The Senate Committee on Government Affairs was called to order by Chairman Ann O'Connell, at 12:15 PM, on Friday, February 5, 1999, in Room 2149 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 Ann O'Connell, Chairman

Senator William J. Raggio, Vice Chairman

Senator William R. O’Donnell

Senator Jon C. Porter

Senator Joseph M. Neal, Jr.

Senator Dina Titus

Senator Terry Care

GUEST LEGISLATORS PRESENT:

Senator Mark Amodei, Capital Senatorial District

STAFF MEMBERS PRESENT:

Donna Calhoun, Committee Secretary

OTHERS PRESENT:

Senator O’Connell opened the meeting and requested testimony on Senate Bill (S.B.) 14:

SENATE BILL 14: Authorizes certain public entities to lend securities under certain circumstances. (BDR 31-345)

John Sande, Lobbyist, Nevada Bankers Association, remarked that amendments would be appropriate to process S.B. 14 which originally had been requested by the bankers association.

Robert L. Seale, Managing Director, Bally Fixed Income, and ex-State Treasurer of the State of Nevada, explained that securities lending was a process used in the state by entities such as the Public Employee Retirement Fund (PERS) and the State Industrial Insurance System (SIIS). He drew attention to the fact that securities-lending revenue was approximately 3/4 million dollars per year. He explained the process required a sizable portfolio, upwards of 1 billion dollars, and would include portfolio instruments such as lendable treasuries and U.S. government agency instruments. Mr. Seale stressed that people in the market place would like to borrow the instruments and would be willing to provide collateral, generally cash, at 102 percent and not at 100 percent as suggested in the bill. He added the money would be reinvested or outside managed by known reputable firms, with reinvestment periods approximately the same length of time as the securities lent, known as "matching your book." Mr. Seale further explained that following the investment period the cash is returned, the interest or profit is kept and the securities are returned. He supported the measure as effective and emphasized that other state entities also realized revenue from the practice. Mr. Seale pointed out the portfolio must be large enough to attract a fairly large sum of money. He suggested legislation should include caps on the size of the entity able to participate and pointed out that a population level of 100,000 and/or a portfolio size at around 100 million dollars would be appropriate.

Mr. Sande supported the measure and agreed the size of portfolio or population should be a consideration. He added that the collateral figure of 102 percent was acceptable. Mr. Sande noted that PERS was already involved in such programs and did not want to be included in the statute. He concluded the intent was to broaden the ability of certain government entities to be able to utilize programs as outlined in the measure.

Chairman O’Connell declared for the committee that her husband was president of a bank and she would exclude herself from discussion on this measure.

Senator Neal asked for an explanation of whether a constitutional change was required to permit this to happen as far as local governments were concerned. Mr. Seale answered a statutory change existed that would allow the program to occur at the state level.

Senator Neal further asked for clarification stating that local governments can not loan money to any entity. Mr. Seale agreed but explained that securities are lent, not money. He did not think a constitution change would be required.

Senator Neal referred to Section 2 of the bill and asked if the use of cash or marketable securities used as collateral and being a value could constitute a risk. Mr. Seale answered that collateral would be in excess of the value of the security loaned and ownership of that security would not be released as the underlying securities were held by a custodian. He explained in the case of default the loss would amount to a relatively small amount via an opportunity cost on the transaction.

Senator Neal suggested that a legal opinion be secured from the counsel bureau relative to whether there would be a constitutional bar against the suggested procedure.

Kimberly Marsh Guinasso, Committee Counsel, verified she did not believe a constitutional prohibition existed and was in agreement with statements by Mr. Seale.

Senator Raggio disclosed for the record that he was a member of the same law firm as Mr. Sande.

Senator Raggio indicated that the Legislative Counsel notified leadership whenever a bill draft might have a constitutional problem, in turn the committee chairman was also notified. He agreed that it would be prudent to ask the Committee Counsel to look into the matter.

Senator Care asked for an explanation of why one would pledge cash to borrow securities worth less than the amount paid. Mr. Seale answered that this mechanism was more economical or would not be utilized.

Senator Care asked who the borrowers were. Mr. Seale answered that care was taken to choose a company with ability to perform, usually from names heard on Wall Street.

Senator Neal asked if a person had, for example, $102 in cash, why would one want to borrow securities instead of using the cash. Mr. Seale replied that the companies were generally in a short position and it was more efficient to borrow for the short periods of time.

Carole A. Vilardo, Lobbyist, Nevada Taxpayers Association, spoke in opposition to S.B. 14 as written. In addition to the amendments offered she suggested the treasurer write an investment policy as a known document and that it be encoded into the local government’s ordinance. She also suggested that any governmental entity utilizing the provision would be required to supply a monthly report to the financial officer of the county or city or at a public meeting. She added the report would provide a check on the portfolio.

Senator Porter asked if Ms. Vilardo would support the bill with the amendments as suggested. Ms. Vilardo offered she would not oppose the measure, stressing that the safeguards must be in place to protect taxpayer dollars.

Laura Wallace, Investment Officer, Public Employee’s Retirement System (PERS), submitted prepared testimony (Exhibit C) in opposition to Section 5 of the bill. She asked for removal of this section explaining Nevada Revised Statutes (NRS) 286.680 identified qualification of professional investment managers whereas S.B. 14 was silent on the issue. She suggested that the minimum collateral be equal to the value of the securities borrowed. Ms. Wallace offered the current PERS minimum was changed to 102 percent in 1995. The prepared testimony (Exhibit C) also outlined safeguards in the PERS securities-lending policies. She requested that the total assets be managed in the program and offered that PERS policy was restricted to one-half of the Security Exchange Commission (SEC) allowed amount. She explained the policies were reviewed annually by professionals and suggested the same for this measure. She closed with a request for removal of Section 5 from the bill.

Senator Raggio said that assuming the bill met constitutional tests, Section 5, would merely give authority not mandate PERS. He asked why PERS would oppose the measure.

Ms. Wallace explained the concern was that PERS investments in other areas were not addressed by the measure. She questioned if specific parameters in the statute were inconsistent as to whether to utilize merging market stocks or junk bonds.

Senator Raggio stated the investment procedures and opportunities have become so diverse that when dealing with public money and security, the risk must be kept to a minimum. He noted the measure would not preclude the public sector from taking advantage of opportunities that offer a higher return with the same level of security.

Ms. Wallace pointed out that she was not opposed to S.B. 14, just the framework in which it would be done.

Marvin A. Leavitt, Lobbyist, City of Las Vegas, stated he agreed with concerns as previously outlined. He explained PERS had invested in these types of securities for a number of years. He agreed with concerns expressed by Mr. Seale. He mentioned the security and the transaction should have similar ending dates to avoid the short- and long-term business of securities. He offered that the measure should be reviewed with amendments as suggested.

Al Kramer, Treasurer, Carson City, agreed with suggested amendments. He wanted to add that the bill was designed to allow local government investment pools the ability to participate with state treasurer approval. He concluded if limits were placed for specific counties, specific population or specific governments, he asked that local government investment pools be allowed to do this process.

Timothy Ortez, CPA, Director of Banking and Investments, University and Community College System of Nevada, expressed approval of the bill with adequate controls in place. He was concerned that Section 6 referenced the Board of Regents’ authority over the investment portfolio of its retirement programs. He expressed a concern of university legal counsel that the measure might misrepresent the Board of Regents’ involvement with respect to the management of the retirement programs. He explained the classified employees retirement funds were presently directed to PERS and academic, administrative and executive employees were directed to third-party vendors, usually mutual funds. His concern was that this section might create ambiguities with respect to what those vendors could and could not do and would request that references made to the Board of Regents and the University and Community College System of Nevada be removed.

Barbara Reed, Clerk/Treasurer, Douglas County, was opposed to the bill as presently written. She agreed with items addressed by Mr. Leavitt. She said that most county governments do have investment guidelines in place. She added that small jurisdictions could face dangers with the bill as written and asked that population amounts be increased.

The hearing on S.B. 14 was closed.

Chairman O’Connell then introduced S.B. 31.

SENATE BILL 31: Changes legal holiday to observe Nevada Day to last Friday in October. (BDR 19-993)

Senator Mark Amodei, Capital Senatorial District, reported as a result of passage of Assembly Bill (A.B.) 396 of the Sixty-ninth Session and interim sub-committee on ballot questions this measure was placed on the last General Election Ballot and was passed by the public. He asked for committee support in accordance with voter preference with an effective date of year 2000. He added there was no fiscal note attached and asked that it remain accordingly.

ASSEMBLY BILL 396 OF THE SIXTY-NINTH SESSION: Requires Secretary of

He asked for committee support in accordance with voter preference with an effective date of year 2000. He added there was no fiscal note attached and asked that it remain accordingly.

Senator O’Donnell commented anytime a 3-day weekend occurred, instead of a holiday in the middle of the week, tourism was encouraged. He added the fiscal note would be positive as it would bring money into the economy.

Senator Amodei offered that this measure would attempt to bring people into the community, encouraging a venue of the size and demographic type as in Carson City.

Guy Louis Rocha, Assistant Administrator for State Archives and Records, Division of State Library and Archives, Department of Museums, Library and Arts, submitted history on the Nevada Day holiday (Exhibit D).

Senator Raggio offered that the 3-day value would be better for tourism. He was concerned there would be argument to change other national holidays to

3-day weekends.

Mr. Rocha discovered that when the holiday fell on a Tuesday, Wednesday, or Thursday, participation was primarily from northwestern Nevada, within 120 miles of Carson City. He added the logistics in terms of statewide participation dealt with the geography of the state. He gave examples of the long distances that parade participants must travel. Mr. Rocha stated that Nevada Day would better include statewide participation when the holiday fell on a 3-day weekend. He concluded that Nevada Day in Carson City was the only celebration with statewide participation and only when it happened calendar-wise to be a 3-day weekend. He concluded stating that now was the time to come together and share the state’s heritage.

Marv Teixeira, Member, Nevada Day Committee, agreed that national holidays were not moved to accommodate a 3-day weekend. He stated the intent of changing Nevada Day to a 3-day holiday was for its preservation and enhancement. Mr. Teixeira added the celebrations on the weekends were well attended because the state holiday was for the citizens of Nevada. He

explained the beneficiaries of this change would be gaming, hotels, motels, food, and beverage companies. He added that the measure would ensure the inclusion of other counties, making it a statewide event and expanding the venue. Mr. Teixeira concluded the measure to change the holiday to Friday would provide an opportunity to open the doors to history in the community; i.e., the Legislature, Capitol Building and museums.

Mr. Rocha pointed out that holidays such as July 4, Christmas, and New Years were celebrated as community holidays or as holidays in the home. He explained that Nevada Day was a statewide holiday that was only celebrated in Carson City. He noted that efforts in other areas of the state to celebrate the holiday had not been sustained like the event in Carson City, which has been celebrated since 1938. Mr. Rocha emphasized the geographical barriers were broken down when the holiday was on a 3-day weekend, somewhat like a pilgrimage to the state capital.

Senator Titus asked if the change would effect trick-or-treat activity. Mr. Teixeira answered affirmatively.

Senator Amodei replied there was no legislation requiring Halloween be held in conjunction with Nevada Day. He added that Halloween was adjusted locally in Carson City to ensure Halloween was not on the same day as the Nevada Day celebration.

Chairman O’Connell closed the hearing on S.B. 31 and introduced two bill draft requests (BDRs).

Bill Moell, Chief, Purchasing Division, Department of Administration, explained this measure would encourage the reutilization of state excess property by deferring the payment of the salvage value of any piece of equipment deemed excess until such time that the asset is no longer needed by the state. He said at the present time when salvage equipment is purchased, the salvage value must be paid, making it difficult because of budgeting and by the time they go through the process the asset is gone. This measure will help state agencies get better equipment.

Marta Golding Brown, Lobbyist, City of North Las Vegas, explained the request for the measure was a change to local government statute which would enable cities to create special assessment districts for capital projects. The request was specifically to address older parks to enable the city council to utilize another tool to upgrade facilities in the downtown areas or older communities.

* * * * *

The Senate Committee on Government Affairs was adjourned at 1:15 PM.

RESPECTFULLY SUBMITTED:

Donna Calhoun,

Committee Secretary

Donna Calhoun,

Committee Secretary

APPROVED BY:

Senator Ann O'Connell, Chairman

DATE: