MINUTES OF THE meeting

of the

ASSEMBLY Committee on Ways and Means

 

Seventy-First Session

February 12, 2001

 

 

The Committee on Ways and Meanswas called to order at 7:30 a.m., on Monday, February 12, 2001.  Chairman Morse Arberry Jr. presided in Room 3137 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.    Morse Arberry Jr., Chairman

Ms.   Chris Giunchigliani, Vice Chairwoman

Mr.    Bob Beers

Mrs.  Barbara Cegavske

Mrs.  Vonne Chowning

Mrs.  Marcia de Braga

Mr.    Joseph Dini, Jr.

Mr.    David Goldwater

Mr.    Lynn Hettrick

Ms.   Sheila Leslie

Mr.    John Marvel

Mr.    David Parks

Mr.    Richard D. Perkins

Ms.   Sandra Tiffany

 

STAFF MEMBERS PRESENT:

 

Mark Stevens, Fiscal Analyst

Steve Abba, Principal Deputy Fiscal Analyst

Carla Watson, Program Analyst

Lu Chen, Education Research Statistician

Russell Guindon, Program Analyst

Cindy Clampitt, Committee Secretary

 

Chairman Morse Arberry Jr. called the meeting to order at 7:36 a.m.

 

ELECTED OFFICIALS – LIEUTENANT GOVERNOR (101-1020

BUDGET PAGE ELECTED-22

 

Lieutenant Governor Lorraine T. Hunt read from prepared testimony (Exhibit C).

She reminded the committee that the Lieutenant Governor was elected for a four-year term and as a constitutional officer served as President of the Senate, and as Chief Executive whenever the Governor was absent from the state.  She noted other duties included:

·        Chairman of the Commission on Economic Development;

·        Chairman of the Commission on Tourism;

·        Vice Chair of the Board of Directors for the Department of Transportation;

·        Member of the Executive Branch Audit Committee; and

·        Member of the Governor’s cabinet.

 

 

Lieutenant Governor Hunt noted her office staff consisted of one elected official and six unclassified employees.  She provided the committee with the mission statement for her office.  “To admirably serve the citizens of Nevada; to fulfill the constitutional and statutory duties of the office of the Lieutenant Governor by being fiscally responsible and by fostering and nurturing global business and tourism opportunities for the state of Nevada while protecting the pioneering entrepreneurial spirit that built our great state.” Lieutenant Governor Hunt stated, in her capacity as Chair of the Commission on Economic Development and the Commission on Tourism, she supported the state’s efforts to maintain its competitive edge in national and international tourism as well as to promote new economic development projects.  The office actively promoted tourism to sustain Nevada’s largest industry and largest employer – the gaming and hospitality industry.

 

Lieutenant Governor Hunt expressed concern that Nevada faced stiff competition as gaming expanded across the country.  As Chair of the Commission on Tourism, along with commissioners and staff, she was focusing efforts on offsetting losses incurred by the proliferation of gaming as well as increasing Nevada’s overall tourism opportunities.

 

As Chair of the Commission on Economic Development, along with a statewide network of 13 regional development authorities, the commission strived to create a stable, diversified economy.  The mission was to target companies suitable and compatible for the Nevada business environment.

 

Lieutenant Governor Hunt remarked, as Vice Chair of the Board of Directors for the Department of Transportation and as a member of the Executive Branch Audit Committee, she continued to play a critical role in maintaining fiscal responsibility for all of the citizens of our state.

 

Lieutenant Governor Hunt noted during the 1999 Legislative Session and again in September of 1999, the Commission on Economic Development sponsored a gathering of science, engineering, and technology experts from both the public and private sector.  The forum provided a first-time opportunity to discover how Nevada might develop high-tech industries within the state.  The meetings were dubbed “NDSET I NDSET II” and were successful in identifying existing resources while defining what was needed in the future.  The meetings culminated in a study sponsored by the Commission on Economic Development and conducted by the Battelle Memorial Institute.  A plan had been created for future Commission on Economic Development efforts targeting industries that built on Nevada’s strengths.

 

Lieutenant Governor Hunt noted two such industries, multimedia and high-tech, had emerged as prime prospects.  She noted Nevada was already seeing the effects of multimedia on the state economy.  Hundreds of productions for movies, television, commercials, music projects and more had been produced in Nevada.  She explained revenues generated by movie productions in Nevada had risen to an unprecedented $123.5 million and there were more to come.  Lieutenant Governor Hunt noted the increasing demands for entertainment products and Nevada’s unique place in the world positioned the state to be a major producer and exporter of high-tech, multimedia entertainment and education products in the 21st century. 

 

Lieutenant Governor Hunt added recent marketing efforts by the Nevada Commission on Economic Development had produced a new reputation for the state in the high-tech world – a reputation that Nevada not only meant gaming and hospitality – but Nevada meant business.  She added companies from around the world were exploring Nevada as a place to do business.  She noted the recent energy crisis in California illuminated the unique opportunity for Nevada to use the vast expanse of wide open spaces, sun, geothermal, wind resources and transmission capacity to become a major exporter of energy in North America. She added the new enterprises could be accomplished while not forgetting the engine that currently drove Nevada economy – gaming and tourism.

 

Lieutenant Governor Hunt stated Nevada was a leader in regional, national, and international travel markets.  She noted in 1999 the United States welcomed a record 48.5 million international visitors and approximately 3.7 million of those visited Nevada.  She added the figures did not include those international visitors who arrived in Nevada indirectly through other U.S. cities.  Visitors, in order of number of visitors, came from the following countries: Canada, Japan, the United Kingdom, Mexico, and Germany. 

 

The Lieutenant Governor advised that Nevada was nationally known as a premier convention and tourist destination.  To maintain the status in the gaming industry, the state must remain competitive.   To that end, marketing efforts would need to remain a priority.

 

Lieutenant Governor Hunt advised that rural Nevada was also a key component of the overall marketing strategy.  Rural areas offered “soft” adventure through camping, hiking, and biking.  Travelers seeking “hard” adventure sought skiing, kayaking, whitewater rafting, or off-road and mountain biking.  The growth potential of that tourism sector had barely been tapped.  Additionally, the Nevada Commission on Tourism’s rural initiatives included a public service announcement campaign over the past two years in which Nevadans were encouraged to visit Nevada.  The message was, “The next time you want to get out of town, visit Nevada.”

 

The Office of the Lieutenant Governor offered many services to Nevadans, and other countries as well, through the constituent services program.  Information was provided through publications, the Internet, media, and by being involved in community gatherings on issues of importance to the public.

 

The Lieutenant Governor began testimony on her budget.  She noted salary and travel line items had been increased in the second year of the biennium to reflect legislative responsibilities.  One-shot requests and discontinued services had been removed from the base budget in accordance with budget preparation instructions.

 

The Lieutenant Governor stated she was clearly committed to submission of a budget that met the Governor’s mandate to build a flat budget based on FY2001 levels of funding.  The budget requested by her office accomplished that goal by offsetting savings in certain areas to improve funding in others.  The actual request for the first year of the biennium was less than the 2001 legislatively approved budget.  In addition, the budget request was less than the amounts recommended by the Governor because the Governor had later recognized the need for increased salaries for state employees to retain the talent currently in the workforce.

 

The M-100 decision unit adjustments represented Budget Office calculations needed to cover inflation for postage and insurance as well as an increase in office assessments in support of Department of Information Technology (DoIT) services.  

 

The M-200 decision unit adjustments were agency-generated line item changes requesting a reduction in costs in certain line items in exchange for others.

 

The M-300 decision unit adjustments contained Budget Office calculations to cover fringe benefit changes.

 

The E-275 decision unit enhancements requested a change in status for employees of the office from unclassified to non-classified pending introduction of BDR 18-120.

 

The E-305 decision unit adjustments represented the 9 percent and 4 percent salary adjustments proposed by the Governor.

 

The E-710 decision unit adjustments represented an agency-generated request for the purchase of software to remain current and maintain the Web site. 

 

Lieutenant Governor Hunt concluded the overall budget of her office was lean yet functional.

 

Chairman Arberry stated his primary concern was the E-275 decision unit taking employees of the office from unclassified to non-classified status.  He noted in the 1999 Legislative Session the concern had been raised when Governor Guinn had made a like proposal for staff of his office that was ultimately funded.  The concern was that once the door had been opened all constitutional officers would want to follow suit.  The Chair noted in such a proposal the legislature would have no control of staffing and no idea of what salary increases would be.  He added the committee would look closely at that line item in The Executive Budget.

 

Lieutenant Governor Hunt responded that coming from the business world, when she had taken office she had completely reorganized it to the way she felt was proper in a business environment.  The job descriptions were changed and the budget request asked for no additional funding. Some categories were no longer appropriate and the budget request reflected the changes and skill of her staff and she hoped to use the same funding level by moving funds where she felt it was appropriate based on the new organizational structure. She commented that her hope was the changes would benefit Lieutenant Governors in the future by allowing more flexibility. Assemblywoman Giunchigliani stated she appreciated the changes in job descriptions, but added that still did not equate in her mind for making a change to non-classified status.

 

Ms. Giunchigliani       asked the Lieutenant Governor to discuss the new newsletter proposed in decision unit M-200.  She asked if there were any samples of the newsletter and to whom it was provided.  Lieutenant Governor Hunt responded they did have samples of the newsletter.  The mailing list included the economic development authorities, the chambers of commerce, and the business community as a whole.  The mailing included many native Nevada companies. 

 

The Lieutenant Governor noted when she assumed office, there had been a lack of communication and it was difficult to explain some of the activities of the office to the media.  She opined it was critical the office provide a centralized form of communication.  She added the intent was the newsletter be published quarterly. 

 

Ms. Giunchigliani asked if production of the newsletter was reflected in the performance indicators.  Lieutenant Governor Hunt stated she was sure it was.  Lieutenant Governor Hunt added the office had not had performance indicators prior to her tenure, but some had been established as a baseline.  Ms. Giunchigliani asked the Lieutenant Governor to provide a list of what was being developed as performance indicators. Lieutenant Governor Hunt concurred.

 

Ms. Giunchigliani asked if DoIT had requested a replacement of all software annually.  The Lieutenant Governor replied when she took office the software being used was so antiquated that none of the computers communicated with each other.  Ms. Giunchigliani noted software had been upgraded in the 1999 Legislative Session so it appeared in The Executive Budget that all software was being recommended for an annual upgrade and asked if the proposal included all software.  She asked for that information to be provided to the committee.

 

The Lieutenant Governor noted the office had developed a Web site, which was a very inexpensive method of communication to the business world both in and out of the state.  She opined the software requested in the budget was specifically for the Web site.  The newsletter was also placed on the Web site.  The specific budget request information would be provided to the committee.

 

Assemblywoman Tiffany referred to the Audit Committee report, which contained three findings accepted by the office and asked whether corrections for the findings had been implemented.  She stated the three findings were:

·        Develop written procedures to carry out the system for internal accounting;

·        Periodically review the system of internal accounting and system controls with the Department of Administration; and

·        Develop a clear and formal understanding of what duties the Administrative Services Division could provide.

 

The Lieutenant Governor replied the office had completed all audit recommendations keeping in mind that the audit was conducted for a span of time that was not under the watch of the current officeholder.

 

Chairman Arberry closed the hearing on the budget for the Office of the Lieutenant Governor and opened the hearing on the State Controller’s budget.

 

ELECTED OFFICIALS – CONTROLLER’S OFFICE (101-11130) BUDGET PAGE ELECTED-76

 

Kathy Augustine, State Controller, prefaced her remarks by providing a brief overview of what had been accomplished over the past biennium.  Ms. Augustine read from prepared testimony. (Exhibit D)

 

In March 1999, the issuance of manual, hand-typed checks was eliminated except under special circumstances.  Special end-of-year paychecks issued for constitutional officers, supreme and district court judges had been eliminated.

 

The office sponsored two Internal Revenue Service (IRS) and Social Security workshops for state agencies that covered Form 1099 reporting requirements and employee/independent contractor issues.  It also included discussion of the assessment of interest penalties for non-compliance with IRS regulations.

 

The Office of the Controller sponsored a Governmental Accounting Standards Board (GASB) training session for state and governmental entities. Statement No. 34 was revised to require governments to include, for the first time, information about the government’s public infrastructure assets and reported on the overall state of the government’s financial health.

 

Ms. Augustine referred to A.B. 638 of the Seventieth Session, which mandated all state agencies to record their receivables with the State Controller’s Office on a quarterly basis.  Unfortunately, monies due the state of Nevada had continued to rise and currently exceeded $182 million.  The process of working with State Purchasing to issue and review RFP’s for debt collection agency contracts had been an arduous process.  However, it was expected contracts would be awarded on February 21, 2001, and subsequently approved by the Board of Examiners within the next two months.  She provided the committee with a spreadsheet summarizing, by agency, the receivables as required by A.B. 638 of the Seventieth Session (Exhibit E).

 

The State Controller’s Office worked with the Attorney General’s office to hold three Debt Collection Training Seminars in Carson City and Las Vegas regarding collection procedures and implementation of the Integrated Financial System (IFS) for state agencies, boards and commissions.  With no centralized debt collection effort it appeared receivables would continue to rise.  A request had been made during the previous legislative session to centralize debt collection in the Controller’s Office, but that request had been denied.  She opined perhaps the committees hearing the proposal had been unaware of the enormity of the problem.  Ms. Augustine provided the committee with a report of the status of implementation of the IFS project (Exhibit F).

 

Ms. Augustine noted the current budget requested an additional Management Assistant I position to be dedicated to debt collection services within her office.  She noted the position request had been inadvertently omitted from the submitted budget requests.  After discussing the issue with the Governor and the Budget Office she felt the position would be placed back in The Executive Budget.

 

Ms. Augustine noted her office had recently discovered that vehicle privilege tax collected and rebated to the various counties by the Department of Motor Vehicles and Public Safety (DMV/PS) had been fully rebated despite those transactions for which checks had been returned as non-payable to the DMV/PS.  A recent meeting had been held with DMV/PS Director Kirkland regarding the procedure and her office would be working with him and his staff to rectify the situation.  She explained the state had made the counties whole even though the state did not have some of the funds deposited because of returned checks. 

 

A pilot warrant offset program was begun with the Department of Taxation that had been very successful and would soon be expanded statewide.

 

Ms. Augustine provided the committee with a copy of her office’s work on payroll overpayments (Exhibit G).  She noted since the state had converted to the IFS system in March 1999, and state employees were paid on an anticipated week of pay in the amount of $7.2 million, the state had experienced an extraordinary number of “anti-weeks” to collect when employees left state employment.  The “anti-week” was supposed to be deducted by the agency accounting or payroll divisions.  That process was not working effectively, so the claims were ultimately sent to the Controller’s Office for follow-up and collection.  She remarked a bill would be introduced during the session by Assemblywoman Merle Berman, Clark County Assembly District 2, to move payroll back into the Controller’s Office to provide direct oversight for overpayments and other payroll issues.

 

Because monies in outside bank accounts were outside the direct purview of the Controller’s Office and therefore monies that could not be invested by the State Treasurer, Governor Guinn and Ms. Augustine were requesting every custodian of those accounts to provide the Controller’s Office with a monthly rather than annual report regarding the account balances.  A copy of the November report (Exhibit H) was provided to the committee.  She noted $4.8 million was held by agencies and accounts that were outside the General Fund.  The University Sweep account was omitted from Exhibit H because of a $5 million overdraft that occurred on November 30, 2000, as a result of miscalculated payroll costs.  The agency was charged one day’s interest by the bank and the funds were re-deposited on December 1, 2000.

 

Ms. Augustine stated her concerns regarding the account known as the “Rainy Day Fund” and described in Nevada Revised Statutes (NRS) 353.288.  If the statute was strictly interpreted, the Governor’s recommended one-shot requests would not be covered.  The Controller’s Office had asked the budget director to tighten the language in the statutes as it related to the fund so there would be no question of what could be transferred and the director had agreed. Ms. Augustine noted Governing Magazine had given Nevada a B- in their latest rating partially due to the “Rainy Day Fund.”

 

Ms. Augustine introduced Chief Deputy Controller Mark Winebarger, who would address the overall budget; Assistant State Controller Jeannine Coward, who would address the proposed publication of a popular report to supplement the Comprehensive Annual Financial Report; and Jim Wells, Chief Accountant, would provide an update on the implementation of the IFS project.

 

Ms. Augustine concluded her comments with discussion of the Governor’s recommended $14 million purchase of the Employers Insurance Company of Nevada (EICON) building.  She stated the Controller’s Office had not been informed that the plan included moving their office to the EICON building, thus additional cost factors must be considered.  She explained the fiber optic cable that had cost millions of dollars to install for the IFS system did not reach to the EICON building.  It only connected the Capitol Complex with DoIT.  Additional cable would be required.  The logistics of having the Treasurer’s and Controller’s Offices separated posed a problem for nightly transportation and security cost to get checks to the disbursement center.  It was unknown if an armored car would be required and whether daily checks received in the Treasurer’s Office and subsequently carried to the Controller’s Office would also cause a security transportation problem.

 

Ms. Augustine referred to earlier comments regarding the Lieutenant Governor’s budget proposal to move staff to non-classified positions, and noted the Controller’s Office was not requesting any non-classified positions.  However, six top management positions were being requested to be moved to the unclassified service and subsequent raises had been built into The Executive Budget.  She provided committee members with a schedule of overtime worked for the previous six months (Exhibit I).  She noted the compensatory time was also compared with that worked in 1999.  When considering additional staff and flexibility, compensatory time worked was a good indicator of need.

Mr. Mark Winebarger, Chief Deputy Controller, highlighted certain items from the proposed budget.  The office had requested $42,900 in overtime funding.  He noted, in the past the amount had only been a few thousand dollars.  He explained the need was prompted because accumulated hours were increasing and compensatory time created a vicious cycle where needed tasks could not be accomplished during regular hours and staff was asked to work overtime for which compensatory time was earned at time and one-half after which employees then requested further time off work.  He added, accumulated hours for year 2000 had increased 667 hours from 1999.  Budgeted overtime pay would allow the work to get done and be fairer to employees who were essentially required to work the overtime.  The point was being reached where the 240-hour annual leave limits would also affect the office because employees were either required to be paid or allowed to take time off (typically at the end of the year).  Because employees were using compensatory time during the year, they reached the 240-hour limit faster and were required to “use it or lose it” at the end of the year when the office was the busiest.

Mr. Winebarger explained the Controller’s Office had requested five new positions.  The Interim Finance Committee (IFC) had already approved two positions and continued funding was being requested for those positions.  The two positions were to account for the GASB 34 rollout, and a data base manager for the data warehouse.  The remaining three positions were temporary positions needed for the IFS rollout.  He felt the positions would be needed at least through the next biennium and perhaps one year past that.  He added the three positions were already hired and currently being funded through a combination of information technology money in FY2000 and any shortfall from that was being picked up from the IFS budget.

Chairman Arberry asked whether the five positions would still be needed once the IFS project was complete.  Mr. Winebarger replied the three temporary positions would probably not be needed after the IFS project, however, the other two positions would need to be re-evaluated at the completion of the project.  He noted there would be continuing requirements for training of new employees and requirements to keep the system upgraded and operating. 

Ms. Giunchigliani noted her confusion regarding new positions.  She stated the proposed budget called for five new positions, but discussion had centered around three positions primarily.  Mr. Winebarger explained three temporary positions were used to facilitate the IFS rollout and two others had already been approved by IFC.  The two positions were not included in the base budget, but  were included in the M-201 decision unit.  Ms. Augustine further explained all five positions had already been filled and dedicated to the IFS project.  She noted she was requesting one additional Management Assistant I position that had not been filled and was to be dedicated to debt collection.  That position needed to be added back to the budget.  She stated the chief accountant in charge of IFS could provide further detail on the positions and referred the committee members back to Exhibit F. 

Ms. Giunchigliani asked for clarification that the three positions, placed where they were, was because funding was currently from the one-shot appropriation approved for IFS.  Mr. Winebarger responded, the last of the three temporary positions had been hired and those three positions were being funded currently from a combination of cost-savings from the prior year balanced forward by approval of IFC and the shortfall anticipated to be approximately $20,000 to $30,000 would be funded from the IFS project funding. 

Ms. Giunchigliani asked what funding had been arranged for the remaining two new positions.  Mr. Winebarger responded the positions were being funded in FY2001 through an IFC approved request.  For fiscal years 2002 and 2003 the budget requested funding for the two positions.  Ms. Giunchigliani asked if any of the positions would still be needed after the rollout of IFS.  Mr. Winebarger replied only the two positions of accountant and data base manager would possibly be needed after the rollout.  Ms. Giunchigliani asked Mr. Winebarger to confirm that the other three positions would “go away” after FY2003.  He replied that was probably the case, but one more year might be needed. 

Chairman Arberry asked Fiscal Analyst Mark Stevens to comment on the positions.  Mr. Stevens clarified; the five positions in the M-201 decision unit represented three positions that were funded out of the one-shot for IFS for the rollout; the remaining two positions were those approved by IFC in April 2000.  Mr. Winebarger concurred and added, the office had funds available in FY2001 from its information technology category of approximately $86,000 that had been balanced forward to pay for the positions in the current biennium.  The anticipated shortfall of $20,000-plus for the current year would come from Budget Account 1320 (IFS).  Mr. Stevens noted confusion existed because the budget document in M-201 indicated five positions had been funded by a one-time appropriation for rollout of IFS.  The committee was attempting to confirm that all the positions were not for IFS, but that three were IFS positions and two were approved by IFC for GASB 34 accounting and data base management.  Mr. Winebarger concurred.

Chairman Arberry asked Mr. Winebarger to comment on performance indicators.  There seemed to be no way to evaluate performance for either the past or the future.  Mr. Winebarger replied the performance indicators used by the controller in the past were outdated because currently the office was running two systems at the same time. He added in the old system transactions could be counted and that could still be done, but each system counted transactions differently and they could not be compared.  He further explained the two systems made the transaction counts incomparable.  Currently the office was relying on indicators based on reporting deadlines. 

Ms. Giunchigliani asked for a report on the status and plans established for the rollout of IFS.  She asked, in light of the potential move of the Controller’s Office to the EICON building, was there a way to stretch the fiber optic line to the EICON building.  Jim Wells, Chief Accountant for IFS, replied that if the fiber optic cable could be extended to the EICON building it would be satisfactory for the rollout. 

Mr. Wells reported on the status of the rollout.  Approximately 80 end-user agencies had been identified and broken out into 34 training groups.  Currently training was being done through groups five and six.  Twelve agencies had implemented the IFS system, one was ready to go live, and five more agencies had been trained and had their internal controls reviewed by the Division of Internal Audit.  He added, as soon as the internal controls were approved those five agencies would be given user identifications and allowed access to the system.

Ms. Giunchigliani asked if the agencies currently using the IFS system were satisfied with the product.  Mr. Wells responded, feedback he had received from the first agencies that had gone on-line in November 2000, had been they were very pleased with the system.  They were pleased with the ability to turn around invoices and payments to vendors more quickly than in the past.

Ms. Giunchigliani asked the office to provide a list of the 80 agencies planned for rollout, identifying those agencies currently on-line.  Mr. Wells said he would supply the information.

Ms. Giunchigliani asked if a formal assessment was planned to show the benefits or failures of the program.  Mr. Wells replied he intended to hold follow- up meetings with the agencies to ensure their needs were covered.  He further explained the IFS rollout had been broken down into different phases.  Phase I of the IFS rollout was currently underway.  The office anticipated three phases.  Phase I was an introductory phase allowing the agencies to pay their bills directly and to make deposits.  Phase II would include meetings with the agencies to ensure other needs such as accounts receivable, grant reporting, and internal budgeting were being met.  Phase III would include work flow, that would allow journal vouchers and work programs that had to be approved by agencies other than the entering agency, to automatically forward documents to approving agencies.

Ms. Giunchigliani asked when Phase III was expected to be complete.  Mr. Wells responded the office was hopeful Phase III would be complete in late calendar year 2003. 

Ms. Giunchigliani asked what company had been contracted to assist with the project.  Mr. Wells replied American Management System was the vendor.

Ms. Giunchigliani noted it appeared after 2003, four of the five positions would no longer be needed, while one would be retained.  Mr. Wells concurred.

Ms. Giunchigliani stated the Controller’s Office had completed eight audit recommendations that had been accepted and asked for a report on the status of implementation.  She added, one audit finding dealt with poor controls over payments received.  More than $100 million was received by check and yet the checks were not all recorded on receipt logs, therefore out of 58 transactions, 25 transactions totaling $37,000 had not been logged.  Another finding was that 57 checks were received from cities and counties, but 9 checks totaling $3.4 million were deposited late.  Travel documentation expenditures indicated at least 16 trips lacked adequate documentation to indicate whether they were even for state business.  She asked if NRS 227.215 had been implemented.  She explained that law allowed the accumulation of checks up to $25 amounts before a deposit was required.

State Controller, Kathy Augustine, commented regarding NRS 227.215.  She noted when the legislation was passed it had seemed like a good idea, however, it was not implemented into the IFS system in the initial contracts so the cost to retroactively hold the checks would be prohibitive.  She was requesting the 2001 legislature to rescind the law.  Ms. Giunchigliani asked if a Bill Draft Request would be forthcoming.  Ms. Augustine replied the Controller’s Office had requested one general accounting omnibus bill and the proposal was included in that piece of legislation.

Ms. Giunchigliani asked if the Legislative Counsel Bureau Audit Division was in concurrence with the proposed legislation.  Ms. Augustine replied the issue had been discussed in the audit exit interview and the division had agreed.  She added, her office was currently making deposits on a daily basis, although NRS required deposits after an accumulation of $10,000, but she had implemented daily deposits regardless of the amount of money received. 

Mr. Winebarger stated the Controller’s Office had complied with all audit recommendations.  Ms. Giunchigliani confirmed that policies and procedures had been updated and funds were being logged in when they were received.  She asked how many trips per year were actually taken by staff of the Controller’s Office.

Ms. Augustine responded the information would be provided to the committee.  She noted it was hard to identify an exact number of trips and added the office did send a number of accountants to various training for the Government Staff Officers Training Association.  The chief deputy, assistant controller, and the controller attended meetings of the National Association of State Auditors, Controllers, and Treasurers and also the National Association of State Controllers.  Because of the establishment of a Las Vegas office some travel was required for training of the one employee of that office who would be working with the IFS rollout. Vice Chair Giunchigliani suggested the office provide a breakout of which staff was traveling and what type of business was being conducted.  Ms. Augustine responded only the Accounting Division, the IFS Division, and the chief, assistant controller and controller traveled for training.  She did note a few data processing people had also traveled for training. 

Vice Chair Giunchigliani asked how many staff positions were located in the Las Vegas office.  Ms. Augustine replied the Las Vegas office was staffed by one position.  Ms. Giunchigliani asked whether staffing in Las Vegas needed review because 70 percent of the state’s population was located in that area.  Ms. Augustine replied that would be wonderful.

ELECTED OFFICIALS – SECRETARY OF STATE (101-1050) BUDGET PAGE ELECTED-81

Mr. Dean Heller, Secretary of State, provided a Power Point presentation for the committee (Exhibit J). 

Mr. Heller introduced the new Chief Deputy Secretary of State, Renee Lacey and Janice Webb, Information Services Specialist.

Mr. Heller noted the office had provided a few display boards with some of the information regarding the budget. He explained the Secretary of State’s Office was increasing in revenue. In his Executive Summary, Mr. Heller noted during the previous biennium revenues were up 12 percent in the Commercial Recordings Division and the Licensing Section of the Securities Division.  He added the Secretary of State’s Office generated approximately $6.00 of revenue for each $1.00 of expenditure. 

Referring to Exhibit J, page 3, Mr. Heller explained revenue projections by FY2003 were expected to be well over $50 million.  He explained revenues were generated by the Commercial Recordings Division, the Securities Division and some in the Elections Division related to filings and notaries.

Exhibit J, page 4, reflected the amount of revenue generated per full-time employee.  Revenues did not grow as much in FY2000 as in previous years.  Mr. Heller noted he had gone to IFC a few times during FY2000 to request expenditures for new technology within the Secretary of State’s Office.  Some of those one-time expenses flattened the growth a little, but not entirely.  He noted it could be expected that each full-time employee would generate $350,000 in revenue.  He added the graph showed the importance of technology because in FY1987 revenue generated had been approximately $100,000 per employee.  Mr. Heller complimented his staff on their production noting that new technology had assisted employees in being able to increase that production three and one-half times.

Exhibit J, page 5, reflected Web site hits.  Mr. Heller explained the Web site was less than two years old.  He highlighted the month of November 2000 when there were over 2.5 million hits on the site.  He explained interest in the elections during that month caused the site hits to spike.  The office anticipated the Web site would average between 2 million and 2.5 million hits each month for the remainder of the year.

Mr. Heller explained Exhibit J, page 6, reflected Web site sessions and explained sessions were defined as when an individual looked at the site and then moved from one page to another.  He added Web site sessions were equated to phone calls that would have otherwise been received by the office.  He listed the two most common comments on the Web site were: (1) “You have the best Web site and we certainly appreciate your hard work”; and (2) “Aren’t you glad you are not the Secretary of State in Florida.”  He noted sessions had also spiked in November 2000 with nearly 140,000 sessions and added that meant 140,000 fewer phone calls to the office.

Mr. Heller commented the Commercial Recordings Division had been moved across Carson Street and offered better opportunities for parking.  Businesses and resident agents had expressed their pleasure at the change.  Mr. Heller thanked the committee for their support in approving financial support of the move.

Mr. Heller explained nearly all forms required by the Secretary of State’s Office were currently on the Web site.  He noted Exhibit J, page 6, reflected the steady increase of forms downloaded from the Web site.  He again noted November was the spike season for the office.  He explained a savings of approximately $1 per form, as well as time savings occurred, when forms were downloaded.  He added among considerations were the cost of postage and envelopes.  Mr. Heller stated that just during the election cycle in November 2000, the estimated saving due to form downloads was well over $110,000 in one month.  It was anticipated the savings over a one-year period would be approximately $400,000 because the forms were so readily available.

Chairman Arberry asked if future plans included the ability to complete the forms and transmit them on-line.  Mr. Heller responded that was the ultimate goal of that project.  He added, an on-line project currently underway was allowance for annual filing of lists of officers.  Currently, the form could be filled out on-line, but then the form must be printed and mailed to the office. Mr. Heller stated the office was currently in the bid process for a comprehensive accounting system and by the end of 2001 they hoped to achieve the goal of on-line transmission of forms to the office.

Mr. Heller referred to what he called the  “vanity chart” in Exhibit J, page 7, which reflected the activities of the Secretary of State versus the activities of all the other constitutional officers of the state.

Exhibit J, page 8, reflected information from the Department of Information Technology comparing the top 10 Web sites of state government and how they compared to each other.

Mr. Heller introduced Mr. Scott Anderson, Deputy Secretary, Commercial Recordings Division, who had been with the office for approximately three years and was a certified public accountant.  Mr. Heller stated the Commercial Recordings Division was the largest division in the office and noted the complexity of contacts made through that division.  Mr. Heller explained the division dealt daily with attorneys, resident agents, banks, and insurance companies.  He commended the division for its efforts.

Exhibit J, page 10, reflected the activities of Uniform Commercial Code (UCC) filings.  Mr. Heller stated a major revision of UCC Article 9 was underway at the federal level.  He noted it was the first major revision since 1972.  The changes in the UCC filings were going to move all those filings from the county to the state level.  He noted the Secretary of State’s Office currently processed approximately 40,000 UCC filings per year.  The office anticipated that number would double after July 1, 2001, when county filings were required to be filed with the state.  He explained some states had implemented state-level filings early and had experienced a doubling in the number of UCC filings.  Mr. Heller stated the proposed budget included five new positions dedicated to the revised Article 9 implementation. 

Mr. Heller stated the Secretary of State’s Office was the hub for business activities within the state.  Before a building could be purchased, employees hired, and before a loan could be obtained, filing of corporate papers with the Secretary of State’s Office must be completed. 

Mr. Heller referred committee members to Exhibit J, page 12, and noted over 52,000 new business entities filed corporate papers in FY2000, up 16.5 percent from 1999.

• The Commercial Recordings Division had processed over 250,000 total filings.
• In excess of $28,000 in revenue was generated in the current fiscal year by the division.
• Six money-back guarantees had been issued since 1997.

Mr. Heller explained the divisions apologized and made businesses whole when an error occurred or documents were lost within the Treasurer’s Office.

·        Turn-around time continued at two to three days, down in the past five years from six to eight weeks.

Mr. Heller reiterated all the forms for filing a corporation were on the Web site, which saved mailing time in the filing process.

Mr. Heller noted his office did not charge for queries on the Web site as some states did.  He argued if the information was provided and made available without charge, more businesses would be interested in establishing a location in Nevada.

Mr. Heller noted the Web site allowed corporations to make name reservations on-line and filing the annual list of officers on-line was under development.

Mr. Heller turned his testimony to the Elections Division citing the increased interest generated regarding that division over the past few months.  Mr. Heller introduced Ms. Susan Morandi, Deputy, Elections Division.  Mr. Heller stated Ms. Morandi, an attorney, was the first attorney in that position.  He noted it had become more and more critical to hire experts in elections.  He added Nevada elections in the fall of 2000 had run very smoothly. 

Mr. Heller complimented the county clerks and registrars around the state, who viewed their jobs seriously.

Mr. Heller referred to Exhibit J, page 16, and explained the Elections Division was responsible for:

·        Certification of all candidates and ballot questions;

·        Registration and filing of all contribution and expenditure reports;

·        Certification of results for all state primary and general elections; and

·        Administration of the Confidential Address Program for victims of domestic violence.

Mr. Heller noted one half-time employee administered the Confidential Address Program.

Exhibit J, page 18, depicted Nevada voting statistics from 1990 through 2000.  The chart reflected both registered voters and voter turnout.  Mr. Heller explained the apparent decrease in number of voter registrations was caused by a change in procedure.  The clerks and recorders no longer reported registered voters from the inactive list to the Secretary of State.  He commented the turnout of voters in the 2000 general presidential election was near 70 percent.  He noted turnout in the 2000 primary election was down to approximately a 20 percent level.  He opined the quality of the candidates and the tightness of the race affected voter participation.

Mr. Heller stated Exhibit J, page 19, included some of the goals for the Elections Division.  He noted in its proposed budget the office had included costs for a statewide voter registration program.  The Governor had not approved the request, primarily because cost of the program would be approximately $1.5 million to $2 million.  Mr. Heller explained the proposal would have tied the 17 counties together into a single database and would have helped clean up any type of voter fraud that might or might not occur in the future.  Registered voter lists would have been cleaner and more available to the public and elected officials.

Mr. Heller explained under the current system each county had its own autonomous system and although it was a felony to vote more than once, it was currently possible for a voter to register in all 17 counties without being detected.

Mr. Heller expressed his pleasure that the proposed budget did include funding for a complete re-write of the election statutes.  He opined a person could talk to any election official and they would state the most difficult part of elections was that statutes were very difficult to interpret.  The intent was to contract with a third party knowledgeable in elections, in a similar manner to when the corporation statutes were re-written 10 years previous.  The task would be to clarify and avoid some of the conflicts in statutes.  He opined it was often difficult for his staff to interpret statutes and it would be much more so for candidates and the general public as a whole.

Mr. Heller related in his conversations with Ms. Katherine Harris, Florida Secretary of State, one of the biggest problems in their elections had been the ability to interpret Florida statutes.

Assemblyman Marvel asked Mr. Heller if, in his meetings with other secretaries of state, there would be any federal funding available to help states standardize their election procedures.  Mr. Heller responded affirmatively.  He noted several federal-level bills had already been introduced.  Federal statute changes were being proposed along with federal appropriations.  Mr. Heller commented one thing the Nevada legislature could do that would increase the viability of his office was to eliminate voting by punch cards in Nevada.

Chairman Arberry asked if federal funding became available to assist in elimination of punch card systems, whether matching state funds would be required.  Mr. Heller noted Exhibit J, page 19, listed a goal of what he had termed a “Democracy Fund.”  He opined it was in the best interests of the state to have some kind of matching fund in place in case of a federal mandate.  He stated he had spoken with several vendors regarding costs to upgrade those counties currently using punch cards to a minimum of an optical scanning system and reflected the estimates were somewhere between $250,000 and $400,000.  He stated those figures would not include the absentee voting process for Clark County.  He added somewhere between 50,000 to 60,000 absentee voters in that county voted every election via punch card. 

Mr. Heller commented the Elections Division was authorized four positions, however, currently one employee was on leave to serve as a legislative session attaché and one was on maternity leave.  He added, city elections were currently underway with only a skeleton crew in the division and the office was experiencing heavy overtime needs. He requested two additional grade 25 positions for the Elections Division. He noted those positions had not been requested in The Executive Budget.  Mr. Heller explained the Elections Deputy, Ms. Morandi, was hired in June 2000 and had not had an opportunity to adequately assess personnel needs in the budget process.  The nationwide election process in November 2000 brought to light the need for a stronger Elections Division in Nevada.

Chairman Arberry requested backup information to substantiate the request and noted the authorized positions that were currently shorted would be returning to service.  He asked if the volume of work could justify the need.  Mr. Heller replied his office would provide the information to the committee.

Mr. Heller began his testimony concerning the Securities Division.  He introduced Mr. Charlie Moore, Administrator, Securities Division.  He noted Mr. Moore was also an attorney.  Mr. Heller commented since he had been Secretary of State, the Securities Division had provided about $40 million in restitution funds related to security fraud cases and made some of Nevada’s seniors whole once again.

Mr. Heller referred to Exhibit J, page 21, which reflected a chart of the Nevada-based advisors licensed by the Securities Division.  He noted licensing had doubled within the last five years.  He added broker-dealer branch offices within Nevada had doubled over five years as well.  Mr. Heller stated the division had not increased in staffing during that period and added that two new positions had been requested in the proposed budget.  He explained the positions requested were one chief of enforcement and one investigator in the first year of the biennium and in the second year of the biennium, two securities investigators. Mr. Heller stated complaints were received regarding brokers and branch office investigations were needed by the “local cops on the beat” – staff of the Securities Division.  He explained his office was responsible for investigation and the Attorney General’s Office was responsible for prosecution.

Exhibit J, page 22, reflected licensing both inside and outside the state.  Mr. Heller noted total licensing had grown in five years from 40,000 plus to 80,000 plus.  He explained the graph represented brokers around the country who registered in Nevada for selling stocks and bonds within the state.

Exhibit J, page 23, reflected goals for the Securities Division.  Mr. Heller stated one program currently in place was routine auditing of brokers and investment advisors every two years.  The newly requested positions would help maintain the cycle of broker and investment advisor audits. The office felt investor education was vital.  If the public was educated, they were less likely to be defrauded.

Another program of the division was that of teaching entrepreneurship to children in schools.  Mr. Heller explained his office contributed $10,000 per year to the Economic Forum to sponsor the Web-based stock market game.  Elementary, middle school, and high school classes were given $100,000 in pretend money to invest in securities and classes competed against each other.  Two years ago Nevada had the winning middle school for the nation.  With their $100,000 investment they had produced $700,000 in capital in nine weeks.

Exhibit J, page 25, graphed telephone inquiries to the Secretary of State’s Office.  Mr. Heller noted complaints were only about 1 percent of phone calls received by the office.  He explained about one-third of complaints received did not really involve the Secretary of State’s Office.  Customers sometimes complained about who was elected President of the United States, April 15 – tax day, and complaints that stocks and bonds did not perform as well as the investor had expected.  Such calls were passed on to the correct entities.

Exhibit J, page 29, compared chief deputy positions in the various constitutional offices.  Mr. Heller noted the chief deputies for the Secretary of State’s Office earned approximately $12,000 less per year than those in other constitutional offices.  He added it was becoming more and more difficult to retain qualified staff when they could cross the hall and make $12,000 more per year.

Mr. Heller stated his salary goal for the office was to raise the unclassified salaries to be comparable with similar positions in other constitutional offices. 

Mr. Heller stated the proposed budget requested the position of executive assistant to move to the unclassified service category and receive comparable salary with similar positions.

Mr. Heller concluded the results in his office spoke for themselves.  The Executive Budget requests only included those of making salaries comparable and adding positions in the Elections and Securities Divisions. 

Chairman Arberry noted the proposed budget requested a fee increase from $100 to $500 in the Special Services account.  He asked if that was a specific amount or whether it was a “moving target.”  Mr. Heller replied the $500 was a threshold.  He explained if a customer requested expediting of paperwork the office charged an additional $50 fee.  The proposal was to change the expedite time from 24 hours to 2 hours.  Resident agents, attorneys, and businesses had stated when they had attorneys sitting around a table at $500 an hour to complete mergers, the quicker they could get paperwork in and out of the Secretary of State’s Office, the less it cost them.  Thus, the proposal was that there would be no change for requests as they were currently being processed, but for those in the future who wanted an expedited transaction done immediately, an additional fee would be charged up to $500.  The office had not yet decided what the proper fee should be.  He added the change had been recommended through the subcommittee created by S.C.R. 19 of the Seventieth Session. 

The Chair stated the proposal needed structure, otherwise, how could a differentiation be made.  Mr. Heller argued the issue was a “moving target” at times.  Regular filings paid no additional fee and were completed in two or three days.  If the customer wanted the paperwork expedited within 24 hours they paid an additional fee of $50.  The proposal was for that customer who wanted the office workflow stopped and their paperwork processed immediately, that fee would be greater than $50.  The intent was to structure the fee according to what type of service was requested.

Chairman Arberry asked whether the office anticipated revenues to increase with the requested increase in the special service fees going back and forth between $50 and $100.  Mr. Heller responded there was an expectation of increased revenue depending on how many customers used the expedited service.  He added his real fear was that if a two-hour processing time was offered, literally every customer would want that service.  He noted the proposed fee was still less than businesses and corporations were expected to pay in other states.  If the two-hour expedite proved popular, a substantial revenue increase would occur.

Chairman Arberry asked whether service to customers who did not want to pay the expedite fee would decrease if the proposal passed.  Mr. Heller replied the $50 expedite fee guaranteed completion within 24 hours.  Regular filings were not begun each day until the expedite requests were processed.  Because of technology in the office, regular turnaround was still at two or three days.  The office was in the process of upgrading technology and with that upgrade, provision of a two-hour service would become much easier.

Chairman Arberry asked for projections on generated revenues.  Mr. Heller responded that was a difficult projection to make.  He opined a large number of customers would take advantage of the service and he could provide some possible scenarios, but an exact projection was not possible.  The Chair requested Mr. Heller to provide his best estimate of increased revenue/number of customers who would take advantage of the two-hour expedite service.

Ms. Giunchigliani noted a recent newspaper article had quoted Mr. Heller stating he “could add approximately $20 million in state tax revenue.”  She asked if that quote was based on the proposal under discussion.  Mr. Heller replied projected revenue through FY2003 indicated a $20 million increase.

Ms. Giunchigliani asked, as an example, what the state of Delaware charged. Mr. Heller replied Delaware’s expedite fee was $500 and their base charged for a corporation was up to $100,000 annually based on capitalization.  Nevada’s maximum was a one-time fee.

Ms. Giunchigliani asked for confirmation that Nevada did not have a state franchise tax as Delaware did.  She asked if Nevada had explored that possibility.  Mr. Heller replied his office had done some research and there was a third party, Mr. John LeGotta, who had done extensive research on the issue.  Mr. Heller opined a bill measure might be introduced addressing some of those issues.  He noted the proposal was not coming from his office.

Ms. Giunchigliani asked if Mr. Heller had ever compared other areas of Delaware’s Secretary of State with Nevada.  She noted Delaware had developed specialists in the area of bankruptcy and offered courts that could offer chancelleries and other services.  She asked if Nevada’s low tax base was still a draw for new businesses.  She commented Delaware’s bankruptcy office accounted for approximately one-fourth or one-third of that state’s revenue.  She asked if Nevada had explored those areas.  Mr. Heller stated those were some of the issues his office had grappled with in conjunction with the interim subcommittee created by S.C.R. 19 of the Seventieth Session. 

Ms. Giunchigliani asked if Mr. Heller’s office offered filings to be made other than by hard copy or fax.  Mr. Heller replied they would be offering Internet connections in the near future for filing annual lists of officers.  They also hoped by the end of the year to allow corporate filings over the Internet. 

Ms. Giunchigliani asked if the Secretary of State’s Office had the authority to charge for those types of transactions or whether a bill draft for that authority was needed.  Mr. Heller replied the office already took name reservations via the Internet.  They charged a technology fee for the service, but they were using the expedite fee to process the technology transactions.  He noted a $50 fee might be high for those types of transactions.

Ms. Giunchigliani commented the Secretary of State could track the incorporated companies within the state.  She asked if the office could also track limited liability companies.  Mr. Heller responded a report on those breakdowns was at his office.  Ms. Giunchigliani responded her train of thought was how to increase revenue and move closer to offering services such as the state of Delaware had.  Mr. Heller replied the issues of the chancellor courts were the prime issue to come out of recent interim studies.  He commented one desire of businesses was to know how courts would rule on corporate issues and the state of Delaware could currently provide that information through the chancellor courts.  He added there was currently no such guarantee in Nevada.  Mr. Heller commented the Supreme Court was discussing whether to put together a business court and were arguing there were family courts and drug courts and there should be a business court.  Mr. Heller added his support for a business court.

Ms. Giunchigliani asked Mr. Heller to explain how the 18 new positions requested in the budget would be utilized.  Mr. Heller replied the largest area of expected increase was in the area of Article 9 revision that would require all UCC filings to go through the state rather than the counties.  Five positions were requested for the UCC filing area; three floaters and two additional positions in southern Nevada.  Four additional positions were requested for the Securities Division, two in the first year of the biennium and two in the second.

Ms. Giunchigliani asked if the positions would be funded by the fee collections in those divisions.  Mr. Heller replied the Securities Division did raise substantially more revenue than their expenditures in a ratio of 7 to 1.  However, Mr. Heller noted that the positions were requested for General Fund funding rather than fee-based funding.

Mr. Heller continued relating the rationale for position requests.  Two positions were requested for information technology. He commented Nevada was in the top five of Secretaries of State at the forefront of technology.  A new system would be on-line within the next month and some projects under consideration included statewide voter registration and Internet Web-basing for military service personnel.

The final two positions requested included an assistant for the personnel officer prompted by increases in workloads related to the integration of the IFS system.  Ms. Giunchigliani asked if the request was tied to the new payroll system and asked if the Secretary of State’s Office was one of the pilot agencies for IFS.  Mr. Heller replied affirmatively.  In the second year of the biennium an executive secretary to assist the executive assistant and the office deputies was requested.

Ms. Giunchigliani asked if any of the position requests were tied to Business Process Reengineering (BPR).  Mr. Heller replied negatively.  He added the revenues per full-time positions had doubled.  Ms. Giunchigliani asked whether the doubling was in fee increases or in volume.  Mr. Heller replied the increase was reflected in workload volume, the office size had not kept pace.

Chairman Arberry asked what plans were made for the increased revenue anticipated with the request for higher expedite fees.  Mr. Heller stated the proposal contained a threshold of $2 million.  A bill was making its way through the legislature to increase the fee from $100 per transaction to $500 per transaction and his office had requested an amendment to the bill that would increase the threshold from $2 million to $3 million.  The Chair requested Mr. Heller provide a five-year plan for expenditure of the proposed increase.  Mr. Heller concurred.

Ms. Tiffany asked if the proposal was to fund the Democracy Fund from the $2 million or $3 million received from expedite fees.  Mr. Heller replied the Special Services Fund (expedite fees) was restricted to commercial recording activities.  Ms. Tiffany asked if the Special Services funds could not be used, where would the funding of the Democracy Fund come from.  Mr. Heller replied $250,000 to $400,000 would be required from the General Fund.  He added the intent of the Democracy Fund was to use the funds as grant funds for smaller counties to assist in technology upgrades.

Ms. Tiffany asked if Mr. Heller planned to appear before IFC to request those funds as matching funds.  Mr. Heller stated his desire would be to have the authority to do precisely that.

Ms. Tiffany reflected having spent some time recently in rural areas of the state and having met and talked with some of the local election officials, she asked how those counties could be assisted.  Mr. Heller noted eight counties still used punch card voting systems.  Douglas County and Carson City were the two largest punch card entities.  Clark County used a direct record system along with the punch card system.  Eight counties were currently using optical scanning technology similar to Washoe County in their election procedures.

Ms. Tiffany asked Mr. Heller to explain the intended plan to assist those counties needing upgraded technology.  Mr. Heller explained his concern was that as much talk as there had been at the federal level of providing funds to assist states with election upgrades, there needed to be some catalyst available.  Ms. Tiffany commented some of the smaller counties probably could not even provide matching funds.  Mr. Heller stated the intent was for the fund to have sufficient funds to help all counties at least move away from a punch card system. Ms. Tiffany asked if using one of the smaller counties could provide a good beta test for on-line voting.  Mr. Heller replied his office was not at that point yet. 

Ms. Tiffany commented the state of Arizona had conducted such a test.  Mr. Heller rebutted Arizona was not very happy with their results. He added, Arizona questioned the technology and security of the system in use in their state and Mr. Heller agreed with them.  Mr. Heller commented Nevada intended creating a pilot program using out-of-state military personnel and then would determine, after several elections, the usability, friendliness, and security of such a system.

Ms. Tiffany asked if any technology upgrades allowing digital signatures was planned.  Mr. Heller replied all the laws were in place for digital signatures and his office had several digital signature companies already approved, so if businesses wanted to use digital signatures it was possible.  He added only one company had been certified, but several other applications were in process.  Ms. Tiffany opined that was the next big step in technology upgrades.

Mr. Heller concluded his remarks and stated the successes as a whole experienced by his office were directly related to the support received by his office from IFC, Assembly Ways and Means and the Senate Finance Committees. 

Chairman Arberry closed the hearing on the Budget Account 101-1050 and opened the hearing on Budget Account 101-1080.

ELECTED OFFICIALS – STATE TREASURER (101-1080) – BUDGET PAGE ELECTED-88

Mr. Brian Krolicki, State Treasurer, introduced John Adkins, Chief Deputy Treasurer.

Mr. Krolicki requested permission to discuss the Treasurer’s budget accounts out of order (Exhibit A).

Mr. Krolicki stated his office agreed with the Governor’s recommended biennial budget in its entirety, except for one portion.  He noted the Governor was in agreement with the change he would explain to the committee.

Mr. Krolicki testified the one additional position requested in his office would be a senior position of assistant treasurer.  He noted the amount of activity in the office had doubled over the biennium, but the core staff of the Treasurer’s Office, excluding educational programs, had remained relatively constant for the past ten years.  Mr. Krolicki commented the office was literally to a point where it simply responded to “fires.”  He added it was very, very difficult, if not impossible, for his staff to pursue basic cash management activities and projects assigned to the office.  He noted in conversations with Governor Guinn, the position request to be added back into the budget had been inadvertently left off when The Executive Budget was sent to the printer.  He opined the Budget Office would support the request as well.

Chairman Arberry requested Mr. Krolicki to provide backup information on the requested position to committee staff.  Mr. Krolicki concurred.

Mr. Krolicki commented the office had wrestled with the issue of unclassified positions versus non-classified positions, and in fact, the constitutional officers had hoped to propose some sort of omnibus bill to highlight the issue.  He acknowledged non-classified positions were a sensitive issue. He noted he felt flexibility was important, however, his primary concern was that his office was losing critical people because he could do nothing to maintain those staff if they were offered higher paying positions.  Mr. Krolicki stated he respected all of his staff and he would never want to put them in an uncomfortable employment situation.  He had asked bill drafters for language in Nevada Revised Statutes that referred to non-classified employment to include the ability to grandfather current employees of the office by offering them the opportunity to decline non-classified status.  He added upon termination of such employees, the position would revert to a non-classified position.

Chairman Arberry reiterated the committee had been concerned in allowing the Governor’s Office that authority in 1999 and they had known once the door was opened, all of the constitutional officers would want the same privilege.  He noted the proposal had been “hard to swallow” in 1999 and it was still “hard to swallow” at the present time.  He added committee members would look hard at the issue.  Mr. Krolicki rebutted that while he respected the committee’s position, but he hoped minimally for the unclassified portion of his staff to be allowed the flexibility.  He added sometimes if there were vacancy savings, the flexibility to offer a salary increase to qualified, critical staff would be beneficial.  He stated, in his belief, the legislature retained control by authorizing the total amount of salary allowed for the total number of positions within an office.  The State Treasurer was accountable to the legislature and the people of Nevada and so credibility must be maintained.

ELECTED OFFICIALS – TREASURER HIGHER EDUCATION TUITION ADMINISTRATION (101-1081) – BUDGET PAGE ELECTED-93

State Treasurer Krolicki stated he had good news to report regarding the pre-paid college tuition program.  The enrollment period had closed on January 31, 2001; however, applications were still being taken.  The goal had been 2,000 contracts and as of February 2, 2001, 2,030 applications had been received.  The office expected another 15 to 20 percent of applications to be received. 

Mr. Krolicki noted a measure before the 2001 Legislative Session was to suspend the sunset clause for the pre-paid college tuition program.  The sunset was due to take effect June 30, 2001, however, he opined, the program had been an outstanding success.  Nearly 8,000 young Nevada children currently had pre-paid contracts for a college education wherever they might attend throughout the United States.  He explained that was a difference from the Millennium Scholarship program that required college students to attend colleges within Nevada.

Mr. Krolicki stated the office had supplied Fiscal Division staff with documentation regarding the loan payback schedule.  The funding to begin the program had been accomplished through a loan from the General Fund and it was sufficiently successful he opined, that the loan would be paid back in full.  He added the current biennial budget requested another appropriation, however, he felt that would be the last request necessary to maintain the program.  Chairman Arberry asked for confirmation that the current appropriation request would be the last one necessary for the program.  Mr. Krolicki concurred and added all the pro forma models his office had reviewed at the inception of the program had indicated the program needed approximately $40 million in contracts to achieve an actuarial strength to maintain educational responsibilities and to be powerful enough to begin repayment of the loan itself. 

Chairman Arberry requested a planned projection of funding over the next five to ten years.  Mr. Krolicki asked for clarification that the request was for a projection on the loan repayment.  The Chair replied the request was for a projection for the entire higher education tuition program.

Ms. Giunchigliani noted it appeared in the budget that the anticipated contracts would actually decrease in 2000-2001 and in FY2001-2002 school years. She asked how that would affect the projections.  Mr. Krolicki replied the decrease was in line with projections.  He explained there was a “pent up demand” when such programs were first launched.  Once market penetration was reached the number of contracts would go down.  The office had anticipated 1,500 contracts in the second year of the program and yet the number of contracts had greatly outpaced the anticipation.

Vice Chairwoman Giunchigliani asked what the projected actual market value of the account was currently.  Mr. Krolicki replied approximately $20 million was currently in the account.  Payments on contracts that had just been accepted would begin in March 2001, in addition to those of the original two years and the lump sum payments. 

Vice Chair Giunchigliani asked if that was the case, why the Treasurer’s Office could not begin paying on the General Fund loan in FY2001-02 as had been originally planned.  Mr. Krolicki replied the actuarial study stated there was a 71 percent probability that the program had sufficient funds to fully pay its obligation.  He explained the vendor for the study had provided 1,000 different scenarios and 181 of the scenario stress tests indicated the monies in the trust were sufficient to pay all the liabilities.  If the loan repayment was added, the probability of the program to fully pay its obligations dropped slightly to approximately 68 percent.  He added the premise was the 71 percent figure was considered to be a strong actuarial number.

Vice Chairwoman Giunchigliani requested that the plan to be provided to the Chair would include both revenues and projections over a ten-year period.  Mr. Krolicki concurred.  Ms. Giunchigliani opined at some point any new program would flatten out rather than grow.

Vice Chair Giunchigliani asked if Mr. Krolicki felt the plan would not ever impact the General Fund requiring a bail-out, based on the number of contracts.  Mr. Krolicki responded he believed the program was well on track to take care of all liabilities with the contracts and the obligation to the General Fund.  He said the $40 million target for self-sustenance could be anticipated in the upcoming biennium.

Vice Chairwoman Giunchigliani asked if the treasurer would be comfortable, if the funds were available toward the end of FY2003, to appear before IFC and begin loan repayment to the General Fund.  Mr. Krolicki concurred.

Vice Chair Giunchigliani asked what impact the Millennium Scholarship had on the pre-paid tuition program.  Mr. Krolicki replied there was a perceived impact that really did not occur.  Contracts currently underway could not be used until 2002.  The people currently in the Millennium Scholarship Program were not in the appropriate age bracket to have been eligible for the pre-paid tuition program.  He added the cost of tuition, room and board, and all the other incidental expenses related to a college education made both programs necessary.  He commented both programs were housed in the Treasurer’s Office because there was so much efficiency and joint venturing in terms of reaching out and talking to young people in junior high schools and high schools. 

Vice Chair Giunchigliani clarified at the current time there was no negative impact, but, perhaps as a ten-year plan was developed, there might come a time when some parents on pre-paid tuition contracts would have children who could also qualify as Millennium scholars. 

Chairman Arberry closed the hearing on Budget Account 101-1081.

ELECTED OFFICIALS – BOND INTEREST REDEMPTION – 101-1082 – BUDGET PAGE ELECTED-107

Mr. Krolicki indicated the state currently had a debt capacity for general obligation bonds of 2 percent as required by the constitution.

Chairman Arberry noted Budget Account 1082 was not on the meeting agenda and asked Mr. Krolicki to defer that budget account until a later date.

Mr. Mark Stevens, Fiscal Analyst, commented the Bond Interest and Redemption Program was typically reviewed later in the session and in conjunction with the Capital Improvement Program (CIP). 

Mr. Krolicki stated one reason he did want to broach that particular budget was to explain his office, for the first time, had undertaken a comprehensive debt affordability study.  He added that study document would be available to the committee as it reviewed the budget.  The document would provide a ten-year horizon rather than the current two-year review.

ELECTED OFFICIALS – MUNICIPAL BOND BANK REVENUE (101-1086 AND MUNICIPAL BOND BANK DEBT SERVICE (101-1087) – BUDGET PAGES ELECTED 111-112

Mr. Krolicki stated the revenue and debt service programs allowed local governments that had natural resource-related funding projects to process through the bond bank. It was not counted against the state debt capacity.  The revenue bonds the state purchased from local governments were placed on the market.  He remarked the bond bank was a general obligation of the state, but not something that was budgeted for.  It was completely paid for by local governments.  Mr. Krolicki commented there was a statutory capacity of $1.8 billion on the municipal bond bank.  The account currently had about $1.1 billion in outstanding bonds.  The revenues to satisfy the liabilities for the next biennium were reflected in The Executive Budget.

ELECTED OFFICIALS-MILLENNIUM SCHOLARSHIP ADMINISTRATION (101-1088) – BUDGET PAGE ELECTED-97

Mr. Krolicki remarked the Treasurer’s Office administered all of the tobacco monies that were part of the national settlement totaling $1.2 billion over the next 25 years.  Forty percent of Nevada’s portion was used for the Millennium Scholarship Program.  He noted his office was allowed a maximum of 2 percent for administrative costs related to tobacco settlement related expenses.

Mr. Krolicki commented, as a result, the program had been a tremendous success with 4,200 young people attending university or community colleges within Nevada.  He remarked the budget contained a request for an additional two positions to help maintain tracking as the program grew in the next few years.  Mr. Krolicki remarked the program was one of the shining successes of his office.  When passed by the 1999 legislature his office had a skeleton staff to determine how to make it work and what would be needed.

Ms. Giunchigliani requested a projection of revenues and expenditures of the Millennium Scholarship Program over a ten-year period.  She also asked for projections on administrative costs of the program and noted over a period of time, a decline was to be expected.  Mr. Krolicki responded the administrative cap was 2 percent. 

Ms. Giunchigliani asked Mr. Krolicki to comment on the continuing eligibility of applicants and asked what agency made eligibility determinations.  Mr. Krolicki responded the University of Nevada, Board of Regents, established the determining policies relating to the program.  Mr. Krolicki noted to sustain Millennium eligibility, a student had to receive a 2.0 grade point average (GPA) and maintain a “full load” of credits.  Mr. Krolicki noted a “full load” related to 12 hours of instruction per week at the university.  A student could be disqualified by GPA or class load.  He added in the first semester for Millennium scholars there had been a 25 percent of dropout rate. 

Mr. Krolicki stated his office was working with the university to study what had happened to that 25 percent of eligible students.  He noted students could rehabilitate themselves academically to reattain Millennium eligibility.  He had been pleased to notice that half the Millennium scholars at the University of Nevada, Las Vegas, had maintained their courses even though they were not currently eligible for the scholarship.  He explained to reattain eligibility, the student must pay for a semester on their own and then repay the semester in which they failed to maintain eligibility. 

Ms. Giunchigliani referred to the 25 percent dropout rate and asked if any conclusions had been drawn as to whether the dropouts had been based on course content, the full-time requirement, or whether the program contained a prohibition of the student working while drawing scholarship funds.  Mr. Krolicki replied there were no workload prohibitions he was aware of.  He commented one of the fine lines he was required to walk as the Treasurer administering the program was that he was not a specialist in education so some of the things that drove the program were beyond his experience.  He added, administration of the program had been a joint venture with the community colleges and universities around the state.

Ms. Giunchigliani commented she would be posing her questions to the academics as well, because she had concerns about special education children and their eligibility.  Mr. Krolicki noted Susan Moore, Director of the Millennium Program, was present.

Assemblywoman Cegavske asked how the scholarship repayments were administered.  She asked how it was categorized in the budget.  Mr. Krolicki replied one of the policy decisions his office had to make was how aggressive they wished to be in reclaiming Millennium funds.  He opined the Treasurer’s Office should not be a collection agency.  The students had received a scholarship and they could either squander the opportunity or leverage it to some great cause.  The office had determined that only at the point a student wished to rehabilitate and reattain eligibility would repayment be required.

Mrs. Cegavske asked if the Treasurer’s Office was willing to work with the students regarding repayment requirements or whether a lump sum repayment was required.  Mr. Krolicki replied his office was involved in helping young people go to college and thus were trying to determine what method worked best for all.  He added some of the issues were policy-driven from the Board of Regents and beyond his control.

Mrs. Cegavske asked if someone made contact with the students to tell them they had lost Millennium eligibility other than a formal letter and whether students were advised what was required to reattain eligibility.  Mr. Krolicki replied his office had a very extensive document and letter that was made available to campuses to assist in counseling students.

Ms. Giunchigliani referred to the benchmark study recommended by the Governor regarding Millennium Scholarships and commented it would be helpful to see how many students transitioned directly to a four-year college program versus a community college.  She commented if the RFP counseled students to move first to a community college it might help.  She added that perhaps the costs of the study could be financed with tobacco settlement funds rather than under the General Fund.

Mr. Krolicki commented two pieces of legislation would be coming before the committee.  The first was a plan to securitize the tobacco revenues due to be received in the next 25 years.  He added his office had been working with underwriters, bond counselors, and other states as to how best preserve the stream of funding for the next 25 years. 

He stated the second bill related to lease-purchase financing and noted currently Nevada had no ability to lease-purchase real property without impacting the state’s debt limit. The state currently spent about $18 million on office rent for different state agencies that translated to almost $200 million worth of capital construction programs.  A test case had been initiated which involved the old EICON facilities.  The EICON had been very generous with the state regarding entering into the litigation.  The Supreme Court had been petitioned for a writ of mandamus after the Board of Examiners denied the contract because of the 30-year-old Hancock ruling.  It was hoped the Supreme Court hearing in early April would provide the legislature some clarification as to the ability of the state to lease-purchase real property without impacting the state’s debt limit.  If the ruling was favorable, it would dramatically improve the flexibility regarding the capital improvement program.

Chairman Arberry commented decision unit E-475 recommended approximately $57,000 each year of the biennium for a continuation of an ambassador program.  Mr. Krolicki replied one important aspect of the Millennium Scholarship Program was inclusion of an outreach program.  The Chair asked how the high schools were reached to focus on the aspects of  the program.  Mr. Krolicki commented the E-475 unit was envisioned as a not-for-profit role of the ambassadors to have some organized program going into the schools at various levels of K-12 education.

ELECTED OFFICIALS – UNCLAIMED PROPERTY (101-3815) BUDGET PAGE ELECTED-102

Mr. Krolicki noted he would not present the actual budget.  He commented the reason that budget was in the Treasurer’s sequence of budgets was the Treasurer had entered into a Memorandum of Understanding (MOU) with the Department of Business and Industry about one and a half years ago.  In previous legislative sessions the Treasurer’s Office had unsuccessfully sought legislation to transfer the program into the Treasurer’s Office.

The liaison had been very successful and staff had been able to perform in an outstanding manner.  He introduced Steven McDonald, Administrator, Department of Business and Industry (B& I), who would present the budget and Jack Christopher, Program Officer III.  Mr. Krolicki stated the Fundamental Review Committee unanimously endorsed as one of their 31 official legislative approvals, the transfer of the Unclaimed Property budget to the Treasurer’s Office.  In addition, he stated one of the value-added projects done with that staff had been to review the uniform codes pertaining to unclaimed property and he felt comfortable in compressing some of the time lines for their movement into the General Fund.  The office expected if that legislation was passed, the budget would enjoy a one-time $10 million windfall by accelerating holding periods for unclaimed property.

Chairman Arberry asked under what fiscal year the windfall might be expected.  Mr. Krolicki responded it could be expected within the next biennium.  He added it would appear as $5 or $6 million in each year of the biennium. 

The Chair referred to the earlier testimony of Mr. Krolicki and stated the committee needed an explanation of why the Treasurer’s Office so badly needed the Unclaimed Property Program.  He asked whether the reasoning was the program was not functional under its current department or what.  Mr. Krolicki responded the Department of Business and Industry had 27 divisions under its jurisdiction.  Unclaimed property was an activity that was pursued in most states within a state treasurer’s office.  In fact, unclaimed property nationally was under the National State Treasurer’s Association. Mr. Krolicki noted enhancement of the program within the Treasurer’s Office was tremendous and the budget windfall would benefit the state and the property holders.  He commented he had entered into the MOU with trepidation because he had no wish to circumvent legislative intent, that was why he had met with members of the committee first.  Mr. Krolicki had agreed he would not present legislation to move unclaimed property under the State Treasurer unless the combined effort had proved to be successful.  Because the joint venture had been successful he was back before the committee with the proposal.  He added the MOU expires June 30, 2001.

Ms. Tiffany noted one example reflecting the confusion over the issue was that she had logged onto both the Treasurer’s Web site and the Department of Business and Industry Web site and the program was listed under both.  Yet when the Treasurer’s link was chosen it stated, “Pardon us, this site is undergoing some changes.”  She also noted if the Treasurer’s Office received a call regarding unclaimed properties, the response to the caller was that it was not a part of that office and referred the caller to another telephone number.  She asked if the move to the Treasurer’s Office was made, would a change be necessary in statute.  Mr. Krolicki replied a Bill Draft Request was expected to be introduced shortly.  Mr. Krolicki agreed there was great confusion over the issue and his office claimed not to be in charge of unclaimed property because they did not wish to circumvent the direction of the legislature.  He commented that people from around the country assumed unclaimed property was under the Treasurer’s Office so their Web site had always had a link to the Department of Business and Industry.  Their intent was to avoid a misrepresentation.

Vice Chair Giunchigliani commented The Executive Budget contained proposals to increase the budget approximately 15 percent.  She noted that would seem to reduce the General Fund allocation, which otherwise would have been reverted.  Mr. Krolicki deferred to Mr. McDonald.

Mr. Steven McDonald, Administrator, Unclaimed Properties Division, introduced Mr. Jack Christopher, Program Officer III.  He explained the proposal was to have the program completely funded by the trust fund instead of having a General Fund allocation of approximately $130,000 each year.  In FY1999-2000, the program provided approximately $7.7 million in revenues to the General Fund, compared to total expenditures of $524,000. There would still be a reversion at the end of each fiscal year of all monies out of the trust fund to the General Fund.

Vice Chair Giunchigliani commented sometimes there was an assumption that trust fund money was not General Fund money.  She added in reality it was. She asked fiscal staff to comment.

Mr. Mark Stevens commented the funding proposal to take all of the funds from the trust fund was in essence a General Fund appropriation.  Anything taken from the trust fund was not transferred to the General Fund as a revenue source at the end of the fiscal year, so any administrative costs taken from a trust fund lowered the amount of General Fund appropriation.  If a General Fund appropriation was made for administrative costs it would increase the amount transferred out of the trust fund.  He added, the committee probably needed to view the Unclaimed Property budget as if it were a General Fund appropriation.

Mr. Goldwater commented he approved of the fact that the General Fund appropriation did not create a conflict of interest with Unclaimed Property in administration of their duties.

Vice Chair Giunchigliani asked Mr. McDonald to explain why decision unit E-710 appeared to request office equipment replacement that had actually taken place in the previous year.  Mr. McDonald replied E-710 referred to minor equipment purchases under $500 in value.  He deferred the specifics of the question to Mr. Christopher.

Mr. Christopher commented most of the equipment items were one-time purchases taken out in the base budget adjustments and replaced in enhancements because traditionally certain equipment broke.  He gave examples such as monitors, printers, and a variety of small equipment items.  He added the approximately $3,000 had been taken out previously and was just being restored to the budget. 

Vice Chair Giunchigliani commented replacement was usually not taken out of the budget.  She added perhaps it would be easier for Mr. Christopher to provide what equipment had been purchased and then pose budget projections for additional equipment needed. 

Vice Chair Giunchigliani asked if DoIT did a review for equipment upgrades.  Mr. McDonald replied an assessment of what equipment was needed had been done; however, with use equipment broke.  He commented sometimes repair costs were more than replacement costs would be. 

Vice Chair Giunchigliani requested documentation indicating what potential equipment failures were anticipated.

Vice Chair Giunchigliani noted funding had been requested and approved for micrographic needs and yet the program had not begun.  Mr. McDonald replied the program was not implemented because the division was not aware funding had been approved.  He explained his predecessor had not left a paper trail that would have alerted him to that fact. 

Mr. McDonald stated his division was making an attempt to absorb costs in the current fiscal year and begin the program within the current budget.  Ms. Giunchigliani commented approximately $13,000 had been allocated and requested notice of when a final determination of procedure was established. Vice Chair Giunchigliani asked if the allocated funding had been reverted.  Mr. McDonald replied the funding had been left in the budget and the funds used to purchase advertising. Vice Chair Giunchigliani asked if a desire for the program still existed.  Mr. McDonald stated he had not yet talked to the director.  He explained when he had been with the division in 1996 he made a request for the program and he still felt the plan was appropriate.

Mr. McDonald commented if the transfer of responsibility to the Treasurer’s Office occurred, the current budget included no moving costs to move to the Grant Sawyer Building.

Mr. Krolicki concluded his remarks stating if the transfer was made, he urged the committee consider a position of Deputy, Unclaimed Property, be salaried at parity with other deputies in the office.  Vice Chair Giunchigliani replied, for the record, parity would be taken into consideration.

Mr. Stevens informed the committee that joint subcommittees would begin on the following day.

The Vice Chair adjourned the meeting at 10:37 a.m.

Chairman Arberry reconvened the meeting at 10:38 a.m. for the purpose of bill introductions.  That portion of the meeting was not recorded on the audio record.

 

• BDR 50-620 - Revises provisions relating to certain accounts of state department of agriculture. (A.B. 115)

            ASSEMBLYMAN MARVEL MOVED FOR INTRODUCTION OF BDR 50-620.

            ASSEMBLYMAN HETTRICK SECONDED THE MOTION.

            THE MOTION PASSED UNANIMOUSLY BY THOSE PRESENT.

 

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• BDR S-630 - Makes appropriation to Lander County for design and construction of Battle Mountain Industrial Park. (A.B. 114)

            ASSEMBLYMAN MARVEL MOVED TO INTRODUCE BDR S-630.

            ASSEMBLYMAN BEERS SECONDED THE MOTION.

            THE MOTION PASSED UNANIMOUSLY BY THOSE PRESENT.

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• BDR S-903 - Makes appropriation to City of Las Vegas for grants to support educational and recreational programs for children after regularly scheduled school days and on weekends. (A.B. 116)

            ASSEMBLYMAN MARVEL MOVED FOR INTRODUCTION OF BDR S-903.

            ASSEMBLYMAN BEERS SECONDED THE MOTION.

            THE MOTION PASSED UNANIMOUSLY BY THOSE PRESENT.

 

Chairman Arberry adjourned the meeting at 10:45 a.m.

 

 

RESPECTFULLY SUBMITTED:

 

 

 

           

Cindy Clampitt

Committee Secretary

 

 

APPROVED BY:

 

 

 

                                                                                         

Assemblyman Morse Arberry Jr., Chairman

 

 

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