ASSEMBLY COMMITTEE ON WAYS AND MEANS

MINUTES OF THE meeting

of the

ASSEMBLY Committee on Ways and Means

Seventy-First Session

May 7, 2001

The Committee on Ways and Meanswas called to order at 7:30 a.m. on Monday, May 7, 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

COMMITTEE MEMBERS ABSENT:

None

STAFF MEMBERS PRESENT:

Mark Stevens, Fiscal Analyst

Rick Combs, Program Analyst

Carla Watson, Program Analyst

Connie Davis, Committee Secretary

Carol Thomsen, Committee Secretary

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

Chairman Arberry recognized Brian Krolicki, State Treasurer. Mr. Krolicki introduced David Clapsaddle, Executive Director, Nevada Prepaid College Tuition Program, and extended his appreciation to the committee in hearing A.B. 554 out of agenda order.

Mr. Krolicki reported that A.B. 554 preserved the pre‑paid college tuition program that was originally drafted and adopted to sunset June 30, 2001, and established an additional Section 529 program, called a college-savings plan.

Mr. Krolicki distributed a letter in support of the establishment of the Nevada College-Savings Plan from Laura Fitzpatrick (Exhibit C), Treasurer, Clark County, and Chairman of the Board of the Pre-paid College Tuition Program and a copy of a Newsweek article titled, "New College-savings Plans" (Exhibit D). Mr. Krolicki also referred to a book, The Best Way to Save for College (Exhibit E), which had been distributed to members of the committee early in the session.

Mr. Krolicki reported that in 1996 Congress formally authorized Section 529 tax‑advantaged programs to save for children's higher education. One part of Section 529 was the establishment of the pre-paid college tuition program and the other, a college-savings plan that would be established with passage of A.B. 554. Mr. Krolicki discussed the 1997 legislature's approval of the pre‑paid tuition plan that enabled over 8,000 young people in Nevada to be enrolled in a trust fund of over $20 million "in management" for them. In view of the pre-paid tuition program's success, Mr. Krolicki asked for the committee's favorable consideration of A.B. 554.

Mr. Krolicki explained the following differences between the college-savings plan and the pre-paid tuition program:

The college-savings plan was more expansive and flexible than pre-paid tuition;

Pre-paid tuition guaranteed tuition necessary to meet future tuition obligation in-state and could be used out-of-state;

The college-savings plan was treated "more kindly" by financial aid offices;

The enrollment period could be accomplished on an ongoing basis throughout the year for the college-savings plan while the pre-paid tuition enrollment covered a period of only several months;

The college-savings plan compared to a 401K where money could be deposited within an account as fit the family's finances;

The college-savings plan would be open to non-Nevadans;

The college-savings plan could be used for undergraduate education as well as graduate school while pre-paid tuition could only be used for undergraduate tuition.

Mr. Krolicki advised the members of the committee that there was no cost involved in starting up the program, unlike pre-paid tuition which had benefited from a start-up loan. In fact, Mr. Krolicki anticipated the college-savings program would be a revenue producer for the state and would help to pay back the start-up loan for the pre-paid tuition program without getting into the trust fund's "actuarial soundness."

Mr. Krolicki explained that the Section 529 programs, in addition to having the state's attention, had the attention of Wall Street, investment firms, and insurance companies who could sell assets for investments to families that wanted to save for college, but could only receive the tax advantage by joining with a qualifying state under the Section 529 programs. Mr. Krolicki indicated Nevada had already begun a tentative "courtship" of the firms that would be interested in joining with the state to sell, essentially, mutual funds, of which a portion of the assets sold would be returned to Nevada. Mr. Krolicki expounded on the drama of a large Wall Street brokerage network, with tens of thousands of brokers selling Nevada's college-savings plan to their clients or prospective clients all over the country, with a percentage of those assets under management of 10 to 15 basis points secured by Nevada. Mr. Krolicki anticipated that within five years the state would have several hundred million dollars under management, which had already been accomplished in other states. It was anticipated that in the first several years a small fee would be used "up front to repay the loan for pre-paid tuition" and to cover the cost of running the college-savings plan, including personnel, which although there was a funding source would necessitate Interim Finance Committee (IFC) approval.

Mr. Krolicki emphasized that the program did not inhibit or consume, in any way, the pre-paid tuition and the Millennium Scholarship Programs administered out of the Treasurer's office. Mr. Krolicki indicated the programs were complimentary, and packaged together, one program would not "cannibalize" another. Mr. Krolicki concluded that A.B. 554 created the legal framework to move forward on establishing the college-savings plan with retention of the same five‑member board for the pre-paid tuition program.

In response to a question from Chairman Arberry, Mr. Krolicki indicated that financial gain would, most likely, be seen by the end of the year, or early in the following year, but depended on when the firms Nevada collaborated with distributed the product. However, Mr. Krolicki indicated that revenues accumulated during the biennium could be used in two years to offset the cost of the loan and to cover the cost of the program and reiterated that fixed costs would be funded and necessitated IFC approval.

Ms. Giunchigliani asked for additional information on the company or companies that would handle the financial transactions. Mr. Krolicki indicated a Request for Information (RFI) had been initiated and discussions had taken place with firms such as State Street Bank, Morgan Stanley Dean Witter, Prudential Securities, and Oppenheimer. Mr. Krolicki explained he wanted to be able to move quickly if the legislation was approved. In response to a question from Ms. Giunchigliani concerning a Request for Proposal (RFP), Mr. Krolicki reiterated that the RFI had been initiated and pending approval of the legislation, a Request for Proposal would also be initiated.

Ms. Giunchigliani asked how much revenue it was anticipated would be generated. Mr. Krolicki provided the following examples:

Merrill Lynch "partnered" with Maine which was one of the pioneer programs, and currently Maine had approximately $500 million in their college-savings program and less than $50 million was from the state of Maine; and

Rhode Island, in the first six months of their program, had approximately $250 million already under management.

In response to questions from Ms. Giunchigliani, Mr. Krolicki responded that the trust fund for the pre-paid tuition program held approximately $20 million and that it was agreed the loan used to start the program needed to be repaid. Mr. Krolicki indicated monies from the college-savings plan could be used to pay back the loan for the pre-paid tuition program, which would enhance the "actuarial soundness" of the pre-paid tuition trust fund by not having to take monies out of the fund to pay back the loan. Additionally, Mr. Krolicki advised that if everything went as planned, it was anticipated that in two years there would be several hundred million dollars under management.

In response to Mr. Beers' observation that the concept was one that all 50 states could market, Mr. Krolicki agreed and indicated that while there would still be assets in several more years, companies like A.G. Edwards and Merrill Lynch were currently soliciting in Nevada and collaborating with other states to sell their programs. Mr. Krolicki explained that solicitations by those companies impaired Nevada's pre-paid tuition program. Mr. Krolicki indicated Nevada was looking at multi-fund managers in order to have several distribution capabilities of tens of thousands of brokers.

Ms. Giunchigliani asked for information on the amount of revenue that would be returned to Nevada if the $200 million materialized. Mr. Krolicki indicated the amount of money depended on the RFP language, and he explained that with ten basis points, they were "looking at hundreds of thousands of dollars approaching the small seven figures." Ms. Giunchigliani asked how the legislature would be kept apprised of revenue expenditures. Mr. Krolicki advised that if the legislation was approved and after the RFP process, IFC would be approached with a request to reorganize the education programs and consolidate the Millennium Scholarship, the pre‑paid tuition program, and the college‑savings programs under one shop in the Office of the State Treasurer. Ms. Giunchigliani asked for a plan to be developed to make certain that the IFC would be approached for permission to expend any revenue that was returned to the state. Mr. Krolicki advised that he anticipated approaching the IFC with new capabilities from a college-savings plan and a reorganization of the existing education programs and indicated the IFC would have the final word on the suitability of the request. Ms. Giunchigliani reiterated her request and indicated that at the very least an outline was required on the proposed reorganization. Mr. Krolicki advised that he would be happy to oblige although he indicated that some of the details were not currently available.

Hearing no requests for further discussion, the Chairman closed the hearing on A.B. 554.

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

Mr. Krolicki introduced Robin Reedy, Director of Debt Management, and John Swendseid, State Bond Counsel.

Mr. Krolicki indicated he had provided testimony on A.B. 601 which would restrict the ability of state agencies to enter into certain agreements to purchase real property. Additionally, Mr. Krolicki discussed the 1970 Nevada Supreme Court ruling on Hancock vs. the Nevada Building Authority, that any financial commitment the state made, beyond the biennium, would cause that liability to constitute a public debt of the state. Essentially, Mr. Krolicki indicated the Hancock decision prohibited some basic financing tools, available to state governments and agencies, to secure assets which led to a move to lessen the effects of the Supreme Court ruling on those activities. Mr. Krolicki discussed the State Treasurer vs. Business Computer Rental case in which the Office of the State Treasurer entered into a three-year computer lease with a "friendly" company in Reno and immediately refused to make payment. The company filed for a writ of mandamus that said the Treasurer must make payment, and that the Hancock Decision did not apply. The Supreme Court took the case, and several years ago, the state was able to lease-purchase real equipment that went beyond the biennium. Mr. Krolicki indicated the ability to lease-purchase real property, not just "fungible" property was the "real destination."

Mr. Krolicki discussed the state's $15-$20 million-a-year rent for various agencies, and he indicated that the same tax dollars applied to lease-purchase could amortize between $150 and $200 million of new buildings that could be incorporated into the CIP plan. Mr. Krolicki suggested the technique provided "relief to the balance sheet," flexibility without adding new tax dollars to lease‑purchase, and "a new capacity to absorb what would have been considered debt" under the Hancock decision. Mr. Krolicki indicated that in order to come to a determination, "a friendly test-suit environment," was created with SIIS‑EICON, who agreed to enter into a lease-purchase agreement concerning their property at 504 Musser Street. When the Board of Examiners refused to consider that lease-purchase contract because of the Hancock ruling, SIIS‑EICON filed a petition for a writ of mandamus with the Supreme Court. The Supreme Court heard the case on an expedited basis and recently ruled that the Hancock decision did not apply and that the Board of Examiners must consider the merits of the lease-purchase proposal.

Mr. Krolicki indicated that in anticipation of a favorable Supreme Court ruling, the Office of the State Treasurer worked on a bill draft proposal which resulted in A.B. 567 that would allow the legislature to utilize the new-found capacity. Mr. Krolicki discussed the Committee on Ways and Means' "meritorious" A.B. 601, which restricted the ability of state agencies to enter into certain agreements to purchase real property. Mr. Krolicki indicated that while those suggestions could be incorporated into A.B. 601, it was his opinion there was a more expansive need of what needed to be included in lease-purchase legislation. Mr. Krolicki referred to language in Section 8 of A.B. 567 that provided for a non-appropriation clause "that did not obligate the legislature to appropriate money for payments due pursuant to an agreement entered into," which he indicated, was needed.

Additionally, Mr. Krolicki indicated there had to be an ability to issue "certificates of participation" which was included in language in Section 9 of the bill. Mr. Krolicki explained that a "certificate of participation" was a security issued but not backed by the full faith and credit of the state of Nevada and further explained that the language in the bill provided that "all obligations of the State of Nevada and the state agency are extinguished by the failure of the legislature to appropriate money for the ensuing fiscal year for payments due pursuant to the agreement." As an example, Mr. Krolicki discussed the new state building that would be built at some point in the future and indicated that the contractor who built that building, on the state's behalf, would not want to carry a $20‑$30 million note for a long period of time. Mr. Krolicki stated that the Office of the State Treasurer would capitalize the money by selling securities and those revenues would pay the contractor, and the owners would become those certificate of participation security holders to whom payments would be made.

Mr. Krolicki discussed language in the proposed legislation to not subject the state bidding process to the process involved in a lease-purchase. Mr. Krolicki indicated the Office of the State Treasurer felt it was important for people who wished to participate in lease-purchase to not have the same constraints and bindings as a state enterprise would in constructing a building. Additionally, Mr. Krolicki addressed "a hold harmless clause," and several amendments that had been previously distributed. Mr. Krolicki requested that the previously distributed amendments be disregarded. Newly amended language (Exhibit F) included language that provided for the IFC and the State Land Registrar's participation. Mr. Krolicki deferred to Robin Reedy.

Robin Reedy, Director of Debt Management, Office of the State Treasurer, identified herself for the record and extended her apologizes to the members of the committee for the confusion concerning the amendments. Ms. Reedy indicated that the most recent language distributed during the committee meeting was the language the Office of the Treasurer wanted to incorporate into A.B. 567. Ms. Reedy called attention to the most significant language changes in the amendment that included the IFC or legislative approval and personal property vs. real property.

Mr. Krolicki called attention to the language in Section 21 of A.B. 567 that described the state's ability to refinance, with state bonds, the women's correctional facility in southern Nevada operated by the Corporations Corporation of America (CCA). Mr. Krolicki explained that originally, no ability to issue bonds for the facility existed, and that essentially the state had a general obligation private placement with CCA who would continue as the property managers. Mr. Krolicki explained that CCA absorbed a 5.5 percent tax-exempt rate, but that they were not in the business of being property managers, they were in the business of operating prisons. The language would provide the ability to refinance CCA out of the property owning business, and it was felt that with the current rates, a potential million dollars in refunded savings was anticipated.

Mark Stevens, Assembly Fiscal Analyst, indicated that the language in Section 21 provided for reissuing bonds that were already approved, and he questioned whether those bonds could be used to expand the facility, or whether the language just provided the authorization for refinancing of the current bonds that were issued. Mr. Stevens explained that if additional bonds were sold, an extra obligation on the state's General Fund would be incurred to pay off those bonds. Mr. Stevens indicated that before taking any action on the bill, it was important for the committee to understand whether the current bonds were being reissued that were used to build the Southern Nevada Women's Correctional Facility or whether they were reauthorizing the current bonds and then authorizing additional bonds to be sold to potentially expand the facility.

In response to Mr. Stevens' comments, Mr. Krolicki explained that the intent of the bill was to have the ability to refinance the original loan and to have the "capacity to do something additional." Mr. Krolicki indicated he was open to suggestions. Additionally, Ms. Reedy explained the intent of the language was to provide the ability to issue bonds for the current authorization. The original language allowed a lease‑purchase up to a particular dollar amount, part of which had already been accomplished. Ms. Reedy indicated the two figures outlined in the bill would refund the original lease‑purchase cost through bonds and maintain the same dollar amount already authorized under lease‑purchase and provide the state the option of financing with bonds.

Mr. Krolicki asked the Chairman for clarification on whether the Office of the Treasurer needed to do anything further to address the concerns that had been expressed. The Chairman asked Mr. Krolicki to communicate with Mr. Stevens so that the committee had the information on the concerns expressed by Mr. Stevens. Mr. Krolicki agreed.

Mr. Parks asked if the bill would provide the same ability to local governments. Mr. Krolicki responded that local governments were not under the same constraints under the Nevada Constitution as the state. Mr. Krolicki explained that local governments enjoyed the ability to lease, purchase, and finance real property, which the state would be provided under the Supreme Court ruling and A.B. 567.

Mr. Norman L. Dianda, President of Q&D Construction, Inc., testified in support of A.B. 567 and advised the members of the committee that the time had come to allow the state to employ the time and money-saving benefits that private enterprise had developed over many years of open-market progress. Mr. Dianda indicated that lease-purchase would deliver to the state ultimate ownership of the facilities it needed and at a savings of approximately 20 to 30 percent over what was currently being paid for leased space. Mr. Dianda pointed out that the savings resulted from the "near bond-rate financing associated with lease‑purchase" and stated that the difference in interest rates between the market-rate financing for offices the state currently leased and the rate for tax‑exempt lease-purchase was 2.5 to 3.5 percent, which amounted to a huge savings for taxpayers in the state of Nevada.

Mr. Dianda indicated that Q&D had been involved in two lease-purchase projects in northern Nevada, the Northwest Library, and the Washoe County Public Safety Training Center. Mr. Dianda strongly supported the legislation as written and cautioned the committee that any modifications or amendments would tie the hands of the private sector in developing a lease-purchase facility. Mr. Dianda further indicated that local governments did a good job reviewing the code for compliance and permitted all the facility types the state would consider in lease-purchase agreements.

Mr. Dianda strongly supported the bill as written and urged the committee to keep its intent focused on streamlining the acquisition of state-owned buildings by utilizing the best of what both public and private sectors had to offer.

In response to a question from Mr. Marvel, Mr. Dianda indicated he had reviewed the amendments and was in agreement with them.

Renny Ashleman, Lobbyist, representing Corrections Corporation of America, indicated their support of A.B. 567.

Hearing no requests for further discussion, the Chairman closed the hearing on A.B. 567.

Assembly Bill 618: Makes various changes relating to regulation of insurance. (BDR 57-564)

Alice Molasky-Arman, Commissioner, Division of Insurance, identified herself for the record and introduced John Orr, Deputy Commissioner, Division of Insurance.

Ms. Molasky-Arman testified that A.B. 618 was the Division of Insurance's omnibus bill and the state's response to the Federal Financial Modernization Act. The bill also contained a number of sections that would reign in a "growing fraud" in the United States involving viatical settlements. The major portion of the bill that affected a fiscal note concerning viaticals appeared in Sections 2 through 52.

Ms. Molasky-Arman reported that viatical settlements had become "big business" in the United States and explained that a viatical settlement involved the purchase of the rights to a life insurance policy at a cost less than the face amount of the policy. Upon the death of the insured, the viatical settlement provider received the full-face amount of the death benefit. Purchasers of viatical settlements were frequently senior citizens or people with terminal illnesses in need of funds.

Ms. Molasky-Arman pointed out that a lack of regulation had led to illegal insurance transactions that included fraud and murder and that Nevada consumers were not immune to the financial consequences of such transactions. Ms. Molasky-Arman discussed a warning recently received from Florida's Commissioner of Insurance that a viatical settlement provider suspected of having a number of Nevada clients had just been shut down. An investigation of that issue, by the division, would begin right away. Ms. Molasky-Arman stated that viatical providers and brokers must be controlled and A.B 618 created authority for the commissioner to regulate providers and brokers who operated in Nevada.

Ms. Molasky-Arman discussed the fiscal impact in the bill that would require viatical providers and brokers to be licensed as shown in Section 67 (33) (a) and (1 and 2) and also Section 67 (33) (b) and (1 and 2). Section (a) created an application, licensing, and renewal fee of $1,000 for providers of viatical settlements and Section (b) provided a $500 application, licensing, and renewal fee for viatical settlement brokers. Ms. Molasky-Arman indicated that the division calculated $17,500 in revenues from fees for FY2002 and $11,000 in FY2003. Staff expenses for overtime in the licensing, regulatory, and investigation process were projected at $16,668 during FY2002 and $5,556 for FY2003.

Ms. Molasky‑Arman discussed the importance of the provisions and advised that there were "unsavory characters" acting as providers of viatical settlements. One state that had new legislation rejected ten applications for producer or broker licenses based on the unsuitable character of the applicants.

Ms. Molasky-Arman reported that the second major subject in A.B. 618 involved a fiscal note that resulted from the division's response to the Gramm‑Leach-Bliley Act (GLBA), also known as the Federal Financial Modernization Act of 1999. The GLBA was described as the most significant change to the legal structure of the United States' financial system since the 1930s. The GLBA designated state insurance departments as the functional regulators for insurance activities of financial holding companies and national banks. It was further explained that functional regulation meant that insurance activities were to be regulated by the laws of the respective states as long as they did not preempt the federal law. The GLBA also authorized the creation of the National Association of Registered Agents and Brokers (NARAB). The NARAB was designed to be a national licensing authority that would provide a mechanism through which agents and brokers could be licensed in multiple states without applying to each state individually. Ms. Molasky-Arman said that the NARAB would be created on November 12, 2002, if the majority of the states had not enacted uniform laws and regulations regarding agent licensing or reciprocal laws and regulations for the licensing of non-resident insurance agents and brokers. The National Association of Insurance Commissioners (NAIC) in response to the GLBA developed the Producer Licensing Model Act to respond to the reciprocity and uniformity demands of the GLBA. Adoption by the majority of the states would eliminate the formation of the NARAB.

Ms. Molasky-Arman indicated it was important to maintain regulatory authority over agents and brokers throughout the state. A.B. 618 amended the agent and broker licensing laws of Nevada Revised Statutes, Chapter 683A, to create a single license for an insurance producer and established uniform provisions that would maintain reciprocity for non-resident producers.

Ms. Molasky-Arman testified that licensing fees must be amended to eliminate retaliatory fees assessed to non-residents. The current fee for resident agents and brokers was $78 each and for non-residents, $138. Section 67, subsections 5 through 30, proposed a change in fees to $125 for each producer. The appointment fees, paid by insurers, were proposed to change from $5 to $15 which would be more consistent with those charged by other states that charged from $21 to $50 per line of insurance. Ms. Molasky-Arman explained that if a producer sold life, health, property, and casualty, an insurer would have to pay four separate appointment fees. Although the resident licensing fee was increasing, the majority of agents and brokers held dual licenses as an agent and a broker, so rather than obtaining two licenses and becoming subject to the $78 existing fee they would have one $125 fee.

Additionally, Ms. Molasky indicated that the bill and provisions were drafted over the period of a year during which six meetings took place with the Joint Commissioners Advisory Committees on Health Care and Insurance and Property and Casualty Insurance who endorsed the concept.

Ms. Molasky-Arman pointed out the fiscal note indicated an increase in the General Fund from the change in fees of $39,961 in both FY2002 and FY2003. Ms. Molasky-Arman explained that with over 25,000 licenses, $39,961 was the closest they could come to the goal of meeting neutrality and with as little effect as possible on the General Fund. In the event of federal legislation of agents and brokers, it was anticipated there would be a reduction in the General Fund of $1.6 million.

Ms. Molasky-Arman indicated that the GLBA was not the last of what would be seen in a federal effort to preempt state insurance, and she called attention to the fact that there were currently three associations seeking federal charters of insurance companies. Ms. Molasky-Arman concluded her remarks by requesting the resolution of at least the threat of federal preemption insofar as agents and brokers were concerned.

Ms. Giunchigliani asked if the federal government was attempting to create something similar to Taft‑Hartley trusts and Ms. Molasky-Arman responded that they were. It was Ms. Giunchigliani's opinion that while Taft-Hartley worked for a while, it had become a stranglehold in many instances. In response to a question from Ms. Giunchigliani, Ms. Molasky-Arman advised that in the event that federal legislation of agents and brokers was commenced, a $1.6 million impact of the General Fund was projected. Additionally, Ms. Molasky-Arman pointed out that the majority of the states with legislatures in session were entertaining the identical provisions that appeared in A.B. 618. A recent press release from the National Conference of Insurance Legislators requested that states seriously consider those measures.

A letter from Doug Head, Executive Director of the Viatical and Life Settlement Association of America, Orlando, Florida, was faxed to the Assembly Committee on Ways and Means. The letter was distributed to each member of the committee before the meeting and was made part of the record as Exhibit G.

Hearing no requests for further discussion, the Chairman closed the hearing on A.B. 618.

Senate Bill 517: Makes appropriation to restore and increase balance in reserve for statutory contingency account. (BDR S-1512)

Don Hataway, Deputy Director, Budget Division, identified himself for the record and advised that S.B. 517 would restore the balance to the Statutory Contingency Fund and increase its current funding capacity.

Mr. Hataway reported that the 1999 legislature approved A.B. 175 for $752,000 that restored the Statutory Contingency Fund balance to $1.5 million. During the interim, an Interim Finance Committee Contingency Fund allocation of $960,000 had to be requested, and before the April 2001 Board of Examiners' meeting, the fund had a balance of $3,204. At the April meeting, the board approved $57,000 worth of requests, subject to funding, and requests that totaled $287,000 were on the agenda for the next Board of Examiners' meeting. Mr. Hataway noted that for all practical purposes the fund had a zero balance.

S.B. 517 requested that the Statutory Contingency Fund be increased to $3 million. Mr. Hataway attributed the two primary uses of the fund during the past few years to fire-related costs and the Office of the Public Defender's post‑conviction relief costs which were difficult to predict and did not appear to be diminishing. Mr. Hataway requested the committee's expeditious action on S.B. 517 at the level requested, and he indicated that if the fund balance was reduced, the savings be placed in the Interim Finance Contingency Fund in the event additional assistance was required.

Hearing no requests for further discussion, the Chairman closed the hearing on S.B. 517.

Assembly Bill 124: Requires boards of trustees of certain school districts to provide transportation for certain pupils. (BDR 34-37)

The Chairman recognized Assemblyman Mark Manendo. Mr. Manendo identified himself for the record, and, on behalf of his constituents in Las Vegas, spoke in support of A.B. 124. Mr. Manendo addressed concerns he shared with parents in District 18 in reference to the distance that elementary school children had to walk to school. Mr. Manendo pointed out that some children walked at least two miles, and they had to cross Nellis Boulevard and pass a convenience store, a bar, a casino, a recreational vehicle park, and an apartment complex.

Mr. Manendo indicated that discussion with members of the school board trustees in Clark County determined it was necessary to go to the state level to see if funding could be obtained to remedy the situation. Discussion on A.B. 124 in the Assembly Committee on Education had taken place to reduce the distance to a half‑mile rather than two miles. Mr. Manendo pointed out that the fiscal note had varied over the years from $15 million to $30 million and the bill was amended in the Committee on Education to reduce the distance from two miles to a mile and a half for elementary school children and raised the distance for high school students from two to three miles, which essentially eliminated the fiscal note. Mr. Manendo extended his appreciation to the members of the committee for their consideration of A.B. 124.

Mr. Dini asked if the current school formula provided for 75 percent of transportation costs incurred by school districts to be funded by the state.

Mr. Manendo expressed uncertainty in reference to the funding formula; however, he described the battles that took place at school board meetings when waivers were discussed to accommodate problem areas and it appeared funding was unavailable. Additionally, Mr. Manendo indicated that while the Clark County School District provided transportation at the two-mile radius, he had learned that Washoe County provided transportation at a one-mile radius.

Ms. Giunchigliani expressed concern in reference to Section 1, subsections (b) and (c) of A.B. 124 and indicated that she and Assemblywoman Cegavske had strongly suggested to the district that "bus-pass money" be used so that children on the two-mile border could ride the Citizens Area Transit (CAT) buses. Mr. Manendo indicated the CAT bus proposal was discussed in the Committee on Education. He commended the creative business and government collaboration approach and stated that he wanted to ensure that the elementary school children were transported to school safely.

Ms. Giunchigliani called on Doug Thunder, Deputy Superintendent for Administrative and Fiscal Services, Department of Education, to respond to Mr. Dini's question on formula funding for transportation. Mr. Thunder identified himself for the record and stated that transportation was included in the formula as an equalization element. Currently, he stated the average statewide formula for transportation was $256 per student, which was part of the formula that determined the total basic support amount. Mr. Thunder explained that the number varied significantly from district to district and was one of the reasons the basic support amounts for each district were different. Additionally, Mr. Thunder explained that there was an 85 percent element built into the formula for transportation costs. In response to a question from Ms. Giunchigliani, Mr. Thunder indicated that in the rural areas there would be fewer students to transport over longer distances and so the cost per student increased.

Martha G. Tittle, Legislative Representative for the Clark County School District, identified herself for the record and spoke in opposition to A.B. 124.

Ms. Tittle testified that, as a representative of the Clark County School District, she supported the efforts of Assemblyman Manendo to improve the transportation service for the students in the Clark County School District. Ms. Tittle stated that the Clark County School District wanted to continue working cooperatively to obtain funding for the purpose of reducing the walking distance for elementary school students.

As previously discussed, Ms. Tittle advised that A.B. 124 required the district to provide transportation for:

All elementary students who resided 1.5 miles or more from their school of attendance;

All junior high or middle school students who resided two or more miles from their school of attendance; and,

All high school students who resided three or more miles from their school of attendance.

Ms. Tittle reported that the district currently provided transportation for K-12 students who were within 2 miles or more from their zoned schools. Additionally, exceptions for safety purposes were made to that limit. Ms. Tittle indicated that 155 hazard zones within 2 miles were identified last year, and over 5,500 special needs students were transported directly to and from their residences. Currently, Ms. Tittle advised there were over 950 buses to transport approximately 86,000 students who were eligible for daily transportation services.

Ms. Tittle pointed out that the Clark County School District budget and statistical report for FY2000-01 stated that transportation costs were approximately $48 million, or 1.4 percent of the General Fund budget, and were expected to continue to increase due to enrollment growth and increased fuel costs. Those expenditures did not include costs associated with bus purchases which presently ranged from $8 million to $10 million a year.

Due to fiscal constraints, Ms. Tittle stated that the Clark County School District opposed A.B. 124 unless additional funding for buses could be provided. Ms. Tittle explained that the deterrent to the district's ability to improve transportation had been an inability to fund the cost. As a result of present budget shortfalls, the district had reduced over $50 million from the FY2000-01 budget and estimated another $16 million in budget reductions.

One area included in the reduction was that of increasing the limit to three miles for transportation services to high school students, which represented a savings of approximately $2.5 million that was now included in the Clark County School District budget. If required to reduce the limit to 1.5 miles for elementary students, the district would transport approximately 9,500 additional students and incur $2.5 to $3 million in additional operating costs, as well as the addition of about 100 buses at $90,000-$100,000 each or approximately $10 million.

A.B. 124 proposed to change the current statutory language regarding transportation of students from permissive to mandatory and would remove the authority of the local board of school trustees to work with the community in addressing issues based upon available resources.

Additionally, the language in A.B. 124, Section 1, subsection 2 (a), (b), and (c), page 2, lines 2, 4, and 6 stated ". . . from their school of attendance," and Ms. Tittle pointed out that inclusion of elementary, middle, and high school students would impose an additional significant fiscal impact. Ms. Tittle advised that currently the district had over 18,000 students attending schools outside their zoned attendance area on zone variances. The language in the bill required transportation services for students who, in some cases, attended schools many miles from their residences who did not presently use transportation services. Ms. Tittle requested that, at a minimum, the language be amended on page 2, lines 2, 4, and 6 to state, ". . . from their zoned school of attendance." Ms. Tittle concluded her remarks, and, on behalf of the district, extended her appreciation to members of the committee for their assistance in obtaining additional support for transportation of students and for the time to address district concerns in reference to passage of A.B. 124.

In response to a question from Ms. Giunchigliani, Ms. Tittle said the basic issue was the cost of additional buses, not the operating costs which would be similar if the distance was increased to three miles for high school students and reduced to 1.5 miles for elementary school students. However, Ms. Tittle explained that the district used the increased cost to three miles for high school students to identify budget reductions in their current budget as a way to address current funding difficulties. In response to a question from Ms. Giunchigliani, Ms. Tittle advised that at least 100 additional buses would be required with a cost of $90,000 to $100,000 each.

Ms. Giunchigliani asked if the district had entered into negotiations with CAT to purchase student bus passes. Ms. Tittle responded that negotiations with CAT were ongoing and bus passes were currently provided for some students. However, Ms. Tittle explained the problem was the ability for CAT to handle the district's transportation needs. A point of discussion had been to look at some of the schools located in the central part of the city because bus routes had not yet been established in new growth areas. Ms. Giunchigliani indicated it was frustrating that a proposal had not been reached because it appeared that the number of additional buses could be reduced by offering subsidized passes to those in need and on a sliding scale for those who could afford to pay.

It was Mr. Beers' opinion that the intent of the proposed legislation could be accomplished with a simple decision of the school board in reference to the break points on the miles. Ms. Tittle responded that the cost was related to the need for additional buses to accommodate an increased number of students. Mr. Beers questioned whether the fiscal note had been updated for the amendments to the bill and reiterated his commentary on the mile break points. Ms. Tittle responded that the starting times for elementary students was not the same as for high school students. Mr. Beers and Ms. Tittle engaged in a brief exchange concerning school board decisions on the mile break point adjustments and the need for additional funding. Ms. Tittle affirmed that the school board had looked at all the various options and was supportive of decreasing the number of miles; however, maintained there was a fiscal impact. Mr. Beers disagreed on the fiscal impact and maintained there would be no need for additional buses if the mile break points were adjusted.

Ms. Giunchigliani agreed with Mr. Beers, however, indicated she had worked with the school board for four years to try to change the elementary, middle school, and high school start times. It was Ms. Giunchigliani's opinion that transportation ran the board and "not the other way around." Additionally, it was Ms. Giunchigliani’s opinion that the director of transportation refused "to think out of the box" and "found any reason he could to not have to do anything." Ms. Giunchigliani addressed eliminating the buses for high school students as an avenue to achieve cost savings and indicated that the students would find a way to get to school. However, Ms. Giunchigliani stated that the parents of elementary school children had a legitimate reason to ask for assistance in resolving the problem of the distance their children had to walk to school.

Mr. Hettrick was also of the opinion there were creative ways to get around Clark County's increased transportation costs. However, based on Mr. Thunder's earlier testimony, Mr. Hettrick asked if the state's availability for busing students statewide would be impacted by Clark County's transportation needs.

Mr. Thunder identified himself for the record and explained that the current formula was based on actual expenditures for the base year. Mr. Thunder indicated the problem would be how to include expenditures that were not a part of the base expenditures into the formula. Additionally, Mr. Thunder explained that the $250 average per student included for transportation translated into the flat amount "the districts were required to spend on transportation, and just one of the various elements in the whole package." Mr. Thunder pointed out that it became the responsibility of the boards of trustees of the school districts to take the total amount available and do the best budget job they could.

Charlotte Brothwell, Executive Director, Nevada Classified School Employees Association, identified herself for the record and advised the members of the committee that she represented school bus drivers. Ms. Brothwell stated that the Nevada Classified School Employees Association was working in concert with the Nevada Pupil Transportation Association to make legislators, parents, and school boards aware of the issues involved in the use of non-conforming vans for transporting students.

A recent school bus accident in Washington in which all the students were safely evacuated was discussed and an Internet photo (Exhibit H) of the accident was distributed to the members of the committee. Other accidents that involved school buses from which children were safely evacuated were also discussed. Ms. Brothwell called attention to the fact that many of the accidents in which school children were hurt were the ones that involved non-conforming vans. Additional documentation concerning the use of non-conforming vans was also distributed (Exhibit I).

A copy of the Nevada Attorney General Opinion 98-25 (Exhibit J), which addressed the use of passenger vans to transport pupils for school-related activities, was distributed to the committee. Ms. Brothwell read amended language into the record, which she indicated would make parents aware of the problems involved with the use of non-conforming vans and would alleviate school districts of any liability if such vans were used to transport students.

The board of trustees of any school districts may utilize school buses, which do not conform to the National Traffic and Motor Vehicle Safety Act Of 1966, for those students who have a written/notarized release from parents, guardians, authorizing the transportation of their students on such buses. Students whodo not have such a release cannot be transported in non‑conforming school buses.

Additionally, Ms. Brothwell credited Assemblyman Beers' idea concerning the adjustment of mile break points and cited a northern California area where the idea had been put to use and older children had to walk a longer distance to school than the younger students. Ms. Brothwell extended her appreciation to the members of the committee for hearing her testimony.

Hearing no requests for further discussion, the Chairman closed the hearing on A.B. 124.

Assembly Bill 324: Revises various provisions regarding regulation of mortgage brokers, mortgage agents, and mortgage companies. (BDR 54-491)

Assemblyman David Goldwater, District 10, identified himself for the record and testified that A.B. 324 was a follow-up to A.B. 64 of the 70^th Legislative Session that changed the regulatory structure of the mortgage industry in an effort to "clean up" an industry that appeared to be out of control. Mr. Goldwater pointed out that A.B. 64 had proven effective as seen with the investigation and near prosecution of Interstate Mortgage. Mr. Goldwater recalled the Harley Harmon Mortgage Company case, before the legislation was enacted, in which the state could not retrieve investor monies or even investigate activities over a two-year period. However, federal grand jury indictments revealed Nevada's statute and regulatory structure was weak.

Upon passage of A.B. 64, Nevada had the power to investigate and seize Interstate Mortgage, whose affairs were closed because of pending criminal prosecution. While investors were actually paid, the proprietor "bought his way" out of prison, however, Mr. Goldwater stated that the intended consequence of A.B. 64 was to make people aware of the gravity of the situation.

Mr. Goldwater indicated the mortgage industry's practice of soliciting investor money to loan in an effort to earn a rate of return concerned him and needed state regulation. Federal regulations applied to loaning institutional money, an area that did not appear to be abused. Mr. Goldwater commended the work of the Division of Financial Institutions and indicated they did a good job of monitoring financial institutions' financial health. Mr. Goldwater explained that the problems that existed were related to the activities of agents, marketing activities, and fraudulent deal making, the activities for which his constituents were most at risk. Therefore, Mr. Goldwater proposed a new regulatory system that was analogous to the way realtors were regulated. Mr. Goldwater explained that realtors had a regulatory body and maintained an agent-broker relationship, but also had their own commission that watched over the practice of their agents, and had proven effective and kept the industry reputable. It was Mr. Goldwater's opinion that the creation of a mortgage industry commission would better serve constituents than what was currently being practiced by the Division of Financial Institutions.

In reference to the fiscal impact of the bill, Mr. Goldwater explained that when he was approached by industry representatives to enact positive legislation for the industry, he indicated it would probably be expensive. Industry representatives agreed to pay the costs by fee, which Mr. Goldwater said was essentially the only fiscal impact. A budget would be developed that included auditors, examiners, staff, and whatever the industry and the association pledged to fund through their own fee revenue. Mr. Goldwater concluded his remarks and turned the microphone over to Ray Williams, President of the Nevada Association of Mortgage Brokers.

Ray Williams, President of the Nevada Association of Mortgage Brokers, as well as President of Las Vegas Mortgage Company, and Las Vegas Residential Real Estate Company, identified himself for the record. Mr. Williams introduced Leo Davenport, past President of Nevada Association of Mortgage Brokers, currently Legislative Chair, and Cathie Jackson-Ford, Vice President of the northern region for the Nevada Association of Mortgage Brokers.

Mr. Williams spoke in support A.B. 324 and addressed concerns that had been expressed among legislators at the federal and local levels regarding predatory lending. Mr. Williams discussed the regulation of mortgage companies, loan officers, agents, or mortgage agents, as referenced in the bill, and turned to page 3 of the document containing the proposed budget for A.B. 324 (Exhibit K). Mr. Williams pointed out that the budget was modeled on the Real Estate Commission's self-funded budget, which had been effective.

Mr. Williams provided an explanation of the Mortgage Commission Administrative Expense:

One Administrator $74,750 ($65,000 per year plus 15%)
Administrative Assistants (2) $69,000 ($30,000 plus 15% per year)
Office – Las Vegas $24,000
Office – Carson City $16,000
Supplies $ 5,000
Start-up $15,000 (computers, desks, chairs)
Travel $10,000 (travel between north and south)
Attorney General $34,500 ($30,000 plus 15% per year)

TOTAL $248,250

Mortgage Commission Proposed Income Sources:

Licensees $225,000 (450 brokers at current $500 annuallicense fee)

· Exempt Licensees $ 32,500 (325 exempt licenses at current $100 fee)

TOTAL $257,500

Mr. Williams noted that the proposed income provided a surplus for the proposed $248,250 budget. Additionally, Mr. Williams called attention to the registration of loan officers, which had been helpful in placing qualified individuals within the industry. While the registration process had been beneficial, Mr. Williams indicated the industry supported an annual fee rather than the current one-time fee. The loan officer registration fee was currently set at $70 and was suggested to increase to $100. The 3,500 registered loan officers would provide $350,000 in other income sources, if the fee was increased to $100.

Additionally, Mr. Williams discussed the examination expense and explained brokers were billed $40 an hour for an examiner to administer an examination. The annual salary for an examiner was determined to be $45,000 a year or about $25 per hour. After establishing the need for two examiners, Mr. Williams pointed out that the examination fee would offset the cost of the examiner positions. Mr. Williams indicated that the need for the number of examiners was still under review and explained that the state's 13 examiners spent 75 percent of their time working on depository institutions. Mr. Williams explained not that much time was required for mortgage brokers because they were using institutional money, and the loans were examined by those to whom the loans were sold. Additionally, the smaller mortgage brokers, involved in FHA loans, were required to have a full CPA yearly audit for HUD, Housing and Urban Development, which cost between $8,000 and $12,000.

Mr. Goldwater stated that A.B. 324 was drafted in response to a need for the examination and regulation of mortgage brokers and because the Division of Financial Institutions was already heavily burdened, Nevada citizens were not as well served as they could be by an individual commission. Mr. Goldwater pointed out the most important fiscal impact was that Financial Institutions would have a fiscal note in which duties would be detailed. Noting a "distinctly different tone" than in the previous session concerning A.B. 64, Mr. Goldwater called attention to the industry's willingness to pay by fee for increased regulation. Additionally, Mr. Goldwater commended the industry's work on the budget.

Mrs. Chowning spoke in support of A.B. 324 and looked forward to the bill becoming law. As a licensed real estate agent, Mrs. Chowning said that the Real Estate Commission had served an excellent purpose in monitoring, overseeing, and fining, if necessary, real estate agents for inappropriate behavior.

Mrs. Chowning noted that Section 19 (5) indicated the commission could administer a fine of not more than $10,000 for each violation a person had knowingly made or caused to be made to the commission of any false representation of material fact. Additionally, Mrs. Chowning called attention to page 8, subsection (i), which she hoped would include information required of those who represented themselves as bilingual agents. Mrs. Chowning spoke of persons who claimed to be bilingual, however, in most cases, spoke and conducted all transactions only in Spanish while the forms their clients were required to sign were in English, which presented a disclosure problem. Mrs. Chowning, who was bilingual, described her own experience assisting people who did not realize they signed a mortgage document with a pre‑payment penalty. Mrs. Chowning spoke of the abuses committed by people closing down shop in one name and quickly reopening under another name before they were caught. Attention was also called to the portions of the bill that addressed the discipline and registration of loan officers, which she said were extremely important. While it was Mrs. Chowning's opinion that licensing was also important, she described the registration process as "a walk‑before‑you-run approach." Mrs. Chowning concluded by saying how impressed she was that the industry was trying to police themselves.

Mr. Goldwater expressed his appreciation for Mrs. Chowning's support. Additionally, Mr. Goldwater pointed out that all the functions drafted in the bill were generally ones that the Division of Financial Institutions had the capability to perform. However, Mr. Goldwater indicated that Financial Institutions was more concerned with financial stability of the institution and not as concerned with the activities of the brokers, which was the reason the same functions were proposed for the commission.

Leo Davenport, past president, Nevada Association of Mortgage Brokers, identified himself for the record and commented that HUD had developed a form in Spanish that would be available July 2001.

Scott Walshaw, Commissioner, Division of Financial Institutions, identified himself for the record and testified that he was representing the Director of the Department of Business and Industry, who was unable to attend the hearing. Mr. Walshaw reported that the director's office had not seen the fiscal information presented during the hearing. At the director's request, Mr. Walshaw asked for the opportunity to review and comment on the proposed legislation. Once the material had been reviewed, Mr. Walshaw said representatives of the department would provide their comments to the committee.

Chairman Arberry asked Mr. Walshaw how A.B. 324 would affect the Division of Financial Institutions' budget. Mr. Walshaw discussed the division's fiscal note (Exhibit L) that demonstrated the impact from a revenue and expenditure standpoint. Mr. Walshaw pointed out the division's fiscal note was similar to the revenue figures presented by the industry during the hearing; however, he noted the division might not hire some examiner positions that were currently vacant. Mr. Walshaw said the expenditure side of the equation differed from the industry's because the division had other areas of responsibility for which they needed to maintain staff and infrastructure. Mr. Walshaw reiterated his request that the division be afforded the opportunity to reconcile the provisions outlined in the fiscal note to the industry's budget.

Hearing no requests for further discussion, the Chairman closed the hearing on A.B. 324.

Assembly Bill 416: Revises provisions governing special education and class size. (BDR 34-1085)

Assemblywoman Giunchigliani, District 9, identified herself for the record and testified that A.B. 416 addressed legislation governing special education and class size that had been amended and passed out of the Assembly Committee on Education. Additional suggested amendments (Exhibit M) were distributed to the members of the committee. Apologies were extended to the members who had been "inundated' with e‑mail concerning the presumption that the bill deleted the Gifted and Talented Education (GATE) program. Ms. Giunchigliani said that language had been developed to make it clear the program was not deleted.

Ms. Giunchigliani addressed the issue of full funding for special education and the fact that the federal government only funded 9 percent of the 40 percent allocated to states. Nevada currently funded 55 percent of the local revenues for special education units and the bill proposed moving the state to a 60:40 partnership over the next two biennia. In order to accomplish that part of the legislation, the term "gifted and talented" was deleted in Section 6 since it existed in another section. However, to make it less complicated, Ms. Giunchigliani indicated that Sections 1, 3, 4, 5, and 6 could be deleted to leave only the transitory language concerning how special education unit funding would come about.

Ms. Giunchigliani also suggested deleting the whereas preamble in lines 7, 8, and 9, on page 2, to avoid the implication that special education students should not be mainstreamed into regular classes. Ms. Giunchigliani said that the preamble language attempted to recognize that as mainstreaming occurred, some classes that had a majority of students from the "resource room" might have an impact on those students as well as on an untrained teacher. School boards would be encouraged to be certain that they did not mainstream too many special education students into classes and also recognize the impact on the general education program.

Section 7 of the bill recommended class-size reduction for kindergarten students. While Ms. Giunchigliani understood the limited funding availability, she discussed the need for adoption of some form of tax during the current session to fund programs not only for class-size reduction, but also the many other programs which required assistance. Ms. Giunchigliani described situations in which the first introduction to public schools for five- and six‑year‑old children was classes with sometimes up to 42 children. Ms. Giunchigliani indicated that class-size reduction for kindergarten had been funded for only 23.5 at-risk schools. The amended language suggested consideration for providing a pool of dollars to the State Board of Education to fund class-size reduction for kindergarten classes. The language allowed school districts to request funding to address those sites with the largest class size.

Ms. Giunchigliani mentioned the school districts' concerns in reference to unfunded mandates and turned to the language on page 4, Section 7, (2) concerning team teaching. Ms. Giunchigliani asked the committee to recognize that team teaching was a good concept if the ability to choose a partner within the classroom existed. Criticisms from teachers indicated that sometimes 35 children or more were placed in classrooms because there were two teachers. Ms. Giunchigliani called attention to the safety issue as well as to the fact that the educational process was impeded with so many children in a room. The amended language in Section 7, (2) suggested that school districts be permitted to apply for a variance which would document, for the following session, schools with more than 35 students per classroom for two teachers. Additionally, subsection 3 on page 4 addressed the number of students for which elementary physical education teachers were responsible. Ms. Giunchigliani described situations in which elementary physical education teachers sometimes had more than 60 children to teach, which was an issue of safety. Ms. Giunchigliani said that while an aide would at least be of assistance, the number of pupils should not go beyond 40 pupils. Suggested language, to amend the bill, proposed that a variance could be requested by the districts which would provide a tracking mechanism for information that could be used in the following legislative session.

The amendment also provided language that suggested deleting Sections 8 and 9, which related to early childhood education and family literacy programs and for the expansion of the Head Start program. Ms. Giunchigliani clarified, for the record, she believed in the importance of the early childhood programs, however, felt the limited budget would probably not provide an opportunity to effectively argue for the funding. Additionally, Ms. Giunchigliani said that if the committee chose to move forward on the additional funding to go from 55 percent to 56 percent, she would accept a motion or amendment to delay the increase to begin the next biennia, which she said would ease some of the financial burden.

Mrs. Chowning asked if the amended language in Section 6 (4) would remove all concern that the GATE program had been deleted. Ms. Giunchigliani indicated she had tried to respond to all those persons who had corresponded by e-mail to assure them the GATE program would be maintained. Additionally, Ms. Giunchigliani said the Clark County School District had also issued an e-mail to the principals and asked them to communicate to parents and others that the GATE program would be maintained. Ms. Giunchigliani explained that the issue had been that while GATE was funded in the budget and not affected, the program currently received approximately 30.5 units from special education dollars. The bill drafters felt the easiest way to segregate the full funding for the special education units was to add the language "for the education of pupils with disabilities" in Section 6 only since the GATE language existed in other parts of the statute and delete the language "gifted and talented pupils"so that it was understood it was for the ongoing revenue; however, the bill drafters determined that Sections 1, 3, 4, 5, and 6 could be deleted to leave only the transitory language for the funding in Section 10.

In response to a question from Mrs. Cegavske concerning federal funds, Ms. Giunchigliani provided assurance that federal funds would not be jeopardized because GATE was not a special education program. Ms. Giunchigliani recalled that in 1987 the legislature funded a program for gifted and talented children as the majority of the GATE was locally funded; however, the program currently had 30.5 units from special education funding to fund the GATE program.

Martha Tittle, Legislative Representative, Clark County School District, identified herself for the record, and, on behalf of the district, expressed her appreciation to Ms. Giunchigliani for working with the district on the proposed legislation. Ms. Giunchigliani was commended for her work on class-size reduction and the amendment that requested a funding mechanism to reduce class size for kindergarten. In view of the large number of kindergarten classes, Ms. Tittle offered a suggestion that the committee consider beginning class-size reduction for kindergarten students in the "at-risk schools." Additionally, Ms. Tittle noted the language on page 4, Section 7 (2), which addressed team teaching and the number of pupils not to exceed 35 was acceptable. Ms. Tittle discussed Section 7 (3), which addressed physical education teachers and pointed out that physical education in elementary schools was funded with a teacher and one aide at a ratio of 1:60. Ms. Tittle asked for the committee's understanding that reducing the ratio, by increasing the number of teachers and eliminating aides, would have a fiscal impact on the district of $4 million.

Hearing no requests for further discussion, the Chairman closed the hearing on A.B. 416.

Assembly Bill 453: Authorizes medical use of marijuana in certain circumstances and revises penalties for possessing marijuana. (BDR 40 121)

Assemblywoman Chris Giunchigliani, District 9, identified herself for the record and reported that A.B. 453 was voted out of the Assembly Committee on Judiciary and referred to the Assembly Committee on Ways and Means as it contained an appropriation not included in The Executive Budget.

Ms. Giunchigliani stated that the A.B. 453 legislation served two purposes:

Enactment of the medical marijuana petition voted on by the public and supported overwhelmingly on two separate occasions; and

Codified current practices concerning defelonization of marijuana use for an ounce or less.

Ms. Giunchigliani discussed the suggested amendments and explained that osteopaths had not been anticipated to participate or permitted under the legislation. While Ms. Giunchigliani indicated a comfort level with doctors licensed under Nevada Revised Statutes (NRS) 630, she indicated it was acceptable to her if the committee wanted to "entertain allowing doctors licensed under NRS 633." Additionally, Ms. Giunchigliani turned to page 3, Section 15, and indicated that while she had not yet received a response from the Legal Division, line 2 might have to be deleted. Ms. Giunchigliani also called attention to Section 36, (1), which deleted "may"and inserted "must" to make the section compatible with the remainder of the section.

Ms. Giunchigliani provided a packet of articles and letters (Exhibit N) in support of A.B. 453 and referred to the Rose Commission, which was created and chaired by the Honorable Justice Robert Rose and represented by other law enforcement officials. Ms. Giunchigliani pointed out that the Rose Commission had dealt with the defelonization issue on two separate occasions and had asked that the legislature look at reducing the penalty to a misdemeanor for an ounce or less of marijuana. Ms. Giunchigliani cited 1999 Clark County statistics that indicated there were 1,467 possessions of marijuana "almost all reduced to a misdemeanor," and explained that while the legislation did not excuse behavior or allow trafficking, it simply recognized the practice and prohibited a penalty that could be used to discriminate against individuals "out on the street."

In reference to the medical marijuana portion of the bill, Ms. Giunchigliani compared the 223,892 votes Governor Guinn received in his election to office with the 380,926 votes Question 9 received and also pointed out that Question 9, on a statewide-basis, received more votes than most legislators. It was Ms. Giunchigliani's opinion that the public reacted intelligently to whom and on what they were voting and understood approving legislation did not condone drug use, however, recognized that there were some treatments that needed to be made available.

Ms. Giunchigliani explained that the bill was established through the Department of Agriculture and that the Department of Motor Vehicles (DMV) and the Health Division would assist with implementation of the program. Ms. Giunchigliani indicated she had met with representatives of the three agencies, and it had been determined that up to $150 could be charged for a registry card. Past testimony provided information that some very ill people would find the fee too expensive. Ms. Giunchigliani explained that Oregon provided their database and application forms which could be modified for Nevada's use and would help reduce costs. Ms. Giunchigliani said it was felt that if the program began with a registration fee of $50, the fee could be escalated on an as-needed basis.

Ms. Giunchigliani pointed out that Oregon's program had a deficit during the first two years that had been attributed to not having start-up dollars. Nevada's Department of Agriculture indicated the program could be sustained for the first two years with a $25,000 one-shot appropriation that would be considered start-up dollars and registry fees that would cover the balance of the cost. Funds that were not utilized would be reverted. Additionally, Ms. Giunchigliani explained that the DMV would need $2,250 to develop a State of Nevada type of identification card that would be used until DMV moved to a digitized licensing program. It was Ms. Giunchigliani's opinion that the $50,000 one-shot appropriation could be reduced to about $30,000.

Mrs. Chowning testified that a friend's life had been extended by several years through the use of medical marijuana provided in a tablet. Mrs. Chowning asked if the drug would be dispensed in tablet form. Ms. Giunchigliani responded that the drug in a tablet was dispensed as Marinol and the Drug Enforcement Administration (DEA) had recently reduced Marinol from a schedule 4 to a schedule 3 drug, which meant it could be legally dispensed. Ms. Giunchigliani explained that not all individuals were affected in the same way by a medication. Medical doctors in California and Oregon had determined that if Marinol provided relief for an individual, there would be no need to smoke the drug. However, if relief was not provided, smoking would be the treatment of last resort. Ms. Giunchigliani noted that Oregon started their medical marijuana program with about 400 people which had increased to 1,900 with only two reported instances of fraudulent issues concerning registry cards.

Chairman Arberry asked if medical marijuana could be used anywhere. Ms. Giunchigliani referred to Section 24 (1) on page 8, and indicated "a person who was authorized to engage or assist in the medical use of marijuana could not drive, operate, or be in control of a vehicle or vessel under power or sail or engage in any other conduct that was already prohibited in statute." Additionally, Ms. Giunchigliani said that individuals could not possess a firearm while smoking, nor could the drug be used in any public place or any place open to the public or exposed in any public view.

Mrs. Cegavske called attention to the fact that the members of the public had voted for Ballot Question 9, not the amended version of the bill and asked for information on how the proposed legislation differed from the ballot question. Ms. Giunchigliani responded that a criminal repository check and defelonization for an ounce or less of marijuana had been included in the bill.

Mrs. Cegavske indicated that in her work with treatment programs, it appeared that problems for the majority of adolescents began with alcohol and marijuana. While not everyone agreed that marijuana was a gateway drug, Mrs. Cegavske expressed concern that the defelonization issue would send the wrong message to adolescents.

Mrs. Cegavske expressed support for the medical use of marijuana, dispensed as Marinol, however, raised issues that addressed regulating growing the plant. Ms. Giunchigliani referred to page 14 of the bill, which covered the sections on the defelonization issue, and also commented on Assemblyman Carpenter's supportive legislation that requested an initial assessment for an individual with a first-time prescription to actually determine if there was a drug problem. Unlike other states, Ms. Giunchigliani said a second offense in Nevada required referral to drug court or rehabilitation. Additionally, any fines collected must be allocated to nonprofit drug programs, drug court, and law enforcement. Ms. Giunchigliani indicated that Nevada did not want to be perceived as condoning the use of marijuana, but, through the bill, recognized the occurrence and the need for intervention. Additionally, Ms. Giunchigliani explained that juvenile offenders were not addressed in the bill because juveniles charged with a felony were automatically referred to drug rehabilitation programs. Ms. Giunchigliani expressed her belief that marijuana was not a gateway drug and that scientific studies were beginning to show that alcohol and tobacco were more likely to lead to hard-core drugs. The legislation attempted to recognize the need to avoid making an individual a felon for an ounce or less of marijuana and recognized what other states had done.

In reference to the question on growing the plant, Ms. Giunchigliani indicated she had presented a state-run program, which she found would not be feasible after speaking with officials at the DEA. However, individuals growing plants in their own home would be permitted to do so.

Mrs. Cegavske continued to express concern in reference to the wrong message being sent to adolescents. Ms. Giunchigliani pointed out that possession would remain a crime, but not a felony and indicated she did not believe a person should be labeled a felon for a lapse in judgment. Ms. Giunchigliani reiterated once again that the legislation did not condone the use of the drug but simply recognized its occurrence and that the state was looking at the long-term impact on those individuals who had chosen to use it. However, Ms. Giunchigliani pointed out that an individual caught trafficking would go to jail.

Mrs. Cegavske continued to express concern in reference to what appeared to be unresolved issues and potential problems. Ms. Giunchigliani responded that she had relied on information from California and Oregon based on their passage of similar legislation and the fact that they did not have any of the problems or abuses that had been anticipated. Additionally, Ms. Giunchigliani commented on the protections built into the legislation and the fact that the members of the public had spoken.

Mr. Goldwater commented that drugs such as Prozac, Xanex, and Ritalin were more likely to be considered gateway drugs.

Ms. Giunchigliani indicated she had learned from studies that marijuana was an habitual drug but was not addictive.

In response to questions from Chairman Arberry, Ms. Giunchigliani advised that an incarcerated individual, diagnosed with cancer, would not be permitted to apply for medical marijuana, nor permitted to grow plants in prison.

Mr. Beers questioned the fiscal note and was referred to page 21, Section 48, which indicated a one-time $50,000 appropriation. Ms. Giunchigliani pointed out that in her earlier remarks, the fiscal note could be reduced to $30,000.

In response to a question from Mrs. de Braga concerning funding, Ms. Giunchigliani explained that the one-time appropriation and fees generated by the registry process would provide the operating expenses for the Department of Agriculture, DMV, and the Health Division. Ms. Giunchigliani commended the work of all three state agencies that culminated in a simple, inexpensive, and streamlined process authorizing the use of medical marijuana.

Hearing no requests for further discussion, the Chairman closed the hearing on A.B. 453.

PRISON INDUSTRY (525-3719) – BUDGET PAGE PRISONS-210

Carla Watson, Program Analyst, Legislative Counsel Bureau (LCB), identified herself for the record and discussed the following technical adjustment by staff:

Increased revenue for license plate charges by $34,584 in FY2002 and $49,393 in FY2003 based on information provided by the Department of Motor Vehicles and Public Safety (DMV&PS).

Mr. Marvel asked if reconciliation had occurred with the DMV concerning the license plate issue. Ms. Watson had recently learned that the DMV did not separate the reissues from the regular plates and indicated that it appeared uncertain reconciliation could take place.

MS. GIUNCHIGLIANI MOVED TO CLOSE THE PRISON INDUSTRY BUDGET AS RECOMMENDED BY STAFF WITH TECHNICAL ADJUSTMENTS.

MRS. CHOWNING SECONDED THE MOTION.

THE MOTION CARRIED. (Mr. Perkins was not present for the vote.)

BUDGET CLOSED.

********

PRISON DAIRY (BUDGET ACCOUNT 525-3727) – BUDGET PAGE PRISONS-218

Ms. Watson discussed the following technical adjustment:

Adjusted reserve and balance forward in FY2003 to include the General Fund loan payback.

Ms. Watson addressed the following decision units:

M-200 – The M-200 module recommended increases to the reserve of $87,050 in each year of the biennium due to the expansion of two programs: 1) The Feeder Steer Program proposed to increase the herd size by 80 steers for a total of 150. The revenue from the program grossed an average of $860 per steer which would generate $68,800 in each year of the 2001-03 biennium. 2) The Department of Agriculture requested additional corrals to hold 40 additional horses. It was anticipated that 25 more estray horses boarded per day would result in an increase of $18,250 in revenue per year;

E-125 – The E-125 module established the Estray Horse Program in conjunction with the Bureau of Land Management (BLM). The BLM would pay $2.75 per day for each horse entered into the program; revenue streams and operating costs recommended in this module were $273,000 in FY2002 and $365,000 in FY2003;

E-150 – The Nevada Department of Prisons (NDOP), in conjunction with the Department of Agriculture, operated an Estray Program for wild horses caught on state land. When closing the Agriculture Veterinary Medical Services Budget Account 4550, the Joint Subcommittee on General Government recommended transferring two components of the Estray Horse Program from the Department of Agriculture to Prison Industry: 1) The position assigned to supervise the gentling program was transferred from the Department of Agriculture to the NDOP; and, 2) proceeds from the sale of gentled horses would be received by the NDOP dairy account;

Ms. Watson explained that staff created the module to establish the revenue stream for proceeds from the sales at $10,500 per year, which was forecasted by the Department of Agriculture. Additionally, the module provided start-up funding for the salary cost of $30,000 to be transferred from the Prison Industry reserve in FY2002 and paid back in FY2003.

E-710 – The E-710 module recommended funding of $35,500 in FY2002 and $12,000 in FY2003 from the reserve for the following replacement equipment:

ü Replace sprinklers each year.

ü Provide funding for walk-in cooler.

ü Cream separator.

ü Livestock trailer.

E-720 – The E-720 module recommended funding of $4,500 from the reserve in FY2003 for an electronic livestock scale; and,

E-850 – The E-850 module recommended funding of $85,000 in FY2002 from the reserve for the construction of a mechanic's building and funding of $37,100 in FY2003 from the reserve for a barn. The department indicated the barn would reduce medical costs and increase milk production. Medical costs were estimated at $4,000 to $6,000 for infected cows. Staff reduced operating costs by $4,000 each year for the anticipated reduction in medical costs.

Ms. Watson discussed S.B. 443 which recommended a one-shot appropriation of $200,000 for the Prison Dairy Budget Account 3727 and would be repaid over a period of ten years. The funding would construct holding facilities for wild horses located adjacent to the prison ranch.

The ending reserve balance for the Prison Industry Budget Account 3719 exceeded $2 million in each year of the biennium, and Ms. Watson suggested that the committee might wish to fund the construction project instead with a transfer from the Prison Industry account to the Prison Dairy account. The Prison Dairy account would repay the loan at $20,000 per year over a period of ten years.

MR. MARVEL MOVED TO CLOSE THE BUDGET AS STAFF RECOMMENDED WITH THE TRANSFER ADJUSTMENT TO THE PRISON DAIRY.

MRS. CEGAVSKE SECONDED THE MOTION.

THE MOTION CARRIED UNANIMOUSLY.

********

OFFICE OF THE GOVERNOR (101-1000) – BUDGET PAGE ELECTED-1

Mark Stevens, Assembly Fiscal Analyst, LCB, identified himself for the record and called attention to the fact that the 1999 legislature approved A.B. 660, which placed the Governor's staff in non-classified status with their salaries set by the Governor within the amount appropriated to the Governor's Office by the legislature.

Mr. Stevens discussed the following closing issues:

M-200 – Decision unit M-200 provided five new positions including a Deputy Policy Advisor, Legislative Director, Policy Analyst, and two Executive Assistants. The budget narrative indicated that the positions were needed to meet the growing demand in the Governor's Office;

M-201 – Decision unit M-201 recommended $157,112 in FY2001-02 and $145,530 in FY2002-03 for the creation of the Family Resources Program. Two new positions, a Family Resources Coordinator and an Executive Assistant were recommended. The program was designed to identify the availability of services for children and families in Nevada from all sources in both the public and private sector and to direct Nevada citizens to the most appropriate entity for the receipt of those services.

Mr. Stevens reported that the Office of Science, Engineering, and Technology, established in 1993 as part of the Governor's Office, had been located in a number of areas, and The Executive Budget recommended the transfer of the office from the University and Community College System (UCCSN) to the Governor's Office. A General Fund appropriation of $280,081 in FY2001-02 and $255,427 in FY2002-03 was recommended to support the office in the upcoming biennium. Mr. Stevens noted the budget narrative recommended that authorization be given for the retention of necessary staff as determined by the Governor to be necessary to implement the program. Mr. Stevens also noted that the Governor and leadership had suggested that because of the current shortfall in General Fund revenues, the appropriation recommended for the Office of Science, Engineering, and Technology could be reduced by $50,000 in each year of the biennium.

Chairman Arberry noted that the staff for the Office of Science, Engineering, and Technology had been moved frequently since the office was established.

Mr. Marvel recalled that when the Office of Science, Engineering, and Technology was first established, funding was to have been provided through federal grants and not General Fund revenue. Mr. Stevens responded that when Governor Miller initially recommended the Office of Science, Engineering, and Technology, the office was to have been supported entirely by federal grants and gifts. Mr. Stevens explained that a gift was received to initiate the establishment of the office; however, the grants did not materialize. The office was supported by General Fund dollars in the current biennium and funding was included in the Governor's budget for the next biennium at $280,081 in FY2001-02 and $255,427 in FY2002-03.

Ms. Giunchigliani referred to decision unit M-201 and recalled that when the plan for the creation of the Family Resources Program within the Governor's Office was heard in subcommittee, there was no plan on how the funding would be allocated.

Ms. Leslie also expressed concern in reference to decision unit M-201, which she understood initially was to have been called the Office of Children and Families. Ms. Leslie indicated the positions requested in the budget would be utilized only to answer phone calls and refer families to services which was the same service provided by Family Resource Centers. Ms. Leslie indicated she could not support decision unit M-201.

Mr. Stevens indicated that the information he had provided to the members of the committee was from The Executive Budget, and he was not aware of any additional information the members may have received.

Mrs. Chowning also indicated concerns with decision unit M-201 and questioned whether creation of the Family Resources Program was a recommendation from the Joint Subcommittee on Human Resources. Mrs. Chowning pointed out that the Family Resource Centers in her district were "working extremely well" and served many families. Mrs. Chowning questioned whether funding was being taken from the Family Resource Centers and included in the Family Resources Program. Ms. Giunchigliani responded that the Joint Subcommittee on Human Resources had not recommended the Family Resources Program; however, had "unbundled" the grants management unit and restored the Family-to-Family Program and Family Resource Centers. Ms. Giunchigliani indicated the subcommittee had not understood how the Family Resources Program would interact with the other programs and indicated a plan had not yet been received.

MS. GIUNCHIGLIANI MOVED TO CLOSE THE BUDGET FOR THE OFFICE OF THE GOVERNOR MINUS THE FAMILY RESOURCES PROGRAM POSITIONS AND TO ELIMINATE THE OFFICE OF SCIENCE, ENGINEERING, AND TECHNOLOGY.

MRS. DE BRAGA SECONDED THE MOTION.

THE MOTION CARRIED UNANIMOUSLY.

BUDGET CLOSED.

********

MANSION MAINTENANCE (101-1001) – BUDGET PAGE ELECTED-5

Mr. Stevens reported that the account provided for the expenditures of the mansion and staff supported the Governor's recommendations.

MR. MARVEL MOVED TO CLOSE THE BUDGET AS RECOMMENDED BY THE GOVERNOR.

MR. HETTRICK SECONDED THE MOTION.

THE MOTION CARRIED UNANIMOUSLY.

BUDGET CLOSED.

********

Chairman Arberry recessed the meeting at 10:54.

Chairman Arberry reconvened the meeting at 1:14 p.m.

ATTORNEY GENERAL ADMINISTRATIVE FUND (101-1030) – BUDGET PAGE ELECTED-26

Rick Combs, Program Analyst, Fiscal Analysis Division, Legislative Counsel Bureau, identified himself for the record and reported the following technical adjustments:

Removed grant revenue for criminal alien assistance, which was passed through from the Office of the Attorney General to the Nevada Department of Prisons. The grant, during the past year, was awarded directly to the Department of Prisons;

The transfer from the Attorney General's Victims of Domestic Violence Budget Account 1042 was increased in the base budget. The transfer from Budget Account 1042 funded 100 percent of the costs for a Grants and Projects Analyst Supervisor position and 50 percent of the costs for a Grants and Projects Analyst position in the account;

Expenditures for non-state-owned building rent was increased by $7,892 in each year of the biennium based on information provided by the Office of the Attorney General;

Expenditures for state-owned building rent were reduced in decision unit M-100 by $21,423 in FY2002 and $121,267 in FY2003 based on rent expenditures allocated to other Attorney General accounts. The large decrease in FY2003 was related to the Attorney General's request for space in the old Carson City courthouse. The rent was placed in the Administrative account and the Attorney General testified in an earlier hearing that employees allocated to other accounts would be housed in the remodeled space as well as some employees in Budget Account 1030;

Revenues and expenditures recommended in decision unit M-303 for the reclassification of a number of positions, based on the Department of Personnel's occupational study, were adjusted to match the findings of the occupational study and to correct data entry errors; and,

Computer hardware and software expenditures were reduced based on the Purchasing Division's updated pricing information.

Mr. Combs discussed the following budget closing issues:

The Attorney General's cost allocation plan was provided to the Fiscal Analysis Division on April 23, 2001. The Executive Budget recommended receipt of boards and commission charges in the amounts of $645,294 in FY2002 and $685,317 in FY2003. During FY2000, the office was budgeted to receive $554,000 in board and commission revenue and only $396,504 was collected.

The final version of the cost allocation plan indicated that the office should collect $468,866 in FY2002 and $804,978 in FY2003; however, the Office of the Attorney General did not believe that the amount recommended for FY2003 was achievable. While no explanation was provided on why the increase occurred in the cost allocation plan in FY2003, Mr. Combs surmised it had something to do with the lower amounts collected in FY2000 and how the cost allocation plan handled "rollovers" for funds not collected in previous years.

The Fiscal Analysis staff believed it would be difficult for the Office of the Attorney General to increase fees to a level that would produce $804,978 in FY2003. The Attorney General indicated, however, that the office could increase its board and commission charges to $500,000 in FY2003.

Mr. Combs indicated the committee would have to determine whether to include the amount recommended in the cost allocation plan for board and commission charges or whether it wished to reduce the amount to a level the Office of the Attorney General found more reasonable.

The M-200 decision unit recommended establishment of a Tobacco Enforcement Unit within the budget that had been previously funded through a work program in FY2000-01. The work program funded the Tobacco Enforcement Unit through a transfer from the Food and Drug Administration (FDA). The United States Supreme Court ruled the FDA did not have authority to regulate the sale of tobacco to minors, which eliminated the funding available to the M-200 decision unit.

The Attorney General requested funding from the Task Force for the Fund for a Healthy Nevada, at its meeting on September 27-28, 2000, which was denied. The Executive Budget recommended funding the program through a grant from the Bureau of Alcohol and Drug Abuse totaling $70,000 and through an allocation from the Fund for a Healthy Nevada totaling $238,501 in FY2002 and $251,825 in FY2003. The General Fund appropriation that was provided for the program was eliminated in decision unit M-200.

The Office of the Attorney General indicated it was important to ensure the program's continuation because, according to the Synar Amendment, the state would lose $3.8 million in substance abuse block grant funding received by the Bureau of Alcohol and Drug Abuse (BADA) if the "youth buy rate" increased above 20 percent.

Mr. Combs indicated that while the final federal Omnibus Appropriation bill prevented the reduction of funds based on the Synar Amendment, states that were not in compliance with the Synar Amendment had to significantly increase the amount of state funding they currently allocated to prohibiting youths from buying cigarettes. Mr. Combs summarized that if Nevada fell out of compliance with the Synar Amendment, a reduction in the BADA grant or a requirement that other state funds had to be allocated to the program would occur. Based on the finding, staff recommended that the Tobacco Enforcement Unit be funded with funds from the National Tobacco Settlement. Mr. Combs explained that a decision to fund the unit with funds from the National Tobacco Settlement would require language to be included in the Authorizations Act if the committee wished to ensure the funding was provided. Currently statute provided that authority directly to the Task Force for the Fund for a Healthy Nevada to determine where those funds would be spent.

Decision unit M-201 provided for the continuation of a full-time Deputy Attorney General position that was approved by the Interim Finance Committee for the Division of Financial Institutions in response to the passage of A.B. 64 from the 70^th Legislative Session. The deputy initially hired did not spend full time on Financial Institutions matters; however, recent developments indicated the deputy spent 100 percent of his time on matters related to A.B. 64 and other mortgage industry issues.

Decision unit E-275 recommended funding two full-time Attorney positions and a full-time Legal Secretary position. The Executive Budget recommended one attorney to provide legal services for the Child Support Enforcement Program; however, the Attorney General indicated, during previous money committee hearings, that the budget should have been approved to provide support for the Division of Child and Family Services in Clark County. The position was funded in The Executive Budget entirely through cost allocation revenue. Mr. Combs said that if the position was going to represent the Division of Child and Family Services, the more appropriate way to fund it would have been 50 percent through General Fund appropriation and 50 percent through the cost allocation plan. Approval of the position would require more General Fund dollars than placed in The Executive Budget.

The Governor also recommended transferring delivery of child welfare services in Washoe County and Clark County to those counties. Mr. Combs advised that although it appeared the transfer to Clark County might be delayed somewhat, it was anticipated the transfer would occur in the near future. In view of the anticipated transfer, staff recommended that the position not be funded for Child and Family Services. Mr. Combs indicated that it appeared that part of the plan was that the state would pay the counties to hire attorneys to handle the additional caseload, which would reduce the need for attorneys in the Attorney General's office.

The second Deputy Attorney General position would provide legal services for the Department of Environmental Protection and Housing Division issues. Based on information provided by the Office of the Attorney General, staff indicated that the new Deputy Attorney General position for the Division of Environmental Protection and the Housing Division appeared reasonable.

The decision unit also recommended a full-time Legal Secretary position to assist with the Attorney General's Office of Transportation and Public Safety Division in Las Vegas, which provided legal services for the Nevada Department of Transportation (NDOT) and Department of Motor Vehicles and Public Safety. The position was requested to assist with services provided by the NDOT based on the complexity of litigation concerning condemnation and construction claims cases. Staff recommended approval of the position.

Decision unit E-710 recommended funding for replacement of office equipment, computer hardware, and computer software. The decision unit included $112,952 in FY2002 and $184,268 in FY2003 for replacement computer hardware. The costs for the replacement computer hardware were reduced by $12,117 in FY2002 and $12,148 in FY2003 based on updated prices. Based on information provided by the agency, staff indicated the recommendation appeared reasonable.

Decision unit E-720 recommended funding for new office equipment and for the rental of two new copy machines for the Las Vegas office. Staff indicated the recommendation appeared reasonable.

Mr. Combs reviewed additional requests submitted by the Attorney General through a memorandum dated February 7, 2001, for items not included in The Executive Budget. It appeared that the additional items would result in increasing the General Fund appropriation for the account. Other than the issue previously addressed concerning the board and commission revenues projected in The Executive Budget, staff recommended disapproval of any additional increases in the General Fund appropriation for the account.

In response to a question from Chairman Arberry, Mr. Combs advised that the Senate Committee on Finance approved $500,000 for board and commission revenue in FY2003 rather than the $804,000 that was included in the cost allocation plan. Additionally, Mr. Combs advised that the Senate agreed with the recommendation to eliminate the Deputy Attorney General for Child and Family Services and agreed to add a half-time Computer Network Specialist I to a full‑time position as requested by the Attorney General in her memorandum dated February 7, 2001. The Attorney General indicated the half-time cost of the position would be funded with transfers from other budget accounts that would be provided services by that position. Mr. Combs indicated he would work with representatives from the office to determine how much from each account would go toward the support of the position.

MR. PARKS MOVED TO CLOSE THE BUDGET IN ACCORDANCE WITH THE RECOMMENDATIONS BY THE SENATE COMMITTEE ON FINANCE.

MS. GIUNCHIGLIANI SECONDED THE MOTION.

In response to a question from Ms. Giunchigliani, Mr. Combs addressed concerns in reference to the board and commission charges included in the cost allocation plan and also that the costs paid from the Attorney General's Tort Claims Fund should be increased from $16,968 in The Executive Budget to $600,000 in FY2002 and $1.2 million in FY2003. Mr. Combs said it was unclear why the cost allocation plan produced such an increase. Unless it was discovered that the amount required from the Tort Claims Fund was an error in the plan design or in the time records, Mr. Combs said the Tort Claims Fund would be required to pay the difference between the $116,968 in each year of the biennium, recommended by the Budget Division, and the $636,064 in FY2002 and $1,201,895 in FY2003 when the plan was generated for the 2003‑05 biennium. Based on the concerns outlined, Mr. Combs suggested that the committee consider issuing a Letter of Intent directing the Attorney General and the Department of Administration to work with the contractor, DMG Maximus, to determine what caused the problems in the cost allocation plan and report to the Interim Finance Committee.

In response to a question from Mr. Dini, Mr. Combs explained that the grant to assist with the cost of housing illegal immigrants in the prison system had originally been a grant that passed through the Office of the Attorney General and now would go directly to the Department of Prisons.

THE MOTION ON THE FLOOR CARRIED UNANIMOUSLY.

********

ATTORNEY GENERAL INSURANCE FRAUD (BUDGET ACCOUNT 101-3806) – BUDGET PAGE ELECTED-35

Mr. Combs advised the members of the committee that the technical adjustments in most of the accounts were similar and that he would point out only those in which a difference occurred:

The negative expenditure line item included in the base budget to balance the budget was eliminated in E-275 based on the increased insurance assessment that was approved through the enactment of A.B. 134.

Mr. Combs discussed the serious concerns in reference to funding Budget Account 3806, and he pointed out that enactment of A.B. 134 increased the fee on insurers from $500 to as much as $2,000 depending on the amount of premiums that the insurance companies issued. The bill increased the revenue into the account by $198,105 in each year of the biennium and eliminated the $65,000 transfer to the Division of Insurance account. Under the provisions of the bill, the Division of Insurance would receive 15 percent of the assessments and the Attorney General's fraud account would receive 85 percent.

Decision unit E-710 recommended replacement of 2 printers in FY2002 and 12 personal computers in FY2003. Staff reduced the request to 11 personal computers in FY2003 based on the fact that the account had 9 full-time positions and 2 part-time positions, and indicated that otherwise the recommendation appeared reasonable.

Decision unit E-720 recommended the purchase of a new scanner, a new laptop computer, and two new surge protectors in FY2002.

Mr. Combs recommended closing the budget as Governor recommended with technical adjustments.

MS. LESLIE MOVED TO CLOSE THE BUDGET AS RECOMMENDED BY THE GOVERNOR WITH TECHNICAL ADJUSTMENTS BY STAFF.

MR. GOLDWATER SECONDED THE MOTION.

THE MOTION CARRIED. (Chairman Arberry was not present for the vote.)

BUDGET CLOSED.

********

ATTORNEY GENERAL MEDICAID FRAUD (BUDGET ACCOUNT 101-1037) – BUDGET PAGE ELECTED-40

Mr. Combs discussed the following technical adjustments:

The expenditures recommended in The Executive Budget for non‑state‑owned building rent were reduced based on information provided by the Office of the Attorney General regarding the Fraud Unit's current leased space in Carson City; and

The prices for computer hardware were adjusted in decision units E-710 and E-720 based on updated pricing information received from the Purchasing Division.

Mr. Combs discussed the following budget closing issues:

Decision unit E-710 recommended funding for the replacement of a personal computer, a printer, and four laptop computers in FY2002 and the replacement of nine personal computers in FY2003. Based on information provided by the agency, Mr. Combs indicated the recommendation appeared reasonable; and,

Decision unit E-720 recommended funding for three unlimited power supply devices. The Executive Budget included sufficient funding for one power supply device and two surge protectors. The costs for the decision unit were adjusted to approve funding for three unlimited power supply devices.

Mr. Combs discussed the following additional agency requests:

Approval for two new Investigator positions based on a recent change in federal law, which expanded the scope of the jurisdiction of the Medicaid Fraud Control Unit. The new law enabled the unit to investigate cases of abuse and neglect in care facilities that did not receive Medicaid funding.

Mr. Combs explained the request for two Investigator positions was included in The Executive Budget for the 1999-2001 biennium and both money committees asked the Attorney General to delete the request from the budget and use a work program to add the two positions when the federal law was enacted to expand the jurisdiction of the Medicaid Fraud Control Unit. Based on the fact that the federal legislation expanding the jurisdiction of the unit had recently been enacted, Mr. Combs said an adjustment had been made to add the two positions.

The Office of the Attorney General requested authority to increase a Deputy Attorney General position to a Senior Deputy Attorney General position. The agency's justification was that the position was the only attorney in the Medicaid Fraud Control Unit in Las Vegas and that the position took on additional responsibilities and increasingly complex cases. The increase totaled $12,532 in FY2002 and $13,020 in FY2003. Medicaid revenues would fund 75 percent of the costs of the increase and the reserve would fund the remaining 25 percent of the costs. The Senate Committee on Finance approved the position increase.

MS. TIFFANY MOVED TO CLOSE THE BUDGET AS APPROVED BY THE SENATE COMMITTEE ON FINANCE WITH RECOMMENDED ADJUSTMENTS.

MR. DINI SECONDED THE MOTION.

THE MOTION CARRIED. (Chairman Arberry and Ms. Leslie were not present for the vote.)

********

ATTORNEY GENERAL WORKERS' COMPENSATION FRAUD (101-1033)– BUDGET PAGE ELECTED-45

Mr. Combs discussed the following technical adjustment:

Costs for computer hardware and software recommended in decision units M-200, E-710, and E-720 were adjusted based on updated pricing information provided by the Purchasing Division and the Office of the Attorney General.

Mr. Combs discussed the following budget closing issues:

The Governor's recommendation included a new Supervising Legal Secretary position. The issue was whether the position would supervise secretaries that were not funded in the Workers' Comp Fraud budget account. The Attorney General indicated that although the position would supervise the work of secretaries outside of the Workers' Compensation Fraud Unit, the assistance provided to employees in other accounts would be offset by the work that those employees were often asked to perform for the Workers' Compensation Fraud Unit. Based on the Attorney General's indication that the assessment revenue would not fund more than the account's share of legal secretary expenses, Mr. Combs indicated the recommendation appeared reasonable;

Decision unit E-710 recommended funding for replacement computer hardware that included six printers, a scanner, two laptop computers, a file server, and two uninterruptible power supply devices in FY2002 and the replacement of eight more printers and an additional scanner in FY2003. Based on information regarding the age of the current equipment and the agency's replacement policy, Mr. Combs indicated the recommendation appeared reasonable; and,

Decision unit E-720 recommended funding for a new laptop computer, which Mr. Combs said was reasonable.

In reference to additional agency requests, Mr. Combs indicated that some of the items should have been included in the agency request phase of the budget process as adjustments to the base budget. However, the additional requests were not submitted until late in the process of developing The Executive Budget. Mr. Combs reported that after analysis of the requests, funding was recommended for:

State-owned building rent which was not charged to Budget Account 1033 in FY2000 and, therefore, did not appear in the base budget. However, Mr. Combs indicated that state-owned building rent was an expense of the office and the request appeared reasonable;

Additional funding for motor pool expenditures was requested based on the increased motor pool rates during the biennium as well as the current FY2001 spending level. Mr. Combs indicated the request appeared reasonable;

Additional funding for litigation expenses in the amount of $15,984 in each year of the biennium was requested. Mr. Combs explained that the base budget included $11,038 in each year of the biennium for litigation expenses and that amount exceeded the amount expended in each of the past three fiscal years. Staff recommended not approving the request for additional litigation expenditure funding;

Additional funding in the amount of $3,216 in each year of the biennium for training expenditures was requested. The agency only expended $4,437 in FY2000 due to having to transfer funds to Category 03 for the increased motor pool rates. Based on the fact that the amount requested by the agency would not cause training expenditures to exceed the legislatively approved training expenditures for FY2000, Mr. Combs indicated the request appeared reasonable;

Additional funding in the amount of $8,700 in FY2002 was requested to purchase equipment for the Investigator positions that would assist in surveillance activities and would enhance the safety of the Investigators while they were conducting investigations.

MRS. CHOWNING MOVED TO CLOSE THE BUDGET AS APPROVED BY THE SENATE COMMITTEE ON FINANCE.

MR. PARKS SECONDED THE MOTION.

THE MOTION CARRIED. (Chairman Arberry, Ms. Leslie, and Ms. Tiffany were not present for the vote.)

********

ATTORNEY GENERAL TORT CLAIM FUND (715-1348) – BUDGET PAGE ELECTED-60

Mr. Combs discussed the following technical adjustments:

The costs for state-owned building rent in decision unit M-100 were adjusted based on information provided by the Buildings and Grounds Division; and,

The cost for a personal computer recommended in decision unit E-710 was adjusted based on updated pricing information.

Mr. Combs discussed the following decision units:

M-200 recommended the purchase of an excess liability insurance policy in each year of the biennium. The Executive Budget recommended $151,619 in FY2002 and $201,619 in FY2003 to purchase the policy which covered liability claims in excess of $1 million up to a limit of $10 million.

During money committee hearings, the Attorney General indicated that the cost for the policy would be higher than anticipated in The Executive Budget. The agency now indicated the cost for the policy would be approximately $200,000 in FY2002 and approximately $250,000 in FY2003. Based on projected increased costs of the policy in each year of the biennium, Mr. Combs advised that the reserve for the Tort Claim Fund would be reduced to approximately $1.7 million in FY2003.

Mr. Combs advised the committee that it would be a policy decision, on their part, concerning whether to provide "a safety valve" to prevent tapping the reserve as well as the reserve for the statutory contingency fund in the event of a high claim.

Decision unit E-710 requested funding for the replacement of a personal computer, which Mr. Combs indicated appeared reasonable.

In response to a question from Mr. Goldwater, Mr. Combs advised that the Risk Management Division entered into a contract with a broker to purchase a number of policies in FY2001, and the excess liability insurance policy was one that was attained for the state and funded out of the Risk Management budget in FY2001. Since the policy was related to tort claims, funding was requested in the Attorney General Tort Claim Fund budget account.

MR. GOLDWATER MOVED TO CLOSE THE BUDGET AS RECOMMENDED BY STAFF TO INCLUDE THE PURCHASE OF AN EXCESS LIABILITY INSURANCE POLICY AND A PERSONAL COMPUTER.

MR. DINI SECONDED THE MOTION.

In reference to the excess liability insurance policy, Mr. Hettrick asked if data was available on the number of claims against the policy and whether there had ever been a $10 million claim. Mr. Combs responded that while the state had not had any claims over $1 million, other states had experienced large claims, and that the state of Washington had a claim in excess of $5 million. Mr. Combs noted that should the state experience a similar claim, the reserve for the statutory contingency fund would be heavily impacted.

Mr. Hettrick pointed out that the cost of the policy in four years would equal $1 million and questioned whether the deductible should be raised to $2 million to provide a lower premium. Mr. Combs suggested that if the decision unit was approved to provide the Attorney General the authority to spend the reserve funds for the policy, a Letter of Intent directing the Office of the Attorney General to look into a higher deductible might be in order, or the issue could be discussed again with the Risk Manager and the Tort Claims Administrator.

Mr. Hettrick indicated approval of the budget as recommended would be acceptable with a Letter of Intent requesting the issuance of an RFP or bids to look at other deductible amounts and premium rates. Based on information concerning the rates, Mr. Hettrick said a decision could be made concerning the most economical policy for the state of Nevada.

Don Hataway, Deputy Director, Budget Division, indicated the Department of Administration would not have a problem concerning a Letter of Intent.

Mr. Goldwater agreed with the need to investigate better rates.

MR. GOLDWATER AMENDED THE MOTION ON THE FLOOR TO CLOSE THE BUDGET AS RECOMMENDED BY STAFF TO INCLUDE PURCHASE OF A PERSONAL COMPUTER, AND AN EXCESS LIABILITY INSURANCE POLICY BASED ON THE MOST ECONOMICAL DECISION AS DETERMINED BY DIRECTIONS PROVIDED IN A LETTER OF INTENT.

MR. DINI SECONDED THE MOTION.

THE MOTION CARRIED.

********

ATTORNEY GENERAL COUNCIL FOR PROSECUTING ATTORNEYS (101-1041) BUDGET PAGE ELECTED-68

Mr. Combs reported that there was an attempt to close the budget for Council for Prosecuting Attorneys on April 11 and the committee elected to hold it. Decision unit E-225 recommended eliminating the General Fund revenue for the account with the exception $1,765 in FY2002 and $1,880 in FY2003. The Budget Office indicated the intent was to eliminate the entire General Fund appropriation from the account and replace it with an assessment collected in municipal and justice courts.

Mr. Combs advised that a bill had been enacted to authorize the Attorney General's Council for Prosecuting Attorneys' budget to collect 49 percent of the assessment revenue that the Executive Branch kept. The Fiscal Analysis Division staff recommended increasing the court assessment revenue by $1,765 in FY2002 and $1,880 in FY2003 and eliminating the General Fund appropriation.

Mr. Combs advised the members of the committee that the Senate Committee on Finance closed the budget on April 13 and elected to hold $100 of General Fund money in each year of the biennium to provide the Council for Prosecuting Attorneys the ability to request funding from the Interim Finance Committee's contingency fund if the court assessment revenue did not come in at the rates projected.

Decision unit E-275 recommended additional registration fee revenue totaling $10,229 in FY2002 and $10,239 in FY2003 for the additional costs the Council for Prosecuting Attorneys would have to conduct additional training programs.

MS. GIUNCHIGLIANI MOVED TO CLOSE THE BUDGET AS APPROVED BY THE SENATE COMMITTEE ON FINANCE.

MR. HETTRICK SECONDED THE MOTION.

THE MOTION CARRIED.

********

ATTORNEY GENERAL VICTIMS OF DOMESTIC VIOLENCE (101-1042) BUDGET PAGE ELECTED-72.

Mr. Combs advised that there were two domestic violence accounts in previous biennia, one in The Executive Budget and one outside of The Executive Budget. A Letter of Intent requested that the two accounts be combined into one account or to present both accounts in The Executive Budget. The Attorney General's office chose to combine the two accounts, which resulted in Budget Account 1042.

Mr. Combs advised that the majority of the funding for the account was provided as a "pass through" from the federal government's domestic violence grant revenues to local nonprofit organizations as well as law enforcement agencies for domestic violence issues.

Mr. Combs discussed the following technical adjustments:

The titles for categories 09 and 10 were reversed in the process of combining accounts so that in The Executive Budget, category 09 was entitled Committee Expenses and category 10 was entitled Ombudsman Expenses. The reversal of titles was changed and was in the budget system;

Certain employee-related expenditures in the base budget and in M-100 were transferred from the Committee Expenses category to the Ombudsman Expenses category, which was the category that reflected all the expenditures related to the sole position in the account;

The transfer to the Attorney General's Administration account was increased in the base budget as indicated by Mr. Combs' earlier presentation of the Attorney General Administration Account overview; and,

The revenues to fund the expenditures recommended in decision unit M‑100 were reallocated between domestic violence grant revenues and a reduction in the reserve for the account. Mr. Combs advised that expenditures in the Committee Expenses category should be funded through assessment revenue or a reduction to reserve rather than domestic violence grant revenues.

Mr. Combs discussed the following budget closing issues:

Decision unit E-225 recommended $10,000 in each year of the biennium for additional training for law enforcement officers, attorneys, and members of the judiciary regarding domestic violence. Nevada Revised Statutes (NRS) 228.460 authorized the Ombudsman and the Committee on Domestic Violence to conduct those types of training programs and the agency indicated they wanted to establish the programs in the current biennium; and,

E-225 recommended $2,703 in FY2003 for the Ombudsman to contract for secretarial services to assist with mass mailings and general clerical services on an as-needed basis.

Staff indicated both budget closing issues appeared reasonable.

MR. DINI MOVED TO CLOSE THE BUDGET AS RECOMMENDED BY STAFF INCLUDING THE RECOMMENDATIONS IN DECISION UNIT E-225.

MR. HETTRICK SECONDED THE MOTION.

THE MOTION CARRIED. (Ms. Leslie, Ms. Tiffany, and Mrs. de Braga were not present for the vote.)

BUDGET CLOSED.

********

Senate Bill 517: Makes appropriation to restore and increase balance in reserve for

statutory contingency account. (BDR S-1512)

Mr. Stevens advised the members that S.B. 517 had been heard during the morning portion of the hearing. Senate Bill 517 would replenish the statutory contingency fund to a level of $3 million.

MR. HETTRICK MOVED FOR APPROVAL OF S.B. 517.

MR. MARVEL SECONDED THE MOTION.

THE MOTION CARRIED. (Ms. Leslie, Ms. Tiffany, and Mrs. de Braga were not present for the vote.)

********

RESPECTFULLY SUBMITTED:

Connie Davis

Committee Secretary

APPROVED BY:

Assemblyman Morse Arberry Jr., Chairman

DATE: