The Joint Subcommittee on Higher Education/Capital Improvements of the Senate Committee on Finance and the Assembly Committee on Ways and Means was called to order by Chairman  William J. Raggio, at 9:30 a.m., on Friday, May 14, 1999, in Room 3137 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. All exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.

SENATE COMMITTEE MEMBERS PRESENT:

Senator William J. Raggio, Chairman

Senator Raymond D. Rawson

Senator Bob Coffin

Senator Bernice Mathews

ASSEMBLY COMMITTEE MEMBERS PRESENT:

Mr. Morse Arberry, Jr., Chairman

Mrs. Barbara K. Cegavske

Mr. Joseph E. Dini, Jr.

Mr. David R. Parks

Mr. Richard D. Perkins

STAFF MEMBERS PRESENT:

Mark Stevens, Assembly Fiscal Analyst

Barbara Moss, Committee Secretary

OTHERS PRESENT:

Senator Raggio opened the meeting on the Joint Subcommittee on Higher Education/CIPs work session and budget closings for the University and Community College System of Nevada (UCCSN). Worksheets prepared by the staff at the request of the joint subcommittee were distributed for the edification of the members. Senator Raggio pointed out that in regard to the recommendations and proposals in the budget, the first priority is the enrollment situation.

Senator Coffin indicated his wish to make the record clear that he had not requested the worksheets prepared by the staff. Senator Raggio said the record would reflect that fact.

Mark Stevens, Assembly Fiscal Analyst, Fiscal Analysis Division, Legislative Counsel Bureau (LCB), introduced the worksheets on the UCCSN budget (Exhibit C). He indicated page 1 shows four different sets of numbers, the first of which is a column listing Fiscal Year (FY) 1998 actual full-time equivalent (FTE) enrollment. He said the numbers in the other three columns were projections based on a projected number of FTE enrollments "going back to last summer," but the actual numbers have been "plugged in" and the percentage increases reflect the actual figures.

Continuing with his explanation of page 1 of Exhibit C, Mr. Stevens said the first line is the UCCSN budget and percentage growth which reflect the numbers included in The Executive Budget for the university request submitted in August 1998. He noted actual FTE numbers were used for this fiscal year which were not available at that time. He indicated the second line is the Governor’s recommendation and the percentage of growth or reduction that would be provided based on the Governor’s recommended budget. Mr. Stevens stated the third line is the university recommendation that was reviewed Friday, May 7, 1999. He pointed out the fourth line is the LCB scenario, which is an attempt by the LCB staff to fit additional enrollment growth for the university system within available resources.

Mr. Stevens indicated page 2 of Exhibit C is the UCCSN budget request as included in The Executive Budget for the university system. He said those figures are compared to the figures used for the staff analysis in the column entitled "LCB-90%." He pointed out that the rate of growth requested by the university system by campus, and the numbers utilized by staff to project enrollments for each campus, are listed.

Referring to the Community College of Southern Nevada, Senator Coffin inquired whether the 9.2 percent reprojection is based on the new perusal of the budget by the university and its reallocation of funds, or based on the August 1998 projection when the budget was submitted to the Governor. Mr. Stevens replied that the percentage is based on the actual FTE enrollment this fiscal year applying the percentage growth requested by the university system in the budget request in August 1998.

Continuing, Mr. Stevens said page 3 of Exhibit C lists the actual FTE enrollments that would be generated based on the growth numbers. Calling attention to the total at the bottom of the page, he noted the LCB at the 90 percent scenario provides a few more FTEs than were requested by the university system 6 to 8 months ago.

Mr. Stevens said page 4 of Exhibit C demonstrates the UCCSN recommendations as they were presented last week by the university system side by side with the LCB scenario alternative that could be considered by the joint subcommittee. Mr. Stevens indicated he would address the UCCSN column first. He said the numbers in the revised Governor’s recommendation are biennial (two fiscal years) and are a combined number. He stated that the revised Governor’s recommendation is $8 million¾ $4 million to be provided the university system for enrollment growth in each of the biennia. Mr. Stevens pointed out the additional General Fund request of $1.9 million would go to the university for enrollments. He recalled that the university requested the amount of Estate Tax authorized for the next biennium be increased from about $55 million in the Governor’s budget, to $60 million, which reflects the university system’s request. He stated the university system also requested reallocation of about $17 million from the Governor’s recommendation within the $55 million in Estate Tax mainly to the equity study or support positions, but $600,000 would have been applied to enrollment growth. He said the reallocation would have provided an additional $15.4 million for enrollment growth. Mr. Stevens called attention to a chart on page 5 of Exhibit C, prepared by the UCCSN on growth and equity in FY 1999-2001, which shows the total in the "Enrollments" column at $15,443,958 and matches the $15,400,000 subtotal on page 4 of Exhibit C.

Returning to the "UCCSN Recommend" column on page 4 of Exhibit C, Mr. Stevens indicated the next area is the support positions or equity study that was conducted by the Board of Regents. He said the university recommendation is that $16.7 million from Estate Tax reallocation be provided for the support positions or equity study. Referring again to the chart on page 5 of Exhibit C, Mr. Stevens said the equity is shown at $16,678,984 and matches the number in the "UCCSN Recommend" column on page 4 of Exhibit C.

In reference to the reason for the justification of the reduction, Senator Coffin expressed the understanding that the staff has determined the yield cannot be reached while maintaining enough principal. Should that be the reason, he asked what yield was expected versus the yield reported by the UCCSN. In response, Mr. Stevens pointed out page 7 of Exhibit C provides the university system projections of the Estate Tax Fund based on (1) a $50 million expenditure per biennium, (2) a $55 million expenditure per biennium, and (3) a $60 million expenditure per biennium. He pointed out that in the $60-million-per-biennium scenario, by FY 2007 the Estate Tax fund would be reduced from about $100 million to $38 million. Mr. Stevens expressed the opinion the level cannot be maintained, but the university system believes it can be. He indicated the university system "came in" with a $60 million/$52 million scenario last week which requested that $60 million be authorized this biennium but "ratcheted down" to $52 million into the future. He said the university system agreed that $60 million per biennium could not be maintained. Mr. Stevens said the university recommendation was that $60 million be taken from the Estate Tax in the upcoming biennium.

Senator Coffin inquired whether the $30 million institutional expenditure is taken out before or after the yield is calculated. He noted the yield would be reduced should the expenditure be taken out early. He said that on the other hand, if the expenditure is held until later the yield would be increased. Mr. Stevens indicated the university system took into account the investment income that would be generated from the principal amount in the endowment and took out the expenditures that would be authorized based on the assumptions which were made. Senator Coffin asked what assumption was used for the investment yield on the fund. Mr. Stevens replied that page 7 of Exhibit C was not prepared by the LCB, rather it was prepared by the chancellor’s office staff. Senator Coffin voiced the understanding the yield is about 17 percent and inquired whether it would earn enough money. Mr. Stevens declared it would not be prudent to anticipate a 17 percent return on investment over a long-term period. He said the recent stock market has demonstrated that type of yield; however, it cannot be reasonably expected that over the next 10 years an average of 17 percent investment income will be earned from the Estate Tax endowment. Senator Coffin speculated that the Estate Tax endowment could be invested in a mix of stocks and bonds, but admitted that a prudent investor would expect some reduction.

Continuing, Mr. Stevens said in regard to the support positions or the equity study conducted by the Board of Regents, it is recommended that $16.7 million be reallocated from the Governor’s recommendation for support positions.

Referring to "Additional UCCSN Requests" on page 4 of Exhibit C, Mr. Stevens pointed out they are numbers 3 and 4 listed on page 8 of Exhibit C, under "Additional General Fund Requests (Biennial total FY 00-01)." He said $7.3 million for support positions or to continue funding for the equity study would fully fund what was outlined in the "MGT study," and an additional $1 million for the University of Nevada at Las Vegas (UNLV) operation and maintenance plant for the modular building.

Returning to page 4 of Exhibit C, Mr. Stevens said there are no potential budget adjustments in the university’s requests. He indicated the funding sources would be $18.2 million in General Fund over the biennium in new Estate Tax funds that would take the Estate Tax funding authorization from $55 million to $60 million. He indicated there would be $4.9 million in reallocation of Estate Tax for $17.3 million, which would be about $40 million in funds that could be either new funds or reallocated funds which could be utilized. Mr. Stevens called attention to the fact the $40 million is not all new money, and the $17.3 million is recommended from a reallocation of existing state tax funds and is not "new dollars."

Mr. Stevens pointed out the second column on page 4 of Exhibit C, entitled "LCB Scenario," allocates the revised Governor’s recommendation of $4 million each year of the biennium¾ $8 million to enrollments. In addition, while the university request did not include or mention Budget Amendment No. 111, the budget modification was received from the Governor and provides for a $5.5 million addition to enrollments over the biennium throughout the system, and a $1.8 million reduction for operation and maintenance (O&M) of plant (footnoted at the bottom of page 4, Exhibit C). He said the LCB scenario includes the $5.5 million in enrollments, for a total of $13.5 million.

Referring to support positions, Mr. Stevens indicated the Estate Tax reallocation has been reduced to $11,760,000. He said this would reduce the estate tax that is authorized in the biennium back to the $55.12 million recommended by the Governor, and $11,760,000 would be provided for the equity study or would fund the equity study for support positions.

Senator Coffin inquired why the $5 million "cut" is taken out of equity as opposed to other areas where there could be cuts or perhaps new proposals generated from other locations. Mr. Stevens answered the staff scenario was to maximize the amount of money available for enrollments, provide as much money as possible for new students coming into the university system, and impart what money could be provided to finance the support positions or equity study. He indicated the equity study itself noted the funding should be provided over a period of time, but the period was not defined. The fiscal staff prepared the scenario and the joint subcommittee could rearrange it as desired, Mr. Stevens remarked.

Further, Senator Coffin commented the university determined that the approximately $20 million reshifted based on equity would require an additional 4 years to balance out. He asked, "Would we be considering that to be in addition to the 4  years to get total equity on that scenario?" Mr. Stevens said the staff had not been able to break the study down to its component pieces to get a complete understanding of how the numbers were all derived. He noted there would be time to do it after the Legislature adjourns.

Senator Rawson indicated he is an employee of the university system; therefore, any statements or recommendations made by him should be adjusted accordingly and the committee should not be unduly influenced. He expressed the opinion that the equity study presented a figure which is applied to the full budget and there is some question as to whether or not it should be applied to the full budget, or certain portions of it. He said it leads to some question regarding the final figure. The senator indicated that by putting "some significant health into it" this time, time is allowed for the full study to arrive at an unequivocal figure. He said that although there is agreement there should be some equity adjustment, there is some question about just how far it should go. Senator Rawson noted it is a good start. He pointed out he "threw that out" for discussion although it may not be a popular opinion.

Following up on Senator Rawson‘s comments, Mr. Arberry indicated that although the committee is unable to digest the entire equity study, meeting the needs is a start. He noted the complete funding of approximately $25 million has not been met, but it gives the committee "a handle on it." He stated the staff will work on the figures over the next 2 years to give the legislators at the next legislative session "the true picture." Mr. Arberry indicated the legislators provide their support, but at the same time they must be conservative and cautious about making the correct decisions and not "cut any of the entities out of the loop."

Senator Coffin asked Mr. Arberry, "When you say ‘we,’ and ‘we all,’ do you mean the Assembly Ways and Means Committee?" Mr. Arberry responded:

Senator Raggio further observed that the LCB scenario has the highest priority, which is to address as fully as possible the percentage of enrollment and enrollment growth. He stated it will become quite evident that should the scenario be adopted the percentages of growth enrollment will be substantially addressed, probably beyond the expectations of the university system. He said it had been mentioned in earlier meetings that there was some question as to the complete validity of the "so-called equity amount," and the scenario takes a meaningful step toward funding it. The senator noted that as Senator Rawson and Mr. Arberry had pointed out, the question was raised as to whether or not the approximate $24 million figure was a valid number inasmuch as it was compared to the total university system budget, whereas the study itself indicates that the instructional part of the formula was considered an equitable portion of the budget. He said that should a case be made, a statement must be added that there should be some adjustment. Senator Raggio noted the proposal does not discount the study but takes a positive step toward funding what has been termed a funding-equity situation. He said it leaves an opportunity for both the university system and the Legislature to come to some final understanding in the interim, hopefully through the proposal to study the funding formula as a whole that will "allow it to come to some definitive amount." It is a realistic approach, Senator Raggio remarked.

Continuing on page 4 of Exhibit C, Mr. Stevens indicated the next item in the LCB scenario was additional UCCSN requests. He said there were no additional General Fund dollars provided for the equity study, and $300,000 was allocated for the modular building during the upcoming biennium for the UNLV O&M.

Senator Coffin commented that $8,300,000 was reduced to $300,000 and said it appeared the support formula, which is an "equity thing," will go further out of balance because of the suggested reduction. In addition, he said, the line item reducing the O&M on UNLV from $1 million to $300,000 is troublesome. The senator pointed out the reduction will leave the new building with only 30 percent of what is needed to keep it running.

Senator Raggio suggested Mr. Stevens be allowed to get to "the bottom line," which he said may allay Senator Coffin‘s concerns.

Calling attention to the potential budget adjustments on page 4 of Exhibit C, Mr. Stevens indicated the subcommittee voted last week to retain the current method of calculating vacancy savings and noted this method will result in a $3.6 million savings over the biennium. He said money has been included here as an addition or add-back to the university budgets. He indicated the funds had been taken away when the difference in the two methods of budgeting vacancy savings was calculated, "but now it is coming back and is a net zero." Senator Raggio indicated the directive in the action of the committee was that the money be put back into enrollment.

Mr. Stevens pointed out that the LCB staff worked on the student-fee revenue reprojection for some time. The reprojection is believed to be in the $6.5 million to $7 million range. He indicated the LCB staff received notification from the university that the university’s figures are slightly lower than that amount; however, the LCB staff considers the range of $6.5 million to $7 million appropriate.

Mr. Stevens said the student fee increase is an option for the subcommittee to consider. He stated there would be a 1 percent increase in the fees recommended by the Board of Regents and included in the Governor’s budget. He pointed out the increase would add 75 cents per credit on the undergraduate level and at the university, and less at the community college.

Referring to Budget Amendment No. 111, Mr. Stevens pointed out there was a $5.5 million addition to enrollments but an offset of $1.8 million in O&M which must be taken into account. He said it would produce $35.7 million overall which is not all new money because of the Estate Tax reallocation of $11.7 million.

Regarding funding sources, Mr. Stevens noted there was $11.7 million in the General Fund. He indicated the potential budget adjustment is a combination of vacancy savings and reprojecting student revenues of $10.5 million. He noted the potential student fee increase of $1.8 million, should the subcommittee deem it appropriate. Mr. Stevens declared there were no additional Estate Tax funds over and above the Governor’s recommendation, which would retain the expenditures at the $55.12 million level He pointed out the Estate Tax reallocation of $11,760,000.

Senator Coffin commented that the information on the per-credit hour was difficult to "nail down" and assumed some students would pay more per credit hour than others. He asked whether the Legislature would direct the regents to raise the tuition, or whether instead the Regents would make an independent decision. Mr. Stevens replied that student fees are under the domain of the Board of Regents, which sets the fees. He indicated the joint subcommittee action would set the fees in the budget at this level and the regents would make a determination as to whether or not to increase the fees to that level. He said the budget revenue would be based on the additional student-fee increase.

Senator Coffin asked whether the Board of Regents could increase the student fees further should they choose to do so, and whether the Legislature would be required to authorize that action. Mr. Stevens indicated "the staff scenario" was not prepared to increase the fees past that level. He said the regents have the ability to set student fees at any level they choose and there is nothing that mandates them to set the fees at any particular level. The LCB scenario would raise the student fees an additional 1 percent above what is included in the Governor’s budget, and set the student-fee revenue projection assuming they did so, Mr. Stevens remarked.

Senator Raggio reflected that should student fees be increased to 75 cents a credit, they would still be lower than they are at comparable institutions in the West. He mentioned that the level of the proposed increase was based on the information on the fees charged at these other institutions.

Calling attention to page 6 of Exhibit C, Senator Raggio addressed Estate Tax funding. He indicated the committee was more concerned about the proposal to invade more of the Estate Tax funding than the $55 million. Delineating the issues that must be addressed by the committee, he said:

1. The committee must do the utmost within available funding and means to address as fully as possible the enrollment issue.
2. The committee must address in some meaningful way the issue of the equity funding.
3. The committee must keep as intact as possible the availability of Estate Tax funding.

Senator Raggio indicated page 6 of Exhibit C is the original sheet presented to the subcommittee by the UCCSN and reflects adjustments that would accommodate the proposal put forth by the fiscal staff.

Mr. Stevens said page 6 of Exhibit C is a schedule that was produced by the UCCSN and reviewed last week by the subcommittee. He indicated some adjustments had been made in the Proposed Changes column and the Revised Request column for the subcommittee’s consideration.

Senator Raggio clarified that page 6 of Exhibit C was presented to the committee and the Proposed Changes column was the proposal brought forth that would have allowed up to $60 million of Estate Tax money to be used for the purposes indicated. He said the university made some changes from its original requests and included in the usage of Estate Tax funding an amount the institution had reallocated for both growth and equity funding.

Continuing, Mr. Stevens explained the Estate Tax funding on page 6 of Exhibit C line item by line item:

Technology/Data Warehousing. The Governor proposed $13.25 million over the biennium, the university proposed a reduction of $5.4 million which is shown on the sheet "as staying," and there was a total revised request of $7.85 million for the biennium.

Financial Aid. The Governor recommended $8.44 million, there were no proposed changes from the university system, and the revised request would remain the same.

Research: Applied Research Initiative. The Governor’s budget includes $5 million over the biennium, the university proposed a $1 million reduction, and it would be funded at $4 million over the biennium.

Research: EPSCoR. The Executive Budget includes $7.09 million, the university proposed a $1 million reduction, and the revised request would be $6.09 million.

Senator Raggio noted the university community is familiar with what is being addressed; however, he said, it should be made clear when looking at the column entitled "Current Biennium" that these amounts were enhancements proposed from the Estate Tax funding.

Medical School Initiatives (UNR). The Executive Budget recommends $1.2 million, an additional $3 million requires the subcommittee’s consideration, which would make the revised request $1.63 million over the biennium.

Senator Coffin requested an explanation of the increase in the medical school initiative. Mr. Dini explained the budget "shorted" the medical school $50,000 each year of the biennium. He said the rural health budget issues concern three projects:

1. The Nevada Health Services Corps, which is a good program that helps under-served areas and receives matching federal money.
2. The malpractice subsidy for obstetricians and family physicians, $150,000 each year of the biennium, which was left out of the budget.
3. Expansion of "telemedicine" to Battle Mountain, which has the only rural hospital that does not have telemedicine.

Senator Coffin asked how much the project would cost in gross dollars. Mr. Dini answered it would cost $430,000 for the biennium.

Mr. Stevens reported that the next four or five areas had no changes proposed by the university system, and "Gender Equity (UNLV, UNR)" would be included at $2 million for the biennium, "Safety and Security Programs" at $740,000, "Statewide Programs (UNR)" at $720,000, "Community College Faculty FT/PT Ratios (All CC’s)" at $690,000, "Library Books (U’s and CC’s)" at $700,000, "Operating and Maintenance (DRI)" at $1.5 million, and "Hazardous Material Mgt (CC’s)" at $360,000.

System Administration. The university proposed to reduce the Governor’s request of $550,000 by $350,000. Mr. Stevens said the proposed change has been eliminated and funding will continue at the $550,000 level recommended in The Executive Budget.

Continuing Program Support. The Governor recommended $2.2 million, the university system proposed to eliminate that funding, and "it is continued at no funding."

Equipment Technology Needs. The Governor recommended $7.98 million. The university proposed to eliminate the funding and suggested it be placed in bonds. Mr. Stevens said the funding has been reduced by $3.48  million and would provide $4.5 million over the biennium.

Senator Raggio explained that one of the directives to the staff was to realize it would be impossible and impractical to look to bonding to address any of this situation. He said the state’s rate is at 15 cents and that is where it must stay. He noted there is a problem at present in funding the Capital Improvement Program (CIP), of which the university is a large component; consequently, the staff had to stay within those confines. However, the proposal also recognizes that a significant part of the equipment technology should be restored from this source, Senator Raggio remarked.

Great Basin College (GBC)¾ 4-year Programs. This was recommended by the Governor at $1.56 million and is retained.

Dental Residency (UNR to UNLV). The Governor recommended $1.3 million, an addition of $300,000, which would place the funding for the biennium at $1,430,000. Senator Raggio added it also accommodates the proposed dental school initiative.

Community College P/T Faculty Salary Adjustments. No funding was recommended by the Governor. The university proposed $600,000 and it is retained.

Reallocation for Growth/Equity. This was among the proposed changes by the university, with funding requested at $22.22 million. About $5 million was growth and the rest was equity or support positions. Under this scenario the amount would be reduced to $11,760,000 and would all go for the support positions or the "equity piece" and the growth component would be eliminated. Mr. Stevens declared this would make the proposed changes balance and the Governor’s recommended level of $55.12 million would be retained in the upcoming biennium based on the items listed.

Senator Coffin indicated the difference is more significant than he thought, in the sense that the existing program’s equity, which had been proposed to be corrected by a $22 million adjustment, has actually been reduced by $9 million rather than $5 million. Mr. Stevens explained the $22.22 million was a combination of both growth and equity. He said $5 million was requested to be put into enrollments, which reduced the amount to be provided for equity "based on about $16.7 million which matches the request that the university provided at $16,678,000 on page 5 of Exhibit C." In the LCB scenario the $16.7 million has been reduced to $11,760,000.

Senator Raggio asked how the proposal handles the additional General Fund request put forth by the university. Mr. Stevens pointed out a schedule on page 8 of Exhibit C that was distributed by the university system at the last meeting. He addressed the additional fund requests.

1. Mr. Stevens said this item is the Governor’s proposal for enrollment growth at $4 million a year, which is included in both the university’s request and the LCB scenario on page 4 of Exhibit C. He indicated these were additional fund requests that the university proposed should funding be available.
2. Mr. Stevens indicated the complete funding for the Board of Regent’s growth directive of $1.9 million over the biennium is included on page 4 of Exhibit C in the "University Request" column, but was not included in the LCB scenario.
3. Mr. Stevens stated the complete funding for 50 percent of the MGT study equity recommendations is $7.3 million combined with $16.7 million that the regents requested be reallocated from the Estate Tax. He said the $7.3 million was requested to come from the General Fund and is listed on the university recommendation on page 4 of Exhibit C but is not included in the LCB scenario.
4. Mr. Stevens declared page 4 of Exhibit C shows the final item of the UNLV Services Building at $1 million included under the university request, reduced to $300,000 under the LCB scenario, and totaled at $18.2 million in additional General Fund requested by the regents over the biennium.

1. Mr. Stevens said the equipment and technology request for all campuses is $9 million, of which $8 million was funded in the Estate Tax before the proposed changes were made by the Board of Regents. Referring to page 6 of Exhibit C, he declared the funding that is up for consideration by the subcommittee would provide $4.5 million over the biennium for that purpose in the upcoming 2 years.
2. Mr. Stevens indicated the system wide student information system is $3 million.
3. Mr. Stevens said the vacancy savings at UNR is $2 million. He pointed out the third item is no longer necessary because the joint subcommittee voted to retain the current method of calculating vacancy savings and therefore the problem no longer exists.

Senator Coffin asked the reason the vacancy savings were removed from UNR. Mr. Stevens answered the Governor proposed to change the method by which vacancy savings were calculated. He said the method had been based upon 3 percent vacancy savings rate for classified positions, 1 percent for professional positions at campuses and 2 percent for noncampus budgets. He indicated the joint subcommittee voted to retain it. Mr. Stevens indicated the Governor recommended the vacancy savings be calculated as is done by state agencies, which study how many positions were actually vacant in each budget and apply that rate into the future.

Senator Coffin inquired whether there were any vacancy savings at other campuses. Mr. Stevens declared there was a vacancy savings rate calculated for each campus. He said there were circumstances in some budgets wherein positions were held vacant due to staff changes, or an agency head had terminated and a new director had not been appointed; therefore, positions were intentionally held vacant until the position could be filled. He indicated the situation would be taken into account and "put forward in time." Consequently, when a new director would be hired, all the positions could not be filled because the vacancy savings factor had been applied into the future, Mr. Stevens remarked.

Senator Raggio asked Mr. Stevens to explain the calculations that were used for the proposed closing regarding new positions and their cost. Mr. Stevens agreed to explain but cautioned the subcommittee that the staff had prepared the numbers in "the wee morning hours." He said that although the staff is confident the numbers will hold up, more work must be done with university staff to fine-tune them based upon the subcommittee’s actions. He indicated the LCB staff requested the university system staff to run a number of different scenarios. One scenario is based on the regents’ request of last week, and another is to run the instructional component at each campus based on providing salary dollars for new faculty at 85 percent of the existing faculty rate.

Mr. Stevens said that in the past the Legislature funded new faculty positions at a lower rate than the existing average. He called attention to the second column in each group of four on page 4 of Exhibit C and said "the UCCSN at 85 percent" was the instructional calculation performed by the university system at the request of the LCB. It was based on providing average faculty dollars for new positions at 85 percent of the existing level. He indicated the first column in each group of four shows the LCB scenario of funding at 90 percent. Mr. Stevens explained that in the past it was determined new faculty positions were normally provided at 90 percent of the existing faculty rate, and the LCB staff attempted to make those adjustments as best they could. He said new faculty positions were provided at 90 percent of the existing rate at each campus. He indicated new part-time positions at the community college were funded at 100 percent of the existing rate. Mr. Stevens said new full-time positions at the universities and community colleges were funded at 90 percent of the existing faculty average. He said new part-time positions were funded at 100 percent of the existing average.

Mr. Stevens noted that on page 3 of Exhibit C, under the "LCB-90%" column, the LCB staff applied the new enrollment numbers for each campus and calculated additional faculty positions that would be generated based on additional enrollments. He said they took the additional faculty members and increased the new faculty average salary from 85 percent of existing salaries to 90 percent, and put in a fringe benefit factor of 19 percent. He indicated the numbers are there for each campus and the total in the first year would be $185,853,938. Mr. Stevens declared the university instructional cost based on the LCB staff request to generate them at 85 percent was $181.5 million. The Governor’s recommendation was $176.9 million. Under the LCB scenario at 90 percent, an additional $8,892,670 would be required the first year of the biennium.

Continuing, Mr. Stevens indicated there was no time to add the other components to the formula. He said there are classified support positions that are provided based on the number of faculty positions generated, and there are also additional operating dollars provided based on each new full-time faculty member that is added. He stated 10 percent was added to try to calculate the value. Mr. Stevens opined it might be a little high, but the staff hoped it would be "pretty close." He said should it be added together, a total of $9.3 million would be necessary in additional funds to fund the enrollments as listed on page 3 of Exhibit C.

Mr. Stevens indicated the calculations were conducted for FY 2000. He said the same was done for FY 2001 and $14.5 million would be needed based on the assumptions made, which must be "fine-tuned." He noted the grand total was about $23.8 million. The funding that is available, based on the LCB staff scenario displayed on page 4 of Exhibit C, is approximately $23.7 million over the biennium, which leaves a shortfall of about $100,000. Mr. Stevens reiterated the calculations are "pretty good" but need to be "honed and fine-tuned." He remarked the LCB staff wanted to determine whether the enrollments at the level recommended by the university in their budget submittal 6 or 8 months ago could be financed. He pointed out that from this analysis the funding appears to be close to that desired. There are a number of adjustments in the classified position and operating area that were not taken into account due to time constraints, Mr. Stevens remarked.

Referring to page 4 of Exhibit C, Senator Raggio requested clarification that "the $23.7 million shown as total funding available in this category would be $13.5 million for enrollments, and $10.2 million under the budget adjustment." Mr. Stevens replied the amount was "General Fund potential adjustments and the student fee increase, less $300,000."

Senator Rawson stated the dental school operating dollars, or the authority to spend those dollars, must be placed in the budget. He indicated General Fund money is not added to the budget but would grant the authority to spend the revenues that come in through dental fees. He said he possessed a breakdown of what needs to be added, but essentially it is $3.2 million the first year and $4.7 million the second. The senator stated there are a number of different sources, but what has been presented is fully supported through the Medicaid dollars for dentistry. Senator Raggio asked whether the Medicaid dollars would go to the UNLV budget. Senator Rawson answered yes. Senator Raggio requested the staff to note that fact.

Senator Coffin remarked that the allocation for Estate Tax funding was cut from $22.22 million to $11.7 million as reflected on page 6 of Exhibit C, and page 9 of Exhibit C shows the total difference between the LCB scenario and what the Governor recommended is a $9.3 million increase. He asked whether that is the difference between the proposed increase and the increase the LCB staff worked out based on the Estate Tax. Mr. Stevens pointed out there is no Estate Tax money included in the LCB scenario on page 9 of Exhibit C.

Senator Coffin said:

Mr. Arberry quoted from a sheet that had been provided the subcommittee by the university system from the MGT funding study: "In order to provide comparable dollars for comparable programs the MGT recommends phasing in over several years at the total of $23.9 million." He pointed out the obligation is being met as part of the phasing. He indicated the study did not give the direction to obligate $24 million right away. Mr. Arberry said the information emanates from the study put together by the Board of Regents and the university system.

Senator Coffin indicated:

Mr. Dini opined that the decision came down to protecting the Estate Tax ending balance which is the reason "to go to $55 million rather than $60 million." He said that if not, there will be a problem in 2 years when the equity problem must be solved. He indicated that by conducting the additional study this biennium the true figure on the equity will be obtained and then it can be completed. Mr. Dini noted the subcommittee should be satisfied that progress is being made with $11.76 million being put into the equity program. He pointed out, "It is nice to move that way using the Estate Tax funds." Mr. Dini added, "These things are attainable but it must be done in moderation."

Senator Coffin commented that much of the discussion hinges upon the projections of the yield from the Estate Tax, and the LCB staff disagreement with the projections. He remarked, "Somebody’s thinking is they are not going to make enough money." Senator Coffin requested to hear "one more time" what the university system believes the yield can be. He pointed out that since the $60 million was approved by the Board of Regents, it must be defensible. He asked to have the defense presented to the subcommittee by the vice chancellor for finance.

Senator Raggio granted the request but reminded the subcommittee that this meeting is a work session and to reopen all areas of discussion would not be advisable.

Tom Anderes, Vice Chancellor, Finance and Administration, University and Community College System of Nevada, explained that although different scenarios were created for the Board of Regents, they were told that $60 million could be acceptable within a time frame of one biennium, and then the funds would "back off" to $52 million for an indefinite period of time. He said the aforementioned two options are similar and will have a tendency to come together over a period of 8 to 10 years. Vice Chancellor Anderes said the $55 million over a period of time would be more productive. He indicated there was difficulty in the funding anticipated through the General Fund and this was a one-shot option to increase expenditures.

Senator Coffin inquired whether the Board of Regents had knowledge of whether and where the expenditures would be reduced. Vice Chancellor Anderes said he surmised the Board of Regents went forward with the $60 million/$52 million option under the assumption it would be approved.

Senator Raggio reflected that the subcommittee and staff were concerned with the integrity of the Estate Tax fund when the proposal was prepared. He indicated that when studying the options presented by the university system on the Estate Tax in regard to the out-years of 2006 and 2007, he deduced that under a $50 million per biennium expenditure the existing ending balance of about $103 million will be retained. The senator noted that should the $55 million be utilized, as is done currently, there would be some reduction; however, there would still be a significant amount of almost $71 million at the end of FY 2007. He said that on the other hand, $60 million used in the scenario would culminate in a dramatic loss of the Estate Tax fund to $38 million at the end of FY 2007. He remarked this is a scenario no one wants to endorse.

Senator Raggio speculated that should the Legislature do what has been suggested for the next biennium, there would be a $55 million impact on the Estate Tax fund. He added that should the Legislature do as has been proposed, the $55 million impact could be considered a onetime expenditure from the Estate Tax fund. He stated, "I do not know if we can make any firm commitments on putting this into base at this point in time" and left the issue open for subcommittee discussion. Senator Raggio said that although the next Legislature will obviously make its own decisions, when the budget is constructed there will be a need to understand what portion of Estate Tax usage would be considered from Estate Tax funding, and what portion would be part of the base funding.

In reference to Senator Coffin‘s concern regarding $24 million as opposed to $12 million in dealing with the equity, Mr. Perkins commented that the subcommittee must consider whether or not the extra $5 million of Estate Tax will be spent. He indicated he was uncomfortable going to that level. Mr. Perkins pointed out there is only one "box full of money" to be distributed. He noted that should the equity be fully funded to the $24 million, as suggested by the study, the money would come from enrollments. He said his perception of the subcommittee’s desire is that first and foremost enrollment must be funded, and then steps should be taken towards the equity. Mr. Perkins said he was unaware of how to get the other $12 million of equity without taking it from the enrollment money, unless the subcommittee considered taking additional money from the General Fund. He indicated he was uncomfortable with the latter possibility.

Mr. Dini indicated that earlier in the meeting Senator Coffin had queried about the return on investment from the Estate Tax revenues and asked Senator Coffin to explain the basis of his projections.

Vice Chancellor Anderes said that essentially the Estate Tax Fund is part of a larger endowment pool, and the projected return on investment gains are built upon a return rate of approximately 9 percent to 11 percent over an extended period of time. He said, "Return on investment has been productive over the last number of years but is not expected to continue." Dr. Anderes indicated the receipts (the amount that will be received from the state) are another major component. He noted the receipts have not been as productive this year as in the last 2 or 3 years. The receipts will always be "an unknown" and the university system will have to deal with it, the vice chancellor remarked.

Senator Rawson distributed a handout (Exhibit D) and addressed page 1 which is divided into two colors, blue and red.

Medicaid Funding for Dentistry.

Senator Rawson said the blue figures signify the revenue for FYs 1999-2000, 2000-01 and 1 year into the next biennium and show the general trend. He indicated he had received new figures on Medicaid from the Department of Human Resources yesterday. The senator stated the total available for the first year of the new biennium is actually $14,182,821, the revenue for the second year is $16,174,282, and the third year is $17,878,297. He said this money is budgeted and will be expended by the Medicaid program for dentistry, whether or not the dental school is implemented.

Senator Rawson pointed out the real issue is that only 10 percent of the children have access and few of the dentists participate. He said there are significant statistics demonstrating how many children are hospitalized with dental concerns because they are unable to access general dental care. He proposed the money be used by contracting with private dentists and directed through managed care organizations to the dental school. Senator Rawson indicated there are letters of intent by the major managed care organizations currently contracting with the state communicating that they are anxious to contract with the dental school. He said there is also such a letter from the culinary union indicating that the union is anxious to develop such contracts. He asserted that there is a significant "cushion" of ability to earn the necessary money.

Referring to the figures in red, Senator Rawson indicated the operating expenses were derived from the Board of Regents’ study on the dental school and are $3.2 million the first year and $4.7 million the second. He said that in the first year about half the money will be for salaries and operating dollars, in the second year the amount will increase to about two-thirds for salaries, and in the third year the amount will increase to $5.8 million. The senator said that by the second year of the second biennium the amount will increase to about $6 million, and then decrease again. Senator Rawson asserted that it is important for the subcommittee to realize he is not opening a "black hole." He indicated there is a 10-year projection on the costs, but due to specialty programs the dental school will begin to pay a higher percentage of its operating costs. He pointed out that in order to perform the services, the operating dollars would be taken from the "capitated money" and submitted every month to the dental school.

Senator Rawson indicated that additional treatment cost is the cost of running the clinics that provide the services. He said 22 dental chairs are ready for operation and patients may be served beginning July 1, 1999, after the budget is approved. He noted much of the cost has been put in place as a result of actions from other legislative sessions.

Senator Rawson said the managed care processing fee is calculated at 5 percent, which is the percentage managed care companies retain in order to process the children through their organizations. The senator said the processing fee is figured high but speculated that when the contracts are consummated, the fee will be somewhere between 2 and 3 percent and savings will be recognized. Senator Rawson stated he used a 5 percent calculation because he would not have the contracts in hand until the dental school is formed.

Senator Rawson indicated the statewide treatment is for contracting with rural dentists. He said the figures from last year demonstrate that 11 percent was spent on contracting. He declared he calculated high enough to guarantee dental attention to all children in the rural areas.

Senator Rawson pointed out the bonding debt service is the last piece of the dental school to be accomplished and will be reviewed when the CIP (Capital Improvement Program) budgets are addressed. He explained that a revenue bond, or what is termed a payback general obligation bond, is utilized "in order not to count against the tax liability of the state or increase taxes." He said the bond is paid out of the clinical revenue of the treatment centers. He pointed out a reserve, or a balance, or a profit (should that term be used) "will be left." Senator Rawson indicated the dental school is not expected to derive any General Fund operating dollars now or in the future. He said the argument can always be made that the state has some responsibility to pay general operating funds, but the dental school program has been worked out without using General Fund dollars.

Senator Rawson pointed out that page 2 of Exhibit D addresses more of the assumptions. He noted the staff and he had "worked the assumptions over" carefully. He called attention to page 3 of Exhibit D which shows the counties in Nevada that have a shortage of dentists. Senator Rawson said there are two counties at national average insofar as ratio of dentists to patients. He noted the national average is 1,745:1, whereas Douglas County has a ratio of 1,800:1, Washoe County’s ratio is 1,739:1, and the ratio for Clark County is 3,100:1. He indicated that Nevada was 47^th or 48^th in the country at the time the information was prepared. The senator said new figures show Nevada has the worst ratio of patients to dentists in the country, which means that Nevada residents have a more difficult time gaining access to a dentist, particularly in the southern and rural counties. He noted that 15 counties in Nevada are listed by the public health services for a lack of accessibility to dental care. Senator Rawson emphasized it is a significant problem.

Senator Rawson called attention to page 5 of Exhibit D, which lists the treatment centers wherein dental work for children will be performed. He indicated adults will not be refused but explained that the treatment centers are set up under Medicaid funding to deal with children. He addressed the treatment centers.

Faculty Practice, 6375 W. Charleston. Senator Rawson indicated the practice is built and the dental chairs are in operation, and the practice will double in size at the end of May 1999.

General Practice Residency. Senator Rawson stated this entity was funded last session, it has been built, the director is hired, and the dental chairs are ready for operation. He pointed out the residency is located next to the University Medical Center wherein many patients are treated. There will also be operating rooms in the hospital, Senator Rawson reported.

Miles for Smiles Bus. Senator Rawson said the bus was "complete"; however, it was not engineered correctly and it malfunctioned. A new bus has been ordered.

St. Mary’s Bus. Senator Rawson indicated this bus is in operation.

Community Health Centers. Senator Rawson said these centers are in operation.

Senator Rawson indicated half the treatment centers listed are already in place and the plan is ready for immediate implementation as soon as the budgets are approved.

Senator Rawson referred to page 6 of Exhibit D containing a list of organizations in support of the dental school. He asked the joint subcommittee to look at the list from the standpoint of how broad a spectrum is represented¾ from the National Association for the Advancement of Colored People (NAACP), to major unions, to civic organizations, to public facilities. He asserted there is a demonstrated and significant need for dental services for children in Nevada, and organizations have recognized the need and are prepared to work toward fulfilling it.

Senator Rawson said that should there be doubt regarding whether Medicaid dollars will be there, he gave assurance that there is sufficient funding in the Medicaid program to accomplish the dental school program. In addition, there are also enough resources through unions (such as the culinary union) to conduct the dental program without the Medicaid resources. He said the dental school program will do considerably better "performance-wise" than what has been put down on paper.

Senator Raggio asked whether the staff could be allowed to work with the university in order to put the funds into the appropriate budgets. Senator Rawson answered yes.

Mr. Perkins inquired whether this action is an authorization, an appropriation, or both. Senator Raggio indicated it was his understanding from the motion that the action is the authorization to receive the revenue referenced in Exhibit D for the purposes outlined. He noted the project will not go forward should the revenues not be forthcoming. Senator Rawson said that is correct. He indicated the "failsafe" is that no General Fund dollars are authorized in the dental school program and all revenue is derived from fees.

Mr. Perkins asked whether the fiscal analysis staff had the ability to study the numbers to ensure a "comfort level" among the joint subcommittee members. Senator Rawson responded that staff within the Fiscal Analysis Division had been provided a copy of the proposal for review. Senator Rawson stated that Chris Thompson, former administrator for the Division of Health Care Financing and Policy, performed the original calculations, which were also provided to fiscal division staff.

*****

Senator Raggio indicated it would be left to the staff to show how the funding will be shown on the budget.

Senator Raggio asked whether there was any further discussion on the issue of closing on the UCCSN budget. He expressed the understanding that the motion would be to adopt the proposal outlined by the staff on this date, and to include a Letter of Intent on salary adjustment, which was discussed at the last meeting of the Joint Subcommittee on Higher Education/CIPs.

Senator Raggio asked Mr. Stevens to elaborate upon the salary adjustment for the record. Mr. Stevens indicated that the issue is the use of salary adjustment dollars by the university system. He said that in FY 1998 the university initiated a 3 percent salary increase provided by the Legislature. However, after adding the funding provided for that purpose to the amount approved within the UCCSN budget in total, there was a significant shortfall of about $5 million to $7 million. Mr. Stevens declared the raise could have been implemented with far fewer dollars than were earmarked for the salary increase. He said the issue is that other state agencies are required to justify their requests for the funds needed to implement a pay raise. He pointed out the Letter of Intent would request the budget division to ensure that should any additional cost of living raises be granted in the future, the UCCSN would justify the need for the salary adjustment dollars before they are released.

Senator Raggio said the issue was that the joint subcommittee wanted to authorize the salary increase and expected it to be utilized, but in fact the dollars were not used for that purpose. Mr. Stevens indicated he assumed the dollars were used for some other purpose within the university system, but he was unsure exactly how they were used. He indicated he did not infer the dollars were inappropriately used. He stated that if the total salary dollars provided to the university were added up, including the amounts for the salary increase, and were compared to the expenses, there would be about $5 million or $6 million provided for salaries that was not spent for that purpose but was spent in some other way.

Mr. Arberry indicated that part of the motion should be a Letter of Intent as outlined by Mr. Stevens as to how the expenditure should be justified. He explained the mechanism and the stage is being set for when salary increases are available. Senator Raggio requested an outline of the proposed language of the Letter of Intent and asked whether other state agencies are required to do this. Mr. Stevens stated the Letter of Intent would basically mirror the procedure that other state agencies are required to follow. He explained that in the middle of the year, "or February, March, or April," the Budget Division requests projections of the salary categories of state agencies and studies how much funding was provided in the legislatively approved budget. He noted there is a maximum amount the state can earn based on a 3 percent or 4 percent increase; however, should the agency need less, the lower amount is provided the agency.

Senator Raggio asked whether Mr. Arberry wished to include the Letter of Intent in the motion. Mr. Arberry answered yes. Senator Raggio said before the actual Letter of Intent is decided upon, he suggested it be made available for approval by the respective committees.

Senator Raggio indicated there was a motion and a second and asked whether there were any comments.

Senator Coffin said:

Mr. Stevens said the fiscal analysis staff would request authority from the Joint Subcommittee on Higher Education/CIPs to work with the university system staff to fine-tune the enrollment numbers. He indicated the work had been done in aggregate form and the specifics need to be done. He said any changes would be reported to the full committees. Senator Raggio said the motion could include any adjustments that the staff finds during the discussions.

Senator Rawson again disclosed that he is an employee of the university system. He indicated he is a dentist by profession and derives no benefit or salary from any of the faculty practices, nor anything that will be set up in the dental school program. He said he should not be treated any differently than anyone else and therefore he would be voting on the proposal.

Senator Raggio called for the vote.

*****

Senator Raggio directed the staff to close the budget accordingly.

There being no further business the meeting was adjourned at 11:05 a.m.

RESPECTFULLY SUBMITTED:

Barbara Moss,

Committee Secretary

APPROVED BY:

Senator William J. Raggio, Chairman

DATE: