Seventieth Session

May 19, 1999

The hearing of the Assembly Committee on Ways and Means was called to order at 8:00 a.m. on Wednesday May 19, 1999 by Chairman Morse Arberry Jr. Exhibit A is the Agenda. Exhibit B is the Guest List. All Exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.

COMMITTEE MEMBERS PRESENT:

Mr. Morse Arberry Jr. (Chairman)

Mr. Bob Beers

Mrs. Barbara Cegavske

Mrs. Vonne Chowning

Mrs. Marcia de Braga

Mr. Joseph Dini, Jr.

Ms. Chris Giunchigliani

Mr. David Goldwater

Mr. Lynn Hettrick

Mr. John Marvel

Mr. Parks

Mr. Perkins

Mr. Bob Price

COMMITTEE MEMBERS ABSENT:

Ms. Jan Evans, Vice Chair (excused)

STAFF MEMBERS PRESENT:

Mark Stevens, Fiscal Analyst

Gary Ghiggeri, Deputy Fiscal Analyst

Cynthia M. Cendagorta, Committee Secretary

Steve Weaver, State Parks Chief of Planning and Development, said A.B. 683 would allow state parks to complete several capital improvement projects that were approved in the 1997 Legislative Session. It would also allow the state to recover $1.4 million in federal matching dollars over the next 2 years by carrying over previously appropriated funds into the next biennium.

With no further questions or comments, Chairman Arberry declared the hearing on A.B. 683 closed.

Freeman Johnson, Assistant Director of the Department of Conservation and Natural Resources, supported A.B. 684. He said the bill involved no new money, and simply requested previously appropriated money be carried forward to develop a wild horse management plan. In a plan recently presented to the Natural Resources Committee, the department recommended the establishment of a private foundation to assist in the marketing of wild horses and burros through the public adoption program. A feasibility study would be done to determine the effectiveness of a private foundation to market the animals. The department felt if they could do that, it would work to reduce the number of horses on the range.

Mr. Marvel asked if the department had the cooperation of the wild horse advocates. Mr. Johnson answered the department did have their support.

With no further questions or comments, Chairman Arberry declared the hearing on A.B. 684 closed.

Paula Berkley, Truckee Meadows Human Services Association, supported the bill and said other than the Tobacco Settlement, A.B. 685 was the only bill the committee would hear that brought money to Nevada. In order to qualify for the nearly $32 million available, the bill had to pass. If it did not, $32 million would go to Colorado citizens. The bill focused on the conversion of Blue Cross Blue Shield (BCBS) from a non-profit to a for-profit organization through a purchase. If the state did not get the money then, it would never get it. Opponents of the bill would say it was not constitutional. They were the only ones making that claim though, since the Attorney General’s (AG) office, the Legislative Counsel Bureau and Consumer’s Union had done legal briefs on the issue and had determined it to be constitutional.

One of the concerns, Ms. Berkley continued, was that Blue Cross Blue Shield would do a constitutional challenge on the bill, which resulted in the $5,000 fiscal note. The chronology of the bill, in short, was in December 1996 Blue Cross Nevada decided it would like to merge with Colorado BCBS. The insurance commissioner held a hearing and the merge was granted. During the hearing there were no subscribers of Blue Cross Blue Shield present and the legislature was not informed of the process. Colorado citizens were informed of the process and a foundation was created to hold the assets for Colorado citizens. The bylaws in both states were almost the same, but the monies were defined in Colorado as charitable assets, anticipated to be up to $3 million. In Nevada, legislators were never allowed to establish a foundation, as Colorado had done.

After the session, the non-profits found out what was happening, and citizens found out by watching 60 Minutes. Ms. Berkley referred to a packet she had given the committee and noted more information was available (Exhibit C on file at the Legislative Research Library).

During the hearings, the Attorney General’s office continually brought up the fact that the conversion process was eminent and should be discussed. Mr. Wadhams had said that was out of order since the agendas stated "merger only." The insurance commission upheld the decision. Since conversion had not been discussed by the legislature, it was a new issue. Mr. Wadhams would state it was a "done deal" and the state could not go back on it.

Ms. Berkley stated the non-profits had worked hard to get the money, but had not gotten very far, so they went to the Legislative Commission and asked them to write the Colorado Insurance Commissioner. They asked Colorado to value the Nevada assets separately so Nevada could develop a foundation for Nevada citizens. Unfortunately, the commissioner said Colorado would rather have all the money and that Nevada missed its opportunity to get the money. The Attorney General and the Governor also wrote letters saying it was an unjust windfall for Colorado to take Nevada assets. Mr. Wadhams had supported the effort at that time, and Ms. Berkley wondered why he did not still support it. During the interim, for market reasons, Blue Cross decided not to convert, and the non-profits realized they had another shot at getting the money for Nevada. Ms. Berkley referred to the packet (Exhibit C) and said the Consumer’s Union was the most knowledgeable about the conversion.

During the session, Ms. Berkley continued, Anthem Corporation (formerly BCBS of Indiana) announced its intent to purchase BCBS of Colorado. Anthem offered $140 million for the foundation. WellPoint Health Networks (formerly BCBS of California) made a counteroffer with a proposed $180 million foundation, of which Nevada’s assets were a part. The purchase/conversion was therefore imminent and Nevada could either pass the law and obtain the state’s portion of the assets or give them to Colorado. Those dollars would be set up in perpetuity for the health care needs of Nevadans.

Ms. Berkley said Vice Chair Evans and Assemblywoman Barbara Buckley, had been involved with the bill on the Assembly side, and the bill was sponsored by Senator Randolph Townsend on the Senate side. The state needed to go after the dollars, and not let Nevada be the last state in the nation to support health care for its citizens.

Jon Sasser, Washoe Legal Services, directed the committee’s attention to a packet from the Consumer’s Union (Exhibit D) and said he would discuss the highlights of the document, which was presented by Mary Ann Cryan before the Senate. The document gave a background of BCBS and its unique history in the United States. The company was set up as a non-profit from the beginning, and until 1986, was set up under the 501c4 internal revenue code. In 1986, some other insurance companies went to Congress and said BCBS had too big of an advantage being a non-profit. Congress then made BCBS a hybrid in terms of non-profits and for-profit organizations. BCBS had also played a quasi-governmental role over the years, as a fiscal mediary for the Medicaid program, and also operated to screen medical necessity in the Medicare program.

Mr. Sasser said the frenzy of conversions in the country was resulting in a number of legislative and litigation activities in which the states recaptured the assets of non-profit charitable organizations and put them into foundations. Mr. Sasser referred to Exhibit D for more detail. There was the concern the state was acting after the fact so the Consumer’s Union studied the issue and concluded the legislation was constitutional.

Mr. Sasser said proceeds of the sale of the merged company BCBS of Colorado, that had in it the Nevada BCBS monies, would go solely to the Colorado foundation unless the bill was passed so that the Nevada monies would go back to Nevada. Mr. Wadhams had raised 15 challenges to the bill, which Mr. Sasser refuted in Exhibit E. Each tab of Exhibit E represented a different aspect of the debate, and addressed many important issues.

Mr. Sasser explained A.B. 685 would allow the Attorney General to step in and evaluate the worth of the non-profit’s Nevada business and the company would have to pay that portion over to a foundation created by the bill to be used for Nevada’s health care needs. The board of the foundation would be appointed by the Governor, and would represent a resource that would allow Nevada to deal with some of its crucial needs. Mr. Sasser pointed out that BCBS not only got the assets of BCBS of Nevada, but they also got the liabilities. Also, the packet (Exhibit E) addressed the conflicting state laws that dealt with all of the above issues.

Mr. Sasser added that it was clear from BCBS of Nevada’s bylaws that the organization was not for profit. He said Mr. Wadhams would try to argue Nevada BCBS was different, but Mr. Sasser said it was clear they were not. Mr. Sasser said it was clear that no individual was to benefit financially from the organization’s success. He pointed out that the distinction between for-profit and non-profit was important, as opposed to charity versus non-charity. When BCBS of Nevada did business in Nevada, it did not pay state or local taxes, although that was only one difference between a non-profit and a for-profit.

Mr. Marvel asked what the fiscal portion of the bill amounted to. Mr. Sasser said there was a $5,000 appropriation to the Attorney General’s office, which would fund a constitutional review. If there was an evaluation process under the bill, the Attorney General’s office would be able to bill that cost to BCBS just as the Colorado statute did.

Mr. Goldwater asked why the issue had not been addressed more at the front end when the merger was going through. Mr. Sasser said under Nevada law, there was no specific statute (as there was in Colorado) governing the conversion from a non-profit to a for-profit organization. All BCBS applied for at the time was permission to merge with another non-profit (BCBS of Colorado). All of that happened in Nevada as approval of a merger. The issue of conversion to a for-profit had never been addressed by any of the state’s regulatory agencies. Mr. Sasser said in the spring of 1996, Colorado passed the bill leading to the conversion process.

Ms. Giunchigliani asked if BCBS applied for a merger but went in front of the insurance commissioner. Mr. Sasser said under the current law, when two insurance companies wanted to merge, they needed the permission of the insurance commissioner. BCBS, as a gesture of good will to Nevada, gave $1.5 million to the citizens of Nevada, although BCBS stated it had no legal obligation to do so. Ms. Giunchigliani asked if the foundation was still in place and to whom the money went. Mr. Sasser said the $1.5 million was invested, and the interest on that money was used to fill certain medical requests. Ms. Giunchigliani asked if Attorney General’s offices were involved in addressing those issues in other states. Mr. Sasser said generally Attorney General’s offices had the responsibility of guarding charitable assets, but when the issue became insurance, then insurance commissioners also got involved.

Ms. Giunchigliani asked if there was anything in current statutes requiring BCBS to apply to the Attorney General’s office, other than for conversion. Ms. Berkley said no, because there was no statute. She added that was why BCBS went through litigation rather than legislatures, since it was common for states not to have statutes on the topic. Mr. Sasser said there was a statute in the insurance code authorizing the Attorney General’s office to step in to protect charitable assets. Ms. Giunchigliani said it was bothersome that no one was notified. She added the bill should contain language that guaranteed that would not happen again. Ms. Berkley said she agreed, since they were having to play catch-up ever since, because they were not notified.

Mrs. de Braga said in any non-profit bylaws, there should be clear statements addressing what would happen to the organization’s assets, should the corporation dissolve. She asked if the issue at hand was not, in effect, the dissolution of an organization. Mr. Sasser said the process was similar, but different. There was not a dissolution, but rather, a sale. The issue was when buying a non-profit, the only person to write the check to was someone representing the public. Mrs. de Braga said it still seemed like the original corporation went away. Mr. Sasser said it was better for everyone that it was not dissolving since they were dealing with millions of dollars involved in the sale, as opposed to less with a dissolution.

Jan Gilbert read the following statement for Ruth Mills:

Jan Gilbert, League of Women Voters of Nevada, Progressive Leadership Alliance of Nevada, supported A. B. 685. She added $30 million was a lot of money for the state and urged the committee to vote for the bill. Nevada’s health care statistics were the worst in the nation, and the bill would be a tremendous benefit to the state. The sale of Anthem would trigger golden parachutes, one of them worth over $1 million, for BCBS executives. The chief executive officer (CEO) of BCBS in Nevada would probably get over $1 million if the sale went through. If BCBS was able to give its CEO $1 million, it was certainly able to pay the money it owed Nevada citizens. Ms. Gilbert added not all non-profits received a sales tax exemption in Nevada, so she did not feel that the argument was a good one for BCBS.

Bobbie Gang, Nevada Women’s Lobby, Nevada Association of Social Workers (Nevada Chapter), said she was extremely concerned about A.B. 685. She had talked to many legislators whose immediate reaction was to ask how they could not pass the law and protect Nevada’s assets. It did not take very long before some of those individuals came back with a strong statement that Nevada did not have standing in the courts, so there was no reason to pass the bill. Ms. Gang said that was akin to an individual wanting to sue and having their attorneys say they could, then changing their mind after the opponent’s attorney said they did not have standing. The Attorney General felt the state had a case, and Ms. Gang felt the legislature should pass the bill and allow the state to go after those funds.

Jim Wadhams, BCBS, did not support A.B. 685. He said he had been reviewing insurance bills since 1972 and stated A.B. 685 was perhaps the worst bill he had seen. If the bill were being proposed to a Nevada corporation before it sought to be formed in the state, he would have no objection. Instead, the bill was an after-the-fact bill which attempted to change the rules. The Nevada Corporation was the merger order between two corporations that transacted insurance in the state. Mr. Wadhams referred to Exhibit F, which contained a letter from the Attorney General stating the hearing held on December 9, 1996 was publicly noticed in accordance with Nevada law, and that the approval of the merger was appropriate. In the letter the Attorney General wrote, "From its inception, BCBS of Nevada operated as a non-profit, but did not operate as a charitable trust. BCBS was not formed under 501c3 in the internal revenue code, and was not organized for a charitable purpose. At no time in its history had BCBS held assets in trust or received any of the tax or other benefits normally enjoyed by charities. In light of that fact, the Attorney General concluded the office was not authorized to examine BCBS of Nevada."

Mr. Wadhams said the $5,000 mentioned in the fiscal note was grossly inadequate. He added the bill would have to be challenged if passed, due to its constitutionality and its applicability. The Attorney General was required to make the decision, prior to any other litigation, whether or not the insurer possessed charitable assets. The appropriation of $5,000 was inadequate, and the Attorney General’s office would be called as Mr. Wadham’s first witness in that legal challenge. The second office to be a witness would be the Insurance Commissioner’s office, which ruled in 1996 that all the assets and liabilities would be transferred to the Colorado corporation. The Attorney General’s office would also have to represent that agency and would have to hire outside counsel.

Mr. Wadhams said the predicate to the bill was special considerations to state laws. The Attorney General had already written there had been no special considerations. The premium to conduct business was taxed. The 3.5 percent tax levied against all commercial insurers was also levied against BCBS. Nevada never gave any benefit to BCBS, which distinguished it. Also, BCBS filed an 1120, which was a corporate tax return. Mr. Wadhams wanted to distinguish that from a charitable return, which was form 990. BCBS therefore paid tax on its profits. There was an important distinction in Nevada law between non-profit and tax exempt. It was that distinction that caused the AG to rule as she did.

Mr. Wadhams said the bill applied to one single enterprise, which was a foreign corporation. No Nevada corporation was affected in the bill. Legislation should be broad based, and could be challenged on that aspect alone. The reference was made to save Nevada assets, but the only Nevada asset that existed was the license to do business in the state. There were no Nevada assets. The commissioner’s order transferred whatever assets there were to the Colorado corporation. The bill was trying to enact a Nevada law to amend a Colorado law. The issue was in Colorado, not Nevada, and the State of Nevada could not pass a law to change that. If the committee wanted to fund the Attorney General to litigate the issue in Colorado, that was one thing, but the bill did not do that. Instead, the bill singled out one entity, after the fact, and changed the rules.

Mr. Wadhams said no one received a tax deduction for paying their premiums to BCBS of Nevada. BCBS was a business entity that paid federal taxes and that confusion should not be made. California tried for a number of years to tax out-of-state transactions, and was struck down by the Supreme Court. That was what the bill did, and it was wrong.

Mr. Marvel asked what BCBS paid for the average insurance premium tax to the state. Mr. Wadhams said BCBS in 1999 paid $271,000 in quarterly tax.

Mr. Goldwater asked Mr. Wadhams to elaborate on the differentiation between not for profit and charitable organizations. To Mr. Wadhams, the promise of gold at the end of the rainbow was a mirage. The corporation under the Colorado statute did have tax preference in that state. That was not the case in Nevada. The position of the Attorney General was there might be a case in Nevada for the division of those assets. There were no assets in Nevada to divide. Mr. Goldwater said if all those things were true, then why was it that a legislator did not just go ahead and pass the bill since it wouldn’t go anywhere. Mr. Wadhams answered he had to declare a conflict since if the bill was passed he would make money. The bill was a lawyer’s dream since there would be litigation over it. The implication was people who sat on the board would be subject to civil penalties of up to $1 million and criminal misdemeanors under the law. Those cases would have to be litigated. Second, the tightness of the budget was an issue and the $5,000 in the fiscal note was inadequate. That was the down side the committee in particular should be sensitive to. The bill was an inappropriate bill, after the fact, that renegotiated on a deal after it had been made, and was in the wrong state. Mr. Goldwater said those were probably proponents’ concerns and not opponents’ concerns.

Ms. Giunchigliani said the terms "renegotiated on a deal" concerned her if that implied a deal was made. It appeared to her that a merger might have been approved, but conversion was never discussed. That was the key piece since that issue was never ruled on one way or another. The issue was non-profit and not charitable, so she wondered if BCBS had ever been tax exempt in the state of Nevada. Mr. Wadhams said it had not. Ms. Giunchigliani asked if BCBS had ever been tax exempt under federal taxes. Mr. Wadhams said BCBS paid under 833 in the code but was not under 501c3. Ms. Giunchigliani asked again if BCBS ever received tax exemptions. Mr. Wadhams said BCBS had federal tax preference. That meant BCBS paid under a special section of the internal revenue code. Ms. Giunchigliani asked what that meant. Mr. Wadhams said he would just refer to the statute and could not answer that specifically. Section 833 was adopted for taxation of BCBS organizations that were commercial enterprises that sold insurance but had no stockholders.

Mr. Wadhams said mutual insurance companies also had federal tax preferences and under Nevada state law, would be formed under the non-profit chapter. The non-profit chapter was not in existence solely for the creation of charities. It existed for the creation of corporations that did not have stockholders. Ms. Giunchigliani asked if that meant the issue was not whether the organization was a charity, but whether or not it was a non-profit. Mr. Wadhams said the issue that drove his opponents’ arguments was they would not recognize that BCBS received no state preference in terms of taxes. It was not a charity and that determination had been made in writing by the Attorney General.

Ms. Giunchigliani said she was bothered the state did not capture any dollars that could have been saved by the state’s non-profits. She felt the state should have spent more time on the issue. When it was a policy decision of that merit, it should have been more open and more properly discussed and debated and the legislature had no knowledge of the issue. Mr. Wadhams said he was urging the body to stay out of the legal niceties of whether or not the state could affect Colorado law, but instead question whether it was good policy to even attempt that. If the state wanted to make rules for the future, he supported it, but it was unfair to change the rules after the fact. Ms. Giunchigliani asked if BCBS paid taxes in Colorado. Mr. Wadhams said BCBS was exempt from the state premium tax. Ms. Giunchigliani asked why BCBS established a small foundation in Nevada if it did not owe Nevada any of the assets. Mr. Wadhams said BCBS had been a struggling entity for a number of years, and as it exited the state to try to save its business operation by merging, it formed the foundation to make a contribution to the state. It was not intended to be in lieu of any obligation since it did not have one. Ms. Giunchigliani asked if BCBS did it in anticipation of later problems. Mr. Wadhams replied BCBS did not.

Ms. Giunchigliani asked what BCBS was paying in premium tax in Nevada. Mr. Wadhams said it was around $1 million.

Mr. Goldwater asked if there was a credit in the insurance premium tax. Mr. Wadhams said in the context of worker’s compensation, the discussion addressed an assessment that was levied against all transactions of worker’s compensation. Mr. Goldwater asked if BCBS was eligible for the home-office credit and if it took advantage of that credit in Nevada. Mr. Wadhams said BCBS did not, to his recollection.

Mr. Sasser said BCBS of Nevada received a major tax break under federal law, and could not have received that tax break had it registered in Nevada as a for-profit organization. It was the status as a non-profit that allowed BCBS to get the tax break. It was also BCBS’s status as a quasi-governmental organization that allowed it that status. BCBS was different and had some competitive advantages in the state of Nevada as a result of its non-profit status in the state, still begged the question of unjust enrichment or windfall. Even though BCBS did not pay state taxes in the Nevada, Mr. Sasser asked why the citizens of Colorado should get $30 million, which was based on business generated in the state of Nevada. No Colorado tax breaks contributed to that money, so there was no Colorado connection to that money. It was only fair the legislature could condition the licensure of BCBS in the State of Nevada upon that financial obligation. At the time of the merger, the liabilities also went to Colorado, which created continuing liability to the state of Nevada. Mr. Sasser said he would also be happy to amend the bill to include any other organization that owed the state $30 million so the bill would not single out just one organization. The bill was drafted broadly enough to include any other organization that held Nevada’s assets and converted in the future.

With no further questions or comments, Chairman Arberry declared the hearing on A.B. 685 closed.

Senator William Raggio supported S.B. 48, and said the bill came from the Senate Committee on Education. Senator Raggio said he wanted to express his complete displeasure with the form the bill was in before the committee. The bill had been amended to where it had no practical purpose whatsoever. The bill was requested by Eureka County to address a particular problem. The way the bill was currently worded, it had no use to anyone. In its original form, the bill would have allowed school districts to add to their rainy day fund an amount not to exceed 10 percent of the previous fiscal year’s General Fund expenditures, up to a cap of 30 percent or $2 million (whichever was the lesser amount). The bill applied only to counties with less than 100,000 citizens. The bill was amended to make it applicable only to Eureka County. As amended, the bill limited the maximum amount to 15 percent, rather than the 30 percent that was originally requested. The bill did not really address their concerns as amended. Senator Raggio said there was no opposition to the bill.

Senator Raggio said in Eureka County, the tax on net proceeds contributed nearly half of the property tax for schools. It was not likely that would happen in the coming years, since the county was looking at facing serious problems due to the drop in the price of gold. The county’s net proceeds declined 90 percent in 4 years, from $3.4 million in FY 1997 to $375,000 in FY 2000. The bill was coming too late for Eureka. Lander County would receive 45 percent of its net proceeds from property taxes in FY 2000. The 2-year requirement that was added to the bill would preclude that district, so the bill was not really any benefit in its form. Senator Raggio said the bill should be amended back to its original form to help the small counties. Senator Raggio referred to Exhibit G, which showed the net proceeds declines.

Mr. Marvel said that was somewhat analogous to what the state had done in creating a rainy day fund. It was better to put the net proceeds into rainy day funds instead of operating expenses. He was not sure where the amendment came from or where the rationale was, but supported the original form of the bill.

Mr. Dini asked how the figure of 30 percent of the General Fund expenditure was calculated. Jeanne Botts, Fiscal Analysis Division, said the Superintendent of the Eureka County School District had hired a consultant to work with the county on what figures would be appropriate. The surrounding counties suggested 30 percent, or $2 million, would be set as a limit. Under the new amendment, there was no longer the restriction for population, but that would not be an issue in Washoe or Clark Counties.

Mr. Goldwater said it was a windfall when net proceeds and gold prices were up, but that there were protections in the bill to help the counties in their down time, so he liked the original version of the bill and would support it.

Henry Etchemendy, Nevada Association of School Boards (NASB), presented a letter (Exhibit H) and stated he was in support of the bill and said he also believed the bill should be returned to its original form. When the bill came to the Assembly Committee on Government Affairs, testimony had indicated the bill was too broad in scope. The amendment offered narrowed the scope of the bill by specifying the net proceeds of the mines must represent at least 25 percent of the total tax proceeds. Also, that was meant to ensure Eureka County would receive some benefit from the bill since it truly needed it. He asked the committee to reinstate the 30 percent cap to the bill. The fund was designed to allow the county to ease into a new mode of operation and would not have to lay off so many people. In the anticipated budget for 1999, the county anticipated having to lay off at least 10 more positions, although at the present time, the county thought it might not have to do that.

Mrs. de Braga said she thought perhaps the amenders did not understand the tremendous fluctuations in the income source for counties such as Eureka. There was every reason to think that 30 percent would be more appropriate so the counties could plan for the future.

Mr. Dini asked if going back to the original bill was what Mr. Etchemendy was asking for, or if there was an amendment he wanted to add. Mr. Etchemendy said he agreed the committee should go back to S.B. 48 as it came from the Senate.

Al Bellister, Nevada State Education Association (NSEA), said NSEA was one of the organizations that "tinkered" with the bill. They could reluctantly support the bill as it was amended. To take it back to its original form would cause NSEA to be opposed to the bill, as was testified in the Assembly Committee on Government Affairs. The bill was designed to address the needs of Eureka County, which was why concern was expressed that, as the bill was drafted, it was too broad. The other concern was the proposed change to the bill from the current 10 percent cap to 30 percent. His understanding was only three counties in the state had established those budget stabilization funds. Not one of those counties had been able to budget up to the current 10 percent limit, so moving the cap to 30 percent was unnecessary. Also, school districts could set up contingency funds, which Eureka did. The NSEA could support the 15 percent cap, but felt 30 percent was too broad. Allowing school districts to go to a system of actuals versus estimates would perhaps offer a more permanent solution. Mr. Marvel said that had been made into law already.

Mr. Price asked if moving the 15 percent to 30 was considered detrimental or just unnecessary. Mr. Bellister said he thought it was unnecessary, and the concern was the committee would be removing funds from ongoing operating expenses to a fund that could only be operated under certain conditions.

Mr. Marvel said that was one way the counties could be more responsible for the future. (Mr. Bellister said even with the 15 percent, which would allow the Eureka County School District to set aside approximately $750,000 in a stabilization account.) Mr. Dini said there was a cap on the bill so he did not understand what the problem was.

With no further questions or comments, Chairman Arberry declared the hearing on S.B. 48 closed.

Senator Raymond Rawson then reported the Senate Finance Committee closed the budget with $153,000 to the Treasurer’s office for allodial title. The Treasurer’s office had come back to the committee with a budget that would allow for the actuarial studies to be done. An allodial title was a mechanism by which a person could secure the interest in their home. In essence, if a person paid 10 years ahead on property taxes, that money could be used in a trust fund set up by the Treasurer’s office. The idea behind it was that someone purchasing a home could set up payments with the Treasurer’ office. Once they received the allodial title, they owned that title and it could not be taken away. The property could not be taxed again, which greatly affected people on fixed incomes, such as ranching families who had to sell off property to pay the taxes.

Brian Krolicki, State Treasurer, said the allodial title project was not done anywhere else, that he was aware of. It would become something estate planners would use in Nevada. One of the challenges for the State Treasurer’s office would be figuring out the program, since it was really not a model program. Mr. Marvel asked if the prepayment of taxes would also be protection for heirs. Mr. Krolicki said it might provide that protection but it needed to be studied better.

Senator Rawson said parents could have their children’s names on a title, so when the parents died, the title could be shifted to the next generation. The Treasurer’s office submitted a proposal for that study and the Finance Committee pared that down to the basic minimum.

Chairman Arberry asked what the state would receive for the money spent. Mr. Krolicki said he thought there would be outlines provided for the actuarials.

Ms. Giunchigliani said she liked the concept but thought it sounded like funding a financial planner. Senator Rawson said the tax rates and payment rates would depend on the county in which a person lived, so the actuarials would be different. The concept was similar to a prepaid college tuition.

Ms. Giunchigliani asked if there was a vision to charge for the plan. Senator Rawson said the original bill allowed for one or two percent to be charged by the Treasurer’s office. The program was intended to be self sufficient, and the money asked for in the bill would be paid back. Ms. Giunchigliani asked if local county assessors could do the work-up and transfer that to the Treasurer’s office. Senator Rawson said his assumption was that assessors would be involved in the process.

Mr. Krolicki said he was charged by statute to implement the program but could not do that without doing the studies first.

Mr. Hettrick said he thought the idea was a good one, but agreed it needed to be studied more. He added it could help rural ranching families who lost a patriarch. Also, in terms of being an estate tax planning vehicle, it was not, since it paid property tax on an ongoing basis. The bill would not allow anyone to skip inheritance tax at the federal level even if it did save money for the heirs by allowing them to keep the property. The state would need to know the impact of prepaid taxes on property that was sold as well. It was also important that the bill could become more of a tax planning tool, depending on how the property was held. The program could be a positive one, but needed to be studied to determine its effectiveness.

Next, Ken West, Chief Deputy Controller, stated he was present to address the money differences between the Senate and Assembly versions of budget closures. The difference between the two versions was the salaries of two positions, an Account Technician I and Program Assistant II. Those two positions were included in the Controller’s original request but were excluded in the Governor’s budget. The positions were intended to assist with increased workload. Also, A.B. 638 passed, which mandated the agencies record receivables. In addition, S.B. 500 passed both houses and required increased debt collection activities. Both of those activities affected the Controller’s office. Considering this, the Governor changed his budget to include those positions, which resulted in the difference between the Senate and Assembly closures of the Controller’s budgets.

Senator Rawson then re-addressed the committee and presented a packet Exhibit I and noted its assistance in identifying the need for a dental school in Nevada. There were two primary reasons for creating a dental school in Nevada. The first was the tremendous need of a significant portion of the state’s population that needed access to dentistry. There were 50,000 people insured by Medicaid for dentistry, but only about 20 percent of them had access to a dental office. That problem was exacerbated in Nevada because the state had the lowest ratio of dentists in the country. The average over the country was around 1,700 patients per dentist. It was harder to get a dental appointment in Nevada than anywhere else in the country. Beyond the human need, was the educational need for students from the state to attend dental school in the state and pay in-state tuition. Nevada students ended up going to private schools, where the average tuition was over $30,000 per year. Nevada students had the lowest acceptance rate over the country. The state needed 50 dentists a year to come back to Nevada, and only 15 students per year were leaving the state to go to dental school.

Senator Rawson said there were uninsured children who had no access to a dentist. He asked the committee to think of those who were in need of care and could not get it. There were an estimated 18,000 children in the state who had debilitating dental problems. Some of those problems were bad enough they could not even chew. Senator Rawson gave a short slide presentation.

Senator Rawson said the mission of the dental school was to provide dental care to those who did not have access, while providing training of the highest quality to train professionals. It was the first time a dental school in the county had made public interest the backbone of its program.

Senator Rawson said the state had the lowest percentage of minority and women dentists in the country. There were 750,000 women in the state and there were only 13 women dentists. That was unacceptable, and was something no one would accept in any other program. A dental school could change that by recruiting from the junior high school level up. The dental school would also provide low-cost, accessible dental care. The school would serve over 50,000 low-income patients per year. The dental chairs were already in place, and the program could also accommodate other people with special needs.

Senator Rawson said only 20 percent of the children currently on Medicaid were receiving dental services. There were 27 dentists who provided care to a significant portion of the low-income patients in the entire state. Tooth decay was the single most chronic illness of childhood, and there were hundreds of admissions to University Medical Center for dentistry. Eighty percent of tooth decay in children in northern Nevada was found in the lowest 20 percent income level children. Douglas County and Washoe County were the closest to meeting the national average for dentist to patient ratios. The other counties were defined as counties in need.

Senator Rawson said the dental school would not only meet the needs of children, but the elderly as well. The ratio of patients to dentists in Las Vegas was 3,100 to 1, and in some other counties, 6,000 to 1. In addition, the mentally ill population was extremely difficult to reach because the facilities did not exist to take care of them properly. Senator Rawson submitted letters of support for the dental school (Exhibit J on file at the Legislative Research Library).

Senator Rawson said there were many bright minority students that should be able to treat minority and non-minority populations, but they had not been included in the process. It was extremely difficult to get accepted to dental school in Nevada, and minorities were adversely affected. Further, if a family had more than one or two children and was not incredibly wealthy, the family would not be able to afford private school or out-of-state tuition.

The basis of the program was the development of a treatment network throughout the state. There was a faculty practice at West Charleston that had doubled in size already. By July 1, 1999 they would be ready to do business at that facility. The general-practice residency was complete and the director was in place. The Miles for Smiles bus had been ready several months ago, but then broke down. New equipment had been donated, so the program would be operational soon. The Saint Mary’s bus program had indicated a willingness to work with the new program as well. The community health centers had also indicated they would be willing to contract with the school, and were looking forward to the opportunity.

Senator Rawson explained $30 million had been set aside for the dental school and its clinics. Truckee Meadows also had a dental hygiene facility that was being planned to be built that biennium. There was also $400,000 to finish a faculty practice there to handle some of the work in Northern Nevada. An effort was being made to have students rotate through a dental clinic in Yerington. There were also rural operator grants, which would put in air abrasion and high-intensity ultraviolet curing lights into the rural offices. Including some of those perks in rural offices would encourage rural dentists to work with the school. In addition, a facility proposed to be built in southern Nevada would include a prosthetic geriatric clinic. There were many plans to move dentistry to populations all over the state.

Senator Rawson said Medicaid was one of the funding sources for the dental school, but it could not do it all. The tuition for the school would equal nearly $1 million. The Culinary Union also indicated a willingness to develop contracts with the school, and the union insured over 100,000 people. There were also specialists in the program who would bring in fees.

Mrs. Cegavske asked how the families would find out about the program and whether the program would offer a sliding fee scale. In addition, she asked what the cost would be for the state in the 2001 Legislative Session. She said she was concerned with the amount of money available in the budget. Senator Rawson said the publicity would come from building the school, from notices sent to Medicaid recipients, and from contracts with managed care providers. The program would have to be advertised and people would have to be made aware of the services it offered. The fee scale would be different for the different people who came into the program. For those who did not have money, it would be free. There would be a sliding scale for those who could pay something, and others would be covered under Medicaid or insurance.

Senator Rawson said when it came to the money coming into the program, one could argue the state had a responsibility to build higher education programs, but the program was unique. It was different because it was programmed with a network of treatment facilities, which would go in before the dental school itself was finished. The treatment network would really support the dental school. He was confident the revenues the school and treatment centers developed would carry the project.

Mrs. Chowning said for many years her constituents, as well as others, had needed dental care. She said the committee had heard some dentists state they would provide free treatment if they could do it out of their own offices. Mrs. Chowning asked why that approach would not work. She also asked whether the Medicaid dollars appropriated to the school would be taken away from other programs. Senator Rawson said he was a part of the effort to get dentists to volunteer in the community. There were programs that allowed dentists to volunteer, but the magnitude of the problem was so big that volunteers alone could not address the need. Northern Nevada had made better strides than southern Nevada in getting volunteers out in the community. He stated the Medicaid issue was an important one, and noted the program set aside $13 million to $14 million for dentistry, whether or not the school was built. In addition, most of that money went for X-rays and was therefore skimmed off the top. He added it was wrong for those dollars to not provide care.

Ms. Giunchigliani said she felt it might be a worthwhile provision to move and capture those Medicaid dollars that had not been previously capitalized. She asked if the school was planning on using Medicaid dollars to build a facility and whether there was an intent to create an office in the chancellor’s office. Ms. Giunchigliani said it was important to not move into a construction phase until it could be determined that the school could generate funds and support itself.

Senator Rawson said the state could not use Medicaid dollars for bonding. There was a proposal that would allow the university system to use a revenue bond to build the dental school. Before those bonds were ever sold, the Bond Counsel had to verify there was a valid revenue stream that was appropriate. Some of the fees that would come into the programs would be from Medicaid, private patients, tuition, and a number of other sources. All funding sources would have to be verified before any bond could be sold. The school could not use Medicaid dollars directly. Senator Rawson said proper Medicaid funding could potentially bring in another $10 million dollars for the dental school. Studies had been conducted to determine the feasibility of the school.

Ms. Giunchigliani said although studies had been done, she wanted to determine the feasibility for certain before they jumped in. A.B. 181 allowed for licensure of dentists through credentialling.

Charlotte Crawford, Department of Human Resources, said access to dental services for Medicaid recipients had been difficult in the state. There was a very low rate of utilization for children seeing dentists. In 1997, the state increased its payment rates by almost 50 percent, and the access rate utilization increased by 98 percent. In reviewing the concept of the school, the committee needed to understand the current state of Medicaid. All Medicaid dental services were provided on a fee-for-service basis. During the comment period HMO’s were hesitant to accept dental services as part of their coverage because they did not feel there was a network to provide access. As a result, the dental part of the rates was removed. The dental school could be a Medicaid provider on a fee-for-services basis. To the degree voluntary plans included fee-for-services into their capitated rate, and entered into a subcontract with the University, it could work. However, the Division of Health Care Finance and Policy was not prepared to put dental rates back into HMO rates at that time. In order to do that, the actuarial analysis would have to be done again and a plan would have to be developed.

Ms. Crawford said all of the above were considerations and would take time to do, but were not necessarily roadblocks. The department also looked at the revenues Senator Rawson had projected, and said the detail was not yet there to underlie the assumptions in the funding. That would have to be studied further. The plan also seemed to envision being a mandatory sole source provider eventually, wherein the dental school could be the primary service provider for Medicaid and checkup clients throughout Nevada. In order to do that, a waiver would have to be done to waive the freedom of choice since there would not be a second plan from which to choose. The department agreed there was an absolute need for services in the state. The form of the partnerships involved needed to be discussed and it should be understood the waiver might not be approved.

Chairman Arberry asked if there would be sources other than Medicaid dollars. Ms. Crawford said Senator Rawson had informed her there were other sources of revenue and that Medicaid would not be the sole source.

Ms. Giunchigliani asked what the timeline was for the waiver process. Ms. Crawford said the 1115 waiver process could take anywhere from 15 months to 2 years to complete. Senator Rawson said his assumptions were built on the idea that there was a certain percentage of managed care dentistry that could be captured at that time, and that there was a certain percentage of fee-for-services dentistry that could be competed for as well. Data could be developed to help the state apply for the waiver and there was a great deal of excitement and interest from the Health Care Financing Administration.

Mr. Perkins asked if Senator Rawson had built into his plan that the waiver could take only so long. He agreed Medicaid money itself would probably not be sufficient to support the operation of the school. Mr. Perkins asked if Senator Rawson ever foresaw the program being a burden on the General Fund. Senator Rawson answered he did not, and no new General Fund money would be necessary to run the program. Senator Rawson said he had planned all along for the waiver to take 2 years. If the revenue stream developed quickly, then the first class would matriculate in the fall of 2000. Mr. Perkins asked what the school would do if, for some reason, the waiver was not granted. Senator Rawson said he did not think the school required the waiver, although that would be helpful.

Mr. Dini asked if the school would have to hire people such as deans, and if that would cost additional up-front money. Senator Rawson said it was assumed the university would have money it could float for the dean’s salary for the first month or two. The facilities were already in place and would be generating revenue before the school opened.

Bob Hogan, Director of the Operations for Accessible Space, referred to a handout (Exhibit K) he passed out to the committee. He supported efforts to build a dental school in Nevada and fund it in such a way that many more Nevadans with disabilities might be served. The project could go a long way to provide dental care for those who were underserved, low income, and disabled. Brain injury survivors often suffered tooth damage that became secondary to other life-saving efforts when in the trauma unit. Later, the most common drugs used with the majority of survivors to prevent epileptic seizures had the side effect of long-term gum degeneration. The cognitive and physical limitations following an accident made proper dental care extremely difficult. A typical brain injury survivor had restorative, corrective, or reconstructive surgery an average of three times during the first 2 years following an injury. Those issues created just one more barrier or hardship for those who already had more than their share.

Mr. Hogan said even if the funding was adequate, there was just not enough funding to go around. Women and minorities were almost non-existent in the dental profession. Sixty thousand children could be served each year through the operation of the dental school. The standard care could be raised for every citizen in the state. Building the school would require no new taxes, and could be funded through a state bond. Not only was Nevada getting bigger, but the state was getting smarter. The Nevada Disability Forum, in the interest of time, would not testify but wanted their support expressed.

Richard Jarvis, Chancellor of the University and Community College System of Nevada, referred to a handout he supplied to the committee (Exhibit L). He supported the dental school program. Although he was proud of the WICHE program in the state, it would never be enough. Throughout the history of the program, an average of three students per year returned to practice in the state. There were only 14 dental schools west of the Mississippi River. Of the three states with the highest growth rates in the west (Nevada, Arizona and Utah), none of them had a dental school. The problem would not be solved elsewhere in the nation. Six private schools had already closed since 1996. Of the 54 dental schools in the country, 35 were public. It was essential for dental schools to have the state support in order to keep tuition rates down to a level that newly emerging dentists did not have a crippling debt load that prevented them from serving in rural areas and in states like Nevada. Since 1990, the number of seats available in dental schools had increased 9 percent, while the number of applicants had more than doubled. Nevada needed to build one of its own.

Richard Moore, President of the Community College of Southern Nevada, supported the bill. He supervised the Dental Hygiene Program and the Dental Practice, which were both directly tied to the dental school program. The dental programs Senator Rawson operated had always been right on target and were exceptional.

Jim Richardson, Nevada Faculty Alliance Chapters, said he would like to go on record supporting the dental school.

Caroline Ford, Assistant Dean of the University of Nevada School of Medicine, said several of the programs that operated in her center would work very actively with the dental school faculty in establishing sites for students and residents to be able to rotate. The rural parts of the state were in crisis in Nevada, and the dentists there needed to be actively involved in the training and placement of future dentists.

Steven Smith, M.D., said once the school was established, it would probably surprise everyone how many people would apply and attend. There were many pre-dental students who had already expressed interest. There were students all over the country who were interested and could be educated about the state’s program.

There being no further business to come before the committee, Chairman Arberry adjourned the meeting at 1:30 p.m..

RESPECTFULLY SUBMITTED:

____________________________

Cynthia M. Cendagorta

Committee Secretary

APPROVED BY:

________________________________________

Assemblyman Morse Arberry Jr., Chairman

DATE:__________