The Senate Committee on Commerce and Labor was called to order by Chairman Randolph J. Townsend, at 9:30 a.m., on Monday, February 15, 1999, in Room 2135 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. All exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.

COMMITTEE MEMBERS PRESENT:

Senator Randolph J. Townsend, Chairman

Senator Ann O’Connell, Vice Chairman

Senator Mark Amodei

Senator Dean A. Rhoads

Senator Raymond C. Shaffer

Senator Michael A. (Mike) Schneider

Senator Maggie Carlton

STAFF MEMBERS PRESENT:

Scott Young, Committee Policy Analyst

Crystal M. Lesbo, Committee Policy Analyst

Sue S. Matsuka, Committee Policy Analyst

Vance A Hughey, Committee Policy Analyst

Ardyss Johns, Committee Secretary

OTHERS PRESENT:

Kevin Spilsbury, Employers of Nevada

Chairman Townsend opened the meeting with the introduction of Bill Draft Request (BDR) 53-767.

Maynard R. Yasmer, Administrator, Rehabilitation Division, Department of Employment, Training and Rehabilitation, explained the purpose of the BDR was to combine two existing revolving accounts through which his department provides service to the blind and severely disabled.

SENATOR O’CONNELL MOVED TO INTRODUCE BDR 53-767.

SENATOR CARLTON SECONDED THE MOTION.

THE MOTION CARRIED. (SENATORS AMODEI, RHOADS AND SCHNEIDER WERE ABSENT FOR THE VOTE.)

* * * * *

Chairman Townsend announced the committee would concentrate on the area of workers’ comp and asked Senator O’Connell, who was chairman of the Legislative Committee on Workers’ Comp, to give a brief overview regarding what took place during the interim.

Senator Ann O’Connell, Clark County Senatorial District No. 5, began by giving some data on the hearings making note of the fact that everyone had an opportunity to have input on the bills to be considered. She said there were 10 different meetings held, for a total of 50 hours spent on hearings alone, with an average attendance of approximately 70 people. She further stated the research staff spent 3300 hours before and after the hearings, and the Legal Division spent 1103 hours preparing the 15 bills that will be reviewed over the next 3 days.

Senator O’Connell proceeded to walk the committee through the notebook entitled Legislative Committee on Workers’ Compensation, Summary of Suggested Legislation (Exhibit C. Original is on file in the Research Library.) member. She pointed out the first page with the heading "Legislative Committee on Workers’ Compensation Index of Committee Bills to Committee Recommendations" stating:

Chairman Townsend opened the hearing on Senate Bill (S.B.) 37

SENATE BILL 37: Makes various changes regarding industrial insurance. (BDR 53-382)

Chairman Townsend pointed out the bill has to do with changes in the current system regarding its ability to compete in the market place.

Robert A. Ostrovsky, Lobbyist, Nevada Resort Association, stated he was part of a group who discussed the changes found in section 2 which were intended to address the issue of the treatment of current state workers who are employed by the State Industrial Insurance System. The group questioned, he continued, what would happen to those employees in a competitive environment. He said the option in the bill, essentially indicates those employees will be taken out of the state personnel system and given certain reemployment rights if they are laid off or choose to leave the system. Mr. Ostrovsky claimed the policy issue is whether or not they should be covered by the State Personnel Act. The methodology that is set up for the reattainment of employment rights within the executive branch of government, he said, are meant to address the situation where they would lose their current state personnel rights and would become employees of the newly formed insurance company.

Mr. Ostrovsky told the committee he had proposed the second part of the bill, which starts in section 3, subsection 4, paragraph (a). He said his concern was that the account for extended claims was not getting the kind of financial public exposure desired in terms of being able to measure and look at the continuing liabilities accrued there, and whether or not they were successfully funded. He stated this would require a report, including a balance sheet, statement of operations, the amount of money paid on the claims and operating expenses applied to those, investment income, report on the accumulated deficit or earnings, and the managers’ opinion about the adequacy of the account to meet the obligation. He added while everyone was hopeful that the money set aside in the last legislative session would fund the account for extended claims, he wanted to make sure that everyone could see those numbers, and stated the old law that was passed only talked about numbers for the new system, but not extended claims.

Mr. Ostrovsky referred to the first line on page 4 noting that even though there is confidential information the insurance system needs to maintain in a competitive market environment, they are required, upon request, to provide such confidential information to certain agencies. He noted these were the only sections of the bill in which he was involved and thought someone else needed to speak to the other sections of the bill.

Chairman Townsend asked about new language on pages 4 and 5 regarding extended claims and Mr. Ostrovsky replied the new language was needed in order to make the earlier changes effective.

Sue S. Matuska, Committee Policy Analyst, Research Division, Legislative Counsel Bureau, agreed with Mr. Ostrovsky adding the language was there to make sure it was clear this report would not be considered proprietary information; that the system was entitled to keep private.

Robert J. Gagnier, Lobbyist, Executive Director, State of Nevada Employees Association, spoke against those sections of the bill that would take the employees out of the state personnel system. He said he felt that taking the employees of this agency out of the State Personnel Act is not, in the long term, in the public interest and added he did not think there was any need to do so. Further, he said, under the current system, uniform regulations applying to all the employees, if applied in a proper manner, ensure those employees of equal treatment.

Mr. Gagnier stated when layoff rights in the bill were previously discussed, the manner in which layoffs would take place within the agency if they were necessitated was not addressed. He stressed employee rights needed careful consideration. He said classified service means employees are not treated in an arbitrary and capricious fashion, and not that they have a guarantee to a job, noting that a substantial number of state employees are terminated every year for one reason or another. Classified service assures compliance with laws through the fact the employees can only be dismissed for cause, which, he said, has always been a main concern. Continuing, Mr. Gagnier said this gives employees more of a right to speak up, and mentioned their coverage under the whistle-blower law. He claimed if the employee is not within the state personnel system, he is outside the protection of the whistle-blower law; and, therefore, could not bring things to the attention of the Legislature or the administration.

Danny L. Thompson, Lobbyist, Political Director, Nevada State American Federation of Labor-Congress of Industrial Organizations (AFL-CIO), stated the AFL-CIO is concerned with the same provision Mr. Gagnier mentioned; that of removing employees from classified service. Mr. Thompson pointed out in 1993, the State Industrial Insurance System had a $2.1 billion debt and, after making several changes, it is now debt-free and making a profit. Therefore, he said, there was no need for S.B. 37.

William J. Miller, First Vice President and Actuary, Reliance National Insurance Company, stated his reason for coming to the hearing from Philadelphia was the possibility of his company entering the property casualty market, especially workers’ compensation. He said the fact that it is an extremely competitive market, would help to drive the prices down for employers of Nevada and so they would want to attract as many insurance carriers as possible. He expressed concern, however, about what might happen if and when the account for extended claims runs out of money, which he estimated would probably happen in early 2012. If that estimate is correct, he added, there would still be over $300 million in unfunded liabilities.

Mr. Miller pointed out that a great deal would hinge upon the ability of what he estimated at $700 million in assets, to generate investment income. He said it was this issue holding his company back and added if there was more certainty about how the extended account fund would be funded long term; a lot of carriers would take an aggressive approach.

Robert A. Ostrovsky, Lobbyist, Nevada Resort Association, addressing Mr. Millers’ concerns, surmised it would be a legislative issue if the account for extended claims ran short of money, and suggested the Governors’ proposal would address that issue. Mr. Ostrovsky said if the system could get market gains in the next 10 years like the gains it had in the last 10 years, it would not be a problem. However, he added, "that is another whole story."

Mr. Ostrovsky noted the purpose of section 3 of S.B. 37 was to allow the system to enter into an agreement with insurance companies to sell entire lines of insurance as opposed to just workers’ compensation. Further, he said, there was a question about whether or not the state was taking on a new liability and the new language in this section addressed that issue.

Mr. Ostrovsky pointed out section 5 of the bill requires the system to comply with the directions of the insurance commissioner’s office in providing information to the insurance commissioner that he feels is appropriate.

Scott M. Craigie, Lobbyist, Liberty Mutual Insurance Group, Alliance of American Insurers, stated while his clients are not taking a position on the personnel act issue of S.B. 37, they are in favor of the remainder of the bill.

A letter, dated February 11, 1999, from Samuel Sorich, Assistant Vice President, Western Regional Manager, National Association of Independent Insurers (Exhibit D), was submitted for distribution to the committee members.

Senator Townsend closed the hearing on S.B. 37 and opened the hearing on S.B. 43.

Senator Townsend referred the committee to page 6 in Exhibit C.

Alice A. Molasky-Arman, Commissioner, Division of Insurance, Department of Business and Industry, questioned section 1 of the bill which, she said, establishes the due-process standards for the system insofar as disciplinary action taken by the commissioner’s office. She pointed out it is not the process that is generally applied to insurers, but to self-insurers and associations of self-insurers. Ms. Molasky-Arman stated a bill was proposed by the administration in which the Division of Insurance had a provision that would change the manner in which disciplinary action is taken against private carriers. It would put them under the same process standards currently in place, she said, because there should be no difference in dealing with an insurer because it is workers’ compensation rather than life insurance or health insurance. She told the committee she would provide them with a copy of the language used in that bill, noting she thought it would be appropriate to have it consistent across the board.

Senator O’Connell remarked this issue had not come up during the hearings, and Ms. Molasky-Arman agreed it had not. Ms. Molasky-Arman said she thought this procedure was originally adopted in Assembly Bill (A.B.) 609 of the Sixty-ninth Session.

Ms. Molasky-Arman claimed there was no opportunity to address disciplinary action at that time, and that was the standard of proceeding as far as the private carriers were concerned and noted the Division of Insurance probably has one of the most advanced set of rules of procedure.

Mr. Craigie stated he had testified at length during the interim on having the State Industrial Insurance System (SIIS) be treated like any other insurance entity. He called attention to page 3, section 2, subsection 2, where it spells out how and where SIIS will be judged differently than other carriers because it is a state fund and will remain that way, at least until there is another proposal. He noted the legislative staff had done an outstanding job in putting this bill together and concluded his clients were in full support of S.B. 43.

Senator Townsend closed the hearing on S.B. 43 and opened the hearing on S.B. 93.

Mr. Ostrovsky stated this bill was a result of a proposal he had made to the study committee, noting it was not combined with any other bills and covers only one subject matter. He explained his idea was to reinstitute a board of directors made up of nine members and appointed by three different groups. He said three members would be appointed by the majority leader of the Senate in consultation with the minority leader. Three would be appointed by the speaker of the Assembly in consultation with the minority leader of that body; and, he concluded, the last three members would be appointed by the Governor. Further, Mr. Ostrovsky said, each appointee would have to be a policyholder of the system in working toward the concept of a mutual insurance company made up of its policyholders, and run for the benefit of the policyholders. In addition, he stated, one of each group of three would be required to have had previous experience in investment, risk management, occupational safety, casualty insurance or law, so that no less than three members of the board would be professionals in one of those areas.

Mr. Ostrovsky stated terms of all appointees would be 4 years and no member of the board could serve more than two full terms. In the event of a vacancy on the board during the legislative session, the same people who made the original appointment would appoint someone to fill the vacancy. Otherwise, he said, it would be up to the Legislative Commission to make an interim vacancy appointment. He added the Governor could always fill appointments of that office. The board would elect a chairman from among its own members for a 1-year term and, he declared, the chairman would not be permitted to serve more than two consecutive terms.

Mr. Ostrovsky pointed out the board would meet at least quarterly and would receive for their attendance at least $80 per day, as fixed by the board, and a per diem allowance equal to that generally given to other state employees. He said the primary duties of the board would be to approve annual and biannual budgets, approve investment policies, appoint an independent certified accountant and, before each legislative session, prepare a report to the Legislature. He noted they would not be allowed to adopt regulations for the operation of the system and added, the board would set policy, but the manager would set procedures and regulations as needed. He mentioned that whereas previously, the Governor hired the manager like a cabinet member, the board would now appoint a manager who would serve at the pleasure of the board, and be the chief operating officer, responsible for all duties of the system.

Senator Rhoads asked why the board, instead of the Governor, should appoint the manager. Mr. Ostrovsky explained the person who ran the system had to be loyal to the board, and if the Governor made the appointment, and had the board in place separately from the manager, the manager’s loyalty would be to the Governor. He added if the Governor is to run the system, there would be no need for a board.

Mr. Thompson stated even though the AFL-CIO has no problem with a board, there should be some workers on the board. He proposed an amendment that would require one out of each group of three be a worker, in order to give the policyholder somewhere to go with any complaints they may have about policies. Ultimately, he said the other partner in workers’ compensation is the worker, who should be afforded the same opportunity.

Samuel P. McMullen, Lobbyist, Las Vegas Chamber of Commerce, stated he wanted to go on record saying, "we strongly support this bill".

Kevin Silsbury, Employers of Nevada, said:

Ms. Matuska replied each bill stands alone, and any conflicts would be addressed when the bills approached passage, but stated, at present, they are different concepts.

Chairman Townsend concurred pointing out these bills would be held until the Governor has had time to bring forward his proposal at which time any conflicts would be resolved. He then closed the hearing on S.B. 93.

There being no further business, the meeting was adjourned at 10:45 a.m.

RESPECTFULLY SUBMITTED:

Ardyss Johns,

Committee Secretary

APPROVED BY:

Senator Randolph J. Townsend, Chairman

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