The Budget Subcommittee of the Legislative Commission was called to order by Chairman William J. Raggio at 9:10 a.m. on Wednesday, January 27, 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 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. Bob Beers

Mrs. Barbara K. Cegavske

Mrs. Vonne S. Chowning

Mrs. Marcia de Braga

Mr. Joseph E. Dini

Ms. Jan Evans

Mr. David E. Goldwater

Mr. Lynn C. Hettrick

Mr. John W. Marvel

Mr. David R. Parks

Mr. Richard D. Perkins

Mr. Bob Price

ASSEMBLY COMMITTEE MEMBERS ABSENT:

Mr. Morse Arberry, Jr.

Ms. Chris Giunchigliani

GUEST LEGISLATORS PRESENT:

Senator Jon C. Porter

STAFF MEMBERS PRESENT:

Gary Ghiggeri, Principal Deputy Fiscal Analyst

Jeanne Botts, Program Analyst

Jaime Rodriguez, Program Analyst

Birgit K. Baker, Program Analyst

Rick Combs, Program Analyst

Barbara Moss, Committee Secretary

OTHERS PRESENT:

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

Gail Maxwell, Acting Labor Commissioner, Labor Commission, Department of Business and Industry

Roger Bremner, Administrator, Division of Industrial Relations, Department of Business and Industry

OVERVIEW - DEPARTMENT OF EDUCATION BUDGET

Mary Peterson, Superintendent of Public Instruction, State Department of Education (also called Nevada Department of Education or NDE), indicated she would provide an overview of the NDE including its structure, function, and goals. She said she would also review NDE’s accomplishments since 1997 as relates to the Nevada Education Reform Act (NERA) contained in Senate Bill 482 of the Sixty-ninth Session.

SENATE BILL 482 OF THE SIXTY-NINTH SESSION: Makes various changes governing education.

Ms. Peterson stated she would finish her presentation with an outline of the Nevada State Board of Education (NSBE) priorities for the 1999 Legislative Session as contained in the Governor’s recommended budget. She said the priorities would be discussed as they relate to the department’s goals and the four major state-funded budget accounts. Ms. Peterson noted that the guidelines provided by the Legislative Counsel Bureau (LCB) staff were followed in the development of her budget-overview presentation, but said a line-item review of individual budget accounts was planned for the subcommittee hearings.

A packet entitled "Nevada State Board of Education & State Board of Occupational Education – Nevada Department of Education" (Exhibit C. Original is on file with the Research Library.) was distributed to the subcommittee. Ms. Peterson indicated that the Microsoft Power Point presentation entitled "Nevada Department of Education, Nevada State Board of Education, 1999 Nevada Legislature," contained within the packet, would be used to guide the discussion. She mentioned a variety of other handouts would be referenced during discussion of the accomplishments section of the presentation.

Beginning with an overview of the structure, role, and function of the NDE, Ms. Peterson pointed out that currently Nevada has over 311,000 students in 452 schools. The overall department budget totals $748.7 million, of which 87 percent emanates from the state General Fund and other non-federal sources, and 13 percent comes from federal sources. In Fiscal Year (FY) 1998-99, the department was approved for 118.75 full-time equivalent (FTE) positions, of which 43 percent are federally funded and 57 percent are funded from state and other nonfederal funds.

Ms. Peterson said the NDE has two offices, one in Carson City and one in Las Vegas. The Carson City office houses 104.75 of the full-time staff, and the Las Vegas office houses 14 full-time staff. Due to the fact that 65 percent of student enrollment resides in southern Nevada, within the last two years the department moved into new facilities in Las Vegas and added staff from other teams to the southern office. Some of the 118.75 positions have been frozen and some were reverted at the request of the Governor’s Office, Ms. Peterson explained.

Referring to the government structure, Ms. Peterson noted that the NDE is governed by an 11-member elected State Board of Education. In the fall of 1998 there was one newly elected member, one new member was appointed by the Governor to fill a vacancy, and three members were reelected. Of the 11 board members, 7 are from Clark, Lincoln, and Nye Counties. The major functions of the board are to provide vision and establish policy for K-12 education, and to appoint the state superintendent for a 3-year renewable term.

Further, Ms. Peterson noted, the structure of the NDE begins with the State Board of Education, which hires the state superintendent to oversee the department functions. Within the department are two deputies: Douglas C. Thunder, Deputy Superintendent, Administrative and Fiscal Services, and Dr. Keith W. Rheault, Deputy Superintendent, Instructional, Research and Evaluative Services. Both deputies were present and Ms. Peterson introduced them to the subcommittee. She noted that the State Superintendent and Deputy Superintendent positions are the only unclassified positions in the NDE; all other positions are classified in the state personnel service.

Ms. Peterson indicated that the work of the NDE is divided into teams: Standards, Curricula and Assessments; Finance and Accountability; Educational Equity; Health and Safety; Workforce Education; Human Resources and Technology; and Licensure, which resides primarily in the southern office. In addition, there are two commissions within the department: the Commission on Professional Standards in Education, and the Commission on Post-Secondary Education. The Commission on Professional Standards in Education, which is staffed by Dr. Rheault, is a nine-member commission appointed by the Governor. Its major function is to establish teacher-licensing regulations. It is a separate commission, but the State Board of Education has veto power over its regulations. The Commission on Post-Secondary Education, an autonomous board that hires its own executive director, has responsibility for licensing private postsecondary institutions in the state of Nevada.

Continuing, Ms. Peterson said that during the biennium the NDE provided leadership and staff support to three new entities created by the 1997 Legislature. Therefore, in addition to the State Board of Education, the Commission on Post-Secondary Education, and the Commission on Professional Standards in Education, the department worked with and staffed the Council to Establish Academic Standards (CEAS), which was created by S.B. 482 of the Sixty-ninth Session. Ms. Peterson indicated that Dr. Rheault worked with the CEAS. The department also worked with and staffed the Commission on Educational Technology, for which Mr. Thunder has been the primary liaison.

Finally, Ms. Peterson indicated the department worked with and staffed the statewide Commission on School Construction, Design, Repair and Maintenance, created by Assembly Bill 353 of the Sixty-ninth Session to assess the condition of school facilities throughout the state and make recommendations to the Legislature concerning the financing of school construction.

Ms. Peterson noted the NDE is responsible for communicating with its constituents, and a quarterly newsletter outlining the activities and programs within the department has been established to accomplish the task. The newsletter is sent to every school in the state and other interested parties. In addition, there are monthly meetings with school superintendents in the state. A department web site has been established which encompasses accountability data, information on the Statewide Management of Automated Record Transfer (SMART) program, and other pertinent data regarding K-12 education in the state, Ms. Peterson remarked.

Turnover is a major concern within the internal operations of the NDE, Ms. Peterson continued. Statistics issued on a yearly basis by the Department of Personnel describe turnover in terms of "avoidable" and "gross" turnover. The avoidable turnover rate in the department is 9.6 percent, and the state average for avoidable turnover is 8.76 percent. Ms. Peterson pointed out the time frame to fill a vacancy in the department is three months. Professional staff who recently left the department were hired by local school districts, wherein they are provided higher compensation and a shorter work-week.

Standards, Curricula and Assessments. Ms. Peterson noted that the function of the Standards, Curricula and Assessments team is to support the writing teams created by the CEAS, which consist of educators and practitioners in various subject areas. The Council for Basic Education (CBE) was the contractor. The team staff:

• Develops, scores, reports, and analyzes the high school proficiency examination.
• Oversees test administration and reporting of TerraNova, which is the norm-referenced test administered to all fourth, eighth, and tenth grade students in the state.
• Assists school districts throughout the state in improving their curriculum and aligning their curriculum with the new standards.

• Assists school districts in school library functions.

• Administers the statewide textbook adoption process.

• Licenses private schools, and

• Assists home schoolers and charter schools.

Finance and Accountability. Ms. Peterson said the Finance and Accountability team processes payroll, purchase orders, travel claims, and payments to school districts for the various state and federal programs for K-12 education. The team was impacted by increased numbers of councils and boards during the last biennium. For example, the Commission on Educational Technology, working to fulfill the mandates of the Legislature, met 21 times, either as a full committee or as a subcommittee. Due to the processing of travel claims, the Finance and Accountability team was impacted each time a committee member traveled.

Ms. Peterson said the team also researches and publishes multiple reports during the legislative session, including accountability reports, dropout reports, class-size reduction (CSR) evaluation reports, research bulletins, and other reports emanating from the NDE. The team also implements SMART, which is the statewide student record system. She said the team staff works with the Legislative Bureau of Education Accountability and Program Evaluation (LEBEAPE) within the LCB to: (1) develop data tables and reports, (2) jointly visit schools categorized as schools having inadequate achievement, and (3) develop improvement plans and identify workable remediation programs which are adopted by the inadequately achieving schools.

Educational Equity. The Educational Equity team houses and coordinates multiple programs for disabled and disadvantaged students. The team consists of the special education staff, the Title I (a federally funded program for disadvantaged students) staff, and programs for migrant and bilingual education and homeless youth. There are also two new consultants, one for American Indian education and one for cultural diversity. Ms.  Peterson pointed out that these two positions were funded by Assembly Bill 266 of the Sixty-ninth Session to work with the minority student population to address their issues.

Ms. Peterson said the overall focus of the Educational Equity team is to provide equitable access for disabled and disadvantaged students.

Health and Safety. The Health and Safety team coordinates all the programs contained in the comprehensive school health program. It also administers human immunodeficiency virus (HIV) and acquired immunodeficiency syndrome (AIDS) education programs which receive funds from the Centers for Disease Control (CDC). The team administers the Safe and Drug-free Schools program. Ms. Peterson mentioned that the subcommittee members will receive invitations from the NDE to a "Safe Harbors Symposium," scheduled for February 22 and 23, 1999 (one day in Reno and one day in Las Vegas). The purpose of the symposium is to highlight the need for programs that ensure safety and prevent violence in Nevada’s schools. The program is sponsored by Safe and Drug-free Schools.

Noting that the Health and Safety team also coordinates the work of the Dropout Coalition, Ms. Peterson maintained the dropout rate in Nevada is too high and the NDE works with school districts and their representatives to address the problem. The team also conducts analyses on youth at-risk behavior and drug and alcohol surveys of students, and the reports are produced on a biennial basis. The team implements and administers six different nutrition programs, including school lunch, breakfast, summer food, and special milk programs. Ms. Peterson noted that 150 agencies, of which 17 are local school districts, are served through the nutrition education programs.

Workforce Education. Ms. Peterson said the Workforce Education team administers occupational education, School to Careers, and adult education programs, which include family literacy components. The staff works directly with vocational student organizations, including Future Business Leaders of America (FBLA), Future Farmers of America (FFA), Distributive Education Clubs of America (DECA), and Vocational Industrial Clubs of America (VICA). All student organizations have liaisons with the team.

Ms. Peterson said the Workforce Education team also provides guidance, leadership, service learning, apprenticeship programs, and alternative education. Additionally, the team administers the 8 percent Job Training Partnership Act (JTPA) funds that come to the NDE and currently works with the Workforce Investment Act, as well as the Governor’s Workforce Investment Act Board, to develop a unified plan to be submitted for workforce investment.

Human Resources and Technology. The Human Resources and Technology team maintains the NDE web site and several other networks, including teacher licensing, SMART, the Nevada School Network, and the department’s internal networks. The team conducts training for school district personnel on integrating technology into the curriculum and using technology effectively in the classroom to support higher standards. Ms. Peterson said the team also provides staff support to the Commission on Educational Technology and administers the federal Technology Literacy Challenge Grant funds.

Licensure. Ms. Peterson indicated that from January 1998 to January 1999 the licensing team issued 3,671 new licenses, 3,600 license renewals, and almost 8,000 endorsements to new or existing licenses, which makes a total of over 15,250 transactions for a licensing team in the course of one year. The team has been working on a new software program which is functional and connects the northern and southern offices. The ultimate goal is to enable school districts to access teacher licensing information directly through the computer network.

In summary, Ms. Peterson declared that the overall NDE goals, as reflected in the work of the various teams, are to provide equal access for all students and ensure high academic standards that are measured by a variety of assessments. All the teams provide professional development to educators throughout the state. Workforce preparation, enhanced technology, and data systems are also major goals. Ms. Peterson indicated there is a need for more and better public engagement to include and inform all individuals served by the department about the activities of K-12  education. The ultimate goal is healthy students who are ready to learn in safe and drug-free schools, Ms. Peterson said.

Ms. Peterson pointed out that although students are at the center of the constituency group served by the NDE, parents, families, teachers, principals, librarians, policy makers (including legislators and board members), superintendents, community members, business leaders, specialists, and support staff in the schools are also served.

Ms. Peterson indicated she provided Assemblywoman Cegavske and Jeanne Botts, Program Analyst, Fiscal Analysis Division, LCB, the NDE’s detailed strategic plan and offered it to any other members of the subcommittee should they desire it.

Ms. Peterson pointed out two items contained in Exhibit C:

Focusing upon the Nevada Education Reform Act (NERA), which she noted was the centerpiece of education legislation during the 1997 Legislative Session, Ms. Peterson stated the Legislative Committee on Education oversees NERA and related educational issues. Throughout the 1997 Legislative Session, the NDE worked with LCB staff, the Legislative Committee on Education, the Governor’s Office, and the State Board of Education, as well as school districts, to ensure the provisions of NERA were implemented. Ms. Peterson discussed the four major areas addressed in NERA: technology, standards and assessments, accountability, and remediation.

Technology. Referring to a pink sheet contained in Exhibit  C, entitled "Commission of Educational Technology," Ms. Peterson indicated the document is a summary of the activities and accomplishments of the commission. She noted the subcommittee should have received the statewide technology plan and by February 1, 1999, will receive an activity report from the commission.

Summarizing the activities of the commission, Ms. Peterson reiterated that the commission has met in either full committee or subcommittee meetings a total of 21 times since its creation in September 1997. The full $36 million in technology funds appropriated by the Legislature has been distributed and a breakdown of the allocations is presented in the previously mentioned forthcoming report. The commission developed the state technology plan, assisted school districts in developing their technology plans, and produced and finalized statewide technical and wiring standards to be used by school districts to implement technology.

Further, Ms. Peterson indicated another major technology initiative continued by the 1997 Legislative Session concerned SMART, which began on a pilot basis in 1995. In 1997, funding was appropriated to complete the SMART system and the plan was to complete the system in all school districts except the Clark County School District. Ms. Peterson reported that virtually all schools and school districts are on the SMART system, with the exception of Clark County which is not completed. Data downloads have been received from all school districts. The SMART Advisory Committee developed data standards and definitions for the kind of information that must be collected for state and federal reports. The NDE staff held a "data summit" with school district officials responsible for collecting data to ensure a common understanding of what data is collected and why. The department worked with school districts to ensure the infrastructure is in place to implement SMART, which is a statewide system and is coordinated with all other accountability reports and projects in the state.

Asked when Clark County will be fully implemented into the SMART system, Ms. Peterson answered that an enhancement was included in the NDE’s budget request to complete Clark County School District’s system, but it was not included in the Governor’s recommended budget. During the 1997 Legislative Session, Clark County declared it was not possible to complete the SMART system within the current biennium. The department’s budget request, which includes the request to complete SMART by the next biennium, is approximately $9 million. That is considerably more than had been anticipated, Ms. Peterson noted.

Continuing, Ms. Peterson indicated the purpose of SMART is to provide vital educational data to decision makers with a goal to eventually make the information available to legislators as well.

Standards and Assessments. The CEAS is a nine-member council appointed by the Governor and the Legislature to oversee the development of content and performance standards in seven subject areas. Ms. Peterson drew attention to a yellow document contained in Exhibit C, entitled "Council to Establish Academic Standards for Public Schools Activities Through January, 1999," and said the document summarizes the activities and accomplishments of the council. Noting the subcommittee will receive a report on February 1, 1999, she said the report does not reflect the full range of the council’s work.

Ms. Peterson said the CEAS has had 14 subcommittee meetings since its inception in September 1997, as well as 7 public input sessions and 3 focus group sessions throughout the state to obtain information from the public regarding what is expected of students. There were seven writing-team meetings composed of over 100 educators and practitioners from throughout the state with expertise in various subject areas. Ms. Peterson pointed out that CEAS members also participate in the writing teams, and this entails a "huge" commitment of time on their part.

Ms. Peterson said the CEAS adopted content standards in English language arts, math and science, for grades 2, 3, 5, 8 and 12, and developed indicators of progress for grades 1, 4, 6 and 7. Currently, the CEAS is drafting content and performance standards in social studies, art, computers, physical education, and health, which will be finalized in February, Ms.  Peterson continued.

Pointing out a document contained within Exhibit C entitled "Raising the Bar," Ms. Peterson noted the brochure was developed by the CEAS with funds appropriated by the Legislative Committee on Education, combined with department funds. A-Plus Communications and KSA Group were utilized to assist with public engagement. There are 20,000 brochures available for distribution to teachers, schools, parents, and all individuals throughout the state interested in student standards and expectations, Ms. Peterson said.

Ms. Peterson mentioned that the CEAS did not rely solely upon state funds to accomplish the work of standards development. Writing teams, the most recent of which met for four days in Las Vegas, came from all parts of the state. This activity was supported by federal funds, including Title I funds, Title VI funds, Carl Perkins funds, special education funds, Goals 2000 funds, and Technology Literacy Challenge Grant funds. The activities of the writing teams are a considerable expense; however, they are tied to federal program expectations, which is the reason the CEAS has been able to combine federal and state resources to meet the requirements and expectations of S.B. 482.

Calling attention to a document contained in Exhibit C entitled "Results of Statewide TerraNova NRT Examinations–October 1997," Ms. Peterson said a result of the 1997 Legislative Session was the addition of Grade 10, as well as science for all grades, to TerraNova testing. She noted the TerraNova was administered again in October 1998 and a summary report of the results is forthcoming.

Ms. Peterson referred to a document entitled "HSPE [High School Proficiency Examination] Results- Oct. 1998- Background," contained in Exhibit C, which is a summary of the performance of high school juniors who took the test for the first time in October 1998. The students are given four chances to take and pass the test, which in Nevada is a requirement for students seeking a high school diploma. As a result of legislation passed in the 1997 Legislative Session, a new, more rigorous high school proficiency examination in reading and math was put in place. In 1998, a moderate passing score was set for students; however, in the fall of 1998 that score was raised, as required by law.

Accountability. Ms. Peterson stated that accountability was another major component of S.B. 482 of the Sixty-ninth Session, and noted that accountability reports and data tables are on the NDE web site. She explained that S.B. 482 of the Sixty-ninth Session required schools to be designated in three categories: (1) high-achieving schools, (2) adequately achieving schools, and (3) inadequately achieving schools. The first designation of schools was issued April 1, 1998, and 23 schools were designated as low-performing or having inadequate achievement. The Legislature provided $3 million in remediation funds, as well as federal funds, to support those schools. Of the 23 schools, 20 schools received Title I funding, and 2 schools received federal dollars through the Comprehensive School Reform Demonstration Program.

As an example of the manner in which school and district sites are using state and federal funds to accomplish the intent of S.B. 482, Ms. Peterson indicated many schools use Title I dollars to pay for "Success for All" staff and NERA (S.B. 482 of the Sixty-ninth Session) funds to purchase materials and training for Success for All. State dollars are maximized by being combined with federal funds.

Ms. Peterson pointed out another document contained in Exhibit C, entitled "Funds for Remediation Programs," and explained it presents a breakdown of schools that received funding and a description of how the money was used in each school designated as having inadequate achievement.

Responding to an inquiry regarding the manner in which federal funds were used for remediation programs, Ms. Peterson indicated she would provide the subcommittee with a matrix outlining the information, as well as information on which schools receive funding through another federal program known as the "Obey-Porter Program" or the Comprehensive School Reform Demonstration Program. The Comprehensive School Reform Demonstration Program is a new federal program, initially funded in 1998. Nevada was one of 21 states to apply for and receive $500,000 of funding which was distributed among eight schools. The purpose of the program is similar to the money provided through S.B. 482, and the money may only be used for targeted and proven programs that will improve student achievement. Ms. Peterson indicated those funds will be reflected in the matrix provided to the subcommittee.

Senator Raggio reported that the Legislative Committee on Education received a report indicating that the 23 designated schools receiving financial assistance exhibited considerable improvement. Ms. Peterson said the initial data from the TerraNova tests in the fall of 1998 is being analyzed to verify which schools will still be categorized as inadequate, but it appears the number of schools in that category has declined. Although a few schools have fallen into the inadequate-achievement category, the overall number is down from last year. Ms. Peterson stated that information on the designation of schools will be verified with school districts and released April 1, 1999.

Senator Mathews asked whether there is a bill draft request (BDR) to change the term "inadequate" in the designated-schools context. In response, Ms. Peterson said there is a recommendation from the NSBE, as well as the Legislative Committee on Education, to change the term "inadequate" to "needing improvement."

Mrs. Cegavske asked the following questions: (1) What is the cost effectiveness of portfolio testing versus other types of testing? (2) Is portfolio testing better for students and teachers? (3) What is the cost of training teachers for portfolio testing? (4) Are any federal funds received in competition with universities for remedial funding at the college level?

Answering the first three questions, Ms. Peterson indicated portfolio testing is a new trend in assessment and goes beyond multiple choice testing, filling in the blanks, or constructive response. Portfolio assessment requires teachers and school personnel to collect samples of students’ work and assess their progress based on the sampling. Portfolio assessment has been undertaken by very few states due to the expense of paper management and specification of the information to be included in the portfolio. Although some states have attempted portfolio management, Ms. Peterson was not aware of any that have implemented it. She said it works effectively at the district level; however, because of sheer volume it is almost prohibitive at the state level. She remarked that Douglas County uses portfolio assessment at the middle school and high school levels. In response to question 4, Ms. Peterson said she was unaware of any federal remedial funds in direct competition with universities.

Mr. Goldwater requested identification on the unfunded decision unit for $1.2 million in the teacher-licensing budget that was not recommended by the Governor. Ms. Peterson answered the unfunded decision unit was partly for software, but the major portion was for three enhancement programs forwarded by the Commission on Professional Standards: (1) a teacher-mentor program that would have provided mentors for new teachers in the schools, (2) a teacher-leader program which would have developed master teachers who could work with incoming teachers, and (3) an initiative that would have funded national board certification, which is a rigorous form of certification that has been observed in other states. Responding to Mr. Goldwater’s query whether the reason the three enhancement programs were not funded was due to fiscal constraints or philosophical differences, Ms. Peterson indicated the reason was fiscal constraints.

In response to a query by Senator Raggio, Ms. Peterson indicated reversions were determined by the NDE. She further explained that the Governor’s Office specified and reverted four budget accounts and line items. The NDE followed the specified guidelines; however, in some cases the money targeted for reversion had already been encumbered in some way and could not be reverted.

Mrs. Chowning stated her pleasure at serving on the CEAS with Senator O'Connell. She called attention to the brochure entitled "Raising the Bar," contained in Exhibit C, and indicated the pictures on the front page are the faces of two children from Nevada.

Answering a question from Senator Neal, Ms. Peterson said homeless children are identified by school districts through liaisons at each school site who are selected based upon their knowledge of the students. Ms. Peterson confessed ignorance when asked how homeless students receive report cards.

Senator O'Connell inquired whether there is information from the federal government regarding funds for training teachers for the higher standards. Ms. Peterson indicated there are a variety of new programs recently funded by the U.S. Congress; some are competitive and others provide direct allocations to the state. She mentioned three new programs of interest:

Stating that the professional-development area is critical to the continuation of educational efforts, Senator Raggio requested Ms. Peterson to provide the staff with ongoing information regarding the availability of any funding that might be put into that particular goal.

Mr. Marvel asked the amount of estate tax money that will be received for K-12 and the manner by which it will be allocated. Douglas C. Thunder, Deputy Superintendent, Administrative and Fiscal Services, State Department of Education, answered that in FY 1999 the average monthly receipts for estate tax varied between $250,000 and $600,000. Should that average continue, there will be about $6 million in 1999. Mr. Thunder indicated he would provide the subcommittee with up-to-date information, as well as a report of what occurred in 1998.

Continuing, Mr. Thunder said that in the Governor’s budget, the class-size reduction program has been moved out of the budget account to which the estate tax is deposited. The goal is for the estate tax to remain in that budget account, which would require the account be renamed and used for school improvement programs. Several elements, such as remediation, professional development, and technology, would be funded out of that budget account.

Jeanne Botts, Program Analyst, Fiscal Analysis Division, LCB, pointed out that in the Governor’s budget, $8 million a year of estate tax is recommended for school-improvement programs, and $5.8 million a year of estate tax is recommended to fund the class size reduction program, for a total of $13.8 million.

Priorities for the 1999 Legislative Session.

Ms. Peterson stated the NSBE’s goal is to improve instruction and student achievement and build on the initiatives created in the 1997 Legislative Session. One year ago, the department began preparing its 1999 budget; it was submitted to the Governor’s Office in August 1998. Although the budget was built on initiatives started in 1997, the NSBE later became aware of potential revenue shortfalls. Ms. Peterson urged the subcommittee to protect the initial investment that reflected a positive beginning on standards-based reform in Nevada with NERA. The initiatives are based on the premise that the progress and momentum will continue, although it is recognized that the budget is "tight" and the Legislature must make difficult decisions.

Ms. Peterson outlined some of the initiatives that will continue the progress of educational reform in Nevada:

• Professional development. In order to implement higher standards, teachers must be informed and trained on strategies to effectively teach them.

• Remediation. Although it is important to "raise the bar," the needs of students who are unable to get over the bar must be recognized. Funds will be required to help those students meet the higher-level standards.

• School designations. One initiative was set forth to change the name of the "inadequate achievement" category to "schools needing improvement," and add a fourth category entitled "exemplary," as well as a fifth category entitled "high achievement."

• Incentive. One initiative is to provide good teachers with incentives to remain in low-performing schools.

Ms. Peterson pointed out a two-page document contained in Exhibit C, entitled "Nevada State Board of Education Priorities for the 1999 Legislative Session," which lists the enhancements in the budget forwarded to the Governor’s Office in order of priority as established by the NSBE.

In an overview of the budget, Ms. Peterson called attention to two major state-funded accounts (budget account 2673, State Education Programs, and budget account 2697, Proficiency Testing). She indicated the proposed funding is at basically the same level as is the current funding. Ms Peterson said:

Ms. Peterson proposed to review the enhancements in budget accounts 2673 and 2697, explain their importance, and discuss them in terms of overall goals. She pointed out that two of the major enhancements are recommended for funding in The Executive Budget. Remediation is recommended for funding at approximately $12 million over the biennium. Remediation funding appears in budget account 2710, and the Governor recommends the budget be renamed the Fund for School Improvement. Another enhancement is for an Internal Controls Officer, which is funded in the Governor’s recommended budget in budget account 2720. The Internal Controls Officer is number 12 on the list of priorities.

Stating that she did not plan to do a line-item analysis, Ms. Peterson voiced her intention to describe some priorities of K-12 education and the NDE. With respect to the overall goal of equal access for all, she noted that two positions for cultural diversity and American Indian education were funded in budget account 2673 during the last biennium. The positions were funded as one-shot appropriations and are scheduled to "sunset" June 30, 1999. Ms. Peterson pointed out that the two individuals in those positions are addressing minority student issues. The consultants for cultural diversity and American Indian education are focused upon increasing student achievement, and working in pilot sites to decrease the dropout rate for black, Hispanic, and Native American students. They have also assisted in the bias review of the high school proficiency examination to assure a valid and reliable test.

Referring to a lavender document contained in Exhibit C entitled "Special Education Issues- January 1999," Ms. Peterson explained it is a one-page summary of special education programs that are being funded. She noted that over the last few years an increasing proportion of local expenditures has gone toward special education, which has diminished the amount available for regular education. At the same time, there is concern regarding equitable and adequate service to all disabled students, particularly in light of the limited resources available.

In reviewing the department’s priorities at the outset of the 1999 Legislative Session, Ms. Peterson emphasized the importance of assessments. Funding allocated for assessments has been reverted, and $271,000 was allocated for the development of criterion-referenced tests in grades 3, 5, and 8 recommended by the CEAS. The money, contained in budget account 2697, became available in 1999 but was reverted. Therefore, Ms. Peterson continued, in order to implement the standards, professional development for teachers is needed, along with tests that measure how well students are performing on the standards.

Ms. Peterson said several initiatives were recommended regarding the overall priority of high academic standards, one of which is to contract for the high school proficiency examination. At present the high school proficiency examination is developed, scored, and reported by the NDE. As the exam becomes an increasingly high-profile and visible program, it is in the state’s best interest to contract with the testing vendor to accomplish the work, Ms. Peterson opined.

Ms. Peterson emphasized that assessments are the linchpin of standards-based reform. The CEAS was recommended for funding and included in the list of enhancements; however, funding for the CEAS has not been included in the Governor’s recommended budget. Ms. Peterson pointed out that, by law, the CEAS must meet eight times during the biennium. The work accomplished by the CEAS is high quality, not scheduled to "sunset" until June 30, 2001, and is important to the continuation of standards-based reform.

Another priority is a position that would assist charter schools combined with a social studies consultant, Ms. Peterson said. She indicated the NSBE requested approximately $22 million for professional development, which includes the addition of two days to teachers’ contracts to be used for that purpose. Four professional development centers throughout the state were recommended to provide training to teachers. Ms. Peterson stressed the centers are an "absolute must" for the standards to be implemented.

Ms. Peterson quoted a statement from the National Commission on Teaching in America’s Future:

Ms. Peterson stated the Legislature has made a major investment in policy, developing the standards, and setting the direction, but must now make a major investment in changing the practice in the classroom.

Senator Raggio agreed that professional development is a high priority but questioned the $22 million cost to extend the school year two days. Ms. Peterson explained that professional development, which is number six on the list of priorities, is broken into two parts. In budget account 2673, module E-230 in enhancements, the cost was initially estimated for the professional centers themselves; module E-225 in enhancements is the addition of two days to the school year to provide professional development.

Senator Raggio questioned whether the addition of two days to the school year is an absolute requirement to accomplish this level of professional development. He suggested that an alternative should be considered and that teachers have an obligation to contribute to their ability to teach to the higher standards. In response, Ms. Peterson indicated the reason the priority was broken into two separate decision units was to allow additional time for teachers to obtain professional development. Senator Raggio emphasized he was not "picking on" teachers, but pointed out that all individuals, in both the public and the private sector, must take responsibility to maintain expertise and promote their ability to function in their profession. Should the professional development opportunity be created, teachers might not participate without remuneration, he speculated. He suggested exploring other avenues to ameliorate the cost.

Although recognizing the "huge" cost involved for professional development, Ms. Peterson asserted there is a great level of commitment on the part of teachers. She explained that the budget outlines the cost should the two days be provided for professional development.

Continuing, Ms. Peterson indicated the next area of priorities addresses workforce preparation. She pointed out that state School to Careers funding, which was provided in the last two biennia, was taken out of the base and is not recommended for funding in the Governor’s recommended budget. School to Careers is an important program and should be continued, Ms. Peterson remarked.

Addressing the next area of priority, technology, Ms. Peterson indicated substantial progress has been made with integrating technology into classrooms. She said ensuring that students have the technology skills and abilities needed for the next millenium is an important priority. One of the first enhancements was the expenses of the Commission on Educational Technology, created by S.B. 482, which is mandated to meet four times a year and is not scheduled to "sunset." Funding for the commission was not included in the Governor’s recommended budget, and Ms. Peterson suggested the statutes be revisited should that continue to be the case. She said the commission, as well as the CEAS, has done "yeoman duty" on the issue of technology in working with school districts to ensure the funds were distributed equitably and invested well.

Referring to budget account 2706, page K12 ED-77, Senator Coffin mentioned that Classroom on Wheels (COW) and Holocaust Education funding requests are small but are important to poverty areas. In response, Mr. Thunder indicated Holocaust Education had been funded through the Department of Administration until this biennium. During the 1997 Legislative Session, it was in the budget of the State Department of Education. It was determined to be better handled by allowing it to "flow through" the Department of Administration and was therefore transferred to that budget. Mr. Thunder indicated he would ascertain where it had been included. He noted the COW program was cut based on the funding situation. Ms. Peterson added that the two programs, as well as the public broadcasting program, were funded with "one-shot dollars" and were included in the agency request.

In response to Senator Coffin’s query whether the cuts to the two programs occurred under the old or new administration, Don W. Hataway, Deputy Director, Budget Division, Department of Administration, emphasized that COW and Holocaust Education were never in the Governor’s recommended budget and were always one-shot appropriations. The NDE requested continuation of the funds in their budget, but the cuts were a fiscal, not a philosophical, issue. The Governor has not finalized his list of recommendations, Mr. Hataway remarked.

Ms. Evans expressed appreciation to Ms. Peterson for the compilation of information on the bills from the 1997 Legislative Session and encouraged other agencies to do likewise. She referred to Assembly Bill 191 of the Sixty-ninth Session.

Ms. Evans said the School to Careers program began in 1995 under that rubric, and emanated from a 1987-1989 interim study that was authorized by the 1987 Legislature to study funding of occupational education in Nevada (Interim Finance Committee’s Subcommittee on Occupational Education, LCB Bulletin 89-10). The name of the program was changed from "School to Work" to "School to Careers" to comply with federal law. It is a long-standing program that was first funded in 1991. Ms. Evans noted that 4,500 employers currently participate in the program and said she has received positive feedback regarding it. In view of the long history of the School to Careers program, Ms. Evans expressed concern for the future of the School to Careers program unless it receives financial support.

Dr. Keith W. Rheault, Deputy Superintendent, Instructional, Research and Evaluative Services, State Department of Education, indicated that even though state funding is not provided, the School to Careers program will still have two years of federal grant funds. The funding for next year is approximately $1.9 million and it decreases to half that amount the following year. The federal funds were intended as "seed" money.

Dr. Rheault stated the regulations contained within A.B. 191 of the Sixty-ninth Session altered the School to Careers program and the bill established a "sunset" date of 2003 for state funding of the program. He said the intent was to implement the School to Careers program systematically into the schools to maintain it until the state and federal funding expires. He indicated a summary page was prepared that fulfills the requirement to provide an evaluation report of the School to Careers program, which will be submitted to the Legislature on February 1, 1999. The evaluation report will describe which programs will be cut without state support. A copy of that report will be provided to the subcommittee, Dr. Rheault said.

Referring to priority number 7, regarding the recommendation to contract for the high school proficiency examination, Senator Raggio asked whether other price quotes were obtained. Ms. Peterson indicated the information reflects an informal estimate obtained from a current contractor; however, she speculated the proficiency examination could be accomplished for considerably less money. In response to Senator Raggio’s comment that the amount was extraordinarily high, Ms. Peterson explained the contract would include development, ensuring validity and reliability, scoring, and reporting of the test. She noted that other testing vendors would be contacted for estimates. In answer to Senator Raggio’s query whether or not there is sufficient expertise within the NDE to accomplish the task, Ms.  Peterson said the increased visibility and high-stakes nature of the task requires staffing at higher levels should the work be done in-house.

Mrs. Cegavske asked the following questions:

• Will special education students receive a different type of testing from that given regular students?
• What is being done to manage the population of special-education students?
• What criteria are used to diagnose special-education students?
• Are students placed in the special-education category because the administration is unsure where they should be placed?
• How does the federal law mandate mediation?
• Will special-education teachers be compensated equitably?

Mrs. Cegavske also expressed concern about increasing costs, parental frustration, legal actions, professional standards, and teacher training.

Ms. Peterson said the 12 categories used to identify special-education students in Nevada are consistent with what is done nationwide. Agreeing that legal costs are "horrendous," she indicated the NDE is preparing an estimate of these costs which will be provided to the subcommittee upon completion.

Ms. Peterson said the Commission on Professional Standards in Education passed regulations to allow teachers to earn special-education credits over a period of time to gain a special-education license. The regulation will eliminate Clark County’s need for substitute teachers in special-education classes. Teachers with nine credits of special education in the classroom can, over a 3-year period, gain additional credits needed for a special-education license. Ms. Peterson noted that other areas of need, with a high demand for and low supply of teachers, have received a similar kind of accommodation.

In reference to special-education teachers’ compensation, Ms. Peterson indicated "the forwarded budget" recommended an overall pay increase for teachers in the Distributive School Account (DSA); however, special pay for special-education teachers is handled at the local level rather than the state level.

Ms. Peterson said she would provide further information to the subcommittee regarding federal mandates on mediation.

Senator Raggio indicated that almost all the priorities listed by the NSBE are also recommendations from the Legislative Committee on Education.

Ms. Peterson expressed appreciation to the staff who prepared the presentation. Senator Raggio concurred and indicated the Legislative Committee on Education has also commended the staff, along with the council, the commission, and all who participated in the implementation of the Nevada Education Reform Act provisions.

BUDGET OVERVIEW - DEPARTMENT OF BUSINESS AND INDUSTRY

Senator Raggio opened the hearing on the Department of Business and Industry Budget Overview.

Alice A. Molasky-Arman, Commissioner of Insurance, Division of Insurance (DOI), Department of Business and Industry, introduced Marilyn Espinosa, Administrative Services Officer, DOI, Department of Business and Industry, and John P. Laxalt, Deputy Commissioner of Insurance, DOI, Department of Business and Industry. Ms. Molasky-Arman indicated that Ms. Espinosa fills a position granted during the 1997 Legislative Session and has been invaluable to the efforts of the DOI over the past two years.

Ms. Molasky-Arman submitted a document entitled "Presentation to the Legislative Commission’s Budget Subcommittee" (Exhibit D) and read the mission and goals of the DOI on page 1. She highlighted the major issues affecting the DOI, noting that the issues are reflected in the major programs in the 1999-2001 Executive Budget.

Ms. Molasky-Arman said the first issue is growth. She noted that pages 2 and 3 of Exhibit D demonstrate some of the growth patterns. The growth of the insurance environment mirrors the "tremendous" growth in the State of Nevada, she stated. The DOI exhibits increases resulting from growth in nearly every category of its frontline operations. These include licensing of insurance agents and brokers, approval of new companies for admission, processing of life, health, property, and casualty filings, and enforcement.

Ms. Molasky-Arman said that effective December 31, 1998, there were 1,414 insurance companies authorized to do business in Nevada, including 35 "domestics." She said there has been a "terrific" increase in the number of domestics since she became Commissioner of Insurance, and the number of domestic health maintenance organizations (HMOs) has nearly doubled. There are also 24 motor clubs authorized to provide insurance in Nevada. The DOI regulates over 29,000 resident and nonresident agent brokers, third-party administrators, and utilization-review services.

Ms. Molasky-Arman noted the impact of regulatory effects is seen by the dollars expended by Nevada citizens for insurance, which in 1998 was over $4.2 billion. Some of the money is returned to the state in the form of premium taxes which exceed $100 million in fees. This money, between $6 million and $7 million, pays for services of the DOI.

Finally, Ms. Molasky-Arman reported the amount the DOI generates in enforcement efforts: In FY 1997, fines of over $870,000 were imposed; in FY 1998, fines amounted to slightly over $531,000; six months into FY 1999, fines have surpassed $300,000 in regulatory-enforcement efforts.

Noting that "clients of the DOI include every citizen of the state," Ms. Molasky-Arman said there is no other state agency that has such direct impact on the lives of every man, woman, and child in the state.

The second major issue addressed by Ms. Molasky-Arman was "3-way" workers’ compensation insurance, which takes effect July  1, 1999. Ms. Molasky-Arman said there has been a monopolistic system throughout the history of workers’ compensation in the state of Nevada. This has meant only the state industrial system could provide workers’ compensation insurance for the employers of the state who are mandated to carry such insurance for the benefit of their injured workers. Ms. Molasky-Arman indicated that in 1995 the Legislature charged the insurance commissioner with implementing the transition to 3-way workers’ compensation insurance which will enable private carriers to provide the coverage to employers. The actual commencement on July 1, 1999 will have a tremendous impact on the DOI. Ms. Molasky-Arman remarked that the DOI has already observed an impact with the implementation process and expressed pride in the fact that the project stayed on track and met nearly every target date to implement the procedure. She noted there are already 200 insurers that have been certified to provide workers’ compensation insurance in Nevada.

Continuing, Ms. Molasky-Arman stated that on July 1, 1999, the consumer base will increase by 44,000 to 46,000 employers who must obtain workers’ compensation insurance. She mentioned that many states have converted from a monopolistic system, the most recent being Oregon approximately thirty years ago. Because it is so far in the past, none of the states recall the requirements of implementing the new system; therefore, Nevada created its own map and made its own predictions as to the future of workers’ compensation insurance. Although the market is more complex than it was thirty years ago, every attempt has been made to identify specific obligations and address them in the budget request. It is the belief of the DOI that the success of the transition is a key challenge to the state, as well as the division.

Further, Ms. Molasky-Arman indicated that on January 28, 1999, the subcommittee will receive a copy of the "Nevada Insurance Market," which is the DOI’s report to the Legislature. It includes an article on the changing environment of workers’ compensation insurance in Nevada and the role of the DOI. The article provides information about the progress and future of workers’ compensation insurance, and Ms. Molasky-Arman encouraged the subcommittee to study it.

Ms. Molasky-Arman testified the Governor’s recommended budget recognizes the need to support additional duties of the division resulting from 3-way workers’ compensation insurance. The division expects an increase in the number of hearings required with respect to supplemental rate filings by insurers. However, the greatest impact will be the result of employers’ appeals of rates and classifications. Ms. Molasky-Arman indicated an estimate from the workers’ compensation advisory organization projected that approximately 29 percent of the employers in the state will face rate increases. Many have the right to appeal to the commissioner of insurance the decisions on rates resulting from classifications and experience modifications.

Ms. Molasky-Arman said the reason for the request in decision module M-203 to fund a Supervising Legal Secretary is the expectation of increased numbers of hearings. There are due process requirements which the DOI is statutorily obliged to maintain. The commissioner noted that whenever a hearing is requested it must be held within 30 days. The increase in hearings will require a capable legal secretary able to track the processes and ensure hearings are scheduled on a timely basis. In addition, decision module E-128 requests $27,500 for each fiscal year to fund contract services for an actuary to independently review annual rates filed by the advisory organization for workers’ compensation rates and to provide an independent review of the more complex rate filings of insurers in general.

Ms. Molasky-Arman stated that through an allocation from the workers’ compensation fund, the DOI can offset some budget expenditures related to rate reviews for 3-way workers’ compensation insurance. This represents an estimated reduction in the need for General Fund appropriation of $36,726 in FY 2000 and $36,507 in FY 2001, which is in decision module E-130. Ms. Molasky-Arman indicated middle rates have been established after a hearing process and orders issued in December 1998 by the commissioner; consequently, there are workers’ compensation insurers preparing to submit their own filings. On May 1, 1999, notices regarding rate classifications and experience modifications will be mailed to all employers in the state. At that time the DOI must address consumer problems and it is anticipated the inquiries will number in the thousands.

Ms. Molasky-Arman pointed out that one of the major concerns in implementing 3-way workers’ compensation insurance has been the lack of actuarial services within the DOI. She declared that Chuck Knaus, the actuary for over 25 years, is irreplaceable. Mr. Knaus possessed credentials required for technical review, insight into public policy, and fairness to consumers. He earned approximately $65,000-$70,000 annually and remained with the DOI because he was devoted to the state of Nevada, whereas a credentialed actuary in the marketplace earns in excess of six figures. Ms. Molasky-Arman emphasized that the DOI cannot compete with private industry to secure the services of a qualified actuary, and it is impossible to compete with other regulatory agencies because the division salary scale is significantly lower. She expressed gratitude that the Governor’s recommendation recognizes a problem area as seen in decision module E-805, which would upgrade a current actuarial position to a professional status of Lead Property and Casualty Actuary. She noted the expertise will be an advantage when revealing rates because an error can be costly. A 1 percent error in auto rates could cost consumers hundreds of thousands of dollars.

Ms. Molasky-Arman said the other full-time position related to workers’ compensation does not result from 3-way workers’ compensation insurance, but from the needs of the division’s self-insured workers’ compensation section. The request is for a Management Analyst III, in budget account 101-4684, decision module M-200. The position was authorized during the last two biennia; it is requested again in anticipation of program growth. The allocation from the workers’ compensation fund is the main revenue source for this budget.

Concluding her discussion of 3-way workers’ compensation insurance, Ms. Molasky-Arman expressed concern and questioned whether the DOI possesses sufficient resources to carry out its obligations. She indicated that all activities, as well as budget requests, were based upon predictions. She predicted the full impact will be felt May through July 1999 and expressed fear that the DOI could find itself "going down the road" to 3-way workers’ compensation insurance in a "vehicle with concrete wheels." Ms. Molasky-Arman requested permission to seek reinforcement should the state economic situation improve. If the state economy does not improve, the DOI will be forced to share its burden by reorganizing and restructuring programs that do not require statutory time limitations. In any event, the DOI will devote every possible resource to secure the correct and proper implementation to carry out its obligations under 3-way workers’ compensation insurance, Ms. Molasky-Arman stated.

In response to Mr. Marvel’s query whether 3-way workers’ compensation insurance will increase the insurance premium tax, Ms. Molasky-Arman answered yes. However, she noted, there is a provision in law that the premium taxes generated from workers’ compensation will be deposited to offset the deficit amount of state industrial insurance system liabilities. The premium tax will not devolve to the General Fund until the determination that the state industrial insurance system account is solvent.

Mr. Marvel questioned what would occur if industrial insurance is privatized. Ms. Molasky-Arman explained insurers offset premium taxes by the amount of workers’ compensation assessment. The offset occurs before premium taxes are calculated and paid, after which the system’s deficit is funded. In the absence of a deficit the amount devolves to the General Fund.

Senator O'Connell, inquiring whether there could be economies of scale in view of the DOI mission statement (page 1 of Exhibit D), said it appears there is no longer a rationale for splitting the regulating functions in this area. She queried whether other states have two regulatory agencies, and what is considered an appropriate regulatory environment under 3-way workers’ compensation insurance. In response, Ms. Molasky-Arman said research must be done to determine the split of authority in various states. She indicated her intention to discuss the question with the director of the Department of Business and Industry and staff before responding to Senator O'Connell’s question.

Commenting further, Senator O'Connell suggested that due to the activities regarding self-insurance and regulations under 3-way workers’ compensation insurance, the DOI is the "perfect" agency to handle everything as opposed to splitting responsibilities. Senator Raggio suggested an analysis be performed and made available during budget discussions.

Mr. Goldwater asked, "If the 3-way workers’ compensation insurance environment is expunged under the Governor’s current proposal, will the DOI require more resources from privatization and, if so, should it be reflected in the budget?" Ms. Molasky-Arman opined it would not have an effect because there are over 200 qualified insurers to market workers’ compensation insurance. The privatization of employers’ insurance companies in Nevada will only create another insurance company that is enabled to provide coverage. Ms. Molasky-Arman said that through the regulatory process certain statutes have been adopted with which the system, as well as private carriers, must comply.

Mr. Goldwater expressed concern that should the state industrial insurance system (SIIS, renamed Employers Insurance Company of Nevada) be removed and become a private insurance company, that entity would provide regulatory checks which would increase the burden on either the Department of Industrial Relations (DIR) or the DOI. Ms. Molasky-Arman responded it was her belief that much of the regulatory responsibility of the system has already been placed either with the DIR or the DOI. The responsibilities of the DOI are the same as those for private insurance regulation, she noted.

Senator O'Donnell expressed the opinion that the SIIS is now a "quasi-government entity" and has been segregated; therefore, even though it is a government function it remains autonomous, independent of every other agency and any other portion of the government. Ms. Molasky-Arman said she was not the appropriate person to respond to Senator O'Donnell’s comment.

Ms. Molasky-Arman indicated the number of appeals is a concern to the DOI. She expressed the belief that the Legislative Committee on Workers’ Compensation may consider a measure which would enable the commissioner to establish an appeals board within the advisory organization. Should that occur, it would alleviate the caseload of approximately 625 appeals annually, as well as relieve the DOI of much of the burden. However, the DOI would remain responsible for estimated appeals within the budget request because, under the appeal board system, the employers would have a right to a hearing de novo by the Commissioner of Insurance.

Ms. Molasky-Arman said the next major issue is the Health Insurance Portability and Accountability Act (HIPPA), which was enacted by the 1997 Legislature in response to the Federal HIPPA of 1996. Federal HIPPA guaranteed insurance issuance for small employers, large employers, and certain individuals in the state. Ms. Molasky-Arman reported that the Health Care Financing Administration (HCFA) of the U.S. government informed the DOI that its response to the federal legislation was a model which all states should follow. She said the U.S. Congress is discussing an amendment in which the DOI will be involved, such as the 1974 Privacy Act (P.L. 93-579). In decision module M-501, continued funding is requested for five HIPPA staff positions because the initial funding was by means of an appropriation within HIPPA from the 1997 Legislature. Ms. Molasky-Arman emphasized that should the DOI not have the proper regulatory oversight of the program, Nevada would lose its federal qualification to be the overseer of health insurance of small and large employers. She indicated the termination of this program would "crumble" the consumer protections which only the state can offer. She said the HIPPA program is an alternative to what would result in federal regulation of insurance in Nevada, which she termed undesirable.

Ms. Molasky-Arman said the last major area in the budget request recognizes the need of the DOI to further automate and standardize its computer processes. She emphasized that in order to "work smarter," the DOI must increase efficiency with easily accessible current data to perform critical functions, and a system with internal controls. State-of-the-art automation will enable the DOI to take advantage of programs which will simplify its need to streamline filing, reporting, and submission of reports from insurers. The DOI requests funding to replace the computer network infrastructure as recommended by the needs assessment completed by the Department of Information Technology, Ms. Molasky-Arman remarked.

Ms. Molasky-Arman said the budget request for the next biennium is the first phase of a plan to acquire an integrated database while addressing the immediate needs for a more reliable network. The first phase addresses the hardware needs, which include replacement of 18 computers funded out of the cost-stabilization budget (budget account 3833). The second phase will be the acquisition and implementation of an integrated database software program. One such database has been evaluated and is presented in the needs assessment as a starting point. It is anticipated that funding will be available when the second phase is initiated in the legislative year 2001.

Ms. Molasky-Arman reported that two weeks ago the DOI network "crashed," and immediate funding of $33,000 was requested to recable the network and convert it to Ethernet. Both items were recognized as deficient in the needs assessment. Installation of the two items was accelerated, hence the DOI is working with the budget and fiscal analysts to adjust the budget request. Ms. Molasky-Arman said that during the 1997 Legislative Session she had stressed the importance of the DOI having comparable technology with the industry it regulates. She said she was again emphasizing that point. She expressed hope that the 2001 Legislature will provide the resources which will enable the DOI to move forward into the next century.

Commenting on a program change, Ms. Molasky-Arman indicated that in prior years the DOI received federal funding in the form of a grant from the federal Health Care Financing Administration for the Medicare Information Counseling and Assistance program, known as the ICA program. The grant was awarded to the Aging Services Division for the grant period commencing September  28, 1998.

In summary, Ms. Molasky-Arman said the Governor’s recommendation for the DOI budget includes funding for the following major items:

• A Supervising Legal Secretary.
• An upgrade for a Lead Property and Casualty Actuary.
• A Management Analyst III for the self-insured workers’ compensation section.
• Continued funding for five HIPPA positions.
• Funding for actuarial contract services.
• Court-reporting expenses relating to 3-way workers’ compensation insurance.
• Funding to implement computer network replacements.

Ms. Molasky-Arman indicated pages 6-9 in Exhibit D depict the "Division of Insurance Functional Organizational Chart." In response to Senator Raggio’s inquiry, Ms. Molasky-Arman stated all the new positions indicated on the chart are in the Governor’s recommended budget.

Noting that the staff wrote an analysis/summary in two areas¾ education, budget account  3824, and cost stabilization, budget account 3833¾ Senator Raggio inquired whether it is considered the major percentage change in the budget areas. Responding to the inquiry, Mark Stevens, Assembly Fiscal Analyst, Fiscal Analysis Division, LCB, indicated there is a large reserve in the education budget that has not been expended.

Senator Raggio queried whether there would be a substantial impact on the DOI’s operation as a result of the recommended budget. Marilyn Espinosa, Administrative Services Officer, Division of Insurance, Department of Business and Industry, said the original agency request included the use of funds from the Education and Research budget to partially fund the purchase of integrated software. It was anticipated that in the next biennium request some of the funds that are building up could pay for the cost of the integrated software.

Ms. Evans requested information regarding whether or not electronic claims processing will be a requirement in HIPPA, becoming effective within the next few years., Ms. Molasky-Arman responded that although Nevada follows the federal HIPPA law she was unaware of anything regarding that particular requirement in the Nevada HIPPA law. She said she would research it and provide the information to the subcommittee.

Senator Raggio announced that Senator Coffin would chair the remainder of the hearings on Department of Business and Industry budgets, including the Real Estate, Consumer Affairs, and Manufactured Housing Divisions and the Divisions of Financial Institutions, Agriculture, and Minerals. He said Senator O'Connell would chair the presentation on the Division of Industrial Relations.

Charles L. Horsey III, Acting Director, Department of Business and Industry, introduced William J. Maier, Administrative Services Officer, Director’s Office, Department of Business and Industry. Mr. Horsey gave his oral presentation from prepared remarks (Exhibit E) which were an overview of the issues confronting the Department of Business and Industry.

In regard to budget account 125, which proposes to close out the Center for Business and Advocacy and Services, Mr. Hettrick queried whether it would be moved elsewhere or eliminated. Mr. Horsey indicated the services provided by that office are duplicated by the university system at both the University of Nevada, Las Vegas (UNLV) and the University of Nevada, Reno (UNR).

Referring to budget account 4681, decision module M-200, on budget page BI-2, Mr. Maier indicated the budget request is for a Management Assistant I. It is a half-time student position to assist with reception duties, responses to consumers’ requests for information, filing, mail runs, photocopying, faxing, and regulating forms for the sole support in the Las Vegas office. In response to Senator Raggio’s question whether the position would assist visually impaired employees, Mr. Maier answered yes.

Elaborating upon the Department of Information Technology (DoIT), Mr. Maier said the Management Assistant I position was recommended in the legislatively funded business process reengineering (BPR) that was finished at the end of the 1997 Legislative Session. The request is supported by DoIT and was strongly recommended during the recent needs assessment of the computer network that serves the eight divisions in the Bradley Building in Las Vegas.

Senator Raggio said it appears the General Fund portion will be higher than it has been historically in supporting the administration budget. Mr. Maier replied assessments to the agencies are based on the amount of miscellaneous revenues collected. At the conclusion of the 1997 Legislative Session the revenues were approximately 70 percent from the agencies and 30 percent from the General Fund. Although the same allocation formula was used in the 1999 Legislative Session, the result was different. Mr. Maier indicated a statement was made in the 1997 Legislative Session that the decision units were based on a 70-30 split, but it was based on the split that existed in 1997. In order to maintain the 70-30 split the formula would have to be manipulated.

Referring to page 6 of the budget, Senator Raggio indicated the work program showed the actual for 1998 was $323,000, the interagency administration transfer was $446,000, the Governor is recommending $490,000 and $478,000 in each year, and the General Fund balance is decreasing. He requested clarification.

Rick Combs, Program Analyst, Fiscal Analysis Division, LCB, said the numbers reflect that the business advocacy office was funded with three positions entirely from the General Fund. When the three eliminated positions are placed back in the budget the numbers make sense, he said. Mr. Maier added that $100,000 was received for the Nevada Development Capital Corporation (NDCC).

Mr. Horsey pointed out that DoIT had been extremely cooperative and helpful.

Senator Coffin, Acting Chair, opened the hearing on the overview of the Real Estate Division budget.

Joan G. Buchanan, Administrator, Real Estate Division (RED), Department of Business and Industry, indicated the RED was created in 1947 as a regulatory agency for real estate licensees. Over the years the RED evolved beyond real estate to regulating subdivision sales, time shares, camp ground memberships, appraisers, 1031 tax-deferred intermediaries, home inspectors, and community association managers.

Ms. Buchanan said that after the 1995 Legislative Session the RED evolved into more of a citizen service-type agency and was given the responsibility of making a seller property-condition disclosure form available to the citizens of Nevada to be used by real estate licensees and sellers in real estate transactions. Additionally, the RED facilitates alternative dispute resolutions on home owner associations through neutral third parties. During the 1997 Legislative Session the RED added investment programs for community association managers.

Continuing, Ms. Buchanan said the RED operates with 33 full-time employees and 2 part-time employees located in offices in Las Vegas and Carson City, overseeing 20,000 licensees and operating on five budgets. Pointing out that the RED main budget is on page B & I-43, Real Estate Administration budget account 3823, Ms. Buchanan indicated the budget funds all operations, other than education and the ombudsman position. The main budget funds are used for licensing activity, time-share registrations, and housing developments, as well as compliance and enforcement. Despite the continuation of development, the situation is status quo concerning real estate licensees and appraisers, Ms. Buchanan continued. At the present time there is a big surge of time-share projects in Las Vegas. She noted there will be additions to the office space in the Las Vegas office in connection with new ombudsman programs. Funding is requested for Internet monitoring of real estate licensees and appraisers, which is a nationwide effort.

Regarding operating expenses, Ms. Buchanan explained that the RED has undertaken a public information campaign regarding seller property-condition disclosure. She stressed the importance of informing "FSBOs" ("for sale by owner" home sellers) about seller property-condition disclosure because they face triple damages should a defect in their property not be disclosed. She indicated funds were "salvaged" in that particular area, as well as in hearing rooms. Funds are required for administrators to attend judiciary college and an administrative law course.

Ms. Buchanan noted that over the past seven years the RED hearing processes have been streamlined, moving from straight hearings through the Real Estate Commission and appraisal, to stipulations on real estate, and then to administrative fines, reaching three levels. In December 1998 the Real Estate Commission passed a temporary regulation establishing an advisory-review committee, which is a peer group composed of RED staff and five members within the industry. Ms. Buchanan said the advisory-review committee is patterned after the State Board of Architecture, Interior Design and Residential Design, which has proven effective with 95 percent of their cases being resolved below the level of a commission hearing. Extra funding was therefore not requested even though additional cases are expected. The program is anticipated to be functional by the end of March 1999. Funding is also requested for updating computers.

In reference to module E-125 in enhancements, page B & I-46 of The Executive Budget, Ms. Buchanan noted that the Home Inspectors Certification Program was eliminated. She said there are 92 home inspectors at present, 44 of whom are in the process of becoming certified. The program began in July 1998 and revenues are anticipated to be approximately $33,000; there is a part-time person for $28,000. Questioning the "disposition" of home inspectors currently licensed for a two-year period, Ms. Buchanan indicated the RED will work with the Legislature to deal with this issue. She speculated the program will be rolled into another division. She said the home inspectors program creates standards of practice for home inspectors and provides a point of contact for individuals purchasing homes.

Senator Coffin asked whether a justification was given to the agency regarding the elimination of the home inspectors program. Don W. Hataway, Deputy Director, Budget Division, Department of Administration, answered that the reason for eliminating the home inspectors program was the determination that the existing RED staff was qualified to handle the program based upon the number of permits issued. Noting the rapid growth of the Las Vegas area, Senator Coffin inquired whether the home inspectors program will be adequately staffed. In response, Mr. Hataway indicated the evaluation at the time warranted the decision to eliminate the program.

Ms. Buchanan indicated the focus of the RED over the last few years has been community associations, the problems of which have become an issue nationwide. She noted that during the 1995 Legislative Session, then-Assemblyman Michael A. Schneider produced Assembly Bill 152 of the Sixty-eighth Session which she described as an unfunded mandate requiring alternative dispute resolution for homeowners before they can file a civil action in court. The alternative dispute resolution consists of arbitration¾ binding and nonbinding¾ and mediation.

Ms. Buchanan mentioned that during the 1997 Legislative Session, Senator Schneider developed legislation, Senate Bill 314 of the Sixty-ninth Session which created an ombudsman’s office to help homeowners and association members understand their rights and responsibilities, under chapter 116 of the Nevada Revised Statutes (NRS) as identified in their governing documents.

Commenting further, Ms. Buchanan said the Las Vegas office opened July 1998 and has handled homeowner problems to the best of its ability through the Governor’s Office, with resistance from some of the boards. She said Mary Lynn Ashworth, Ombudsman, Owners in Common-Interest Communities, Real Estate Division, Department of Business and Industry, attended homeowner meetings around the state and experienced unanticipated problems. Ms. Buchanan noted that the RED has studied homeowners association movements in Florida and throughout the United States.

Ms. Buchanan testified:

Ms. Buchanan noted that many people have been helped with erroneous foreclosure notices and community association roof problems and reported that Ms. Ashworth receives over 500 requests for assistance each month. Ms. Buchanan indicated that although pleased with the program’s progress, she was requesting a Management Assistant. She said she has been without this assistance since the program’s inception.

In conclusion, Ms. Buchanan mentioned "door fees," which are collected in Hawaii and Florida, and hypothesized that with the addition of more associations the amount of the fee would decrease. She said that in any event, it is impossible to make an assessment until legislation is enacted.

Senator Coffin complimented Ms. Buchanan on the performance indicators in the administrative budget, noting that the level of community interest demonstrates the enormity of the problem.

Patricia Jarman-Manning, Commissioner, Consumer Affairs Division (CAD), Department of Business and Industry, introduced Lorraine T. Newlon, Management Analyst, Consumer Affairs Division, Department of Business and Industry, who handles the accounting requirements of the division. Ms. Jarman-Manning indicated the CAD budget accounts are 101-3811, which is the main budget, and 101-3803, which is a pass-through account created to restitute aggrieved consumers. She reported that the agency is conservative and was not requesting any new programs, new positions, or additional funds.

Ms. Jarman-Manning noted that the performance indicators demonstrate a decrease due largely to an aggressive public education program launched as a result of the 1997 Legislative Session. There have been approximately 3,600 radio, television, and written public service announcements (PSAs). Ms. Jarman-Manning said she also does a great deal of public speaking throughout the state. The division received over 130,000 telephone calls as a result of the public education program. Ms. Jarman-Manning indicated the key to the agency’s success is that it is being proactive with consumers in the marketplace, as opposed to always being reactive.

Observing that one of the main functions in the CAD mission statement is to protect and educate consumers, Ms. Jarman-Manning said consumers have become more sophisticated than in the past about dealing in the marketplace.

Ms. Jarman-Manning stated that two items are requested in decision unit M-100; they are additions to existing items. Additional funds are requested for the "800" toll free telephone line because it is statewide, as well as nationwide. Ms. Jarman-Manning noted that the division has experienced costs in excess of $1,000 per month in calls on the 800 line and additional funds are therefore needed.

Ms. Jarman-Manning said decision unit M-200 reflects that there are quite a few hearings per month which are subject to judicial review. Should a business disagree with a decision rendered by the hearing officer, the next step is to present the case in court through a judicial review wherein a transcript is required. In an attempt to save money in the past, the hearings were tape recorded; however, when there was a challenge for judicial review the tapes were transcribed later at a cost of $1,000. Ms. Jarman-Manning declared it financially more prudent to transcribe the tape in the beginning.

In decision unit E-175 two small enhancements are requested, Ms. Jarman-Manning continued. The first is $175 for software magazines and brochures. In the past a handbook was included when a software package was purchased; currently, however, in order to execute a program a handbook must be purchased separately. The second request was for a 1-year enhancement in software. Ms. Jarman-Manning indicated the CAD is actively working on contingency plans for the Year 2000 (Y2K) problem and may be required to update software. She noted that software changes every 3 months and updates are necessary to maintain efficiency.

In response to a question by Senator Neal, Ms. Jarman-Manning indicated that training was requested for FYs 1998 and 1999 in two categories: Council for Licensure Enforcement and Regulation (CLEAR) and National Association of Consumer Protection Investigators (NACPI). The training was allocated for three investigators for CLEAR and four investigators for NACPI, and vice versa the second year. The training did not take place and has been included in the budget for the new biennium. Ms. Jarman-Manning emphasized that CLEAR is a vital tool which enables the CAD to remain abreast of fraudulent activities, learn new technology, and communicate with its peers around the country.

Answering another question, Ms. Jarman-Manning explained that CLEAR is composed of regulatory investigators around the country who are certified following intensive training on new investigatory techniques applied by regulatory agencies, and lectures from the Federal Bureau of Investigation (FBI), the Secret Service, and various police agencies around the country. Prior to 1997, CAD investigators were not privy to this training. Ms. Jarman-Manning stressed the importance of training personnel to deal with the issues with which they are confronted on a daily basis.

Mrs. Chowning extended congratulations to Ms. Jarman-Manning on the performance indicators, noting that the number of PSAs had gone from almost zero to approximately 3,500. She said the PSA is a "terrific" education aid to the consumer. Questioned whether arbitration is in the budget, Ms. Jarman-Manning said a mediation investigator was hired December 1997 and the program commenced March 1998; consequently, little money was spent in the next fiscal year. In FY 1999 the CAD was instructed to revert moneys to the General Fund, hence $9,000 of arbitration funds were reverted. In the new biennium, $3,500 is allocated for the mediation services, Ms. Jarman-Manning reported.

Senator Coffin mentioned he had not seen a performance indicator showing how much money is in claims status versus what was paid out. Ms. Jarman-Manning said it is difficult to predict because a case can come into the CAD in 1996, but the consumers might not be paid until 1999. The reward for any one company can never be more than $50,000 because that is the maximum amount of the held bond, and it takes 1 year to close a case. Ms. Jarman-Manning offered to prepare a report to inform the subcommittee how many hearings are on the books for 1999, which would close in 2000. Senator Coffin requested that Ms. Jarman-Manning submit to the staff, within 2 weeks, an aged list demonstrating amounts and the duration of time since the claim.

Renee Diamond, Administrator, Manufactured Housing Division (MHD), Department of Business and Industry, indicated the MHD is a 21-employee agency with offices in Carson City, Elko, and Las Vegas. She gave an overview of the MHD budget, contained in Exhibit F, which includes three new support positions and computer equipment.

Senator Coffin declared that, although his wife is director of a bank, he intended to retain the gavel and be involved with the subcommittee discussion.

L. Scott Walshaw, Commissioner, Financial Institutions Division (FID), Department of Business and Industry, indicated the FID has jurisdiction over three main budgets, the principal one being the operating budget. Within this budget the FID is responsible for licensing and supervising 13 different types of financial institutions ranging from banks to financial intermediaries, such as mortgage companies, installment-loan companies, collection agencies, and debt-adjustment firms. Mr. Walshaw referred the committee to the performance indicators within budget account 3835 for more detail.

Mr. Walshaw said there are two other budget accounts over which the FID has jurisdiction, one of which involves the creation of a position entitled Staff Certified Public Account (CPA). He reported that approximately 10 years ago the Legislature requested a CPA to be on staff and the budget account was created specifically to fund that position. The CPA position is funded through assessments levied against various licensees over which the FID has jurisdiction.

Further, Mr. Walshaw said the third account is the investigative account, the primary purpose of which is to create a means whereby the FID can perform background investigations on all applications and changes of control for the various licensees over which it has jurisdiction. In addition, the fund was created as a means of facilitating the FID examiners to travel out of state when necessary to perform special investigations where there was no licensing jurisdiction, and covering unforeseen investigative expenses not covered within the normal budget process.

Continuing, Mr. Walshaw indicated that in the "brave new world" of interstate banking there is a bank currently headquartered in Nevada which has administrative officers located in San Francisco and branches in New York City. Employees of the FID are presently in San Francisco performing an examination of this institution with the Federal Deposit Insurance Corporation (FDIC) in the state of California. Without the investigative account the FID would not be able to perform its regulatory responsibilities, and Mr. Walshaw extended kudos to the foresight of the Legislature in creating the account 10 years ago.

On the revenue side, Mr. Walshaw pointed out that the operating budget, although funded by the state General Fund, is actually funded by the various licensees regulated by the FID. He explained that the FID receives a General Fund appropriation at the beginning of the year, and by the end of the year the FID is required by statute and regulation to raise an amount of fees and assessments commensurate with the amount the General Fund appropriation actually expended. Therefore, in theory, if the full amount of the appropriation is spent, the FID is required to reimburse the General Fund for that amount. The FID refers to it as a "revenue neutral" budget, which means that basically the budget could be increased or decreased and the revenues that flow to the General Fund would increase or decrease commensurate with that amount.

Drawing the subcommittee’s attention to the main change in the FID budget, under decision module M-200, Demographic Caseload Changes, Mr. Walshaw said four positions are requested in each year of the biennium. The request is based on the fact that at present, by estimates of man-hours versus numbers of licensees, the FID is short three Examiner positions in the Las Vegas office. Mr. Walshaw also pointed out that the eight positions requested over the biennium are scheduled to be hired in the Las Vegas office, barring any change in licensees in the northern part of the state that might require the addition of another position. The amounts are earmarked for personnel, training, equipment, and all expenses related to the hiring of those positions. Mr. Walshaw said whatever is funded out of this request will be reimbursed by the responsible industries.

In response to Senator O'Connell’s request for further explanation of performance indicator 12, Mr. Walshaw indicated it involves general telephone inquiries received by the FID. He pointed out the actual amount in FY 1998 was underreported because only complaints were logged, not actual telephone inquiries, which he said explains the difference in the numbers. Performance indicator 13 reflects general inquiries from subjects relating from financial questions to the prime rate.

Referencing the performance indicators, Mr. Beers requested that when Mr. Walshaw returns to the subcommittee he provide the number of licensees in each category, the number and hours of examinations, and a trend on licensed institutions. Mr. Walshaw indicated he would comply with the request even though the numbers are constantly changing.

In compliance with Mr. Goldwater’s request to speculate on budgetary impacts regarding the recommendations of the interim committee to investigate mortgage investments, Mr. Walshaw indicated there were two major issues, one being the licensing of loan officers. There could be a major fiscal impact depending upon how wide a spectrum is involved, and whether it goes beyond so-called employees of license mortgage companies and would cover any individual involved in that activity. The outcome would be crafted on the number and the population versus the cost of administration, and setting up a licensing fee to cover the costs would be the key issue. Mr. Walshaw indicated the problem is not a lack of examiners to respond to license requests, but a shortage of employees to process, renew, and be responsible for background work on applications. At present, one State Gaming Control Board investigator is assigned to the FID to do all background work, which is work to date within an average time frame of approximately 60 to 90 days. Should hundreds or thousands of potential new licensees be added to that number, another Gaming Control Board position will be required, with the proviso that the position will be funded by a commensurate increase in revenue through the investigative account, Mr. Walshaw remarked.

In regard to the second issue, Mr. Walshaw indicated there was a question as to the licensing of exempt companies, which was previously proposed by the FID. He said an FID bill draft request addresses the issue and was crafted to have a minimal fiscal impact on the division whereby the new licensees will pay a fee that is within the scheme of the request to be revenue-neutral. That is to say, those individuals should be picked up and dealt with within the present budget without an increase, Mr. Walshaw stated.

Mr. Goldwater queried whether the burden on the FID would be alleviated should the Office of the Secretary of State take jurisdiction over the securities regulation aspect, or whether this move would change the scope of FID profits and affect its budget. In answer, Mr. Walshaw indicated there would probably not be much impact. It was his understanding that the secretary of state’s office is proposing to deal with something not being dealt with at the present time. In other words, disclosures by people doing private investment transactions, in the sense of being a security transaction, would be new to the table because those transactions are presently exempt. The FID and the secretary of state’s office do not consider those transactions in the same way; consequently, the budget impact falls more on the secretary of state’s office.

In response to Senator Neal‘s request for an explanation of the first two numbers in performance indicators 1 through 10, Mr. Walshaw answered the first number is the scheduled examinations in that category, and the second number is estimated man-hours needed to complete the examination. He said the first two categories, and the tenth category, are depository institutions that are insured by a branch of the federal government. In those instances, there are agreements with the federal regulatory agencies that oversee those respective licensees. In the case of banks it is the federal reserve and the FDIC, and in the case of credit unions it is the National Credit Union Administration (NCUA) for those that are federally insured. In those situations either an alternating examination cycle or a joint examination cycle is done. It is a function of the federal agencies’ desire and the internal rating of the institution. For instance, in one given year the FID may do all the examinations within its own organization, produce the report, and share it with those federal regulatory agencies. In another instance, the examination may be conducted jointly with the FDIC; therefore, the results of the examination are coauthored and shared accordingly. It reduces the manpower need because FID provides 5 or 6, people as opposed to 10 or 12, to accomplish the job.

Answering the query of how many unit banks are in the state at the present time, Mr. Walshaw indicated that, although the number changes often, currently Nevada has 28 banks but will probably lose 2 of them within the next two quarters. Answering Senator Neal’s question whether the loss is due to the Wells Fargo merger, Mr. Walshaw said it had to do with the acquisition of Comstock Bank and Nevada Banking Company, which are under the jurisdiction of the FID. He said the FID recently chartered a few independent banks, but there is a continuing trend of mergers and consolidations. Within the last year two banks were acquired within Nevada by a bank holding company from Alabama, and they are now being operated under the name Colonial Bank. Mr. Walshaw said there is a changing dynamic within the banking world as evidenced by the Wells-Norwest merger; however, it is a national bank and does not affect the FID. There is a cause-and-effect relationship every time a merger occurs and new banks are chartered. Mr. Walshaw indicated the FID will receive one or two more applications for the Reno market within the next quarter.

Mr. Walshaw pointed out that the "Y2K" (Year 2000) issue is a "hot button" with the FID. He assured the subcommittee that in the last biennium the FID foresaw the need to internally change over its computer systems and requested funds from the investigative account, not only to deal with the Y2K issue but to anticipate the need to equip its examiners with the latest laptop computers to facilitate their driving the newest Federal Reserve Board (the Fed) and Federal Deposit Insurance Corporation (FDIC) examinations. At present, the FID is in the process of implementing the changeover and acquiring equipment. The last of the equipment is scheduled to be purchased this fiscal year, which is the reason there are no computer requests other than those associated with the hiring of the new positions for the budget.

For the record, Mr. Walshaw stated that the FID is engaged with the FDIC, the NCUA, and the Federal Reserve Board, to pursue an aggressive review of banks and credit unions in Nevada to ensure their readiness for the Year 2000. However, Mr. Walshaw noted, much of this remains outside the control of the FID because many institutions use outside service bureaus and the FID relies upon the federal agencies to perform those examinations.

Responding to Senator Coffin‘s question whether or not there is "a handle" on the amount of cash that people will need to have on hand for Y2K, Mr. Walshaw indicated he attended a meeting in San Francisco for three days last week with nine western commissioners and representatives of the FDIC and the Federal Reserve Board to discuss those issues. The FID is working closely with the Federal Reserve Board, in particular, in attempting to formulate plans that will enable "the Fed" to make excess liquidity available toward the end of the year. Plans are being formulated with member banks, and banks that are insured, for that eventuality.

Mr. Horsey indicated that the general public must be educated to realize there is a commensurate differential in risk levels involved in different types of investments. Senator O'Connell recalled that something of this nature was done in 1985 which required the depositor to initial a particular paragraph acknowledging the investment risk factor. Mr. Walshaw pointed out that there is a disclosure requirement for people investing in uninsured thrift and loan companies, as well as mortgage companies offering private investment opportunities. He suggested that area be revisited to ascertain how the public is being educated about the risks at present.

Referring to performance indicator 12, Mrs. Chowning expressed amazement that the number of complaints about non-licensees in actual-year 1998 numbered only 346, when she personally heard probably 300 complaints. Asked whether the FID has bilingual staff, Mr. Walshaw said yes. Mrs. Chowning declared there is "tremendous" abuse wherein people who call themselves loan officers elicit the trust of this segment of the population and do not disclose interest rates or fees until the closing documents are to be signed, which is almost too late. Additionally, people who are neither licensed entities nor loan officers are soliciting funds from sellers of homes. Mr. Walshaw indicated that approximately a year and a half ago the FID hired an examiner who was formerly with the Office of Thrift Supervision but most recently had been an examiner with the Department of Financial Institutions in New Mexico, is bilingual, and has proven invaluable. Mrs. Chowning concluded by emphasizing that there is much consumer-protection work to be done.

Mr. Walshaw pointed out that depending upon what occurs with the licensing of loan officers and companies now exempt under statute, the numbers will shift into the area of licensed entities or will drop because the FID does not receive complaints regarding unlicensed entities because they are now licensed.

Calling attention to Mr. Horsey’s comments regarding disclosure and understanding risks, Mr. Goldwater referred to the special committee consisting of Mrs. Cegavske, Senator O'Donnell, and himself, and noted the last addendum unanimously approved by the committee was to provide the FID with adequate resources to accomplish its goals.

Paul Iverson, Administrator, Division of Agriculture (DOA), Department of Business and Industry, indicated that the DOA currently manages and administers 11 budgets, and the proposed changes will expand it to 13 budgets. He distributed a document entitled, "Department of Business & Industry¾ Division of Agriculture¾ Information Packet for Budgetary Review¾ January 27, 1999" (Exhibit G. Original is on file in the Research Library.) which contains a variety of documents and maps. He voiced his intention to go through Exhibit G focusing upon some of the programs administered by the DOA and some of the division’s major accomplishments and concluding with a discussion of the strategic plan, the legislative audit, the base-budget review, the genesis into developing outcome-based measurement indicators, and issues regarding some of the DOAs major reorganizations.

Mr. Iverson proceeded to explain the contents of Exhibit G page by page.

• Page 1 is the title page of Exhibit G.

• Page 2 lists the contents of Exhibit G.

• Page 3 consists of a map entitled "1998 Africanized Honey Bee Locations" which demonstrates the location of Africanized honey bees found in Las Vegas and the Clark County area. The yellow section of the map represents the regulated zone. All areas inside the regulated zone are now primarily "Africanized." Mr. Iverson indicated that should the Africanized bees "winter" this year, most of the bees within Clark County will become Africanized. The bees take on an aggressive nature as they settle. Mr. Iverson commented that last year it was fortunate the bees were swarming, not nesting, when they moved in during the summer and fall. The bees are currently finding homes, resulting in 40- to 50-pound hives filled with thousands of bees, in water mains and culverts. Mr. Iverson pointed out that whether or not the bees will "winter" in Clark County depends on the temperature and food source. He expressed gratitude and thanks to Senator Coffin for his support of the program.

• Page 4 contains a document entitled "Africanized Honey Bee Program Presentations Conducted by the Nevada Division of Agriculture." Mr. Iverson said that when Africanized bees first entered Nevada, a person was hired to conduct an education program to train emergency response personnel employed by most of the major casinos, all the cities and the counties and public lands.

• Page 5 is a brochure entitled "Preparing for Africanized Honey Bees."

• Page 6 is a map entitled "1998 Red Imported Fire Ant (IFA) Locations-Las Vegas." Mr. Iverson stated that the next major insect problem to hit Las Vegas is red imported fire ants, one of the "nastiest" insects in existence. The fire ants are moving from the southern part of the United States. Two locations were found and eradicated. One "find" that was tracked to Orange County, California, resulted in an 80-square-mile quarantine. Millions of dollars will be required to eradicate the fire ants. Mr. Iverson said that unfortunately most of the nursery stock in Las Vegas comes from Orange County where an attack by fire ants sent a man to the hospital.

• Page 7 contains a map entitled "1998 Imported Fire Ant (IFA) Infestation-Las Vegas," and demonstrates what is done when a fire ant nest is discovered. Two hundred traps, each containing a filter paper with apple jelly on it, are set out in a quarter-mile radius to determine whether the ants have moved out of the nursery. In such event the ants are eradicated as quickly as possible.

• Page 8 is the final map regarding fire ants, entitled "Distribution of Imported Fire Ants (IFA)-1998," and shows that fire ants entered the United States at Mobile, Alabama, moved into New Mexico and Arizona, where they were eradicated, and then emigrated into California.

• Page 9 is a photograph of a multiple-stinging incident. Mr. Iverson said the insects can sting repeatedly and people can have violent reactions if they are allergic to the bites. He emphasized the problem must be addressed in Las Vegas.

• Page 10 is a map entitled "Virginia Range Horse Herds" and represents two Virginia range estray horse surveys: the first, done in 1997, identified 413 horses; the second, in 1968, identified 568 horses. Mr. Iverson indicated there are some 600 to 800 horses in the area that are managed by the DOA and belong to the State of Nevada.

• Page 11 is a photograph of the DOA holding and adoption facility at Northern Nevada Correctional Center (NNCC).

• Page 12 is a brand inspection fact sheet demonstrating how many "brandings" are performed and the amount of funds generated.

• Page 13 is a brand inspector data sheet which is a form used to track each brand inspector to determine cost, revenues, and how much work is done in a particular area.

• Page 14 is a weights-and-measures data sheet that encompasses a continually growing program. Currently there are 22,590 devices that must be tested each year in Nevada, including scales, gas pumps, and all measuring devices used for commercial transactions. There are 14 individuals to handle the testing.

• Page 15 contains Mr. Iverson’s orally presented testimony on the five-page DOA document, including division statistics and facts, strategic plan and major reorganization, variances in measurement indicators for FY 1998 and FY 1999, statutory authority, and major programs.

Mr. Iverson indicated the DOA requested a 1,200-square-foot addition in Las Vegas, as well as a new fuels laboratory adjacent to the weights and measures office in Sparks. He clarified that although the funds would not emanate from the General Fund, it was a capital improvement project.

Answering an inquiry by Mrs. De Braga on the manner in which the DOA absorbs extra cost created by insect problems, Mr. Iverson indicated that due to tremendous growth the State Sealer of Weights and Measures office attained additional revenue. Approval was given by the Budget Division to hire a bee coordinator on a temporary basis in Las Vegas to train and work with school districts in the county using money that normally would have been reverted to the General Fund.

Responding to a query by Senator Neal, Mr. Iverson noted that the cost of bee removal is passed on to homeowners through pest control operators. Although the DOA hired an individual to do training, the division does not have the ability to remove bees other than in an emergency situation. The cost of eradicating a bee hive has risen from approximately $100 to $150-$200. Mr. Iverson stated that if the bees do not die off they will become permanent residents of the area and the population will learn to live with them. He noted that whereas normal bees swarm once a year, Africanized bees swarm approximately eight times a year. This situation could cause a problem for individuals on fixed incomes and unable to pay for eradication who could possibly become prisoners in their homes due to the existence of a hive on the front porch.

Senator Coffin indicated the DOA has been working on the Africanized bee problem since 1991. He added that the bees follow water courses that have a moderate climate and vegetation and will travel to Lincoln County; however, winter weather may prevent permanent nesting. In response, Mr. Iverson speculated that the bees have "gone as high as they are going to go."

In response to Mr. Marvel’s question whether or not Africanized bees could be classified as a public safety factor, Mr. Iverson said "Absolutely." He emphasized that both bees and fire ants, once established, are a safety and health issue. Fire ants are "nasty little critters" that harm livestock, pets, electrical and stop light wiring, and roadway insulation. He expressed hope that Nevada will not get them but said avoiding it will be difficult, given how easy it is for plant materials to enter this state.

Queried whether the DOA has authority to enforce gasoline standards regulations, Mr. Iverson answered the division has the ability to shut down a gasoline station should it not meet the standards and has police power in brands, animal health, quarantines, and weights and measures. He indicated the DOA was given authority during the 1997 Legislative Session to enforce fines, but the division attempts to settle problems cooperatively.

In response to Mr. Price’s question regarding whether or not fire ants or Africanized bees have any natural enemies, Mr. Iverson deferred to Jeff B. Knight, Entomologist, Division of Agriculture, Department of Business and Industry. Mr. Knight explained that Africanized bees have natural enemies who prey, feed, and parasitize them; however, the predators will not eliminate them. Several species of flies that prey upon fire ants are being studied in an effort to find ways to eradicate the ants. In addition, certain fungi has been brought into the United States to help combat fire ants. These steps have been taken in areas where the fire ants are established, such as Louisiana, Alabama, and Texas.

In reply to Senator O'Connell’s inquiry regarding whether the DOA presents training to speakers’ bureaus, Mr. Iverson said the division works aggressively with nursery groups and school districts in Las Vegas to provide training. There is only one individual performing training, as well as identifying the insects. Identification takes approximately 8 hours and includes dissection and study under a microscope, with the computer determining the final result, Mr. Iverson explained.

Mr. Beers asked, "When were the fire ants found? How long have the traps been set? Were any more fire ants found?" Mr. Knight explained that for 9 years the DOA has surveyed every nursery in Las Vegas receiving nursery stock from the southeast section of the United States. When fire ants are found, the following protocol takes place: The DOA travels to the site and places traps, and within 24 hours the ants find the bait. The division returns, takes samples of the ants, and returns them to the laboratory where they are identified. There exists in southern Nevada a native ant whose appearance is similar to the fire ant, thus requiring the use of a microscope to make a positive a positive identification. When an identification is made, the nursery is notified, the eradication procedure is performed, and all the nursery stock in the area is taken off sale. Then a quarter-mile survey is performed and traps are placed approximately every 60 feet within the suitable habitat. After a period of 24 hours the ants are picked up again.

Mr. Beers requested Mr. Iverson to present performance indicators on the results of the weights-and-measures inspection program when he returns to testify at the next subcommittee meeting.

Senator Jon C. Porter, Clark County Senatorial District No. 1, indicated he became involved with the problem after an insect incident in Boulder City, whereafter he made arrangements for Mr. Iverson to speak with the Las Vegas Business Conventions Authority (LVBCA). Following their conversation, Rossi Ralenkotter, Vice President of Marketing, LVBCA, worked with the LVBCA’s advertising agency to create a public service announcement program. The senator noted that a number of private agencies are confronting the problem. The cost factor is serious in that many people are unable to afford a private company to eradicate the bees. Senator Porter pointed out that local ordinances should be reviewed to allow local governments to assess private property owners who choose not to take care of the problem, in which event the bees would be removed by a private contractor to alleviate the liability factor.

Referring to budget account 4537, Mr. Iverson said two chemists are requested, one in Las Vegas and one in Carson City, to help study samples and permit the DOA more time to become involved in statewide and national policy dealing with fuel standards. In budget account 4540, one clerical position is requested to help enter data and provide support services. Two additional agriculturists are requested to inspect and monitor nurseries and pest control companies. A new continuing education program is being implemented for pest control operators. Mr. Iverson noted that historically an individual can be a pest control operator and spray chemicals for 20 years without being retested. One weights-and-measures inspector is requested. In addition, in budget account 4545, one more position in the chemistry laboratory is requested. Mr. Iverson pointed out that pesticides and fertilizers have become extremely complicated and more assistance is needed to keep up with the workload.

Mr. Iverson noted all the DOA budgets contain requests for new computers and equipment to remain abreast of technology. He called attention to two major reorganizational areas which resulted from the base budget review and audit. After working closely with the Budget Division and the Fiscal Analysis Division of the LCB, the DOA concluded that weights and measures should be taken from the agricultural budget and a separate budget created for weights and measures to better determine actual costs, fees, and requirements needed to run the programs.

Mr. Iverson indicated the DOA requests that Administration be placed into a separate bureau to better allocate funds. An allocation program has been submitted which will be reworked and studied throughout the biennium; subsequently, when presented in 2000, all the allocations, fee schedules, and expenses will be delineated to outline the type of allocation program needed to run the agency efficiently.

Referring to the two areas mentioned by Mr. Iverson, Senator O'Connell requested brochure information to distribute door to door throughout her senatorial district. Mr. Iverson expressed enthusiasm for such a project, indicating he would provide her a supply of pertinent information.

Alan R. Coyner, Administrator, Division of Minerals, Department of Business and Industry, introduced Doug Driesner, Director, Mining Services, and Wanda Martin, Program Officer. He distributed a six-page document which he referred to as "white papers," headed by a memorandum to the Nevada mineral industry, from Mr. Coyner, the subject of which is "Proposed Administrative Fee Increases," dated January 6, 1999 (Exhibit H).

Mr. Coyner said the Division of Minerals (DOM), as currently formulated, was created in 1983, and he is the third administrator of the agency. He recently succeeded Russ Fields, who spent 9 years at DOM and moved on to become president of the Nevada Mining Association. Mr. Coyner indicated the DOM interacts with and is directed by the Commission on Mineral Resources (CMR), which consists of seven members appointed by the Governor, six from industry and one from the public at large. The members represent large-scale mining, small-scale mining, exploration, oil and gas, geothermal, and the public at large. The members set policy for the division and advise the Governor and the Legislature on mineral-related issues. The CMR meets quarterly throughout Nevada to provide an opportunity for the members to tour mines and/or interact with industry in that particular location.

Continuing, Mr. Coyner said the DOM has four main administrative areas that are required by statute: industry relations and public affairs, regulation of oil, gas, and geothermal drilling activities and well operations, abandoned mine lands, and the state reclamation bond pool.

In the area of industry relations and public affairs, the DOM is called upon to advise the Governor and the Legislature on mineral resource issues, Mr. Coyner stated. The DOM cooperates with the Nevada Division of Environmental Protection (NDEP) to provide impact to its rules and regulations on mining, and the administrator sits on the Environmental Commission to provide a voice for mining. The division is becoming more involved with companies that are bankrupt or financially entangled with regard to bonding and reclamation in the state. Mr. Coyner indicated the division is often called upon by industry to help with permitting, regulation, bonding, and "cutting through red tape." The DOM annually compiles its mineral production and exploration activity in two publications, Major Mines in Nevada and the DOM Annual Exploration Survey, which are made available to the public and the Legislature. The division also interacts with federal agencies through the clearinghouse on public land-planning initiatives, and the abandoned mine lands program as well.

It was Mr. Coyner’s opinion that the DOM has created the most highly respected mineral education program in the United States, which is in large part due to Walt Lombardo, in the southern Nevada office, and Paul Iverson before he departed the agency. Two teachers’ workshops sponsored annually give over 250 Nevada school teachers the opportunity to learn about minerals and their importance to the state. All individual division staff members, from the administrator to front-office employees, give 100 classroom presentations per year. The DOM has helped other states develop their programs. Mr. Coyner noted a reciprocal publication effort with the Nevada Bureau of Mines and Geology (NBMG) and mentioned that he serves on the advisory board.

Mr. Coyner stated that the DOM assists law enforcement agencies on mining-related scams and receives many "cold calls" from people who request investment information on mining companies. He said that the division has a forward-looking web site that allows industry to download documents and access information.

Mr. Coyner said the DOM serves on rural task forces for the Nevada Association of Counties (NACO) and other entities to study implications for mining and agriculture, the decline of those industries, and the effect on their economies. The division recently participated in the Net Proceeds of Minerals Tax Workshop and is writing a "plain language" document entitled "Understanding Nevada’s Net Proceeds of Minerals Tax" for use by the public and the Legislature.

Mr. Coyner further testified that oil, gas and geothermal is a regulatory function for the DOM. The division cooperates with the Bureau of Land Management (BLM) on permitting and inspection, regulates well construction, makes determinations on spacing issues, and has a full-time petroleum engineer on staff. The DOM represents the energy interests of the state at a national level on the Interstate Oil and Gas Compact Commission.

The third function of the DOM involves abandoned mine lands and implements the most aggressive abandoned mine lands securing program in the nation. Mr. Coyner said the division has identified and ranked over 7,000 sites, and over 5,000 have been physically secured with fencing and signage. He pointed out that this effort is accomplished in cooperation with owners of current mineral claims, which are patented claims or private property. It is the responsibility of the division to secure "orphan hazards," which are areas with no claimants. This program included 100 schoolroom presentations last year, as well as public service announcements, billboard advertising, and a bumper sticker with the message "Stay Out and Stay Alive." The DOM coordinates with emergency-response teams when people wander into abandoned mines, which happened twice in 1998.

Mr. Coyner noted the division administers the state reclamation bond pool which provides an opportunity for smaller operators to acquire bonding that is required by regulators. The state reclamation bond pool historically has operated at between $1 million and $2 million at a total bond level; it is currently 72 percent funded by cash, and there has never been a payout due to a forfeiture. This is accomplished with 10 people, 8 in Carson City and 2 in Las Vegas, and annual budgets have been running at approximately $700,000.

The DOM is a unique agency in that it is 100 percent fee-based, which is not totally unique to the state; however, there are four classified positions and six unclassified positions, which is different, Mr. Coyner continued. The agency annually receives a small amount in grants from the BLM, which totaled approximately $60,000 in 1998 for the abandoned mine lands program. The division operates through two budget accounts: budget account 4219, a general-operation account, and budget account 4220, the bond pool account. This year the DOM is not requesting any BDRs, programs, or positions, very little maintenance, and no enhancements, Mr. Coyner remarked.

In reference to budget account 4220, budget page B & I-217, Mr. Coyner explained that the bond pool is essentially a reactionary budget in that the DOM is responsible to the demands of industry when they approach the agency seeking bonds. The division currently has 13 participants and 19 projects. Approximately $900,000 is the current bonded level, with $652,000 in cash reserve against forfeitures, premium, and deposit refunds, which give the 72 percent funded rate. One participant was terminated due to nonpayment of premiums and the agency is holding a $260,000 bond against him. Mr. Coyner said that fortunately the division foresaw the situation was risky and collateralized it with approximately $520,000 worth of equipment. The performance indicators are driven by the demand on the DOM.

Mr. Coyner indicated he was familiar with an industry that generated $3.3 billion of gross values and 7.8 million ounces in gold in 1998, which was a record production for the state. In regard to budget account 4219, the general-operational budget, page B & I-212, Mr. Coyner said the "mine identification securing" indicators dropped, and the actual program in FY 1998 was below what was projected. This was due to several reasons, including a slowdown in industry activity and the fact that some sites are more remote from urban locations and require more extensive travel, and are in smaller rather than larger groups.

Answering Mr. Dini’s question whether large companies or small miners would be paying mining claim fees, Mr. Coyner said there are at present approximately 7,300 claimants in the state, holding anywhere from 1 to 8,000 claims. Approximately half of the 7,300 are in the 1-to-10 claim group, that is to say the bulk of claims are held in small amounts. The large industry groups hold approximately 50,000 of the total 130,000 claims in the state.

In response, Mr. Dini queried whether those statistics had been brought up to the Nevada Miners and Prospectors Association (NMPA). Mr. Coyner pointed out that he and Mr. Driesner regularly attend the NMPA meetings in Yerington and have informed them of the proposed fee increase.

In reply to Mr. Marvel’s inquiry regarding how many claims will be dropped, Mr. Coyner said he could only judge the situation by what occurred in 1993 when the federal government placed a $100 rental fee on the claims, and consequently the claims dropped 50 percent, from approximately $300,000 to $150,000. He pointed out the fee was doubled from $1.25 to $2.50 to make the budget revenue neutral. Mr. Marvel suggested the fee was not statutorily imposed, rather the industry volunteered to pay it. Mr. Coyner responded it was a statutory fee. Mr. Marvel indicated it was imposed with industry support and Mr. Coyner agreed.

Mr. Marvel expressed concern that with the price of gold decreasing at the present time, another added cost diminishes the net proceeds; consequently, it can put people out of business. He suggested it would be more appropriate to have field hearings which would allow the industry to volunteer to fund the DOM. Mr. Coyner said he will take the suggestion under advisement.

In response to Senator O'Connell’s question whether the DOM supports the proposed administration fee increases, Mr. Coyner referred to the "white papers," dated January  6, 1999 (Exhibit H), noting they were a response to the CMR meeting in November 1998. He explained that the CMR, which is "his face to industry," endorsed the position that encompassed two changes in the current fee structure: one change increased the mining claims fee by $1, the other increased the administrative fee on oil and gas from 5 cents to 10 cents a barrel.

Mr. Coyner indicated the "white paper" (Exhibit H) was prepared in December 1998, drafts were circulated, and it was given limited release to industry in early January 1999. The paper focused upon a meeting with the board of directors of the Nevada Mining Association (NMA) on November 21, 1998, wherein Mr. Coyner explained and discussed the details of the DOM financial summary chart on page 5 of Exhibit H. His presentation included a discussion of the two administrative fee increases, as well as a demonstration that the DOM expenditures for the last nine years have remained constant at approximately $700,000, and staff went from 13 positions to 10 during that time. Mr. Coyner indicated he was informed by Russ Fields that the NMA will support the change in fees from statutory to regulatory, but will not support a legislative fee increase at this time.

In summary, Mr. Coyner stated the DOM will work with the NMA, the Legislature, and the CMR early in the 1999 Legislative Session to address the revenue shortfall. Senator Coffin responded by expressing appreciation for Mr. Coyner’s detailed presentation informing the subcommittee of the impending dispute and explaining that the revenue situation will be unsettled for a while. Senator Coffin assured Mr. Coyner that in any event the DOM will receive the funds needed after the questions of amount, and where the funds will come from, are answered.

Referencing the problem of worldwide oil production, Mr. Dini queried whether production is decreasing monthly in Nevada. Mr. Coyner answered yes; overall production has dropped below one million barrels annually, which is the lowest since 1983.

Senator O'Connell invited Mr. Coyner to be a participant with the "253 Committee" that is working on tax distribution. She mentioned that several small counties which depend on net proceeds of mines are experiencing major financial problems. Mr. Coyner indicated he would be happy to participate.

In conclusion, Mr. Coyner stated that in the first six months of FY 1999 he has not consciously constrained the activities of the DOM; however, in order for the agency’s budget to remain "net positive" by the end of FY 1999 under the current scenario, he may be forced to actively begin restraining the activities of the division in the next six months of the fiscal year.

Mr. Horsey explained that when he assumed the position of acting director of the Department of Business and Industry in July 1998, the Office of Labor Commissioner was the least-organized state agency and was experiencing at least two constituent-complaint calls a day. Further, he reported participating in an Interim Finance Committee (IFC) meeting wherein an unfavorable report of the computerization of its operations was addressed. After working with the labor commissioner to ascertain whether new leadership and/or guidance would solve some of the problems, Mr. Horsey decided this would be a disservice to the staff, constituents, and Legislature, and subsequently relieved the labor commissioner of his duties and appointed Gail Maxwell as acting labor commissioner.

Mr. Horsey stated that the responsibilities for spearheading the computerization and implementation of the four-part system were removed from the labor commissioner and transferred to the Director’s Office, primarily under the direction of Mr. Maier. Mr.  Horsey said the staff of the labor commission in Las Vegas worked feverishly to catch up. He noted substantial progress has been made on the implementation of the computerized system. Filling the position of labor commissioner is the highest priority, Mr. Horsey stated.

Mr. Hettrick complimented and concurred with Mr. Horsey on his decision to replace the labor commissioner.

William J. Maier, Administrative Services Officer, Director’s Office, Department of Business and Industry, indicated the Office of the Labor Commissioner is responsible for the enforcement of Nevada’s labor laws. Its mission is to protect Nevada workers through regulation and mediation of labor issues, to protect public works projects’ compensation rates, and to monitor employment practices relating to the employment of minors, apprenticeship training, on-the-job training for veterans, and private-employment agencies. The labor commissioner is also the secretary-director of the Nevada Apprenticeship Council.

Continuing, Mr. Maier said the actual budget request is minimal and addresses only two additional items. Referring to budget account 3900, page B & I-219, Mr. Maier indicated the first item in decision module 710 in enhancements is a request for a lease for the Carson City photocopier. He said the current copier is old enough that the vendor will no longer provide a maintenance agreement on it.

Mr. Maier reported the second item in module 720 in enhancements is for new equipment. The amount of $1,800 in the second year is for two cellular phones that were requested for auditors and investigators who travel to remote locations in the state. The actual equipment request, in the amount of $1,100 in the first year of the biennium, is for two safes that were recommended during an internal control review by the Department of Administration.

Referring to the performance indicators, Senator Coffin expressed concern about reconciling open and closed claims in order to ascertain the backlog. Responding to the question, Gail Maxwell, Acting Labor Commissioner, Office of Labor Commissioner, Department of Business and Industry, answered that currently the backlog in the Las Vegas office contains 1,500 open-wage claims with three investigators. A normal caseload should be between 40 and 45 cases each, and in this event the investigators are carrying approximately 500 cases. It appeared to Ms. Maxwell that the backlog carried forward from year to year had never been considered.

Answering Mr. Marvel’s query regarding how many claims are against unscrupulous contractors that come to Las Vegas from other states, Ms. Maxwell indicated the claims are against legitimate business employers. The auditor is addressing an additional 200 to 300 more claims in public works from companies that have filed for bankruptcy.

Senator O'Connell asked the date of the oldest claim and the amount of legal fees connected with wage cases. Ms. Maxwell answered that currently there are 122 claims dating back to 1997, and the remainder were filed in 1998. The legal fees that are collected and revert to the General Fund are under $1,000; however, the penalties imposed are paid to the claimants, hence the legal fees are minimal.

Senator O'Connell clarified that her interest was in the cases which went to court to challenge the decision of the division. Ms. Maxwell speculated there are three cases in court that have not been resolved, some of which go back 2 ½ years. Therefore, since the cases have not been resolved, the money has not been collected. Senator O'Connell related that one of her constituents experienced major problems with the labor commission and subsequently won after taking the case all the way through the court system. The senator expressed concern about the cost, and inquired at what point the division decides that whoever made the decision was correct before continuing the case through the system.

Ms. Maxwell explained that the agency does not initiate the case; rather, the hearing is held within the Office of Labor Commissioner, the decision is made by the hearing officer, and the respondent is the one who carries the case forward. In response to Senator O'Connell’s clarification that the information she was seeking is the cost to the division, Ms. Maxwell indicated the cost is due to the lack of training of hearing officers who are unable to write adequate reports. Judicial college training was requested for the labor commissioner, the deputy, and the administrative assistant; however, the request was removed from the original budget.

Senator Coffin requested an aged analysis of the claims. Mr. Horsey interjected that the basic complaints referred to him concern money on which people live, and the difference between what was promised them as an hourly wage and what they actually received. Senator Coffin gave assurance that the subcommittee understood the seriousness of the claims.

Mr. Maier indicated the 1995 and 1997 legislative sessions authorized funding to automate the statutory tasks for the labor commissioner’s office. The 1995 Legislative Session approved a one-shot appropriation for computer equipment, a business process reengineering (BPR), and the development of two of the labor commissioner’s system: one to monitor prevailing wage and public works, the other for licensing and regulating private-employment agencies. The 1997 Legislative Session further provided funding for three additional software packages: (1) a system to regulate and track apprenticeship programs, (2) continued work on the prevailing wage portion of the public works projects program, and (3) a wage complaint tracking system. The five systems funded were for public works projects, prevailing wage, private-employment agencies, apprenticeship programs, and wage compliance.

Continuing, Mr. Maier said in April 1998 it was determined that the apprenticeship program, modeled after software utilized by the state of Maine, would not be compatible with changes to the federal software. It was Mr. Maier’s understanding that the software was data operating system (DOS) based and the federal program was moving to "Windows." Subsequently, a presentation was made to the base budget review committee informing them that the apprenticeship program would not be continued until the federal software was complete. Therefore, the remaining four systems were not completed by the end of the fiscal year.

Mr. Maier said the labor commission approached the IFC on September 23, 1998, requesting an allocation from the contingency fund to complete the four remaining programs. The allocation was less than the amount of funds unspent in 1998 and was ultimately reverted. The IFC approved the allocation of the work on the systems and it resumed in October 1998, Mr. Maier remarked.

The Department of Information Technology was thorough and professional in its approach to getting the systems operating, Mr. Maier continued. Objectives were set which included specific completion dates, and the acting labor commissioner dedicated an employee in the north and in the south to test and implement the programs. Mr. Maier mentioned that certain employees from DoIT focused a "tremendous" amount of effort on the project. At this time the public works program is installed, north and south, and a postimplementation review is scheduled for February 24, 1999. Mr. Maier explained that a postimplementation review is a final review which provides the acting labor commissioner an opportunity to request enhancements or changes. The program appears to meet the current specifications and correctly compiles and generates the performance measurements.

Further, Mr. Maier indicated the prevailing wage program is installed and past survey information has been entered as being tested. The program will receive full testing when the business cycle begins in April 1999; the date surveys will be mailed out for the next cycle. Performance and operational indicators will be available by June 30, 1999, the date the surveys are returned.

Mr. Maier stated the private employment agency program has been installed and all new license renewals for 1999 will be entered into the system. Acceptance testing has been completed and the system appears to meet specifications and is generating indicators. A postimplementation review is also scheduled for this system on February  24, 1999.

Mr. Maier said the wage-complaint program has met its phase 1 development deadline of January 15, 1999, which was basically the beginning development of the program. It is currently being tested through the entry of current data. Phase 2 links this system with the correspondence on the reports to be generated by the system, and is scheduled to be completed February 5, 1999. Full testing will begin immediately upon completion of the second phase and the reports portion of the program should start generating the statistics that produce performance measures after that date.

Mentioning that a new indicator was requested by the Legislature concerning wages collected from Nevada workers, Mr. Maier indicated the information has been prepared and will be provided to the LCB fiscal analyst, as well as the updated indicators that were presented in the expanded narrative. He reported that the performance indicators presented in the budget presentation are incorrect, and explained that when Ms. Maxwell reviewed the numbers to verify them, she submitted new indicators as part of the expanded program narrative that addressed the backlog and other issues.

Mr. Maier further testified that during the 1997 Legislative Session, the labor commissioner was requested to ascertain, by networking with his peers throughout the states, whether he could do a better job on collection of the prevailing wage. At that time, approximately 15 percent of the requests were answered and they all appeared to emanate from unions. Senator O'Connell asked whether that subject had been taken into consideration in the presentation. In response, Ms. Maxwell indicated there are four staff members dedicated to public works and prevailing wage issues throughout the state, consisting of two auditors and two clerical personnel. There are no monitors nor anyone assigned to review prevailing wage files for compliance. Each investigator, carrying 500 caseloads, has been charged with reviewing files for compliance for public works one day a week. The entire staff is cooperating in every area to maintain the agency; however, there are no extra employees to monitor the job sites.

Senator Coffin transferred the gavel to Senator O'Connell, who chaired the remainder of the meeting.

Roger Bremner, Administrator, Division of Industrial Relations (DIR), Department of Business and Industry, gave his oral presentation (Exhibit I), which was an overview of the major areas recommended by the Governor for the division.

Answering Mr. Marvel’s question, Mr. Bremner indicated funding will not be affected by 3-way workers’ compensation insurance; however, it will be necessary to revamp the assessment system to include 3-way workers’ compensation insurance in the funding. He explained that the DIR funding is placed on all workers’ compensation providers, is included in the assessment, and is revenue-neutral. Mr. Marvel queried whether the DIR inspects building cranes and Mr. Bremner responded yes. He elucidated that in the 1995 Legislative Session there was extensive debate on crane-safety legislation which promulgated the adoption of some regulations.

With respect to the recommended media campaign, Mrs. Chowning asked whether, in the absence of performance indicators, the contract includes benchmarks for distributing safety information to the workforce. Mr. Bremner indicated the administrative officers in the safety consultation, training, and industrial insurance regulation sections have been requested to revisit their performance indicators and report back to the subcommittee.

Senator O'Connell noted that with the advent of 3-way workers’ compensation insurance, certain regulatory duties are currently performed by the system. With the understanding that those duties will be transferred to both the Division of Insurance (DOI) and the DIR, Senator O'Connell asked how the duties will be segregated. Mr. Bremner answered the DIR is assuming most of the regulatory responsibilities and will be the repository for claims and insurance data insofar as who is providing what coverage for which employer. He was uncertain what responsibilities will be assumed by the DOI.

Mr. Horsey indicated he anticipates the DOI will have the primary responsibility for licensing and regulation of the 300 companies involved, with a certain amount of crossover and duplication. The DIR will have primary responsibility for ensuring that the approximately 40,000 businesses have coverage in place.

Senator O'Connell stated the market generally controls this particular area with regular insurance companies and wondered how many duplications of service will occur with 3-way workers’ compensation insurance. Mr. Horsey responded the project is a "huge" endeavor with the focus upon a July 1, 1999, completion; consequently, there has been no opportunity to concentrate on overlaps in authority.

In response to Senator O'Connell’s question whether he had an opportunity to investigate other states to ascertain the manner in which their regulatory divisions are split and defined, Mr. Bremner answered he had not, but said it is a task that could be assigned to the staff.

Answering Mr. Marvel’s query, Mr. Bremner indicated there are 12 employees in mine inspection and 2 new positions have been requested. In response to Mr. Marvel’s next question, Mr. Bremner stated the primary mission of the DIR is safety training, which is conducted extensively.

Senator O'Connell inquired whether any outstanding regulations are presently in the hearing process. Mr. Bremner said one outstanding regulation on the DIR medical fee schedule was recently completed. The DIR is in the process of developing regulations with regard to the implementation of the proof-of-coverage and claims-information system. Mr. Bremner stated that at this time the DIR can only adopt temporary regulations; however, there will be regulation hearings in the future with regard to proof of coverage and the claims-information system.

There being no further business, the meeting was adjourned at 4:25 p.m.

RESPECTFULLY SUBMITTED:

Barbara Moss,

Committee Secretary

APPROVED BY:

Senator William J. Raggio, Chairman

DATE: