The Senate Committee on Finance was called to order by Senator William J. Raggio, at 8:35 a.m., on Monday, May 3, 1999, in Room 2134 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. All exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.

COMMITTEE MEMBERS PRESENT:

Senator William J. Raggio, Senator

Senator Raymond D. Rawson, Vice Senator

Senator Lawrence E. Jacobsen

Senator William R. O’Donnell

Senator Joseph M. Neal, Jr.

Senator Bob Coffin

Senator Bernice Mathews

STAFF MEMBERS PRESENT:

Johnnie L. Willis, Committee Secretary

OTHERS PRESENT:

Ed Flagg, Lobbyist, President, Nevada Corrections Association, introduced Walter R. Tarantino, Lobbyist, Nevada Corrections Association, and Jerry Nims, Ph.D., Psychologist. He testified there are two aspects to S.B. 264: a psychological examination for new hires for the Nevada Department of Prisons and a polygraphic examination for the new-hire screening process. Mr. Flagg referred to a three-ring binder prepared by the Nevada Corrections Association (Exhibit C. Original is on file in the Research Library.). He said it contained statements in section 4 from Colonel Hood of the Nevada Highway Patrol and Undersheriff Dennis Balaam of the Washoe County Sheriff’s Department which tells the purpose of the psychological and polygraph examinations. Mr. Flagg advised that Dr. Nims would discuss the psychological examination portion of the bill.

Jerry Nims, Ph.D., Psychologist, testified he has been a consultant to a number of law enforcement agencies over the last 20 years, and there are people who do similar work for the Las Vegas Metropolitan Police Department. Almost every significant law enforcement agency in the state uses psychological screening for new hires. Dr. Nims noted "the curious situation" in law enforcement wherein sometimes the people who are drawn to this work have "questionable motives, at times bordering on criminal behavior." Therefore, he stated it is important to screen out the "wannabes" who can make trouble for an organization and cause enormous liability to a state. Dr. Nims remarked that to the extent the Department of Prisons can identify those individuals and screen them out, the department saves the state significant liability risks, training costs, and provide better morale amongst the qualified officer force.

Walter R. Tarantino, Lobbyist, Nevada Corrections Association, testified that the motivation for this bill was to assist the department in the recruitment and retention process over time. He stated psychological and polygraphic testing are two more tools for predicting an individual’s suitability for a position in law enforcement. Mr. Tarantino mentioned the Nevada Department of Prisons, despite the fact the department has approximately 2,000 correctional peace officers on salary, does not do psychological and polygraph testing. He said he understands the concern over the cost of such testing, but the hope is that the money saved in attrition and the minimization of lawsuits against the state would offset the cost of the screening. Responding to a question from Senator Raggio regarding the fiscal note, Mr. Tarantino replied there is a fiscal note but it did not get into Exhibit C because the bill was referred from another committee. He said the original note only addressed the polygraph examination and it was $52,000 in the first year of the biennium and $47,000 in the second year. Mr. Tarantino advised that fiscal note was to purchase a position in the Investigations Division to conduct the polygraph examinations.

Senator Raggio remarked there is no question that the instrument used in polygraph examinations is accurate, but the results are only as good as the examiner who interprets those results and the process that is used. He clarified the bill would require the applicant to consent in writing to take both examinations, and if the applicant refused he or she would not be considered. Also, consent would be required from the applicant for release of the information. Mr. Tarantino remarked that was correct, and he noted section 3 of the bill indicates that any questions which would be asked on the polygraph examination would have to be approved paragraph (b) of S.B. 264. Mr. Tarantino replied the bill would have a prospective effect only and not a retroactive effect. The intent is that the examinations were designed solely for the applicant process; existing employees would not be subject to either examination. Senator Raggio asked whether that was a "usual" provision with other law enforcement agencies. He further asked whether psychological examinations were used otherwise in law enforcement departments for existing employees.

Dr. Nims answered that situation sometimes comes up, but only when there is cause to doubt an officer’s ability to perform duties. Senator Raggio asked whether the bill would preclude the use of psychological examinations. Dr. Nims replied if properly drafted, the bill should not prevent a fitness-for-duty evaluation where cause exists.

Senator Neal mentioned a former member of the Central Intelligence Agency (CIA) who was able to thwart the polygraph and psychological examinations every year for 14 years. He questioned the value of these tests since there are individuals who successfully give untrue answers. Dr. Nims stated he would not suggest that any of the proposed methods are perfect; they simply improve the odds. He admitted some individuals who prospective employers would not want hired will slip through the net occasionally, but it is anticipated the tests would reduce their numbers.

John Slansky, Assistant Director, Department of Prisons, commented the Department of Prisons does not disagree with the concept proposed in S.B. 264 but asked whether it is necessary that this be codified in the Nevada Revised Statutes (NRS). He asserted the State Board of Prison Commissioners could easily administer the examinations by an order from the board. It was Mr. Slansky’s opinion that clarification of the bill is necessary. He pointed out that psychological examinations are expensive and are not a "drive-through, one-size-fits-all" process. Mr. Slansky mentioned that section 1, subsection 1, paragraph (d) of the bill states the applicant would take the polygraphic and psychological examination within the 3 months immediately preceding his employment in such a position. That means the prospective employee would have to spend approximately $250 of his own money for the polygraphic examination plus another $400 for a psychological examination to qualify as an applicant.

Senator Raggio asked whether the applicant would have to pay for the examinations. Mr. Slansky answered that was the way he understood it; he did not see a provision in the bill indicating the department would pay for the examinations. He maintained this would paralyze the department’s ability to recruit personnel. Mr. Slansky indicated the department currently has 62 vacancies at the Ely State Prison and 33 vacancies at the Lovelock Correctional Center (LCC), and it is recruiting everywhere. He estimated that were the department to pay for the tests, with the addition of the psychological testing the cost to the department would be $292,500 in the first year, calculated by multiplying 450 employees times $650. Mr. Slansky remarked that without specified psychological profiles and specified polygraph results, he is of the opinion there is too much ambiguity in the bill. Senator Raggio inquired whether Mr. Slansky knew whether the board had an existing policy regarding these examinations or whether policy was contemplated that would make processing of S.B. 264 unnecessary. Mr. Slansky answered he was unaware of any such existing or contemplated policy by the board.

Gary H. Wolff, Lobbyist, Nevada Highway Patrol Association, expressed his opinion that the bill clearly states that the Department of Prisons will have to pay for the process. He added it would make no sense for the department not to, because nobody would pay $650 to do something that is a requirement of the job he or she is applying for. Mr. Wolff opined that polygraphic examinations as a screening device and psychological examinations are an "absolute necessity." He reiterated the costs of potential lawsuits more than offset the minimal costs of the proposed examinations.

Stan R. Olsen, Lobbyist, Las Vegas Metropolitan Police Department (Metro) and the Nevada Sheriffs and Chiefs Association, clarified several points regarding how the process works. Mr. Olsen stated Metro has been using polygraphs and psychological examinations at the entry level for over 25 years. He said there is an expense to giving the psychological examination, but it is usually a two-part process. Mr. Olsen explained one set of statistics Metro has is for those who apply for the job. He claimed the numbers drop by approximately 30 percent on the day of the exam, and another 30 to 40 percent fail the examination. He indicated Metro puts the psychological examination at the end of the process to keep the cost down. Senator Raggio asked whether Metro does the polygraphic and psychological examinations as a matter of policy, without it being in statute. Mr. Olsen answered affirmatively, saying the department adopted that policy years ago.

Senator Coffin inquired whether Metro adopted the use of chemical analysis at the same time so that the methods mentioned earlier for defeating deception detection could be minimized. Mr. Olsen answered Metro does not perform chemical analysis at the same time the polygraph examination is administered, but because of the Americans with Disabilities Act (ADA), the department performs a chemical analysis later in the process when it is prepared to offer a position. He maintained that a good polygrapher should be able to ask a series of questions and determine whether any type of narcotics have been taken. Mr. Olsen further advised that the polygraphers, the psychologists, and the background investigators work together to ensure that each knows what types of questions to design for the interview so that they can all compare responses for consistency. Senator Coffin asked whether the ADA specifically forbade the chemical analysis. He noted his experience with polygraph legislation in the 1980s showed only a 70 percent accuracy rate as to whether the applicant was deceptive or not. He inquired whether that was an unintended consequence of the ADA.

Mr. Tarantino replied what the ADA prohibits is asking the applicant if he or she is taking any medication or prescribed drugs during the interview process. He said the employer is allowed to ask whether the applicant is engaged in any illegal activity but not any medical questions until the employer makes the applicant a job offer. Mr. Tarantino also clarified for Mr. Slansky that the department pays for the polygraphic and psychological examinations. Senator Raggio pointed out that would indicate there could be a substantial fiscal impact if the department is hiring employees for a new prison. Mr. Tarantino mentioned that Dr. Nims provided a memorandum including significantly lower costs than were represented by Mr. Slansky (Exhibit D).

There being no further testimony on the bill, Senator Raggio closed the hearing on S.B. 264. He then opened the hearing on S.B. 321.

Steve Barr, Lobbyist, Nevada Corrections Association, testified that historically the criminal justice system has responded to internal and external pressure for professionalism by raising standards for entry-level employees. He maintained the higher standards have resulted in the acquisition of better-qualified candidates, but at the same time they have disqualified a higher number of applicants. Mr. Barr also mentioned that litigation by disqualified candidates has forced the criminal justice system to examine the validity of its selection process. He said the Field Training Officer (FTO) program was designed as an evaluation process for new employees after they have attended the academy. Mr. Barr made an analogy between the FTO program and reading a book about driving and then taking a field-driving test. He referred to the fiscal analysis prepared by John Slansky (Exhibit E), in which Mr. Slansky refers to "a great deal of confusion or lack of understanding" as to why the bill is worded the way it is. Mr. Barr expressed his dismay that Mr. Slansky did not consult staff at the three institutions which have already implemented the FTO program so that he could have eliminated his confusion.

Mr. Barr stated Mr. Slansky proposes hiring 19 employees at a cost of $688,931 for FY 2000 and $638,931 for FY 2001 in order to meet the requirements of S.B. 321. Mr. Barr assured the committee that no new staff would be necessary. He explained all training would be conducted by officers that have exhibited proficiency in the profession in conjunction with the desire to train new officers. Additionally, current supervisors would be utilized to supervise the training officers. Mr. Barr clarified that verbiage for the bill was derived from the Department of Prisons. He remarked Director Bayer requested funding for the FTO course in the amount of $4,022 for FY 2000, and $4,022 for FY 2001. Mr. Barr quoted Director Bayer’s reasons for the request:

Mr. Barr indicated the Nevada Corrections Association requests the committee restore Director Bayer’s funding request of $8,044 over the biennium for binders, paper, and the copying expense. Senator Raggio clarified that this bill would be in addition to the P.O.S.T. (Peace Officer Standards and Training) course. It would require the 280-hour course to be completed within the first year of employment. Mr. Barr answered affirmatively. Senator Raggio also clarified there would be no significant fiscal note; the requirement could be met by providing binders, paper, copying and some training that is already provided for in the budget. Mr. Barr stated that was correct. He advised that for the last 7 years NNCC has had the program implemented with no new funding. Senator Raggio asked why the committee had the bill if that were the case. Mr. Barr replied the program was established as a pilot program 7 years ago, and the department is unwilling to expand the program. He said the program is currently in place at LCC and NNCC and has begun at Warm Springs Correctional Center. Mr. Barr advised his association’s contention is that there would be no cost; however, the program would work better with additional funding in the amount Director Bayer had requested.

Senator Raggio inquired who would provide this training at the other institutions. Mr. Barr replied that currently John Pearcy, Employee Development Manager, Department of Prisons, has gone to LCC to conduct "train the trainer" classes. He maintained it would be just as easy "for existing training officers for regions in which they exist" to train the trainers. Senator Raggio asked what training in addition to P.O.S.T. is currently being provided to new officers within the first year of employment. Mr. Barr answered that at other institutions, such as Nevada State Prison, there is no established structured program; the institutions use the "old-fashioned on-the-job training." A new employee is placed with a veteran officer who must train the new employee whether he wants to or not. The premise behind the FTO program, according to Mr. Barr, is the trainers must want to train to avoid a negative atmosphere and a program that will not succeed.

Mr. Barr continued his testimony pointing out the "Phase Chart," page 5 of Exhibit E, which lists each phase of the FTO program. He commented there is a resistance to change among the wardens at the facilities that do not have the FTO program. Mr. Barr said the program has been floundering among the three institutions that do have the program, gradually picking up speed as officers "spread to" the other facilities and show the benefits of the program. An example given by Mr. Barr of a benefit of the program is that institutions with the program have not had an inmate escape. Conversely, the institutions that do not have the program have had recent escapes. Mr. Barr remarked the program teaches officers to be security-conscious, to be safe, to protect the public, and to be ever vigilant to do their duty in the manner in which they were trained at the academy.

John Mays, Correctional Officer, Northern Nevada Correctional Center, remarked he was at the hearing to answer questions on the operating procedures of the FTO program. He advised that he has been an FTO for 6 years. Mr. Mays reiterated the program does not require a major fiscal note; there are officers assigned to run the program.

Senator Mark E. Amodei, Capital Senatorial District, Storey County and Parts of Carson City and Lyon County, testified that as an individual who represents a district with three major correctional institutions integrated in a population center, it is his opinion that training is very important as to how the operations are actually carried out. He remarked the correctional industry in Carson City has an excellent record of providing public safety. Because of that record, he said, the fact the three correctional facilities are in Carson City is not an issue. Senator Amodei urged the committee to continue the training program to keep the public safety record as good as it has been, staying within existing resources.

Senator Raggio noted the main reason S.B. 321 was before the Senate Committee on Finance was the fiscal impact. Therefore, he requested testimony from the Department of Prisons on the issue of cost. Mr. Slansky remarked the fiscal note that he drafted on April 7, 1999, has not changed. He also stated the backup for the fiscal note (Exhibit E) is still accurate. Mr. Slansky indicated he supported everything that Senator Amodei and the officers who testified earlier said, with one exception. He said the exception is that the previous speakers do not see the fiscal

impact that the Department of Prisons sees. He asserted training is the most important function of the Department of Prisons, and the department does not do enough of it because of a lack of resources. Mr. Slansky commented the FTO program is an excellent training program, and the personnel who administer the program do an excellent job. However, S.B. 321 goes much further; it mandates 480 hours or 3 months of training for correctional officers within the first year. He maintained the department does not have the resources to meet that requirement.

Mr. Slansky said the Department of Prisons can reproduce the FTO manual and continue the program as it currently exists. However, without additional funds the department cannot implement the program as outlined in the bill. He also reiterated there is too much ambiguity in the bill. For example, he said, it says, "at least 80 hours of instruction in assisting a supervisor in the management of the facility or an institution." Mr. Slansky asked, "What does that mean?" He pointed out that a training program needs to be flexible. It does not need to be "chiseled out of stone" in NRS. In Mr. Slansky’s opinion codifying this requirement would put an enormous financial burden on the state.

Mr. Barr added that officers conduct the training at these institutions and overtime has never been allotted which requires additional man-hours for any other coverage. He noted these are two officers that would be assigned together, anyway. They would merely "swap out the trainee into a training position." Mr. Barr continued this program has been proven over 7 years at NNCC at no additional cost. He asserted, "Anybody can put a fiscal note on a bill if they do not want that bill to go through." Senator Raggio asserted the other side of the issue is, "It would be pretty irresponsible for this committee to overrule a fiscal note that the department feels is necessary for a bill." Mr. Barr stated if it would help the committee he would provide the funding request from Director Bayer for $8,000. Senator Raggio said Mr. Barr was welcome to do that.

There being no further testimony on the bill, Senator Raggio closed the hearing on S.B. 321 and opened the hearing on S.B. 353.

Ed Flagg, Lobbyist, President, Nevada Corrections Association, stated that as S.B. 353 is currently written it would increase the pay level of custody personnel only. He maintained the correctional caseworkers were inadvertently omitted from the bill. Senator Raggio inquired whether Mr. Flagg knew by how much the addition of the caseworkers would increase the fiscal note. He noted it is now indicated at $7.8 million a year. Mr. Flagg replied it would increase the fiscal note by approximately $700,000 a year. He pointed out that during their career, correctional officers statistically can expect to be assaulted at least four times, and the stress of their job is so great that on average they do not live to the age of 56. He gave statistics illustrating the hazardous nature of correctional officers’ jobs and stated they are the public’s last line of defense. Senator Raggio asked in what year the last occupational study of correctional officers was performed, and was told it was in 1998.

Denise Miller, Senior Policy Director, Governor’s Office, testified she was at the hearing in support of S.B. 353. She mentioned it is the Governor’s opinion that there is a severe lag between what the state pays its correctional officers and what other local governments pay their correctional officers. Ms. Miller remarked the turnover rate is very high for correctional officers, and the Department of Prisons is having difficulty recruiting new officers. She further stated the Governor’s Office views this as not simply an issue of equity, but also one of public safety. At the request of Senator Raggio, Ms. Miller addressed the source of revenue to cover the requested salary increases. She stated this is not included in the Governor’s budget, which was crafted on the December 1, 1998, Economic Forum forecast. Those numbers have been revised upward. Ms. Miller remarked the Governor’s Office was testifying in support of only two bills having a fiscal impact for salaries, one of which is S.B. 353. She said, "We believe the money is there and it is a question of setting a priority."

Senator Raggio remarked he would appreciate the Governor’s Office submitting to the committee a complete request from the Governor on all the additional money from the Economic Forum. He noted the list that he saw outlining the potential use of the additional funding does not include funding for this bill unless it has been changed in some way. Ms. Miller agreed to supply the requested list to the committee.

Jeanne Greene, Acting Director, Department of Personnel, stated she had one point of clarification. The last time her department performed an occupational study on the correctional officers was in 1991, and the officers were granted a one-grade increase at that time. Ms. Greene said she would be happy to answer questions regarding the fiscal note the department compiled, which did not include the caseworkers. Senator Raggio requested Ms. Greene update the fiscal note to include the correctional caseworkers. Ms. Greene promised to provide that to the committee by the next day (May 4, 1999).

Senator Amodei remarked that he concurred with the Governor’s position on S.B. 353.

Daniel L. Shoup, Senior Correctional Officer, Northern Nevada Correctional Center, testified there is a thin line that protects the community which correctional officers serve from those who would not abide by its rules and boundaries. He mentioned the job of correctional officer is "endless, thankless, and dangerous," but correctional officers continue to offer the level of professionalism demanded by the people and the government of Nevada. He asserted there needs to be parity between the respective law enforcement agencies. Mr. Shoup reiterated remarks about the stress level and burnout potential of the job. He urged the committee to reward the loyalty and commitment of those who do stay on the job by raising their salary to match that of other law enforcement officers in the state.

Robert J. Gagnier, Lobbyist, Executive Director, State of Nevada Employees Association, referred to his handout (Exhibit F), consisting of four sheets. He remarked the first sheet is a copy of a page from the Department of Personnel Salary Survey for Correctional Positions, which shows, when compared with the western states and the local governments in Nevada, Nevada’s correctional officers start approximately 13 percent behind the average and, at the top, are approximately 17 percent behind the average. Mr. Gagnier indicated the second sheet includes turnover numbers for Nevada prisons and correctional facilities. He said the figures in the middle of the page were a better indicator. They show the average turnover rate for Correctional Officers to be 17.83 percent; for Correctional Case Work Specialist I’s, 29.72 percent; and for Forensic Specialist III’s, 16.12 percent. Mr. Gagnier noted the state’s avoidable turnover rate was 9.98 percent during the same period of time.

Mr. Gagnier referred to the third sheet, stating it was a survey conducted by his association every 2 years and this one is for the 1996/97 year. The bottom two rows are for correctional positions. Mr. Gagnier referred to the fourth sheet and said it is for the latest survey, which shows the situation for correctional officers has not improved and for correctional sergeants it has further deteriorated. He asserted it is outrageous that state correctional officers are paid 49 percent less than the average of those public jurisdictions in Nevada that employ correctional officers. Mr. Gagnier pointed out that at the top of state correctional officers’ pay scale the salary is 53 percent less and for sergeants it is 80 percent and 66 percent less, respectively, than the average.

Mr. Barr mentioned he had provided a copy of the State of Nevada "1998 Salary Survey" (Exhibit G). He pointed out that page 6 includes the "benchmark class" and the "special survey class." The special survey class contains the notation that recruitment difficulty, turnover problems and/or a salary disparity characterize the class. Mr. Barr remarked page 7 shows "the disparity in correctional officers that is artificially low because the inclusion of Washoe and Clark counties are calculated in that figure, which brings it up." He referred to Director Bayer’s statement mentioned earlier that due to the 17 percent salary disparity, the Department of Prisons is unable to hire or retain officers. Mr. Barr said the director went on to say the other western states were having similar problems hiring officers. He concluded that if Nevada is at 17 percent among the states that cannot hire, Nevada actually has an approximately 25 percent disparity rate.

Mr. Barr said page 8 shows the starting salary of a correctional officer is $23,586, which qualifies officers with families for public assistance. Conversely, on page 9, the starting salary for Washoe County correctional officers is $33,529, which is 42 percent more, and starting in January they will be making 47 percent more. Mr. Barr stated the dollar amount shown on page 10 for Metro equates to a 50 percent difference.

Mr. Slansky made the statement that state officers do an extraordinary job under very difficult conditions and have earned the committee’s recognition and support.

Senator Raggio informed Ms. Greene that staff requested she submit to the committee the fiscal note with four scenarios as to each level of grade for correctional officers. The senator closed the hearing on S.B. 353.

Senator Raggio stated the committee would close budgets and referred to Closing List #19 (Exhibit H.).

DEPARTMENT OF EDUCATION

Education State Programs – Budget Page K12ED-1 (Volume 1)

Budget Account 101-2673

Jeanne L. Botts, Senior Program Analyst, Fiscal Analysis Division, Legislative Counsel Bureau, mentioned there was an additional handout for this budget (Exhibit I) which is the most recent version. She said this is the main budget account of the State Department of Education, and it is General Fund-supported. Ms. Botts advised that with this account the 2 positions added in the 1997 Legislative Session for Cultural Diversity and American Indian Education Programs and their half-time secretary have been added into this budget. Additionally, there is a Letter of Intent relating to those positions to continue the evaluation of the program. Ms. Botts remarked there is also $14,400 added in each year to cover the operating expenses of the Commission on Education Technology. She stated that is an ongoing, permanent commission and there was no funding for it in the budget.

Ms. Botts indicated there was a Letter of Intent for the State Department of Education to continue reporting quarterly to the Interim Finance Committee (IFC) on out-of-state travel and to report on steps taken to try to reduce travel. Also, $7,640 was added in the first year and $10,696 in the second year to support the panels in supervising schools that have been placed on academic probation. She said the department had requested those funds after encountering difficulty with districts objecting to having to pay for the out-of-district teachers that will be placed on the panels. Ms. Botts explained these funds would pay the teachers’ travel expenses and the cost of hiring substitutes for the teachers on the panel.

Senator Raggio advised the committee that the recommendation from the joint subcommittee added the 2 positions for Cultural Diversity and American Indian Education. He further stated:

Senator Raggio remarked that if there were no objections, he would accept a motion to adopt the joint subcommittee recommendation.

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Proficiency Testing – Budget Page K12ED-21 (Volume 1)

Budget Account 101-2697

Ms. Botts indicated this was the budget account that contains funding for the statewide assessment of students in reading, writing, mathematics, and science at grades 4, 8, and 10. She said the adjustments include her correction of the grade and step for the incumbents, which resulted in a need to add $19,000 in the first year and $17,000 in the second year to pay the salaries. Ms. Botts stated the Fiscal Analysis Division had also added $33,000 over the biennium to support the continued work of the Council to Establish Academic Standards for Public Schools. This council continues under S.B. 482 of the Sixty-ninth Session through June 2001. However, there were no funds in the budget to continue the council’s work.

Ms. Botts remarked there was also a recommendation from the joint subcommittee to send a Letter of Intent to the State Department of Education to encourage it to work with the school districts to resolve the problems associated with the administration of the writing test.

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Education Support Services – Budget Page K12ED-35 (Volume 1)

Budget Account 101-2720

Ms. Botts advised that this budget account contains accounting, auditing, personnel, and word processing functions that are performed for all units of the department. The cost of the functions is distributed across the other budget accounts through an indirect cost mechanism. Ms. Botts stated there are no reserves budgeted in this account in either year of the coming biennium. She noted the Fiscal Analysis Division had been asking the department to explain why this department’s reserve had decreased to such a low level. She indicated that last year the reserve was quite large in this account. On April 18, 1999, the department projected deficits in the indirect cost account of approximately $300,000 a year and suggested the committee transfer 6 positions out of this account to a state-funded account. Ms. Botts noted that instead the subcommittee recommended a partial reduction in expenditures in this account by:

• Transferring one-half of the deputy secretary position to the state-funded Education State Program budget.

• Eliminating the Accounting Clerk III that was added in 1997 for the department’s Las Vegas office but that has never been filled.

• Eliminating a new Management Analyst III recommended by the Governor to oversee the department’s system of internal controls and perform some personnel work.

Ms. Botts remarked she then recalculated the salaries for the positions in which the pay grade and step were different from what was in the budget, and that resulted in approximately $35,000 in additional cost. She deleted out-of-state travel and replacement equipment. Ms. Botts directed the committee to the chart on page 10 of Exhibit I that summarizes recommended adjustments and said these changes save only $85,000 in the first year and $95,000 in the second year, while the department is estimating a shortfall of $300,000 per year. She said the Fiscal Analysis Division is of the opinion that it will not be as bad as the department projects because new programs added by the 1999 Legislature for which indirect costs are assessed will help add revenue to the budget. Ms. Botts advised that new federally funded programs and increases in spending levels of federal programs will also raise indirect cost revenue.

Ms. Botts mentioned the joint subcommittee recommends a Letter of Intent directing the department to report quarterly to the IFC on the status of this account’s revenue, expenditures, and any changes needed in positions. Additionally, the agencies should refrain from filling vacancies or reclassifying positions until the revenue projections indicate that sufficient funds are available, and if sufficient revenue is available, the agency might approach IFC to have some of the cuts restored.

The other issue mentioned by Ms. Botts is a Letter of Intent directing the department to continue implementing the recommendations of the report they received on Internal Controls from the Internal Control section of the Department of Administration. She noted the Letter of Intent might also require a report on assistance offered to local school districts in financial matters in training provided to school business officials. Further, the department would be directed to follow the Budget Division’s directive to book all federal grant authority in the state’s accounting system. Ms. Botts stated there is also a suggestion that performance indicators include those relating to auditing school districts.

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Other State Programs – Budget Page K12ED-5 (Volume 1)

Budget Account 101-2699

Ms. Botts testified Other State Programs is a budget account that contains several small programs supported by state, local, and private funds but no federal money. She remarked that although this budget account was closed by the Senate Committee on Finance on March 8, 1999, the Joint Subcommittee on Human Resources/K-12 decided on April 8, 1999, to transfer the state-funded Apprenticeship Program from the budget account for School Improvement into this budget account. There was a decision made by the joint subcommittee to consolidate small state-funded programs in this account and also to differentiate between some small, federally funded programs on the basis of their indirect cost rate. Ms. Botts stated the joint subcommittee has added $177,250 for the Classroom on Wheels or "COW" Program, and also $75,000 to fund the Governor’s Council on Education Relating to the Holocaust.

Senator Raggio indicated the joint subcommittee was advised that the Governor was recommending both of those adds to be funded out of additional revenues as projected by the Economic Forum, and the joint subcommittee was of the opinion both programs should be funded. Ms. Botts concluded by saying that other than the $12,000 added for workshop fees which the committee heard when the budget was closed the first time, the only add is the $252,250 for the Holocaust and COW programs. She also said the $522,000 is a transfer from another account.

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Discretionary Grants — Restricted – Budget Page K12ED-13 (Volume 1)

Budget Account 101-2709

Ms. Botts stated this Discretionary Grants account contains several small federally funded programs. The State Department of Education submitted revised estimates of revenue and adjustments to expenditures, which she said are most of the adjustments in Exhibit H. In addition, Ms. Botts advised that the joint subcommittee agreed to transfer out of this account federally funded programs which are subject to an unrestricted indirect cost rate. Therefore, several programs have been moved out of this account and transferred into budget account 2706. Ms. Botts indicated there was a list on page 19 of Exhibit H of the programs that were transferred out. Responding to a question from Senator Raggio, Ms. Botts replied the programs have been transferred to budget account 2706, the (School Improvement) Discretionary Grants — Unrestricted account. Senator Raggio noted the committee had closed this budget on April 8, 1999, and he asked for a motion to reopen the budget.

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(School Improvement) Discretionary Grants — Unrestricted – Page K12ED-76

(Volume 1) Budget Account 101-2706

Senator Raggio mentioned there was a separate sheet showing the adjustments to this budget (Exhibit J). He said this budget will now be named "Discretionary Grants — Unrestricted." Senator Raggio asked Ms. Botts why the name was changed. Ms. Botts replied it was suggested by Doug Thunder, Deputy Superintendent, State Department of Education, that it would be easier if the federal programs that were subject to one cost rate be in a separate account from those that are subject to another rate. She explained the difference in the rates is that the restricted programs are not permitted to pay certain costs through an indirect cost rate such as rent, but the unrestricted classification is more liberal. Ms. Botts explained that since the rates are different — the restricted rate is 12 percent and unrestricted is 20 percent — Mr. Thunder was of the opinion it would be simpler if the programs were segregated into two separate budget accounts. She remarked the only federal program that was left in budget account 2706 was the Goals 2000 Program, which has an unrestricted indirect cost rate. Therefore the decision was made to put all of the others with a similar indirect cost rate into this account, and to rename the account "Discretionary Grants — Unrestricted."

Ms. Botts pointed out that the Governor recommended the Trust Fund for Class-size Reduction be renamed the Trust Fund for School Improvement. She explained the Fiscal Analysis Division did not want two accounts named School Improvement, and naming the account Discretionary Grants — Unrestricted more accurately describes what would be left in this account. Ms. Botts reiterated the state funded Apprenticeship Program was transferred out to the Other State Education Programs account. She indicated that the half-time Management Assistant I, supported by federal Technology Literacy Challenge Grant funds, has transferred into this account because "that program" has moved in. Ms. Botts said the Elementary School Counselors (50 of whom are special counselors) funded from this account have been consolidated into funding in the Distributive School Account (DSA).

Senator Raggio requested clarification of the counselor positions. Ms. Botts stated the money for those positions has been consolidated into the DSA. She continued that at the point the committee makes a decision on the account either to leave the counselors in the DSA or to move them out, they would not come back to this account. Responding to a question from the chairman, Ms. Botts replied the Apprenticeship Program was transferred to budget account 2699. She noted the last three budget accounts, with the shifting of programs between accounts, were revenue-neutral. Ms. Botts indicated that overall, with these closings, there are only two budget accounts of the State Department of Education that will be left to close: the DSA and the Class-size Reduction Trust Fund. Ms. Botts further indicated the overall net add in the General Fund is $822,798 over the biennium.

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Senator Neal made the observation that in the Proficiency Testing budget the remediation money was not included and asked why it was excluded. Ms. Botts answered the Governor recommended the remediation money be funded from $8 million that he had set aside for school improvement projects. Senator Raggio added the issues of remediation, teacher improvement, and assessment cost testing were still open. He said they were the "hottest" priorities still being reviewed by the committee.

Senator Raggio requested staff discuss differences on closed budgets, if any, on budgets closed to date. Dan Miles, Senate Fiscal Analyst, Fiscal Analysis Division, Legislative Counsel Bureau, referred to the "Differences Closing Report" (Exhibit K) and said there were four accounts on which the Senate and the Assembly still have differences. He pointed out the first on the sheet was Other State Education Programs and informed the committee that the actions just taken align the Senate Committee on Finance with the Assembly Committee on Ways and Means, which also closed the budget according to recommendations by the joint subcommittee. Therefore, Mr. Miles stated, the first real difference occurs with the Museums, Library and Arts Administration budget. He noted the budgets were closed almost the same between the two committees; both added a position for computer services and eliminated contract services that was recommended in the Governor’s budget. Mr. Miles remarked the difference is in the in-state travel category. He said the Senate Committee on Finance has gone along with the agency’s revised request for in-state travel under M-200 and also the agency’s request for training funds of $2,000 each year in the coming biennium. He advised that the Assembly Committee on Ways and Means reduced both of those requests. Mr. Miles commented he did not know what Assembly’s position was on those cuts.

The next difference addressed by Mr. Miles was on the Archives and Records budget. He reported the Senate Committee on Finance closed the Governor’s recommended budget. The Assembly Committee on Ways and Means has cut $35,247 in the first year, which was the cost of moving the gas meter off the loading dock in the back of the building. Mr. Miles stated it was his understanding the Assembly Committee on Ways and Means thought this project should be moved to the Capital Improvement Projects list. He said that in the budget formulation the agency did "kick" this to the State Public Works Board, and the board "kicked" it back saying it was too small an item. Senator Raggio remarked that would be added as bonding, and in his opinion it would be "ridiculous" to add that small amount.

Mr. Miles reported the last difference was in the DMV, Justice Assistance Act budget. He told of a revision initially recommended by the Budget Division to remove the state match for that program, which he noted is what the Assembly Committee on Ways and Means has done. Mr. Miles commented there was a later revision to that recommendation from the Budget Division to leave $43,212 in the first year of state match in this account to ensure that the program got a timely start. He explained this is the federally funded Aftercare Program that is funded through the Justice Assistance Act. Senator Raggio expressed his opinion the committee’s action was appropriate because it leaves in the funding that will be necessary.

Senator Raggio asked John Comeaux what was happening on the recommendations for the state health benefits insurance program.

John P. Comeaux, Director, Budget Division, Department of Administration, testified that the Governor’s Office is still working on that and he did not have any details.

Mr. Miles remarked his office had made some adjustments to enable the committee to close all the budgets on time. He said there were a number of changes to The Executive Budget, some of which were already recommended by the two money committees, that need to be put into the budget. He explained they were "statewide items," such as the Statewide Cost Allocation Plan, the attorney general’s new cost allocation plan, and the Department of Information Technology (DoIT) allocation plan. Mr. Miles mentioned the committee had already approved the State Employees Workers’ Compensation rate reduction, "a fringe rate that goes onto payroll." He mentioned the Fiscal Analysis Division had to close down its budget system, run the "statewides," and then go back and rebalance all the

budgets. He distributed a handout (Exhibit L) regarding the Retired Employee Group Insurance, and said the fiscal division needs a decision by Friday (May 7, 1999) on this item in order to not delay closings.

Mr. Miles said that as indicated on page 3 of Exhibit L there is an approximate $1.3 million shortfall in this account for FY 1999. The recommendation from the Budget Division was that since the IBNR (incurred but not reported) in the group insurance account is being restored, no further action is required this fiscal year; however, there is still a question of what should happen in the 2 out-years. As shown on page 1 of Exhibit L the assessment rate against payroll that has been built into the budget to pay for the Retired Employee Group Insurance account is .0101 in the first year and .0115 in the second year. Mr. Miles stated that because of the realization now that this account is short and not paying its share to the group insurance fund, the actuary has rerun those numbers. He noted that the second to last paragraph on the first page of Exhibit L suggests that the rates would now need to be .0112 the first year and .0132 the second year. Mr. Miles remarked, "The question is, Should the Retired Employee Group Insurance assessment rates be changed to compensate for this projected shortfall?"

Mr. Comeaux stated the funding for the Retired Employee Group Insurance premium is collected as Mr. Miles mentioned, by an assessment that is collected in the same way as the premiums for active state employees. He remarked that if the current actuarial estimates are correct, there will be, over the biennium, about $2 million less in the Retired Employee Group Insurance account to transfer to the main group insurance account than would be required based on the formula that is included in statute. Mr. Comeaux explained the formula lays out the amount that retirees are entitled to depending on their length of service when they retired. He further stated the actuary historically has calculated that amount at 100 percent entitlement and has now recalculated it with the actual population at 105 or 106 percent of the average. He remarked what that means is that if all of the other assumptions and estimates upon which the group insurance budget is based are correct, by the end of the next biennium there would be approximately $3 million less in the IBNR reserve than would be sufficient to account for all the IBNR claims. Therefore, instead of having an $11 million reserve, it would be an $8 million reserve. It was Mr. Comeaux’s opinion it is not critical to fund that difference because of all the other assumptions and estimates. He noted, however, that technically speaking, if it was the Budget Division’s aim to be sure the fund was solvent, the IBNR should be fully funded.

Senator Coffin inquired what the total annual premium is. Mr. Comeaux replied it is approximately $130 million a year. Senator Coffin requested clarification that the IBNR reserve would be approximately 6 or 7 percent. Mr. Comeaux pointed out the approximately $130 million budget includes the health maintenance

organizations (HMOs) and several other items that the IBNR does not apply to. He said the actuarially determined IBNR would be approximately $11 million, which represents about 8 months in claims.

There being no further business to come before the committee, Senator Raggio adjourned the meeting at 9:30 a.m.

RESPECTFULLY SUBMITTED:

Jo Greenslate,

Committee Secretary

APPROVED BY:

Senator William J. Raggio, Senator

DATE: