The Senate Committee on Finance was called to order by Chairman William J. Raggio, at 8:20 a.m., on Thursday, May 27, 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, Chairman

Senator Raymond D. Rawson, Vice Chairman

Senator Lawrence E. Jacobsen

Senator William R. O’Donnell

Senator Joseph M. Neal, Jr.

Senator Bob Coffin

Senator Bernice Mathews

GUEST LEGISLATORS:

Senator Mike McGinness, Central Nevada Senatorial District

Senator Jon C. Porter, Sr., Clark County Senatorial District No. 1

Assemblywoman Marcia de Braga, Assembly District No. 35

Mr. Richard (Rick) D. Perkins, Clark County Assembly District No. 23

STAFF MEMBERS PRESENT:

Millard Clark, Committee Secretary

OTHERS PRESENT:

Senator Raggio said there are a couple of amendments to process this morning.

SENATE BILL 496: Creates millennium scholarship trust fund. (BDR 34-1685)

Senator Raggio said Senate Bill (S.B.) 496 is the Governor’s millennium scholarship program and would create a trust fund and a board for awarding scholarships. He said it was approved on May 20, 1999, to amend and do pass this bill. He noted the vote to amend and do pass the bill was a 5 to 2 vote, with two voting against it. Senator Raggio distributed Amendment No. 1100 to the committee. He said the amendment speaks for itself and adds section 8.5 to S.B. 496. This section allows the board to form a nonprofit corporation for the purpose of issuing the bonds for the benefit of the trust fund and sets out the authority of the nonprofit corporation.

Senator Raggio asked whether there was any objection from the committee in using Amendment No. 1100 to S.B. 496. There being no objections he said the committee would submit Amendment No. 1100 to S.B. 496.

Senator Raggio said Amendment No. 1162 to A.B. 380 does several things:

• It appropriates the sum of $3.3 million of the state’s contribution, and the interest generated will accrue to the benefit of the Newlands Project Water Rights Fund. The money is appropriated to the Newlands Project Water Rights Fund.

• It provides that:

• It provides that the Carson Water Subconservancy District shall not commit for expenditure during the next biennium more than $1.6 million of the appropriation.

• It provides that any remaining balance of the appropriation must not be committed for expenditure after June 30, 2004, and reverts to the State General Fund as soon as all payments of money committed have been made.

• It adds section 6, which reads:

Senator Raggio said S.B. 444 was heard initially in the Senate Committee on Transportation and then was referred to this committee. He said there has been some informal discussion on the bill pertaining to the amount that goes to the state from the fee that is collected under this authority. He asked for an explanation of how the fee is generated and collected by the short-term lessor, and what portion is retained by the short-term lessor and how much goes to the state.

Ted Zuend, Deputy Fiscal Analyst, Fiscal Analysis Division, LCB, said the short-term lessor fee is a 6 percent excise tax on the rental of vehicles plus other items "that you can rent when you rent a vehicle." He said the law currently guarantees 2 percent to the state, and one-third of the 6 percent fee goes immediately to the state. Mr. Zuend said the rental companies can use the other 4 percent to pay their vehicle registration fees to the Department of Motor Vehicles and Public Safety. He said that "to the extent they fully pay the registration fees, any remaining revenue also goes to the state." He said if the 4 percent generated $1 million and the vehicle registration fees were only $800,000, the state would get, in addition to the 2 percent already collected, an additional $200,000 for the General Fund.

Mr. Zuend noted the fees for the calendar year are due on January 31 each year. He explained the tax is paid only once each year, and the tax received by January 31 of this year is the amount due from the last calendar year. He said that because the state is on a fiscal year basis, the tax is credited to the fiscal year it is received.

Mr. Zuend pointed out that the total amount raised by the 6 percent fee is about $20.3 million; this is the full 6 percent. He explained that the state guarantee is one-third of the total received, about $6.8 million. He said the state actually collected $7,957,000 from this fee during FY 1999. Mr. Zuend noted the effective tax rate realized by the state for FY 1999 was about 2.55 percent.

Dino DiCianno, Deputy Executive Director, Department of Taxation, said the 6 percent fee was implemented in 1993. Originally the fee was collected by the Department of Motor Vehicles and Public Safety (DMV&PS). Mr. DiCianno said that in 1997 the collection of the fee was transferred to the Department of Taxation.

Senator Coffin said his understanding is that the old language in S.B. 444 indicates that the money received currently goes into the State General Fund. Mr. DiCianno replied, "That is correct." Senator Coffin commented, "If the tax is reduced or redirected somewhere other than the State General Fund, the General Fund will be reduced." Mr. Zuend said his review of the current S.B. 444 identified that the changes made will give the short-term lessor a home office credit similar to what the insurance industry allows on the insurance premium tax as a home office credit. He said his preliminary analysis of the current language in the bill indicates if every short-term lessor is afforded the opportunity of the home office credit, there will be a $3.9 million loss to the General Fund each fiscal year.

Senator O'Donnell said the Legislature put forth a measure in 1993 that allowed the short-term lessors a tax rebate to offset the registration fees of their vehicles. He said in doing so the Legislature instituted a 6 percent tax on every short-term car rental company in the state. The senator said one-third of the 6 percent was to go back to the state. Initially it went to the Highway Fund, but after negotiations in 1993 the money was sent to the State General Fund. He said the state’s share of the fee was $7.5 million to $8.4 million each year. He noted that testimony earlier indicated the money received by the state was about 2.5 percent of the total amount for which the passenger car was leased. He said the bill initially took the entire 6 percent from the short-term lessors and placed the money into the General Fund to use for necessary projects and programs needed by the state. He said since that the fiscal constraints of this year have hampered everybody’s desire to expand programs, the Legislature looked at this bill as an avenue for revenue.

Senator O'Donnell said that during meetings with the car rental companies a tentative agreement was developed to increase the state’s share by one-half percent during the FY 2000 and an additional one-half percent during FY 2001. Senator Raggio said, "That is one-half percent that would continue to go to the state." Senator O'Donnell replied that is correct. Senator Raggio said the allocation would be changed so the state would receive an additional one-half percent. Instead of 2 percent, the state would get 2.5 percent plus any excess after the short-term lessor is reimbursed for the vehicle registration fees as is presently the case. Senator O'Donnell said the amount received by the state during FY 1999 was 2.5 percent. Senator Raggio said that was the real yield, because the excess fees, the fees received less the vehicle registration, were returned to the state. He said the proposal as he understands it is that instead of the 2 percent the state currently is guaranteed, the state will be guaranteed 2.5 percent, an additional one-half percent.

Senator Porter said S.B. 444 is a very creative approach to take care of some problems that exist in southern Nevada without using existing revenues. He said his suggestion is to use a portion of the money for a project that has statewide significance and fiscal importance. He pointed out that the community of Laughlin is 90 miles south of Las Vegas and one of the largest gaming markets in the state of Nevada with close to $500 million in gross gaming revenues last year alone. He said that even though Laughlin hosted 4.3 million visitors last year, the community has been significantly impacted in recent years by the spread of Indian gaming throughout the southwestern United States. He noted that room rates are from $10 to $30 a night in Laughlin. He pointed out that Laughlin has nearly 11,000 hotel rooms but visitor volume has been decreasing for the past 4 years, leaving more and more of the rooms empty. The senator commented that nearly all (98 percent) of Laughlin’s visitors travel by car, bus, or recreational vehicle, and therefore road improvements to the Needles Highway are vital if the community is going to remain competitive and continue to contribute to Nevada’s economic health.

Senator Porter said that "perhaps most importantly," Laughlin is a net exporter of state revenues in the amount of about $35 million each year. He said about 11.2 miles of the Needles Highway is in California and this creates a challenge for using certain highway funds. He commented this highway is one of the most dangerous stretches of road in California and 80 percent of the visitors to Laughlin travel on it. He referenced a map he had distributed that shows where Laughlin is located, pages 2 and 3 of Exhibit D, a five-page handout titled "S.B. 444," dated May 27, 1999. The senator pointed out the Needles Highway on page 2 of Exhibit D.

Senator Porter said S.B. 444 could be used to fund projects to improve upon the Needles Highway and additional funds could be used to improve Interstate 15 into Las Vegas. He said, "In the negotiations with the individuals from the car rental agencies we must make sure they understand that Las Vegas is a huge part of their market, as is Laughlin, and encourage them to partner in this project."

Senator Raggio said this would be an unusual situation since the highway is outside the boundaries of Nevada. He asked what discussions are occurring, if any, with either the state of California or agencies that would have jurisdiction over this project.

Tom R. Skancke, Lobbyist, Nevada Resort Association, said he has represented the Nevada Resort Association for the past 9 years on projects outside of the state of Nevada regarding transportation. Mr. Skancke said that in 1991 the Nevada Transportation Commission approved a $4 million appropriation for the interchange at Interstate (I)-40 and I-15 in San Bernardino County, California. He said this was a major bottleneck for people getting to and from Laughlin and Las Vegas. He noted that last year Nevada committed $10 million from the Transportation Board for the widening of I-15 from Barstow to Victorville, California, a stretch of highway that is about 30 miles long. He said that $10 million committed by the state was part of a total $300 million contribution. He commented about $30 million came from the federal government, and the rest came from the state of California.

Mr. Skancke said this project occurred because Nevada offered $10 million in funding. He said the same situation is occurring here where if Nevada is willing to contribute a certain amount of funds to a project in California, the supervisor of the California district has pledged to come up with the remaining funding needed. He said if Nevada comes to the table with anywhere from $8 million to $12 million, the supervisor of the district in California has indicated the remaining balance of the $30.2 million will be provided.

Tom Stephens, Director, Nevada Department of Transportation, said the Needles Highway is a county road in California. Mr. Stephens explained that the Needles Highway is on the west side of the Colorado River between the U.S. 95 and Arizona 95 highways, page 3 of Exhibit D. Senator Raggio asked, "What is the value of the Needles Highway when Arizona 95 seems to run parallel to it?" Mr. Stephens said the Arizona highway 95 is a lengthier route to Laughlin than is the Needles Highway.

Mr. Skancke said the Needles Highway is the preferred route between Needles, California, and Laughlin, Nevada. He said traffic studies over the past 4 or 5 years have shown that the Needles Highway is the preferred route for travelers in and out of the I-40 corridor. Mr. Skancke said Arizona 95 is not as improved as I-40 so the preferred route is I-40 through Needles to the Needles Highway. He commented the reason U.S. 95 was not used is it adds an additional 10 miles to the trip. He noted travel was frequently stopped at the train tracks that cross U.S. 95. He said it is more economically feasible to improve the Needles Highway than to improve U.S. 95 or Arizona 95. He said significant studies have been prepared over the past 5 to 6 years to identify which is the best route.

Senator O'Donnell said that over the years a lot of casinos and rooms have been built in Las Vegas as well as Laughlin. He commented one of the things not comprehended was the inability for individuals to get to these locations. He remarked that a comprehensive approach is needed when building new facilities and new hotel rooms, and when looking at the roadways which enter into Nevada. He commented that "we should consider not only the roadways in Nevada but roadways in other states that enter into Nevada." He said providing this money is a good approach in terms of allowing Laughlin "the artery, the life blood" to the community so it can survive.

Mr. Stephens said page 2 of Exhibit D shows the highway construction cost to be about $12 million, which is $1 million for each mile. He said the $12 million includes the bridge, contingency budgets, design cost, 4 years of inflation, construction engineering costs, and contingency amounts for hydraulic, environmental, and right-of-way expenses. Mr. Stephens said that because the construction is in California and the project has not been adequately reviewed, it is very difficult to estimate the total contingency funds that will be needed. He said the additional $7 million of contingency costs is a hedge because of the unknowns. He commented that if the project were in Nevada, the estimate would probably be closer to the $23.2 million amount before the additional contingency estimates are added.

Senator Coffin said that as Laughlin casinos and other "stateline types" of casinos have grown, they have tended to depress the gaming revenues in the Las Vegas area. He commented it has been asserted that Laughlin is a net exporter of about $35 million a year, and "it could be that it has been feeding off of the other areas." He said Laughlin became a short stop for Arizona gamblers.

Senator Coffin pointed out the state did not build the casinos, business people built the casinos and assumed the risk for building the casinos in Laughlin. He said this was a good business decision at one time but downturns can occur. He commented, "The state did not tell the business people to invest in Laughlin."

Senator Porter said $500 million of gross gaming revenues came out of the community of Laughlin last year. He said he is looking for a new creative source of funding that does not jeopardize other important projects statewide. He said the revenue from S.B. 444 is a new source of funding, a partnership that will help secure one of the state’s revenue sources into the future.

Senator Coffin noted that the Needles Highway passes through an Indian reservation and asked whether there was anything that would prevent the Indians from constructing a casino. Senator Porter said the Indians have a casino, and they have made verbal commitments to help with this project. Senator Coffin stated the Indian casino will short-stop business that is traveling to Laughlin. Senator Porter replied, "That is something that has been taken into consideration in the studies that have been done." Senator Coffin asked how much money was needed to issue bonds for the construction costs. Senator Porter replied he is not an expert on the subject but he believes it is about 10 percent. He said if his numbers are correct, $1 million each year in a revenue bond could generate about $13 million. He noted this is assuming that for the first 2 years the $1 million was not used as a bonding source but as a source of funds for the start-up costs.

Senator Porter said the goal would be to have a 20-year source of revenues. The first 2 years would be used for the start-up costs, and in the second or third year "we could issue bonds." He said that beginning about the second or third year "we could see about $13 million in revenue bonds." Senator Coffin asked, "Why don’t we just raise the gross gaming tax in Laughlin one-quarter of one percent?" He said that would raise more than $1 million each year. He proposed:

Senator Porter said that first and foremost, this is a new funding source, that would be "a partnership without increasing taxes" in the community of Laughlin. He commented, "We are now in a more competitive environment than ever in Las Vegas and in Laughlin." The senator pointed out that the expansion of Indian gaming in Phoenix has had substantial impact on the gaming revenues in Laughlin. He said he is looking for a resource without raising taxes. He commented that he has commitments from an industry which benefits directly form this improvement without raising taxes and without taking money from other very important needed projects throughout the state. The senator said this is a real opportunity to form a partnership and he thinks this is the optimum way to fund it.

Senator Neal asked what work the Nevada Department of Transportation has done on the roads in the Needles Highway area. Mr. Stephens replied NDOT has done no work on this road because it is in California. Senator Neal asked what work has been done in the area by NDOT. Mr. Stephens replied the work performed by NDOT was completed 4 or 5 years ago. Senator Neal asked whether the work was done was in conjunction with the federal government. Mr. Stephens replied the work was on State Route 163 that runs from U.S. 95 to Laughlin. He noted the two-lane road was expanded to four lanes. He commented that recently the transportation board voted to put the Needles Highway portion in Nevada onto the state system. He said Clark County had already improved about 6 miles of the Needles Highway in Nevada to four lanes. He said a project to improve the remaining portion of the Needles Highway in Nevada will soon be proposed to the transportation board. He stated there is a restriction on spending state highway funds out of state.

Mr. Stephens said the bridge in Laughlin was built by private interests and is jointly maintained by Arizona and Nevada. Senator Neal questioned, "The bridge was built with private funds?" Mr. Stephens replied that is correct. He said the owner of a casino at the end of the bridge built it. He said the owner decided where the bridge would be located; he felt the bridge was in the best interest of his business. Senator Neal asked whether NDOT had any authority to spend funds in California. Mr. Stephens replied NDOT has no authority to spend state highway funds in California. He said the money being spent on I-15 is a commitment of federal highway funds that could come to Nevada and the funds are being redirected to California. He said this is where the $10 million came from for the I-15 project. He said this is not an option for the Needles Highway because it is not a federal aid highway.

Senator Neal asked whether anyone could explain what benefit the section of road from Nevada to Needles would be to the people of Nevada. Mr. Skancke said the status of that road today is "below failure." He noted there is currently no striping on the road, there are washout points, and 15 people were killed on this road last year. He commented that of the 15 people killed, seven of them were employees of the casinos in Laughlin. He stated there is a safety issue that is a concern to the State of Nevada and the benefit to the state is the economic impact to be derived. He said that because the road is substandard, his studies have shown that the number of people traveling the road who said they will not go back to Laughlin because they cannot get there safely on Needles Highway is increasing. These people say Arizona 95 is not in great shape and they will not travel the additional distance to use U.S. 95. He said this economic impact would be significant. He commented the Needles Highway is the lifeblood to Laughlin and it is also a commuter road to Las Vegas.

Senator Neal said, "If this highway is the lifeblood for Laughlin, have any of the casinos offered any money to help build this highway?" Mr. Skancke replied the Nevada Resort Association has conducted several studies and has worked with the casinos in Laughlin on this project. Their financial commitment has been to assist with the studies, engineering drawings, and consultants to get the project to where it is today. Senator Neal commented, "But not to build the highway." Mr. Skancke replied, "Not at this time." Senator Neal asked why they had not offered to build the highway. Mr. Skancke replied the casinos had not been asked to build the highway. Senator Neal asked whether the Indian casino in Arizona has offered to participate in the highway construction project. Mr. Skancke replied, "They have made verbal commitments in excess of $1.5 million."

Senator Neal said Arizona has made a lot of improvements to Arizona 95. He said he has seen a lot of traffic on the Arizona 95 highway and asked why that highway could not be used as the primary highway into Laughlin. The senator asked whether Nevada had some type of obligation as a result of the 15 deaths on the Needles Highway. Senator Porter replied there are accesses from the Arizona side of the river into Laughlin. He noted most of the people using the ferries are employees living in Arizona and working in Nevada. He commented the employers have asked the employees to park on the Arizona side and use the ferries to leave ample parking for the tourists. He said about 80 percent of the tourists are using the Needles Highway to get to Laughlin. Senator Porter commented the attorneys would have to argue about who is legally responsible for any liabilities arising from the deaths on the Needles Highway.

Senator Porter stated, "San Bernardino does not have the economic incentive that Nevada has to improve the Needles Highway." He said, "If we were to ask why would San Bernardino want this highway, the answer would be they really don’t need the highway, Nevada needs the highway." He commented this is the reason Nevada needs to be a partner with California, to see that the Needles Highway is improved. Senator Neal asked whether the casinos in Laughlin will be asked to contribute funds to help pay for the Needles Highway improvement. Senator Porter replied he does not feel the casinos are opposed to participating in the project but they feel, based on their studies, that they are contributing a net export currently into the state revenues of about $35 million each year. The senator said the casinos feel these revenues could be decreasing and they are seeking assistance so they can continue to provide the state economy with the $35 million each year. Senator Porter said the casinos are willing to help but they are not capable of building the highway.

Senator Coffin asked the names of the casino resorts in Laughlin. He commented that he was aware of Don Laughlin’s Riverside Resort & Casino. Senator Porter replied, "The Golden Nugget, a Mirage property, Ramada Inn Express & Casino, Harrah’s, the Hilton, and several others are in Laughlin." Senator Coffin said there are some very profitable companies who have made significant investments in Laughlin and said he would be willing to give them the authority to save their investment by funding the Needles Highway improvement project.

Senator O'Donnell said the short-term lessor tax is a tax predicated mostly on tourism. He said every tourist dollar that goes into a rental car company is one less tourist dollar that goes into casino gaming. He said, "When considered in a comprehensive totality, everyone is talking about the same dollars." He added, "If a creative funding approach using the tourist dollars currently going to car rental companies is developed to help build the Needles Highway to Laughlin, we will have the same outcome with the same dollars."

Senator Raggio said, "Before we can commit to this kind of project we will need a legal opinion to determine whether or not this would be an appropriate source to retire revenue bonds." He said the Legislature will ask legal counsel for an opinion.

Robert A. Ostrovsky, Lobbyist, The Hertz Corporation, testified in support of S.B. 444. He said Hertz is in agreement with increasing the current 2 percent state guarantee to 2.5 percent. He commented the effective tax rate really depends on the age, the turnover, the value, and the percentage of time the vehicle rental fleet is actually rented. He noted the new effective tax rate is unknown; many of the companies in the industry use the entire 4 percent currently to pay registration fees. Senator Raggio said this is a new approach to revenues for Nevada and asked whether other states tax short-term lessors. Mr. Ostrovsky replied that 41 states have a tax of some kind used to reimburse the rental car companies for the cost of registration and privilege taxes. He commented the tax varies from state to state; sometimes a fixed daily amount is charged each day and sometimes it is a percentage. He noted some states use the tax to fund special projects that vary from city to city. Senator Raggio said that when Nevada implemented this tax in 1993 the tax provided both the state’s and the short-term lessee’s "benefits." Mr. Ostrovsky said that using the short-term lessor tax to pay for registration and privilege fees has helped keep the car rental rates low.

Ed Allison, Lobbyist, Avis Inc., Budget Rent A Car, and Thrifty Rent a Car, testified in support of S.B. 444. He said increasing the state guarantee does cost the rental car agencies money but they are pleased to agree to the increase in the state guarantee.

Carole A. Vilardo, Lobbyist, Nevada Taxpayers Association, said she opposed this tax when it was first presented in 1993. She said that because it is unlikely the Legislature will appeal this tax but she is requesting that the Legislature stay with the 1993 original intent of the tax, which is to deposit the state portion of the tax into the Highway Fund, not the General Fund. She said this tax is generated by the use of cars on roads and should be used for roads. She said this would allow the tax to be used in the local areas generating the tax.

Senator Raggio said the two measures being discussed are not embodied in the second reprint of S.B. 444. He commented that the two issues are not necessarily connected. One is the change of the amount of tax going to the state, the reallocation of the short-term lessee fee from 2 to 2.5 percent. The second issue is whether or not this project to improve the Needles Highway in the state of California is an appropriate project for the Legislature to consider and whether or not the funds that would otherwise come to the state would be an appropriate and legal method to fund the related revenue bonds. He said LCB staff has informed him there may be a problem with issuing bonds for this project.

Senator Neal asked how the money will be controlled if the project is approved. He asked, "Would we send the money to San Bernardino and let them hire the contractors?" No response was forthcoming.

Senator Raggio closed the hearing on S.B. 444.

Assemblywoman Marcia de Braga, Assembly District No. 35, said that about 5 years ago the White Pine County School District, while building a new high school, got into financial difficulties, overspent its budget, was unable to pay its payroll expenses, and was taken over by the state Department of Taxation. She said the school district was allowed to borrow $2.5 million in the spring of 1995; the interest rate of the loan was 5.8 percent. She said the interest over the 10-year life span of the loan is $800,000 for a total of $3.3 million that the school district had to repay. Mrs. De Braga said the loan was to be repaid at a rate of $328,000 each year from the Distributive School Account (DSA) beginning in the 1995-96 school year. She commented that repaying this loan had a huge impact on the operating ability of the district.

Mrs. de Braga said that the White Pine County School District has asked the Legislature that the debt be forgiven or reduced. She said A.B. 480 would pay off this loan entirely and return to the school district the $328,000 each year it now pays on the loan to give the district some operating capital. She said White Pine County School District now has a financial manager and has better control of its finances. She commented that the people who corrected the problems are the ones being penalized, as are the students. Mrs. de Braga said the school district has no ability to pay back bonds. White Pine County cannot sell bonds that have been approved by the voters because they are now at their maximum tax rate. Mrs. de Braga said A.B. 480 would pay of the short-term debt and would provide the ability of the school district to make some necessary school building repairs. She noted there are a great many school buildings that are in serious need of repair.

Senator Neal asked, "If the Legislature forgives this debt, how much money would be made available to the school district?" Mrs. de Braga replied that $328,000 each year would be available to the school district. She said the total amount of the current debt will be $2,031,337 as of June 1, 1999. She noted the current debt is for the next 6 years and, if forgiven, the school district would not have to pay $328,000 each year for the next 6 years.

Senator Mike McGinness said, "The White Pine County School District should be applauded for their efforts in putting the school district back on an even keel." He said the Department of Taxation and the State Department of Education will affirm their "positive position." He said A.B. 480 will assist the White Pine County School District in providing the same educational opportunities as other districts are providing their students.

Mrs. de Braga said that when the Assembly amended A.B. 480, Senator McGinness should have been included as a cosponsor of the bill. She asked that his name be added to the cosponsor listing in the bill.

Mark Shellinger, Superintendent, White Pine County School District, said the 1995 legislative session had to deal with the difficult and heartbreaking situation of the collapse of a school district. He said the people who were responsible for the collapse of the school district were not helpful in the 1995 Legislative Session. He commented that these people have either been fired or recalled, the school board is gone, and the superintendent has been replaced. He noted that in 1996 the school district was completely restructured and given a new superintendent and a new school board. Since that time the school district has received clean audits and has the highest graduation requirements in the state and high test scores and has embraced the reforms set by the 1997 Legislature.

Mr. Shellinger said the White Pine County School District is asking for assistance because the only people who are hurt by the fact that the loan is still being paid by the school district are the children in the White Pine County School District. He said that by paying the yearly payments the students each get $232 less each than any other student in the state because the loan payment comes off the top of the operating budget for the school district. He said if the loan is forgiven, the money saved will be spent on textbooks and providing a lunch program. He noted 45 percent of the students in White Pine County qualify for a free or reduced-price lunch.

Senator Raggio asked what portion of the original loan has been repaid. Mr. Shellinger did not have that information but said the $328,000 has been paid every year. He said the White Pine County School District needs this loan to be forgiven to help ensure the school district can continue the progress it has made. He said he is asking that the students in the White Pine County School District not get less than other students in the state of Nevada.

Senator Raggio said there has been a noticeable improvement in the White Pine County School District since the problem first occurred. He said the change is apparent and the attitude is different. He commented that when people try to help themselves, others will try to help them.

Senator Rawson said the White Pine County School District has repaid $483,334 of principal plus the interest on the current loan.

Senator Raggio closed the hearing on A.B. 480.

Scott Scherer, General Counsel, Governor’s Office, said the purpose of S.B. 550 is to provide greater management and control over the Executive Branch agencies. He said one of the Governor’s central themes is to make sure he is efficiently managing taxpayers’ money and state government. Mr. Scherer said one of the key components of making sure the Governor can do this is having the wherewithal to do regular internal audits, to do reviews, and to make sure proper internal controls are in place. He said the Governor feels some of the major programs, where there is a great deal of money at stake, need to have regular audits to ensure the money is being spent wisely. Mr. Scherer said there are some minor changes in the wording for this unit from the previous internal audit group. He noted that the Division of Internal Audits will be in the Department of Administration but will report independently to an audit committee that will consist of most of the constitutional officers plus one additional appointed member that will have auditing experience.

Mr. Scherer said the budget for the Division on Internal Audits has been trimmed back significantly and the request is lower than originally requested. Senator Raggio asked what the purpose of the Executive Branch audit committee will be. Mr. Scherer replied the purpose is to ensure that the Governor’s Office has some independence from the auditor. Rather than just reporting to the chief of the Department of Administration, the chief of the audit division has the ability to go directly to the audit committee and will have independence in auditing various agencies. Mr. Scherer said the idea of the audit committee for the Division of Internal Audits is to give it more independence. He said using an audit committee is not unusual in private industry and prevents the internal auditor from being fired simply because someone does not like the results of an audit.

Senator Raggio asked why some agencies were exempted from audit in section 17 of S.B. 550. Mr. Scherer said he was not sure, but this section exempted the agencies listed from adopting a uniform system of internal accounting and administrative controls.

Wm. Gary Crews, Legislative Auditor, Audit Division, LCB, said the logic behind exempting these specific agencies is that the agencies listed have either an annual or biennial external audit performed by an outside auditing entity. Mr. Crews said the external audit would suffice "rather than having to develop the procedures discussed in section 17 of S.B. 550 and evaluate themselves internally on an annual basis." Senator Raggio asked what Mr. Crews thought of the exemption. Mr. Crews replied he thought no agencies should be exempt from the internal control requirement. He said it does require resources to evaluate one’s own system but it does help maintain control. Senator Raggio asked whether Mr. Crews had any comments on the bill as a whole. Mr. Crews said that in 1993 the Legislature passed legislation which developed an internal audit function. This was converted to the Office of Financial Management Training and Controls in 1995. Mr. Crews said he supported both of these functions and commented, "Any time you can provide more support in the financial management series the more likely it is that you will be able to eliminate the problems and strengthen the controls."

John P. (Perry) Comeaux, Director, Department of Administration, said the revised budget proposal, Exhibit E, a one-page handout titled "Revised Budget Proposal Office of Internal Audits," would provide a total of 14 staff for the office which will consist of a chief of the Division of Internal Audits, and three audit teams of four auditors containing a supervisor and three auditors. Mr. Comeaux said two of these teams plus the chief and the support staff will start July 1, 1999. He said the last team will start July 1, 2000. He commented this will let the state phase in the office. Additionally, he said, the existing Office of Financial Management Training and Controls, which consists of four staff, would become a separate office in the Division of Internal Audits and will continue to concentrate on the training aspects of financial management control systems. He said the budget is adequate and will give the Governor and the audit committee the ability to conduct internal audits with whatever focus is determined to be necessary.

Senator Raggio closed the hearing on S.B. 550.

Mr. Richard (Rick) D. Perkins, said that since the hearing on A.B. 220 he has had a number of conversations discussing the concept of creating a 4-year state college in Henderson, Nevada. Mr. Perkins said that because of these discussions he has prepared the proposed amendment, Exhibit F, a two-page handout titled "Proposed Amendment for A.B. 220." He explained that the amendment creates an advisory committee to examine the possibility of locating a new 4-year state college in Henderson, Nevada. He said the proposed advisory committee is closely aligned with the committee to examine the funding formulas in the state. He said this will create a partnership between the Legislature, the Board of Regents of the University and Community College System of Nevada, and the Governor’s Office to examine the issue.

Senator Raggio asked whether the proposed amendment is to complete a needs assessment and develop an implementation plan for the 4-year college in Henderson. Mr. Perkins replied "Yes."

Senator Coffin asked about the amount of the appropriation and asked whether $500,000 was really needed to conduct the study. Mr. Perkins said $500,000 was the amount requested for the law school study. He commented that any money appropriated and not used would revert back to the General Fund.

Senator Raggio closed the hearing on A.B. 220.

Joseph Crowley, Ph. D., President, University of Nevada, Reno, University and Community College System of Nevada, said A.B. 324 is a bill in two parts. Dr. Crowley said the first part comes from an action taken by the Legislature during the last session when it created a committee to study the cooperative extension programs and to be representative of the various interests that are served by the Nevada cooperative extension programs. He said the committee was created and was representative and it did produce a report that resolved a lot of the problems discussed during the last Legislative session, Exhibit G, a 10-page handout titled "The Issues and Recommendations of Cooperative Extension Working Group." Dr. Crowley said one of the recommendations of the committee after it reviewed the Nevada Revised Statutes (NRS) provisions on cooperative extension and found them to be outdated was that the current Legislature be approached to propose amended language. He said this is what is included in section 1 of A.B. 324. He commented that the language refers to "extension work in agriculture, home economics and rural welfare," and that language is perhaps 50 years old. He noted the new language is more comprehensive and appropriate to modern times and the functions of the modern cooperative extension service, which are "educational, research, outreach and service programs pertaining to agriculture, community development, health and nutrition, horticulture, personal and family development, and natural resources in the rural and urban communities." He noted that this language reappears in section 2 of A.B. 324. He commented it identifies the first purpose of this bill.

Dr. Crowley said the second purpose emerges from a bill proposed during this session of the Legislature with a weed called "the tall white-top," which is a pernicious weed that spreads rapidly, deteriorates its surroundings, and erodes stream banks. He said the abatement process is fairly well identified and the $75,000 proposed to be appropriated in section 3 of A.B. 324, is largely to be expended on an educational program for farmers and ranchers to show them how the treatment works. The treatment must be applied repetitively. He commented these are the two purposes of A.B. 324.

Senator Coffin asked how long the cooperative extension program has been part of the University and Community College System of Nevada (UCCSN). Dr. Crowley replied, "Since about 1910."

Robert Dickens, Director of Governmental Relations, University of Nevada, Reno, UCCSN, said the program has been part of the UCCSN since somewhere between 1914 and 1924.

Senator Coffin stated Senator Jacobsen very strongly supports this bill.

Senator Raggio closed the hearing on A.B. 324.

John Neill, Assistant Director, Fiscal and Support Services, Carson City, Department of Prisons, said A.B. 687 is enabling legislation that will allow the Department of Prisons to pay from the inmates’ store fund, and from the prisoners’ personal property account, monies owed by inmates placed at the restitution center who violated the rules and were sent back to the prison institution still owing the center for the cost of providing the inmate with housing, transportation, meals, or medical or dental services. Mr. Neill said this has been done in the past but he recently was told the Department of Prisons needed additional legislation to enable this practice to continue. He commented that A.B. 687 will allow the department to continue that practice.

Senator Raggio said that when an inmate is released to the restitution center, commits an infraction of the rules and is returned to the prison institution, the inmate is required to reimburse the restitution center for certain costs. He said if the inmate does not reimburse the restitution center for the costs, the unreimbursed costs will be handled by A.B. 687. Senator Raggio asked the source of money that goes into the Offenders’ Store Fund. Mr. Neill replied the two main sources of funds for the Offenders’ Store Fund is from the inmate store account and telephone commissions from inmate calls. He said the profits remaining after paying for the expenses of the operation of the store fund then go to the Inmate Welfare Fund. He said the Inmate Welfare Fund is where these charges will actually be paid.

Senator Raggio asked about the prisoners’ personal property fund for the individual inmates. Mr. Neill replied that is their personal bank account. Senator Raggio asked whether the prisoners’ personal property fund will reimburse the Offenders’ Store Fund if there is money in the prisoners’ account. Mr. Neill replied "Yes."

Senator Raggio closed the hearing on A.B. 687.

Senate Bill 466: Revises provisions governing education.

Jeanne L. Botts, Senior Program Analyst, Fiscal Analysis Division, LCB, said Amendment No. 1036 to S.B. 466, Exhibit H, a 35-page handout titled "Amendment No. 1036, Senate Amendment to Senate Bill 466," makes a number of substantive changes. Senator Raggio commented the provision in section 2 of this bill that would have had the State Board of Education and State Board for Occupational Education appointed rather than elected has been removed. Ms. Botts replied that is true and said the other controversial item was changing the composition of the Commission on Professional Standards in Education.

Ms. Botts said the addition to the first page is "The courses of study prescribed and enforced by the state board must comply with the standards of content and performance established by the council to establish academic standards for public school pursuant to section 8 of this act." She said there is clarification on the second page of this amendment that the state board shall appoint the superintendent of public instruction for a term of 3 years; however, the board may remove the superintendent for cause. She said the superintendent is required to prepare a biennial report to the Legislature.

Ms. Botts said the third page of the amendment states that charter schools are required to participate in the proficiency examinations required (NRS) 389.015 which include the high school proficiency test and the TerraNova test that is administered in grades 2, 8, and 10 and also the new standards-based examination. She pointed out on page 4 of the amendment the academic standards council is made permanent and the composition of the council does not change. She noted the compensation of the members of the Legislature is explained on page 6 of the amendment.

Ms. Botts noted that on page 7 of the amendment the council is charged with conducting a periodic review of the standards to see whether they need revision. She said an important addition to S.B. 466 is section 8, 1, (c) on page 7 of the amendment, which reads, "Assign priorities to the standards of content and performance relative to importance and degree of emphasis and revise the standards, if necessary, based upon the priorities." She stated the council is required in subsection 2 of the amendment to establish content and performance standards for each grade level in grades K-8 for English and math. She remarked this does not preclude the council from establishing standards in other subject matter areas. She commented that English and mathematics were the two areas that needed the most concentration.

Ms. Botts noted subsection 4 on page 7 states that the council shall work in cooperation with the state board to prescribe the examinations tied to the standards. She commented section 10 on page 8 of the amendment states that the board of trustees of each school district shall conduct a periodic review of the courses of study offered in the public schools to determine whether the courses of study comply with the standards of content and performance established by the council and whether revision of the courses of study is necessary to ensure compliance. She said this is the curriculum audit where the school districts look at what they are teaching and how well those classes match up to the standards.

Ms. Botts said section 11 on page 8 states that the state board, in consultation with the council, shall prescribe examinations to measure students’ performance in relationship to the standards. She said this is in addition to the examinations administered pursuant to NRS 389.015. She noted these tests would be in selected grades.

Ms. Botts said section 12, paragraph 3 on page 10 states, the State Department of Education is charged with adopting regulations prescribing the requirements for reporting the scores of pupils who took the exam and needed unusual or extraordinary accommodations, pupils who are enrolled in special schools for the disabled, alternative education programs, or juvenile detention facilities. She noted the requirement at the bottom of page 10 that the department provide the Legislative Bureau of Educational Accountability and Program Evaluation with results of the tests.

Senator Raggio asked, "In the course of amending the education bills, has the Legislature settled on when the tests are to be given, the fall or the spring?" Ms. Botts replied the tests are required by NRS 389.015; the TerraNova achievement tests given in grades 4, 8, and 10 will continue to be given in the fall. She said the high school proficiency examination is given first in October of the junior year and the students have several opportunities to retake the examination before they graduate in June of their senior year. She said the standards-based examinations would be administered in the spring.

Ms. Botts noted the requirement on page 12 of this amendment that requires the school districts to reconcile the number of pupils tested with the number enrolled. She noted section 13 of the amendment identified the duty of the council to establish academic standards for public schools to review the results of pupils’ scores on the examinations and evaluate whether the content and performance standards might require revision, and to report the results of the evaluation conducted to the State Board of Education and the Legislative Committee on Education.

Ms. Botts said section 15 of this amendment includes software for computers with the definition of "basic textbook." Senator Raggio said, "We are officially making a computer a textbook." Ms. Botts replied the software is the textbook. She noted section 16 on page 14 states "the state board shall not select the textbook unless the state board determines that the textbook adequately supports the standards for that subject area." She said section 17 requires that the State Board of Education consult with the boards of trustees of each school district in regard to reviewing teacher preparation programs and approving those programs.

Ms. Botts noted that beginning on page 16 a number of amendments to the Nevada Education Reform Act are made. Senator Raggio said some of the transitory language is removed. Ms. Botts said basically what is occurring is that the academic standards council is being given more time to do the Phase II standards.

Ms. Botts noted that section 24 on page 25 requires that on or before December 1, 2000, the State Board of Education shall, pursuant to the recommendations of the Council to Establish Academic Standards for Public Schools, develop or purchase examinations that measure pupils’ achievement on the standards in grades 3 and 5 in English and mathematics. She noted the examinations must be scored by a single private entity or by the State Department of Education. She said the examinations must be administered to all pupils who are required to take the examinations, but there are exemptions for students who are not proficient in English and for special education students.

Ms. Botts said section 25 on page 26 contains a provision to bring in the science and social studies test commencing in the spring semester of 2002. She noted section 26 clarifies that the high school proficiency examination will be first given to those who are juniors in the 2001-02 school year.

Ms. Botts remarked that section 28 on page 27 deals with the students who are currently having difficulty passing the mathematics examination. Senator Raggio said this is where the additional $300,000 is placed.

Senator Raggio asked what period of time is allowed for students to pass the mathematics. Ms. Botts replied, "Basically through the summer." She said they have the opportunity to have remedial help in mathematics and two additional testing sessions. Senator Raggio asked whether this section was only for mathematics. Ms. Botts replied "Yes." Senator Raggio asked whether it would be a problem to amend this section to include reading as well as mathematics. Ms. Botts indicated reading could be added but would require additional funding.

Ms. Botts said section 33 on page 28 identifies whether, if a student meets all other requirements except passing the test, the student can participate in the graduation ceremony and receive a certificate of attendance which will be replaced with a diploma when the student is successful in passing the test.

Ms. Botts noted that section 36 on page 30 the State Department of Education shall establish a task force, consisting of 10 members, to conduct a study of the high school proficiency examination currently being given to see how well it tracks with the course of study.

Senator Raggio noted section 40 on page 34 includes the amount requested to carry out a financial analysis model program in each school district that is designed to track educational expenditures to individual schools.

Senator Raggio said, S.B. 550 needs to be processed. He explained that this bill is for the internal Executive Branch audit committee and no amendments have been indicated on the bill.

Senator Jacobsen commented that he would like to remove the word "tall" and just have the bill include all white top. Senator Raggio asked whether the bill would have to be amended to make that change. He asked whether that change could be included in a Letter of Intent.

Senator Raggio said the bill needed to be amended to include Senator McGinness’s name to the bill as a cosponsor.

Senator Raggio said the draft for a joint Letter of Intent in lieu of S.B. 306, Exhibit I, a three-page handout titled, "Corrected Version, Proposal for Joint Letter" has been distributed.

Senator Raggio recessed the meeting at 10:35 a.m. until the call of the Chair.

RESPECTFULLY SUBMITTED:

Millard Clark

Committee Secretary

APPROVED BY:

Senator William J. Raggio, Chairman

DATE: