ASSEMBLY COMMITTEE ON WAYS AND MEANS

MINUTES OF THE meeting

of the

ASSEMBLY committee on Ways and Means and

senate committee on finance

joint subcommittee on human resources/k-12

Seventy-First Session

May 10, 2001

The Assembly Ways and Means and Senate Finance Joint Subcommittee, Human Resources/K-12,was called to order at 9:20 a.m. on Thursday, May 10, 2001. Chairman David Goldwater 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.

ASSEMBLY MEMBERS PRESENT:

Mr. David Goldwater, Chairman

Mr. Morse Arberry Jr.

Mrs. Barbara Cegavske

Mr. Joseph Dini, Jr.

Ms. Sheila Leslie

Ms. Sandra Tiffany

SENATE MEMBERS PRESENT

Senator Bob Coffin

Senator Bernice Mathews

Senator William J. Raggio

Senator Raymond D. Rawson

COMMITTEE MEMBERS ABSENT:

None

STAFF MEMBERS PRESENT:

Mark Stevens, Fiscal Analyst

Bob Guernsey, Principal Deputy Fiscal Analyst

Georgia Rohrs, Program Analyst

Linda Smith, Committee Secretary

BUDGET CLOSINGS

DISTRIBUTIVE SCHOOL ACCOUNT – BUDGET PAGE K12ED-11

Utility rate increases:

Mrs. Rohrs referred to the Distributive School Account (DSA) and said the subcommittee needed to consider allocating additional General Fund monies to address a possible shortfall in school district budgets if utility rate increases exceeded projections. Options for the subcommittee included:

increase the General Fund for utilities, thereby increasing the guaranteed basic support per pupil amount; or

establish an independent pool of funding for school district access should utility rates exceed projections; or

leave the DSA budget as is – school districts would have to rely on other sources of revenue and conservation efforts should utility rates exceed projections.

Senator Rawson said the subcommittee did not know how much of an increase in the General Fund to include in the DSA to address the possible budget shortfall due to utility rate increases. The 15 and 16 percent increases the Governor had included in his budget were double what they had been in the past. Senator Rawson explained the same problem applied to establishing an independent pool. He recommended leaving the utility rate projections that were included in the Governor’s recommended budget and concentrate on conservation. There should be an option for supplemental appropriations in the second year of the biennium if required. Senator Rawson predicted that the 15 percent would carry through the first year – any trouble would occur in the second year of the biennium. Chairman Goldwater agreed with Senator Rawson.

Don Hataway, Deputy Director, Budget Division, Department of Administration, said the Governor had pledged to use the “rainy day fund” for utility rate increases if needed. Mr. Hataway explained that a very tightly worded section had been recommended for inclusion in the appropriation bill that would give authority to access the rainy day fund for utility rate purposes. The Executive Budget had been constructed based on actual FY2000 costs. Once actual costs were known in FY2001, the same inflationary factors of 15 and 16 percent would be applied and the difference would be made up by the rainy day fund. If the rates increased more than expected, the 2003 Legislative Session could address supplemental appropriations.

Senator Rawson indicated the budget could be closed with the existing figures and prior to the end of the session, the subcommittee could discuss whether to set up an independent pool, or write language for access to the rainy day fund, or rely on supplemental appropriations. A decision did not have to be reached immediately because the issue of utility rate increases applied to all state agencies.

SENATOR RAWSON MOVED TO LEAVE THE PROJECTIONS FOR UTILITY RATES INCLUDED IN THE DSA BUDGET AS IS AND

CLOSE ACCORDING TO GOVERNOR RECOMMENDATIONS.

MR. DINI SECONDED THE MOTION.

Senator Coffin asked how long it would take to reopen any of the sub items included in the DSA if changes needed to be made. Mark Stevens, Fiscal Analyst, Fiscal Analysis Division, Legislative Counsel Bureau, said the question needed to be posed to the Nevada Department of Education (NDE). Once the subcommittee arrived at a statewide basic support guarantee figure, the numbers had to be run through the formula to determine each school district’s basic support guarantee figure.

Douglas C. Thunder, Deputy Superintendent for Administrative and Fiscal Services, NDE, said the basic support numbers could be calculated within the matter of a day. Mr. Thunder was concerned that a separate source of funding incorporated within the basic support per pupil amount would create difficulty. He thought if a fund was set up, it would have to be a separate item that the districts would then apply for and be paid on a “as demonstrated need basis,” rather than trying to incorporate the fund into a basic support number.

Senator Coffin said each sub-item within the DSA had the same type of mechanical process so that meant the subcommittee had a lot of time should a tax proposal be adopted that would increase revenues. Senator Rawson asked that each issue included in the DSA be closed independently. Chairman Goldwater said, given the importance of the DSA, an arbitrary time line would not stop the subcommittee from doing what needed to be done on behalf of the DSA.

THE MOTION PASSED UNANIMOUSLY. (Senator Raggio was not present to vote.)

Special Education:

Enrollment growth in special education was funded at the same rate of growth as the general student population. The Governor’s budget recommended 2,402 special education units, at a cost of $29,977 each, or $72 million in FY2002, and 2,514 special education units, at a cost of $30,576 each, or $76.9 million in FY2003. The cost of increased enrollment for the 2001-03 biennium was $18,591,550. Historically, special education was funded based on growth in the general student population. Special education funding based on the rate of growth in the special education population would require an additional $3,738,086 for the 2001-03 biennium.

Senator Rawson said federal funding for special education was expected to increase, which would more than deal with the growth issue and suggested the special education issue be closed according to the Governor’s recommendation.

SENATOR RAWSON MOVED TO CLOSE SPECIAL EDUCATION UNIT FUNDING IN THE DSA BUDGET WITH GOVERNOR RECOMMENDATIONS.

MRS. CEGAVSKE SECONDED THE MOTION.

Senator Coffin asked if there would be any change in the gifted and talented special education units and Mr. Thunder said the districts had the option to use some of their special education units for gifted and talented programs (GATE). Currently, 30.5 units were used for the GATE programs. There was no change in what was proposed in the Governor’s recommended budget. Senator Coffin asked if each district had to be contacted to determine if there would be a change in the GATE units. Mr. Thunder said the department’s Educational Equity Team had responsibility for overseeing the GATE program. If a school district wanted to use a unit for any type of special education program, the Educational Equity Team would have to approve the unit. Senator Rawson suggested Senator Coffin was asking for legislative intent or assurance that the GATE programs would not be decreased and Senator Coffin agreed. Chairman Goldwater said he would love to hear that no programs would be cut under the recommended budget and stressed that the legislature could not dictate programs if they did not fund the programs.

Joyce Haldeman, Clark County School District, said that sections related to the GATE program had been removed from Ms. Giunchigliani’s bill so the district would proceed with the GATE programs as in the past.

Don Hataway asked the subcommittee to refer to line 10 of his summary sheet (Exhibit C), which showed the continuation and roll-up of the gifted and talented special education units into the budget. The NDE would award the units included in the budget specifically for GATE.

THE MOTION PASSED UNANIMOUSLY. (Senator Raggio was not present to vote.)

Class-size Reduction (CSR):

The Governor’s budget recommended $91.8 million in FY2002 and $97.8 million in FY2003 to accommodate enrollment growth. The funding would add 76 CSR teachers in FY2002 and 82 in FY2003 to maintain pupil‑teacher ratios of 16:1 in first and second grades, and 19:1 in third grade. S.B. 127 was pending that would allow school districts to carry out CSR demonstration projects in FY2003. The bill included authorization for Elko County School District to continue its demonstration project through the next biennium and for Elko to expand its project to incorporate grade six. Mrs. Rohrs said the subcommittee might want to include language in the appropriation bill for continuation of the Elko project should S.B. 127 not be approved.

Mr. Dini asked if there were provisions included for school districts currently operating third grade remediation programs. Mark Stevens said flexibility in the use of CSR funds had been provided in the past for third grade. The subcommittee needed to consider whether to extend the current language into the next biennium.

Senator Rawson suggested the subcommittee close the Class-size Reduction item in accordance with the Governor’s recommendations but include in the appropriation bill the continuation of the existing flexibility for third grade. Senator Rawson said many of the districts had invested heavily in alternative CSR programs and thought it would be detrimental not to provide for continuing flexibility.

MR. DINI MOVED TO CLOSE THE CLASS SIZE REDUCTION WITH THE GOVERNOR’S RECOMMENDATIONS, CONTINUE THE USE OF THE THIRD GRADE MONEY FOR REMEDIATION, AND INCLUDE THE LANGUAGE IN THE APPROPRIATIONS ACT FOR ELKO COUNTY SCHOOL DISTRICT’S DEMONSTRATION PROJECT.

MS. TIFFANY SECONDED THE MOTION.

Mr. Thunder said:

In the past we’ve always had two separate bills – one for the DSA and one for class size. I anticipate that they would be combined this time and I would just urge that if that happens that we be careful and include the appropriate language for both years.

Mr. Stevens agreed to include the appropriate language.

THE MOTION PASSED UNANIMOUSLY. (Senator Raggio was not present to vote.)

Adult High School Diploma Program:

Mrs. Rohrs said the issue presented for the subcommittee was whether the subcommittee wished to approve the funding formula changes to the Adult High School Diploma Program (AHSDP), effective FY2003, to begin a shift of General Fund dollars away from prison programming to the school districts. This was intended to be the first of several phases of reduced funding for correctional programs. The funding formula change occurred after the agency’s budget request was submitted and was not incorporated into the Governor’s budget. Additional funding was not being requested, but the subcommittee should note that the Adult Education Task Force did not support the proposed funding formula change.

In response to a question posed by Mr. Arberry, Mrs. Rohrs said the formula change was a shift of funds and was not an unfunded mandate. No additional funds would be required from the General Fund or the local school districts. Mr. Arberry asked what would happen to the Adult Education programs within the prisons. Mrs. Rohrs said funding for the prison programs would be reduced but there would still be funding for prison programs.

Dr. Keith Rheault, Deputy Superintendent of Instructional, Research, and Evaluative Services, NDE, said the formula resulted from a Letter of Intent from the 1999 legislature that required the NDE to take over some of the Adult Education funding. The recommended formula funded programs on a performance-based system. Dr. Rheault said he would have copies of the formula distributed to the subcommittee and confirmed the formula did reduce the prison program dollar amounts. In the past, instead of a formula, funding was based on actual expenditures. The NDE proposed that the formula begin in the second year of the biennium. The members of the task force representing the prison programs did not agree with the funding formula. The NDE was not proposing any funds be cut or that there be an unfunded mandate. Whatever the formula generated on the program’s performance in the designated categories would go to the school districts or the prison programs.

Senator Coffin said it was his understanding that the education in the prisons would not be decreased, but better accountability would be required and asked if that was the intent of the recommended formula or, if under Director Crawford’s plan, there was some sort of intent to decrease the education. Dr. Rheault said that was really a different issue because the funding included in the DSA was provided specifically for adult education programs. He was not certain what was included in the prison budget for educational purposes. The NDE did not work directly with the prison staff on other educational purposes. Senator Coffin said he just wanted to make certain the subcommittee understood the issue. Dr. Rheault stated he would be happy to meet again with the AHSDP task force. Under the recommended formula, the prison program would receive a 25 percent set aside of the total adult education funds for additional costs that were present in prison programs. Part of the formula reserved 5 percent for competitive bids for the programs that had the highest number of English as a Second Language (ESL) students. Dr. Rheault believed there was room in the formula to fund the prison programs at their current levels in the first year the formula was initiated.

Chairman Goldwater asked what factors precipitated the need for a change in the funding process. Dr. Rheault said funding had not been awarded on performance, only on expenditures. Department staff thought there was room to cut down on some of the prison budgets, particularly in operating and a few other categories. Mr. Arberry said he could not support the change in the method of funding the Adult High School Diploma Program. It appeared that prisoners would no longer have the opportunity to obtain a General Educational Development (GED) diploma. Senator Rawson said a Letter of Intent was forwarded to the NDE last session but the results did not meet the intent and he did not recommend another Letter of Intent. Senator Rawson and Mr. Arberry both wanted accountability in the prison programs and understood that education must be an option for individuals incarcerated.

Senator Rawson said it was his recommendation to accept the proposal with assurance from the NDE that they would maintain the funding levels, establish a formula, and return next legislative session with a specific plan. Dr. Rheault believed with the increased funding included in the Governor’s budget for FY2002 and FY2003 the formula could be “tweaked” to make certain the prison programs would maintain current levels of funding and the NDE would return to the next legislative session to report on how the formula worked. Dr. Rheault said under the current formula the prison programs would have suffered, but the NDE could adjust some of the percentages to provide the current level of funding for the next biennium using a formula that was based on performance. The NDE would return to the 2003 legislature with the results. Dr. Rheault stated the final outcome would be the number of GEDs and Adult High School diplomas awarded. Mr. Arberry was concerned that the GED numbers would be manipulated, but Dr. Rheault assured him it was very easy to account for GEDs.

SENATOR RAWSON MOVED TO ADOPT THE FUNDING FORMULA CHANGES TO THE ADULT HIGH SCHOOL DIPLOMA PROGRAM WITH A SPECIFIC LETTER OF INTENT THAT THE FUNDING LEVEL OF THE PROGRAMS BE MAINTAINED, THAT THERE BE A SUNSET SO THE LEGISLATURE WOULD BE FORCED TO REVIEW THE POLICY, AND THAT THE NEVADA DEPARTMENT OF EDUCATION REPORT TO THE NEXT LEGISLATURE ON THE PROGRESS OF THE FUNDING FORMULA.

MR. ARBERRY SECONDED THE MOTION.

THE MOTION PASSED UNANIMOUSLY. (Senator Raggio was not present to vote.)

School Improvement Programs:

Mrs. Rohrs referred to a chart included in the handout (Exhibit D) that displayed the Governor’s recommendations for increased funding for remediation programs for low-performance schools and the professional development centers, and also incorporated the Governor’s proposed Nevada Early Literacy Intervention Program. Exhibit D included the funding for each year of the current biennium and the Governor’s recommendations for FY2002 and FY2003.

School-to-Careers:

The Governor’s budget recommended continued funding of the state portion of the School-to-Careers program in the first year of the biennium at $1 million and eliminated the program in the second year of the biennium. That corresponded with the level of federal funding. In response to a question posed by Chairman Goldwater, Mrs. Rohrs confirmed that the entire School-to-Careers program would be eliminated.

Early Childhood Education:

The Governor’s budget recommended funding be increased from $500,000 per year in the current biennium to $4.5 million in each year of the upcoming biennium. The early childhood program was a pre-school/pre-kindergarten program.

Mrs. Rohrs continued with the presentation and said the Governor and legislative leadership were considering a number of budget additions and/or reductions to address the new General Fund revenue estimated by the Economic Forum. A table was provided (Exhibit E) in the handout that addressed the areas that were discussed for reductions along with the current level of funding included in The Executive Budget and the balance of funding for FY2002 and FY2003.

Chairman Goldwater emphasized that the reductions were reductions to the enhancements recommended in the Governor’s budget, not cuts to the program.

At the request of the Chair, Mrs. Rohrs addressed each category:

Remediation Categorical Grants

This was a combination of remediation for at-risk pupils, the individual remediation efforts, and the remediation for low-performing schools. The amount included in the recommended budget was $8,075,629, the reductions discussed amounted to $1,325,629, resulting in a balance of $6,750,000 in FY2002. In FY2003, the budget recommended $8,371,199; the suggested reduction was $1,621,199, for an ending balance of $6,750,000.

Chairman Goldwater asked Mr. Hataway for an explanation of the cuts. Mr. Hataway said the Budget Office had reviewed previous grants to arrive at an average grant amount of roughly $50,000 for remediation programs. The Budget Office then took the number of schools in a failing condition and the number of areas that they were failing in and multiplied that number by $50,000. The reduced amounts were still considerably more than the $4.3 million districts were receiving in the current year. Chairman Goldwater asked why the Budget Office had used a higher number. Mr. Hataway said the Legislative Committee on Education had recommended the dollar amounts included in the recommended budget for remediation and professional development. Senator Rawson thought the enhancement was very reasonable, even with the reduction.

SENATOR RAWSON MOVED TO ACCEPT THE SUGGESTED REDUCTIONS TO REMEDIATION CATEGORICAL GRANTS.

The funding for remediation was a combination of the individual remediation efforts and the low-performing schools and Mrs. Rohrs asked Mr. Hataway where the cuts occurred. Mr. Hataway said the Budget Office had looked at programs globally and had no recommendation on the individual breakdowns.

Senator Coffin was troubled because there were many low-performing schools in his district and the student population was made up of many poor children. More funding had to be provided for those students to succeed. The Governor’s original recommendation was based upon a recommendation made by the Governor’s committee and Senator Coffin felt the suggested reductions were too great. For that reason he could not support the recommendation to reduce the funding included in The Executive Budget. Chairman Goldwater said he represented the same schools as Senator Coffin and was comfortable with the adjusted balance because it was still a 57 percent increase.

MS. LESLIE SECONDED THE MOTION.

THE MOTION CARRIED. (Senator Coffin voted no. Senator Raggio was not present to vote.)

Professional Development Categorical Grants

The amount included in the recommended budget was $5,217,255. The reduction was $521,725, resulting in a balance of $4,695,530 for FY2002. In FY2003, the budget recommended $6,111,972; possible reduction was $611,197, for an ending balance of $5,500,775. Professional development funding was approximately $7 million in the current biennium and would be increased to approximately $11 million in the upcoming biennium.

Senator Rawson thought the adjustments were reasonable and suggested that the recommendations be accepted. Ms. Tiffany asked how the funding would be used. Mr. Hataway said the funds would be used for staff in Douglas, Elko, Washoe, and Clark County School Districts to provide training on a regional basis and provide the operating supplies required to run the professional development centers. Ms. Tiffany said there was currently a shortage of teachers in the classrooms and was not pleased with a policy that removed teachers from classrooms to become instructors and thought the districts needed to review the policy. Professional trainers should be hired for the training. Mr. Hataway stated the individuals were professional trainers and were competent to provide training to teachers. Each professional development center (PDC) had submitted individual budgets to the Legislative Committee on Education and Mr. Hataway would share the budgets with Ms. Tiffany.

Chairman Goldwater said the Early Literacy Intervention Program was intended to have children reading by third grade and asked if the professional development centers or grants could be used. Mr. Hataway said the Budget Office did not disagree with the methodology and said the key was training. Chairman Goldwater asked if anything needed to be included in the appropriations act to address the flexibility or did the recommended funding need to be reduced. Mr. Hataway said it was still professional development and was a semantical issue. He stressed that the Governor wanted a heavy emphasis on literacy programs for kindergarten and grades one, two and three. Mr. Hataway did not think there would be a problem if the subcommittee wanted to include all of the funding in professional development.

Ms. Tiffany asked if the Nevada Early Literacy Program would teach teachers how to intervene or to recognize when there was a reading problem, or would the program teach teachers how to teach and how to teach reading. Ms. Tiffany thought teachers should be taught how to teach reading while earning a degree. Ms. Tiffany indicated her displeasure with both line items. Senator Rawson felt teachers coming out of colleges and universities needed to be taught and prepared differently. In the meantime, the professional development centers were set up to try to meet additional training needs.

James Parry, Superintendent, Carson City School District, made an impassioned plea to the subcommittee to not reduce the efforts made to expand the professional development centers. The funding of the regional professional development centers was one of the best things the legislature had ever done. World-class teachers were teaching other teachers to be better teachers. A teacher with 20 years’ experience had the chance to change pace and become a leader of other teachers. The centers had outreach to all districts and there were trainers in every school.

In response to a question from Senator Rawson, Mr. Hataway said during the current biennium $7 million was provided for professional development. Even with the suggested reductions, PDCs would receive slightly over $11 million – a $4 million increase. On top of the PDC funding, $9 million was proposed for early literacy programs, which were also professional development programs.

SENATOR RAWSON MOVED TO COMBINE THE REDUCED AMOUNT FOR PROFESSIONAL DEVELOPMENT CATEGORICAL GRANTS AND THE NEVADA EARLY LITERACY INTERVENTION PROGRAM.

MRS. CEGAVSKE SECONDED THE MOTION.

Mr. Hataway stated under the literacy program there were three charter schools that would be eligible for funding and stated he would be happy to work with legislative staff to make certain the funding was maintained for those schools. The funding included for the charter schools was minor – approximately $18,000 each year. Senator Rawson agreed. Mr. Hataway explained there should be a prime emphasis on the literacy programs and Chairman Goldwater concurred.

Marcia R. Bandera, Superintendent, Elko County School District, did not object to combining the two programs, however, the district’s governance board had discussed the issue and would like some clear direction, either in the language that authorized the regional professional development program (RPDP) or in a letter. The current language that authorized the RPDP had some very focused statements about the specific duties and purpose of the RPDP. Senator Rawson said the intent would be to follow the suggestion of the Governor’s Office or legislative staff that the early literacy programs would be provided through the PDCs.

Mr. Hataway stated that both Ms. Bandera and Mr. Parry would be retiring soon and stated they were both quality individuals and both would be missed. Chairman Goldwater congratulated the two superintendents on their retirement.

Senator Coffin said this was one of the areas that needed to be reviewed carefully. Professional development had worked very well, particularly in the area of reading. Senator Coffin emphasized that the Senate had agreed to cut class-size reduction funding and explained that students who had participated in CSR had an earlier ability to read. Senator Coffin was concerned with the possible impact of reducing funding for the professional development programs and the CSR program. Perhaps the Assembly would prevail on CSR and no damage would be done. Senator Coffin appreciated the testimony from Mr. Parry describing the impact of the RPDP. Both the testimony and the original recommendation from the Governor verified that the professional development programs worked. Senator Coffin thought cutting the programs was a mistake.

Senator Rawson said he had been involved in the development of the PDCs and thought they might have a hard time handling $9 million a year. Even with the suggested reduction, the funding amount was a significant increase and Senator Rawson was pleased with the progress that had been made. He would be inclined to put any additional money into another program before restoring the original amount recommended by the Governor for professional development.

CHAIRMAN GOLDWATER MOVED TO AMEND THE MOTION ON THE FLOOR TO INCLUDE A LETTER OF INTENT THAT $4.5 MILLION BE USED EACH YEAR OF THE BIENNIUM FOR EARLY LITERACY INTERVENTION.

THE MOTION CARRIED. (Senator Coffin voted no. Senator Raggio and Ms. Leslie were not present for the vote.)

School-to-Careers

The School-to-Careers program was originally funded in the Governor’s recommended budget at $1 million in the first year of the upcoming biennium. There had been discussion to remove the $1 million, which would mean the state portion of the program would be eliminated at the end of FY2001. Mr. Hataway said the reduction was a matter of priorities. During the legislative review of the Proficiency Testing program and the testimony of the NDE there was an additional $1 million that was needed and the NDE felt the Proficiency Testing program had a higher priority than School-to-Careers.

Mr. Dini said the School-to-Careers program had been a good program and asked if there was a possibility of salvaging some of the funding. The program provided a great deal of assistance to kids who did not plan on attending college.

Nat Lommori, Superintendent, Lyon County School District, said the district had been actively involved with the business community through the School‑to‑Careers program. Lyon County students must, as a graduation requirement, create a portfolio for their four-year high school career and then make an oral presentation to community members and business leaders. Mr. Lommori invited the subcommittee members to visit the district schools to hear the student presentations. The district found the link with the business community to be very important and indicated the district would probably continue with the program using local funds.

Senator Rawson said there was the mechanical problem of having to deal with a $121 million revenue shortfall. Budgets had to be trimmed and funding for enhancements had been reduced when possible. Senator Rawson recommended funding the program the first year at $500,000 rather than $1 million and stated the program would go away the second year because the program would be ending. If it was not useful to fund only $500,000, Senator Rawson recommended removing the full $1 million.

Senator Mathews stated her desire to salvage any portion of the funding. The School-to-Careers program had been very important to Assemblywoman Jan Evans. Mrs. Evans had fought long and hard to get the program instituted. Ann Loring, speaking on behalf of the Education Collaborative of Washoe County, which was a combination of Partners In Education and the Washoe K‑16 Council, explained that funding for the School-to-Careers program had been used primarily for establishing career centers at Washoe County’s high schools and middle schools. The centers had been extremely effective in working with the business community to provide career awareness for students. Because there was an awareness that the federal and state funding would be disappearing, the Washoe County School District had begun to absorb the costs of the career centers over the last two years. Ms. Loring echoed Senator Mathews’ desire to salvage any portion of the funding.

MR. DINI MOVED TO CLOSE SCHOOL-TO-CAREERS FUNDING AT $500,000 FOR THE FIRST YEAR OF THE BIENNIUM.

MR. ARBERRY SECONDED THE MOTION.

THE MOTION PASSED UNANIMOUSLY. (Senator Raggio and Ms. Leslie were not present to vote.)

Early Childhood Education Grants

The Early Childhood Education Grants were included in the Governor’s recommended budget at $4.5 million each year of the biennium, an increase from $500,000 each year of the current biennium. The reduction discussed was $1 million, leaving a balance for each fiscal year of $3.5 million. The grants funded pre-school/pre-kindergarten programs.

MRS. CEGAVSKE MOVED TO CLOSE THE EARLY CHILDHOOD EDUCATION GRANTS FUNDING AT $3.5 MILLION FOR EACH YEAR OF THE BIENNIUM.

SENATOR MATHEWS SECONDED THE MOTION.

THE MOTION CARRIED. (Senator Coffin voted no. Senator Raggio and Ms. Leslie were not present for the vote.)

FUNDING ISSUES

1. Local School Support Tax (LSST)

Mrs. Rohrs said the first funding issue was the LSST. On May 1, 2001, the Economic Forum estimated 2 percent sales tax collections would increase by 5.3 percent in FY2001, 6.1 percent in FY2002, and 5.8 percent in FY2003. In the first eight months of the current fiscal year, LSST collections were slightly higher than the amounts generated from the 2 percent sales tax collections deposited to the General Fund. Therefore, projected LSST collections reflected a slightly higher rate of growth in FY2001 than had been projected. The amounts currently projected were under the amounts included in The Executive Budget. The shortfalls for LSST amounted to $2.71 million for FY2001, $2.23 million for FY2002, and $328,321 for FY2003. The out‑of‑state LSST shortfalls were $167,899 in FY2001, $112,057 in FY2002, and an increase in FY2003 of $91,591. Combining both of the amounts from the LSST and out‑of-state LSST the shortfall would be $2,875,887 in FY2001, $2,345,426 in FY2002, and $236,730 in FY2003. Since the shortfall in the current fiscal year would be considered a one-time expense, staff recommended offsetting the LSST shortfall with estate tax monies. In FY2002 and FY2003, staff recommended replacing the shortfall with General Fund. Mrs. Rohrs said the subcommittee should note that the recommended increase in the interest income revenue of $2.5 million over the upcoming biennium would offset all but $82,156 dollars of the shortfall, and would be explained in the Interest Income category.

MR. DINI MOVED TO USE ESTATE TAX OF $2.875 MILLION TO OFFSET THE LSST SHORTFALL IN THE CURRENT YEAR AND USE THE GENERAL FUND ENHANCEMENT FROM THE INTEREST INCOME ACCOUNT REVENUES TO COVER THE SHORTFALL IN FY2002 AND FY2003.

SENATOR RAWSON SECONDED THE MOTION.

THE MOTION PASSED UNANIMOUSLY. (Senator Raggio and Ms. Leslie were not present to vote.)

2. Interest Income

Mrs. Rohrs explained that the interest income would provide the funding for the shortfall in LSST in FY2002 and FY2003. The interest income was earned on the Permanent School Fund, which was a revenue source within the DSA. Staff concluded the interest income would be an appropriate source of replacement of General Fund monies. Based on amounts generated in the first two quarters of FY2001, the Budget Division had suggested that the revenue source could be increased by $1,250,000 each year of the biennium.

SENATOR RAWSON MOVED TO ACCEPT STAFF RECOMMENDATIONS ON INTEREST INCOME.

MR. DINI SECONDED THE MOTION.

THE MOTION PASSED UNANIMOUSLY. (Senator Raggio and Ms. Leslie were not present to vote.)

3. Property Tax

The Governor’s budget predicted a 7.3 percent increase in property tax revenue for FY2002 over what was legislatively approved for FY2001 and a 9.3 percent increase in FY2003. The Department of Taxation’s most recent assessed valuation projection reflected an increase of 6.44 percent for FY2002. Mrs. Rohrs explained that the 6.44 percent was the number that would be submitted to the local jurisdictions for budget purposes in the Department of Taxation’s “Red Book.” If a decision was made to revise the projections downward, the General Fund would have to make up the difference. The subcommittee needed to determine whether the 25-cent portion of the property tax projection included in the DSA should be lowered to reflect the current projected increase. Leaving the 25-cent portion of the property tax at a 7.3 percent increase gave the appearance of a lower General Fund requirement. However, since the 25-cent portion was inside the DSA and was part of the guaranteed basic support per pupil amount, if the 7.3 percent did not materialize the shortfall would have to be made up with General Fund unless other funding inside the DSA exceeded projections. Revising the amount of the 25-cent portion would result in an increase in the General Fund of $1,798,165. Assuming a 9.28 rate of increase, as was built into the DSA for FY2003, the increase would be $1,958,614. If property tax collections or other revenues exceeded projections, the amount of General Fund needed would be reduced.

Mr. Hataway indicated that Jeanne Botts, former LCB Fiscal Analyst, would use the number included in the Red Book, because that was the number she traditionally used to fine-tune the budget. The Budget Office was on record as being satisfied with the recommendations the Department of Taxation provided in November and thought the numbers were still realistic and had no recommendation on the property tax issue. Chairman Goldwater asked if this would be the first time Red Book numbers were not used. Mr. Hataway said this would be the first time to bifurcate the process, and explained that the General Fund guaranteed the property tax that was inside the DSA. Mr. Hataway said the decision would have to be made by the subcommittee and then the Budget Office would have to scramble to find the resources to balance the budget.

Mr. Stevens said the legislature had always used the Red Book number to adjust the 25-cent property tax portion. The $1.7 million and $1.9 million would do that. Staff recommended that be done. The 50-cent component would be a different issue. Mr. Stevens stated that the 50-cent side had increased above the Red Book numbers for seven of the past eight years. There had been a $17 million or $18 million net increase in that period of time. Mr. Stevens recommended that the subcommittee provide the additional funds on the 25‑cent side and discuss the 50-cent side separately.

Mr. Dini asked why there was such a large discrepancy since all the counties used the factoring system and the building growth continued to be strong throughout the state. Mr. Dini did not understand Taxation making such a conservative estimate. Mr. Hataway said there was a secured tax roll and an unsecured tax roll and the unsecured roll amounts were not known at the time the Red Book was published. Consequently, the number Taxation provided in November was their best estimate on what the actual amount would be. Over the last ten years the average growth in assessed valuation had been in excess of 9 percent so the Budget Office thought the 7.3 percent in FY2002 and slightly over 9 percent in FY2003 were good numbers – perhaps slightly conservative in the first year. The Department of Taxation used county assessors’ records on secured and unsecured tax rolls when actually certifying the Red Book. The amounts did vary between estimates and actuals.

Senator Rawson said in looking at the past seven years and the fact that the 50‑cent portion had netted $17 million for the school districts except for one year, he recommended adjusting to the Red Book level on the 25‑cent portion and not address the 50‑cent portion.

SENATOR RAWSON MOVED TO ADJUST THE 25-CENT PORTION OF THE PROPERTY TAX AT THE RED BOOK LEVEL AND NOT ADJUST THE 50-CENT PORTION OF THE PROPERTY TAX.

MR. DINI SECONDED THE MOTION.

Mr. Thunder wanted to make sure that the subcommittee was aware that the $17 million was not equally distributed among the districts and that some districts would benefit more significantly from that than others. Mr. Thunder said if the $17 million was a total of seven years that would be slightly less than $2 million per year and he thought the amount was not tremendously significant. Senator Rawson said it was likely, just by looking at the track record, the state would at least break even, and if not, was certain the subcommittee would hear about it.

THE MOTION PASSED UNANIMOUSLY. (Senator Raggio and Ms. Leslie were not present to vote.)

4. Estate Taxes

The Governor’s budget was built on a base of $13,891,737 each year, with an additional $10.8 million to partially fund enrollment growth and another $5 million each year from the estate tax surplus for the Nevada Early Intervention Program. The total for the Governor’s budget would be $29.5 million each year from estate tax collections. As discussed earlier, the FY2001 shortfall in sales tax collections was a one-time expense and the subcommittee had approved placing $2.875 million in estate tax money to offset the shortfall in sales tax collections. A large surplus in estate tax monies had accumulated due to the unusually large collections in the current biennium and would cover the proposed funding in the next biennium. Unless estate tax revenues exceeded projections during the next biennium, a hole would be created that would need to be financed with General Fund dollars starting in FY2004, the first year of the following biennium.

Mr. Hataway said it was very difficult to anticipate the amount of estate tax that would be received. Congress was also considering making modifications to estate tax laws. Even with the changes recommended by the subcommittee there would be roughly half a year’s worth of reserve of normal collections at the end of FY2003. Mr. Hataway said he was comfortable with the recommendations that had been made and also the adjustments made by the subcommittee.

SENATOR RAWSON MOVED TO ACCEPT THE ASSUMPTIONS FOR THE ESTATE TAX.

MRS. CEGAVSKE SECONDED THE MOTION.

THE MOTION PASSED UNANIMOUSLY. (Senator Raggio and Ms. Leslie were not present to vote.)

There were additional items that needed to be addressed in the DSA budget. However, due to limited time, Chairman Goldwater recessed the K-12 subcommittee hearing at the call of the Chair.

The meeting was recessed at 10:53 a.m., and due to time constraints, was not reconvened.

RESPECTFULLY SUBMITTED:

Linda J. Smith

Committee Secretary

APPROVED BY:

Assemblyman David Goldwater, Chairman

DATE: