The Senate Committee on Government Affairs was called to order by Chairman Ann O'Connell, at 2:10 p.m., on Wednesday, March 3, 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

STAFF MEMBERS PRESENT:

Amelie Welden, Committee Secretary

OTHERS PRESENT:

Chairman O’Connell indicated the hearing on Senate Bill (S.B.) 252 would be rescheduled for Friday, March 5, 1999, per the request of Senator Michael (Mike) A. Schneider, Clark County Senatorial District No. 8.

Chairman O’Connell opened the hearing on S.B. 255.

Senator William J. Raggio, Washoe County Senatorial District No. 3, stated S.B. 255 was introduced by the Washoe County delegation. He indicated it is a "trailer bill" which clarifies the Legislature’s intent regarding related legislation passed during the sixty-ninth session.

Senator Raggio asserted S.B. 255 does not make material changes in the intent of the previous legislation regarding the sales tax authorization, particularly as it affects the suppression of railroad tracks. He said S.B. 255 is an attempt to resolve some issues which have been raised in litigation. He added S.B. 255 attempts to ensure that the railroad suppression project will go forward and that the bonds which have been authorized will not be placed in jeopardy.

Charles McNeely, Lobbyist, City Manager, City of Reno, offered support for S.B. 255. He stated the bill would make technical changes to the legislation which was approved during the sixty-ninth session. He indicated these changes would save Washoe County citizens millions of dollars over the life of the railroad suppression project.

Mr. McNeely explained the first change would make a technical clarification regarding matching funds. He indicated previous legislation had required the city to match both sales tax and room tax proceeds with outside funding. He expressed in his understanding this was not the intent of the Legislature, but that the intent was rather to ensure that the county taxpayers would not pay for more than 50 percent of the overall cost of the project. Mr. McNeely stated S.B. 255 would allow for prepayment of interest and principal, which would ultimately save taxpayer dollars. He asserted since room tax revenue is received from visitors, this amount would not have been included in the matching requirement. He continued this tax is only imposed upon the affected properties in downtown Reno. Mr. McNeely indicated paragraph (b) of subsection 1 of section 2 of S.B. 255 would make the relevant correction.

Mr. McNeely said S.B. 255 also includes a section requested by the City of Reno allowing the sales and room taxes to be used on a "pay-as-you-go" basis. He stated currently, the law allows the sales and room taxes to be used only to pay off debt. He noted if this provision were not included in the law, the affected local governments could use approximately $15 million of sales and room taxes on a "pay-as-you-go" basis, which would save taxpayers about $500,000 each year in interest and financing costs. Mr. McNeely commented over the 30-year bond issue, about $15 million could be saved.

Mr. McNeely explained S.B. 255 involves a ratification of previous county commission and city council actions. He stated the ratification would allow Reno to move forward with the railroad suppression project on an expedited basis, thereby creating the least amount of disruption to affected businesses in the downtown area. He indicated the requested ratification confirms the Washoe County Board of Commissioners’ lawful action in adopting the tax, an action which was also confirmed by the Washoe County District Court on December 31, 1998.

Mr. McNeely asserted S.B. 255 contains an additional request from Washoe County which would alleviate the need for an agreement between the county and the Department of Taxation in order to process and collect the sales tax. He stated the City of Reno agrees with this change and supports the expediting of the railroad suppression project to save taxpayer dollars.

Harvey Whittemore, Lobbyist, Nevada Resort Association, also offered support for S.B. 255. He stated the association sees the railroad suppression project as a means to improve the downtown community and to create a visitor destination, which would in turn create additional tax dollars and fuel private investment in downtown Reno.

Anne E. Stearns, Lobbyist, Greater Reno Sparks Chamber of Commerce, offered further support for S.B. 255, noting the chamber supports redevelopment activities like suppression of the railroad tracks. She distributed booklets which provide further information regarding the chamber’s position on the railroad suppression project (Exhibit C. Original is on file in the Research Library.).

Jack M. Fetters, Lobbyist, State Legislative Director, United Transportation Union (UTU), indicated the UTU represents approximately 400 railroad employees in Nevada. He stated the UTU supports S.B. 255.

Glade L. Hall, Attorney, stated he represents the group of taxpayers who opposed the aforementioned taxes and the manner in which they were passed. He maintained Reno intends to immediately float $104 million in bonds, which would go into a savings account and draw 4.2-percent interest. He asserted the city would be paying 5.2-percent interest. Mr. Hall contended the imposition of the tax proposed under S.B. 255 would not save taxpayer dollars, but would rather cost taxpayers approximately $1.5 million per year for the next 8 years. He pointed out that amount represents only the difference in interest earnings and payouts, not the cost of the project itself.

Mr. Hall mentioned the cost of the railroad suppression project has not been determined. Thus, he commented nobody knows what half of the cost will be.

Mr. Hall disagreed with Senator Raggio’s remarks regarding the legislative history and intent of S.B. 255. He stated the legislative history of S.B. 255 included three criteria, the first of which was "genuine need." Mr. Hall asserted the need expressed in Reno’s publications "grossly exaggerates" the amount of traffic expected through downtown. He indicated the railroad had confirmed this exaggeration to him, and engineering considerations also support it.

Mr. Hall stated the next criterion was "judicious accountability of the proceeds of the tax." He noted Reno estimates $87 million will be used for the railroad suppression project, but the city is floating $104 million worth of bonds to be repaid by the tax. He maintained no information has been presented which accounts for the $17 million difference between these amounts.

Mr. Hall said the third criterion in the legislative history of S.B. 255 was "absolute and undeniable community support." He contended the issue was historically rejected by taxpayers and maintained support still has not been shown. He expressed existing support has been procured by misrepresentation from Reno regarding the cost of the project and the amount the railroad is going to pay. Mr. Hall elaborated when making its commitment to the Washoe County commissioners, the city indicated it had funding sources totaling approximately $92 million. He stated of those funding sources, $62 million was represented by a memorandum of understanding between the railroad and the city. Mr. Hall noted in the memorandum of understanding, properties worth $42 million were to be transferred to the City of Reno. However, he commented that in court, counsel for Washoe County and the City of Reno stipulated those properties have not been appraised and there is no independent support for those valuations. Mr. Hall explained the relevant properties lie alongside the railroad tracks and stretch the 2.1-mile length of the project. He indicated the properties will mostly be consumed by the project itself because it requires the depression of the right-of-way, bordered on each side by walls which will be 5 to 7 feet thick and tiebacks which will impair the usability of the land for 35 feet. Mr. Hall stated Reno has publicly claimed that air rights comprise the value of the property. He said he subpoenaed the broker who represented the railroad in the sales of these properties over the last 20 years. Mr. Hall related the broker stated there is no demand for the properties in question, noting most of them are landlocked. Mr. Hall further indicated the broker said all properties with valuable air rights have already been sold.

Mr. Hall asserted even if the land in question were worth $42 million, it would not be available to provide for costs of the project. He indicated under the aforementioned memorandum of understanding, Reno does not get the property until the "shoo-fly track" is constructed. He commented construction on the trench would then begin. Mr. Hall emphasized the properties would be in the construction zone and thus would not be "buildable" or "useable." He expressed it is unrealistic to expect a buyer to pay cash for property and then wait 5 years before being able to use the property due to construction. Mr. Hall contended as shown in court, "the sources of funds simply were not there."

Mr. Hall continued the legislative history of S.B. 255 demonstrates that at the time of the previous legislation, Reno indicated the sales tax would be a small part of the project funding. He maintained sales tax proceeds are currently projected to cover about 2/3 of the funding and suggested a "mismatch" exists between the benefactors and payers of the tax.

Mr. Hall commented a proceeding regarding this issue is pending at the Nevada Supreme Court. He stated S.B. 255 would be an intrusion on the judicial system because it would ratify what has already occurred. He expressed such ratification would be an unconstitutional act.

Senator Raggio noted issues presented by Mr. Hall in the hearing were already presented in the lower courts. He stated the court had ruled contrary to Mr. Hall’s position. Mr. Hall responded the court ruled that Reno’s commitment, without a funding source behind it, was an adequate source of funds. He indicated paragraph (b), subsection 1, section 2 of S.B. 255 deletes the word "other" for that reason. He clarified that change would mean the City of Reno itself could make the commitment. Mr. Hall recalled when the original legislation was passed in 1997, Reno Mayor Jeff Griffin publicly stated that without funding from other sources, this project imposed an unreasonable and unfair burden on the citizens of Reno. Mr. Hall added the project imposed a burden on Washoe County citizens as well.

Barlane (Ike) Eichbaum, Lobbyist, Citizens for Responsive Government, stated he is a chemical and environmental engineer. He expressed his opposition to S.B. 255, noting citizens never had the opportunity to vote on the railroad suppression proposal. He asserted only a "lame duck" county commission voted on the issue.

Mr. Eichbaum raised concerns that the 2-mile long, 50-foot deep trench for the project will penetrate a water table. He added the project could become a federal "Superfund" site, like the Leviathan Mine. He maintained substantial amounts of water will have to be pumped out and reclaimed due to the railroad suppression project. Mr. Eichbaum claimed he knows of no test wells drilled thus far.

Mr. Eichbaum continued he does not know of any bids on the project, and he believes the project will have cost overruns. He voiced concern that when overruns occur, the county will have to pay for what Reno cannot afford. He asserted, as a taxpayer in an unincorporated area, he will have to pay for cost overruns.

Mr. Eichbaum also expressed that after completion of the project, engine stacks will be at ground level, where they will cause air pollution. Senator Raggio asked if air pollution would exist regardless of whether the engine stacks were at ground level or above. Mr. Eichbaum explained putting stacks on top of engines is intended to get the exhaust up higher so that it is not down at ground level.

Senator Raggio noted the county commission held hearings on the railroad suppression project. Mr. Eichbaum responded the commission heard some of his concerns at that time.

Senator O’Donnell asked if downtown casinos had dug basements in the area near the proposed project. Mr. Eichbaum stated the Silver Legacy (Hotel/Casino) dug a basement, but that casino is farther north and not as close to the river as is the proposed project. Senator O’Donnell suggested Harrah’s Reno (Casino) also has a basement. Mr. Eichbaum noted basements are localized areas and would not have seepage into an aquifer, unlike the proposed railroad suppression project. He added he has witnessed multiple "Superfund sites" where emerging water is difficult to control. Mr. Eichbaum commented a localized site can be sealed off, and the weight of a building can help contain the water.

Senator O’Donnell asked Mr. Eichbaum if he believes the necessary engineering would be performed to mitigate environmental concerns. Mr. Eichbaum said he has heard such engineering will be performed, but there have been no bids to estimate the costs of that engineering.

Bill Dickerson, Concerned Citizen, President, CareBorne, Inc., distributed a handout regarding funding for the railroad suppression project (Exhibit D). He indicated 6 months ago, Jim Galloway, Board of Commissioners, Washoe County, asked Mr. Dickerson to look into the railroad suppression project. Mr. Dickerson coordinated some engineers to address project issues. He stated many costs have been minimized due to the project’s requirement that only half of the funding could come from sales tax. Mr. Dickerson indicated the 1/8-percent sales tax is projected to provide $104 million over a 30-year period, assuming a 2 percent growth rate per year. Thus, he commented $208 million could be spent on the project.

Mr. Dickerson asserted the project would actually cost $300 million to $400 million. He said the design of the project is only in its early stages, and the project is more difficult than it may appear. He cited the Boston area’s 7-mile tunnel project, which was originally estimated to cost less that $3 billion but now is projected to cost over $12 billion. Mr. Dickerson maintained the State of Massachusetts has had to "bail out" this project.

Mr. Dickerson contended the Washoe County Board of Commissioners did not have all the information when they voted on the railroad suppression project. He commented the City of Reno was pressured by "lame duck" commissioners who had been defeated in the election. He mentioned Washoe County citizens voted these people out of office because the citizens wanted the opportunity to vote on sales tax funding for the railroad suppression project. Mr. Dickerson indicated the county commissioners voted on the trench project before they had received the memorandum of understanding, which contains some troubling information for county citizens.

Mr. Dickerson reiterated Mr. Hall’s concerns regarding property values and air rights. He added the $42 million in property has been put into escrow because it cannot be transferred to the City of Reno per a Congressional act stating the land in question must go back to parks and trails. He commented Congress would have to enact an exceptional law to allow the land to be transferred to the City of Reno.

Mr. Dickerson continued the railroad has 54 feet of "right-of-way" rights through most of downtown. He maintained the railroad suppression trench would be 54 feet wide, but a wall and tiebacks must be constructed alongside. Mr. Dickerson maintained construction would thus require the purchase of land along the entire corridor by right of eminent domain. He explained the tieback supports would address seismic and other concerns and indicated according to engineering studies, they would go back at an angle of 45 degrees for 50 feet. Mr. Dickerson contended properties along the corridor would have to sell easements or give up property rights for this underground development. He maintained total cost for the property rights will be "enormous." He further stated businesses along Keystone Avenue will be closed, and related lawsuits will be forthcoming.

Mr. Dickerson clarified he is not opposed to the railroad suppression project, but to the method in which it is being handled. He asserted the 3-year to 4-year project will force a few downtown casinos to close. He contended the Legislature will be approached for hundreds of millions of dollars to support the project in the future.

Mr. Dickerson mentioned because the Nevada Supreme Court is hearing a case related to S.B. 255, passage of the bill could set a precedent that the Legislature can retroactively change existing law. He stated he does not believe setting such a precedent is the intent of S.B. 255. He noted one reason for voter apathy is that people perceive interest groups "get the nod" over the interests of the majority of citizens.

In response to a question from Senator O’Donnell, Mr. Dickerson clarified Washoe County stipulates the property in question currently has a value of $42 million. He explained its assessed value is only $9 million.

Citing the aforementioned memorandum of understanding, Mr. Dickerson read, "The property and air rights to be transferred to the city pursuant to this memorandum shall be valued at $42 million." Senator Raggio asserted that is a commitment from the railroad. Mr. Dickerson stated the land and air rights do not have that amount of value.

Senator Raggio explained S.B. 255 is "enabling legislation," as was previous legislation on the issue. He noted public hearings were held at the Legislature and before the county commission.

Senator Raggio continued:

Mr. Dickerson asked if there is a limit of $200 million on the project. Senator Raggio answered no, and stated project costs are matters to be determined at hearings and when contracts are drawn. He added some bonds have already been authorized and issued for the project. He asserted it would be detrimental for litigation to go forward and to jeopardize actions that have already been taken. Senator Raggio emphasized for that reason, S.B. 255 attempts to clarify the intent of the Legislature and avoid such damaging effects. He acknowledged the supreme court will "have the last word" on the issue and pointed out the issues have already been rejected by the lower court.

Mr. Dickerson asked if S.B. 255 would allow the City of Reno to assume up to $300 million or $400 million of debt. Senator Raggio stated he could not answer that question because the Legislature does not delineate the cost of the project. He added it is beyond the purview of the Legislature to debate how the project will be constructed and what the costs of it will be. He maintained those issues have been addressed by the county commission.

Merri Belaustegui-Traficanti, Deputy City Attorney, City of Reno, noted both the Washoe County Board of Commissioners and the Washoe County District Court heard all the arguments presented by Mr. Hall and Mr. Dickerson. She stated the Washoe County Board of Commissioners found there was sufficient written commitment to satisfy the prerequisites of the statute when they imposed the tax. Ms. Belaustegui-Traficanti added the district court affirmed the actions of the board and made an independent finding that those written commitments had been satisfied.

Ms. Belaustegui-Traficanti continued the way the relevant statute originally read, a room tax had to be imposed in downtown Reno and funding had to be found from one or more other sources. She asserted the bond counsel found that the word "other," which would be deleted per paragraph (b) of subsection 1 of section 2 of S.B. 255, referred to the room tax set forth in paragraph (a) of subsection 1 of section 2 of S.B. 255. She indicated that interpretation meant "the room tax was part of the 50 percent matching rather than one of the sources we could use as a match to it. So it had nothing to do with the City of Reno providing a funding source."

Ms. Belaustegui-Traficanti added nothing in the relevant statute prevents the City of Reno from providing its own funding source, or from being one of the other funding sources. She stated Reno has in fact committed to provide $60,700,744 for the railroad suppression project, regardless of the value of the air rights and land that the city finally realizes from the Union Pacific Railroad. She commented on those grounds, the court dismissed the aforementioned case. Ms. Belaustegui-Traficanti emphasized both the Washoe County Board of Commissioners and the court found Reno’s commitment to be a valid written commitment. She provided a copy of the court’s findings in this matter (Exhibit E).

Ms. Belaustegui-Traficanti mentioned Mr. Dickerson had presented to her his own infrastructure engineering plan. She said he holds the patent on this plan and would like Reno to follow it rather than to lower the railroad tracks.

Senator Raggio asked if bonds have been issued. Mr. McNeely answered affirmatively. Ms. Belaustegui-Traficanti added the issued bonds are backed by both room tax and sales tax. Senator Raggio asked to what purpose that money is being used. Ms. Belaustegui-Traficanti responded the funds are being applied to the environmental impact phase of the project and the contractor selection process.

Jeff Holt, Vice President, Goldman Sachs & Co., expressed the City of Reno asked him to help identify a funding plan which would meet statutory requirements and would provide sufficient funds to build the railroad suppression project. Mr. Holt explained when bonds are sold, the issuer must rely on "valid and strong legal opinions to the effect that these statutes have been upheld and that the covenants that are being entered into with respect to bonds are legal and binding." He indicated the bond counsel has stated that the process followed was "valid and binding." He further commented the bondholders share that belief.

Mr. Holt addressed the cost overrun issue, asserting if the project is bid at $400 million, Reno will "fold the tent, pack its bags, and move away from the project." He maintained currently identified funding sources satisfy the estimated project costs, which are approximately $145 million plus $50 million in contingency. He emphasized if the project overran those costs, Reno would decide not to do it. Mr. Holt elaborated unless the project is bid at its currently estimated cost, Reno will not start construction and the railroad will not allow a severance of its main corridor across the United States. He concluded railroads and several engineers have decided the cost estimates are appropriate.

Mr. Holt indicated an Environmental Impact Report (EIR) and Environmental Impact Statement (EIS) process must be followed. He stated the Record of Decision regarding this issue is scheduled for sometime in 2000. He commented on projects of this size and complexity, "the timing does not all work out exactly right." Mr. Holt expressed funding had to be identified well before the EIR/EIS process began and noted this process is a condition for the funding sources.

Mr. Holt mentioned he has been involved in many projects throughout the United States in which regional demands had such large costs that no single entity could fund them. He noted the railroad suppression project is similar to these because it is a multi-constituency effort to fund a major regional project. Mr. Holt asserted the state Department of Transportation, the railroads, the downtown assessment district, the room tax proceeds, the City of Reno, and the sales tax proceeds will provide funding for the project, and the federal government will be involved with a loan. He commented much coordination and many political processes have had to take place in order to organize the funding. Mr. Holt indicated Rodney E. Slater, United States Secretary of Transportation, has spoken "very favorably" about the railroad suppression project because it has "pulled from every sector that is interested." Mr. Holt stated the project is being used as a national model. He further commented United States Senators Harry Reid and Richard Bryan fought hard to get the necessary legislation passed to provide for federal loans.

Mr. Holt concluded without S.B. 255, the project could go on "fairly normally." However, he explained the bill would correct three items and thereby save money. First, he stated the bill would allow Reno to "pay-as-you-go" instead of having to borrow money to pay off the debt service on the bonds. He expressed the "pay-as-you-go" option would save interest costs. Mr. Holt indicated S.B. 255 would also allow the city to use surplus to prepay bonds. Finally, he said the bill could help clear up current litigation by clarifying the original intent of the Legislature.

Senator Raggio pointed out "the longer the delay, the more potential there is for higher costs." Mr. Holt agreed and noted absolute savings are associated with prepaying debt and avoiding borrowing. He further commented risk is associated with waiting, and he stated interest rates are at an all-time low. Mr. Holt said increases in the United States Treasury rate can "cost a fortune" in terms of interest costs over time. He asserted the city would like to avoid any additional increases and any additional risk that could be incurred by delays.

Senator Raggio asked if Mr. Swendseid was the bond counsel. Mr. McNeely responded yes. Senator Raggio asked if Mr. Swendseid had reviewed and approved S.B. 255, and Mr. McNeely again responded yes. Ms. Belaustegui-Traficanti explained Mr. Swendseid could not be at the hearing because he was unavoidably detained in Las Vegas. She stated Mr. Swendseid had reviewed each section of S.B. 255 and "is in complete agreement with it."

Mr. McNeely pointed out the railroad suppression project "goes at the heart of improving [Reno’s] downtown core" and has the "overwhelming support" of the city’s downtown businesses. He maintained delaying the project would mean more disruption to these businesses, with whom the city has been working since the inception of the project.

Senator Raggio asked whether efforts are being made to minimize the impact of project construction on relevant businesses. Mr. McNeely replied affirmatively and stated a group has been formed to work with those businesses. He said engineers are being consulted on the issue as well.

Vice Chairman Raggio closed the hearing on S.B. 255.

SENATOR RAGGIO MOVED TO DO PASS S.B. 255.

SENATOR O’DONNELL SECONDED THE MOTION.

Senator Raggio explained downtown Reno has considered the railroad suppression project for decades. He stated about 20 years ago, there was a vote on the issue, but it did not pass. He commented:

Senator Raggio reiterated S.B. 255 is "enabling legislation," and noted full agreement from everyone is difficult to attain. He emphasized businesses in downtown Reno are currently closing because it is difficult to attract business to that area. He contended, "This revitalization is long overdue."

Senator Raggio reiterated S.B. 255 clarifies legislation from the sixty-ninth session. He pointed out the issue has been addressed at public hearings, approved by the county commission, and endorsed by many interests, not just special interests. He concluded the railroad suppression project is absolutely necessary to improve both Reno and the surrounding area.

Senator O’Donnell related that years ago, he voted against a street improvement project in his district because it cost tax money. He commented, "That was the dumbest thing I could have done in the world." Senator O’Donnell explained the improved streets raised property values, and constituents appreciated the improvement. He said, "I know it is painful to go through change, but sometimes you have to bite the bullet and do it. Then, after you do it, you appreciate it." He concluded he believes the railroad suppression project will be a success.

*****

Chairman O’Connell opened the hearing on S.B. 223.

Senator Raggio commented the Senate Committee on Government Affairs already heard a bill which would change the composition of the Committee on Benefits (COB).

Senator Raggio recalled at the hearing on S.B. 79, he had mentioned the composition of the COB should be changed. However, he noted he does not believe there is a "specific blueprint" for such a change. Senator Raggio maintained the COB should be enlarged or restructured so that it is not composed entirely of participants in Nevada’s group insurance program.

Senator Raggio stated members of the COB should not be a "laundry list" of organizations because of the large number of involved organizations and the "unnecessary" nature of such a list. He asserted the COB should include persons who are not participants in Nevada’s group insurance program and who have expertise or experience in the management of a group insurance system.

Senator Raggio commented he would be open to changes regarding S.B. 223. He stated he intended for the bill to give both the executive branch and the Legislature some input into the appointments to the COB. He pointed out S.B. 223 would not relieve the need for an executive director to manage the group health insurance program.

Senator Raggio continued S.B. 223 would require that at least three out of the seven members of the COB would not be participants and would have insurance experience. He expressed the importance of having Nevada group insurance participants on the COB, but reiterated the process of delineating certain organizations or current or former employees to serve on the committee is cumbersome. He stated the appointing authorities have the responsibility to ensure proper representation. Senator Raggio explained nonparticipant committee members would not look at the insurance program from a standpoint of wanting to keep benefits high or premiums low for their personal interest.

Senator Raggio mentioned the Research Division found the Public Employees Benefits Board in the State of Washington has a similar makeup to that outlined in S.B. 223. He elaborated the board in Washington has a total of nine members, including employees as well as four members with experience in health benefits management and cost containment.

Senator Raggio commented the Governor and other entities may be presenting bills which address the COB and the Nevada group health insurance program. He noted S.B. 223 only deals with one aspect of the plan, the composition of the COB.

Douglas M. Byington, Lobbyist, Nevada Association of School Administrators, offered support for the concept of S.B. 223. He pointed out in previous years, the Nevada Association of School Administrators had unsuccessfully attempted to get changes in the makeup of the COB in order to allow small organizations to nominate representatives for the committee. Mr. Byington noted S.B. 223 does not designate particular groups for membership, but opens up the possibility of membership to everyone who participates in the state insurance program.

Citing recent problems with Nevada’s state insurance program, Mr. Byington supported the idea of three COB members having expertise in cost containment and risk management. He commented some of the ideas presented by the Governor’s Office are similar to those contained in S.B. 223.

James Richardson, Lobbyist, Nevada Faculty Alliance, also supported S.B. 223. He stated the alliance does not have a problem with public experts being members of the COB. He maintained the majority of members should be participants in the state insurance plan because this composition will retain the confidence of state employees.

Mr. Richardson further supported making the budget director an ex-officio member of the COB. He indicated in the past, the budget director has been in a conflicting and awkward position and added he or she is often too busy to serve on the committee.

Senator Raggio pointed out S.B. 223 provides that the budget director be an ex-officio nonvoting member of the COB.

Mr. Richardson emphasized the importance of the bill’s provision which would allow the budget director to designate a representative to attend meetings on his or her behalf.

In response to a question from Senator Raggio, Mr. Richardson said the COB currently has five members. Senator Raggio asked what would be a good number of members for the committee. Senator Raggio explained S.B. 223 provided for seven members in order to give a more broad opportunity for input from the executive and legislative branches. He reiterated it is difficult to know "where to draw the line" if the Legislature lists organizations.

Mr. Richardson indicated the size of a committee is important, noting the Board of Regents has changed significantly since it was increased from 9 to 11 members. He said he "leans toward" suggesting a COB of nine members because of representation issues. He acknowledged there are problems involved with listing organizations in the law and pointed out a threshold number of such organizations would be difficult to establish. Mr. Richardson contended perhaps not naming organizations in the law is a preferable approach, as long as groups have a chance to be involved in the nomination process. He commented S.B. 79 would designate members from certain organizations, such as the university system.

Chairman O’Connell stated she and Senator Raggio are not concerned about differences between S.B. 79 and S.B. 223, but are only concerned with how to improve the state’s insurance program.

Mr. Richardson raised a concern regarding the nomination process, pointing out S.B. 223 contains no mention of such a procedure. He suggested including clear language in the bill which would set forth a nomination process, thus ensuring all groups would have serious consideration for nominations. Mr. Richardson expressed such a process would bolster confidence from involved groups.

Mr. Richardson said one line could be added to the bill indicating that any participating group in the state health plan had a right to nominate members of the committee for any vacancy, and that those nominations would be seriously considered. He stated some prominent areas of state employment, such as classified employees, professional employees of the university, and nonpublic entities, could then be listed to provide more detail. He asserted organizations which are currently represented on the COB or which want to be represented could be listed. Mr. Richardson noted these listed groups would thus be guaranteed the right to nominate representatives to the Governor, the Speaker of the Assembly, and the Majority Leader of the Senate.

Mr. Richardson further suggested specifying that COB members would be expected to undergo continuing education.

Gary H. Wolff, Lobbyist, Nevada Highway Patrol Association, stated he was representing a coalition to improve the state insurance program. He indicated he does not oppose S.B. 223. He agreed the COB, like the Public Employees Retirement System (PERS) board, could include managers as well as employees. Mr. Wolff maintained he wanted the COB to work in a similar manner to PERS.

Mr. Wolff stated employee groups could be listed for the nomination process. He elaborated he did not want any single group to have control over the state insurance program. He emphasized employee representation should be equal to manager representation on the COB.

Martin Bibb, Lobbyist, Retired Public Employees of Nevada, supported increasing the size of the COB and making the appointment process more uniform. He further expressed support for defining term lengths and establishing the experience requirement.

Mr. Bibb noted S.B. 223 is different from other legislation because it provides for private sector membership on the COB. He reiterated his support for this proposal because people who do not participate in the state insurance system can take a more independent view of the program.

Mr. Bibb continued S.B. 223 would allow the Legislative Branch to appoint several members to the COB. He stated legislative appointees are important because of the COB’s financial ties to the Legislature. He pointed out the Legislature has had to face substantial financial challenges regarding the state insurance program, as evidenced by the passage of A.B. 176.

Mr. Bibb supported allowing someone from the Department of Administration to serve in the director’s absence. He suggested that position be limited to a given number of people within the department whose management level or familiarity with the insurance program would make them a viable contributor to the COB.

Mr. Bibb concluded the Legislature’s commitment to restructuring the COB and working with the state health insurance program is essential.

In response to a question from Chairman O’Connell, Mr. Bibb noted S.B. 79 and A.B. 67 address issues similar to those found in S.B. 223.

ASSEMBLY BILL 67: Revises provisions governing committee on benefits.
(BDR 23-109)

Chairman O’Connell recommended interested parties, including Mr. Bibb, Mr. Wolff, and Mr. Richardson, form a subcommittee to study the relevant bills and bring back suggestions to the committee.

Danny N. Coyle, Lobbyist, President, State of Nevada Employees Association, AFSCME Chapter 4041, indicated members of that group are concerned that S.B. 223 does not address the Risk Management Division or third-party administrators (TPAs). He stated some older members are facing large problems in processing claims.

Mr. Coyle stated he envisioned a model in which the COB, the Risk Management Division, and the TPA would be combined into a structural entity with clearly defined responsibilities, procedures, and administrative duties. He maintained such a structure would prevent the insurance program from going through the political process year after year.

Mr. Coyle continued many "unknowns" exist regarding legislative and executive branch leadership, and as leadership changes, confidence in the leaders may not always be high.

Chairman O’Connell mentioned forthcoming legislation will address the Risk Management Division and the TPA.

Senator Raggio indicated legislative input in COB appointments is important because the Legislature has been involved with this issue for years. He pointed out the Legislature has recently been asked to approve a large amount of taxpayer money for the state health insurance program. He emphasized if the Legislature has such responsibilities, it should have some input on the composition of the COB. Senator Raggio commented the appointment process outlined in S.B. 223 follows the usual manner in which appointments are made in the legislative system.

Mr. Coyle noted the state health insurance system has enough money to operate until May 10, 1999.

Robert J. Gagnier, Lobbyist, Executive Director, State of Nevada Employees Association, testified no COB currently exists. Thus, he stated, the Legislature has the opportunity to "start from scratch" and to address the COB, the Risk Management Division, and the TPA together. Mr. Gagnier mentioned SNEA has requested a bill draft request (BDR) which addresses all those issues. He asserted more important than the composition of the COB is the way in which the state health insurance plan will be administered.

Mr. Gagnier indicated he served on the original committee on state health insurance that was formed 30 years ago in the State of Washington. He stated at that time, a Washington State Senator and House member served as nonvoting representatives to the committee. He suggested the makeup of Washington’s committee had been changed considerably since then, but added the committee worked very well.

Mr. Gagnier noted Nevada is a relatively small state; thus, it can be difficult to find people with specific expertise. He raised concerns regarding the requirement that some members of the COB must be experienced in exercising administrative control over an insurance plan. Mr. Gagnier asserted many qualified people may have a conflict of interest, and many others may not be very skilled in managing an insurance program. He stated sometimes a conflict of interest may be indirect and emphasized the Legislature should be "extremely cautious" in this area.

Mr. Gagnier continued the size of the COB is not critical. He said it is more important to make sure affected people are represented. Mr. Gagnier indicated he had previously supported eliminating public membership from the PERS board. He commented public members used to be included on the PERS board, but legislation had since stipulated that every person on the PERS board must be a participant in the system. Mr. Gagnier contended including public members on the COB is "not a great idea."

Mr. Gagnier suggested rather than building on a past structure, the Legislature could consider creating an entirely new structure to administer the program. He emphasized the Legislature has the opportunity to determine what would best suit the needs of the state health insurance program.

Mr. Gagnier stated he does not believe the director of the Department of Administration should be a member of the COB. However, he asserted if the director is a member, he or she should be able to designate a permanent representative to serve in his or her place. Mr. Gagnier pointed out the language in S.B. 223 could allow for a different designee for each meeting, which would impair continuity. He commented when the similar committee was created in Washington, the director of Program Planning and Fiscal Management (the counterpart to Nevada’s director of the Department of Administration) could designate a permanent representative to serve in his or her place.

Mr. Gagnier indicated in his understanding, a subcommittee is being formed to look at the overall project, but the subcommittee will have to wait and see what comes over from the administration.

Chairman O’Connell pointed out Senator Porter has been selected to sit on an insurance task force created by the Governor. She asked if he could share information regarding the Governor’s forthcoming legislation. Senator Porter deferred to another member of that committee.

Senator Neal noted the COB had been suspended. Mr. Gagnier affirmed this statement. Senator Neal asked what S.B. 223 would do, considering the COB does not currently exist. Mr. Gagnier answered the Legislature would have to amend A.B. 176 in order to reinstate the committee.

Senator Raggio stated S.B. 223 was requested long before the Legislature decided to suspend the COB. He commented S.B. 223 and related bills are offered only as one part of the overall effort that will be necessary. He maintained the Legislature will have to consider how the state health insurance program will be managed and structured, what the role of the Risk Management Division will be, and whether or not to return to a previous system.

Senator Neal expressed in his understanding, the Governor has been given the authority to run the program. Senator Raggio commented that during the session he hopes the Legislature will restructure and revamp the entire system. He noted the Legislature is waiting for the Governor’s proposal and for other suggestions. Chairman O’Connell clarified the intent of bills like S.B. 223 involves "fact-finding" and information-gathering.

Jon Hansen, Tort Claims Manager, Litigation Division, Office of the Attorney General, addressed Chairman O’Connell’s previous question regarding the Governor’s forthcoming bill about the state health insurance program. Mr. Hansen stated he did not know when that bill would be introduced. He noted the attorney general and former Governor Bob Miller worked on a BDR which was submitted in May 1998. He continued the Governor’s task force had talked about BDR 23-230 only "in a very cursory way."

Mr. Hansen explained the Governor has put together a task force consisting of personnel from the Governor’s Office, the Office of the Attorney General, and the Office of the State Controller, as well as Senator Porter and Assemblyman David R. Parks. Mr. Hansen asserted the task force is addressing issues that the COB has faced and is trying to come up with suggestions for the state’s health plan. He maintained the task force wants to come up with possible solutions which it can compare.

Mr. Hansen indicated BDR 23-230 addresses the composition of the COB, qualifications for COB members, continuing education for COB members, the creation of and qualifications for an executive director of the COB, and so forth.

Chairman O’Connell asked if the task force had addressed whether certain employee groups would be represented on the COB. Mr. Hansen answered BDR 23-230 provides for people from various groups such as SNEA and the university system to serve on the COB. He indicated the director of the Department of Administration would also serve on the COB so that the administration could have ongoing input. Mr. Hansen noted the director of the Department of Administration would not be a veto, but only one vote. He added BDR 23-230 would allow the Governor to terminate members of the COB, but such power is a "blunt sword."

Mr. Hansen continued BDR 23-230 also contemplates a committee which would be appointed by the Legislature to act as the interim retirement board currently acts. He explained the Legislature would always be involved in the process and thus would not be surprised by events. Mr. Hansen indicated PERS believes such a system works well.

Senator Neal commented two issues caused the state health insurance system to lose money. He stated first, no "pinnacle of decision-making" existed on the COB, and second, no succession clause existed in the relevant contracts. He explained the lack of a succession clause meant a new contracting agency did not have to accept what the previous agency had done. Senator Neal commented the lack of a "pinnacle of decision-making" meant the COB and the risk manager could listen to problems, but not do anything about them. He indicated he voted for A.B. 176 because it provided for the Governor to be a "pinnacle of decision-making." He noted such a decision-maker would be necessary in any related legislation.

Mr. Hansen said BDR 23-230 establishes a board with an executive director who reports only to that board. He added the BDR provides for a quality-control officer who acts as an internal auditor and who cannot be fired without the permission of the board. Mr. Hansen noted this provision ensures audit findings would have to be heard by the board. He commented this proposed structure solves the problems that were found in the Legislative Counsel Bureau audit.

Mr. Hansen clarified when L&H Administrators succeeded CoreSource, the state could decide whether or not to have the contract assigned, but there was a 30-day cancellation provision. He stated CoreSource threatened to cancel its contract if the state did not accept L&H Administrators. Mr. Hansen pointed out the state could not replace CoreSource in 30 days, and the COB did not have a contingency for that situation. He asserted the current contract, which was signed in January 1999, gives the state the right to assignment and provides a 180-day cancellation provision, thus clearing up previous weaknesses. Mr. Hansen added the current contract has a $1.7-million performance bond, which means if the insurance provider goes bankrupt, a bonding company pays $1.7 million to a third-party administrator to take over the project.

Senator Porter explained the Governor’s task force on insurance is considering all options regarding the state health insurance program, including self-funding and private carrier options. He stated the Governor’s Office is leaning toward a "cafeteria plan," in which options would be available to employees. Senator Porter continued the Governor’s task force is looking at private funding to help with the shortfall; he noted money would not necessarily be taken out of the General Fund for the remaining needs. He stated some companies are willing to provide outside funding to the state over a long period of time.

Senator Porter said UICI Administrators has been asked to expedite its provision of information to the Governor’s task force and to the Legislative Counsel Bureau. He asserted a few names have been submitted for the project manager position, and an appointment could be made soon. Senator Porter added the Governor has met with various private carriers to seek their options. He concluded the Governor’s task force is not currently moving forward regarding the insurance program’s previous problems because all the audits have not been completed.

Chairman O’Connell pointed out many employee groups have expressed interest in a self-insured program. She asked if that issue had been discussed. Senator Porter reiterated the Governor’s task force is looking for a project manager and is committed to looking at all options, including a self-insured program.

Chairman O’Connell asked if money from the tobacco settlement would be used to help pay the insurance program’s debt so that employees will not have to pay the balance.

Senator Porter answered that when the Senate acted on A.B. 176, he asked the majority leader whether employees would be held responsible to pay back the program’s debt. Senator Porter indicated the majority leader acknowledged on the record that an employee payback was not intended.

Senator Porter stated the Governor’s task force had not yet considered whether to use money from the tobacco settlement, but emphasized he believes that money should be considered.

Chairman O’Connell asked Senator Porter to indicate to the task force that many people, including legislators, feel very strongly about using money from the tobacco settlement to help pay the debt.

Chairman O’Connell closed the hearing on S.B. 223.

Chairman O’Connell indicated the committee had previously voted on A.B. 99, A.B. 101, A.B. 124, and Assembly Joint Resolution (A.J.R.) 5. She explained she would like to put these bills on the Consent Calendar.

Chairman O’Connell directed the committee to look at BDR 19-312, which was requested by the attorney general’s office.

Greg Salter, Deputy Attorney General, Office of the Attorney General, stated part of his job is to enforce the open meeting law. He explained the attorney general’s office requested BDR 19-312 because some public bodies want to start charging subscription fees for people who want to be on the mailing lists for notices of public meetings.

Madelyn Shipman, Lobbyist, Assistant District Attorney, Washoe County, stated BDR 20-567 is a "county commission election district bill" which would only affect Washoe County.

Ms. Shipman said the BDR would clarify that the county could adjust county commission district boundaries between decennial censuses. She noted all city charters allow this practice. Ms. Shipman explained the BDR is necessary because opinions from the Legislative Counsel Bureau, the attorney general’s office, the Clark County District Attorney’s Office, and the Washoe County District Attorney’s Office have differed on this issue.

In response from a question from Senator Neal, Ms. Shipman maintained BDR 20-567 would mandate that Washoe County adjust district boundaries after decennial censuses. She added the BDR would authorize the county to make boundary adjustments on odd-numbered years between censuses when there is a 5 percent or more deviation in population in relevant districts. She emphasized BDR 20-567 would not authorize the creation of new districts between censuses.

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Senator Porter suggested Clark County should consider whether it would like to be included in BDR 20-567. Ms. Shipman commented only three counties have commissioner districts, while all other counties have at-large districts. She noted perhaps all three counties with commissioner districts could be included in BDR 20-567.

Chairman O’Connell adjourned the meeting at 4:05 p.m.

RESPECTFULLY SUBMITTED:

Amelie Welden,

Committee Secretary

APPROVED BY:

Senator Ann O'Connell, Chairman

DATE: