The Budget Subcommittee of the Legislative Commission was called to order by Chairman Morse Arberry, at 8:30 a.m., on Tuesday, January 19, 1999, in Room 1214 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.

SENATE COMMITTEE MEMBERS PRESENT:

Senator William J. Raggio, Chairman

Senator Ann O’Connell sitting as an alternate for Senator Raymond D. Rawson

Senator Lawrence E. Jacobsen

Senator William R. O’Donnell

Senator Joseph M. Neal, Jr.

Senator Bob Coffin

Senator Bernice Mathews

SENATE COMMITTEE MEMBERS ABSENT:

Senator Raymond D. Rawson (Excused)

ASSEMBLY COMMITTEE MEMBERS PRESENT:

Mr. Morse Arberry, Chairman

Mr. Bob Beers

Mrs. Barbara Cegavske

Mrs. Vonne Chowning

Mrs. Marcia de Braga

Mr. Joe Dini

Ms. Jan Evans

Mr. David Goldwater

Mr. Lynn Hettrick

Mr. John Marvel

Mr. David Parks

Mr. Bob Price

ASSEMBLY COMMITTEE MEMBERS ABSENT:

Ms. Chris Giunchigliani (Excused)

Mr. Richard Perkins

STAFF MEMBERS PRESENT:

Judy Jacobs, Committee Secretary

OTHERS PRESENT:

Allen Smith, Director, Information Services, Legislative Counsel Bureau

Julie Bruski-Kuennen, Computer Consultant, Bigfoot Software Company

John P. (Perry) Comeaux, Director, Department of Administration

Don Hataway, Deputy Director, Budget Division, Department of Administration

Eric Raecke, Manager, State Public Works Board, Department of Administration Frank Revell, Chief, State Motor Pool, Department of Administration

Bill Moell, Chief, Purchasing Division, Department of Administration

Mike Meizel, Chief, Buildings and Grounds Division, Department of Administration

Committee members were given instruction in the use of new laptop computers. Allen Smith, Director, Information Services, Legislative Counsel Bureau, introduced members of his staff who were present to assist legislators in the use of new software for budget applications. A visual presentation on the use of the laptops was given by Julie Bruski-Kuennen, Computer Consultant, Bigfoot Software Company, who has been working on contract for the Legislative Counsel Bureau (LCB).

After the familiarization session and while awaiting the arrival of Senator Raggio, Mr. Arberry invited John P. (Perry) Comeaux, Director, Department of Administration, to brief the committee on the The Executive Budget proposed by the Governor. Members of the committee were provided with copies of the State of Nevada Executive Budget in Brief (Exhibit C. Original is on file in the Research Library.) prepared by the Department of Administration.

Mr. Comeaux distributed a packet of exhibits (Exhibit D) consisting of charts and graphs depicting budget items, and a single sheet (Exhibit E) with an appropriation summary. He spoke from written remarks (Exhibit F), saying revenues for the 1997-99 biennium were estimated by the Economic Forum at $2.972 billion. He said the actual revenues in Fiscal Year (FY) 1998 and those forecast for FY 1999 are 2.9 percent less than originally projected, resulting in a shortfall of $87 million. He explained the administration proposes to reduce state spending by nearly $131 million in FY 1999 due not only to the shortfall, but also to required supplemental and onetime appropriations and a need to restore various fund balances.

Mr. Comeaux pointed out there will be reversions of $130.7 million in FY 1999 as shown in Exhibit D. He explained that amounts to $110 million more than the reversions of $21 million as had been budgeted. The balance on July 1, 1999, will be $81.8 million, approximately $2.5 million above the statutorily required 5 percent.

Mr. Comeaux reported the reversions of $130.7 million will be added to Economic Forum forecast revenues of $1.472 million for FY 1999-2001 and a reversion of $2.6 million derived from the Permanent Net Proceeds Trust Fund established by the Legislature as a "rainy day" fund. He explained the Administration believes the Permanent Net Proceeds Trust Fund is no longer necessary now that there is an official Fund to Stabilize the Operation of State Government, and legislation will be submitted to revert the balance of the net proceeds fund to the General Fund.

Mr. Comeaux indicated the other appropriations listed on Exhibit D represent legislatively approved items and adjustments to that amount, $12.2 million in appropriations moved to FY 1998, and a decrease of $564,371 from FY 1998 appropriations being moved to FY 1999. Additionally, the cost of the 1999 legislative session has been estimated at $11.7 million by the Legislative Counsel Bureau. Mr. Comeaux noted the supplemental appropriations of $44,832,084 are detailed in Volume 1 of The Executive Budget.

Mr. Comeaux drew attention to the chart on the first page of Exhibit D depicting figures derived from Volume 1 of The Executive Budget. He stated the most significant General Fund appropriation will go to the Distributive School Account in the amount of $28,985,515 to make up for the anticipated shortfall in local school support tax (LSST) proceeds collected by the districts. He indicated the next highest supplemental appropriation will provide $15.4 million for the Class-Size Reduction Fund to make up for the anticipated shortfall in estate tax collections. He acknowledged the two sums may need to be adjusted depending upon collections in coming months.

Mr. Comeaux stated a onetime appropriation, $15,963,440, is designated to restore the Benefit Services Fund reserves and make up for the deficit that accumulated in the fund over the past 18 to 24 months. He said the State Controller anticipates transferring approximately $2,616,602 into the Permanent Net Proceeds Trust Fund. He indicated the last item listed in the center of the first page of Exhibit D represents the restoration of the fund balances in the amount of $6.9 million which appears in detail beginning on page INTRO-39, Volume I, of The Executive Budget. It will restore the Interim Finance Contingency Fund, the statutory Reserve for Statutory Contingency Fund and others needed for the state to operate during the next biennium. Mr. Comeaux declared this will leave a projected ending fund balance on July 1, 1999, of $81,839,098.

Senator Coffin noted that in his State of the State address the Governor had not mentioned the "rainy day" Permanent Net Proceeds Trust Fund which contains approximately $125 million. Senator Coffin inquired whether the Governor has anticipated utilizing some of those funds for Department of Human Resources budgets.

Mr. Comeaux responded there is no provision in The Executive Budget for using the Permanent Net Proceeds Trust Fund. He drew attention to the Fund to Stabilize the Operation of State Government, another "rainy day" fund, depicted on page 15 of The Executive Budget showing a balance of $128,866,608. He explained the statutes provide that access to the fund is automatic when revenues reach a minimum of 5 percent below the forecast, whereas revenues were actually 3 percent less than forecast. Another provision, he said, allows for utilizing those funds if the Governor and the Legislature agree that a financial emergency exists. He recalled the Governor expressed an unwillingness to use those funds unless absolutely necessary and said neither he nor the Governor believes the present financial situation of the state is what was contemplated when the fund was established. He pointed out a national recession usually affects the tourist-based economy of the state, and in such an event the $129 million would be accessed.

Senator Coffin suggested the fund could be used during the next 2 years while structural changes are being made to the budget. He acknowledged a change in the statutes will be required to allow this. He wondered whether the Legislature should wait until May 1 to consider such a change. Mr. Comeaux agreed the forecast from the Economic Forum, due out in May, should be reviewed. He noted revenue collections have improved since the December 1 forecast, although he surmised the collections may not continue to rise. He reported he had been told November sales tax collections may show an increase of 8 percent, the same as those during October. He stated December collections will be of greatest interest since that is the month normally having the greatest collections. He acknowledged the Economic Forum will scrutinize the gaming revenue, cigarette tax, and sales tax forecasts which could result in rising revenue forecasts. He concluded those three areas of the budget will require close monitoring over the next few months.

Mr. Comeaux said the forecast made by the Economic Forum on December 1, 1998, anticipates total General Fund revenues of $3,123,000,000 in the 1999-2001 biennium. He pointed out that is approximately 8.2 percent more than combined actual revenues for FY 1998 and the forecast for FY 1999. He admitted the problem arises because revenues based on the forecast were overestimated for the current biennium, leaving part of the growth already committed in the adjusted base budget for the next biennium. He noted the forum forecast for the next biennium represents an increase of only about $151 million relative to the revenue forecast upon which the current biennium’s budget is based. He called attention to the revenue forecasts on the second page of Exhibit D as an illustration of the forecast.

Turning to the third page of the exhibit, Mr. Comeaux said the General Fund requirement to fund growth in the K-12 portion of the education budget is $131 million. To fund a less-than-2 percent increase in enrollment in the University and Community College System of Nevada (UCCSN) as well as the operation and maintenance of new facilities will require $49.6 million in new funds. Mr. Comeaux noted the Department of Prisons (DOP) will require an additional $41.5 million, driven by the new institution opening near Las Vegas and by the increase in new inmates.

Mr. Marvel asked whether the new prison budget includes funding for medical supplements. Mr. Comeaux replied the budget includes a proposal to privatize medical services throughout the DOP. He reported the request for proposal (RFP) went out last Friday, with bids due by March 5, and the entire project is subject to fast-track legislation. He noted the budget anticipates privatization being in place by July 1, 1999. He said the director of the DOP has already received 16 inquiries from those interested in responding to the RFP, and the Purchasing Division of the budget office sent the RFP to 10 vendors in addition to those on the list from the DOP. He estimated privatization will result in a savings of 8 percent, an amount between $4 million and $5 million over the biennium.

Saying he wished to be sure he understood correctly, Mr. Price asked whether the RFP put out by the Governor was "simply to get an idea, and the companies that are making the proposals understand this is something that has not been approved by the Legislature." Mr. Comeaux answered he had not read the RFP so was unsure whether the disclaimer is specified in the RFP, but he assumed the companies are aware of that fact. He pointed out RFPs put out by his office include a provision that the department reserves the right not to award the contract.

Mr. Price voiced his concern that the state could be subject to legal action if no contract is awarded to the low bidder. Mr. Comeaux responded the Department of Administration clearly understands the proposal must be approved by the Legislature.

Ms. Evans noted medical services have been privatized at the Ely prison for a couple of years and asked what percentage of savings has been realized in that program. Mr. Comeaux responded the director estimated between 5 and 10 percent, which Mr. Comeaux acknowledged is not as high as originally anticipated. Ms. Evans declared the members would like information on the success and efficacy of the Ely program when the DOP presentation is made to the money committees (the Senate Committee on Finance and the Assembly Committee on Ways and Means). Mr. Comeaux answered the information regarding savings will be clearer when bids are received and estimates are refined in mid-March. He admitted a different proposal for additional funding will be required if the savings to be accrued amount to something around 4 percent rather than 8 percent.

Continuing his discussion of Exhibit D, Mr. Comeaux drew attention to the additional $10.2 million which will be required for the Division of Parole and Probation. He attributed the need for additional funds to caseload increases and to the response to the study made by the National Council on Crime and Delinquency (NCCD). He explained the NCCD studied the ratio of staff-to-offender workload and the hours worked. In the past, he said, the budget has been formulated based upon 75 offenders to each officer without regard to the mix of offenders. He said NCCD studied the amount of time required in Nevada to handle various types of offenders and made an accounting of the hours available from all parole and probation officers. As a result of the study, NCCD proposed a 60-to-1 ratio which the Budget Division deemed too costly, but it did propose funding for a 70-to-1 ratio, resulting in the funding for another $10.2 million.

Mr. Marvel asked whether the state is falling behind in collections for parole supervision. While admitting he was unsure, Mr. Comeaux acknowledged the state stepped up efforts to collect. Mr. Marvel wondered whether the collections for parole supervision should be revenue-neutral. Mr. Comeaux agreed that is true in theory but not in practice.

Senator O’Connell requested elaboration regarding the proposal to lease out the prison at the Southern Nevada Correctional Center (SNCC) at Jean while additional space is being constructed at other facilities. Mr. Comeaux answered that phase 1 of the new prison in southern Nevada, called Cold Creek State Prison, already funded and under construction, is scheduled to open in June 2000. Phase 2, he said, composed primarily of additional housing units and included in the capital improvement program for the next biennium, can be built more quickly because it does not include the core consisting of dining and laundry facilities. The second phase is scheduled to open in August 2000. Mr. Comeaux explained the rationale is that, instead of continuing to operate the prison at Jean, which costs a significant amount to man due to the need for dining room and tower officers, a move into Cold Creek will save approximately $8.6 million in the second year of the biennium.

Mr. Comeaux said approximately 159 positions can be moved at a great savings. He added the director of the DOP believes private companies are interested in leasing the facility at Jean to house inmates from the overflow in other states, and overflow inmates from Nevada could also be housed there if the prison census grows at a rate greater than that forecast. He surmised the state will have to move back into the facility at Jean in the 2001-2003 biennium.

Mr. Comeaux noted no provision for revenue from the leasing of the facility has been included in the budget. He explained the department has considered closing the facility if it is not leased, leaving in place just a skeleton staff.

Mr. Marvel asked whether any inmates are being sent out of state at the present time. Mr. Comeaux replied in the negative, although he stated the belief the state is prepared to do so.

Mr. Arberry commented he had understood the Cold Creek facility was originally scheduled to open in October 1999. He asked whether the opening, now scheduled for June 2000, has anything to do with the proposal to close the Jean correctional center. Mr. Comeaux responded the opening has nothing to do with the proposed closure at Jean, although the proposal is to close Jean when the second phase of Cold Creek becomes available.

Senator Neal inquired whether privatization is being suggested on the basis of a philosophy rather than on the basis of costs. He opined the privatization of facilities across the country has been unsuccessful due to legal actions taken against the institutions. He cited an article in the Atlantic Monthly that criticized the privatization of prisons because the purpose was to make a profit. He voiced the understanding there are already lawsuits developing against the women’s prison in southern Nevada. He noted the lack of authority to prevent lessees from walking away from those leases and asked how the Governor intends to ensure against such an eventuality. Mr. Comeaux responded the major proposal is to privatize the medical services at all the institutions, not the operation of the institutions, although he acknowledged operation of the women’s prison referred to by Senator Neal is privatized.

Mr. Comeaux explained the basic premise is that privatization of medical services will be a more efficient method to deliver services required by law. He agreed there is an interest in effecting savings and said the motivation for privatizing medical services in the prison system is somewhat different than the motivation was in privatizing medical services at Ely State Prison. He acknowledged the state had an extremely difficult time trying to recruit staff necessary for the Ely State Prison and suggested a private company has an advantage obtaining staff because it can rotate staff in and out of such facilities.

Senator Neal wanted to know whether the same problems may be encountered with privatization of prison medical services that have arisen with health maintenance organizations (HMOs). He observed that once HMOs are established they begin to cut costs in order to save money, and should that be done in a prison setting the prisoners have the right to sue for proper medical attention. He cautioned the state could be faced with a situation that ultimately will cost more.

Mr. Comeaux admitted there is some risk involved, but stated the way the RFP and the contract will be written should protect the state. He assured the senator the RFP will undoubtedly provide for a level of care acceptable to all. He noted several prisons have been sued in connection with medical services even though the services were provided by the states and not by private companies. He reiterated the state can protect itself by ensuring that the level of care required is provided.

Mr. Arberry remarked the national trend appears to be away from privatization due to the failure rate and to the number of private companies that are abandoning their contracts when they cannot provide the services required. He wanted to know whether that had been taken into consideration when the proposal to privatize the medical services was broached. Mr. Comeaux admitted he did not know the answer, and he suggested the director of the Department of Prisons could provide an answer. Mr. Comeaux added the director of the DOP supports privatization.

Mr. Comeaux pointed out the remaining items listed on the schedule on the third page in Exhibit D total expenditures of $20 million more than resources available. He asserted that is a clear indication it will be impossible to fund those items along with growth and other needs in the remaining agencies of state government without reducing the base budget and increasing revenues or shifting funding sources. He said the administration took an approach utilizing a combination of those three options.

According to Mr. Comeaux, a change in the level of the reimbursement rate paid by local governments to the state for collection and disbursement of local sales tax is the only revenue enhancement proposed. He reminded the committee the reimbursement rate is scheduled to drop effective July 1, 1999, from the existing 1 percent to .5 percent. He reported the administration proposes to limit the decrease to .75 percent. He noted the General Fund exhibit shows increases in sales tax revenues at $3,669,000 in the first year of the biennium and $3,747,000 in the second year, and said the administration will propose legislation to accomplish those collections.

Mr. Comeaux indicated the administration has taken steps to shift funding sources, such as the reallocation of Title XX Social Services Block Grant revenues, thereby reducing General Fund need. He explained the administration ascertained which agencies were the recipients of Title XX revenues and then investigated whether those agencies could obtain other federal funds to replace the Title XX funding. Title XX funds going to those agencies were moved to other social service agencies that were not able to obtain other General Fund revenues. Mr. Comeaux reported this move saved the state $1.6 million over the biennium, although approximately $1 million of that was used to fund the move of Homemaker Services into the Aging Services budget, resulting in an actual savings of $600,000 in the General Fund.

Mr. Comeaux said the administration will propose legislation to expand the allowable use of the funds designated to ameliorate gas pollution to replace General Fund appropriations in a number of budgets, including that for the Tahoe Regional Planning Agency (TRPA). He stated Highway Fund resources are being utilized to replace General Fund resources, one area being for the Nuclear Waste Project Office. The administration is recommending General Fund appropriations in each year of the biennium of $1.1 million, and a Highway Fund appropriation of $400,000.

Mr. Comeaux stated it is most significant that Intergovernmental Transfer Account funds are being relied upon heavily to provide the state match for Medicaid programs. He said $53 million more is being proposed for transfer than what was actually transferred in 1998 and what is scheduled for transfer in 1999. He opined that area of the budget will require close monitoring. He reported the budget provides for an ending reserve of $20 million in the Intergovernmental Transfer Account if Medicaid payments are approximately $15 million less in this fiscal year than the current work program level. He acknowledged his division monitors that account daily, and he assured the legislators he will keep them informed.

Mr. Arberry voiced concern there may be a gap to be filled during the next biennium. Mr. Comeaux agreed it could amount to $150 million, and transfers of $89,791,000 in FY 2000 and $94,855,000 in FY 2001 are being proposed for a total of $185 million. He explained the transfers will be necessary to fund expenditures being forecast based upon average monthly caseloads of 110,000 in the first year of the biennium and 115,757 in the second year. He noted that compares to 97,000 actual caseloads during the first 5 months of 1999. The budget provides for 106,000 caseloads this fiscal year.

Mr. Comeaux acknowledged recent forecasts for medical payments have not been accurate, and there has been overbudgeting for the past several years. He said the attempt is being made to avoid underbudgeting. He agreed if all the reserves are utilized this year and all goes according to the budget proposals, there will be nearly $187 million less if the program continues to work.

Mr. Arberry wanted to know how the deficit will be made up. Mr. Comeaux replied that is included in the Governor’s planned review to extend over the next two years.

Mr. Marvel inquired whether any of the counties are having difficulty coming up with their matching funds. Mr. Comeaux was unsure and offered to obtain the information for the committee.

Senator Neal asked what caused the shortfall in Medicaid payments. Mr. Comeaux responded that over the past 4 to 6 years there has been a significant overestimation of the requirements for the Medicaid budget. He explained that in most years the funding budgeted from the Intergovernmental Transfer Account was not transferred in its entirety into the Medicaid budget, and instead general funds were used, while the budgeted funds remained in the Intergovernmental Transfer Account. After a number of years, he said, a large reserve accumulated, but this biennium the Governor proposes to spend the reserve down to about $20 million in order to replace general funds as part of the state match in the Medicaid budget. He explained that in the following biennium the reserves will not be available and the General Fund will have to be accessed to provide all of the state match for Medicaid.

Mr. Comeaux explained:

Mr. Arberry requested clarification. Mr. Comeaux responded he wanted to call attention to that feature of the budget due to its importance. He declared the transfers help balance the budget and the administration did not wish to make other drastic cuts at this time while the transfer funds are available. He stressed the fact that 2 years from now those funds will not be available.

Senator O’Donnell estimated receipts have been 7 or 8 percent less than the economic forecast which he calculated by adding to the $140 million deficit $238 million in the General Fund designated to take care of growth, a total of $378 million, divided by $4.8 billion in the 2-year budget. He asked whether Mr. Comeaux is comfortable with the model being used by the Economic Forum to calculate budget forecasts, or whether he feels the formula should be revisited. The senator expressed concern a tremendous loss occurred during the past biennium that was not predicted, and the budget problems ahead are due to overspending in the past year.

Mr. Comeaux responded no particular model is used by the Economic Forum. He reported the forum conducted business during the past year in the same way as during the previous two budget cycles. He said the budget office presents the forum with a forecast based upon economic models for major revenues and other forecasts for other revenues, the Legislative Counsel Bureau provides forecasts based on other models, and Wharton Economic Forecast Associates (WEFA), under contract to the state, makes forecasts based on other models. He explained the agencies that collect revenue also make forecasts of their own.

Mr. Comeaux noted the forum is not limited to that information and may collect data from other sources. He added the forum is provided with the thinking of various economists from the Nevada university system and elsewhere. He asserted the forum has done a creditable job in making forecasts and noted the forecast for the last biennium was off by only a cumulative 2.9 percent. He admitted this miscalculation hurts when budgeting but said from a practical standpoint it is minimal considering the forecast was made for 24 months into the future.

Senator O’Donnell voiced concern over the actual miscalculation of forecasts which he calculated had an error rate of approximately one-third. Mr. Comeaux responded, "That $87 million that we didn’t collect last time would sure come in handy." Senator O’Donnell argued that $87 million exacerbated the problem this year, and questioned the efficacy of the models being used by the Economic Forum and the company hired to forecast the economy.

Mr. Comeaux drew attention to the Executive Budget in Brief and suggested the committee look at the caseload analyses starting on page 36 which he said indicates the problem. He acknowledged if the revenue levels return to historic average levels, as calculated by the Economic Forum, there will be problems because revenues are forecast with an increase of 8.2 percent while increases in the population are forecast at 8 percent, in the K-12 school enrollments at 9 to 10 percent, and in the university and community college system at 5 to 6 percent. He added the prison population is forecast to grow at 7 percent in the year 2000 and 5 percent in the year 2001. He reiterated revenue growth is forecast at 8 percent over the biennium.

Mr. Comeaux pointed out the state enjoyed a spurt of revenue growth over the past few years but cautioned there may be a return to more historic levels of annual revenue growth in the 4 to 5 percent range. He agreed the problem will be exacerbated by the shortfall during this biennium which will carry over into the next biennium.

Senator Neal inquired, "In the light of those remarks that you just made, don’t you think it’s about time that we revisit the gross gaming tax, particularly at 6.25 percent?" Mr. Comeaux replied that the Governor is trying to avoid imposing any new taxes.

In addition to shifting funding sources, Mr. Comeaux said reductions in base budgets have been included. Along with privatization of the prison medical services, the scope of the Family to Family Connection Program, inaugurated in the current biennium, has been reduced. The budget calls for funding of $2.3 million in each year of the biennium to provide continued funding for new-baby centers. He added another savings should be incurred from closing down the Southern Nevada Correctional Center when phase 2 of Cold Creek State Prison opens.

Mr. Comeaux reported on a proposal to eliminate the Department of Motor Vehicles and Public Safety program established last session to provide coordination at the state level to deal with auto theft in the state. He asserted the resources necessary to meet challenges posed by continued growth in the state are extremely limited. He drew attention to the fourth page of Exhibit D illustrating the point that 95.6 percent of the budget is in the base. He said recommended Executive Budget General Fund appropriations total $3.168 billion for the upcoming biennium, of which $3.029 billion is in the base budget, leaving less than $140 million earmarked for program maintenance and enhancements.

Mr. Comeaux stated that for the first time in the next biennium the appropriation from the General Fund to the Distributive School Account will be over $1 billion. He pointed out the chart on page 5 of Exhibit D shows the distribution of funds by department and by component of the budgets. He proposed explaining the negative numbers briefly.

Calling attention to the Education line item, Mr. Comeaux noted a base in the first year of the biennium of $579 million with a negative $67 million in the maintenance column as a result of local revenues generated in school districts which reduce the General Fund need. He averred the state would be facing trouble if all growth in school districts had to be funded from General Fund appropriations. He said the amount was limited to $130 million, but additional local school support tax based upon the forecast by the Economic Forum and property taxes and motor vehicle privilege taxes provide a significant amount of new funding for the Distributive School Account.

According to Mr. Comeaux, the negative figure in the enhancement column in the second year of the biennium for Conservation and Natural Resources is the result of a proposal to substitute gas pollution funds for general funds. He noted there are others listed, such as the negatives in the enhancements for prisons in each year of the biennium based upon the proposed privatization of medical services and the closure of SNCC. The negative number in the university enhancement column, he said, is the result of adjusting the legislatively approved faculty-to-student ratio, although there are significant increases in the maintenance column.

Mr. Comeaux stated the total appropriations recommended in the first year of the biennium amount to $1.556 million of which $1.497 million is in the base while $8.3 million is in maintenance and $50.9 million is in enhancements. In the second year of the biennium, he said, appropriations total $1.611 million of which $1.531 million is in the base, $33.1 million is in maintenance, and $47.1 million is in enhancements.

Referring to the university budgets, Senator Neal remarked that once students reach the university level, ratios are not so significant because many classes meet in auditoriums. He cited his experience teaching at a community college in which he had 50 to 55 students in one class. He opined a student-to-faculty ratio really does not exist in college, and he asked for an explanation.

Don Hataway, Deputy Director, Budget Division, Department of Administration, responded that since 1981 the instruction category of the university budget has been based upon student-faculty ratios. As an example, he explained the two universities follow a 29-to-1 ratio for regular students, although there are other ratios. For engineering students the ratio is 16 to 1, for nursing students it is 7.5 to 1, and so on. He explained the maintenance portion of the budget is constructed upon the actual student-to-faculty ratios in the base year, which was FY 1998. He noted the enhancement portion brings the figures back to the legislatively approved student-faculty ratios through adjustments.

Senator Neal wanted to know whether the university receives extra funding if the ratios are above the accepted standard. Mr. Hataway replied the ratios are calculated on an average, since a class might have as many as 350 students, but the overall average is 29 to 1.

Mr. Comeaux continued, saying resource constraints placed limits on growth in state programs. He noted this is reflected in the minimal expansion of state government employment levels as illustrated on page 6 of Exhibit D. He pointed out the exhibit shows a net increase of 589 positions over the biennium. He said most of the 250 new positions in the second year are attributable to the opening of the new veteran home in Boulder City which will require 224 employees. He noted 52 positions scheduled for the Nevada Department of Transportation are not under the General Fund budget. He clarified the positions displayed on the page are funded from several sources, not just General Fund.

Mr. Comeaux said the schedule is deceiving in that it does not account for any reduction in staffing at the Employers Insurance Company of Nevada, which estimates staff reductions between 30 and 50 percent. He surmised if those decisions are made during the biennium there could be a point where the net addition to state employment falls in the range of 1 to 2 percent. Those reflected on the schedule represent an increase of approximately 3.7 percent.

Mr. Comeaux reiterated the administration has made education its top priority, and despite limited resources The Executive Budget provides as much funding as possible for education. He drew attention to page 7 of the exhibit which shows 55.4 percent of total General Fund appropriations are designated for education, including K-12, the university system, and the Department of Museums, Library and Arts. He characterized the latter department as a "miniscule" portion. Compared to previously approved budgets, Mr. Comeaux said this functional education budget represents the highest share of any budget in the past decade.

Mr. Comeaux repeated his recitation of the budgets he feels bear careful monitoring over the next few months. He reiterated the two largest ones will be intergovernmental transfer funding in the Medicaid budget, and the proposed privatization of medical services in the prison system. He indicated another area to watch is the anticipated level of reversions during this fiscal year. He said the expected total is $130 million of which $12 million is additional anticipated salary savings as a result of the hiring freeze. He explained all the other anticipated reversions have already been processed and work programs have already been processed, so any changes in the work programs must be processed through the budget. He expressed confidence the $130 million in reversions will be achieved.

Mr. Comeaux said Exhibit E shows the appropriation summary, which indicates where appropriations "went up or down." He pointed out it includes percentage increases and said it is a very helpful summary.

Mr. Marvel asked whether the capital improvement debt rate will continue at 15 cents. Mr. Comeaux confirmed that it will and said the afternoon portion of the meeting addresses that. He stated the 15-cent debt rate will support recommended bonding and leave a capacity over $100 million in 2 years that will fit within the rate. He noted any prison bids necessary will not cost $100 million.

Mr. Comeaux pointed out another significant feature to be discussed during the forthcoming afternoon portion of the overview is the proposal for significant statewide maintenance projects such as roofing and paving. Due to the lack of cash to fund those projects, he said, the administration is proposing using bond proceeds. He acknowledged that under normal circumstances he would not recommend using bond proceeds for those projects, but the choice was to fund with bond proceeds or not at all. He declared the projects being included will add to the useful life of existing assets.

Senator Neal wanted to know how much total appropriations will be over the biennium. Mr. Comeaux answered the total budget is approximately $14 billion over the biennium, including all sources of funds. He pointed out there are a number of schedules in the Executive Budget in Brief (Exhibit C) that illustrate General Fund and non-General Fund by function.

Senator Neal asked how much of the budget is derived from federal funds. Mr. Comeaux responded the federal funds are not specifically broken out, but they would account for a significant portion of the other $10 million in the budget.

At 11:55 a.m. Mr. Arberry announced a recess until 1:30 p.m.

Senator Raggio reopened the meeting at 1:30 p.m. and announced Senator Ann O’Connell had been designated to sit in place of Senator Raymond Rawson during the budget hearings. Senator Raggio reported Senator Rawson, who is being briefed daily by the staff, is recovering well from surgery. He welcomed new and former members of the money committees. He explained that the change in the Nevada Constitution to 120-day sessions necessitates the presession budget hearings, and the agencies have been informed they will be heard primarily in joint hearings. He requested that questions and responses be concise.

Senator Raggio opened discussion of the Capital Improvement budgets.

Public Works Administration – Budget Page ADMIN-95 (Volume 1)

Budget Account 101-1560

Public Works Inspection – Budget Page ADMIN-100 (Volume 1)

Budget Account 401-1562

Eric Raecke, Manager, State Public Works Board, Department of Administration, read the mission statement of the State Public Works Board (SPWB) which provides assistance to all state agencies in planning and development of capital improvements as authorized by the Legislature. It ensures quality architecture and construction and meeting of all safety codes within a reasonable budget and timely schedule.

Mr. Raecke cited the statutory authority for his agency from chapters 338, 341, and 393 of the Nevada Revised Statutes (NRS). Those chapters provide for construction of public buildings upon state property, development of the Capital Improvement Program (CIP), provision of architectural services for all state agencies, review and approval of plans for construction of public schools, periodic inspections of state buildings, development of systems of accounting for the life-cycle costs for state buildings, cooperation with state agencies for local planning commissions in all planning efforts, and participation in interstate, regional and national planning projects. He added the SPWB acts as the building official for the State of Nevada.

According to Mr. Raecke, the SPWB has final authority to solicit and bid for projects, to approve all architecture, and to accept all completed buildings. He explained that chapter 393 of the NRS calls for plans review for all school districts. He said the agency budget account 101-1560 applies to the SPWB administration division and budget account 401-1562 applies to Public Works Inspection, which includes the construction management and inspection divisions. He explained construction management is charged back to the CIPs and normally runs approximately 3 percent of the construction cost compared to a national average of approximately 4.5 to 5 percent.

Mr. Raecke said staff for the administration budget includes 12 positions, 3 unclassified and 9 classified. Of the latter, he said, 6 are administrative and accounting and 3 are in facility auditing. He stated the SPWB construction management division has 49 positions: 13 project managers, 19 inspectors, 6 project coordinators and 11 administrative staff. The overall staff for both budgets includes 61 positions.

Senator Raggio asked how many total new positions are being requested. Mr. Raecke answered six new positions are being requested for budget account 401-1562.

Mr. Raecke indicated budget 101-1560 primarily includes maintenance with very little enhancement, with no new positions or additional out-of-state travel being requested. He said an increase of $1,919 in FY 2000-2001 in enhancement decision unit 125 (E-125) is being requested for in-state travel due to passage of a prequalification program for contractors which will require travel by the staff. Also, a request for $16,000 appears in the first year for replacement of computers, printers, and software and $9,500 in the second year for replacement of a fax machine and a laptop computer. Mr. Raecke explained the plan calls for the replacement of two computers each year which will provide for all computers within an 8-year cycle as well as older printers. He expressed the desire for the computer system to connect to a server due to the growth of the system.

Mr. Raecke noted no additional training is being requested. He indicated a single request for funding in E-125 to provide for board and commission pay to cover two additional meetings in order to formalize the CIPs for the year 2001. He attributed the balance of the funding requirements in budget 101-1560 to maintenance.

Senator Raggio asked whether the facility audit budget is included within budget 101-1560. Mr. Raecke replied the facility audit budget was funded in the 1997 budget. He acknowledged the division hoped to audit 300 buildings within a year in order to cover all 1,800 structures owned by the state within a 6-year cycle. He admitted the process was nearly a year late getting started because it took nearly a year to hire and train personnel. He stated the "toughest" buildings were tackled first, including mental health facilities in southern Nevada and the Southern Nevada Correctional Center.

Mr. Raecke reported 60 buildings were audited during the past year, and the agency proposes doing 100 during the next fiscal year and 150 in the following year as set out in the performance indicators. He admitted a goal of 300 may have been overstated but said it may be possible to do 50 picnic ramadas in one of the state parks in one day.

As an example of the process, Mr. Raecke reported needs were prioritized for the correctional center at Jean ranging from immediate projects, including regulatory issues to conform to the Americans with Disabilities Act (ADA), fire safety, exiting and immediate property protection, to those to be finished in 2 years. He said the board identified projects in Jean which should be done within the next 2 years costing $855,161, and projects in the 2- to 4-year range costing $2.5 million. He noted another $2.1 million may be required in the 4- to 6-year range, and another $2.6 million in the 6- to 10-year range. He predicted bringing the facility at Jean to a fully serviceable renovated condition will cost approximately $8.2 million.

Senator Raggio asked whether the renovation of the facility at Jean would be part of the lease obligation if the Governor’s proposal to lease the facility goes through, or whether the renovation would have to be finished prior to leasing the property. Mr. Raecke conjectured any agency desirous of placing inmates in a facility would want the facility to be certified ready by the American Correctional Association (ACA). He agreed it would be preferable to put the burden on the lessee, but he said that at $8.2 million, the lessee would probably want Nevada to bring the building to the ACA standards. He acknowledged he had not discussed the matter with the prison director.

Senator Raggio wanted specifics on the facility audit problems included in the budget that must be addressed immediately. Mr. Raecke responded 59 or 60 books have been prepared for every building describing each project in detail, and none of those are included in the present budget but are included in the FY 2001 CIPs.

Senator Raggio asked whether some of the problems need to be addressed within the next 2-year period. Mr. Raecke replied those are being addressed through the various agencies.

Mr. Arberry asked where the $855,000 for SNCC appears in the budget. Mr. Raecke answered the agency began formulating a budget nearly a year ago to include in the CIP package, and the reports were received within the past 3 to 4 months. He admitted he could not identify each project at the moment, but he offered to provide the information later on each of the projects included in the $855,000 in the current budget.

Mr. Arberry wanted to know why the state should spend $855,000 in Jean if the facility may be closed. Mr. Raecke responded his agency had determined to hold up some of the statewide projects for ADA pending further information before commencing, and he had just recently been informed of the proposal to close the facility. He informed the committee any projects for Jean are in a holding mode until more decisions are made regarding the facility.

Mr. Arberry recalled that in 1997, when the Legislature approved additional staff for the facility audit program, the SPWB indicated no more funding would be necessary for personnel. Mr. Raecke reiterated the board was not requesting any more people.

Mr. Raecke clarified one project for SNCC at Jean is included in the current CIPs to replace fire hydrants at a cost of $88,000.

In reply to a question from Senator Raggio, Mr. Raecke said six new positions are being requested in budget 401-1562 as outlined in module E-127, including a fire protection engineer, two plans examiners, two program assistants and one accountant technician. He explained the State Public Works Board paid nearly $14,000 in overtime last year to a mechanical engineer, yet programs are still far behind, so a fire protection engineer would fill a great need. He asserted sprinkler programs have been left undone from year to year.

Mr. Raecke said the two plans examiners will be assigned to in-house plan review and replace much of the work that is presently contracted out. He noted plan-review fees projected at $176,000 in the first year of the biennium would be saved by handling them in-house, and savings should be another $161,000 in fees projected for the second year. He pointed out those will be supported completely by the plan-review fees, and the fire protection engineer, accountant technician and two program assistants will be supported by a chargeback to CIPs as is the chargeback for the rest of the construction staff. He opined the chargeback to CIP fees can be maintained within the 3 percent range even though there may be a smaller total of CIPs.

According to Mr. Raecke, the major increase in the construction management and inspection budget within a 1-year period will approximate $640,000, of which $288,000 is attributable to salaries for six new positions, $280,000 is a base maintenance increase, and $70,000 is allocated among in-state travel, equipment upgrades, equipment and operating expenses for new positions, and training for existing staff.

Senator Raggio noted a total of 54 positions have been requested, including five new positions, whereas the Governor’s budget proposes six new positions. He recalled the Legislature authorized four new inspection positions for the interim for Prison 7 and he wanted to know the present status of those positions. He also inquired whether the new positions will remain or "go away" as phase 2 commences. Acknowledging the positions are funded through inspection fees, he asked why so many new positions are required when the Capital Improvement Program is smaller than that in the previous biennium, budgeted at perhaps $100 million less.

Mr. Raecke explained the four temporary positions approved by the Interim Finance Committee (IFC) authorized for Prison 7 were hired on a 2-year temporary basis, and the 2 years should cover both phase 1 and phase 2. Senator Raggio suggested the sole-source contract may require an additional year and asked how that will be handled. Mr. Raecke responded the 2-year period is predicated upon whether the Legislature sees fit to handle the project as a sole-source project and continue with the contractor on site. He surmised the second phase may not go to bid until January 2000 if it goes through a normal design bid award and thus will not be complete until January 2001.

Senator Raggio asked why there is a need for additional inspectors if there are fewer projects than during the previous biennium. Mr. Raecke answered there were projects totaling $316 million last year and the projection is for authorization of projects totaling $207 million. He reiterated $14,000 has been paid for overtime for work that can be done by a fire protection engineer. He asserted the position is greatly needed. He pointed out a continuation of the sprinkler-head problem could have been completed had there been a person to handle the problem. As far as plans examiners, he said the agency contracts with private architectural and engineering firms to perform plan and peer reviews which he would prefer to have done in-house. He opined in-house reviews would provide better consistency and be less expensive.

Mr. Raecke stated one program assistant will handle turnover for the plan reviewers for the great number of school plans coming in for review. He said the other program assistant will be assigned to help in the qualification of contractors. He explained contractors will have to be qualified every year in order to bid on public works projects. There are 500 to 600 contractors in the state who bid on public works projects and who must prequalify each year according to the statutes.

Senator Neal inquired why a position is needed to address fire sprinklers. He maintained that should be part of the specifications for a new building, and any changes of defective sprinklers should be the responsibility of the company. Mr. Raecke replied most new buildings are drawn by architectural engineers with performance specifications, and the fire marshal ensures compliance with all codes. He asserted the inspections have improved greatly since the marshal took over, but there are fire sprinkler projects in prisons and public buildings, and by statute any building 5,000 square feet or larger must be sprinklered. He said sprinkler projects must be rolled over from year to year, requiring the fire protection engineer.

Senator Neal suggested fire protection is normally part of the specifications and it is likely the contractor will hire companies that specialize in sprinkler systems. Mr. Raecke responded it is important to have a project manager who is familiar with installation of sprinkler systems. He added there will be a new building code in the year 2000 called the International Building Code, over which there is some concern. He explained, "They’re trying to take all of the building codes, whether it be mechanical or electrical, fire, plumbing, throw them all into one code." He anticipates it will take 2 years to figure out the international code, necessitating another project manager.

Mr. Price inquired whether the code is nationwide. Mr. Raecke responded that is correct. Mr. Price pointed out building codes generally fall under local or state law. He asserted, "The United States government has no business telling us what a building code should be." He suggested the new code may precipitate constitutional states-rights issues. He asked who "they" are. Mr. Raecke replied there is an International Codes Committee, a collaboration of International Congress of Building Officials, Southern Building Officials and seven or eight bodies that put codes together. He noted codes change from region to region, so the committee has been working on the problem for approximately 2.5 years in an attempt to put together a code that will work from border to border across the United States. He explained the new code should do away with confusion as to which code takes precedence in any one place.

Mr. Price commented that during his days working as a construction electrician he gained familiarity with the uniform code and found it not uncommon to adopt the uniform code, but he expressed concern that a federal code could be required on a state basis. Mr. Raecke clarified it is a committee attempting to formulate a code.

Mr. Arberry noted four positions were approved by IFC for construction administrative services at Cold Creek State Prison. He voiced the understanding the four positions will be eliminated when the project is complete and noted the four positions were not included in the budget. Mr. Raecke responded the positions are temporary and the people were hired under a contract not to exceed 2 years.

Mr. Arberry wondered whether the requested six positions could be temporary too, and once the projects are complete those positions would be eliminated. Mr. Raecke replied there will be an ongoing need for the six positions as the building program goes on, and plan reviews will be funded out of CIP projects. He declared he had never viewed the requested positions as temporary.

Mr. Raecke explained there is a greater move for the board to operate as a building department rather than as a public works board that performs particular projects. He said that some day he will ask the committee to request every state agency to submit every plan for remodeling to the SPWB in order to keep track of the condition of public buildings. He pointed out the SPWB often goes into buildings that do not conform to the plans because they have been remodeled several times without any contact with the board. He explained tracking could be done and control over buildings kept if work performed on state buildings were subject to review or permit with the SPWB in the manner of a building department function.

Mr. Arberry requested that Mr. Raecke return to the committee with an alternate plan if the six positions are denied.

Senator Raggio complimented Mr. Raecke on the improvement of performance indicators for both budgets.

Mr. Arberry commented the performance indicators show 100 percent completion of projects within the projected time, including Cold Creek State Prison. He asked how the project could be considered complete when it will continue into the year 2000. Mr. Raecke said the percent of the 1997 CIP design agreement for Cold Creek is complete, although the actual completion is just 10 percent. He clarified he did not mean to indicate the project is complete, only that the 1997 CIP design agreement projects have been completed accordingly.

Mr. Arberry pointed out the performance indicators are not clear. Mr. Raecke rejoined members of his division meet monthly with contractors, architects, partners and engineers to review whether all portions of the contract are being completed satisfactorily and whether the project information is being received in a timely manner. He explained a form is used to obtain feedback from contractors and the others to determine how well the agency is working with them, and the response has been satisfactory.

Mr. Arberry suggested an adjustment should be made to the performance indicators. He noted that 2 years ago Cold Creek State Prison was scheduled for completion by October 1999, but the schedule indicates it will not be complete until 9 or 10 months later. Senator Raggio agreed with Mr. Arberry regarding the confusion over timelines and the performance indicators. Mr. Raecke offered to provide clarification.

Senator O’Connell asked whether the new employees will be assigned to reviewing school plans. She recalled a time when Clark County had 45 sets of plans. She also wanted to know whether there will be any duplication of effort in the larger counties. She noted Washoe and Clark Counties probably have the sophistication necessary to review the plans, thus precluding the necessity for the state to review the plans.

Mr. Raecke replied the board has been very careful not to duplicate the plan review performed by the counties. He said the board is required by statute to review and approve all school plans, a job that has been simplified with the use of prototypes. He added the state fire marshal also reviews every new plan. He asserted there is no duplication with county agencies, since the counties do not review school plans. They rely on the school district and the State Public Works Board to review plans.

Senator O’Connell asked how far the board is behind on review of Clark County schools. Mr. Raecke estimated there are only one or two schools left for review. He said the board turns over reviews in under 30 days, and the fire marshal now turns over reviews within 60 days, although admittedly they were behind by 8 to 10 months at one time. Mr. Raecke attributed the turnaround in the State Fire Marshal Division to the efforts of Marvin Carr, the state fire marshal.

Mr. Raecke pointed out Washoe County received $178 million in bonding during the last election for new schools, but he asserted the board will be able to handle the reviews in a timely manner. He explained the board engages the services of outside plan reviewers when the workload builds up in order to turn them around within 30 days.

Senator Raggio turned to the 1999 Capital Improvement Program. Mr. Raecke declared the board started putting together proposals for capital improvements one year ago, working with the various agencies. He reported all agencies made presentations of all possible projects to the SPWB in August which amounted to a total of $645 million. He said that after a hard review the board reduced the number of projects to a total of $184 million, and after warning by Mr. Comeaux that $150 million would be the limit the board cut the number in September again to $148 million. He said the Governor altered the recommendations so that the CIP now stands at $155,592,000.

Mr. Raecke noted the fiscal notes required by statute passed last session are being prepared and will be submitted to the Legislature soon. He reported 59 projects have been submitted for reversion from previous years. In November, he said, there were reversions amounting to $1,291,000 that were submitted to the General Fund, and in December another $1.8 million was reverted in addition to $9,526,942 for the Nevada Mental Health Institute (NMHI) hospital with the understanding the project will be returned to the CIP list.

According to Mr. Raecke, all 1991 and 1993 programs have been closed or will be by the end of the year, and there are just five 1995 projects remaining for which extensions will be requested. He noted there were 116 projects in 1995. In 1997 there were well over 100 projects and there are only 81 still active. He recalled there were 245 projects on his list the first time he appeared before the IFC, and that list has been pared to 86 current projects. With approval, another 71 projects will be added in 1999. Mr. Raecke said Mr. Comeaux would present an overview of bonding capacity later in the day.

Senator Raggio requested a list of the projects still under way. Mr. Raecke offered to make the list available. He said the five projects from 1993 include construction at Lake’s Crossing Center for the Mentally Disordered Offender, which will need an extension to complete. Others include the electrical upgrade at the Department of Prisons, windows at the Northern Nevada Correctional Center, a sewage grinder building at Ely State Prison, and kitchens at some of the armories, which are being handled by the Nevada National Guard.

Mr. Raecke commenced reviewing the proposed projects. He said Project 99-C1, the second phase of the construction (tab C of the CIP book) of Cold Creek State Prison, which includes four housing units, two additional towers, the warehouse and the gymnasium, totals $50,711,900, but $7,200,000 from the federal violent offenders program will offset some of the costs. He pointed out that will leave $43,511,900 to be funded by the state general obligation bonds.

Senator Raggio asked whether all the items on the list will be financed through bonding except for those under collateral funding. Mr. Raecke confirmed all the projects will be funded through bonding with no financing through the General Fund. He described the process as a "onetime, catch your breath and get ourselves going" opportunity in order to rebuild a cash balance. Senator Raggio pointed out that also applies to maintenance projects.

Regarding Cold Creek State Prison, Mr. Raecke said the target date for completion of the current phase 1 contract with Sletten Construction is May 8, 2000. He indicated if the 1999 phase 2 project were to go to sole source it could be completed as early as August 2000, but if it goes to a full design bidding process it could run as late as January 2001.

Senator Raggio inquired why the project should be delayed an entire year if it goes to bid rather than going to a sole-source process as recommended, which precludes bids from competing contractors. He also wanted to know what assurance could be given that the project would not be much more costly under a sole source.

Mr. Raecke responded going to bid would probably delay the project by about 6 months, and either way the project is allowed 12 months for construction. He noted a single-source contract allows for a larger overlap, and it is difficult to use two contractors on the same site with two different projects. He admitted in this case the two projects could be fenced separately. He pointed out there are known prices right now, and if the contracts go to bid and all contractors are asked to guarantee their unit prices into the future, they will be good until July 1999.

Senator Raggio asked how much the total cost will be for phase 1. Mr. Raecke answered the contract was awarded for just over $83 million. Senator Raggio asked whether the extra $30 million for an additional 1,000 beds should be less because all the core facilities are included in phase 1. Mr. Raecke replied that is correct, and the core is being built to handle up to 3,000 beds. He noted no gymnasium is included in phase 1.

Mr. Arberry asked how the project will be impacted by inflation. Mr. Raecke responded there are known prices right now, but if the project goes to bid 6 months from now the cost probably will be higher due to a normal construction inflation factor of 4 to 5 percent per year. He said the contractor bid unit prices on every facility 2.5 months ago, guaranteeing a known figure which will beat inflation. He explained the bid package is for a sole-source contract, but if the package goes to a design bid and award he will have to add for inflation. He opined the project will be less expensive under sole source.

Mr. Arberry wanted to know what will happen if the second phase is not approved and whether the first phase will be totally operational. Mr. Raecke said it will be.

Senator Coffin surmised the project is being accelerated because the SNCC at Jean is going to be closed. Mr. Raecke responded he was unaware of any accelaration plans other than the proposal given to IFC to sole-source phase 2. Senator Coffin wondered whether there is any connection between the closure of SNCC and the proposal for the Cold Creek State Prison. Mr. Raecke responded SNCC probably could be closed if phase 2 of Prison 7 at Cold Creek could be accelerated through sole sourcing, but he was unsure of the prison director’s plans. He suggested 2,000 beds could come online by August 2000 through sole sourcing.

Senator Coffin asked whether Mr. Raecke was consulted on a plan to close the Jean facility. Mr. Raecke said he was not, but through observation of statistics he notes there is a gain of about 600 new prisoners every year which will leave the system short by nearly 1,000 beds at the time Cold Creek State Prison opens. He estimated there might be an overage of beds for 9 to 12 months, although he admitted he has not discussed the matter with the prison director.

Senator Coffin declared he wanted to ensure the agencies are working together on the matter "because sometimes things do come up at the last minute that a governor will include as a project, and this may be meritorious, but it’s also going to be one of the most controversial aspects of [Governor Guinn’s] first administration." He asserted the two prisons are different types and hold different types of prisoners.

Mr. Raecke said the prison director was present when the SPWB proposal for Prison 7 at Cold Creek was brought before the IFC, and if the project goes forward under a sole source there will be extra beds at the conclusion of the second phase. He stated the SPWB had hoped that a small excess of beds there would allow the prison system to empty some portions of facilities where work is needed and has been delayed.

Mr. Arberry wondered whether phase 1 will be totally operational if phase 2 is not approved under the proposal. He based his query on his understanding phase 1 may not include a water tank or fencing. Mr. Raecke replied there is a water tank funded through phase 2 to get ready for the third phase, but there is one water tank that will go under construction in phase 1 that will handle operation through the first two phases.

Mr. Raecke said the fence is included in the budget as a line item at $1.7 million once a decision is made whether the facility will be considered lethal or not. He said the towers on the building are extremely expensive, costing $500,000 each, and the board is considering a different way to construct them and whether there is a way to build two towers to replace each one. He added the board held back $1.5 million for a warehouse although there is a warehouse, as well as a motor pool, at Southern Desert Correctional Center at Indian Springs which could be utilized even though truck deliveries would be more frequent.

Senator Raggio turned to project 99-C2, which calls for additional housing wings at the Silver Springs Conservation Camp. Mr. Raecke explained that when the original two wings were constructed, a pad for a third wing was constructed. He noted the third wing will have to be redesigned to be brought up to code and it will have to go to bid. He opined that if the project is funded by May 31, it can be under way by October and complete in 8 months. He indicated the same plan has been used several times throughout the state.

Mr. Dini wanted to know whether it will be possible for the project to hook into the new sewer system in Silver Springs. Mr. Raecke responded that when the project for the conservation camp was initially proposed it was determined the existing septic tank is adequate for all three wings. He said only one leach field was installed although extra land was reserved for additional leach fields, and the project is predicated on extending the leach field.

Mr. Dini suggested that Mr. Raecke investigate hooking into the sewer plant because there may be future problems due to the growth in the area. Mr. Raecke agreed to do so.

Senator Jacobsen recalled there had been problems finding an adequate water supply for the community well system in the Silver Springs area. He wanted to know whether any problems in finding sufficient water are anticipated. Mr. Raecke replied no problems have been experienced in the recent past and the Department of Prisons is comfortable with the existing well, but he offered to check into the matter.

Senator Raggio turned to project 99-C3 regarding the Nevada National Guard State Command Complex. Mr. Raecke reported the SPWB received authorization from the IFC in June to accept $440,000 in federal funds to prepare a design to go to bid as soon as the project is authorized. He said it will take 14 to 16 months to complete the project after it is authorized, putting the completion date at somewhere between July and September 2000. He noted the financing will utilize $3,491,000 from state funds and $7,339,000 from federal funds as a match.

Mr. Raecke said there is some question as to what will be done with the old armory facilities on Carson Street, which are valuable buildings. He pointed out the state rents 400,000 square feet of office space in Carson City from the private sector, and the armory could be used as an offset whether it is sold or used for offices. He stated the proposal is consistent with a plan previously approved for the transfer of the facility.

Senator Neal asked what standard is used to determine the cost of professional services. Mr. Raecke replied that in Nevada professional services run at about 8 percent of construction costs, as compared to 6 percent in Montana. A 12 percent fee is often paid to architects or engineers for some small remodeling projects in Nevada, but the fee for Prison 7 at Cold Creek was negotiated at 4.625 percent. Mr. Raecke pointed out larger projects command lower fees. He said the fee for the National Guard complex is approximately 8.5 percent.

Mr. Neal asked whether the costs for professional service are put out to bid. According to Mr. Raecke they are not, and the statutes forbid competitive bids for engineering or architectural services, specifying that they must be selected on the basis of ability and qualifications after which the fee must be negotiated.

Senator Raggio interjected the matter has been discussed often in the past and it relates to the professional code of architects and engineers, which makes it a violation of professional ethics to engage in bidding for fees. The senator called it a matter of frustration. Mr. Raecke added a bill was introduced in the 1995 legislative session to change the situation, but the architects and engineers lobbied very successfully and the measure never got out of subcommittee.

Senator Raggio selected remodeling of the old Carson City courthouse, project 99-C4, for discussion. Mr. Raecke reminded the committee members funding was approved in the 1995 session to purchase the property from Carson City, and Carson City plans to vacate in March. At that time the payment will be made and a minimal remodeling will be done at a cost of $1.8 million. Mr. Raecke described the project as primarily to provide expansion space for the Office of the Attorney General to centralize the staff. He said the portion of the building to be remodeled was constructed in the 1920s.

Pointing out the building has been standing all those years, Senator Raggio asked why seismic strengthening is necessary. Mr. Raecke answered the seismic codes change periodically, and the International Building Code has a seismic code very different from any others. Senator Raggio reiterated the old buildings have very thick walls which have withstood many earthquakes over time. Mr. Raecke responded he feels he has an obligation to bring the building up to a minimum life- safety code. He described damage he viewed after earthquakes in California that illustrated the strength of earthquakes. He stated the plan is to install a solid concrete reinforcing wall inside the building to absorb lateral shear.

Senator Raggio addressed project 99-C5, an addition to the Branch Building. Mr. Raecke said the Las Vegas office of the agriculture division of the Department of Business and Industry is presently located in a very small building and the division wants a 1,200-square-foot addition to house the weights and measures inspectors. The space thus vacated would be turned over to additional agricultural inspectors. Mr. Raecke noted the division has grown, and the weights and measures office anticipates a 50 percent increase in the number of store scale and gas pump devices to be monitored in the next 10 years. The project is estimated at $297,470.

Senator Raggio asked whether asbestos removal is part of that project or another project. Mr. Raecke responded all asbestos removal is listed as one statewide project, which should afford consistency and save the state from many lawsuits.

Project 99-C6: Forestry Shop & Warehouse Expansion

Turning to project 99-C6 for warehouse shop expansion in conservation camps in Tonopah, White Pine, and Indian Springs, Mr. Raecke said the project was cut back. He said the intention is to purchase materials only and then use inmate crews from the Division of Forestry for assembling the building. Senator Raggio asked why the project calls for $60,000 in architectural and engineering (A/E) supervision. Mr. Raecke responded it is necessary to include some A/E supervision including site surveys, soil analysis and mechanical, electrical and life-safety plan checks.

Mr. Raecke said the plan for a new 20-bed crisis center at the Southern Nevada Adult Mental Health Services (SNAMHS) was part of the original recommendation to the Governor at $3.8 million, but the Governor asked that the project be placed into full advance planning when he made budget cuts. Mr. Raecke pointed out the project for psychiatric emergency services is proposed as an addition to the existing hospital. He explained the additional 20 beds will be used only for short stays pending evaluation of the patients.

Mr. Raecke explained the actual construction cost is estimated at $2.5 million. He said that with the addition of contingencies, furnishings, equipment, and telecommunications wiring the project grows to over $3 million. He recollected the furnishings alone cost between $400,000 and $500,000.

Senator Coffin insisted the need for a new building was known last session. He wanted to know what will be built in place of the SNAMHS wing. Mr. Raecke responded the project was coordinated very closely with the Department of Human Resources, the Mental Health and Mental Retardation Division, the Budget Division, and the Governor’s Office, which made the decision to pare the funding. He explained the NMHI hospital had been funded last year and needed to be funded during the current year and a decision was made to fund. To keep the cost down to a number for a debt limit and repayment ability, the figure was set at around $156 million. Mr. Raecke acknowledged some projects suffered.

Senator Coffin interjected the project in northern Nevada also was deferred. Mr. Raecke explained it is included in the budget, too, but it will be delayed. He explained the intention was to put the northern Nevada NMHI hospital project to bid in February, but if it is funded by the end of May it should go to bid in July, a 5-month delay.

Senator Raggio turned to project 99-C8, which would provide data and telecommunications cabling. Mr. Raecke reminded the committee funds were approved to install underground conduit to interconnect all the buildings in the Capitol Complex and as far as the Nevada Department of Transportation building. He said the request for $2.4 million is to fund the wiring to make the connections between the buildings. He pointed out that actual construction costs amount to $1.7 million, but by the time the project goes to bid, and including other contingencies, it may rise to $2 million. He described another project to rewire transmission lines for greater speed across the bandwidth.

Mr. Arberry asked whether Carson City will share in any of the costs. Mr. Raecke replied Carson City has paid for any connection points it uses and has offered to pay for any others. He said Carson City paid the contractor directly when conduit was run to city facilities, and he made the assumption the city will continue to pay for wiring extensions.

The next project for review was 99-C9 for improvements at the Northern Nevada Veterans Memorial Cemetery in Fernley. Mr. Raecke pointed out a pavilion with openings on all sides was constructed, but as more events and burials took place in the pavilion, a need for shelter from wind and harsh weather became evident. He said that 2 years ago two sides were glassed in using federal funds, but during a hard-driving rain it is apparent better shelter is required. The funding will provide for enclosing all sides, and it will provide for an ADA restroom and another section of burial sites. He noted the federal government will provide funds to match the state’s $373,031 for a total of $746,000.

Senator Jacobsen voiced agreement with the necessity for the construction. He reported that many gifts and donations have provided improvements for the cemetery, but there is no place to hold an indoor service, nor is there a restroom for use on weekends.

Senator Raggio turned to project 99-C10 to provide remodeling for the state museum in Carson City. Mr. Raecke recalled that during the last session funds were made available to buy the First Interstate Bank (FIB) building. Since that time designs have been drawn with the assistance of the Department of Museums, Library and Arts. A contract was recently let for demolition of the street between the existing museum and the FIB building in order to tie the two together. Mr. Raecke indicated an additional $286,000 is needed.

Senator Raggio asked how much more the FIB building will cost than the initial estimate. He recalled that some of the funding approved for improvements had gone into the purchase because it cost more than the original estimate. Mr. Raecke confirmed the statement, saying in 1997 the total cost for purchase and remodeling was figured at $1,870,394. He explained that when the Division of State Lands negotiated the price, the purchase came in at $1.6 million for not only the building, but also the adjacent lot behind the building and some additional buildings. He reported the purchase was made according to existing law at that time. He noted funds remain from that time which will be added to the request in order to complete the remodeling and connect it to the old museum.

Senator Raggio remembered the street was to be abandoned and turned into a plaza with a connection to the old building. Mr. Raecke responded that is being processed now. He offered to furnish the information regarding the final cost as compared to the information provided to the committee during the last session.

The next project addressed by Senator Raggio, 99-C11, requested funding for the furnishings for the University of Nevada, Las Vegas (UNLV) Lied Library. Mr. Raecke stated that in 1997 funding was provided to build a 301,000-square-foot structure for the library using approximately $25 million in state funds and $15 million from donations.

Mr. Raecke reported the completion date is scheduled for November. He recalled that during the original presentation furnishings and completion were estimated at $7,234,000, but the request today is $7,564,000. He explained $2 million was reallocated from the 97-C15 project because the original construction was under budget, and those surplus funds will be added to the request.

Mr. Raecke reported the computers and networking request is based upon a 30 percent reuse of existing equipment in the Lied Library and 70 percent new purchases. Saying he understood the original cost estimate included the items, Senator Raggio asked whether detail of the equipment and furnishings has been supplied to staff. Mr. Raecke said he would provide the information. He noted the original cost included a line item for furnishings and equipment which was later removed.

Mr. Hettrick drew attention to the associated professional service costs and asked whether it is necessary to pay $136,000 for project management on 220,000 square feet of pavement construction, which he called high. Mr. Raecke agreed to review the matter.

Senator Raggio focused on project 99-C12 to convert the existing James Dickenson Library into the William S. Boyd School of Law at a cost of $15,606,424. Mr. Raecke said the project will go forward after the Lied Library opens in January 2000. He explained it may take 6 months to purchase the furnishings for the Lied Library, since many are custom-made, and this is why the Dickenson Library conversion cannot be started until that time.

Mr. Raecke pointed out there are nearly 180,000 square feet of space in the two buildings of the Dickenson Library. With work to be done on approximately 170,000 square feet for $11 million, he calculated the cost at $65 a square foot to rehabilitate the building from a library to a law school and law library. He asserted $65,000 for purchase of the building is a good buy for the state, because it would cost $150 a square foot to build a library in today’s market. He pointed out the round building and 2.5 floors of the rectangular building will be remodeled for the law school and the remainder will be converted to administrative offices financed by UNLV.

Senator Raggio raised the question whether the funding will cover everything so the law school will be ready for full utilization upon completion, or whether other things will be needed. Without making a firm promise, Mr. Raecke indicated he believed the funding should include all furnishings and equipment and no other funds will be requested.

Senator Raggio noted that $1.9 million for furnishings, fixtures and equipment is deferred until the 2001 legislative session according to the notation on page 68 of The Executive Budget. He asked whether anyone could elaborate. Mr. Raecke responded the school received a grant of $8 million for furnishings, equipment, staffing, and books. He offered to check on the information and provide clarification, including any limitations on the $8 million donation. Senator Raggio remarked the Legislature is under the impression it will not be asked to fund the law library.

Mrs. Cegavske inquired whether it is more cost-effective and less dangerous to leave the asbestos rather than to remove it, and whether the building is scheduled to be torn down later. Mr. Raecke answered it is true that in many cases with minimal remodeling it is cheaper to manage the asbestos in place, but the building under discussion will have extensive remodeling. He said the only asbestos is in the ceiling of the dome of the round portion and the first two floors. He pointed out $600,000 of the funding for asbestos removal will come from the UNLV maintenance fund, which should cover the entire project. He noted that every time workers enter space between floors where asbestos is encountered they must be suited properly, so the asbestos will be removed while the ceilings are out.

Mrs. Cegavske asked whether federal funds will also be utilized. Mr. Raecke reiterated the funding will be derived from the UNLV maintenance fund because the federal sinking fund no longer provides much funding. At Mrs. Cegavske’s request, Mr. Raecke agreed to pursue the matter.

Senator Raggio turned to 99-C13 regarding phase 1 of the Redfield campus. Mr. Raecke reported the building is the culmination of last year’s advance planning for a 75,000-square-foot classroom and office building. He said the request for $5,172,957 from the state will be added to $7,440,000 from the university for a total of $12,612,957. He described the campus as 60 acres with seven or eight buildings to be built and to be used cooperatively by the University of Nevada, Reno (UNR), Truckee Meadows Community College (TMCC), and Western Nevada Community College (WNCC).

Senator Raggio remembered the grant provides that construction must be under way by December 2000. He asked whether the project will meet that condition. Mr. Raecke replied the Board of Regents agreed on the codicil in the grant and the plans are ready to go to bid as soon as funding is available.

Commenting that it seems to be a large expenditure for what he called aesthetics, Senator Coffin asked what information Mr. Raecke has received regarding the kinds of colleges moving into the Redfield campus. He suggested the funding should go for classroom space instead of amenities such as a ceremonial entrance. Mr. Raecke agreed there is a basic need for classroom space in the three colleges, yet the colleges have agreed to provide over $7 million and it was their desire to spend part of it on the entrance. He explained the ceremonial entrance is actually a turn-around from the main street and is the main entrance. He noted it will not include a huge arch or any such structure, and the word "ceremonial" may be misleading.

Senator Coffin inquired how much of the request will be devoted to classroom space rather than being spent on amenities or wasted space. He pointed out UNLV has a request for a "bare-bones structure" in an 80,000-square-foot building that will provide all classroom space, which he asserted is "in sharp contrast with this kind of thing." He also asked whether each college will offer courses on the campus. Senator Raggio suggested the answer may be provided on Thursday (January 21) when the university budget is discussed.

Mr. Raecke agreed to provide Senator Coffin with answers to his questions. Mr. Raecke pointed out the main entrance and roads are already in place at UNLV, whereas the funding for the Redfield campus includes the initial roads and water, gas, and sewer lines. He drew attention to the construction breakdown which includes 75,000 square feet for the classroom office building at a cost of $111 per square foot, a total cost of $8.3 million. The price also includes onsite civil work, a parking lot, and a turnaround, at just under $1 million, making one-eighth allocated for the initial infrastructure necessary to run the campus.

Senator Coffin declared he wanted to know whether the college is being constructed due to "cramped quarters" or whether it is a new university.

The next item addressed by Senator Raggio was 99-C14 for construction of a new 71,628-square-foot science building at the West Charleston campus of the Community College of Southern Nevada (CCSN).

Mr. Raecke told the committee all the projects related to the university or community colleges are the result of a prioritized list from the regents. He said the science building at CCSN was sixth on the regents’ list of capital improvements. He said the building will cost $17,241 from state funds and CCSN intends to solicit another $10,000 in donations to complete the project in one phase, and except for design, the project will not be put to bid until the donations are in the bank.

Senator Raggio asked whether the requested funds cover furnishings, fixtures and equipment, estimated at $3 million. Mr. Raecke responded the regents do not believe the $2,850,000 will be needed for 2.5 to 3.5 years, until the structure is completed. He said he would ask them to explain when they bring their budget before the committee.

Senator Raggio questioned the need for $10 million for a planetarium complex. Mr. Raecke replied that is the portion to be funded by the regents.

In response to a query by Mr. Goldwater, Mr. Raecke explained there were 11 projects on the priority list submitted by the Board of Regents at $186 million. The State Public Works Board considered the first seven.

The next item, a high tech center for Great Basin College on the Elko High School campus, number 99-C15, was considered. Mr. Raecke indicated the building will be a prototype building with some slight modifications. He explained the outside structure will not be changed, but the building will be adapted for special uses. He said other prototype buildings were constructed at Summerland, opened in August 1998, a high tech center at Western High School opening today, and one at Carson High School, set to open in May. He asserted the tech centers provide an excellent transition for high school students going into college.

Mr. Raecke pointed out the high school and Great Basin College are adjacent, so the center in Elko will be right on the line between the two. He said state funding in the amount of $5,225,000 is being requested, and the high school will add another $500,000.

Senator Raggio asked whether the $500,000 will include all necessary furniture and computers. Mr. Raecke responded the high school in Clark County provided that funding and Carson City is putting in $500,000.

Senator Raggio turned to item 99-C16 for a student development center at Truckee Meadows Community College. Mr. Raecke reported the project will be completed in two phases, with the first being a 55,000-square-foot addition to the Red Mountain Building, and in a later year phase 2 will provide for renovation of 45,000 square feet of that building. The request is for $5 million from state funds, and the school has an active application in to the Reynolds Foundation for $3 million in matching funds to complete the $8 million project, he said.

Senator Raggio addressed the request in project 99-C17 for the library and student center at Western Nevada Community College. According to Mr. Raecke, the funds will provide not only for the 34,000-square-foot library and student center, but also for a second exit from the campus. The total project cost is $6,659,000, scheduled for completion approximately 22 months from the time of funding.

Senator Raggio noted $520,000 will be necessary for furniture and equipment in the next biennium. Mr. Raecke pointed out that $484,000 will be allocated initially to furnishings and equipment. Senator Raggio requested the committee be provided with a breakdown for this budget and others when any funding for furnishings and equipment is deferred.

Mrs. Chowning requested a copy of the full list of priorities established by the regents. Mr. Raecke agreed to forward a list to all committee members.

Senator Raggio drew attention to project 99-C18, which provides for construction of an office complex in Elko. Mr. Raecke explained projects 99-C18 through 99-C21 were late additions to the list of requests. The 4,000-square-foot Elko office building, 1,600-square-foot shop, and 3,000-square-foot storage building will be funded by $1,000,000 from the Division of Wildlife and the Division of State Parks and a requested $1,659,000 from the General Fund or general obligation bonds.

Mr. Raecke said the building will be constructed on a portion of the Nevada Youth Training Center campus.

Senator Raggio turned to project 99-C19 which will provide for expanding the dispatch center at the Minden airport. Mr. Raecke explained the center was completed 6 years ago, and he asserted the increasing number of calls justifies expansion. He noted the expansion is only 366 square feet with some remodeling of existing space, and the total cost will be $141,790.

Mr. Hettrick called attention to the description of this project which includes an additional "man door" out of the dispatch lounge to allow employees access to the outdoors for smoking. He challenged spending $2,500 for employees to walk out the door to smoke. Mr. Raecke agreed to review the matter.

Senator Raggio turned to project 99-C20 for cooperative parking in Carson City. Mr. Raecke explained Carson City conducted a parking survey in the downtown area which concluded there is a need for spaces to support state workers’ needs. He stated the Nugget Casino is willing to rearrange valet parking in order to give up some of its parking space to allow unlimited city and state use of the area. He added the city has offered to close a couple of streets and to provide $200,000 towards the project. He said the state will carry approximately 66 percent of the funding and Carson City will cover the remaining 34 percent along with closure of two streets, and the land provided by the Nugget Casino.

Senator Raggio inquired what assurance has been given under the arrangement that adequate parking will be available for state use and will not be used by the other members of the partnership. Mr. Raecke responded that once funding is approved he would ensure an ironclad, long-term agreement is in place prior to going forward. Senator Raggio stated judgment should be reserved until Mr. Raecke can return with the information.

Senator Raggio stated project 99-C21 refers to the deferred hospital construction at the Nevada Mental Health Institute, discussed earlier. He asked whether there has been any change in the project itself. Mr. Raecke responded there has been no change, but the project was included in order to show all the building costs and to revert the funds allocated for it. He pointed out it includes no architectural and engineering or other professional services costs, which remained in the original project, and only the construction costs appear. He said he took the precaution of including a small inflation factor in the figures in the event the project is late going to bid or being funded. He noted the project was ready to go to bid in February. He felt the bid would have come in at $9,500,000 and suggested the project may cost more 6 months from now.

Senator Raggio asked whether the new proposal deletes anything from the original project as authorized. Mr. Raecke confirmed it does. Senator Raggio wanted to know whether there is any reason the project cannot go forward once the bonds are sold. Mr. Raecke said there is no reason it cannot go forward, even if the sale is not complete until 6 months later, because the board has the ability to borrow funds from the General Fund for the interim.

Insisting development of mental health facilities should be moved along, Senator Raggio asked whether that would be true in the case of the mental health facility in Las Vegas discussed earlier. Mr. Raecke responded the people involved with SNAMHS agreed they are willing to put off the actual construction for 2 years but they would like the planning completed.

Due to time constraints, Senator Raggio asked Mr. Raecke to focus on the main projects to be financed through the Highway Fund. Mr. Raecke responded the primary Highway Fund project, project 99-H1, will provide for construction of a new Nevada Highway Patrol facility. He asserted it is greatly needed as the Department of Motor Vehicles and Public Safety and the Nevada Highway Patrol share eight different locations in Las Vegas, some in very poor condition.

According to Mr. Raecke, funding in project 99-H1 will provide a 60,000-square-foot building, and the funding includes $2 million for site acquisition. He reported there is property under consideration behind the Bradley Building on West Sahara Avenue, already owned by the state, which should be adequate. If so it would reduce the project cost by $2 million.

Senator Raggio asked whether there were any questions regarding the maintenance items. He noted maintenance projects amounting to approximately $8.7 million will be bonded for the first time.

Mr. Raecke said project 99-M1 provides for second exits in dormitory units at the Caliente Youth Center as part of a promise to the state fire marshal. He explained the exits are regulatory and they are supposed to be funded this year.

As far as statewide projects, Mr. Raecke indicated the original authorization in 1993 provided $4 million for roofing, and the state has expended just over $3.5 million so far. He said there are remaining obligations amounting to $30,000. He reported $219,000 of the funds were reallocated following the 1997 legislative session, and the 1993 program will be completely closed by March 1, 1999. He recalled the original authorization for the 1995 roofing program was $3,974,000. Of that amount, $3,700,000 has been expended and the remaining obligation amounts to $10,000.

Mr. Raecke pointed out $277,000 was moved during the 1997 session, and the intention is to revert the remaining $264,000 to close the 1995 program. He added the original obligation for the 1997 program was $2,511,655, but projects under way cost just $1,407,000. He said the program included 23 roofs of which 10 ten are complete, 7 are in progress, and 6 are in design and ready to bid. He indicated it will be easy to close the projects within a 4-year period.

According to Mr. Raecke, roofing is the highest priority on the 1999 statewide projects list at a cost of nearly $4 million. He explained the request only asks $2.5 million for the highest-priority roofing project to bring these projects current within a 2-year period.

Senator Raggio noted much of the funding earmarked for the Americans with Disabilities Act will be allocated to state parks projects, but the largest sums are earmarked for the Southern Nevada Adult Mental Health Services building in Las Vegas and the Campos Building in Las Vegas. Mr. Raecke reiterated those projects and the entire package will be funded through bonding.

Mr. Marvel asked when the 1998 program will be complete. Mr. Raecke answered that 2 years ago there was an $8 million need, but in 1997 only $500,000 was funded to allow the agency to catch up on 1993 and 1995 programs. He suggested if $2 million is funded now there will be another $6 million required to bring the state into full compliance, although right now the state is considered to be in full compliance with access available to all buildings. He said what is missing is a second access, as well as a second restroom in some buildings.

Indicating the SPWB projects will be discussed again later. Senator Raggio moved ahead to university projects. Mr. Raecke explained the $10 million designated is the fulfillment of a promise by the Legislature to allocate $5 million a year from funding obtained through annual slot tax collections.

Mr. Raecke drew attention to the alternate projects totaling $184 million, explaining they were the prioritized projects presented to the board. He suggested they should be considered if additional funding becomes available.

Before inviting testimony on budgets for the Department of Administration, Senator Raggio asked Mr. Comeaux to explain the bonding rate required by the state for the present and proposed general obligation bonds as set forth on page 86 of The Executive Budget. Senator Raggio recalled that when methods of taxing were reformed some years back, the state discontinued taking parts of the ad valorem or real property taxes, and the only portion of real property taxes utilized by the state are those necessary for redemption of general obligation bonds. He noted the rate has hovered around 14 or 15 cents.

John P. Comeaux, Director, Department of Administration, returned to the table and explained the administration proposed that the entire $155,592,000 Capital Improvement Program be funded by issuing general obligation bonds. He said the Office of the State Treasurer is preparing a packet for committee members. He indicated the Department of Taxation estimates growth of assessed value at a rate of 9.06 percent per year for both FY 1999-2000 and FY 2000-2001, and those estimates have been used by the Department of Administration. Thereafter the department has assumed a flat 4 percent rate of growth.

Mr. Comeaux said the value that results from both growth rates, times the existing 15-cent tax rate, supports bonding at the $155 million level, in conjunction with other bonds yet to be issued. He indicated other bonding projects include $10 million for Lake Tahoe and $2 million for cultural affairs bonds in each year of the biennium. He added the administration is also going to recommend issuance of $3.2 million in bonds to finance the Tahoe Environmental Improvement Plan projects that cannot be financed with the previously mentioned Lake Tahoe bonds, which are primarily highway-related. Another $3.2 million is related to parks.

According to Mr. Comeaux, all the bonding, in addition to existing debt, can be serviced within the existing 15-cent tax rate, leaving a reserve in the bond interest redemption trust fund that should never drop below 30 percent of the following year’s debt service requirements.

Mr. Comeaux added that another schedule is being prepared by the state treasurer within the existing 15-cent rate which will indicate that in 2 years the state could service between $100 million and $112 million in additional general obligation bonds if the state is in a similar condition of lacking cash. He confirmed he is comfortable with the ability to do that, and he promised to supply copies of the report from the state treasurer to committee members.

Mr. Comeaux expressed confidence in the ability to carry out the bonding program as described.

Senator Raggio asked whether Mr. Comeaux could state for the record that approval of the bonding proposal will keep the state within the constitutional state debt limit, and that it will be within the limit that is desirable or necessary to maintain the appropriate bond rating for the state. Mr. Comeaux replied:

Mr. Comeaux reported the state treasurer did not voice any concern regarding the level of bonding. Senator Raggio requested that Mr. Comeaux obtain a specific opinion from the treasurer.

Senator Neal asked whether Mr. Comeaux meant ad valorem taxes when speaking about the 4 percent growth rate in assessed evaluation. Mr. Comeaux responded he was referring to the value of the property in the state of Nevada that is subject to ad valorem taxation.

Senator Neal inquired whether that meant the bonds are sold on the basis of the property that is subject to taxation. Mr. Comeaux responded it is a matter of servicing the bonds on that basis. He explained the 15-cent tax rate is a portion of the overall property tax rate levied statewide. He indicated only 15 cents goes to the state while the remainder goes to various local governments. He pointed out the state’s debt rate is not limited.

Senator Raggio interjected that for many years the Legislature has attempted to keep the state’s portion at no more than 15 cents as a matter of policy, although according to the statutes the portion could be raised. He noted the state is allowed to incur debt up to 2 percent through bonding with the exception of debt incurred to preserve natural resources, which may go higher. He pointed out the state is not even close to the limit.

Mr. Marvel asked how many local governments will be forced to exceed the cap by the 15-cent state portion. Mr. Comeaux guessed there were two or more. Senator O’Connell stated there are definitely five and perhaps six above the cap. Senator Raggio interpreted the statements to mean that those counties would not exceed the statutory cap if it were not for the 15 cents going to the state government.

Senator O’Donnell asked whether the state is assuming a 9 percent growth rate in appraised value. Mr. Comeaux replied the Department of Taxation estimates the assessed value will increase 9.06 percent a year for the next 2 years, and without actually estimating increases, the Department of Administration is using a growth rate figure of 4 percent thereafter. He acknowledged the rate will probably be higher than that, since it has been in the 9 percent range for a number of years.

Citing the importance of the bond rating, Mr. Goldwater suggested the services of a professional should be retained to make a better estimate of future assessed value. He inquired what method is used by the Economic Forum to project growth, whether it is based upon past experience or on other factors. Mr. Comeaux replied the Department of Taxation relies heavily upon estimates of growth from the counties.

Speaking from prepared text (Exhibit G. Original is on file in the Research Library.), Mr. Comeaux outlined the purpose, organizational structure, and goals of the Department of Administration. He noted the General Fund appropriation recommends a 4.9 percent increase over the current biennium, no new General Fund positions are requested for the department, and only seven new positions are requested overall.

Mr. Comeaux proposed discussing only the highlights in each budget for the Department of Administration. He pointed out the only significant items in the Budget Division, budget account 101-1340 is the replacement of a fax machine and 14 personal computers in enhancement module E-710. Those items will cost $35,000 in the first year of the biennium and $528 in the second year. Mr. Comeaux noted the only other significant feature of the budget calls for the transfer of two positions constituting the personnel section from the Administrative Services Division to the Budget Division. He opined the personnel officer should report directly to the director and thus should be included in the same budget.

Mr. Comeaux noted no new positions are requested in budget 101-1342, the Office of Financial Management, Training and Controls, and item E-710 requests the replacement of four personal computers at a cost of $11,607. He pointed out item E-805 recommends the reclassification of the Auditor II position to the Auditor III level since both positions perform the same functions.

Mr. Comeaux reported the Merit Award Board budget provides for basic maintenance. He skipped over the budgets for the General Fund Salary Adjustments and Highway Fund Salary Adjustments, saying they include nothing new. He pointed out the State Employees Workers’ C ompensation budget, account 715-1329, is "part of Risk Management" and was scheduled for review on January 29 along with budget 715-1352 for Insurance and Loss Prevention, budget 628-3244 for the Indigent Supplemental Fund, and budget 628-3245 for the Indigent Accident Account.

According to Mr. Comeaux, the only significant feature in budget 101-1017 for the Deferred Compensation Committee was a proposal to increase the administrative fee which funds the budget. He pointed out the budget totals $29,000 in each year of the biennium, and the proposal is to double the administrative fee from $2 a year per participant to $4 a year per participant.

Mr. Comeaux said budget account 741-1330 for the Printing Office has a significant proposal in enhancement module E-125 to establish a satellite quick-print office in the Las Vegas area at a cost of approximately $240,000 in each year of the biennium. He suggested the office will be very useful if it can be housed in the Grant Sawyer State Office Building. He acknowledged there is no space available at present, but said the aim is to work out the problem. He noted there is a price increase for raw materials each year, as spelled out in the maintenance decision unit M-100, which the State Printing Division believes will be adequate to cover anticipated price increases from vendors. He explained that will necessitate a slight increase in prices at a range of 3 to 3.5 percent.

Mr. Comeaux pointed out the Printing Office Equipment Purchase budget, account 741-1331, was established to provide for replacement of outdated or worn equipment, and it accumulates reserves for major equipment replacement funded by depreciation. He said the budget requests authorization to replace items for the bindery and offset sections of the office at a cost of $159,176 in the first year of the biennium and $152,526 in the second year.

Mr. Comeaux noted the maintenance item M-200 in budget account 711-1354 for the Motor Pool recommends funding for additional revenue, operating supplies, vehicle insurance and vehicle operation costs, and depreciation related to the addition of 33 vehicles. Those new vehicles are provided for in the Motor Pool budget as a onetime General Fund appropriation of $600,760.

Senator Raggio asked for details on the Motor Pool funding and how it ties in to appropriations made for the last biennium. He recalled $1.2 million was appropriated in 1997 to purchase 77 new vehicles. Mr. Comeaux responded the one-shot appropriation will provide 33 new vehicles plus 8 more purchased through the intrafund transfer for a total of 41 vehicles over the next biennium. He pointed out that is in addition to the routine replacement of vehicles as reflected in enhancement unit E-710.

Senator Raggio noted there are two budget accounts, budget 711-1354 for the Motor Pool and budget 711-1356 for Motor Pool Vehicle Purchase. He stated an overview is needed to determine how the Motor Pool is actually dealing with the purchase of vehicles. Mr. Comeaux responded budget account 711-1356 is the account from which vehicles are replaced. He said the budget provides for the replacement of 74 vehicles in FY 2000 and 85 vehicles in FY 2001. The first budget, number 711-1354, provides for new, additional vehicles, and those are provided through a onetime appropriation. Frank Revell, Chief, State Motor Pool, Department of Administration, confirmed the explanation. Mr. Comeaux said the vehicles replaced under budget account 711-1356 are generally 8 years old with high mileage.

Senator Raggio pointed out the budgets will be discussed at length later during subcommittee hearings.

Mrs. Cegavske wanted to know how many vehicles were purchased during the last session. Mr. Revell responded 83 vehicles were actually purchased.

Mr. Comeaux pointed out a request in decision unit E-125 of budget account 711-1354 for the addition of one chauffeur position for the Las Vegas facility to handle the increased traffic load, and for the addition of one garage service worker for the Carson City facility. He noted the latter position will replace inmate labor currently used, and it will replace a part-time student position because Mr. Revell feels he needs the reliability of a regular garage service worker. Mr. Comeaux concurred it has become very difficult to find satisfactory inmate labor.

Mr. Comeaux stated the major feature of the budget for the Purchasing Division, 718-1358, is reflected in enhancement unit E-876 which proposes to change the way the division is funded. He explained it will change from an administrative transaction-based charge to an agency fee-assessment structure. He noted that historically the division has utilized an administrative charge, 4.5 percent in FY 1998 and FY 1999 with a maximum charge of $800 per purchase. He said that beginning in FY 2000 it is recommended the Purchasing Division assess each budget account for purchasing services. He explained the assessment will finance the Purchasing Division’s primary budget and it will encompass commodity and services purchasing, property management, and administration.

Mr. Comeaux said the distribution of the assessment will be made by a customer budget account based upon a dollar amount of commodity purchases in the base year, in this case FY 1998, along with the number of purchase requisitions submitted and the number of full-time equivalent (FTE) positions for services.

Senator Raggio asked how a charge will be assessed if there is no history of purchases. Mr. Comeaux responded that for the base year, FY 1998 will be used for commodity purchases and FTEs. He indicated that after a pattern has been established over the next couple of years, future allocations will be determined by a 3- to 5-year moving average of actual workload data.

Senator Raggio wondered whether it is anticipated this will raise the additional $360,000 and $670,000 indicated in the budget. Mr. Comeaux replied the proposal will raise the amount necessary to fund budget account 718-1358, which is estimated at over $3 million in the first year of the biennium and $3.1 million in the second year.

Senator Raggio repeated his query whether the proposal will raise $1 million more than is presently realized from assessments. Mr. Comeaux answered he did not believe so because the proposal is designed to raise exactly the amount required to fund the budget. Senator Raggio noted the present charge of 4.5 percent will be eliminated, and he wondered whether the proposal will replace the amount raised through the 4.5 percent charge. Mr. Comeaux replied, "Exactly." He stated there will be an advantage because the new proposal should be more precise in raising the amount necessary to fund the Purchasing budget.

Senator Raggio requested clarification of the statement on Executive Budget page ADMIN-55 which states the funds will cover the Purchasing Division’s share of the integrated financial system (IFS) implementation costs. Bill Moell, Chief, Purchasing Division, Department of Administration, responded the planned assessment will be revenue-neutral. He explained it will take expenditures for the Purchasing Division in budget 718-1358 and distribute them throughout the budgets. He voiced the understanding the workprogram under question, part of module E-876, is part of the costs to the Purchasing Division for the IFS and is in addition to normal operating costs.

Mr. Moell clarified the assessment of $2.1 million is "spread out." Senator Raggio wanted to know how much is allocated for the integrated financial system and whether it is cost-allocated to all participating agencies. Mr. Comeaux responded the information is included in the Executive Budget on page INTRO-37, showing the General Fund appropriation at $10,550,242 and the Highway Fund appropriation at $5,619,795.

Senator Raggio asked whether that $16 million reflects just a part of the total cost. Mr. Comeaux confirmed it does. Senator Raggio inquired whether costs were being allocated to all the agencies to cover the $10 million or for an additional amount. Mr. Comeaux agreed there may be some confusion regarding the matter, since the onetime appropriations were designed to cover the cost to the various agencies of the IFS.

Mr. Comeaux drew attention to a memo (Exhibit H) updating the status of projects included in the Technology Improvement Plan (TIP) funded by the 1997 Legislature. He explained the department conducted a detailed survey of all state business sites and determined that the IFS project would require 291 personal computers, 55 computer upgrades, and 168 laser printers, and the cost of those is included in the onetime appropriation.

Senator Raggio asked whether there is cost allocation across the budget. Mr. Comeaux responded the project cost expended in FY 1998 and FY 1999, and projected costs for FY 2000 and FY 2001, will be allocated to the Statewide Cost-Allocation Plan for the next 4 years. He said the estimated recovery, based upon FY 1998 and FY 1999, is $3,467,000 of the original appropriation of approximately $22 million.

Senator Raggio asked for an explanation of the reserve showing $254,563 and $670,372 under decision unit E-876. Mr. Comeaux explained the department intends to reestablish and add to the reserves of the Purchasing Division in those amounts as reflected in the budget summary. The summary, on page 56, shows a reserve of $999,797 in the first year of the biennium and $911,076 in the second year. Mr. Comeaux explained the funds are presently generated through an administrative fee and from an assessment as proposed in the future. He said that is an operating reserve that is equivalent to approximately 3 months’ worth of operating costs.

Senator Raggio restated the $999,000 is the accumulated reserve from all parts of the budget, and $254,563 represents a new portion of the reserve. Mr. Comeaux responded that is correct. Mr. Moell interjected $423,866 was reverted.

Mr. Beers questioned whether the point of the shift, from $1.8 million to $3.5 million or $3.2 million, is to double the assessment on the purchasing of various agencies. Mr. Comeaux responded that is not the purpose, explaining the assessment is designed to be revenue-neutral.

Mr. Beers said he understands that everything in the Purchasing Division is revenue-neutral because of the administrative function of the department. He asked whether the agencies are aware that assessments will change and whether those have been built into their budgets. He also indicated concern that going from a flat percentage to a percentage that varies by department could add to overhead expenses in order to calculate and maintain the averages.

Mr. Moell responded that historically the Purchasing Division has attempted to determine how much will be purchased over a biennium and then to apply an administrative charge to the amount of purchase. He acknowledged that method has not been particularly successful. He cited as an example that last year he estimated purchases would amount to $65 million, but the actual cost was $102 million, leaving too much revenue. He added that 2 years ago the agency had to refund to the federal government because the fund base grew too high.

Mr. Moell explained that when the division reviews the assessment it determines what can be controlled in the budget and which expenditures are known, so based upon approved expenditures the division distributes as equally as possible on a plan approved by the federal government. He reiterated it needs to be revenue-neutral. He said the administrative charge was supposed to be revenue-neutral.

Mr. Beers asked whether the federal government reimburses the purchasing function. Mr. Moell answered the federal government considers that 20 percent of all fees collected is reimbursable by the federal government, because the federal government believes 20 percent of all revenues in the Purchasing Division are attributable to federal government programs. He added the federal government only allows a certain limit to stay in the purchasing fund and requires reimbursement of 20 percent of anything over that amount.

Mr. Beers wanted to know whether that was a function of the absolute costs of the Purchasing Division rather than the amount allocated, and if not, why not, because the allocation is simply an accounting overhead allocation. Mr. Moell replied the division has to guess at the amount of purchases during a given fiscal year. He said by using the estimate, the division backs into an account charge, and during the last biennium it was reduced from 5 percent with a maximum of $800 to 4.5 percent with a maximum of $800. He noted that still has caused problems with fund balances being either too low or too high, because it is unknown how much agencies will be purchasing.

Mr. Moell explained the intention is to put a ceiling on the amount received from agencies; to make the administrative charge (AC) something that is not allowable or "not possible very easily" under the new integrated financial system because the system is not set up to handle an AC, particularly with an $800 maximum.

Senator Raggio turned to budget 710-1349 for the Buildings and Grounds Division on page ADMIN-69. He inquired about changes on rentals by square foot. Mr. Comeaux responded the average per-square-foot rental is decreasing by 1 cent.

Senator Raggio wanted to know whether there is a major increase to agencies. Mike Meizel, Chief, Buildings and Grounds Division, Department of Administration, responded, "There is a negative rent increase of about a penny per square foot for each year of the biennium." He explained the negative increase is due to taking the carryforward into this biennium to fund special projects such a building renovation.

Mr. Meizel stated the carryforward was used to fund enhancements and to attempt to maintain rent close to the rent paid last biennium. He said the long-term goal is to keep rent at a constant rate in the next few bienniums to reduce wild swings, particularly upward, in rent.

Senator Raggio noted the budget proposal would spend down the reserve to $636,000, but historically there has been a higher reserve. He wondered whether that sum will be adequate. Mr. Meizel replied the reserve should be adequate. He agreed it should go no lower because approximately $300,000 is maintained for catastrophic emergencies and the reserve also is utilized for startup costs. Senator Raggio pointed out it will be reduced to $997,000 in the year 2000 and down to $636,000 in 2001. He suggested if the fund continues to drop at that rate the situation could be problematical. Mr. Meizel reiterated $636,000 should be the minimum amount of the reserve.

Mr. Hettrick commented the performance indicators could be improved. He pointed out the notation on square footage of office space leased fails to indicate the per-dollar cost to the agencies. He opined the performance indicators were not sufficiently meaningful nor did they reflect the amount of building space leased under each lease. He suggested it would be more meaningful if the square footage leased were compared to the cost of running the agency. Senator Raggio concurred and indicated the information should be prepared and made available to the subcommittee. Mr. Meizel agreed to provide the information requested.

In response to a question from Senator Neal, Mr. Meizel explained funds will be taken from the carryforward in the reserve to fund new enhancements, such as building renovation projects over $600,000.

Mr. Comeaux interjected that over the next biennium the major issues facing the Department of Administration will be continued implementation of the integrated financial system and the roll-out to various state agencies. He also noted this will be the first year in which the state has been involved in the federal Victims of Crime program. He indicated restructuring of the Committee on Benefits will be of major concern.

Mr. Comeaux stated the continued compliance with the federal Department of Energy and the state Division of Environmental Protection rules on alternative-fuel vehicles will be addressed, and beginning in the first year of the next biennium 90 percent of new vehicles acquired for Washoe and Clark Counties must be alternative-fuel vehicles. He added there have been problems finding those vehicles, but the major problem is refueling. He pointed out the vehicles will only be useable in urban areas because alternative fuels will not be available in the field.

Senator Neal wanted to know whether compliance is based upon a potential grant from the federal government. Mr. Revell replied no federal grants are received for alternative-fuel vehicles. He explained that a bill passed through the Legislature in 1993 requiring a steadily increasing level of acquisition of alternative-fuel vehicles. Initially a level of10 percent was required, which grew to 15 percent to 25 percent to 50 percent, and by FY 1999 the required level had reached 75 percent, he said. He noted the requirement is state law and is administered by the Division of Environmental Protection, and the requirement will grow to 90 percent by 2000 and be maintained at that rate thereafter. He reiterated only vehicles in Washoe and Clark Counties will be affected.

Senator Raggio asked what alternative fuels are used. Mr. Revell answered the fuel of choice is compressed natural gas. He explained most vehicles being built for alternative fuels use compressed natural gas, and there have been problems converting vehicles for propane because the U.S. Department of Energy will not accept most propane conversions. He pointed out compressed natural gas is the only fuel available in Nevada that meets all the requirements.

Senator Raggio asked how those vehicles perform. Mr. Revell responded they generally perform at a 20 percent lower level, but they are improving with new technology.

Ms. Evans wanted to know approximately what percentage of completion the administration has achieved regarding drafting of regulations promulgated by legislation from the 1997 session. Mr. Comeaux acknowledged he did not know but offered to provide the information.

There being no further business to come before the committee, the meeting was adjourned at 5:25 p.m.

RESPECTFULLY SUBMITTED:

Judy Jacobs,

Committee Secretary

APPROVED BY:

Senator William J. Raggio, Chairman

DATE:

Assemblyman Morse Arberry, Chairman

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