees, benefiting both the state and the employees.

Mr. Wolff pointed out it would be easier for an employee earning $30 per hour to buy retirement credit than an employee earning $12 per hour. If percentage factors were used, Mr. Wolff felt it would be fair for everyone, or if the employee was simply "bought-out" regarding his sick leave balance. Basically, Mr. Wolff reiterated, it was easier for an employee earning $25 or $30 per hour to purchase additional retirement credit.

Chairman Giunchigliani asked Mr. Wolff what his feelings were regarding the issue of whether or not the sick leave "bank" or special leave account should continue. Further, she noted such an account remained in A.B. 246, however, in A.B. 446 and A.B. 468 it was recommended for deletion. Mr. Wolff noted in A.B. 246, the account would be eliminated, because all unused sick leave would be eligible for payment upon termination, and he fully agreed with elimination of that special sick leave account.

Bob Gagnier, Executive Director, State of Nevada Employees Association (SNEA), informed the subcommittee he wanted to go on record as supporting A.B. 468. He felt the amended version of that bill was very comprehensive, and included action recommended by the Department of Personnel, which was elimination of the special sick leave account. Mr. Gagnier felt it was very important if A.B. 468 became "bogged down" because of the fiscal note, that the Department of Personnel’s bill, A.B. 446 be processed. The way A.B. 468 was amended, stated Mr. Gagnier, would accomplish several things:

1. It would eliminate the special sick leave account, which would also be accomplished by passage of A.B. 446;
2. It would increase the payment caps, while not providing a "windfall" for state administrators, who would benefit if all caps were removed. In that case, a state administrator could receive as much as $70,000 upon retirement.
3. The bill would also retain the 30-day elimination period.

Mr. Gagnier explained when employees first began receiving pay for unused sick leave in the mid-70’s, one stipulation put in place by the legislature was the 30-day elimination. The legislature did not want persons to receive pay for balances of sick leave that were less than 30 days.

The sponsors of A.B. 468 deserved to be commended for the idea of rewarding employees who only used a certain amount of sick leave each year, stated Mr. Gagnier. When he drafted the amendment of subsection 3, the elimination was continued. There were exempt employees who were not required to keep track of sick leave usage in small amounts, and Mr. Gagnier explained those employees would be exempted from the 30-day elimination provision. Further, Mr. Gagnier felt the way the bill had been amended made it excellent legislation and SNEA would wholeheartedly support A.B. 468.

Mr. Gagnier informed the subcommittee he had no idea of the fiscal note attached to the bill. Chairman Giunchigliani advised the subcommittee was in receipt of "rough" numbers, and it appeared the cost would be approximately $130,000 per year.

Mark Stevens, Fiscal Analyst, Legislative Counsel Bureau (LCB), stated A.B. 468, as estimated by the Department of Personnel, had an additional cost of approximately $130,000 annually, compared to current sick leave payments.

Chairman Giunchigliani queried the committee regarding further discussion. Hearing none, she thanked the members for being part of the subcommittee and attempting to deal with some type of incentive for state employees, which subsection 3 of A.B. 468 anticipated. She felt employees who did not abuse their sick leave were not rewarded, whether in state or other public employment. The bill would, at least, begin to set some type of policy. Once again, Chairman Giunchigliani inquired if there were any feelings or comments from subcommittee members regarding subsection 3.

Mr. Hettrick inquired if the fiscal note was in addition to the $130,000. Mr. Stevens indicated subsection 3 would allow an employee to convert a day of sick leave to annual leave if they had used less than 10 hours of sick leave in any 6-month period. He explained there would be no cash payment involved, but the Department of Personnel had estimated the value of the annual leave that would be used at approximately $165,000 per year for nonexempt employees. In its current format, A.B. 468 would only apply to nonexempt employees. Mr. Stevens noted what was not taken into account was that the proposal was designed to reduce sick leave usage. Further, he noted, there was no corresponding offset, because it was extremely difficult to estimate how much less sick leave would be used if such a proposal was enacted. Mr. Stevens stated the value of the additional annual leave was estimated at $165,000 per year, not as a cash payment, but rather the value. However, he advised, there was no way to ascertain the offset of less sick leave usage, and that was the reason subsection 3 was included in the bill.

Chairman Giunchigliani then noted there would be approximately 1,421 nonexempt employees effected by passage of the bill. Mr. Stevens indicated he did not think that was correct, and he would review that figure and advise the subcommittee. Chairman Giunchigliani advised exempt employees were mostly administrative positions, and she assumed those were persons who also were unable to earn overtime payment.

Chairman Giunchigliani mentioned A.B. 246 would have been a nice piece of legislation, however, the problem was the fiscal impact. She also understood there was a point where payment for sick leave would be taxable and that raised concern for some employees who had not realized it would "kick" into a taxable status. Mr. Stevens advised he had spoken to George Pyne, Executive Officer, Public Employees Retirement System (PERS), who advised that currently any payment for sick leave was a taxable transaction. At some level, if time was purchased via PERS, it might or might not be a taxable transaction, but Mr. Pyne was not sure when that would take place; if it was a large enough payment, it would become a taxable transaction versus a nontaxable transaction. Again, stated Mr. Stevens, any cash payment received by an employee upon termination was a taxable transaction.

Mr. Hettrick addressed Mr. Gagnier’s comment regarding the cap for administrators, asking if it was based on use of a percentage across-the-board amount. Mr. Gagnier explained if there was no dollar cap, then administrators who had been in the system for several years, would receive a very substantial sum of money. The reason the dollar cap was established to begin with was to avoid that kind of issue. Chairman Giunchigliani noted that would go back to Mr. Wolff’s comment about individuals who did not have the opportunity to earn that same level of salary would actually garner less of a benefit under a percentage, unless it was 100 percent.

Mr. Gagnier called the subcommittee’s attention to page 2 of A.B. 468, subsection 2, number (b), which depicted the manner in which an employee might be paid for sick leave upon retirement or resignation from state service. One method was to pay in advance for insurance coverage, and the other would be purchase of additional retirement. The problem, explained Mr. Gagnier, was the Internal Revenue Service (IRS) had ruled that if an employee had the choice of receiving a cash payment, then it became taxable, regardless of what the money was used for. Chairman Giunchigliani asked if the employee groups were asking to keep that section as written. Mr. Gagnier stated SNEA would not request a change in the bill. He noted there were many employers who allowed employees to convert sick leave to additional retirement upon termination, but those were generally single employer retirement plans. Further, he explained PERS insisted that employees be paid for unused leave, and the pay had to be equal. For example, an employee could not take a day of sick leave and expect PERS to give credit for a day of retirement. There would really be no advantage to the employee, unless a formula was derived that benefited all employees, whether local or state. Mr. Gagnier went on to explain it was one of the disadvantages of having a widespread retirement system, as opposed to a single employer.

Mr. Parks asked whether or not an analysis had been done of other local governments throughout the state, regarding what type of programs were offered, and the extent of the fiscal impact. Mr. Parks noted he just retired from Clark County with 1,200-plus hours of sick leave, and received payment for just over half of the accrued amount, approximately 56 percent.

Mr. Wolff advised he was somewhat confused, and thought the $4 million fiscal note on A.B. 246 was not accurate. The problem was that the fiscal note failed to take into account the savings the state would realize when an employee terminated. For example, he explained, there were three persons who died of cancer in the Nevada Highway Patrol over the last few years, and each individual had burned off in excess of 9 months of sick leave. The state still paid the same amount of money to the individual, who was still earning sick and annual leave while on sick leave status, plus increased PERS. Mr. Wolff stated it would cost the state less money to buy such a person out rather than keeping him employed. Further, he asked why it mattered if an administrator was making more money, stating he did not understand the concept. He advised he had been a labor-oriented person and somewhat conservative all his life. The point he was attempting to make was if there was no percentage used, it would cost the person at the lower end more hours to buy the same amount of time. Mr. Wolff indicated if a person worked for 30 years and achieved an administrative status, as happened in private industry as well as state employment, those persons had earned their way and were entitled to benefits. He did not feel anyone, whether administrator or the lowest ranking employee, should be penalized in any manner for their years of service.

Andy Anderson, representing the Nevada Conference of Police and Sheriffs, and the Las Vegas Metropolitan Police Department (Metro), advised that Metro had a policy dealing with sick leave. He went on to explain an employee could accumulate sick leave and, depending on length of employment with the department prior to termination, via either retirement or resignation, a percentage was paid to the employee. Mr. Anderson indicated if a person worked 10 years with Metro, they would receive 50 percent, or 50 cents on the dollar; for 15 years it was 62.5 cents on the dollar; for 20 years of service, the maximum was 75 cents on the dollar. Although sick leave hours had been capped for persons hired after 1984 at 1,000 hours, the percentages of the pay off remained the same. Further, noted Mr. Anderson, the hours that an employee could accumulate per year above the cap would only be compensated at 50 cents on the dollar.

Mr. Anderson stated the policy was to encourage employees not to call in sick, which placed a financial burden on the department. In the corrections division, for instance, if an officer called in sick he would have to be replaced, as the cellblock could not be shut down. When that occurred, the department had to call another officer in and pay time and a half when necessary. The incentive was that the department would pay an employee for some of that accumulated leave upon retirement or termination, however, would save by not having to call in a replacement and pay overtime if sick leave was used. If the department put a dollar amount on what the pay off would cost, it would probably be $4 million, but the overtime also had to be considered. Mr. Anderson said the subcommittee should consider what the state paid in overtime for the prison system, the Parole and Probation Division, or the Highway Patrol. He advised the department found that after employees reached the cap, they would simply burn up their sick leave rather than lose it.

Chairman Giunchigliani asked if the department had a "use it" or "lose it" clause, and Mr. Anderson replied in the negative. Chairman Giunchigliani then noted that the private sector used negotiation agreements, which were not available to state employees. Mr. Anderson stated that stipulation only applied to annual or vacation leave.

Mr. Wolff indicated the fiscal note did not address the fact that if a "topped" out Highway Patrol trooper terminated, when a replacement was hired, it would be at 35 percent less pay, thereby creating a salary savings. That fact was never applied in the formulas. Mr. Wolff referenced the case of a home bound employee who, because of the state’s inability to pay that person off, lingered at home and died in bed after 6 months. The pay off would have amounted to approximately $26,000, which the family could have used for hospice care. There were very real needs and righteous reasons to pay employees for their sick leave, not just because they would burn it off if not compensated.

Chairman Giunchigliani inquired if a person could be moved to disability leave in such a case. She thought Clark County was attempting to clarify sick leave for such cases, because it had terminated an employee who was injured and could not resume his duties, and the county did not have a position for him. The county was frustrated because the employee had to be terminated without use of his sick leave or additional retirement. Mr. Anderson noted Metro also had such a case, where the individual was terminated. He explained the employee failed to file the disability claim in a timely manner, however, the board waived that stipulation.

According to Mr. Anderson, disability through PERS would not increase the amount of money received, but rather removed any penalties. If an employee retired with 27.5 years of service and was below the required age, there would be a 4 percent penalty per year. By taking the disability, the penalty would be waived and the employee would receive 2.5 percent times 27.5 years. Mr. Anderson also advised an employee could buy up to 5 years retirement time, however, the IRS rule was that if the employee had the option of receiving cash or additional time, they would be required to pay taxes, because not all employees would opt to buy the time. For instance, if an employee had 36 years and was "maxed" out in PERS, why would he want to convert his sick leave and buy more time, when he could not realize a greater retirement payment.

Mr. Hettrick stated the subcommittee had received information from the Department of Personnel addressing sick leave on a percentage basis, in an attempt to arrive at a more affordable outcome. Mr. Stevens noted LCB had asked the Department of Personnel to do a number of things concerning the sick leave issue and appreciated the work it had done. The Personnel Department had been asked to estimate the cost of paying employees based on 10 percent, 25 percent, and 50 percent of their accumulated sick leave in lieu of the current payment plan which allowed payment up to a maximum amount depending upon years of service. Information received indicated that in 1998, there was approximately $700,000 paid for sick leave upon termination. Mr. Stevens indicated the proposed payment of 25 percent of cumulative sick leave for regular and special sick leave accounts, would be approximately $688,000; for 50 percent payment, the cost would be approximately $1.4 million. If that was restricted to employees with 10 or more years of service, the 25 percent payout would be $592,000, which would be less than the current cost of paying sick leave, with the 50 percent payment estimated at $1.2 million. Mr. Stevens commented the proposal for payment at 25 percent would be less than the current system in use.

According to Mr. Stevens, the Department of Personnel was also asked to put together a few scenarios with the current payment system versus a 25 percent payout. Those figures were based on the assumption that the first 240 hours would be deducted. In other words, it would amount to the total accumulation of sick leave in both the regular and special sick leave accounts, minus the 240 hours, multiplied by the employee’s hourly rate, to arrive at the number of hours to be paid. Three different pay grades were used, grade 25, grade 30, and grade 35. Those three grade levels were selected by the Personnel Department because 82 percent of state employees were below a grade 35. In those scenarios, it was also assumed that a state employee would use 30 hours of sick leave per year, which represented a low usage employee, or 90 hours per year, which represented the high end of sick leave usage. In all but one case, explained Mr. Stevens, for a 25 percent payout, an employee who used 30 hours of sick leave per year would receive a higher payout than he would under the current payment plan. For those employees who used 90 hours of sick leave per year, the 25 percent payout would be less than the current payment plan. It would appear that based on the 25 percent payout, there would be some incentive for state employees not to use sick leave, versus the current system.

Mr. Hettrick stated it appeared that it would cost approximately $20,000 more on the figure used for 30 hours, based on a running cost. He knew those examples were not an assimilation of all the actual employees, but rather a means to estimate the impact. Correspondingly, based upon 90 hours used, the payout would be less, so the two categories were based on the mean of what the subcommittee was reviewing. Mr. Stevens advised the figures would reflect what the Department of Personnel had indicated cost wise; it would actually be less expensive under the 25 percent payout plan than what was currently being paid out under existing law. If the subcommittee anticipated recommending approval for the 25 percent payout, it would need to decide whether or not to restrict payment to a certain number of years, or allow it to apply to all employees. Mr. Stevens commented the two cost figures provided by the Department of Personnel for the 25 percent payout would remain just about the same cost wise if applied to all state employees, no matter how long they had remained in state service. It would be approximately $100,000 less if employees were required to have 10 years of service before the payout was available to them.

Chairman Giunchigliani asked if the cash payment or application toward retirement would be the only form or early buy out and, if so, had a different type of procedure ever been explored. She also noted that under A.B. 468, there was a bit more flexibility. Mr. Gagnier informed the subcommittee the only other provision available was for direct purchase of time, such as an employee effected by a layoff under Nevada Revised Statutes (NRS) 286.3007. That formula was for those persons effected by a layoff, not necessarily laid off, but bumped, demoted, et cetera, where the agency was required to purchase service for the employee.

Colonel Michael Hood, Chief of the Highway Patrol, indicated the 25 percent payout would reward the proper employee. It would be something he could take back to his organization to show that the employee who worked for 20 years, whether he had a headache or not, or didn’t feel well, would be rewarded, as opposed to using his sick leave as accrued. He felt that was a good compromise of the three bills.

Chairman Giunchigliani stated the subcommittee currently needed to look at incentives, however, felt the issue should be revisited down the road, because state government did not do enough, as pointed out by Mr. Wolff. For example, if a teacher retired at the top end on the salary schedule, three first year teachers could be hired for the same cost. The districts did not do a very good job regarding the sick leave issue, however, she thought the school board had some type of policy where it would buy up to 3 years of retirement if an employee had a certain number of sick leave days. The school board budgeted for that eventuality, which allowed for purchase of PERS time and allowed early retirement. Maybe part of future considerations should be the recommendation to generate some type of external study or review, and return next session with a variety of ideas of how to deal with the area. Chairman Giunchigliani noted there were many career employees in the PERS system, whether or not they were managers, and the right incentives had not been set up for them regarding use of sick leave.

Mr. Hettrick felt that was a valid point, because unfortunately it was human nature to use the leave if there would be no payment at time of retirement or termination. However, if there was a way for employees to receive 25 percent cash payment as a benefit for attendance at work, employees would work, which would benefit all agencies. Mr. Hettrick said one of the problems was the payment of overtime and the inability to fill slots in many agencies currently, and such action would tend to keep those persons already employed coming to work. He felt it would look pretty attractive to employees not to use sick leave unless they really needed to, because they would be paid handsomely in the end. Mr. Hettrick noted persons were smart enough to figure out how the system worked, and currently it paid them not to come to work, but rather to use sick leave. The 25 percent payout would make it worthwhile to come to work, and he felt it was a good incentive.

Chairman Giunchigliani asked if the subcommittee felt A.B. 246 would provide the action it wanted. Mr. Hettrick advised his concern was that the bill did not have any impact on the way the money could be used, as compared to A.B. 468. If it would not impact whether or not a person could take a lump sum, advanced insurance premium payment, or purchase additional retirement credit, then he would think that was as good a vehicle as any. However, the exact same thing could be accomplished in A.B. 468.

Chairman Giunchigliani asked for subcommittee input; Mr. Parks lent his support to the percentage payoff, but leaned more toward a graduated payoff, working up to somewhere in the vicinity of half the accumulated sick leave hours. Mr. Parks stated that having been a supervisor, and with the excellent system in place in Clark County, there were a fair number of employees who only worked for a short period of time, and would not consider sick leave payoff as an incentive. However, once an employee got closer to 5, 10, or more years, they certainly saw it as being advantageous. He indicated a percentage factor would be preferable.

Chairman Giunchigliani inquired if the subcommittee had more of an appetite to try the 25 percent payout at the current time; subcommittee members agreed. Chairman Giunchigliani suggested the subcommittee use A.B. 468 as the vehicle. Mr. Stevens reported the Department of Personnel cost figures provided for a 25 percent payout after deducting 240 hours, and the subcommittee could decide whether or not to include that stipulation. Chairman Giunchigliani asked if there were numbers from personnel to give the subcommittee an indication of costs. Mr. Stevens stated the proposed figures provided by personnel included the deduction of 240 hours, and then paid 25 percent. If the subcommittee just passed the 25 percent payout, it would increase the cost, but Mr. Stevens commented he did not know how much that increase would be. If the subcommittee wanted to match the proposed figures provided by personnel, it would mean a 25 percent payout after deducting the first 240 hours.

Mr. Hettrick advised in looking at pay grades 25, 30, and 35, after the first 5 years, those persons would be ahead, and after 10 years of service it would be $5 ahead of the $2,500 that was included in the current statute. Mr. Stevens pointed out that those figures were based on exclusion of the first 240 hours. Mr. Hettrick stated he still felt there was an incentive, and employees would be money ahead from the beginning. The employee who used 90 hours of sick leave would not come out ahead, but would remain the same as currently paid. That was the incentive, that a person who used less sick leave (30 days versus 90 days), would receive a higher payout.

Chairman Giunchigliani asked if the subcommittee would support exclusion of the 240 hours. She then asked Mr. Stevens if the subcommittee should also consider length of employment, such as 5, 10, or more years. Mr. Stevens noted that was a policy decision as well as a financial decision, based on the Department of Personnel’s figures, the 25 percent payout, less 240 hours would be $688,000. If the subcommittee felt that incentive should only be provided to employees that had a certain number of years service, personnel figures for employees with 10 or more years of service would reduce the cost to $592,000. However, Mr. Stevens emphasized the subcommittee could pick any number of years for eligibility.

Mr. Hettrick looked at the bill as the incentive for the employee to be at work earning the sick leave. At zero years, an employee could still use his sick leave, and the whole point was to get people to come to work, particularly at the prisons, and such agencies as the Highway Patrol. Mr. Hettrick stated he would set the number of years at zero; it would still be less money than the state spent currently, and while not a huge savings, it would given an incentive from day-one for people to go to work.

Chairman Giunchigliani indicated she would consider a motion to recommend to the full committee A.B. 468 be amended to include the 25 percent payout exclusive of the first 240 hours of sick leave; revert to original language in section 1, (a), (b), (c), and (d); maintain subsection 3; and include elimination of the special sick leave account. Mr. Hettrick stated he had not reviewed subsection 3 separately, and asked if that had any fiscal impact beyond the intended motion.

Mr. Stevens stated there would not be a cash outlay, but there would be additional annual leave taken, and there was a "value" assigned to that by the Personnel Department.

With no further business to come before the subcommittee, the hearing was adjourned at 3:40 p.m.

RESPECTFULLY SUBMITTED:

Carol Thomsen,

Committee Secretary

APPROVED BY:

Chris Giunchigliani, Chairman

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