MINUTES OF THE meeting

of the

ASSEMBLY Committee on Government Affairs

 

Seventy-First Session

April 10, 2001

 

 

The Committee on Government Affairswas called to order at 8:12 a.m., on Tuesday, April 10, 2001.  Chairman Douglas Bache presided in Room 3143 of the Legislative Building, Carson City, Nevada.  Exhibit A is the Agenda.  Exhibit B is the Guest List.  All exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.

 

 

COMMITTEE MEMBERS PRESENT:

 

Mr.                     Douglas Bache, Chairman

Mr.                     John J. Lee, Vice Chairman

Ms.                     Merle Berman

Mr.                     David Brown

Mrs.                     Vivian Freeman

Mrs.                     Dawn Gibbons

Mr.                     David Humke

Mr.                     Harry Mortenson

Mr.                     Roy Neighbors

Ms.                     Bonnie Parnell

Mr.                     Bob Price

Mrs.                     Debbie Smith

Ms.                     Kathy Von Tobel

Mr.                     Wendell Williams

 

 

GUEST LEGISLATORS PRESENT:

 

Assemblywoman Vonne Chowning

Assemblyman John Carpenter

 

STAFF MEMBERS PRESENT:

 

Eileen O’Grady, Committee Counsel

Dave Ziegler, Committee Policy Analyst

Linda Utt, Committee Secretary

 

OTHERS PRESENT:

 

Brian Slobe, Nevada State Fire Marshal

Steve Robinson, Nevada Division of State Forestry  

Edward Taylor, Citizen, Las Vegas

Earl Greene, Fire Chief, Clark County Fire Department

David Washington, Deputy Fire Chief and Fire Marshal, Las Vegas Fire and Rescue

Jim Stubler, Deputy Fire Chief, city of North Las Vegas

Jeffrey Morgan, Deputy Chief, Las Vegas Fire and Rescue

Tim McKoy, Red Rock Trading Company,

Brian Krolicki, State Treasurer

Bob Seale, Former State Treasurer of Nevada

John Swendseid, Swendseid & Stern, Bond Counsel

Robin Reedy, Deputy Treasurer of Debt Management, State Treasurer’s Office

Ray Masayko, Mayor, Carson City

Shelley Aldeen, Chairman, Charter Review Committee, Carson City

John Berkich, City Manager, Carson City 

James Wadhams, Lobbyist, Nevada Independent Insurance Agents

Kay Lockhart, Lobbyist, Nevada Independent Insurance Agents

Greg Smith, Services Procurement Supervisor, Purchasing Division, State of Nevada

Brett Kandt, Senior Deputy Attorney General, Counsel to the Purchasing Division and the Risk Management Division, State of Nevada

Susan Dunt, Risk Manager, State of Nevada

Wayne Carlson, Executive Director of Nevada Public Agency Insurance Pool

Girard W. Paige, Chemical Engineer, Clark County Fire Department

 

 

Assembly Bill 482:  Makes various changes relating to regulation of fireworks. (BDR 42-1024)

 

Assemblywoman Vonne Chowning, Clark County, District 28, introduced A.B. 482 because she believed it was her job as a legislator to protect citizens and provide public safety.  The bill was a fire safety issue since each year explosive fireworks continued to cause hundreds of thousands of dollars of property damage to homes and land, and caused numerous injuries to children and adults.  Mrs. Chowning emphasized Nevada was the last state to enact a state fireworks control law.  Hawaii and Nevada were the last two states without legislation; however, in late 2000 Hawaii passed legislation to control fireworks. 

 

Mrs. Chowning explained if A.B. 482 passed, the bill would allow a “middle ground” approach by permitting the sale and use of “safe and sane” fireworks, but prohibited the sale and use of dangerous explosive fireworks.  Local governments in the cities and counties could still ban the use entirely if they wished. 

 

Continuing, Mrs. Chowning emphasized an important part of the bill was the ability of fire officials to charge the user for the cost incurred for fighting the fires caused by particular fireworks.  If an individual chose to use a dangerous product, it should be their responsibility to pay for any damages; however, currently the taxpayers paid the bill for fire suppression.

 

Mrs. Chowning remarked certain people were of the opinion “fireworks cause fires,” but that was not entirely true.  Studies had shown fires, bodily harm, and property damage were primarily caused by dangerous devices such as bottle rockets, firecrackers, skyrockets, and roman candles. 

 

In the last section of the bill, taxpayers were given the choice of addressing the issue by having it placed on the November 2002 ballot.  According to Mrs. Chowning, the taxpayers should have input on whether or not Nevada should have a “safe and sane” fireworks law.

 

Mrs. Chowning referred to Section 2, page 2, of the bill and explained any regulation prohibiting restricting, suppressing, or otherwise regulating the manufacturer’s sale, use, storage, or possession of fireworks must be at least as restrictive as in Section 4.  Mrs. Chowning commented she received hundreds of supportive letters from nonprofit organizations such as soccer leagues, church organizations, and Little Leagues who sold fireworks as fundraisers.  Section 2 of A.B. 482 would not allow a total ban by the Fire Marshal, and if each entity wished to allow sale and use, the Fire Marshal could not tell them no.

 

Regarding Section 4 of A.B. 482, Mrs. Chowning asked the committee to refer to their packet that displayed pictures of the types of fireworks the Fire Marshal would regulate, and those that would be allowed for sale and use.  She pointed out the “safe and sane” items included cylindrical fountains, cone fountains, illuminating torches, wheels, ground spinners, flitter sparklers, and toy smoke devices (Exhibit C).  Such items were considered stable-type fireworks because of the delineations of powder included in their makeup.  The bottom of the list included restricted types of fireworks that were shot up in the air and included skyrockets, bottle rockets, missile-type rockets, helicopter and aerial spinners, roman candles, mines and shells, and firecrackers and chasers.  Mrs. Chowning indicated such types when lit would explode, leave the ground, and land without knowing their direction, and could potentially cause fires and injuries. 

 

Mrs. Chowning commented Section 5 carried the penalty.  The violator would not go to jail or pay a $1,000 fine but a person who caused the damage could be charged for the cost incurred.  Costs included the investigation of the violation, suppression of the fire, confiscation, and disposition of stored fireworks.  Rather than the taxpayers paying for the violators, the individual or individuals who caused the damage would pay.

 

Mrs. Chowning pointed out Section 6 included fireworks for commercial display.  There were several areas in the state where people enjoyed commercial fireworks displays, and since they were regulated and conducted by experts in the field, should still be allowed. 

 

Mrs. Chowning explained Sections 7 and 8 allowed the boards of the county commissioners, including unincorporated towns and city councils, to adopt ordinances regulating the manufacture, sale, use, storage and possession of fireworks.  The commissioners needed to be restrictive, as in Section 4, which was the “middle of the road” or “safe and sane” approach, or they could choose a total ban. 

 

Section 10 of A.B. 482 stated the Secretary of State should include in the general election ballot to be held on November 5, 2002, the following question:  “Shall the Nevada Legislature enact the ‘safe and sane’ law to regulate fireworks?”  Voters throughout the state would have the ability to choose and voice their opinions on the issue.  Mrs. Chowning commented the decision, if in favor, would become effective on January 1, 2003, if a majority of voters affirmed the law.

 

Assemblyman Lee questioned page 3, lines 7 through 10, which stated, “A person who stores or uses fireworks in violation of the provisions of the chapter or a regulation regarding fireworks adopted by the state fire marshal pursuant to this chapter shall reimburse the state fire marshal or any agency of the state or local government for the costs incurred by the state fire marshal or agency.”  However, in Section 5, the State Fire Marshal had the primary authority to enforce the provisions in the chapter.  An employee of the State Fire Marshal’s office informed Mr. Lee they only had three or four people working in Clark County, and with such a small labor force, he was concerned with how their office could enforce the provision.  Mr. Lee expressed concern regarding the “primary authority” and how they perceived completing their job with the shortage of personnel. 

 

Brian Slobe, acting State Fire Marshal, remarked in Clark County there were only two employees working in the area.  One worked in law enforcement and one in hazardous materials.  Neither employee had the capability to totally enforce the law and, therefore, they had to rely on the local fire, sheriff, and police departments for help.  Mr. Lee maintained Mr. Slobe would not have the primary authority to enforce any of the provisions based upon manpower.  Mr. Slobe responded they had the primary authority through regulations to set minimum standards of what could be used in the state as fireworks, and would rely on local help. 

 

Referring to page 6, Section 10, Mr. Lee asked Mrs. Chowning why she felt the 17 counties of Nevada would need to put the question on the general ballot in November.  Mrs. Chowning responded she believed it was important for citizens throughout the state to have input as to whether a state law be put in place.  Mrs. Chowning remarked state laws were put in place to establish uniformity and a standard.  In addition, she wanted to take a stand that showed state policy makers felt A.B. 482 was an important bill.  Without uniformity some counties permitted explosive or dangerous items while neighboring counties allowed only “safe and sane” items.  Mrs. Chowning emphasized with irregularities in the law, more fires occurred because some counties permitted the sale and use of explosive fireworks. 

 

Mr. Lee questioned why Section 10 was necessary because the State Fire Marshal already had control through NRS to inform counties what to do.  Mrs. Chowning responded they did not need to give voters the choice if the law was passed omitting Section 10.  As a policy maker, they could pass the law without a vote of the people but, in her opinion, it was important to allow the voters to make the choice. 

 

Assemblyman Mortenson commented he personally liked Section 10, and felt the people should be allowed to vote.  He was concerned about determining whose rocket caused damage and whether there would be a problem if the Fire Marshal concluded it was an individual’s rocket, and the individual claimed innocent.  Mr. Mortenson questioned if there would be due process, and would the law affect “model” rockets.  In addition, Mr. Mortenson inquired where the money collected for the fine would go.  Mr. Slobe responded it was not difficult to “pin down” where the fireworks came from, and the individuals who caused the fire.  In addition, Mr. Slobe emphasized there was due process and violators were taken to court.  The violators were assigned an attorney in the same way a traffic problem would be handled.  Mr. Slobe pointed out model rockets and caps would not be included and was not part of the bill.

 

Mr. Mortenson asked if there was a provision to direct the fine collected to the individual whose home was destroyed or damaged to repair their facilities.  Mr. Slobe responded the money given directly to the victim would be processed under civil litigation, but they could not give the money to the individual whose home was lost in a fire.  A.B. 482 would strengthen the process by making the individual who caused the damage provide payment to the victim.  Mr. Slobe referred to the Peavine fire that occurred in Washoe County started by a small rocket.  Not only the state, but the city and county fire departments desired some form of restitution.  A young man and woman were found guilty and approximately $1 million was spent fighting the fire.  Currently, the woman was paying pennies on the dollar for restitution.  Mr. Mortenson questioned how the fines would be collected.  Mr. Slobe commented the collection would be similar to a traffic fine or any type of fine where the money was returned to the county.  Mrs. Chowning pointed out page 3, lines 8 and 9, stated a person should reimburse the State Fire Marshal for the cost incurred; it did not state they would be fined.  A violator could not be fined extra money but could be requested to reimburse the county for the cost of extinguishing the fires.  Mr. Mortenson asked if mileage for the trucks to travel to the fire areas would be included.  Mr. Slobe responded charges would include portal-to-portal, per diem, and other costs incurred, including equipment.  The money would be deposited in the State Treasury, not his office.  Mr. Mortenson questioned if per diem was used when personnel traveled to large areas.  Mr. Slobe replied the State Fire Marshal was responsible for fourteen rural counties but only worked in Washoe and Clark County on large fires.  Mr. Slobe explained if there was a large fire in White Pine County they were investigating, a deputy would be sent from Elko County or Carson City.  A large cost would be incurred to his small budget, and he was unaware of how to recoup the money back to the budget.

 

Assemblyman Brown referred to Section 10, and pointed out if they charged for reimbursement costs it could be elevated in the eyes of the public.  Mr. Brown asked what it cost for the Fire Marshal to respond to and put out an average fire.  In addition, Mr. Brown queried Mrs. Chowning regarding any accounting of annual loss of limbs or eyesight due to fireworks.  He questioned what kind of restitution was set up for the Peavine fire and how much the couple was expected to pay back. 

 

Steve Robinson, Nevada Division of State Forestry, replied to Mr. Brown’s question on the Peavine fire that occurred in 1992.  The judge assessed a fine of $500,000 based on the cost of that fire.  Over the last decade the division negotiated with the judge and defendants to be reimbursed for the fire.  The negotiations resulted in settlement of the case for pennies on the dollar.  Mr. Robinson commented the division would be lucky to receive 10 percent of the total amount paid back to the State Treasury.  He added many fires involved federal land and were referred to the United States Forest Service and the Bureau of Land Management.  Those agencies had their own law enforcement entities that pursued fires started by arson or willful neglect.  Mr. Robinson indicated such fires were referred to the federal justice system, and fines were often assessed at that level.  

 

Assemblywoman Chowning stated the fire officials in Las Vegas would be able to answer Mr. Brown’s questions about cost, property damage, and injuries.  Mrs. Chowning referred to the material distributed previously to the committee by the Las Vegas fire department that showed the various injuries children most often received.  Unfortunately, the hospitals did not submit a cost breakdown of injuries and accidents caused by fireworks. 

 

Mr. Robinson had no specific Nevada statistics, but the National Fire Protection Association supplied statistics in their most recent publication released in 1998.  There were 8,500 firework-related injuries reported by emergency room personnel.  Thirty-four percent of the injuries were in the five- to fourteen-year-old age group.  Fifty-six percent of the injuries were from burns, 35 percent were to the hands, and 22 percent were eye injuries.

 

Assemblyman Williams mentioned the Legislature had dealt with this issue for a number of years.  The proposed legislation addressed the uniformity that had been lacking in the past.  Mr. Williams indicated he was comfortable with the State Fire Marshal setting policy.  In addition, Mr. Williams pointed out the calculation of dollars spent in investigating possible illegal storage and use of fireworks could not offset a fire getting out of hand with the potential of lives and property being lost.  There were counties with their own jurisdictions who investigated many of the fires.  Currently in Nevada there were all types of fireworks being stored, and different illegal fireworks were being used in various places.  In his opinion, Mr. Williams felt Section 10 was good and would not hurt the bill.  A.B. 482 would make the citizens of Nevada aware of a uniform process that allowed fireworks to be used, but eliminated illegal use and storage.  The State Fire Marshal had communication with local fire chiefs throughout the state so everyone knew what to do and his position was clear.

 

Assemblyman Price was concerned how the bill would affect the sales on various Indian reservations throughout the state, particularly in Las Vegas, where fireworks were sold on the Fourth of July.  Mr. Slobe responded they could not prevent the reservations from selling any type of device, but the Department of Transportation could post signs warning the general public coming in and out of the state that fireworks were illegal in the state.  Mr. Price commented people would be able to purchase fireworks, but as soon as they transported them to another location, they were in violation.  If people read the posted signs as they traveled in and out of Nevada, it would discourage or make them aware not to use fireworks in our state.  Mr. Slobe stated the quality control on fireworks was limited, and at least once a year children were told they could use fireworks. 

 

Assemblywoman Chowning explained representatives of the reservations contended they were law-abiding citizens and would seriously examine their business ventures.  The reservations did not want to be in a position against state law.  When fireworks were purchased, people expected state officials to give them guidance in the form of a policy.  Mrs. Chowning commented the public assumed if fireworks were sold legally, the product was safe. 

 

Assemblyman Neighbors pointed out the Nye County ordinance was included in the packet and asked if she knew how many other counties had ordinances regarding fireworks.  Mrs. Chowning replied the packet included a list, but every county in the state had some type of ordinance pertaining to fireworks.  In most counties fireworks were illegal.  In Washoe County, fireworks were illegal, but in Esmeralda County they were legal.  In Nye County, they were legal for sale but illegal for use.  In Clark County, they were legal but with local options that would be for “safe and sane” fireworks. 

 

Edward Taylor, 21 year citizen of Las Vegas, read from prepared testimony regarding A.B. 482 (Exhibit D).  Mr. Taylor commented he was aware the bill had been proposed in prior sessions and considered it a travesty that the legislation had not passed.  Each year in the Las Vegas area citizens’ homes, children, and pets were placed in jeopardy because of individuals who did not grasp the dangers of illegal fireworks.  The Las Vegas fire departments were undermanned and needed more help from the Metro police to cite the individual violators.  In conclusion, Mr. Taylor commented the Metro Police explained the complainant must physically identify the offender; however, that left them open to any sort of reprisal by the offender.

 

Girard W. Paige, Chemical Engineer, Clark County Fire Department, presented testimony in support of the bill (Exhibit E).  Mr. Paige pointed out the number of calls the department received during the Fourth of July weekend, which showed a substantial increase in “runs” compared to what was received throughout the rest of the year.

 

Earl Greene, Fire Chief of the Clark County Fire Department, presented testimony in support of A.B. 482.  He emphasized it was time for the state to support the department, and provide a safe environment for the children and the community. 

 

David Washington, Deputy Fire Chief and Fire Marshal, Las Vegas Fire and Rescue, reiterated their full support of the bill, and offered to provide statistics including injuries, deaths, and damage to homes that occurred more frequently during the Fourth of July period each year.

 

Jim Stubler, Deputy Fire Chief, city of North Las Vegas, spoke on behalf of Chief Robert Dodge.  Mr. Stubler remarked they were in support of the bill because it provided a means to further protect the citizens of the community.  In earlier testimony, Mrs. Chowning commented on the many civic organizations and nonprofit groups that relied on sales of fireworks to support their activities throughout the year.  In regard to those groups, Mr. Stubler maintained the sale of illegal fireworks cut into the profitability of such organizations. 

 

Jeffrey Morgan, Deputy Chief, Las Vegas Fire and Rescue, noted that 49 states had passed similar legislation, and Nevada was the only state that had not implemented such a law.  In his opinion, Mr. Morgan felt it was long overdue.  The Las Vegas Fire and Rescue operated a combined dispatch center for the city of Las Vegas, North Las Vegas, and Clark County.  In a four- to five-hour period during a July 4 evening, the department did the equivalent of their daily run volume.  Mr. Morgan stated they handled over 400 calls in a five-hour period requiring extra staff in dispatch, and firefighters on the street during the hottest time of the year.  Along with the cost, property damage, and injuries to individuals, there was additional stress to the employees who had to fight those fires.

 

Assembly Bill 486:  Prohibits sale of product in county, city or town if use of product is prohibited in county, city or town. (BDR 20-1023)

 

Assemblywoman Chowning, Clark County, District 28, presented testimony on A.B. 486.  Mrs. Chowning explained the bill simply stated that if a county or a city did not allow a product to be used, the county or city should not allow the product to be sold. 

 

Mrs. Chowning noted she had requested the Nevada Association of Counties (NACO) and the Nevada League of Cities (NLC) to conduct a survey, along with her questioning of all the cities and counties throughout the state.  Alcohol was allowed for sale but not for use by a segment of the population, which included minors.  Tobacco could be sold and used by adults and minors, but not sold to minors.  Mrs. Chowning commented any other product sold should be able to be used.

 

Mrs. Chowning remarked Clark County had a problem with neighboring Nye County because of an ordinance stating fireworks could be sold but could not be used in Nye County.  If fireworks were purchased in Nye County, they had to leave the county, unopened, within 24 hours.  Mrs. Chowning pointed out during the 1999 session a conference committee was held with members from the Senate and Assembly who unanimously agreed with the proposed legislation and promised to come back this session and correct the problem.  Fireworks were dangerous items that could explode and cause bodily harm and property damage.  Mrs. Chowning mentioned individuals could purchase fireworks in Nye County, where it was legal to sell them, and take them to counties where they were illegal.  Concluding, Mrs. Chowning contended she was abiding by the 1999 conference committee’s wish to have the issue brought before the current Legislature. 

 

Assemblywoman Smith asked if items, such as sparklers, which were sold in Nye County could be used in Clark County.  Mrs. Chowning noted if the bill passed, various items would be allowed for use in other counties unless they followed through with a local ordinance.

 

Assemblywoman Von Tobel compared the situation to the brothel business in Nye County.  Legal prostitution was a revenue producing business; however, if there was an ordinance of looking but not touching, they would not have a business.  Mrs. Von Tobel asserted she supported the bill, and commented Nye County was solely set up to sell to counties other than themselves. 

 

Assemblywoman Parnell questioned why Mrs. Chowning did not specify the terms “fireworks and explosives” in the bill.  Mrs. Chowning replied it was a broad concept that should be in place.  If the county was proud of the product they produced, then their citizens should be allowed the use of the product.  In North Las Vegas, citizens passed a local ordinance against the rental of “x-rated” movies in video stores.  Mrs. Chowning remarked it would be hypocritical if they allowed them to rent and sell the videos to another area for use, but not the local citizens.

 

Chairman Bache pointed out a segment of the population under age 16 could not use motor vehicles, but they could still purchase them.  Mrs. Chowning responded that was a good example, but she would like to see a business sell a vehicle to a 15-year old.

 

Assemblyman Williams indicated the Nye County situation continued to resurface.  Mr. Williams had purchased fireworks in Pahrump, and was not advised he could not use them in Pahrump.

 

Assemblyman Lee stated large conventions were held in Clark County, such as “Soldier of Fortune,” which included gun collectors, and the conventions might sell items that could be illegal.  Mr. Lee pointed out a crossbow was illegal, but if an individual attended a medieval convention, they might purchase a crossbow and take it home for their collection.  If one were to classify a medieval crossbow as illegal, it might hurt tourism in Las Vegas.  Mr. Lee was concerned since the city of Las Vegas invited people to demonstrate and purchase their wares and A.B. 486 could cause problems.  Mrs. Chowning clarified the shows were allowed sales to out-of-state residents.  If a product was legal in other states, the purchaser could show their driver’s license for identification and take that item to their state

 

Assemblyman Brown liked the bill but was concerned some of the categories of products might be considered dangerous that were used for certain technologies.  The committee needed to address the issue before moving forward on the bill.

 

Assemblyman Neighbors represented Nye County, and informed the committee that ordinances, unlike resolutions, required input and published hearings countywide.  Mr. Neighbors emphasized he had no contact with the county regarding A.B. 486 and would not consider taking action until he spoke to his constituents.  Considering there were many laws currently on the books, he felt it inappropriate for the Legislature to single out one county’s ordinances as wrong.  Mr. Neighbors agreed to make contact with his board of County Commissioners and would report back to the committee. 

 

Assemblywoman Freeman suggested the proposed legislation had appeared in possibly six prior sessions.  The high costs of fighting fires and the fundraisers by associations to sell fireworks were of great concern.  According to Mrs. Freeman, there should be another way to raise funds without selling fireworks, and she urged the committee to pass A.B. 486 immediately.

 

Assemblyman Carpenter, District 3, supported A.B. 486 and hoped it would provide relief to the fireworks area.  Mr. Neighbors said he supported A.B. 482, but had mixed emotions regarding A.B. 486. 

 

Mr. Slobe stated he supported A.B. 486 only if it specifically related to fireworks.

 

Assemblywoman Chowning referred to Mr. Brown’s comments and noted she had grown up in Henderson, when there were many chemical plants, and did not believe the product Mr. Brown mentioned could be sold for citizens to use.  Mrs. Chowning understood the concerns regarding a dangerous item and suggested amending the bill to address the issue. 

 

Assemblyman Mortenson commented years ago individuals could buy potassium perchloride to use in experiments, and that was considered dangerous.  Mrs. Chowning suggested the bill could be amended to allow sales to nuclear physicists only.

 

Earl Greene, Fire Chief of the County Fire Department, spoke in support of Assemblywoman Chowning’s efforts.  Mr. Greene remarked there had been a 700 percent increase in the number of fires related to the use of illegal fireworks.  He offered to provide the committee with a chart that mapped out the number of fires.

 

David Washington, Las Vegas Fire and Rescue, spoke on behalf of Fire Chief Mario Treviño, and the citizens who worked for Las Vegas Fire and Rescue, and stated they were in full support of A.B. 486. 

 

Tim McKoy, Red Rock Trading Company, spoke in opposition to A.B. 486.  He referred to the issue Assemblyman Brown had and pointed out companies that produced rocket fuel could not buy the fuel to sell to Nassau if the bill passed.  It could stop new industry from coming to the state because, as an example, if a slot machine manufacturer wanted to open a business in Boulder City, they could not sell slot machines they produced.  Mr. McKoy remarked there were ammunition manufacturers in the state, and according to the language in the bill there were certain products sold that would become illegal to sell.  He concluded it was important for Nevada to diversify their economic growth, and passage of the bill could shut out existing and future industry in the state. 

 

Assemblywoman Von Tobel asked Mr. McKoy if he would be comfortable with the bill if it specified the word “fireworks.”  Mr. McKoy replied negatively because he was in the fireworks business located on the border of Nye and Clark County.  Mrs. Von Tobel recalled during the 1999 session Mr. McKoy had testified he was more of a distributor than a retailer and that he did not have a problem selling retail fireworks to people in Nye County, knowing full well he sold them an illegal product.  Mr. McKoy commented retail buyers from all over the state and country purchased fireworks from his company.  He explained it was legal for him to sell the fireworks in Nye County, but if a person used the product in the county, they were doing so illegally.  In addition, certain items he sold were illegal to use in Clark County. 

 

Ms. Von Tobel questioned what purpose he had in selling retail since he recognized the fact that it was illegal to use the products in that area.  Mr. McKoy replied the fireworks were legal to sell and use in Esmeralda County, on Indian reservations, and in many other states.  In Washington, Wisconsin, New Mexico, Texas, and Missouri, fireworks were legal to use, and many of his retail customers came from those states to purchase his products.  Ms. Von Tobel suggested he contact Nye County to see if they would approve an ordinance for the use of fireworks.  She asked if he had attempted to remove the ban from the county in regard to use of fireworks.  Mr. McKoy responded he had not tried recently, but had approached them ten years ago.

 

Assemblywoman Gibbons mentioned people could purchase fireworks from the tribal locations.  Mr. McKoy explained there were several Indian reservations that sold all types of fireworks throughout the state, and neither A.B. 482 nor A.B. 486 would affect the reservations’ sale of fireworks.  Ms. Gibbons pointed out tax revenue was received from Mr. McKoy’s business, but not the Indians’, and the two bills would put Mr. McKoy out of business.  People would still be capable of buying fireworks from the reservations. 

 

Assemblyman Mortenson asked Mr. McKoy if he could identify the percentage of his products sold as retail.  Mr. McKoy replied he imported products and sold wholesale to ten other states.  In addition, he sold to other fireworks companies and Indian reservations in other states.  Mr. McKoy explained he sold to Indian reservations in other states, but no reservations in Nevada.  Mr. Mortenson asked if he imported from outside the country, and Mr. McKoy responded he sold retail to about 30 to 35 percent of his business.

 

Assemblywoman Parnell stated since fireworks were sold to areas where they were legal, someone from a county with restrictive laws should be responsible for how and where the fireworks were used.  Ms. Parnell was concerned the bill would open up a negative message to business, and there were times when people should be allowed the right to be responsible. 

 

Assemblywoman Von Tobel questioned if Mr. McKoy was aware of any county within the state of Nevada where it was legal to use his fireworks.  Mr. McKoy replied Esmeralda and Clark County, on certain items.  Mrs. Von Tobel did not believe anyone had a problem with his “safe and sane” fireworks, and she was only concerned with the items considered illegal.  She asked Mr. McKoy if he had considered relocating his business to Esmeralda County.  Mr. McKoy responded he had been in the business for 23 years, and had acquired land and buildings.  According to Mr. McKoy, A.B. 482 and A.B. 486 would basically put him out of business.  He referred to Section 4, page 2, line 42, and indicated he could not sell his products to any other states, either retail or wholesale, throughout the United States.  Technically, he could sell the “safe and sane” fireworks but the companies who purchased his products did not want to be limited in what they bought.  Ms. Von Tobel indicated Nevada was the only state without language to restrict firework sales but Mr. McKoy sold to states that had such language.  She questioned the difference between other states restrictive language versus what the bill was attempting to do.  Mr. McKoy pointed out page 2, line 37 in Section 4, stated the types of fireworks the State Fire Marshal authorized had to be listed in Section 3.1.  He pointed out the section limited all fireworks other than “safe and sane,” which would eliminate his selling base by approximately 85 percent.

 

Assemblyman Neighbors emphasized he hoped the committee would take a look at the ordinance included in their packets relating to Nye County, and give them a lot of thought before they made up their minds.

 

Assemblyman Brown commented Nevada had favorable corporation statutes that could be improved because the goal was to expand industry within the state by bringing in new companies.  Mr. Brown concluded he would feel bad if Mr. McKoy’s wholesale business was ruined, especially when he was legitimately selling certain fireworks to states where on a wholesale basis they were legal.

 

Assemblyman Mortenson asked Mr. McKoy if the other states allowed the non-“safe and sane” explosives and rockets.  Mr. McKoy responded the state of Washington allowed everything but firecrackers and rockets, including other aerial devices.  Wyoming, Wisconsin, Indiana, Missouri, Oklahoma, Texas, New Mexico, and Louisiana allowed all types of fireworks.

 

Chairman Bache closed the hearing on A.B. 486 and opened the hearing on A.B. 554.

 

Assembly Bill 554:  Provides for establishment of Nevada College savings program as authorized by federal law. (BDR 31-357)

 

Brian Krolicki, Nevada State Treasurer, described the bill as a culmination of Section 529 tax-deferred investment plans (529s) that were started in Nevada.  The proposed bill established a college savings plan in Nevada, and also preserved the prepaid tuition program currently in operation.  Mr. Krolicki pointed out when the legislation passed in the 1999 session, a “sunset” clause was included, and he hoped that could be removed.  Mr. Krolicki distributed a letter from Laura Fitzpatrick, Clark County Treasurer (Exhibit F), who was serving as the chairman of the Nevada Prepaid College Tuition Board, and stated her support for A.B. 554.  Prior to her current status, Ms. Fitzpatrick worked for the Michigan State Treasurer’s office and was a pioneer for the Section 529 program.  Mr. Krolicki referred to an article from Newsweek Magazine about college saving plans and the 529s that was distributed to the committee (Exhibit G).

 

Mr. Krolicki explained briefly what the 529 programs were.  The Internal Revenue Service (IRS) had a section of its tax code in 529 that allowed the savings for college on a tax-deferred basis.  Mr. Krolicki noted his two young children were enrolled in the prepaid tuition program and his family would benefit for 17 to 18 years by compounding investments tax-free, and that was why the programs were so successful.  Nevada began using the 529s in 1997, and after only three enrollment periods had over 8,000 young people in Nevada currently enrolled in the prepaid college tuition program.  In addition, $20 million had been invested on the children’s behalf.  Mr. Krolicki pointed out that prepaid tuition was tuition only and other college savings plans had ways to save money with more flexibility and the same tax advantaged monies. 

 

Some differences, Mr. Krolicki noted, would be financial aid.  Prepaid tuition benefits would be looked at differently than a college savings plan.  College savings plans had better service for the student and prepaid tuition obtained most of the value and counted against certain scholarships students could receive.  Mr. Krolicki explained there were three enrollment periods for a defined period of time, but college savings plans were similar to a 401K plan.  Money could be added when available, providing more flexibility on the contribution side.  The prepaid system in Nevada required enrolled individuals to make payments contractually for a specific amount of money, and the system did not allow overpayment.  The college savings plan allowed an individual to contribute additional money into the plan to cover costs such as room and board, books, graduate school, and other things beyond the undergraduate tuition rate.  The college savings plan was open to anyone regardless of his or her status as a Nevadan, but in the prepaid tuition program there needed to be a Nevada angle.  Mr. Krolicki pointed out another aspect of the program would actually make money for the state.  The earnings gained from college savings programs would pay for the program and cover a portion of the liability in the prepaid tuition.

 

Mr. Krolicki emphasized A.B. 554 created the legal framework and language necessary to begin the college savings program.  The current board for prepaid tuition would be disbanded but reconstructed as the board for both the prepaid college tuition and the college savings program.  Therefore, the programs would work hand in hand.  Mr. Krolicki referred to Section 21, and indicated there was a sunset clause for prepaid tuition because when the program was implemented three years ago, it began as a concept unknown as to how successful it would be.  Mr. Krolicki explained the sunset clause ended June 30, 2001, and if the bill passed, the clause would be removed.  Mr. Krolicki concluded the prepaid tuition program, the college savings plan, and the Millennium Scholarship Program were tremendous resources that provided for higher education of young people. 

 

Assemblyman Lee questioned if a program could be started without a designee or was a particular name necessary.  He asked if one of his grandchildren could be a beneficiary to a program.  Mr. Krolicki replied unlike the prepaid program that required a designee, the college savings program allowed them to create a program without a designee.  Mr. Lee asked who would manage the money and programs.  Mr. Krolicki responded the Treasurer’s office would connect with certain Wall Street-type management firms, but unlike the pre-paid program that was administered by the Treasurer’s office, the money would be “farmed” out.  There would be specific products that included a wide range of fixed income funds, along with various balanced and income growth funds in the portfolio.  People made decisions when they entered into a college savings plan as to how they would disburse their assets in the different types of funds depending on the age of the children.  Mr. Krolicki pointed out there was a difference in choices between a newborn and a student in ninth grade.  After the choice was made there could be no changes for the duration.  Mr. Lee clarified the Treasurer’s office would act as a transfer agent and he questioned what happened if a person decided he wanted the money returned.  Mr. Krolicki responded the money always belonged to the person of record, but there would be a penalty for early withdrawal as with any similar program. 

 

Bob Seale, former State Treasurer of Nevada, strongly urged consideration of the expansion of the 529s to include college savings plans for the reasons Mr. Krolicki had discussed. 

 

Chairman Bache referred to Section 13 of A.B. 554, and expressed concern with the language that stated, “The board may delegate to the state treasurer any of its powers and duties specified in sections 6 to 13, inclusive, of this act, if the board determines that such delegation is necessary for the efficient and effective administration of the Nevada college savings program and the trust fund.”  Chairman Bache understood the investments and day-to-day operations, but was concerned that the language would pull in any policy decisions the board might want to make.  He was aware of a similar bill that would allow the State Board of Examiners to delegate certain things to the Director of the Department of Administration on a limited basis.  The language was all-encompassing and could make the board almost irrelevant if they could turn over all their responsibilities.  Chairman Bache suggested rather than two members being appointed by the Governor, one be appointed by the majority leader of the Senate, and one by the Speaker of the House, for diversity.

 

Mr. Krolicki indicated it was not the intent of A.B. 554 to empower the Treasurer in an inappropriate way.  Currently, the Treasurer was on the board that administered the prepaid tuition program.  The language in the bill was similar and the board could choose whatever it wished to do in terms of policy in administering the fund.  Mr. Krolicki pointed out there were many significant issues and details in administering the fund and it was important to allow the Treasurer flexibility on a daily basis.  However, he was open to any suggested language changes the committee felt were appropriate. 

 

Chairman Bache clarified the Treasurer would handle daily operations the board was responsible for, and could act in an emergency situation.  Chairman Bache indicated there might be a problem assembling the board for an important issue on short notice, and should such a condition occur, it would be satisfactory for the Treasurer to take action.  Mr. Krolicki noted for the record the existing appointed board members were Laura Fitzpatrick and former Assemblyman Larry Spitler.

 

Assemblyman Lee asked Mr. Krolicki how money would be made.  Mr. Krolicki replied the private sector made money on commissions.  What Nevada reserved was negotiated but the standard practice around the country was ten basis points fee. 

 

Chairman Bache closed the hearing on A.B. 554.

 

Assembly Bill 567:  Revises provisions governing state financial administration. (BDR 30-358)

 

Brian Krolicki, Nevada State Treasurer, referred to proposed amendments to A.B. 567 distributed to the committee (Exhibit H).  Mr. Krolicki explained the amendments made deletions to the bill.  According to Mr. Krolicki, it was a simple bill that dealt with a complex issue and one that became part of the financial management of the state and was very important. 

 

Mr. Krolicki commented when the state acquired real property and utilized facilities it was done in two different ways.  The state could rent or purchase property but there was no other option.  Mr. Krolicki referred to a Nevada Supreme Court ruling entitled Hancock [86 Nev. 310 (1970)], and explained Nevada could not lease purchase financed space.  Any time there was a liability beyond the biennium, a debt was constituted according to Hancock and counted against the state limit.  A.B. 567 provided an alternative to Hancock and was an issue Nevada had faced for decades.  In the 1999 session, under former Nevada State Treasurer Seale, Hancock was “poked” enough to entertain lease purchasing equipment but not real property.  Mr. Krolicki stated the proposed legislation was his rendition to get the real property assets, but the problem and challenge had been in the old Hancock decision.  Mr. Krolicki commented a new legal case was required to ask a question of the court and get to the decision made decades ago.  Mr. Krolicki noted that had been accomplished by former colleagues in state government.  Currently, the privatized Employers Insurance Company of Nevada (EICON) had property located behind the capital complex and had agreed to test the Hancock ruling by entering into a contract of lease purchase with the Department of Conservation and Natural Resources.  Mr. Krolicki indicated the contract had been presented to the board of examiners but the board denied the contract based on the Hancock ruling.  The Supreme Court agreed to hear the case and to revisit Hancock and placed it on an expedited case schedule.  Mr. Krolicki maintained A.B. 567 was subject to the Supreme Court granting relief under Hancock.  Mr. Krolicki explained the money committees, the Legislature, and the Governor would have the flexibility to utilize lease purchase agreements.  The state currently leased $15 million to $20 million per year and without raising taxes for leasing space could amortize between $150 and $200 million worth of construction with that same lease payment.  Mr. Krolicki noted if they wanted to lease the Capitol Mall complex or an office building for $30 million, they could pursue it through lease purchasing.  In addition, it opened up the state’s balance sheet for other things that would be direct general obligations of the “state versus the not full faith and credit of the state in a lease purchase that was subject to appropriation as a non-appropriation clause.”  Mr. Krolicki emphasized the language was very technical but had tremendous ramifications. 

 

Mr. Krolicki highlighted for the committee various sections of A.B. 567.  Referring to Section 11, Mr. Krolicki explained if the state was granted the lease purchase plan, parties involved would be the Budget Director, Treasurer, Governor and, depending on the size of the lease purchase annual payments, the Legislature would make the appropriation.  The state would not build a lease purchase facility without the Legislature’s ordinance and the $100,000 would roughly amortize a million dollar building.  Mr. Krolicki noted anything beyond $1 million would automatically involve the Legislature. 

 

Mr. Krolicki referred to the proposed amendments to Section 16 (Exhibit H).  The section was in regard to conversations with the Attorney General’s Office, and cleaned up some of the liability references in Chapter 41 of NRS. 

 

Mr. Krolicki commented Section 17 regarded the issuance of securities.  Currently, the state sold a general obligation bond for the construction of a building that was calculated against the 2 percent debt cap, and utilized the 15‑cent portion of the property tax the state used to amortize general obligations.  Mr. Krolicki pointed out general obligation bonds would not be issued, although the state would issue a Certificate of Participation (COP).  According to Mr. Krolicki, the state did not issue a full faith pledge, but security went to the marketplace and credit was less since there was no general obligation.  Mr. Krolicki explained it appeared to the market that a building had been constructed in the middle of the Capitol Complex and that was perceived to be important and something the state and future legislative sessions would appropriate money for to keep current on the lease purchase.  At the state level, the rating on a COP was usually one notch below the state rating.  Mr. Krolicki noted the state rate was double A, so the COP would be rated in the single A category.

 

Referring to Section 18, Mr. Krolicki advised the committee subsections 3(b) and 3(c) were deleted to conform to a Uniform Commercial Code.  Mr. Krolicki clarified subsection 4(n) had been added with a Commercial Code adaptation.  He pointed out Section 21 had a change of venue because several years ago the state of Nevada had a general obligation pledge without the ability to bond the Southern Nevada Women’s Correction Facility.  The proposed language allowed the state to refinance the balance sheet through bonds.  Currently, it was a general obligation of the state but without a bond.  Mr. Krolicki remarked the state had a relationship with Correctional Corporation of America (CCA) through the Department of Prisons who owned the building and essentially had the loan and private placement.  The building housed incarcerated females and was run by the department.  Mr. Krolicki indicated the state could essentially save $1 million over the life of a contract by financing out of the building since interest rates were low.  Mr. Krolicki concluded the proposed language in Section 21 accomplished a potential buyout of the loan held by CCA with general obligation bonds and was currently a debt of the state so there would be no affectation of the debt limit. 

 

Assemblywoman Von Tobel asked if the state would own the women’s prison outright in 20 years if nothing were done.  Mr. Krolicki responded the legislative language made it a general obligation of the state but did not use the word “bond” in statute.  The state had negotiated an amortization schedule with CCA that would retire the debt if the bonds were owned and then sold.

 

Ms. Von Tobel asked if CCA was in agreement with the amortization schedule and Section 21.  Mr. Krolicki replied CCA had a contract approved by the Board of Examiners several years ago.  Regarding Section 21, Mr. Krolicki commented he had not discussed the matter with CCA, but it gave the state flexibility in their conversations with them.  The Department of Prisons had no flexibility with that facility because they did not own it.  Ms. Von Tobel disclosed to the committee she was on the community relation’s board of the women’s prison. 

 

Continuing, Mr. Krolicki pointed out the original contract contained a prepayment ability to purchase the contract at any point in time from CCA, and the state would become of the owner of the facility.  Ms. Von Tobel asked if the state was planning on taking CCA “out,” and if the prison was aware of the plan.  Mr. Krolicki stated it was a function of money and savings, but stated he could not speak for CCA.  Ms. Von Tobel remarked she felt obligated to advise them because it was the first private corporation that had entered into an agreement.  Ms. Von Tobel indicated that, regardless of the signed contract, the state was attempting to buy out CCA rather than allowing the contract to continue for the full 20 years.  Mr. Krolicki responded it allowed the state and the Department of Prisons the flexibility to make choices.  The state had financed the project in order to get the facility built.

 

John Swendseid, Swendseid & Stern, clarified the amendments for Chairman Bache and the committee.  Mr. Swendseid referred to the amendment to Section 16, page 4, line 33, and explained if the state entered into a lease purchase agreement for a building with a company doing a lease purchase, the state wanted assurance if anything happened in that building the same limitations on liability would apply to the state as if the property was deemed to be the property owned by the state.  Mr. Swendseid remarked the proposed amendment to Section 16 was to clarify the matter.

 

Mr. Swendseid pointed out the amendment to Section 18 was part of Article 9 of the Uniform Commercial Code.  Article 9 referred to secured transactions when an individual borrowed money from someone else and received a mortgage in return.  Mr. Swendseid pointed out Article 9 dealt with mortgages other than real estate.  The Seventieth Session of the Legislature had adopted a new Article 9 that dealt with interest that secured commercial loans.  He hypothesized the new Article 9 applied to governments; therefore, it applied to bonds that the government had issued with some bad consequences.  Mr. Swendseid stated Article 9 adopted in the 1999 Session did not become effective until July 2001.  Mr. Swendseid explained due to some of the bad consequences that had occurred in states that had adopted the new Article 9, the Commission on Uniform State Laws had adopted a revision to clarify the “new” Article 9 did not apply to security interests granted by governments.

 

Mr. Krolicki expressed concern his response to Ms. Von Tobel regarding the CCA had not been clear.  He explained if the state entered into a lease purchase agreement, CCA would still be the operator of the facility but would take out the landownership only.  In regard to the issuance of securities, the rating agencies would examine the agreement but would not rely on the full faith and credit of the state’s double A credit.  Mr. Krolicki commented should the current or future Legislatures decide not to appropriate under the clause, they might take into consideration future COP issuances. 

 

Assemblywoman Von Tobel was aware of the contract with CCA, and the amount of funds received per day per inmate was based on the fact CCA had constructed the building for the state at their expense.  Ms. Von Tobel believed the amount received per inmate per day would change if the state purchased the prison.  Mr. Krolicki maintained CCA should not recover the construction costs through the per diem costs because they were separate entities.  Ms. Von Tobel felt there was one amount and they were not separate. 

 

Robin Reedy, Deputy Treasurer of Debt Management, State of Nevada, responded to Ms. Von Tobel.  Ms. Reedy indicated she understood during the negotiations and formation of the contract attempts were made to keep everything separate and wanted nothing hidden on either side.  Ms. Reedy explained it was made clear that at some point the state would seek to do bonding because of the costs.  Ms. Reedy felt CCA wanted the state to buy them out because they would make more money on their money.  Ms. Von Tobel expressed concern there had been no conversation between the state and CCA.  Ms. Reedy replied there may have been conversations between prisons and CCA, and emphasized there had been conversations between the Treasurer’s office and Department of Prisons.  Ms. Von Tobel pointed out if the good faith of a private business was involved, they should be advised.  In her opinion it was similar to blindsiding CCA, and she would contact them to be certain they were aware of the situation.

 

According to Mr. Krolicki, what the state was doing was good business practice and CCA understood the agreement was part of the contract capability that had been signed.  Mr. Krolicki concluded the decision to pursue the financing would be made by the boards that would determine whether it was in the state’s best interest. 

 

Assembly Bill 570:  Makes various changes relating to charter of Carson City. (BDR S-385)

 

Ray Masayko, Carson City Mayor, introduced the Carson City charter amendment to the biennial bill.  Mr. Masayko indicated there was a process included in the charter for Carson City to appoint a charter review committee every two years.  The charter committee had the authority to decide how to solve problems and issues and determined the types of actions the Board of Supervisors should endorse and bring before the Legislature.  Mr. Masayko commented the committee worked to make the charter effective, flexible and reasonable and over the last year the committee processed three amendments to the charter. 

 

Mr. Masayko guided the committee through the proposed amendments to the charter.  In Section 3.140, officers may not continue to serve as representatives on a public board if the position had been obtained by virtue of their elected office after the term of office had expired.  Those positions were Mayor, Supervisor, Clerk, Treasurer, Assessor, Sheriff and District Attorney.  Mr. Masayko explained the public body appointments were contained in the statutes that formed the other body including the Tri County Railway Commission and Governor’s Commission on Aging.  When an individual no longer held office, the appointment expired.  Mr. Masayko pointed out there were at least two instances where the office expired resulting in the expiration of the appointment.  Mr. Masayko maintained because of certain technicalities in the law, agencies had not followed the procedure.  As a result, the law was included in the ordinances but the charter committee wanted the members of the Board of Supervisors and other publicly elected officers to understand the conditions.  Mr. Masayko referred to Section 2.320, and pointed out a person serving on an advisory board that only served Carson City must be a registered voter and resident of Carson City.  The policies had been adopted in the Carson City ordinances and the committee wanted them included in the charter.  Mr. Masayko indicated Section 3.077 updated the charter to the organization the city had in place.  He explained the section dealt with the creation or the necessity to create an office of purchasing and contracts, and indicated the manager and local government reorganized the process of contracts and purchasing for the efficiency and functionality that had been placed in two separate departments.  Mr. Masayko noted the duties were currently being carried out by the Finance Department and the Director of Developmental Services that handled purchasing and contracts respectively.  Mr. Masayko added the taxpayers would save money because the functions would be included with other duties. 

 

Assemblywoman Bonnie Parnell, Carson City, District 40, presented testimony in support of A.B. 570.  Ms. Parnell announced the Carson City Charter Review Committee consisted of appointees including herself, Senator Amodei, and Assemblymen Dini, Brower, and Hettrick.  However, there was a representative for each Assemblyman that sat on the charter committee in their absence under the leadership of Shelley Aldeen.

 

Shelley Aldeen, Chairman of the Charter Review Committee for the year 2000, spoke in support of the bill and urged the committee to endorse the recommended changes.

 

John Berkich, City Manager, Carson City, spoke in support A.B. 570 and commented he was available for any questions from the committee. 

 

MS. PARNELL MOVED TO DO PASS A.B. 570.

 

MR. NEIGHBORS SECONDED THE MOTION.

 

THE MOTION CARRIED UNANIMOUSLY BY THOSE PRESENT.

 

 

Assembly Bill 493:  Requires contracts for services concerning certain insurance of this state to be awarded through qualification-based bidding process. (BDR 27-1013)

 

Assemblyman David Humke, District 26, introduced A.B. 493.  Mr. Humke remarked the bill was drafted on behalf of Kay Lockhart, in relation to the process of state government.  Mr. Humke noted if the bill was passed out of committee it would be referred to Ways and Means based on the language of the fiscal note. 

 

James Wadhams, representing Nevada Independent Insurance Agents (NIIA), explained A.B. 493 attempted to address a component in the process regarding openness and public access that needed improvement.  Mr. Wadhams referred to an “Advisory Opinion” from the State of Nevada Purchasing Department, dated May 25, 2000 (Exhibit I).  Mr. Wadhams quoted, “This statute expressly authorizes the Risk Manager to place insurance coverage on behalf of the state without employing a competitive selection process.”  Mr. Wadhams advised the committee he was not proposing such action but stated it existed in the statute.

 

Continuing, Mr. Wadhams asserted insurance companies were not the same as insurance brokers and, unfortunately, brokers were not the same as insurance agents.  Mr. Wadhams pointed out a competitive bidding process was applied to insurance companies bidding or supplying the risk-taking contracts that were sold to cover a liability.  Mr. Wadhams indicated such liabilities ranged from state liabilities to surety bonds necessary for fish and game and licensing authorities, and covered a wide range of activities. 

 

Mr. Wadhams addressed the function of securing brokers, and pointed out the law required the utilization of brokers in the process.  According to the advisory opinion of State Purchasing, the securing of brokers did not need to be done on a competitive basis.  Mr. Wadhams stated an Attorney General’s opinion confirmed the State Purchasing opinion. 

 

Mr. Wadhams stated Section 2 provided for Request for Proposals (RFPs) and in professional services RFPs contained information regarding education, experience, demonstrated expertise, and similarities.  Subsection 3 of Section 2, lines 16 to 21, allowed the state agency that was bidding the services to establish, in advance, the weighting factors given to the criteria.  Mr. Wadhams remarked the State Risk Manager would be required to give notice advertising the individuals appearing on the lists or who might come to the attention of the agency in order to obtain the broadest pool of potential persons responding to the proposal. 

 

Mr. Wadhams provided a general description of the submission process for RFPs as stated in subsection 5, lines 6 to 13.  An important “sunshine” provision appeared in lines 14 to 17, explaining that bids would become public record. 

 

According to Mr. Wadhams, it was important to add language stating the award must be given to the most qualified agent or broker.  In addition, fees could be a factor; however, he did not want the cost of broker services to be confused with the cost of the insurance contract because they were completely separate issues.  The state and business plan was to retain the services of a broker to assist in the process, canvass the marketplace, and acquire bids for the insured.  Mr. Wadhams commented the business owner would make the selections that most often were based on price and also service. 

 

Mr. Wadhams explained Section 3 related to an area that had become somewhat confused because it was the only existing statute that dealt with brokers not selected through the commodity bidding statute.  The statute clarified it would be based upon the value of services and, if the bond was set for the cost of insurance as purchased, the bid bond would be very expensive.

 

Mr. Wadhams referred to the fiscal note and in the body was a representation that the bidding process could result in an annual cost of $35,000.  Mr. Wadhams emphasized the note was substantially different than what was projected through the purchase of insurance, and the confusion between the broker’s role and the ultimate contract purchased.  He recommended the fiscal note be taken into context for the cost of selecting brokers versus what could be obtained by competitive bidding for insurance. 

 

Mr. Wadhams suggested the committee take the opportunity to address what appeared to be a gap in the process.  In his opinion, the bidding process needed to be made public and open to acquire the services being requested.  When the public bidding process was completed, the second process of obtaining the lowest-priced insurance company would take place.

 

Assemblyman Neighbors commented he had questions relating to Section 3 because he had been a licensed Nevada insurance agent who lived in Las Vegas several years ago.  He asked what “no bond” meant in line 45.  Mr. Wadhams responded if a bond was set, it needed to be in proportion to the value of the service being bid.  If the bond was set at the estimated value of the ultimate purchase of file cabinets, for insurance they needed to realize that some of the insurance premiums paid by the state could be millions of dollars.  In addition, Mr. Wadhams stated broker services would be substantially less and might be a flat fee consulting agreement.  Mr. Wadhams stressed the importance of specifying the difference between how the bonds were valued.  Mr. Neighbors questioned page 3, lines 8 and 9, that stated, “A notice of appeal filed in accordance with the provisions of this section operates as a stay of action,” and wondered why the language was placed in the bill.  Mr. Wadhams replied it was to establish a distinction between the risk-taking contract and the consulting contract.  The agency could set the process for selecting consultants to fill the insurance needs well in advance, and the consultants were included to assist in the process.  Mr. Wadhams pointed out when individuals were retained to assist in preparation of the bidding process for expensive contracts, they had the opportunity to make certain the process was completed in the open and with notice through the administrative hearing process. 

 

Assemblywoman Smith referred to line 16 on page 1, and asked if the State Risk Manager was one individual or the agency.  Mr. Wadhams responded the responsibility rested with the Risk Manager and he was certain the manager had support staff.  Mrs. Smith remarked she was uncomfortable with one person determining the weight of each factor.  If it was a group or agency it would be better than one person having the responsibility.  Mr. Wadhams commented Mrs. Smith made an excellent point, and he had no objection to setting broader participation in setting perimeters.  The bidders would win or lose based on the nature of competition and the criteria determined to fill the gap in the process.

 

Assemblyman Lee questioned the qualification process and asked if there was verbiage that could be used to avoid taking a step backwards.  In his opinion, Mr. Lee felt currently there was an open competitive process.  Mr. Wadhams indicated the language in A.B. 493 did not refer to a competitive bidding process regarding the broker portion of the insurance program.  He advised the committee not to confuse that bidding process with the competition in price for the insurance contracts.  Mr. Wadhams clarified the government needed to assume the bidding was an open process and they were trying to add a piece that did not exist.  If brokers or consultants were involved in the process there would be a fair and open opportunity to bid.  Mr. Wadhams pointed out the state did not have a bidding process with the protections necessary for brokers.  Mr. Wadhams explained brokers were not the same as agents but were often confused; brokers represented the people and agents represented a company.  An agent could represent an individual and access the universe of the insurance market, but insurance companies could not make distinctions among brokers and had a separate license and function. 

 

Kay Lockhart, representing Nevada Independent Insurance Agents, noted Mr. Wadhams covered all the points requested in the presentation, and expressed her support of the bill. 

 

Greg Smith, Services Procurement Supervisor, State of Nevada Purchasing Division, remarked he was responsible for the state’s major dollar service procurements, and was in opposition to the bill.  Mr. Smith apologized to Assemblyman Humke and supporters of the bill for not informing them of the division’s opposition to the bill prior to the hearing.  Mr. Smith explained the statement Mr. Wadhams referred to from the administrator’s advisory opinion to the Risk Management Division (Exhibit I) did not include a page and one-half of memos.  Mr. Wadhams alluded to the fact A.B. 493 would open the public procurement process, and the division believed it would do the opposite.  Mr. Smith felt the proposed legislation as currently written moved the division backwards, as was the concern of Assemblyman Lee. 

 

Mr. Smith referred to Section 2, subsection 6, which stated, “A proposal received in response to a request for proposals issued pursuant to this section is a public record and must be reviewed in a public meeting conducted pursuant to the provisions of Chapter 241 of NRS.”  Mr. Smith indicated this was the Nevada Open Meeting Law Section of the NRS and was concerned if the division evaluated proposals in a public meeting, a circus-like atmosphere would be created.  Mr. Smith commented there was no problem keeping the procurement open, above board, and for public perusal when a selection was made.  However, a major problem might occur if the division could not protect the confidentiality of the individual proposals at the time of the evaluations.

 

Mr. Smith called attention to Section 2, subsection 8, which stated, “In awarding the contract, the state risk manager shall not consider the projections of the cost of an insurance contract that results from the proposed services.”  Mr. Smith emphasized it would be fiscally irresponsible and hampered the ability of the establishment to place a value on the contract.

 

Mr. Smith asserted the Purchasing Division’s main concern with the bill was in Section 3, line 45, which stated, “No bond is required of a person who wishes to appeal the award.”  After numerous discussions with colleagues throughout the country, Mr. Smith discovered the state possessed a tremendous asset with the elimination of frivolous appeals through the requirement of a bond.  Mr. Smith indicated the division was willing to discuss the proposed language, but he added the state of today’s public procurement was extremely contentious.  Mr. Smith commented the individuals who submitted proposals believed they were the most qualified, suited, and knowledgeable to do business for the state.  If a bond in some form of security was not put up, it eliminated the entire process and allowed for frivolous appeals.  Mr. Smith stressed the Purchasing Division believed flexibility, openness and integrity of the process was already provided for in accordance with NRS 333 and the flexibility was already granted to the Purchasing Administrator. 

 

Brett Kandt, Senior Deputy Attorney General, represented the Purchasing Division and Risk Management Division as counsel.  Mr. Kandt was a co-author of NRS 333.300 and assisted the division in drafting language.  The Risk Manager had consulted with the division about the applicability of state procurement laws.  The laws were revised in the Seventieth Session, and resulted in a contract for the services of a broker.  The bidding process clearly fell within the state procurement laws and required a competitive process. 

 

Mr. Kandt referred to footnote 1 in the Advisory Opinion (Exhibit I), and noted in a 1993 opinion from the Attorney General’s Office it was determined those types of services would not require a competitive process.  The 1993 opinion was abandoned through the Advisory Opinion.  Mr. Kandt called attention to the third paragraph on page 1 of the Advisory Opinion which stated, “In the instance the Risk Manager intends to contract for the services of one or more specific brokers, limiting the state to a broker’s available markets, any such contracts fall within the scope of NAC 333.150(1).”  Mr. Kandt indicated the purchasing statutes required some type of competitive process and precluded using a traditional request for information.  Such factors were listed in the letter to the division that requested the Advisory Opinion.  After considering the factors, the division determined the traditional RFP process did not work and was not conducive to select brokers to purchase the state’s insurance.  Mr. Kandt remarked the skill, experience, and market relationships of insurance brokers were not equal and could be competitively evaluated.  A six-point evaluation process was developed by which the Risk Manager was required to procure the services of brokers.  Mr. Kandt emphasized the Risk Manager had followed the process since it was developed and it was working well.  Through the process, brokers were afforded an objective method by which the state procured such services. 

 

Mr. Kandt referred to Section 3 of A.B. 493, regarding an unsuccessful proposal from a bidder and whether there was an appeal process.  Mr. Smith noted the fact there was a statutory appeal process, which was contrary to Mr. Wadhams’ statement.  The process included commodities, equipment, and contracts for services.  Section 3 included a few of the provisions but did not have the same statutory appeal process that fell under NRS 333.370.  The process was comprehensive and provided due process to any vendor who submitted a proposal but did not receive a contract and felt they were aggrieved.  Mr. Kandt explained he had represented the Purchasing Division for four years and only two appeals had been referred to a hearing in which the state prevailed on both of the appeals.  Mr. Kandt urged the committee to consider an appeal process that reverted back to NRS 333.370.

 

Susan Dunt, Risk Manager for the State of Nevada, provided a handout that included their fiscal note (Exhibit J) and the same Advisory Opinion previously submitted by Mr. Wadhams (Exhibit K).  Ms. Dunt commented Mr. Smith and Mr. Kandt had worked together during the past year to determine the most appropriate way to prepare broker services for the state.  Through the Advisory Opinion and the analysis completed by purchasing and the Attorney General’s Office, both gentlemen felt they had developed a process that provided an opportunity for brokers to bid for the state’s business, and also allowed them to maintain a certain level of continuity in the insurance programs.  Ms. Dunt indicated the Risk Management Department would administer the programs in a manner they were currently equipped to complete. 

 

Ms. Dunt stated in regard to Mr. Wadhams’ perspective there might be some misunderstanding about the process.  The division utilized the process that purchasing and the Attorney General’s Office had outlined in reference to obtaining workers’ compensation insurance brokers.  Ms. Dunt pointed out when Employers Insurance Company of Nevada (EICON) had become a private insurance company they were in a position to purchase insurance through a broker or an agent.  Ms. Dunt noted approximately eight different brokers responded to the RFPs and completed the evaluation process overseen closely by the State Purchasing Administrator.  Representatives from four different agencies comprised the evaluation committee and they followed the procedures based upon the procurement process already established in the purchasing regulations.

 

Ms. Dunt explained the value of service was established based on the cost of the insurance projected by the broker and how the existing markets would respond to the underwriting package.  In addition, the percentage of commission proposed for the service was taken into account.

 

Ms. Dunt referred to Section 2, subsection 8, which stated, “In awarding the contract, the state risk manager shall not consider the projections of the cost of an insurance contract that results from the proposed services.”  Ms. Dunt remarked risk management would be unable to establish a value of the service.  As an example, a broker might convey they could go to the market and retain a policy at 3 cents per $100 of value.  Another broker would quote 4 cents and 5 cents that would be applied to the total value of the state’s insurance for the basic cost of the total insurance.  In the broker’s proposal it would say a 10 percent commission was requested in obtaining the service, and that would be applied against the projected range of the insurance policy to determine the value of the service.  Ms. Dunt indicated in contract negotiations with the broker the projected value of the service was applied to the term of the contract to determine the value of the service for which the bond would be needed.  Ms. Dunt emphasized the process had worked well and there were concerns with some of the proposed concepts in the current legislation.  Ms. Dunt understood the concern for objectivity and knew one person could not solely determine the weighing factors.  The Purchasing Division had advised and assisted Risk Management and provided specific guidelines for obtaining appropriate insurance policies for the state. 

 

Assemblyman Humke referred to a portion of Section 2, subsection 8, which stated, “the state risk manager shall not consider the cost of an insurance contract that results from the proposed services,” and questioned how the cost for insurance was projected.  Ms. Dunt replied the cost was based upon a question in the proposals asking the brokers to submit a conception plan for their insurance program, including estimated costs to maintain the plan.  The broker’s response was based on the markets and the quote was usually a “ball park” figure.  Ms. Dunt indicated the quote was then based on a comparative analysis with the other brokers in addition to the current cost of the division’s insurance.  Mr. Smith indicated it was important to consider “best value” as opposed to simply the cheapest or lowest bid in determining the outcome.  In addition, Mr. Smith pointed out the Advisory Opinion referred to the skill experience and market relationships of insurance brokers and considering they were not equal, they could be competitively evaluated.  Mr. Smith concluded the cost “believed” should be one factor and might be the “major” factor in certain procurements, but should not be the only factor and should not be ignored.

 

Mr. Humke expressed concern with obtaining actual cost projections and questioned if risk management received them from insurance brokers.  Ms. Dunt replied in the past she observed the cost of insurance for the property program was consistent except for a certain amount of inflationary costs applied yearly.  Risk Management took into consideration the range of what the lowest cost could be versus the highest possible cost and applied the commission fee to determine an estimate on the value of the insurance.  Only when the actual proposals were received based on market conditions or the type of insurance they were attempting to purchase, could a value be placed on the costs.  Mr. Humke asked if the projections received from brokers on the premium were for two or three years.  Ms. Dunt responded they requested projections for the upcoming year or for a two-year contract since it would be unreasonable to ask for a four-to five-year period because of the rapid change of market conditions. 

 

Assemblyman Humke questioned Mr. Smith’s statement regarding the provisions of the open meeting law being applied to the bid selection process.  Mr. Smith replied it was their desire and experience for the proposals to be opened at a public meeting.  However, Mr. Smith pointed out all that was revealed at the opening of the proposals was the names and numbers of bidders.  The contents of the proposals were not revealed to anyone.  Mr. Smith explained that after the bids were opened they were boxed up and distributed to the individual evaluators with instructions and scoring sheets.  Approximately two weeks later, a three to seven member committee held a consensus evaluation meeting to review the scores.  Mr. Smith remarked vendors might be asked to attend the meeting to answer questions from the committee regarding their proposals.  Prior to the contract awards, negotiations were conducted between the successful vendor and the state.  Mr. Smith emphasized the confidentiality strengthened the state’s ability to ultimately obtain a better contract.

 

Mr. Kandt advised the committee of Mr. Smith’s explanation of the consensus evaluation meetings.  The process was codified in the State Purchasing Act that confirmed proposals were confidential as a matter of law unless and until a contract was awarded.  The contract negotiation process and the proposal evaluation process was confidential as a matter of law unless and until a contract was awarded.  Mr. Kandt indicated the process removed the potential for fraud and was incumbent upon the division to determine what the state’s goal was.  According to Mr. Kandt, the focus was to solve the state’s problems and obtain the best insurance possible.  Mr. Kandt pointed out other states did not have the benefit of the procurement process.  Proposals frequently contained proprietary information and trade secrets and vendors were dissuaded from submitting proposals that would become public information.  Although the contract was public record, there were portions of the contract the state would respect as confidential under NRS 333.333 and, if challenged, the vendor had to indemnify the division for respecting their proprietary right.

 

Mr. Humke questioned if Mr. Kandt was testifying in opposition to A.B. 493.  Mr. Kandt responded he was not testifying in opposition to the bill completely, but he wanted the committee to be aware there was currently a process in place that the Risk Manager followed under the Purchasing Advisory Opinion.  In addition, he expressed concern with Section 3 regarding the appeal process, and felt it appropriate to utilize the appeal process in NRS 333.370.  Mr. Kandt agreed with the division’s concerns relating to the open meeting law applying to the evaluation process.  Mr. Humke asked if Mr. Kandt wrote the Advisory Opinion.  Mr. Kandt replied under statute the Purchasing Division rendered advisory opinions at the request of state agencies, and the opinion dated May 25, 2000, was a response to a request from the Risk Manager.  He commented as the division’s legal counsel he had substantial input in the Advisory Opinion.  Mr. Humke asked exactly what the question was that the agency posed.  Mr. Kandt assumed Mr. Humke had been provided with the request for the Advisory Opinion and explained it had set forth compelling factors demonstrating that the traditional RFP process did not work for the Risk Manager.  Mr. Humke asked if the question posed by purchasing was designed to interpret the 1999 legislation.  Mr. Kandt replied the division addressed the issue of the current status of the law as it applied to Risk Management’s procurement of broker services.  There was a misunderstanding because a 1993 Attorney General’s opinion reflected the state of the law, and at that time there was no statutory process requiring the Risk Manager to utilize a competitive process.  Mr. Kandt remarked that had changed when NRS 333 was revised to specifically apply to all contracts for services including contracts for broker services.  Mr. Humke questioned whether State Purchasing or the Risk Manager promulgated any additional regulations under NRS 333.  Mr. Kandt stated as a result of the Advisory Opinion the answer was no. 

 

Assemblywoman Parnell commented according to page 2 of the Advisory Opinion, the division did not have to release an RFP for at least five years.  In her opinion, Ms. Parnell felt they were offering a “closed door” to someone trying to submit a bid.  She asked if a five-year term was common for RFPs of this nature.  Mr. Kandt stated there were no statutory requirements that contracts be submitted in a certain time frame, but state policy was set forth in the administrative manual and did set forth certain time frames.  Mr. Kandt mentioned there were two-year time frames for contracts over $100,000 and four-year contracts under $100,000.  Mr. Kandt recognized the solicitation process for bids needed to occur on a regular basis but to do so on an annual basis was not in the state’s best interest. 

 

Assemblyman Lee pointed out there must be something Mr. Wadhams was attempting to fix with A.B. 493.  Ms. Dunt explained last year there were two bid processes for broker services and her predecessor initiated the first process.  When she became the Risk Manager there were eight proposals to evaluate.  An appeal was filed based on their final decision and therefore, they met with the Attorney General’s Office to confirm they were following the regulations correctly.  Ms. Dunt indicated they discovered a couple of guidelines were not followed specific to the purchasing requirements and they did not want to endanger the ability of the state to have continuing insurance.  Had Risk Management continued with the appeal, there would not have been enough time to purchase insurance before the end of the renewal period.  Ms. Dunt stated the division withdrew their decision and began the process over to guarantee they were following the process correctly.  Ms. Dunt explained because of the situation that had occurred, the question to the State Purchasing Division was initiated.  Guidelines were implemented and Risk Management solicited bids for the services for workers’ compensation.  If the guidelines were not followed precisely, or if an appeal came through that was not valid, it would jeopardize the division’s ability to get their insurance renewals in a timely manner.  Ms. Dunt concluded if the need for the bond were eliminated, it could open the door for frivolous appeals. 

 

Mr. Smith contended procurements that came through their office followed specific guidelines.  Risk Management provided a mailing list of interested vendors who requested notification of open procurements.  In addition, the database maintained by State Purchasing contained names of vendors who submitted applications related to given categories.  Advertisements were placed in two major publications in the Reno Gazette-Journal and the Las Vegas Review-Journal twice weekly and they advertised the procurement on their website.  Mr. Smith indicated brokers signed clients who searched county and state websites continuously to locate opportunities for their clients.

 

Ms. Dunt suggested an amendment to the bill that stated, “The Risk Manager should follow the provisions of NRS Chapter 333 and NAC Chapter 333 in obtaining insurance broker services on behalf of the state of Nevada.”  Ms. Dunt commented the language would ensure an objective process was in place to meet the concerns of the proponents of A.B. 493. 

 

Wayne Carlson, Executive Director, Nevada Public Agency Insurance Pool, apprised the committee he had served as a consultant in the process of procurement of broker services or insurance for various local and government agencies.  Mr. Carlson maintained it was often the broker and agent selection process that was not segregated from the insurance process.  Mr. Carlson hypothesized two separate scenarios of problems that had occurred, and pointed out the most typical process was the one State Risk Management used. 

 

Mr. Carlson emphasized the importance of selecting both the qualifications of the broker and then assigning markets.  Both should be weighted depending on the service scope of what the broker provided, the qualifications of the broker, and the proposal of the insurance company.  Mr. Carlson remarked they were not completely separate processes. 

 

In regard to the Local Government-Purchasing Act, Mr. Carlson explained insurance was exempt as a service in the professional service arena and unique needs required all factors be taken into account.  Mr. Carlson maintained it was important to understand the relationship between a broker or an agent with the insurance company, along with the quality of the proposed insurance company. 

 

Mr. Carlson pointed out there was only a 60-day notification requirement by an insurance company to end a relationship with a commercial insurer.  Normally the procurement process took six months to complete the selection and obtain proposals from insurance companies that could be evaluated before renewal.  Mr. Carlson explained the stay provision could be troublesome because an insurance company could surprise them with a 60-day notification of nonrenewal, and there would not be sufficient time to properly go through the process of procurement. 

 

Mr. Wadhams contended over the past 30 years there were still things that caused some confusion.  Mr. Wadhams emphasized results by the agency were unobjectionable.  The state agency carefully managed the effect on the treasury, but all was questioned because they needed more confidence that the process was “fair.”  Mr. Wadhams referred to prior testimony and indicated it was easy to see a “smearing back” of brokers needed to be independent whose duty and loyalty was to the insured and insurance companies.  Several factors were used to contract for the services of an insurance broker and contracts were awarded by competitive selection.  Mr. Wadhams remarked the Purchasing Division stated they could not concur with those factors and would offer a list of six parameters.  He commended the division for their suggestions in writing, but not by regulation, a process that should be followed to keep the process fair and competitive.

 

Mr. Wadhams pointed out in Section 2, the fiscal manager suggested insurance markets might be segregated among the selected brokers.  Mr. Wadhams concluded the allocation of the market was very disturbing and under certain circumstances, that might be important, but policy should be set in the body and the process needed to be fair.

 

Chairman Bache closed the hearing on A.B. 493 and adjourned the meeting at 12:10 p.m. 

 

RESPECTFULLY SUBMITTED:

 

 

 

Linda Utt

Committee Secretary

 

 

APPROVED BY:

 

 

 

                       

Assemblyman Douglas Bache, Chairman

 

 

DATE: