The Senate Committee on Finance was called to order by Chairman William J. Raggio, at 8:15 a.m., on Monday, April 12, 1999, in Room 2134 of the Legislative Building, Carson City, Nevada. The meeting was videoconferenced to the Grant Sawyer State Office Building, Room 4412, Las Vegas, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. All exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.

COMMITTEE MEMBERS PRESENT:

Senator William J. Raggio, Chairman

Senator Raymond D. Rawson, Vice Chairman

Senator Lawrence E. Jacobsen

Senator William R. O’Donnell

Senator Joseph M. Neal, Jr.

Senator Bob Coffin

Senator Bernice Mathews

STAFF MEMBERS PRESENT:

Barbara Moss, Committee Secretary

OTHERS PRESENT:

Senator Raggio indicated S.B. 517 was amended and do passed on April 7, 1999, and Amendment No. 456 changes the amount in the bill to $321,570. There being no objections, the senator stated Amendment No. 456 would be submitted with the bill.

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Senator Raggio closed the hearing on S.B. 517 and opened the hearing on S.B. 507.

Senator Raggio stated S.B. 507 was amended and do passed on April 7, 1999, and Amendment No. 455 changes the amount in the bill to $16,187. There being no objections, the senator indicated Amendment No. 455 would be submitted with the bill.

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Senator Raggio closed the hearing on S.B. 507 and opened the hearing on S.B. 112.

Larry L. Spitler, Lobbyist, Clark County School District (CCSD), requested on behalf of the Clark County School District S.B. 112 be withdrawn because it was deemed all available resources should be dedicated to dropout prevention, theme schools, and other such areas. He indicated S.B. 112 would be a very good bill in better economic times.

Senator Coffin asked for assurance the CCSD would not request funds from the regular Distributive School Account (DSA) appropriation should S.B. 112 be withdrawn. Mr. Spitler assured the senator the CCSD would not request funds from the DSA appropriation.

Senator Raggio entertained a motion to indefinitely postpone S.B. 112 at the request of the Clark County School District.

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Rosetta Johnson, President, Alliance for the Mentally Ill of Nevada, chartered by the National Alliance for the Mentally Ill (NAMI), distributed a packet of information entitled "Open Your Mind¾ Mental Illnesses are Brain Disorders" (Exhibit C. Original is on file in the Research Library.). She read her prepared testimony, which was contained in the packet, and explained the reasons NAMI supports S.B. 142, including information regarding education, treatment, advocates, affiliates, and family members of the mentally ill. Ms. Johnson pointed out the packet also contained information on the Family-to-Family Connections Program and testimonials of individuals who have taken part in the NAMI program.

Senator Raggio asked from what sources NAMI receives funding. Ms. Johnson stated most of the money comes from NAMI conferences. She indicated a fee is charged to attend the conferences, expenses are paid by donations from other sources such as pharmaceutical companies and businesses, and NAMI dues bring in the remainder of the funds. Senator Raggio inquired the amount of time NAMI has been in existence. Ms. Johnson answered NAMI has been in existence since 1994.

Senator Raggio indicated the committee would require a copy of the NAMI budget showing revenues, expenditures, and specificity regarding the manner in which NAMI would utilize the appropriation should it be granted. Ms. Johnson said she would provide the information to the staff as soon as possible.

Senator Raggio asked whether a course to educate and support family members of people with serious brain disorders is proposed or exists at present. Ms. Johnson answered no. She pointed out S.B. 142 states erroneously that NAMI conducted a training program in the state of Nevada, and should read that the program has been done in 32 states throughout the United States over the past 5 years. She indicated that during her time as president of NAMI an attempt has been made to no avail to obtain funding for the program. Ms. Johnson said this is the reason she is appealing to the Legislature.

Elizabeth Lee, President, Washoe County Affiliate, NAMI, read her prepared testimony (Exhibit D) in which she explained her reasons for supporting S.B. 142 and the importance of a working relationship with doctors, case managers, and others in the process of helping a family member of a mentally ill person. She indicated she is the resident manager of a rooming house dealing with as many as 40 mentally ill tenants in any given month. She said she has been involved in human services work for the last 30 years. Ms. Lee declared that until December 1989 her life was full and happy with a loving husband and an extended family including two grandchildren. She said the effects of hormone replacement therapy sent her into a major depression. She related the problems this condition brought to her family and herself.

Ms. Lee confessed writing her testimony caused her to experience flashbacks about her mental illness, which she compared to posttraumatic stress disorder in a war-time situation. She indicated her family refused to accompany her to the hearing because they considered it too painful to relate their story. Ms. Lee lamented she was no longer allowed to see her two grandchildren because her family perceived that her mental illness might affect them. She said her daughters-in-law never received education regarding depression and did not understand the condition would not place the children in danger.

Asked about support programs for families of mentally ill people, Ms. Lee indicated she conducts a weekly support group through NAMI for consumers and family members. It was her understanding that another small support group also exists. She commented there are not enough resources to provide needed education. She indicated she works with many people who have not been in contact with their families since their mental illness surfaced. Ms. Lee pointed out it is the "in thing" to throw a mentally ill person away so as not to be required to deal with the problem. She emphasized this is a great loss for the consumer and the family as well. She pointed out a mentally ill person is a human being with a brain, albeit confused at times or suffering depression. Ms. Lee said people with little knowledge of mental illness do not understand their feelings and "act out" with bizarre behavior at times; however, they can function normally with medication and proper support.

Senator Raggio asked whether other programs exist that assist families to understand mental illness. Ms. Johnson answered she was unaware of any other programs. It was her understanding the Nevada Mental Health Institute has training programs during the day; however, the NAMI philosophy is that one-on-one support from a person who has suffered mental illness is more effective than counseling by a professional who is unable to provide personal empathy.

Senator Raggio pointed out revenues are limited this biennium and there is no guarantee that requests from support groups will be honored. He asked how many families would be reached over a 2-year period should an appropriation be granted. Ms. Johnson estimated about 320 families would be reached over a period of 1 year. She explained eight "pairs of trainers" located throughout Nevada meet at a "training point" over a weekend to receive training. All their expenses, including food, lodging, transportation, and materials, are paid. She said the trainers return to their areas of the state after the weekend and conduct a 12-week program for up to 20 individuals. Ms. Johnson noted that over a period of 1 year, with two sessions at each location, about 320 people are educated about mental illness. She indicated the funds would create a "help line" which does not exist at present.

Anna Uptergrove, President, Carson City Affiliate, NAMI, read her prepared testimony (Exhibit E) outlining her devastating personal experiences as the mother of a brain-disordered child and the reasons S.B. 142 should be passed. She declared NAMI provides an open door for parents to release their fears and express their anger and despair. She emphasized parents are role models and without knowledge of brain disorders they are unable to cope with their self-denial, anger, and shame. Ms. Uptergrove indicated all these emotions are the controlling forces against recovery.

Ms. Uptergrove said she receives numerous telephone calls from people requesting information about various types of brain disorders, such as schizophrenia, manic depression, bipolar disease, and so forth. She indicated that every other month she plays tapes on various brain disorders for these individuals to help them become knowledgeable about the diseases. Ms. Uptergrove stressed there is a tremendous need for understanding and education about mental illness and brain disorders.

Continuing, Ms. Uptergrove mentioned the Mental Hygiene and Mental Retardation Division was monitored by the federal government a few months ago regarding what was being done for the mentally ill in Nevada. She reported the most important information to be gleaned from the monitoring process was how little education is received by the parents of mentally ill children in the state of Nevada. She emphasized resources are very limited in the state and S.B. 142 would provide the avenue for much-needed mental illness education.

Vic Davis, President, Southern Nevada Affiliate, NAMI, read his prepared testimony (Exhibit F) which detailed his personal experiences with confronting mental illness, the help he received from NAMI, and a plea to look favorably on S.B. 142. Senator Raggio asked the source of funding for the southern Nevada NAMI. Mr. Davis answered donations and membership dues provide funding. He indicated all members of the organization are volunteers and provide two family support groups, one in Las Vegas and one in Henderson, and a bipolar support group. Senator Raggio requested a copy of the southern Nevada NAMI’s budget, including revenue, expenditures, and plans for the appropriation should it be granted. Mr. Davis indicated he would comply with the request.

Senator Neal queried whether a number of mentally ill persons are incarcerated rather than given treatment. Mr. Davis indicated incarceration of mentally ill people often occurs, particularly when the person has been expelled from his or her home and is living on the street.

Ms. Lee indicated she had observed mentally ill consumers being turned out of the hospital onto the street due to their lack of resources. She related that mentally ill persons had been removed from her home by the police because they had "acted out" and there was no support system to help them. She indicated case managers are overworked, with caseloads of up to 60 individuals. Ms. Lee pointed out it is impossible to regulate 60 people on an everyday basis. She declared the "clients" require daily contact to ensure they are taking their medication. She stated "the system" is making victims of everyone, including consumers. Ms. Lee maintained that when the consumer runs out of money and ends up downtown gambling and drinking, not taking his or her medication, the illness is exacerbated and the person winds up in jail. She emphasized these individuals need treatment, not incarceration. Ms. Lee remarked the scenario could be stopped with family support.

Senator Raggio asked what action a hospital can take when a person with bipolar disease chooses not to take his or her medication and "acts out." Ms. Lee answered the hospital plays "the revolving door game," which means the person is checked in long enough to be put on medication, then released and not provided follow-up care.

Senator Raggio put forth a scenario of a person suffering with bipolar disease who only takes medication to please his family. The person decides to cease taking medication because he perceives himself as normal and not needing the medication. The lack of medication exacerbates the illness, causing him to "act out" in an abnormal manner. The senator queried whether law enforcement could compel the person to enter the hospital even though he or she did not wish to do so. In response, Ms. Lee stated law enforcement cannot take action unless the person is a danger to himself or others.

Ms. Lee indicated individuals with brain disorders do not have to play the "revolving door game" if they are provided a family support group. She noted that should a person in her rooming house go off medication, the others will work as a family unit to convince him or her to get back on medication in order to feel better. She stressed a trusting relationship with a support group can be of great benefit to a person with mental illness.

Senator Raggio closed the hearing on S.B. 142 and opened the hearing on S.B. 143.

Senator Rawson pointed out the Senate Committee on Finance makes decisions that affect children in the state of Nevada which involve hundreds of millions of dollars. He indicated the difficulty involved in culling out statistical information needed to make those decisions. He said the Annie E. Casey Foundation grant started the Nevada Kids Count project and collects the needed statistics. The senator reported the grant is "at completion" and S.B. 143 would provide state funds to continue Nevada Kids Count. Senator Rawson asserted the state cannot do without the information. He said the report on vital statistics contains limited information and only covers population, birth, death, pregnancy outcome, suicide, "motor vehicle," and a small number of child health issues. Senator Rawson declared the Nevada Kids Count project expands into many other important areas for which statistical information is needed for use in making decisions on funding children’s programs in Nevada.

Dr. Paula R. Ford, Executive Director, WE CAN, Inc., Nevada Chapter, National Committee to Prevent Child Abuse, and Chair, Nevada Kids Count Advisory Council, indicated her intent to testify in support of S.B. 143. She expressed thanks to Senator Rawson for sponsoring the bill and for his work and service on the Nevada Kids Count project over the past 3 years.

Dr. Ford stated Nevada Kids Count is a statewide collaborative project that brings together a wide range of organizations from all over the state involved in working with children and families in Nevada. She distributed a packet of information (Exhibit G. Original is on file in the Research Library.) which lists the participating organizations and agencies involved in the Nevada Kids Count project. She indicated the purpose of the Nevada Kids Count project is to collect the best available data on the condition and status of children in Nevada to identify their needs and problems. She asked, "How can we make decisions about our children’s lives if we don’t really know what their problems are?" Dr. Ford said the Nevada Kids Count project annually publishes the "Nevada Kids Count Data Book" contained in Exhibit G.

Continuing, Dr. Ford said the Annie E. Casey Foundation funded the Nevada Kids Count project for the last 3 years and also Kids Count state projects in all 50 states and the District of Columbia. She said that 2 years prior to receiving the grant from the Annie E. Casey Foundation, Nevada was the only state in the nation which did not have a state Kids Count project. She pointed out this is the final year of the Annie E. Casey grant and explained the grant money is reduced by 50 percent in the final year.

Dr. Ford called attention to a letter contained in Exhibit G from the Annie E. Casey Foundation supporting S.B. 143 and urging the states to "take some responsibility for the commitment." She explained the Annie E. Casey Foundation invests $400,000 over a period of 4 years in all states in which the foundation funds projects. She reported the Annie E. Casey Foundation invested that amount of money in the state of Nevada. The foundation determined at the end of the grant period the state should take responsibility for funding in order that Nevada may continue to have the best available information on its children’s problems, Dr. Ford remarked.

In conclusion, Dr. Ford requested the state help fund collection of the data to be presented to legislators, decision makers, and agencies all over Nevada that work with children. She urged the committee to support S.B. 143.

Senator Neal asked the manner in which the count is obtained. Dr. Ford indicated the Nevada Kids Count project is a collaborative effort. She said agencies and organizations, including the University of Las Vegas Center for Business and Economic Research, collect data from various sources. Among these are the Nevada Department of Education, the Office of Vital Records and Statistics, the Division of Child and Family Services, and other entities which collect data or have it available. She stated that every year the Nevada Kids Count project expands upon items concerning children and the information is included in the book. Senator Neal inquired whether the count is an estimate. Dr. Ford said the count is "the exact data collection of everything." Senator Neal contemplated that the census would be taken next year and suggested a more accurate count could be obtained from it. In response, Dr. Ford indicated the count is collected from state agencies as well as from census data.

Senator Coffin stated the Clark County census has been undercounted and it is suspected much of the undercount is of children, which is the reason the census is considered unreliable. Ms. Ford responded that because of its burgeoning population, Clark County is undercounted in every way insofar as the census. She declared the Nevada Kids Count project prefers data collected from state sources, which are more reliable than federal sources.

May S. Shelton, Director, Washoe County Department of Social Services, stated that until recently she served on the advisory council for Nevada Kids Count, but currently the organization has an agency representative. She indicated the statistical information has helped to ascertain where Washoe County needs to improve and has proven useful in planning services. Ms. Shelton pointed out the "Nevada Kids Count Data Book" (Exhibit G) shows a comparison of Nevada to the nation on page 18, and Nevada trends are shown on page 19. She indicated the trends demonstrate whether the state is improving or regressing and points out what needs to be done by the state and the network of agencies which serve children. Ms. Shelton indicated she supports S.B. 143 and anticipates $150,000 can be found to fund the program.

Senator Raggio asked how the $150,000 would be used. Ms. Shelton answered the money would be used to continue the Nevada Kids Count project and to annually collect and publish the "Nevada Kids Count Data Book." Senator Raggio requested the committee be provided a budget, the projected revenues and expenditures, and the source of funding of the Annie E. Casey Foundation. Ms. Shelton said she would comply with the request.

Senator Raggio closed the hearing on S.B. 143 and opened the hearing on S.B. 141.

Senator Maurice E. Washington, Washoe County Senatorial District No. 2, indicated S.B. 141 is a request for appropriation for a sound wall to be constructed on the corners of McCarran Boulevard and Pyramid Way in Sparks adjacent to a new shopping center completed about a year ago. He said a sound wall currently exists going north on the east side of Pyramid Way. He indicated the Nevada Department of Transportation (NDOT) will construct the wall on both sides of McCarran Boulevard. The senator noted appropriations have been requested from the Highway Fund.

Dennis Baughman, Public Hearing Officer, Nevada Department of Transportation (NDOT), stated that when most of the highways and freeways in Nevada were built the noise mitigation standards were lower than for freeways built at present. He said that since freeways were built there has been tremendous growth in urban areas and an increase in the number of homes affected by traffic noise. Mr. Baughman said local governments allow new residential developments to be built next to freeways without requiring developers to provide noise mitigation. He stated that to provide noise mitigation on all the affected sections of freeway is estimated to cost more than $100 million, not counting surface streets, which are the subject of S.B. 141.

Continuing, Mr. Baughman stated that NDOT has initiated a retrofit program to mitigate noise around the worst sections of Nevada’s roads in a cost-effective manner. He said the program will give priority to areas that have received matching funds from local governments and endured the loudest noise for the longest time. He noted the matching-fund criterion should encourage local governments to share the responsibility for traffic noise. Mr. Baughman remarked that since local governments have approved and developed roads adjacent to residential areas, they should be required to share the cost of retrofitting noise walls.

Commenting further, Mr. Baughman indicated he had conferred with Senator Washington and Tom Stephens, NDOT director, and they agreed to scale back the sound wall proposal to approximately 1,500 feet. He said this would basically cover the residential areas of the intersection of McCarran Boulevard and Pyramid Way. He indicated the intersection has become increasingly busy with the addition of a large development on the corner. Mr. Baughman said the reduced request would lower the project’s cost estimate to about $210,000.

Mr. Baughman said that although the subject of S.B. 141 is not a freeway, which is the target of NDOT’s retrofit program, McCarran Boulevard is on the national highway system and Pyramid Way is one of the most heavily traveled state highways. Therefore, Mr. Stephens agreed to include a sound wall project for this area in NDOT’s proposals for the FY 2000 transportation improvement program. Mr. Baughman indicated the project will be presented to the Washoe County Regional Transportation Commission and the NDOT Board of Directors for approval without requiring matching funds from the City of Sparks.

Mr. Baughman mentioned that Mr. Stephens intends to request the City of Sparks to institute an ordinance requiring future developers to share the cost of noise mitigation. He said it is the opinion of NDOT that such an ordinance would prevent the problem from worsening. He indicated the proposed ordinance would eliminate the need for S.B. 141.

Tina Clowers, Citizen, Sparks, indicated she resides at the corner of McCarran Boulevard and Pyramid Way in Sparks. She said a shopping center was built at that corner about a year ago, a church has been approved on the other corner, and within 2 miles another major shopping center will be constructed. She indicated the traffic has become a danger to children and pets in the area and the sound level is consistently high from 6 a.m. until 2:30 a.m. Mrs. Clowers emphasized the sound barrier is greatly needed.

Tim Clowers, Citizen, Sparks, indicated the intersection is the oldest part of McCarran Boulevard and nothing has been done to alleviate any problems concerning it. He noted that less than a mile away a 12-foot wall exists at Rock and McCarran Boulevards.

Senator Raggio pointed out there will be some alleviation of the problem for 1,500 feet according to NDOT’s proposal. He indicated every legislative session brings requests for appropriations to deal with issues of this nature and it would take $100 million to alleviate all the situations along the heavily traveled areas. In response, Mr. Baughman said the $100 million figure would only cover the freeways and not the surface streets.

Senator Raggio asked what was being done presently to prevent these situations in the future. Mr. Baughman stated that when a freeway is built or expanded, a noise study is done which includes a model predicting traffic conditions in 20 years. He said sound walls will be built if it is determined noise levels exceed the federal impact of 66 decibels. He declared there are, unfortunately, undeveloped vacant land areas in Las Vegas where freeways are being built or expanded. Mr. Baughman lamented that the federal government prohibits the use of federal funds to build sound walls to protect vacant land even though it may be zoned residential or commercial and will be developed some time in the future. However, state funds may be used to build sound walls in those instances. He indicated the retrofit program set aside $2 million a year to study the worst areas in the state and to use in an attempt to obtain local matching funds.

Senator Raggio reflected it is incumbent upon local government to share the cost once a freeway is in place. He commented there should be a commitment from either the developer or the local government to make sure the noise barrier is adequate before developing the property. Mr. Baughman indicated that NDOT has requested local governments to require developers to fund noise mitigation should they approve development next to a freeway. Senator Raggio responded that should the developers and local governments not cooperate in this situation the problem will continue forever.

Senator Mathews remarked that every legislative session brings forth a sound wall bill. She said some of the older neighborhoods do not have sound walls where the decibel levels exceed federal impact. She expressed understanding for the concern of young parents who not only fear automobiles crashing into their yards, but also worry about pollution and hearing damage from high noise levels. Senator Mathews thanked Senator Washington for being aware of the needs of people in residential neighborhoods and suggested an ordinance for both cities and counties may be the solution to the problem.

Senator O'Donnell asked whether the Regional Transportation Commission (RTC) had put the problem on its priority list. Mr. Baughman answered that NDOT has requested the approval of the RTC. Senator O'Donnell remarked S.B. 141 requests funds. Senator Raggio responded the bill will be withdrawn. He explained the bill will not be necessary because NDOT put it on its system and is awaiting confirmation from the Sparks City Council. Mr. Baughman confirmed NDOT will place the project in its FY 2000 transportation improvement program and the sound wall will be built with state highway funds and will not require a General Fund appropriation. Senator O'Donnell pointed out the RTC will determine whether the request is valid and indicated there is no representation from the Legislature on the RTC.

Senator Rawson asked the height of the sound wall and whether it will be constructed with prefabricated concrete. Mr. Baughman answered the sound wall will be 6 feet high and contain concrete block or post and panel construction.

Senator Coffin, noting that experiments are being conducted by NDOT to reduce the cost of sound walls, inquired how many different types of sound walls are being studied and what the results are. Mr. Baughman indicated experiments have been made on a 3-foot Jersey barrier extension in Las Vegas, and another 3 feet of concrete will be built on top of that. He said 6 feet is as high as the barrier can be built due to wind-load factors. He declared that the effectiveness of the sound wall depends upon the area. Senator Coffin suggested a plastic or semiplastic barrier with slotting or perforation might allow the sound wall to be built higher. Mr. Baughman indicated a study commission is studying different types of products in order to attain the most for the money and the study should be completed in the next 3 or 4 months. Construction of the sound wall must adhere to certain standards, Mr. Baughman remarked.

Senator Raggio closed the hearing on S.B. 141 with the understanding that, based upon the representation made by NDOT, the bill can be indefinitely postponed and the matter will be determined in another venue.

Senator Raggio opened the hearing on budget closings.

Board of Contractors – Budget Page BOARDS-20 (Volume 1)

Budget Account 000-B011

Senator Raggio, referring to the Budget Closing Action Detail Report (Exhibit H) containing work program changes for the budget, indicated the committee needed to understand the budget and program changes suggested for the Nevada State Contractors’ Board.

Gloria MacDonald, Director of Finance, Nevada State Contractors’ Board, indicated there were two reasons for the work program change. Referring to the chart on page 2 of Exhibit H, entitled "Nevada State Contractors’ Board Work Program Changes, April 8, 1999," she indicated the "FY 99 Work Program" column demonstrates the original work program submitted to the budget office. Ms. MacDonald indicated there were two program changes in the current fiscal year. The first change increased the balance forward from the previous year by $327,188 (shown in the "Change B60619" column). The second change takes the reserve of $600,000 (shown in the "Change B90766" column) to increase revenue coming into the agency because of fee increases and moving the reserves into various budget categories. She said the reserves had to be used during the fiscal year because of changes that occurred at the Nevada State Contractors’ Board resulting from audit recommendations.

Senator Raggio asked what the audit recommended and how the Nevada State Contractors’ Board is handling the recommendations. Margi A. Grein, Executive Officer, Nevada State Contractors’ Board, explained the board members ordered a review by a private certified public accountant (CPA) firm in February 1999, which took place in five different phases. She reported the review began with investigations because that was the primary concern. She indicated approximately 16 positions that had been approved by the Legislature in prior years had gone unfilled, "and they were filled as quickly as possible." Ms. Grein said investigative positions, public information positions, customer service representative positions, and licensing analyst positions had not been filled. She stated a new department of criminal investigators was created to separate criminal and compliance investigators. She indicated that as "reports" were returned, the board worked as fast as possible to ensure the job was performed as intended by the Legislature and homeowner complaints were resolved properly and in a timely manner.

Ms. Grein called attention to the "Excerpt from June 26, 1998 Legislative Commission Minutes" (Exhibit I) and offered to share the details with the committee. Senator Raggio recalled that Ms. Grein had appeared before the Senate Committee on Commerce and Labor during the current legislative session. He again questioned what recommendations had been made in regard to the structure, powers, and activities of the Nevada State Contractors’ Board. Ms. Grein reported that two bills in the Assembly passed out of committee Friday, April 9, 1999, which increase the qualifications, requirements, and initial investigation of applicants and licensees to ensure that people becoming licensed are qualified, perform quality construction, and are known. She pointed out the qualifications of applicants have been very limited. Ms. Grein indicated she worked closely with Senator Townsend on the two Assembly bills. She said there were some changes which included a continuing education requirement and a provision regarding bonds. She indicated a change was proposed in the requirements for financial statements to better track the licensees’ financial solvency or responsibility when they perform residential construction. Ms. Grein indicated she had attempted not to duplicate what was in the two bills, which are very extensive.

Senator Raggio asked for an explanation of the other budget changes. Ms. MacDonald indicated the two work program changes were for the current fiscal year. She explained that since a substantial amount of reserves were used to fund the new audit requirements, fees were raised to help pay the expenses. To replace the reserves that no longer carry forward because they were used, the revenue base was reprojected based upon the fee increases, Ms. Grein remarked.

Referring to page 3 of Exhibit I, "Nevada State Contractors’ Board Schedule of Projected Fee Revenues-FY 2000-2001," Ms. MacDonald indicated the increase of $300 in licensing fees would become effective next biennium. She reported some of the license change fees were increased. She stated the third change is to implement a cost-recovery program when contractors are investigated. Ms. MacDonald indicated cost recovery on administrative legal costs had not been done previously. She said all the revenues were reprojected and it is requested the budget reflect the changes. The calculations for FY 2000-2001 are shown and there have been no requests for expense changes, Ms. MacDonald remarked.

Asked whether the 16 unfilled positions are anticipated to be filled by the new fee projection, Ms. MacDonald indicated the filling of these positions began during the last fiscal year. Ms. Grein interjected that all 16 positions have been filled. Senator Raggio asked how long Ms. Grein had been "on board." Ms. Grein stated she has been the executive officer of the Nevada State Contractors’ Board since June 1998, and prior to that she was the director of finance.

Senator Neal asked who gave the Nevada State Contractors’ Board the authority to engage in criminal investigation. Ms. Grein indicated Nevada Revised Statutes (NRS) 624.230 defines unlicensed contracting, and another section added by the 1997 Legislature defines construction fraud.

Senator Raggio indicated Senator Porter had serious concerns about the operation of the Nevada State Contractors’ Board. Senator Raggio added:

Ms. Grein said she could not stress enough how critical the situation is for the Nevada State Contractors’ Board. She indicated that although she cannot excuse what took place in the past, the board is presently committed to changing its operation and has implemented many changes. Senator Raggio asked whether the board lacks authority to act in his personal situation, and whether a lawsuit would be required against the contractor who did a poor job. Ms. Grein responded, "That is not correct." Senator Raggio suggested Ms. Grein investigate what kind of job the contractor is doing currently and said, "I don’t mind telling you who it is¾ it is Fiori Construction Company Roofing¾ and I don’t recommend them at all." Senator Raggio stated nobody seemed to care about his problem, to which Ms. Grein answered, "I care very much."

Senator Raggio indicated that while he understood contractors need a place to turn to, he wanted to know what is being done to help the public. Ms. Grein indicated procedures for conducting investigations have been changed to expedite the process and punish violators. Senator Raggio queried whether contractors are required to be bonded and whether the bond is available for some period of time after a contractor departs or goes out of business. Ms. Grein answered the bond problem was addressed in S.B. 32.

Ms. Grein said it was recommended the bond not be taken from the good contractors; however, they must be licensed for 10 years, rather than 5, with no complaints for the past 5 years. She indicated the board attempts to educate consumers about acquiring a payment and performance bond to ensure the work is either completed or the money is there for another contractor to complete the work. She explained the license bond does not cover all the contractor’s work, it is simply a bond that is part of the licensing process. Ms. Grein declared that by the time a consumer claims on the bond, the person is in line behind a long list of subcontractors, material providers, and employees who know the requirements of filing on a bond; consequently, consumers are left with about 5 percent of the bond. She noted the board has also changed the provision that allows the surety company to collect its attorney fees. She cited a case wherein the bond was $20,000 and the insurance company charged $14,000 for its legal fees, and the subcontractors claimed on it thereafter. Ms. Grein indicated that while the bond is important it would be impossible to place the amount high enough on every contract without having some type of performance bond.

Senator Raggio commented there have been many cases where contractors have gone defunct, are out of business, and their bond is gone. Ms. Grein indicated Assemblywoman Buckley sponsored a recovery-fund bill that was passed out of committee. He asked why the Nevada State Contractors’ Board had not done something about these problems over the years. Ms. Grein answered the board had not been not aware of the problems. She said that at each meeting the board reviews a few disciplinary cases and approves applications and licensees. She pointed out the procedures were changed to make the board aware and informed of the operations of the office.

Senator O'Donnell reported a bill was passed out of the Senate Committee on Commerce and Labor that allows the Nevada State Contractors’ Board to submit a request to the Public Utilities Commission of Nevada to disconnect a contractor’s telephone number should the contractor’s license be removed. Senator Raggio commented, "That doesn’t help get a guy’s roof fixed." Ms. Grein assured the senator that with the proposed changes in the two bills sponsored by the Nevada State Contractors’ Board, as well as other bills being worked on by the board, a big difference should be observed in the future.

Fred L. Hillerby, Lobbyist, Nevada State Contractors Board, clarified that in a case such as Senator Raggio’s, when the consumer files a complaint and an investigator goes out and finds that the job was not good workmanship, the contractor is notified and given an opportunity to cure the problem. He said if the problem is not rectified, a disciplinary hearing is held which could result in fines or even forfeiture of a license. Mr. Hillerby acknowledged that although the procedure has not been followed in the past, it is now in place and the board is following it.

Senator Raggio remarked that although his particular issue is in the past, people think they can approach the Nevada State Contractors’ Board to remedy a problem and it turns out the board is more interested in helping the contractor than helping the consumer. He commented, "That is not the purpose of the board." Mr. Hillerby agreed and indicated he represents other state boards and noted his theme with them is that they represent the public, not the people being regulated.

Senator Mathews asked whether laypersons serve on the Nevada State Contractors’ Board, and if so, how many. Ms. Grein indicated there is one consumer representative on the board and six contractors. Senator Mathews proposed the solution might be to have fewer people on the board with a vested interest. Ms. Grein said the issue had been raised in some committee hearings; however, she noted, the board relies on the expertise of its members. She indicated the complaints coming before the board are normally about workmanship. She declared the board’s track record over the past 6 months demonstrates that 40  licenses have been revoked, compared to 4 or 5 the previous year. Ms. Grein said the imposition of fines and discipline will bring credibility to the contractors’ license. She stated the actions will warn contractors there will be ramifications if they violate the law, and penalties will no longer be just a slap on the wrist.

Senator Raggio closed the hearing on the Board of Contractors budget and reopened the hearing on S.B. 141.

Senator Raggio entertained a motion to indefinitely postpone S.B. 141.

*****

Senator Raggio opened the hearing on budget closings.

DIVISION OF STATE LIBRARY AND ARCHIVES

Museums, Library and Arts Administration – Budget Page MLA-1 (Volume 1)

Budget Account 101-2892

Bob Guernsey, Principal Deputy Fiscal Analyst, Legislative Counsel Bureau (LCB), indicated there are two possible closing scenarios for this budget. He said page MLA-1 shows the conversion of a recommendation for a $40,000 data processing services contract to a staff position recommendation. He reported the agency indicated a staff person would put forth three times the effort that a contracted service would. Mr. Guernsey said the agency submitted two memorandums of justification to support that opinion. He stated the first memorandum provided a level of training, operating, and travel for a staff position. He said that in conferring with Scott Sisco, Administrative Services Officer, Department of Museums, Library and Arts, he concluded there were problems in converting the contract to a staff position without costing the General Fund additional dollars. Mr. Guernsey declared that discussions with Mr. Sisco proved the staff position would spend a considerable amount of time "in reference to micrographics and arts on a Macintosh system."

Mr. Guernsey said that after a review, the department submitted a second memorandum increasing the amount requested for in-state travel and training. He pointed out the Assembly Committee on Ways and Means delayed closing this budget, the arts budget, and the micrographics budget, to determine the level of in-state travel they are willing to support as a result of the second memorandum; consequently, all three budgets are still open on the Assembly side. Mr. Guernsey said there was interest on the part of both the Assembly Committee on Ways and Means and the Senate Committee on Finance.

Senator Raggio asked the reason in-state travel must be increased because of a conversion from a contract position to a staff position. Mr. Guernsey indicated that under a contract situation, the contractor is fully responsible for all costs associated with that contract, including travel. Senator Raggio inquired whether three times the amount of work would be achieved by the conversion. Mr. Guernsey said it would.

Scott Sisco, Administrative Services Officer, Department of Museums, Library and Arts, reminded the committee that in budget hearings in both the Senate Committee on Finance and the Assembly Committee on Ways and Means, the subject of $40,000 for a contract position was raised. He indicated he was requested to compare "the contract situation" with having a staff position perform the work. He said in researching the situation it was determined there would be a 374 percent increase in service hours available if there were a staff position instead of the contract position. However, one of the things brought to light by the recent hire of a similar position within the Cooperative Libraries Automated Network (CLAN) system was the need to ensure there were enough travel funds available. Mr. Sisco indicated the staff position would be required to service the areas of East Ely, Lost City, Overton, Las Vegas, and Boulder City. Mr. Sisco said the situation was reevaluated and a change was requested in order to add additional travel and training money for the position. The additional travel and training costs were picked up by the Micrographics and Arts Council.

Senator Raggio commented there has been a concern about losing computer expertise from the state. He wondered whether the $40,000 salary would be adequate. Mr. Sisco indicated the $40,000 would only provide contract services. He said when the money committees requested the situation be researched, it was determined that $86.25 an hour should be paid to a person with the capability to handle the needed services. He indicated that by using a computer staff position the service hours available were increased by 374 percent. Mr. Sisco declared $40,000 would not pay the salary and this was the reason additional money was added from the Micrographics and Arts Council. He noted the staff position, a Computer Network Specialist II, would be brought in at Grade 38 with the accompanying travel and operating costs.

Senator Raggio asked whether the salary would be $150,000 a year and Mr. Sisco answered, "Absolutely." He said that should the same services be received from a state employee or staff position, the salary would be upwards of $150,000 to $175,000 for this position for the same service hours.

Senator Raggio asked what is holding up the process when the Assembly Committee on Ways and Means has approved the position. Mr. Guernsey explained:

Senator Raggio asked about the transfer of $20,000 a year or more from the Micrographic and Arts Council. Mr. Guernsey declared the position would support the two agencies; 20 percent of the time would be spent on micrographics and 25 percent would be spent on the arts because the two entities are on a separate, Macintosh-based system which DoIT cannot support.

Senator Raggio asked whether it would be feasible to transfer funds from those two areas. Noting he had worked with Mr. Sisco on the situation, Mr. Guernsey reported that the two agencies agreed with the department’s request for the transfer of funds. He said the agencies have determined the level of support is needed and are willing to pay for it.

Senator Raggio inquired whether the argument is over the amount of increased travel. Mr. Guernsey said that was his understanding. He explained "the difference is $1,800 versus $3,750, and the amount of training is from $600 to $2,000." He pointed out the department does not have training funds in its budget at present.

Senator Raggio asked whether the salary with adjustments is the total amount required. Mr. Guernsey said that was correct. He indicated the position would begin October 1, 1999, and the first year would cost $37,022, the second year $52,516.

Senator Rawson indicated although the Legislature has a general policy of resisting in-state travel requests, in this instance there is good reasoning behind the request and the position is justified.

*****

Museums and History – Budget Page MLA-5 (Volume 1)

Budget Account 101-2941

Mr. Guernsey indicated "the budget is Governor-recommends," but decision unit M-200 increases funding by $3,910 each year for the Boulder City Railroad. He said the funding is coming from a General Fund appropriation rather than a Commission on Tourism budget transfer. He explained Tourism supports the position in the budget and M-200 provides additional support.

Senator Raggio asked whether the funds could come from the Commission on Tourism. Mr. Guernsey explained the Assembly Committee on Ways and Means closed the budget with support from Tourism. He indicated that Mary Matheus, Local Government Budget Analyst, LCB, had stated the budget for the tourism commission was built with a projected ending fund balance of $1.3 million at the end of FY 2001, before the statewide cost allocation charges.

Senator Raggio entertained a motion to close the budget with the funding in M-200 from the Commission on Tourism.

*****

Nevada State Library – Budget Page MLA-40 (Volume 1)

Budget Account 101-2891

Mr. Guernsey indicated the staff recommended the budget be closed as recommended by the Governor. He noted Ms. Monty Hightower has been appointed the new state librarian. He said she was formerly the state librarian in Missouri and has been working in Clark County. Senator Raggio asked when the new state librarian will commence her duties. Mr. Guernsey answered, "May 1, 1999."

*****

Archives and Records – Budget Page MLA-46 (Volume 1)

Budget Account 101-1052

Mr. Guernsey said the only item for discussion was under decision unit E-730. It was his understanding the $35,000 to move the water and gas main behind the Library and Archives building was recommended by the Capital Improvement Program (CIP) subcommittee to be moved from the agency budget and made part of an operational capital improvement.

Senator Raggio asked whether the move would be funded under bonding. Don Hataway, Deputy Director, Budget Division, Department of Administration, answered all of the CIP projects are recommended to be funded through bonds. He said the request is reasonable and the funds will extend the life of the building. Senator Raggio expressed concern regarding the maintenance portion because the cost continues. Mr. Hataway agreed but indicated the bond adds to the fixed-asset life of the building. Senator Raggio declared the funds would be General Fund money should the bond remain. Mr. Guernsey remarked the Assembly Committee on Ways and Means removed the bond from the budget and recommended it be part of the CIP project.

Senator Raggio expressed consternation that the $35,000 paid out of General Fund would ultimately be $60,000 should it be put in the bonding. Mr. Hataway replied, "Yes sir." He stated the Budget Division recommended the budget "the way it was built" and did not recommend a change.

*****

Micrographics and Imaging – Budget Page MLA-52 (Volume 1)

Budget Account 101-1055

*****

Nevada State Library-Literacy – Budget Page MLA-56 (Volume 1)

Budget Account 101-2893

Mr. Guernsey indicated there were no recommended changes in the budget. He said the budget supports two positions and teacher training statewide.

*****

Nevada State Library-Clan – Budget Page MLA-59 (Volume 1)

Budget Account 101-2895

*****

Nevada Arts Council – Budget Page MLA-63 (Volume 1)

Budget Account 101-2979

Senator Raggio asked whether a position is being added. Mr. Guernsey answered not in this budget. He explained there was a conversion of a contract position to a staff position, Cultural Resource Specialist II, under M-200. He said the position will not increase the level of services, but will display the position as a state employee rather than contract.

*****

SPECIAL PURPOSE AGENCIES

Employers Insurance Company of Nevada – Page SPECPURPOSE-20 (Volume 3)

Budget Account 998-IC85

Douglas Dirks, Chief Executive Officer, Employers Insurance Company of Nevada (EICON), introduced David Haws, Chief Information Officer, EICON, and Felicia Denney, Budget Director, EICON. Mr. Dirks distributed the "Fiscal Year 2000 and 2001 Budget Presentation to the Senate Finance and Assembly Ways and Means Committees Financial Overview, Employers Insurance Company of Nevada" (Exhibit J). He indicated the EICON is a non-General Fund agency created in 1913 and is funded from premiums generated by policyholders and investment income.

Mr. Dirks recalled that Assembly Bill 609 of the Sixty-ninth Session created "split accounting" which placed all claims experience prior to June 30, 1995, in an account for extended claims, and carried forward all claims experience from July 1, 1995, in an account entitled Employers Insurance Company of Nevada. He indicated those accounts are separated on the financial statement for presentation purposes, but are not separated in the budget. He said a unified budget would be presented for the operation as a whole.

Mr. Dirks noted the initial 10 pages of Exhibit J are a summary of some of the key items found within the financial statement.

Page 1 – Total Assets. Mr. Dirks indicated the assets over the past 10 years have grown to the point that the EICON has approximately $2 billion in total assets. He said the EICON has been able to grow its assets from $660 million to $2 billion over the past 4 years through a superior investment return over the last several years, and a healthy revenue base. Therefore, from an asset standpoint the EICON is very healthy, Mr. Dirks remarked.

Page 2 – Total Liabilities. Mr. Dirks said the liabilities have decreased slightly but remained fairly stable despite the fact the EICON has increasing liabilities through additional business.

Page 3 – Accumulated Earnings/(Deficit). Mr. Dirks noted the difference between the assets and liabilities is the accumulated earnings, or in this case, the deficit. He said there was a deficit of slightly over $6 million on June 30, 1998 on a combined-fund basis. He noted it is an accounting deficit and does not reflect the time value of money.

Senator Raggio asked the definition of liabilities. Mr. Dirks indicated the largest liability on the balance sheet is the amount due injured workers and is approximately $2.6 billion. He said the only other liabilities are short-term payables that occur in the "due course of the business," but the overwhelming majority of the amount is set aside to pay and manage the claims of injured workers.

Mr. Dirks said the Governor’s proposal for mutualization of the EICON is a method by which the time value of money can be recognized and the deficit reported on the state’s financial statements eliminated. He indicated the number has risen from about $2.2 billion to $600 million since the reform legislation of 1993.

Page 4 – Premium Revenue. Mr. Dirks indicated the premium revenue "dipped" in FY 1998 because of a 22 percent average rate reduction. He said the EICON recovered to the point where premiums were in excess of what was necessary to fund claims liabilities. He declared the EICON filed for a 22 percent average rate reduction which was approved by the insurance commissioner and became effective April 1, 1998. Mr. Dirks pointed out that as of July 1 of this fiscal year the commissioners had approved an average 6.6 percent average rate reduction that will occur as the marketplace opens.

Senator Raggio asked whether the rate will be competitive. Mr. Dirks replied "pricing is administered" and therefore all insurers will charge the same rate to policyholders the first year the market is open. He said the question remains whether or not the rate level is adequate. He reported the rate estimate was made by Insurance Commissioner Alice Molasky, in whose opinion the rate provided will be adequate. Mr. Dirks speculated the answer will be known in 18 months.

Page 5 – Claims Expense. Mr. Dirks indicated there was a slight "uptick" in claims expense of approximately $8 million last fiscal year. He said that through the first 9 months of this fiscal year, claims expense appears to have fallen back to about the 1997 level. He stated the number is influenced by inflation because as average monthly wages increase, benefit levels increase as well. Mr. Dirks noted there was a fairly substantial increase in prescription drugs within that category. He said it appeared to be providing a "pretty good" level of predictability in rate setting.

Page 6 – Operating Expenses. Mr. Dirks indicated operating expenses are a combination of claims and administrative expense and have decreased each year since 1992. He pointed out operating expenses are presented in this particular manner because the EICON decides where to place resources. Mr. Dirks declared that by maintaining adequate and appropriate staffing levels, overall operating expenses can be decreased when claims expense is decreased. He said the worst years were those in which the EICON lacked adequate staffing, which meant claims expenses were paid that should not have been paid. Mr. Dirks indicated an appropriate staffing level is needed to meet the experienced claims level.

Page 7 – Salaries and Benefits. Mr. Dirks stated there was an increase in salary expense in 1998 which was driven by special-need projects in connection with preparing for the competitive marketplace. He indicated EICON had experienced difficulties with a managed care organization which necessitated a fair amount of overtime to remain current with payment of medical bills. Mr. Dirks said it was not a recurring issue, but had to be dealt with at the time it arose.

Page 8 – Net Investment Income. Mr. Dirks indicated there was an investment strategy in 1994 where the allocation was increased to equities and decreased to fixed-income instruments. He said the timing could not have been better and the equity market "took off" and provided a very good net investment income. He noted that since then some adjustments have been made in the asset allocation as gains have been realized.

Page 9 – Realized Investment Gains. Mr. Dirks noted that realized investment gains are a reflection of the equity market. As gains were earned they were realized and reinvested in the portfolio.

Page 10 – Net Income. Mr. Dirks indicated net income is the most important number. He pointed out business is managed from the budget on a day-to-day basis, but the goal is the financial statement outcome. He said that should the budget be satisfied, but money is lost, the goals have not been achieved. Mr. Dirks indicated "the goal is a minimum breakeven and small net income." He noted the goal has been accomplished for each of the last 5 years and it was anticipated net income would be reported for a sixth consecutive year. He pointed out the numbers are decreasing due to rate reductions.

Mr. Dirks completed the summary of the high points of the financial statements over the past 10 years. He remarked the Legislature has reason to be pleased with the impact of reforms adopted in 1993. He said the goal of "righting the state’s financial house" was achieved, as evidenced by the financial statements. Mr. Dirks expressed confidence the state can be a competitive player when the marketplace opens.

Continuing, Mr. Dirks said performance is measured at the financial statement level, not at the budget level; therefore, the budget represents the EICON’s business plan. He indicated there is a great deal of uncertainty regarding this biennium’s budget proposal. He said it is anticipated the budget ultimately adopted by the Legislature will be changed dramatically during the year. The environment will be competitive and it will be difficult to predict the outcome for EICON as a company. Mr. Dirks noted EICON is at breakeven status (as shown in the financial statement) no matter what may occur.

Reviewing the current budget, Mr. Dirks noted there were no substantial changes in the program. He indicated the state had monopolized the provision of workers’ compensation insurance to Nevada businesses for the past 86 years. He predicted the state will continue to monopolize the provision of workers’ compensation in whatever form is ultimately taken when moving into the competitive environment. Mr. Dirks asserted the business plan has not changed substantially and the state will continue to do what it has always done. There have been significant readjustments reflecting the competitive environment, he remarked.

Mr. Dirks stated the Governor has proposed the mutualization of EICON. He defined "mutualization" as being converted to a private mutual insurance company owned by its policyholders. He explained that in a mutual insurance company, the policyholders participate in management of the company by electing their own board, and the board selects the management of the company. Mr. Dirks indicated EICON will no longer be an agency of the state, but will be a private mutual insurance company owned by its policyholders.

Mr. Dirks indicated the Governor submitted an amendment to S.B. 37 which is a proposal driven by a number of issues and scheduled to be heard in the Senate Committee on Commerce and Labor April 13, 1999.

Mr. Dirks said that first and foremost, there will be a potential tax liability "or event" upon formation of a private company. He indicated the Governor requested the formation of the private company to be "tax efficient" (as described by the Internal Revenue Service [IRS]) which means to pay no tax, optionally, and should any tax be required, to pay as little as possible. Mr. Dirks indicated the EICON requested a private-letter ruling from the IRS providing that mutualization of the state fund would not result in tax implications, either to the state or its policyholders. He said the EICON does not anticipate the private-letter ruling will be returned before the end of the legislative session; and therefore the Governor’s ruling has taken the following form:

Mr. Dirks indicated the appropriate steps will be followed to ensure there are no negative tax consequences, and as a private company the employees will transfer out of PERS into a private retirement, health, and welfare system. He explained the transaction will occur over a time frame of about 8 months and the state fund will be turned into a private mutual insurance company.

Senator Raggio asked the advantages of privatization. Mr. Dirks listed the advantages:

1. The State of Nevada’s financial statements will not reflect a liability and the $600 million deficit will be eliminated. A substantial sum of assets will be exchanged for the EICON to assume the liabilities. At this point, based on the preliminary pricing, the EICON’s financial position will improve, and the state’s financial position will improve by approximately $800 million.
2. As a private insurance company, the state will never again experience a $2.2 billion unfunded liability as it did in 1992. The Governor recommended the state be removed from the business of managing insurance companies. There will no longer be a need for the state to be a provider of workers’ compensation insurance.
3. The proposal provides a mechanism by which a transition time and benefit can be provided to employees as they move away from the state system into a private setting.

Responding to a query from Senator Coffin, Mr. Dirks said that given the structure of the plan and the reinsurance treaties being negotiated and almost consummated, there should be no impact on the rates on a go-forward basis. Senator Coffin asked how privatization will affect employees who are eligible for retirement. Mr. Dirks answered legislation has been proposed that would allow the purchase of up to 5 years of experience for employees who are eligible to retire with an unreduced benefit. He indicated approximately 150 current employees would be impacted. He explained this impact would "free up" 150 positions and would prevent 150 individuals from being laid off.

Further, Mr. Dirks declared that upon passage and approval of the legislation, the employees will be treated as though they have been laid off. He indicated this action will make the employees immediately eligible for reemployment rights in other state agencies on a priority basis. He noted that employees who wish to continue in the state system because of the PERS retirement plan will receive every consideration to enable them to transfer to another state agency on a priority basis. Mr. Dirks said some individuals could decide, after examining the pension plan of the new company, to go forward with its plan. He stated that each employee will make an individual decision.

Senator Coffin asked whether these steps will be accomplished by July 1, 1999. Mr. Dirks answered employees will be given the ability to take action for several years after adoption of the legislation without a break in service. He mentioned that PERS allows employees to buy years of service for up to 18 months after departing state service, and the legislation is designed to enable employees to do that as well. Mr. Dirks explained that should an employee decide to try the private company and then change his or her mind, the priority reemployment rights to make the transition will be retained until 2001 for the first group of employees.

Senator Neal commented that personnel reduction amounts to about $25 million and asked the number of people it represents. Mr. Dirks said that based on estimates of market shares, it is projected size of the reduction will be approximately 450 employees the first year and 600 the second, which would bring the total staffing level to about 350 employees. He indicated the reduction would occur regardless of whether or not the Governor’s proposal is adopted. It is the impact of the marketplace opening July 1, 1999, Mr. Dirks remarked.

Senator Neal asked the ramifications should the private-letter ruling not be received from the IRS. Mr. Dirks explained:

Mr. Dirks indicated that should the ruling be unfavorable, the state would continue as a public-mutual insurer, which means it would continue to be an agency of the State of Nevada, although not in the Executive Branch. He explained there would be a board of directors appointed by the Governor, and the EICON would continue to participate in PERS and the state health and welfare program.

Senator Neal said the Nevada Constitution requires the Legislature to provide a fund for industrial insurance. He asked whether that fund would be compatible with the change to a private organization. Mr. Dirks replied the constitution requires all amounts paid into the workers’ compensation fund to be held in trust. He said the constitution does not create the entity that manages the program, it merely provides that the amounts paid are held in trust. He explained that under the Governor’s proposal the trust dollars will continue to have trust status. The private company will not be able to use the amounts paid under the constitution for other purposes. Mr. Dirks indicated the funds will continue their trust status for the life of the injured workers who are the beneficiaries of the trust dollars. He stated the constitutional trust provision will remain, but the assets will be transferred and held in another trust.

Senator Neal inquired how the funds would be accessed. Mr. Dirks answered the funds would be held by the new company in trust and used only to satisfy claims and other expenses relating to claims that occurred prior to the date of the transaction. Senator Neal queried whether two budgets would be submitted to the Legislature. Mr. Dirks indicated the EICON would be a private company and as such would never submit another budget to the Legislature. Senator Neal asked the accounting procedure for the trust funds. Mr. Dirks said the funds would be held in trust and only used for the designated purpose subject to the oversight of the insurance commissioner.

Senator Neal clarified the Legislature would be out of the picture and the insurance commissioner would account for the funds. Mr. Dirks stated the EICON would be a private company with assets held subject to a trust restriction.

Continuing with the budget, Mr. Dirks indicated the budget reflects "a couple of" significant changes, but for the most part it is a continuation of the existing program.

Mr. Dirks indicated decision unit M-200 is one of the most significant items in the budget. He declared a decrease in revenue of approximately 32 percent from the base, which is about $155 million, is projected for the first year as the marketplace opens. He said there would be a decrease of nearly 50 percent in the second year. Mr. Dirks stated the decreases reflect that as the marketplace opens, market share will be lost. He said the budget is the best estimate of what will happen. He indicated he had studied other state funds (there are 22 competitive state funds throughout the country) to obtain their market shares, staffing levels, and premiums. Mr. Dirks reported that based on their experience, it is estimated 50 percent of the market share will be lost in the first year. He indicated up to two-thirds of the beginning market share will be lost the second year, which will leave one-third of the total premium produced in the state. He said revenues will decrease $155 million the first year. The second year there will be a "comparative-based" budget of $242 million reduction in total revenues, Mr. Dirks remarked.

Senator Coffin noted layoffs are predicated upon Mr. Dirks’ statement. He asked whether layoffs would be premature until it is known where the EICON will fit in the marketplace. Mr. Dirks replied, "If we don’t lose a single policyholder I don’t see a need to have a single layoff." He added the budget would be managed month-to-month and there will be a slight lag because of the way claims liabilities "roll off." He pointed out the budget is a "best estimate" at this time. Mr. Dirks said it would change from month to month depending upon individual decisions made by 45,000 Nevada businesses over the next several years. He explained the budget started with revenue loss, and based on that the other demographics have been adjusted accordingly.

Continuing, Mr. Dirks said the personnel category shows a reduction of about $13.5 million the first year the marketplace opens and an additional $25.5 million the second year. He indicated the amounts would provide staffing levels to support the writing of approximately one-third of the market. He stated the numbers would likely occur regardless of the Governor’s privatization proposal. Mr. Dirks noted it is expected that the EICON will be more successful and able to retain more positions as a private company.

Mr. Dirks indicated the budget shows a smaller decrease in claims expense because claims represent a smaller part of the total budget the first year. He said accident claims typically pay out about $40 million the first year through the loss of business. He noted it is estimated $30 million will be paid out the first year, "and the number will start to fall more quickly." He said a $47 million reduction from the base budget is projected the second year due to decreasing claims expense. Mr. Dirks indicated that as the first year claims expense is reduced, the older claims will continue to pay out. He stated there will be periods of time over the next several years when there will be negative cash flow which will be supported through liquidation of invested assets. He noted the negative cash flow will not indicate the EICON is performing poorly and pointed out there could still be net income and liquidating assets. Mr. Dirks indicated the negative cash flow will reflect the reduction in size and annual claims expenditures going forward. He surmised it will be between 5 and 10 years before the EICON settles in, no longer liquidates assets, and has a stable financial statement.

Mr. Dirks explained the Division of Industrial Relations (DIR) assessment is the amount paid to the Division of Industrial Relations for the EICON’s share of the expenses in the market. He noted there will be a reduction in this category as the EICON becomes a smaller part of the market and pays a smaller part of the assessment. He indicated the reduction in the DIR assessment is $6 million the first year and $8 million the second year. Mr. Dirks noted the reductions will be picked up by private carriers through their assessment as they begin developing market share in the state.

Mr. Dirks indicated decision unit M-525 reflects continuing needs within the facilities owned by the EICON to make them ADA-compliant. He said compliance has been an ongoing process that is nearing completion. He noted the amount is about $300,000 the first year and $100,000 the second year. Mr. Dirks pointed out adjustments will be made to a building owned by the EICON located at 1700 West Charleston Boulevard in Las Vegas.

Mr. Dirks indicated the EICON budgeted for 7 additional vehicles that will require adjustments to accommodate the federal Clean Air Act, both in Clark County and Washoe County, and the amount is $42,000 in each of the next 2 years.

Referring to enhancements, Mr. Dirks indicated there will be changes when moving into the competitive environment.

Mr. Dirks stated the enhancements within this category address preventive maintenance to vehicles. He indicated the EICON owns a fleet of aging vehicles. He declared that through an enhanced maintenance program it is anticipated "a few more years can be squeezed out of the vehicles." Therefore, additional amounts will be allocated to the enhancements and through preventive maintenance the usefulness of the vehicles will be extended. Mr. Dirks noted the existing fleet will be better utilized, which will result in an increased usage charge of approximately $26,000. He explained that rather than replacing the vehicles, preventive maintenance is a better use of the funds.

Mr. Dirks pointed out a small maintenance item within the category of buildings and grounds. He indicated the EICON owns several buildings around the state which incur minor expenditures and the cost is about $2,000 to provide the necessary additional tools.

Mr. Dirks said there is an enhancement for software maintenance and supplies in the data processing area. He mentioned that the approximately 900 EICON employees, and the training facilities, are equipped with personal computers (PCs). He indicated there will be additional need for different types of software as the EICON moves into the competitive market.

Finally, Mr. Dirks indicated there are training enhancements in the amount of $234,000 the first year. He said that because the EICON is moving into a competitive environment where the rules of business have changed, the employees are being asked to perform new and unfamiliar duties. He pointed out the employees will require training. Mr. Dirks reported $234,000 is allocated to training the first year of the biennium. He declared some training was accomplished over the past couple of years, but there is a need for more in the next year. He indicated that in FY 2001 the training enhancement is decreased to about $35,000. Mr. Dirks noted the employees will have been trained by that time.

Mr. Dirks called attention to the category of agent’s commissions within Operating Expenses. He indicated $9.4 million in the first year of the biennium and $5.9 million in the second year are allocated to agent’s commissions. He said that beginning July 1, 1999, the EICON will provide its insurance product through the use of insurance agents, which is the result of going to the competitive market. He noted the insurance commissioner’s rate analysis provided for this cost as it relates not only to the EICON but to all private insurance companies. Mr. Dirks indicated a portion of the rate is allocated to production costs, including agent’s commissions.

Answering a query by Senator Coffin, Mr. Dirks indicated a survey was conducted on the level of commissions around the country. He explained the amount of commission depends upon the amount of premium collected on an individual account and noted incentive bonuses are also provided within the commission. Mr. Dirks mentioned he studied other state funds and surveyed other states to ascertain what would be required to produce a competitive product within Nevada. He indicated the level of commission was 10 percent in some categories and 8 percent in others, and incentive bonuses were included with the amount of premium on the individual account.

Mr. Dirks pointed out there are advertising and public relations enhancements within the category. He noted the enhancement is $985,000, which brings the total advertising and public relations budget to about $1.5 million. He said the enhancement represents 1 percent of the gross revenue (gross premium written), which is below the national average but is sufficient to achieve the goals established in the marketplace. He said $260,000 was added within "promotional materials." Mr. Dirks indicated as the EICON moves into the competitive environment there will be a need to promote itself. He noted the "wining and dining" category is not "done" in a state fund, but this activity is essential in a competitive environment. He explained the amounts are required to enable the EICON to achieve its premium goals. Mr. Dirks said $124,000 is allocated to a "host" fund. He commented the agents being paid $9.4 million also require additional attention. He explained these items would not be expected in a state fund’s budget but would be anticipated in the budget of a private insurance company.

Due to time constraints, Senator Raggio cut short Mr. Dirks’ testimony.

Senator Raggio opened the hearing on Senate Bill 508.

Senator Raggio indicated S.B. 508 was heard April 7, 1999, and was amended and do passed. He read Amendment No. 443 to S.B. 508 (Exhibit K) and indicated if there were no objections it would be submitted with the bill.

There being no further business, the meeting was adjourned at 11:10 a.m.

RESPECTFULLY SUBMITTED:

Barbara Moss,

Committee Secretary

APPROVED BY:

Senator William J. Raggio, Chairman

DATE: