The Senate Committee on Government Affairs was called to order by Chairman Ann O'Connell, at 1:50 p.m., on Friday, March 26, 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:

Steve Ghiglieri, Chief, Office of Business Finance and Planning, Director’s Office, Department of Business and Industry, testified he is responsible for the administrative and financing duties associated with an industrial development revenue bond (IDB) program. He stated he has been involved in this program for about 18 months.

Mr. Ghiglieri indicated S.B. 369 would improve Nevada’s revenue-bond law so that the state can expand commerce and make IDBs available to a wider range of industries. He explained no state monies are used to issue IDBs; the funds come from private capital sources. He elaborated the state serves only as a "conduit" and is not responsible to repay the bonds. Mr. Ghiglieri stated IDBs do not constitute an obligation to the state because project revenues or credit enhancers service the debt.

Mr. Ghiglieri pointed out S.B. 369 would add to Nevada’s IDB statute certain provisions which would make the state IDB program more "user-friendly," less administratively burdensome, and more customer-focused. He asserted the bill would allow financing for a wider range of projects, especially smaller manufacturer projects. He maintained S.B. 369 would make Nevada’s IDB program more competitive with similar programs in other states, and it would help attract "quality businesses" and promote economic development in the state.

Mr. Ghiglieri distributed a handout including an outline of S.B. 369, a proposed amendment to the bill, and several documents in support of the bill (Exhibit C). He commented the supporting documents include letters from Stan Provus of Stanley Provus and Associates Inc., who worked with the Department of Business and Industry on a marketing plan for the IDB program; Robert P. Feyer of Orrick, Herrington & Sutcliffe, who serves as bond counsel for the program; and Richard F. Jost of Jones Vargas, who deals with industrial-bond financing throughout Nevada. Mr. Ghiglieri stated the handout also includes letters from Del White, President, Rubber Engineering and Development Company (REDCO), and Ross G. Aguiar, General Manager, Feldmeier Equipment Inc., both of whom have used the industrial-bond process. Mr. Ghiglieri noted other people at the hearing could speak on S.B. 369, including Robert R. Barengo, Lobbyist, who also serves as bond counsel for Nevada’s IDB programs; John E. Chrissinger, President, CH Capital Inc., who acts as a bond facilitator; Mr. Aguiar from Feldmeier Equipment; and John E. Adkins, Chief Deputy Treasurer, Office of the State Treasurer, who could relate the office’s support for the bill.

Mr. Ghiglieri summarized the sections of S.B. 369, as provided in his handout (Exhibit C). He stated section 1 of the bill "provides for the confidentiality of certain records submitted by obligors when applying for an IDB." He explained no provisions currently exist to provide such confidentiality. He further noted Nevada’s IDB program requires detailed records in order to evaluate applicants. Thus, Mr. Ghiglieri asserted the state is "caught on a two-edged sword" because it requires detailed information but cannot ensure the confidentiality of that information, which usually consists of proprietary information and may include "financial trade secrets." He maintained many eligible businesses are small and privately-held corporations that want to protect such information. He contended the lack of confidentiality discourages companies from applying for IDBs, and if companies do apply, the lack of confidentiality encourages them to provide minimal information, thus requiring more administrative work to evaluate their applications.

Mr. Ghiglieri indicated section 2 of S.B. 369 makes a minor technical change. He stated section 3 of the bill "expands the scope of the definition of a ‘corporation for public benefit.’" He said one of the tax-exempt financing programs the state can offer through industrial bonds applies to 501(c)3 corporations and other not-for-profit businesses. He elaborated section 3 would make the language in the IDB statute consistent with Nevada Revised Statutes (NRS) chapter 82. Mr. Ghiglieri emphasized this change would broaden the types of companies which would be eligible for the IDB program.

Mr. Ghiglieri continued section 4 of S.B. 369 "clarifies the prohibition on financing from that of a ‘substantial competition’ standard to a standard of a prohibition of financing a facility that would result in the abandonment of or closure of an existing facility of a like nature." He stated "substantial competition," as used in current provisions, is vague and difficult to administer. He added this term creates uncertainty for IDB applicants. Mr. Ghiglieri proposed having a more definitive measure of detriment, which would make the IDB program more attractive and more certain. He pointed out businesses complete a fairly laborious application process that demands a substantial amount of time and money. He commented such businesses are uncertain whether the competition issue could arise, and currently the issue is "undeterminable" from an administrative standpoint. Mr. Ghiglieri emphasized section 4 of S.B. 369 would clarify the issue and make the process more certain.

In response to a question from Senator O’Donnell regarding "substantial competition," Mr. Ghiglieri stated under current law, the director is prohibited from issuing bonds for a project if the proposed facility would "compete substantially" with an existing facility. Mr. Ghiglieri reiterated his suggestion to change that language to "abandonment and closure of an existing facility of a like nature located within the same county or city." He explained there are some exceptions to this provision, as set forth in paragraphs (a) through (f) of subsection 2 of section 4 of S.B. 369. He said Nevada currently has no empowerment zones, but Clark County recently applied for one and became a "runner-up" at the federal level. Thus, he expressed the exception for empowerment zones is included in case Nevada has such a zone in the future. Mr. Ghiglieri noted, "Clark County had approached us about being the issuer on bonds that would be permitted under that code."

Chairman O’Connell asked if the Department of Business and Industry is currently considering any projects in relation to S.B. 369. Mr. Ghiglieri answered the bill does not address any specific projects, but is based upon the history of the IDB program and suggestions from people involved with that program. He contended the problems which are addressed in S.B. 369 are impediments to the program and commented, recently Nevada almost lost a company due to the competition issue. He elaborated a company located in one county exported all of its goods from the state, and a similar company wanted to open in another county. Because the goods produced by each company would be exported out of state, Mr. Ghiglieri mentioned the second company could locate anywhere, including other states, with the same competitive effect. He maintained denying bonds to the second company would encourage them to locate out of state, thus eliminating an enhancement to Nevada’s economy. Mr. Ghiglieri asserted the Department of Business and Industry was able to move forward with the financing under current law, but the process was difficult and time-consuming. He pointed out the company was very concerned about the uncertainty of the process and almost chose to locate in Oregon as a result.

Mr. Ghiglieri continued sections 5 and 6 of S.B. 369 make technical amendments to the prerequisites which the director and the State Board of Finance must perform before financing a project. He noted a few changes in these sections are substantive. For example, he explained paragraph (e) of subsection 2 of NRS 349.580 would be deleted. He summarized that paragraph currently provides that the director, the board, and the pertinent local government must find, "There are existing and projected needs for the project and the project would alleviate an existing shortage of facilities or services in the state." Mr. Ghiglieri raised concern because that provision is redundant with public benefits tests that are already in statute. He also expressed concern that the provision could be interpreted to mean that the state only wants one company of any type, and this limitation would hinder the use of the IDB program to help diversify and develop the economy.

Mr. Ghiglieri stated section 6 of S.B. 369 would provide an exception to the requirement of a 5-year operating history for financing a project. He asserted the exception would allow financing for companies without a 5-year operating history if their bonds are placed with sophisticated investors, such as banks, mutual funds, or insurance companies, or if the bonds receive a rating from a highly-ranked rating agency. Mr. Ghiglieri explained many start-up companies with strong track records may not have a 5-year operating history. He indicated such companies can attract private capital, and the state would like to be able to assist them with IDB financing if the private capital sources evaluate their projects as being worthy of a loan.

Mr. Ghiglieri continued section 6 of S.B. 369 would change subsection 4 of NRS 349.590 to "more precisely define this consideration" and to "draw a clear link between this consideration and the prohibition against financing a project." He stated the current language is vague and difficult to administer.

Mr. Ghiglieri explained section 7 of S.B. 369 would "provide the director with expanded ability to adopt regulations pursuant to the IDB program." He noted the ability to adopt regulations is currently identified only for specific matters, and expanding this ability would be beneficial to the program.

Mr. Ghiglieri stated section 8 of S.B. 369 would allow the director to refund not only bonds issued by the director, but also those issued by counties and cities. He asserted such refunding would be done only if it would result in a public benefit, such as longer terms or lower interest rates. He explained this expanded authority would enable the director’s office to provide this service to cities and counties as well as to the entities that request financing.

Mr. Ghiglieri also presented a proposed amendment to S.B. 369. He explained the amendment resulted from a marketing plan in which the department suggested it would be beneficial to offer the IDB program to a wider array of manufacturers, especially small manufacturers. Mr. Ghiglieri pointed out small manufacturers are the predominant manufacturers in Nevada and commented 75 percent of manufacturers in the state have less than 20 employees. However, he maintained the IDB program is currently economically viable only for projects of about $2 million or more. He explained the proposed amendment would provide that the State Board of Finance would not have to approve bonds under certain conditions for financings no greater than $2.5 million and for equipment-only financings. Mr. Ghiglieri maintained those conditions would require the bonds to be placed with a sophisticated investor or to be rated in the top four categories by a rating agency. He emphasized the department would still go to local governments for approval of certain findings. He further asserted the amendment would provide the opportunity for the board to set parameters for the program through an order outlining the criteria under which the director could issue equipment-only loans. Mr. Ghiglieri expressed equipment-only loans are relatively small and compete with other financing programs. He stated in order to provide tax-exempt financing benefits, the state needs to reduce up-front costs and time investments associated with such loans. He mentioned other states have effectively implemented equipment-only programs in which loans are made down to the $500,000 range or lower. Mr. Ghiglieri contended such loans help the small manufacturing sector to acquire equipment that can improve their technology and make them more competitive and productive, thus encouraging them to expand and hire new employees.

Senator Neal asked how S.B. 369 would provide a public benefit beyond that provided by current statute. Mr. Ghiglieri clarified the bill would expand the number of potential IDB financings and thus promote commerce within Nevada. He stated certain provisions currently in statute make the program less attractive for applicants, and he suggested S.B. 369 would enable the state to issue more bonds and bring in more jobs and industry. He added such bonds could also help existing companies expand and retain employment.

Senator Neal reiterated his question regarding how S.B. 369 would encourage this process. Mr. Ghiglieri answered the state currently does not provide financings for amounts less than $2 million because of the up-front costs associated with the IDB program. He asserted the proposed amendment to S.B. 369 would allow for an equipment-only program to help smaller manufacturers and other corporate entities. For example, he stated an equipment-only program could help a company buy a piece of machinery "at 200 or 300 basis points below what they can get in the conventional market."

Senator Neal agreed the process would help small companies, but asked how it would enhance public interest. Mr. Ghiglieri responded companies that take advantage of the program would provide jobs and increase the tax base. He expressed successful companies would enhance the state’s public welfare and contended the program is an economic-development tool which assists a market segment as allowed by federal tax law. He added S.B. 369 would not increase risk to the state. Mr. Ghiglieri said Nevada would like to attract manufacturing businesses and noted most IDB projects provide "outstanding" salaries and diversify the economy.

Senator Neal asked about the meaning of subsection 2 of section 4 of S.B. 369. Mr. Ghiglieri replied that subsection means the prohibition in paragraph (b) of subsection 1 of section 4 of the bill would not apply to the projects listed. He elaborated the competitive effects of projects listed in subsection 2 would not be considered when making IDB decisions.

Mr. Ghiglieri explained paragraph (b) of subsection 1 of section 4 would not allow the state to issue IDBs if the net result would be to drive another company out of business. He noted this paragraph does not prohibit IDBs for existing businesses that are relocating or giving up their facilities due to obsolescence or size.

Senator Neal asked if the IDB program could apply to prospective businesses which would compete with existing businesses. Mr. Ghiglieri answered almost any new business adds competition to some degree. He asserted S.B. 369 would allow the state to diversify its economy even when some element of competition exists.

Senator Neal asked about health care facilities. Mr. Ghiglieri responded only not-for-profit health care facilities would be eligible for the IDB program. He commented city economic-development-revenue laws have similar exceptions from the provision regarding competition.

Senator Neal asked if NRS 349.670 addresses the director’s authority regarding the IDB program. Mr. Ghiglieri replied that portion of NRS provides the revenue bond law.

Senator Neal asked if bonds can be issued without going through a governmental entity like the State Board of Examiners. Mr. Ghiglieri reiterated no state monies are used when the state issues a revenue bond. He clarified if a company receives a loan from a bank in the private marketplace, the loan will carry a conventional rate and will be taxable. He explained when the state steps in as a "conduit" to issue a revenue bond for certain private activities such as manufacturing and housing, that bond is not subject to federal income taxes. Thus, Mr. Ghiglieri expressed the borrower receives a lower interest rate, and the bondholder receives nontaxable income. He commented the same amount of money changes hands and emphasized the state is able to pass along a lower borrowing rate to industry. He noted this lower borrowing rate through IDBs is the means by which states compete to attract industry. Mr. Ghiglieri mentioned a stainless steel tank manufacturing facility decided to locate in Fernley, Nevada, because of the state’s IDB program. He indicated other companies have located in Nevada for the same reason.

Robert R. Barengo, Lobbyist, testified the State Board of Finance must approve revenue bonds before they are issued. He pointed out before the issue goes before the board, the director must hold hearings in the appropriate location, and the local jurisdiction must either approve the director’s findings or ask the director to issue the bonds.

Chairman O’Connell asked if the IDB concept is similar to the "Fannie Mae" (Federal National Mortgage Association) concept. Mr. Barengo replied no, and noted the IDB program has been in effect since the late 1970s or early 1980s. He stated the bonds are generally purchased by banks or other financial institutions because they get the municipal bond rate. He noted the Fannie Mae concept usually involves housing, whereas the IDB program does not.

Chairman O’Connell clarified she was talking about the Fannie Mae principle under which the state intervenes to promote economic growth. Mr. Barengo answered:

With regard to section 1 of S.B. 369, Senator Care commented he understands why financial records and propriety information should be kept confidential. However, he raised concern regarding the confidentiality of "information relating to the location of a project within this state." He said if a business comes into Nevada, taxpayers deserve to know where that business will locate. Senator Care added even if the director determines there is no substantial competition, an existing entity might disagree with that determination. He noted if that entity did not know the location of the new business, it might not be able to "make its point known."

Mr. Barengo responded a location should be kept confidential until such time as the business acquires the project and property. He pointed out if everyone knew development were going to occur in a particular location, property in that location might rise in value. He mentioned a business would have to meet all local zoning requirements before construction and stated the business would have to do its "due diligence" well in advance. However, Mr. Barengo reiterated occasions may arise in which location information should not be released for financing purposes.

Robert E. Shriver, Executive Director, Division of Economic Development, Commission on Economic Development, testified in support of S.B. 369. He indicated the commission successfully markets Nevada’s IDB program in manufacturing. He commented Nevada competes with many states for projects, and he asserted many similar companies will move to Nevada as the state’s marketplace matures. Mr. Shriver emphasized the importance of allowing the director discretion regarding the competition issue.

Mr. Shriver maintained IDB financing is available to existing Nevada companies as well as companies that are new to the state. He contended the equipment-financing issue is very important because it gives Nevada companies the same opportunities as new businesses coming into the state.

Senator Neal asked if only 501(c)3 corporations can take advantage of the IDB program. Mr. Ghiglieri responded no and stated the types of financing Nevada can provide with this program are dictated by federal income tax laws. He said private-activity bonds can be issued for affordable housing projects, but such bonds are outside the scope of the IDB statute. He continued private-activity bonds can also be issued for manufacturing, though restrictions exist within that sector. For example, Mr. Ghiglieri mentioned such financing cannot be issued to a company with more than $10 million in capital expenditures in a jurisdiction over a 6-year test period.

Senator Neal asked, "Why do you allow for a corporation of public benefit in the statute?" Mr. Ghiglieri answered if a private company serves a public purpose, it provides public benefits. He offered the example of a 501(c)3 private school, which would be allowed to participate in the IDB program, and commented not-for-profit hospitals often use IDBs. He noted certain public utility financings can be done as private-activity bonds as well, though those bonds must be issued by local governments rather than by the state director’s office.

In response to another question from Senator Neal, Mr. Ghiglieri clarified not-for-profit hospitals could use the IDB program, and other hospitals could use taxable bonds issued by the director. However, he pointed out the cost of issuing a taxable bond "more than eats up any benefit." He concluded the IDB program essentially applies to tax-exempt financings.

Senator Neal asked what "corporation for public benefit" means in section 3 of S.B. 369.

John E. Chrissinger, President, CH Capital Inc., indicated that company has facilitated more than 50 IDBs in the last 10 years. He responded to Senator Neal’s question, offering the example of a hospital in the Minden-Gardnerville area. He stated that project was funded through tax-exempt financing, which attracted the hospital to the location and enabled it to build a larger facility. Mr. Chrissinger added the state is currently considering financing a treatment facility for alcohol and drug abuse, which is a 501(c)3 organization. He noted Family Counseling of Northern Nevada also considered using IDBs, but decided against it.

Senator Neal asked if IDBs can be used for profitable concerns. Mr. Chrissinger answered state law enables the director to issue bonds as allowed under the federal code, which states for-profit manufacturing facilities are eligible for IDBs. He noted federal code also says tax-exempt financing can be used for not-for-profit 501(c)3 corporations and not-for-profit 501(c)4 corporations. Mr. Chrissinger commented even though the federal law allows tax-exempt financing for 501(c)4 corporations, Nevada has not put that provision into its state law. He stated S.B. 369 would correct that oversight.

Senator O’Donnell raised concern that S.B. 369 allows the division to allocate bonds without going through bond counsel. Mr. Ghiglieri responded the proposed amendment addresses that issue and commented the amendment was discussed with the treasurer’s office. He expressed the State Board of Finance would create and define the program according to whatever criteria they see fit. He explained his division would try to work with the board to get an order adopted which would set forth specific criteria for the director. Mr. Ghiglieri continued the director could then issue bonds without going to the State Board of Finance if he or she operates under those criteria. He clarified this provision would apply only to equipment financings. He noted expediency is very important for such transactions, and the board meets relatively infrequently. Mr. Ghiglieri said in order to create a competitive equipment-only program, the board should retain ultimate control, but prior approval should not be required for every bond. He stated if companies know of the time currently involved in preparing and waiting for board approval, they may not be interested in equipment-only financing. He indicated the board could review the director’s actions on a regular basis and amend the order, if necessary.

Senator O’Donnell asked if $2.5 million could be allocated without approval from the board. Mr. Ghiglieri replied he could imagine issuing a bond for that amount if it fell within the criteria. He mentioned the law limits the use of such a bond, prohibiting its sale or public trade unless the bond is rated. He further commented such actions would not be financially feasible for an equipment-only project. Mr. Ghiglieri stated:

Mr. Chrissinger referred to Senator Care’s previous question regarding the disclosure of location information. He pointed out federal law requires entities to hold a hearing which identifies the proposed location in easy-to-understand language. He commented this hearing must be announced in the local newspaper and must be open to all residents of the affected area. Mr. Chrissinger stated this process must be performed before the city, county, or State Board of Finance can be approached for approval. He clarified the purpose of the confidentiality provisions in S.B. 369 involves the initial stages of a project, when a company has not yet made an offer on land.

Chairman O’Connell closed the hearing on S.B. 369 and opened the hearing on S.B. 498.

John P. Comeaux, Director, Department of Administration, testified employees who leave state service are entitled to be paid at their then-current rates of pay for any accumulated and unused annual leave. He stated the amount of payment for unused annual leave is unlimited. Mr. Comeaux continued employees are also entitled to be paid for any accumulated and unused sick leave, to a maximum of $8000, depending on their length of service.

Mr. Comeaux indicated these expenditures are not routinely budgeted because it is difficult to estimate how many and which employees might leave state service in any given year. He asserted NRS 353.262 allows state agencies which have made termination-leave payments to ask the State Board of Examiners for money out of the Statutory Contingency Account if the payment of termination leave has left the agencies with insufficient money to hire and pay replacements for the employees who left.

However, Mr. Comeaux pointed out NRS 353.262 currently limits the amount an agency can receive from the fund to $3500. He explained S.B. 498 would increase the limit to $8000, which is the maximum amount an employee can receive for accumulated sick leave. He said that change would become effective on July 1, 1999.

Chairman O’Connell asked about the balance of the Statutory Contingency Account. Mr. Comeaux replied the account usually contains about $1.5 million for the biennium. He stated that amount has always been adequate.

Chairman O’Connell asked if Mr. Comeaux knows how many state employees are eligible for retirement. Mr. Comeaux answered he does not. He emphasized S.B. 498 would not affect the amount an employee would receive upon leaving state service, but would only affect the amount for which a state agency could be reimbursed. He stated if a long-time employee from an agency with a small staff retires, payment for his or her accumulated annual leave and sick leave can "put a big dent" in the agency’s budget. Mr. Comeaux reiterated currently, such an agency can receive $3500 from the contingency fund, and if that amount does not cover the agency’s expenses, the agency may have to consider a supplemental appropriation. He indicated this is the case for General-Fund agencies.

Mr. Comeaux maintained agencies do not often have to ask for money from the contingency fund. He explained most agencies have turnover and thus accumulate salary savings which help offset termination-leave payments. He stated the budget office is the "gatekeeper" to the Statutory Contingency Account, and if an agency does not need money from that fund, the budget office does not allow the agency to make a request to the State Board of Examiners. Mr. Comeaux emphasized, "This would only come into play infrequently, but when it does come into play, it would certainly be important to that agency at that time."

Senator Neal stated the Division of Wildlife’s budget includes $135,000 for unpaid leave and sick leave. He asked why S.B. 498 is necessary if such items appear in agency budgets.

Mr. Comeaux answered he is not familiar with that item in the Division of Wildlife’s budget. He asserted perhaps the division was not budgeted to make termination-leave payments, and some long-time employees left the division. Mr. Comeaux suggested the division would then have to make substantial termination-leave payments, and those payments could have drawn the division’s budget down to the point where it needed an additional amount to finish out the year.

Mr. Comeaux indicated the Department of Administration has always interpreted the law to mean that an agency can ask for reimbursement from the Contingency Fund to a maximum of $7000, or $3500 for annual leave and $3500 for sick leave. He contended that upon leaving, an employee can be entitled to payment for more than 300 hours of annual leave, and an upper-level employee’s pay rate could be $20 to $30 per hour. He continued the employee would also be entitled to a maximum of $8000 for accumulated sick leave. Mr. Comeaux concluded an employee could conceivably receive about $16,000.

Senator Neal asked if payment from the Contingency Fund would be based on the amount actually needed or on an estimate of that amount. Mr. Comeaux stated he did not propose changing the funding for the Statutory Contingency Account. He clarified an agency would be entitled to the amount that was needed. Mr. Comeaux explained the agency would initially make termination-leave payments out of its own budget, and those payments would be based on the actual number of annual-leave and sick-leave hours an employee had accumulated. Mr. Comeaux stated the Department of Administration would then consider the agency’s overall budget, and if the agency could absorb the payments, the department would not allow them to receive money from the Statutory Contingency Account.

In response to a question from Senator Neal, Mr. Comeaux indicated an agency can go before the State Board of Examiners to request money from the Contingency Fund as necessary.

Chairman O’Connell closed the hearing on S.B. 498 and opened the hearing on S.B. 499.

Jeanne Greene, Acting Director, Department of Personnel, read from prepared testimony (Exhibit D). She stated S.B. 499 is a "housekeeping bill" proposed by the Department of Personnel, and she noted section 1 of the bill would clarify only law enforcement and fire protection employees are eligible for 80-hour biweekly work schedules. Ms. Greene asserted the bill would not change current practices.

Ms. Greene explained S.B. 499 would also repeal redundant language in NRS 284.270 regarding reporting of promotions. Further, she concluded the bill would repeal NRS 284.275, which addresses persons employed in classified service on or before March 30, 1953. Ms. Greene expressed no such persons remain in service, so that statute is obsolete.

Chairman O’Connell closed the hearing on S.B. 499 and opened the hearing on S.B. 500.

Norman J. Azevedo, Deputy Attorney General, Office of the Attorney General, testified he would present S.B. 500 on behalf of the attorney general. He explained the bill contains the suggestions of a task force created in response to a legislative-audit report issued on November 17, 1997. He said the task force was created through the efforts of the attorney general and the director of the Budget Division. Mr. Azevedo noted nine agencies were represented on the task force.

Mr. Azevedo indicated the legislative auditor made six findings of deficiency in state agencies’ accounting for and collecting receivables. Mr. Azevedo summarized the agencies lacked the critical information necessary to make effective collections, and they did not consistently write off receivables in a manner so that the receivables would be an accurate representation of the monies owed to the state. He continued the agencies failed to have any mechanisms to measure and ensure the effectiveness of their collection procedures, and in certain instances, the agencies lacked effective collection remedies. Mr. Azevedo concluded agencies often did not offset monies paid to an individual against debts the individual owed to the state or to another agency, and agencies rarely shared information regarding bankruptcies and other collection matters.

Mr. Azevedo asserted the legislative auditor made four recommendations based on these findings, as follows: maintain sufficient and reliable data on the effectiveness of collection efforts; establish policies and procedures for the management and collection of the state’s receivables; coordinate collection efforts; and obtain statutory authority to use effective collection techniques.

Mr. Azevedo indicated the aforementioned task force addressed these concerns. He stated S.B. 500 provides collection tools and remedies for state agencies which do not otherwise have them. He noted section 10 of the bill clarifies this point, and he noted the Department of Taxation, for example, has specific remedies available which are somewhat different than those set forth in S.B. 500. Mr. Azevedo claimed the intent of the bill was to create a "catch-all" for state agencies to have remedies for collecting revenues. He reiterated some state agencies currently lack such remedies.

Mr. Azevedo stated S.B. 500 defines which items would be subject to the provisions of the bill and also defines the point at which an item becomes past due.

Mr. Azevedo noted the first remedy set forth in S.B. 500 is the ability to file suit with the assistance of the attorney general. He stated the process is divided into two sections, one of which addresses small claims actions. He commented state agencies currently have the ability to enter into small claims actions without the assistance of the attorney general, but when a matter becomes a district-court action, legal representation is necessary. Mr. Azevedo explained the language is discretionary, so that if a significant legal issue is present before a small-claims court, the attorney general may provide representation upon the agency’s request.

Mr. Azevedo continued the next remedy available under S.B. 500 is a "certificated summary judgment," as set forth in sections 16 through 18 of the bill. He expressed this remedy allows a state agency to obtain a judgment from a district court after satisfying necessary steps. He asserted this remedy is especially helpful in situations when it is necessary to go beyond the bounds of the state to collect monies because the judgment will be entitled to the "full faith and credit" and will be honored in locations outside of Nevada.

Mr. Azevedo stated section 19 of S.B. 500 provides an administrative lien statute. He noted the Department of Taxation already has this remedy, as does the State Industrial Insurance System. He explained the remedy enables a state agency to file an administrative lien in a particular county. He said this procedure will secure any personal or real property located within that county.

Mr. Azevedo asserted section 20 of S.B. 500 contains an offset provision, as addressed by the legislative auditor.

Senator Porter asked for an explanation of summary judgments. Mr. Azevedo answered sections 16 through 18 of S.B. 500 provide for a clerk’s summary judgment. He maintained the agency must prepare an application and a certificate for the summary judgment. He explained those documents are given to the court clerk, and they contain specific items as outlined in subsection 3 of section 16 of S.B. 500. Mr. Azevedo claimed the clerk will then issue a judgment based on those documents. He noted S.B. 500 includes an additional security which is not found in the regulations of the Department of Taxation or the State Industrial Insurance System; he elaborated before filing for a summary judgment, an agency would need to notify the debtor or delinquent taxpayer of its intentions in writing.

Senator Porter commented he is not accustomed to a clerk’s summary judgment. Mr. Azevedo responded such a judgment is currently unique to the Department of Taxation and the State Industrial Insurance System.

Mr. Azevedo continued section 20 of S.B. 500 results from the legislative-audit finding that a mechanism should be in place to track whether an agency is issuing a refund to a debtor who owes money to another agency. For example, he noted if a person makes a claim for a refund from the Department of Taxation, and if that person owes a debt to the State Industrial Insurance System, the refund would offset the debt. In other words, he explained all agencies would be checked so that any refunds issued would offset any debts owed to Nevada agencies. Mr. Azevedo noted S.B. 500 contemplates that function occurring in the controller’s office.

Mr. Azevedo stated section 21 of S.B. 500 results from the legislative-audit finding that some agencies lack the legal authority to engage an outside debt collection agency, if necessary. He contended section 21 provides that authority, but only when such a process is deemed appropriate, or when the agency can collect more money through an outside collection agency than through its own efforts.

Mr. Azevedo noted section 22 of S.B. 500 provides for an "administrative withhold." He expressed that remedy allows a state agency to serve a document on a third party who has in its possession property of a debtor. He maintained the most common example of such a third party is a bank. Mr. Azevedo offered an example, stating if a person owed money to the Division of Wildlife, the department could serve a withhold on his or her bank, which will then tender the amount owed to the department. He asserted this remedy is "severe," and so debtors are entitled to a hearing to dispute the withhold if they deem the conduct of the agency to be inappropriate.

In response to a question from Chairman O’Connell, Mr. Azevedo clarified the hearing would be held before a hearing officer from the agency.

Mr. Azevedo said section 23 of S.B. 500 addresses an accounting concern. He elaborated the section allows state agencies to make a request to write off debts. He explained the legislative auditor suggested some of the debts currently on the books are uncollectable and thus overstate the amount of receivables owed to the State of Nevada. Mr. Azevedo noted section 23 of S.B. 500 provides that any agency seeking to write off an impractical or impossible debt would make a request to the State Board of Examiners, which would make a finding about whether to write off the debt in question. He said:

Mr. Azevedo concluded S.B. 500 includes a "catch-all" section which provides that the remedies in the bill are not cumulative. He explained this language means if agencies face a situation which arises pursuant to an agreement or as a result of common law, they can "exercise those rights" in addition to those outlined in the bill. He emphasized the list of remedies in S.B. 500 is not exclusive.

Chairman O’Connell asked if S.B. 500 would add duties for the state controller. Mr. Azevedo answered the state controller plans to propose an amendment to the bill. He stated the bill currently provides that agencies would engage in collection activities on their own behalves. However, he pointed out the controller would incur additional duties through the offset provisions in the bill. Mr. Azevedo added section 13 of S.B. 500 also requires state agencies to periodically report to the controller so the controller can track the amount of outstanding accounts receivable.

Chairman O’Connell asked if the fiscal note she received addresses S.B. 500 as it currently reads.

Kathy Augustine, State Controller, answered affirmatively and noted the fiscal note would be the same for the bill as it currently reads and for the bill with her proposed amendment.

Chairman O’Connell asked, "And this is outside the budget?"

Ms. Augustine answered, "Yes."

Chairman O’Connell commented the fiscal note is $76,073 per year.

Senator Neal asked if S.B. 500 is new legislation. Mr. Azevedo replied affirmatively. Senator Neal clarified such legislation has not been in Title 31 of NRS before. Mr. Azevedo responded similar provisions exist in statute for the Department of Taxation, but he does not know of any such provisions currently in Title 31 of NRS.

Senator Neal asked why the bill would be included under Title 31 of NRS. Mr. Azevedo replied the Legislative Counsel Bureau made that suggestion, and he is unsure of their reasoning.

Senator Neal reiterated legislation like S.B. 500 has never before been put into law under Title 31 of NRS. He suggested the founders of the Nevada State Constitution had a reason for not including debt collection under that title. He asked if any report gives a reason why such statutes are necessary. Mr. Azevedo reiterated reasons are set forth in the legislative-auditor report issued on November 17, 1997.

Wm. Gary Crews, CPA, Legislative Auditor, Audit Division, Legislative Counsel Bureau, provided a copy of the aforementioned report (Exhibit E. Original is on file in the Research Library.).

Senator Neal expressed:

Mr. Crews testified the aforementioned report (Exhibit E) provides information on the issue. He stated the Audit Division undertook the audit a couple of years ago because some agencies were having problems with their receivables and collection efforts. He explained the division performed a "cross-cutting" audit of the six major revenue-collection agencies in Nevada. Mr. Crews noted those agencies are listed on page 2 of the audit report (Exhibit E).

Mr. Crews asserted the audit found most state agencies have poor receivables information and are not consistent in their use of collection procedures. He contended page 4 of the report (Exhibit E) states approximately $50 million of revenue due to Nevada from taxes and other fees will never be collected. He emphasized this statistic shows a significant problem.

Mr. Crews continued the report (Exhibit E) includes informational tables toward the end. He expressed the study found some agencies have statutory authority to pursue collections, and these agencies also have tools and remedies available. However, he noted many agencies do not have such authority. Mr. Crews maintained the Audit Division suggested legislation to give agencies the tools they need to pursue collections. He said the state should try to collect money owed to it before imposing additional taxes.

In response to a comment from Senator Neal, Mr. Crews expressed the remedies in S.B. 500 are already available to some agencies, but the bill would provide consistency within statutes.

Mr. Crews pointed out the Audit Division’s advice provides a "two-fold approach." He elaborated one issue is providing regulations and guidance to state agencies through the State Administrative Manual, and the task force has undertaken that initiative. He contended the task force has developed draft regulations which will go before the State Board of Examiners. Mr. Crews maintained the second issue is providing agencies with statutory authority like that provided in S.B. 500.

Michael O. Spell, CPA, Audit Supervisor, Audit Division, Legislative Counsel Bureau, directed the committee’s attention to a table on page 16 of the report (Exhibit E). He noted this table shows the frequency of collection actions and mentioned the auditors examined 234 accounts which existed during fiscal year 1996. He stated the total amount of these accounts was $4.7 million, but the state only collected $2.4 million of that amount. Mr. Spell continued the auditors analyzed the collection techniques that were used or could have been used on the accounts in question. He asserted the table on page 16 of the report (Exhibit E) shows the most-used techniques were billings. However, he maintained other appropriate collection techniques, such as liens, judgments, payment plans, attorney-general referrals, withholds, and offsets, were used only infrequently. Mr. Spell expressed these collection actions usually resulted in a higher collection rate, as shown by statistics on page 16 of the report (Exhibit E).

Mr. Spell indicated several factors contributed to the inconsistent use of effective collection techniques, including little or no guidance to agencies, no central oversight by the state, and inadequate statutory authority to pursue debtors. He mentioned a table on page 21 of the report (Exhibit E) shows which agencies have statutory authority to use certain collection techniques. He explained auditors categorized eight revenue sources for the six agencies included in the report. Mr. Spell summarized statistics as set forth in the table.

Mr. Spell concluded the development and use of effective collection techniques could significantly increase the state’s collection rate. He emphasized S.B. 500 is important because it provides appropriate authority to all state agencies.

Mr. Spell referred to Senator Neal’s previous question regarding the placement of S.B. 500 under Title 31 of NRS. Mr. Spell explained NRS chapter 353, the state financial-administration chapter, is under Title 31 of NRS. He noted in his understanding, S.B. 500 would become NRS chapter 353C if passed.

Senator Care commented NRS 360.420 enables the Department of Taxation to submit applications for summary judgment. He asked if that remedy is available in any other states. Mr. Azevedo answered he does not think so, though California has a similar process.

Senator Care suggested the form of the associated complaint would be brief. He asked why an agency could not file suit rather than applying for summary judgment. He noted agencies would probably receive many default judgments.

Mr. Azevedo agreed agencies could file a regular district-court action or small-claims action. He indicated the agencies would likely get default judgments and would then go forward with the protection of the district court overseeing the process. He stated summary judgments are rarely used, but are used in instances in which a collector needs to "get a judgment and get it over to another jurisdiction and get it domesticated quickly." Mr. Azevedo stated sometimes collectors need to move quickly, and if they have to wait the standard response time for a judgment, the debtor could move or dispense or dispose of his or her assets.

Senator Care stated according to S.B. 500, if an agency plans to file an application for summary judgment, it has to give notice to the debtor. However, he pointed out once the application is filed, no notice is required, though notice is required after the application has been approved by the clerk. He asked, "Why couldn’t you [could you not] still give the debtor notice and then, say, 15 days to respond to submitting an application for a summary judgment?" Senator Care explained this would address debtors who claim they have paid the debt, they are not the responsible party, or they owe a smaller amount. He noted there may be a "material issue of fact" in such instances.

Mr. Azevedo suggested S.B. 500 could be changed to address that issue. He agreed a response time could be included, and he added:

Senator Care asked if counsel signs an agency’s application for summary judgment and if the head of an agency has the authority to submit such an application. Mr. Azevedo replied the application does not have to be signed by counsel, and agencies like the State Industrial Insurance System may submit applications on their own. However, he noted the attorney general’s office performs collection work for the State Industrial Insurance System out of the tax section, and applications have historically been "run through" the attorney general’s office. He explained applicants must make sure "the amount actually owing is owed" and commented the remedies in S.B. 500 only apply to "the amount that is being sought to be collected," which is generally not in dispute.

Mr. Azevedo offered the following examples:

Senator Care asked about a situation in which the debtor cannot be physically located. He noted S.B. 500 does not contain the equivalent of "service by publication." Mr. Azevedo explained the certificated summary judgment does not have a publication requirement. He added the certificate does require that a mailing go to the debtor’s last known address. He expressed in his understanding, a publication requirement must be done very frequently and would delay the process 30 or 40 days; he asserted the certificated summary judgment is intended to more expedient.

Senator Neal asked what happens if a debtor refuses to honor a lien or a summary judgment. He asked if such a debtor would face time in jail. Mr. Azevedo answered, "No." He explained in that situation, the agency would have to make an administrative decision about how to proceed. He stated the agency could decide to do nothing or to use an additional remedy like the administrative withhold. Mr. Azevedo noted in his experience, such decisions are made "at a pretty high level," and the agencies want to ensure the decision process is fair given the circumstances of who was "liened."

Senator Neal asserted the process would ultimately come back to a managerial decision, which is one reason the legislation has never before been put into statute. He contended the authority provided by S.B. 500 might be necessary in some instances, but he raised concern regarding "broad stroke of power" given to all agencies in the bill. He maintained he understands why the tax department would need such authority, but was not sure about other agencies.

Mr. Crews commented S.B. 500 should be read in conjunction with the regulations that will be adopted by the State Board of Examiners. He stated:

Anne Cathcart, Special Assistant Attorney General, Office of the Attorney General, noted she had previously distributed a letter dated March 25, 1999, from the attorney general, describing how S.B. 500 came about (Exhibit F). Ms. Cathcart asserted the legislation would make a significant difference in the state’s ability to collect debts owed to agencies. She stated filing a lawsuit would generally be a "last resort," and any agency wishing to do so would have to approach the attorney general’s office. Ms. Cathcart suggested the office would help work out any details of the bill.

Senator Neal commented, "A dictatorship would have no problem collecting, but we live in a democracy, so there’s [there is] a difference."

Chairman O’Connell asked for a section-by-section summary of S.B. 500. Mr. Azevedo provided such a summary to the committee (Exhibit G).

Kathy Augustine, State Controller, presented a proposed amendment to S.B. 500 (Exhibit H). She also distributed a summary of her testimony (Exhibit I). Ms. Augustine stated she shares some of Senator Neal’s concerns regarding the bill’s applicability to every state agency. She maintained the controller’s office agrees with the concept of S.B. 500 and noted, "The objective of receivables management is to maximize collection of debt while minimizing losses to bad debt." Ms. Augustine pointed out the controller’s office has not aggressively pursued debt collection in the past, but S.B. 500 would provide a tool for agencies to actively collect debt.

Ms. Augustine summarized the amendments requested by the controller’s office and commented these amendments were prepared by the attorney general’s office. She stated in her understanding, the attorney general’s office is neutral regarding the proposed amendments. Further, she asserted the director of the Department of Administration supports the proposed amendments.

Ms. Augustine testified the proposed amendments would allow the state controller’s office to act as the collection agency for all state agencies except those given statutory authority to collect their own debt. She commented those agencies are the agencies addressed in the aforementioned legislative audit, including the Department of Taxation, the Employment Security Division, the Employers’ Insurance Company of Nevada, the Nevada Gaming Commission, the Division of Industrial Relations, the Department of Motor Vehicles and Public Safety, and any other agency designated by the state controller’s office. Ms. Augustine pointed out section 3 of S.B. 500, as written, would give every entity in state government the authority to collect their own debt.

Ms. Augustine added the proposed amendment would replace the "director of the department of administration" with the "state controller" in section 12 of S.B. 500. She asserted the state controller needs the authority to establish forms and procedures for debt collection; thus, the controller, in coordination with the attorney general, would adopt regulations to carry out the provisions of the bill. Ms. Augustine noted the proposed amendment would make a similar change in section 13 of S.B. 500, replacing "director of the department of administration" with "state controller and attorney general."

Ms. Augustine suggested the proposed amendment would also change section 23 of S.B. 500 by deleting a reference to the State Board of Examiners and replacing it with "state controller and attorney general," who would thus be responsible for determining when it is impractical to collect a debt. Ms. Augustine commented the State Board of Examiners were included in the bill only in one of the most recent "rewrites." She pointed out the board is not a collection or revenue entity, so the state controller’s office did not believe it should be involved in the cancellation of debt.

Ms. Augustine referenced a memorandum sent from an accountant in the controller’s office to two chief accountants in that office (Exhibit J). Ms. Augustine stated this document summarizes S.B. 500, and she noted item 3 on page 2 states, "None of the six agencies LCB [the Legislative Counsel Bureau] examined used the state controller’s office to offset or withhold any payments made to debtors."

Ms. Augustine concluded the Government Finance Officers’ Association maintains the "key issue" in the collection process is a need for centralization. She contended centralizing the revenue-collection function would produce more positive results.

Carole A. Vilardo, Lobbyist, Nevada Taxpayers Association, testified in support of S.B. 500 and emphasized the offset provision is important. She stated a transportation audit in the late 1970s or early 1980s showed an individual’s checks for vehicle registration repeatedly bounced, but that person continued to present such checks on a yearly basis. Ms. Vilardo noted agencies were not forced to look at revenue they were losing at that time. She said audit reports through the years have identified many instances in which agencies are not collecting debts. She emphasized the potential $50 million should be collected before tax or fee increases are considered. Ms. Vilardo claimed agencies "across the board" need the authority to use effective collection mechanisms. She added agencies should have a responsibility to try to collect debt before undertaking actions such as summary judgments.

Ms. Vilardo mentioned she had not seen the proposed amendments to S.B. 500. She said:

In response to a question from Chairman O’Connell, Mr. Crews stated he has reviewed S.B. 500 and has no objections to the bill, as written. He commented he is relying somewhat on the Legal Division’s drafting of the bill, but he agrees with its concepts.

Senator Porter commented the audit report (Exhibit E) says Nevada had more than $50 million in uncollected receivables in 1996. He asked what that amount is today. Mr. Crews indicated he can only guess, but he assumes the state is no better off than it was. He added some of those receivables have probably been written off since the audit, but new ones have probably been incurred.

Chairman O’Connell asked Senator O’Donnell if the Senate Committee on Finance addresses agency debt collection. Senator O’Donnell responded, "No. We just assume they’re [they are] collecting them."

Mr. Crews commented the audit report suggests the money committees could look at debt collection as a performance indicator. Senator O’Donnell agreed. Mr. Crews noted some agencies have a vested interest in collecting their receivables because their budgets are contingent upon collecting them. He pointed out receivables from some other agencies go straight into the General Fund.

Senator Porter asserted according to the audit report, agencies are not using many of the collection tools available to them.

Chairman O’Connell closed the hearing on S.B. 500 and opened the hearing on S.B. 531.

Kim Marsh Guinasso, Committee Counsel, Legal Division, Legislative Counsel Bureau, stated S.B. 531, which addresses population breaks, was requested by the Legislative Counsel through the Legislative Commission. She noted in the past, population breaks have been amended based on estimates made during the "second-to-last year of the decade," which would be 1999 for this decade. However, Ms. Guinasso explained the Legislative Counsel proposes to change this method to make population breaks based on the actual census rather than on estimations.

Ms. Guinasso testified one reason for changing the method involves some close estimates which would be used for 1999. For example, she asserted the population estimates for Carson City and Elko County are within 20 people. She pointed out the differentiation between Carson City and Elko County has often been used as a population break in statutes. Ms. Guinasso maintained the Legal Division could "make [its] best guess," but expressed concern that estimates could be wrong, thus opening up the potential for lawsuits. She said the department could "pinpoint" the figures and avoid such problems if population breaks were made on actual data.

Chairman O’Connell asked if the Legal Division knows how many laws have a population break that will be affected by the next census. She commented certain statutes could become applicable to small counties even though the Legislature never intended for such counties to be involved in the provisions of those statutes. Ms. Guinasso agreed, and asserted S.B. 531 would "freeze" the current population breaks so that the intent of statutes would not be changed. She explained:

Ms. Guinasso continued close estimates between counties have not been an issue until this year. She reiterated estimates could be proven wrong by the census, thus making certain provisions applicable to rural counties though such provisions were not intended for them.

In response to a question from Chairman O’Connell, Ms. Guinasso clarified the state demographer’s projections for the year 2000 are 53,250 for Carson City and 53,230 for Elko County.

Chairman O’Connell suggested conducting a staff study over the interim to consider all of the statutes which are affected by population breaks. Ms. Guinasso responded the Legal Division is responsible to perform that task and to bring the results before the Legislature for review. She stated if S.B. 531 passes, the division would consider relevant statutes after the next census rather than in 1999. However, she noted the Legal Division could still perform such a study this year using estimations. Ms. Guinasso mentioned the Legal Division is also concerned about performing such a task within the time limits of the 120-day session.

Senator Neal asked if S.B. 531 would permit all entities which use population statistics to go by the census. Ms. Guinasso replied no, and noted S.B. 531 would go into the preliminary chapter of NRS. She stated the bill would apply to NRS only, not to items like the population estimates conducted for revenue-distribution purposes. She elaborated S.B. 531 would apply to items like NRS chapter 387, which addresses a residential-construction tax for school boards in counties with populations less than 40,000. Ms. Guinasso contended S.B. 531 would apply to population breaks which have been placed in statutes for the purpose of delineating certain communities to which the statute applies.

Senator O’Donnell commented the Senate Committee on Government Affairs will have to deal with population breaks. He added some counties may want to take advantage of statutes which did not previously apply to them, but now do. He asserted the committee will have to address every affected law, which will take a substantial amount of time.

Chairman O’Connell reiterated her suggestion for a staff study to address that issue.

Senator O’Donnell asked when census numbers would be available. Ms. Guinasso answered she is unsure, but she suggested the census probably takes the entire calendar year of 2000. She pointed out S.B. 531 would allow the Legal Division until June 30, 2001, to resolve the issue. She continued the Legal Division intends to prepare a bill which would show every statute that includes a population break. Ms. Guinasso indicated those population breaks would be changed based on the census data, and the Legislature would then review those changes and determine whether the applicability of the statutes should change.

Senator O’Donnell asked how a study could be performed before the 2001 Legislative Session if the census numbers will not be available. Ms. Guinasso replied the Legal Division would get the numbers about 1 month before session began and would make this issue its first priority. She explained the division would probably "have everything ready to go" and simply plug in the numbers when they were available.

Senator O’Donnell suggested a committee may want to meet to address this issue 1 or 2 weeks prior to the 2001 session.

Chairman O’Connell emphasized many laws would be affected and pointed out they affect tax collection for counties.

Senator O’Donnell suggested before the close of the Seventieth Session, a report should be run showing which statutes would be affected. Ms. Guinasso commented the Legal Division could prepare a "collection" of the statutes which would be affected by population breaks.

Chairman O’Connell closed the hearing on S.B. 531 and opened the hearing on S.B. 532.

Wayne R. Perock, Administrator, Division of State Parks, Department of Conservation and Natural Resources, read from prepared testimony (Exhibit K). He testified S.B. 532 would allow greater flexibility for depositing funds collected from state parks. He noted many parks are in remote areas, and during the winter and other slow times, they produce minimal weekly amounts. Mr. Perock noted current law requires the Division of State Parks to deposit its collections every Thursday. He indicated this process often is not cost-effective due to transportation and transmittal costs. He concluded S.B. 532 would improve cost-effectiveness by extending the period in which deposits can be made.

Mr. Perock commented this proposed change was recommended by an internal audit performed by the Department of Administration. He stated if there is snow at Berlin-Ichthyosaur State Park, sometimes only $5 per week is collected there. He pointed out it does not make sense for a ranger to travel over 60 miles and perform all the necessary procedures for depositing that money every Thursday. Mr. Perock mentioned the Division of Wildlife has a similar provision in statute, though it addresses a much larger amount.

Senator Neal asked for information regarding the Division of State Parks’ deposits and collections within the last 6 months. Mr. Perock stated he could provide that information. He commented during spring, collections from the Valley of Fire State Park increase, and they are deposited several times per week. However, he reiterated some smaller or more remote parks do not have much activity and do not require such frequent deposits.

Senator Neal asked if any provisions in the bill or the statute address the weather.

In response to a question from Senator Care, Mr. Perock explained the Division of State Parks often relies on an "honor system" by which visitors place park fees in an envelope. He indicated people often do not pay these fees, though the division performs compliance checks.

Senator O’Donnell expressed concern about park employees "sitting on a lot of cash" if they did not have to make deposits each week. He suggested, "I don’t [do not] know if there’s [there is] any other way of doing it; maybe writing the law so that they would make weekly deposits, but not later than 1 month, or something like that."

Mr. Perock stated the division does not intend to "sit on" the collected money. He mentioned rangers may often want to coordinate their depositing activity with other business.

Senator O’Donnell raised concern regarding the possibility for rangers to spend the money they collect rather than depositing it. He indicated S.B. 532 could facilitate such a crime because it does not require rangers to make deposits each week.

Senator Neal suggested:

Mr. Perock clarified the intent is that if a ranger collected close to $1000, he or she would deposit that amount. He stated the 10-day time period would allow the ranger to coordinate the depositing activity with trips to regional offices or to locations outside the park. Mr. Perock further noted someone from the region might travel to the park in that 10 days and make the deposit for the field ranger.

Robert T. Francke, Chief of Operations and Maintenance, Division of State Parks, Department of Conservation and Natural Resources, stated he would not oppose changing the language in S.B. 532 to reflect an accumulation of $1000 for the 10-day period. He said he does not believe it is beneficial for the state to have someone drive 60 miles and spend 3 hours of a workday to deposit $5 to $100.

Chairman O’Connell asked how the division "balance[s] [its] books." She asked "In other words, how do you know the collections that are there? How do you relate that, and do you have any exacting way to say how many people have gone through there that have paid?"

Mr. Francke responded the division is regulated by an accounting system whereby one ticket sold accounts for a certain amount of money.

Chairman O’Connell asked how the division knows the money is not "pocketed." Mr. Francke replied spot checks are performed, and suspicions are investigated. He noted in his 26 years as an employee of state parks, such suspicions have been very rare.

Chairman O’Connell asked if the division has any grafting. She pointed out employee stealing is a big problem when no exact accounting is available and when someone else handles the money.

Mr. Perock answered the division performs periodic audits and has specific procedures regarding who handles the money, who collects it, and who does the paperwork. He noted those functions are all performed by different people. However, he stated a problem could exist when only one person is in a unit and that person must collect and deposit the money. Mr. Perock mentioned the division investigated an accusation regarding this issue and did not find any misdeeds. He stated the employee in question had been performing the process alone, so the division "split up" the money-handling responsibilities.

Mr. Perock added the division inventories and numbers every ticket. He expressed only the honor-system envelopes cause some concern because people put various amounts into them. He pointed out some people pay more than the stated fee. Mr. Perock emphasized the division has installed fee booths with cash registers in its high-volume parks. He stated a pilot program at the Valley of Fire State Park incorporates automated fee machines to offset the use of envelopes. He explained the fee machines take credit cards and make change. Mr. Perock continued when the ranger collects the money from these machines, he cannot touch it because it is in a sealed bag. He added the ranger downloads all the transactions onto a laptop computer and takes the information and the sealed bag back to the office where someone else counts the money. Mr. Perock reiterated the division has internal controls.

Chairman O’Connell asked if the division monitors cycles of attendance. Mr. Francke answered all regional managers are familiar with the money that is collected throughout the year, and they would notice if revenues dropped unexpectedly. He noted all park entrances have road counters, so the division knows how many people visit. Mr. Francke expressed if the number of visitors does not "fall into sync" with the money collected, "it raises red flags."

Senator Neal asked if parks charge a per-car fee. He also asked what the park attendance was during the previous fiscal year. Mr. Francke replied approximately 3 million people visited state parks in the last fiscal year.

Senator Neal asked about the average amount of a park fee. Mr. Francke answered fees vary, and they include entrance fees and camping fees. He stated entrance fees range from about $3 to $5, with an average of about $3.50.

Mr. Perock reiterated the Division of State Parks had a Legislative Counsel Bureau audit a few years ago. He indicated the audit cited some of the aforementioned procedural items and encouraged the division to promote greater compliance. He stated the division took the auditors’ advice and is working to increase compliance. Mr. Perock noted where feasible, the division has placed fee booths with attendants to collect money. He asserted since 1990, fee collection has increased from $750,000 per year to $1.5 million per year due to such efforts. He pointed out the division has tried to make its fee structure "friendly to the visitor," and he noted the audit suggested charging fees based on services rendered. Mr. Perock indicated parks have different entrance fees for that reason.

In response to a question from Chairman O’Connell, Mr. Perock stated fees are charged by the carload. He commented some state-park systems have a per-person charge, but that arrangement requires an attendant at the entrances. He expressed he would like to eliminate the honor-system envelopes, but that is not feasible. Mr. Perock indicated compliance is very low in some areas, and the highest rate of compliance is about 30 percent of visitors.

Mr. Perock stated during a 1992 legislative study on state parks, he visited Floyd Lamb State Park. He recalled a ranger had only collected one envelope, though 80 or 90 vehicles had entered the park during the previous 24-hour period. Mr. Perock explained that occurred during a slow time of the year when a fee collector would not have been feasible.

Chairman O’Connell asked if there is a hearing officer in the Division of State Parks. Mr. Perock answered the hearing officer is in the Department of Conservation and Natural Resources. He mentioned most items that have gone before the hearing officer have involved personnel issues.

Chairman O’Connell closed the hearing on S.B. 532 and adjourned the meeting at 4:15 p.m.

RESPECTFULLY SUBMITTED:

Amelie Welden,

Committee Secretary

APPROVED BY:

Senator Ann O'Connell, Chairman

DATE: