The Senate Committee on Commerce and Labor was called to order by Chairman Randolph J. Townsend, at 7:35 a.m., on Friday, March 19, 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 Dean A. Rhoads

Senator Raymond C. Shaffer

Senator Michael A. (Mike) Schneider

Senator Maggie Carlton

COMMITTEE MEMBERS ABSENT:

Senator Mark Amodei

STAFF MEMBERS PRESENT:

Scott Young, Committee Policy Analyst

Kathryn Lawrence, Committee Secretary

OTHERS PRESENT:

Alice A. Molasky-Arman, Commissioner, Division of Insurance, Department of Business and Industry, stated S.B. 417 is imperative to her agency. She stated on July 1, 1999, her agency will be the one to whom employers will appeal all their classifications of rates and experience modifications. She was advised the Division of Insurance can expect thousands of appeals from employers. Ms. Molasky-Arman explained the appeals board will give a mechanism to the employers of the state to assist them to have a timely review. She asserted without the appeals board, all the appeals would be directed to the Division of Insurance. She stated her agency will benefit once this bill is approved upon passage.

Magda (Maggie) Karpuk, Director, National Council on Compensation Insurance Incorporated (NCCI), stated currently the NCCI administers the appeals mechanism in 25 states. She concurred two-thirds of the appeals that are reviewed are resolved without any further action.

Tim Hughes, Appeals Manager, National Council on Compensation Insurance Incorporated, declared this bill gives the employer an opportunity to bring a dispute in an informal setting. He stated legal counsel may be necessary to discuss the events and decide upon a resolution to the problem.

Ms. Molasky-Arman stated if an employer is dissatisfied with the determination of the appeals board, they may still seek an additional appeal from the commissioner. Mr. Hughes stated he had reviewed the bill and it is very similar to the operations of other states’ appeal boards. Chairman Townsend asked for a review of section 10, subsection 1, paragraphs (a), (b) and (c). Mr. Hughes stated the section defines what issues are appealable. He explained there will be issues that are not pertinent to this particular board. He asserted the principal issue disputed would be the classification that is assigned to the business. Mr. Hughes maintained there would be a number of employers that would not understand what has happened to the NCCI code. He stressed if the company understands the classification code, but does not like the rate that is assigned to that code, the board would not address it. He explained the appeals mechanism is for employers that are in a classification code where there is some room for judgment, and there are 600 classification codes, grouped by analogy. Ms. Karpuk stated NCCI’s mechanism and classification is used in other states.

Ray E. Bacon, Lobbyist, Nevada Manufactures Association, asserted a company is classified as a plastering company when all they essentially do is make the styrofoam columns that may be placed outside a casino; but they may place a coat of plaster on the outside. He asserted a contractor who does styrofoam plastering has a high classification.

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Chairman Townsend closed the hearing on S.B. 417, and opened the hearing on S.B. 441.

David T. Pursiano, Lobbyist, Nevada Trial Lawyers Association, stated he reviewed both S.B. 441 and S.B. 451, and discovered them to be very similar.

Mr. Pursiano stated his practice as a lawyer is in representing homeowners and homeowner associations. He acknowledged he has encouraged people to be involved in their private city government and stressed in southern Nevada, there are people from the East Coast who have never lived in homeowner associations. He justified the reason for S.B. 441 is to smooth out problems that have occurred in the past. He emphasized it was the aim of S.B. 441 to preserve the governing documents, such as contracts. He stated sections 1 and 2 of the bill were merely technical changes that are necessary to implement subsequent sections. Mr. Pursiano explained often the homeowners decide to violate the covenants, conditions and restrictions (CC&Rs) because there is very little repercussion. He explained if a person painted their house green when every house is taupe or blonde in the association, there would only be a $50 fine. He stressed $50 is a cheap fine and if you cannot foreclose on that fine, then it encourages violations of the CC&Rs. He acknowledged section 4 of the bill encourages participation of the homeowners, such as a parent living with a son or daughter, who may act on behalf of the household.

Mr. Pursiano commented section 5 clarifies the builder will prepare an adequate reserve study. He claimed section 6 states notice has to be given for any meeting of the association and if a meeting is changed, the notice has to be given at least 3 days prior. He declared section 7, subsection 4, clarifies the right of an individual to participate in an executive session. He elucidated section 9 requires an association update its reserve study every 5 years. He justified the study makes certain for future maintenance an association is adequately funded so there are no shortages of funds when repairs need to be made. Mr. Pursiano expressed section 10 should be amended to exclude a master association; so any association will be contributing to the ombudsman. He explained section 11 defines an association’s ability to foreclose on a fine or lien, and under the current law, you cannot foreclose on a fine. He drew attention to section 12 disclosing to perspective buyers with all relating information to the homeowner association within 72 hours.

Bruce Flammey, Chairman, Nevada Association of Residential Communities (NARC), stated NARC was formed in the fall of 1997. He expressed section 3, subsection 2, would be the nudge for the homeowner to correct the violation. He stated people have put large vehicles on their property, refused to move them, were fined $50, and stated that was cheaper than any local storage fee they would have to pay. He mentioned in section 4, subsection 3, the word "understands" caused many board members undue stress, because they felt they never could understand totally all the conditions of the law.

Mr. Pursiano stressed section 5, subsection 1, refers to the reserve fund that the developers would prepare prior to turning over the association to the homeowners. He stated section 7, subsection 4, clarifies an owner may speak at their own hearing before the executive board. He justified section 11, subsection 4, changes the existing law. He explained this change allows a 30-day cooling-off period before the lien can be foreclosed. He voiced a letter of violation will be mailed and may be followed by another letter. He surmised the owner has the option to have a hearing; and if a hearing is held and a fine imposed, the association would then have the option to impose a lien; if the fine goes unpaid. He suggested the more reviews are held, the more likely the fine would be paid.

Mr. Pursiano concurred section 14, subsection 1, is very important in requiring the CC&Rs are given to the perspective buyers no less than 72 hours before the conveyance. He insisted 72 hours is going to be the time frame when the perspective buyer is going to be able to review the CC&Rs. Chairman Townsend questioned if information should not be given to the owner upon an offer or before; he felt 72 hours was too long. Mr. Flammey stated the paperwork distributed to the perspective buyer at the beginning of the sale tends not to be read. Mr. Flammey defined requiring the documents to be turned over at least 3 days prior to the settlement would still be enough time for the buyer to review them.

L. Duane McPherson, Lobbyist, President, Spring Creek Association, stated he is in agreement with this bill. He averred it is difficult for new board members serving on homeowner associations to understand the procedures. He agreed 30 days to read the governing documents and the law that may be applicable is a good policy, but felt the law should be more generalized to assist the board members with understanding. He surmised the reserve study is a good policy in requiring a reserve study be done every 5 years by a competent professional. Mr. McPhearson drew attention to posting the meeting notices is a good concept because it costs his association $195,000 a year to mail out meeting notices. He stated eliminating the ombudsmen would save money. He submitted his letter and other pertinent information (Exhibit C. Original is on file in Research Library.) for the committee to review.

Donna Erwin, District Manager, Eugene Burger Management Corporation, stated she has been in the management business for the last 8 years. She stated when homeowner emergencies occur, it becomes difficult for the association to make all the repairs within 10 days. She explained it is sometimes very costly for the associations and very difficult from a management perspective.

Philipi Testh, Concerned Citizen, stated his concerns regarding Mr. Flammey’s remarks regarding raising fines and then foreclosing on those fines. He stated certain homeowners had been threatened.

Ivan R. Ashleman II, Lobbyist, Southern Nevada Home Builders Association, stated he was concerned with section 5, subsection 1, the words "fully funded." He stated those associations are funded by monthly increments being paid into the reserve fund. He remarked it was probable to read this language as the developer having to fully fund the account at the time of building and he did not agree that was the intention of the bill. He suggested the wording "appropriate share," instead. He stated section 5, subsection 1, paragraph (a), was redundant with S.B. 451. He mentioned there is more guidance in S.B. 451 in calculating the homeowner funds after development.

Mr. Ashleman defined agendas should be mailed instead of posted in order for all people to review them. He pointed out in section 11, subsection 4, a mediator does not award anything, but assists the parties to reach a settlement.

Ted Samuels, Concerned Citizen, stated he was concerned with Mr. Pursiano’s testimony. He stated Mr. Pursiano’s testimony was inaccurate relating to the desire to get homeowners more interested in board meetings. He emphasized homeowners are not allowed to speak at these board meetings and Mr. Pursiano controls the agendas. He insisted his homeowner association was not handling his complaints and when he tried to contact the Governor’s Office, the Capitol Police Division threatened him.

Mr. Samuels questioned why there is no enforcement of the associations not filing with the Office of the Secretary of State. He suggested establishing investigative committees to ensure the associations are registering with the secretary of state and the correct fees are being assessed. He acknowledges when a person buys a home, he should be given proper disclosure.

Michael Buckley, Attorney, Community Associations Institute of Southern Nevada, pointed out in section 12, subsection 1, paragraph (d), copies of the declaration, bylaws, and so forth should be attached to the public offering statement. He concluded for the record the Community Associations Institute of Southern Nevada did meet with the representatives of NARC throughout 1998, and we do concur with the remarks made by Mr. Pursiano, Mr. Flammey, Mr. McPhearson and Ms. Erwin.

A memo from the Howard Hughes Corporation, dated March 18, 1999, regarding S.B. 441, was presented to the committee (Exhibit D). No testimony given.

Chairman Townsend closed the hearing on S.B. 441 and opened the hearing on S.B. 451.

Senator Michael (Mike) A. Schneider, Clark County Senatorial District No. 8, stated this legislation has been the most requested in the state. He stated he had received calls from people all over the nation regarding this bill and this is not a localized problem. He commended Mary Lynn Ashworth, Ombudsman, Ombudsman for Owners in Common-Interest Communities, Real Estate Division, Department of Business and Industry, for her dedicated work with this bill. He said all associations are included in this bill except landscape associations. Senator Schneider stated the bill requests that the homeowners receive a budget every year and a reserve study every 3 years. He agreed the handling of the money in the reserve account is for capital needs. He explained a hearing officer and two homeowners from the community would hear grievances from the homeowner and the homeowner would have a reply within 2 weeks. Senator Schneider acknowledged one of the biggest problems is people cannot get answers to their problems quick enough. He stated this change would give the ombudsman more power to remove board members who are not performing their duty. He agreed this bill would require that financial statements be provided to the homeowners every year.

Senator Schneider asserted the fines should be greater than $50. He defined the voting would occur by secret written ballot, and should include proxy votes, and would only be valid for the day of the vote. He stated if a homeowner is in litigation because of a violation of the association regarding health and safety, and the members have not reviewed it; within 30 days the homeowner should appear before the total membership, explain the litigation, and obtain a majority vote. He expounded it encumbers everybody’s property and everybody should be aware of what is happening.

Senator Schneider commented for resale of properties in associations, a financial statement has to be submitted to the new buyer, and currently realtors are complaining about the management companies charging outrageous fees for this service to the realtors. He explained they are charging $250 to $300 to get copies of financial statements, CC&Rs, or minutes of a meeting. He voiced this amount is excessive and a seller is entitled to this information.

Mary Lynn Ashworth, Ombudsman, Ombudsman for Owners in Common-Interest Communities, Real Estate Division, Department of Business and Industry, stated calls to her office had doubled from what they were before and are now approaching 600 calls a month. She emphasized she had only had one half-time office assistant. She stated she has assisted the homeowners in her first year, referred to it as "homeowner empowerment, " and has had three workshops. She stated she has established a program called "Homeowner Network Directory," where homeowners throughout the state can contact others who have faced similar challenges. She maintained she needs to deal directly with the homeowner board associations and private homeowners in these associations. Ms. Ashworth agreed the biggest problems heard from the homeowners are financial records not being available and the procedures for voting. She suggested there need to be more enforcement procedures.

William (Bill) A. Magrath, Concerned Citizen, stated he is in support of this bill. He stated he was astounded to hear comments from people not entitled to financial records. He clarified he is involved in a neighborhood advisory board who meets before every quarterly meeting to discover any problems in the neighborhood. He remarked there are 19 different neighborhoods in their community and felt this system works well. He stated he does not agree with elimination of the ombudsman. He reviewed his proposal with the committee (Exhibit E). Senator O’Connell questioned why an association would place a lien on someone’s home. Mr. Magrath stated an association wants to have some leverage with which to work and there needs to be some finality to the process.

Chairman Townsend introduced Bill Draft Request (BDR) 53-1382.

Pamela Scott, Property Manager, Summerlin Community Association, stated she was concerned how S.B. 451 would affect master associations. She read her memo to the committee (Exhibit F) and emphasized she supported the majority of S.B. 441 and S.B. 451, but felt the bills are so similar, they should be combined.

Michael Trudell, Manager, Caughlin Ranch Homeowners Association, disagreed with a developer paying homeowner association dues on property that is yet undeveloped, especially in areas where the dues are expensive. He explained if the developer defaulted, there could be problems. Senator Schneider stated the dues would not occur until after the homes were built.

There being no further discussion, the meeting adjourned at 10:25 a.m.

RESPECTFULLY SUBMITTED:

Kathryn Lawrence,

Committee Secretary

APPROVED BY:

Senator Randolph J. Townsend, Chairman

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