MINUTES OF THE
SENATE Committee on Commerce and Labor
Seventy-First Session
March 13, 2001
The Senate Committee on Commerce and Laborwas called to order by Chairman Randolph J. Townsend, at 9:10 a.m., on Tuesday, March 13, 2001, in Room 2135 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. All exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.
COMMITTEE MEMBERS PRESENT:
Senator Randolph J. Townsend, Chairman
Senator Ann O’Connell, Vice Chairman
Senator Dean A. Rhoads
Senator Mark Amodei
Senator Raymond C. Shaffer
Senator Michael A. (Mike) Schneider
Senator Maggie Carlton
GUEST LEGISLATORS PRESENT:
Senator Bill R. O’Donnell, Clark County Senatorial District No. 5
STAFF MEMBERS PRESENT:
Scott Young, Committee Policy Analyst
Kevin C. Powers, Senior Deputy Legislative Counsel
Laura Adler, Committee Secretary
OTHERS PRESENT:
John E. Jeffrey, Lobbyist, Anne Darr
Samuel P. McMullen, Lobbyist, Retail Association of Nevada
Joel F. Bower M.D., Vice President, Medical Affairs, St. Rose Dominican Hospital
Larry D. Lessly J.D., Executive Director, Board of Medical Examiners
Lawrence P. Matheis, Lobbyist, Executive Director, Nevada State Medical Association
Janice C. Pine, Lobbyist, Saint Mary’s Health Network
Carl Heard, M.D., Clinical Representative, Great Basin Primary Care Association, and Chief Medical Officer, Nevada Rural Health Centers Inc.
Linda L. Sheldon, Lobbyist, Great Basin Primary Care Association
Bob Campbell, Concerned Citizen
Steve Hanson, Chief Executive Officer, Nevada Rural Health Centers Inc.
Dean Smith, Concerned Citizen
Gloria Smith, Concerned Citizen
Tim Ruffin, Vice President, Office Properties Group for Colliers International
John N. Donovan, Reno Area President, Colonial Bank
John P. Sande III, Lobbyist, Nevada Bankers Association
Senator Townsend opened the hearing on Senate Bill (S.B.) 5.
SENATE BILL 5: Provides that provisions for automatic renewal in service contracts are unenforceable except under certain circumstances. (BDR 52-286)
Senator O’Donnell stated the situation addressed in S.B. 5 is similar to a situation that happened to him. He told the committee almost 2 years ago he built a building with an elevator. In the midst of overseeing several things at once regarding construction, the elevator company representative asked him to sign a maintenance contract for the elevator. The Senator said he asked and was told about the terms of the contract, which sounded all right to him, so he signed. Referring to page 2 of the elevator service agreement (Exhibit C) and the second asterisk, “. . . discounted price for Service @ ($127.00/month) until completion of the one year warranty,” he said, what he thought he was signing. He added, it turned out not to be true. Senator O’Donnell explained upon further examination of the wording in the document, it became clear it was not a 5-year contract, but a 30-year contract with the cost of service open-ended.
Senator O’Donnell said S.B. 5 prohibits rollover contracts such as he just described. He said a service contract may be for 1 or 3 years, however, the bill requires the service provider to notify clients and give them the option of renewing the contracts. He emphasized he tried to buy his way out of the contract with Dover Elevator Company, and the company would not consider it. He voiced he had purchased another elevator for another building from Otis Elevator Company, and the cost for the Otis elevator was less than the Dover elevator. He asked Dover if he purchased another elevator from them, would they let him out of the contract. He stated Dover’s reply, in essence, was they “would rather give up the sale of a $33,000 elevator to keep the contract.” Senator O’Donnell emphasized the contract was worth more at $159 per month plus all the other stipulations, than the price of another elevator for an estimated total of $57,000 over a 30-year period. He stressed that kind of contract was “egregious, unconscionable, and should not be allowed in Nevada.”
Senator Townsend commented the paragraph on page 2 of the elevator service agreement, which is the “purpose of this agreement . . . straight time hour cost shall mean . . . “in the utility business that is called “deferred energy accounting.”
Senator O’Donnell asserted he has tried everything to get out of the contract, including the fact that although the contract says they will inspect the elevator, there is nowhere it says he has to allow them access for the inspections. He noted the relationship has deteriorated to attorney to attorney, now.
Responding to Senator Townsend’s inquiry, Senator O’Donnell stated Otis Elevator did offer a contract, but the Otis representative said it was not required by law, only periodic inspections to certify its safe operation, and there are other companies listed in the phone book that do inspections. He added, the elevator in question is only used once a day, but had to be installed because of the building’s size.
Senator O’Donnell commented he had been made privy to information regarding
Chapter 690C of Nevada Revised Statutes (NRS) dealing with service contracts. He said S.B. 5 is intended as a vehicle for consumers and private individuals, but chapter 690C of NRS does not provide redress or relief for a commercial business. He asserted if he had been involved with the elevator contract as a private citizen, he would have rights; but because he is a corporation he does not have rights. He concluded he would work with other concerned parties on the language and bring the bill back with the appropriate amendments.
John E. Jeffrey, Lobbyist, Anne Darr, stated his client was concerned about the commercial code because it is not clear as to what is the difference between a goods and a service. He claimed S.B. 5 appears to reach further than the sponsor intended, in that it may also influence commercial mailings.
Samuel P. McMullen, Lobbyist, Retail Association of Nevada (RAN), said the definition of service contract on page 2, lines 8 to 11 in S.B. 5, is much broader than the service contract definition in chapter 690C of NRS, which really focuses on maintenance and repair. He pointed out the way the bill is written, it could even mean your Internet provider. He stated RAN asked the service contract industry counsel, who was the proponent of last session’s service contract legislation which followed the National Association of Insurance Commissioners (NAIC) model, and there is movement towards including this bill in chapter 690C of NRS. He told the committee he would keep them informed.
Senator Townsend stated the subcommittee with Chairman Senator Schneider would take up the bill. He closed the hearing on S.B. 5. and opened the hearing on Senate Bill 271.
SENATE BILL 271: Provides for issuance of special volunteer medical license to retired physician to treat indigent persons. (BDR 54-884)
Senator Carlton stated access to health care is an important issue and S.B. 271 will address, at least, part of the problem. She pointed out Nevada has one of the fastest growing retirement communities in the nation. Among the retirees are doctors who bring with them a wealth of knowledge and experience which they are willing to share with the medically underserved citizens of Nevada. She stressed no one is being asked to work for free, the program is strictly voluntary on the part of the doctor.
Senator Carlton pointed out subsection 2, paragraph (b), needs another sentence to read: “Meets the current requirements for licensure in the State of Nevada.” She stressed it is important the bill is specific.
Joel F. Bower M.D., Vice President, Medical Affairs, St. Rose Dominican Hospital, stated in the past they have had a clinic under the community health centers at the hospital. It was staffed as a federally-qualified health care center. He said the hospital was able to provide some support as the center developed. He conveyed, at one point, the center ran into financial difficulties and had problems staffing physicians, and so the interest in utilizing retired physicians.
Dr. Bower said the hospital in Hilton Head, South Carolina, created a program utilizing the many retired physicians in the surrounding community. With support, the hospital established a voluntary medicine program. He said there were three considerations the retired physicians wanted: 1. No fee for a license; 2. No license examination; and 3. Protection of their investments for their future retirement plans. He expounded South Carolina passed legislation for a voluntary medicine program, and Pennsylvania and Ohio have since passed similar laws.
Dr. Bower continued S.B. 271 has been modeled after the other states’ legislation to the effect volunteer physicians who have retired from the practice of medicine and who have no disciplinary track records, will practice with indigent populations with no reimbursement for nonprofit institutions in Nevada, such as, the federally-qualified healthcare centers and Nevada Rural Health Centers.
Larry D. Lessly J.D., Executive Director, Board of Medical Examiners (BME), stated the board supports S.B. 271 with the aforementioned amendment. He claimed the only opposition was to section 1, paragraph 6, where disciplinary options could be imposed, other than just revocation of the license. He stated the same sanctions currently in effect and administered by the board for any other physician, should also apply to the voluntary physician.
Senator Carlton asked if this bill would cause a financial impact on the board since the BME is self-sustaining. Mr. Lessly replied there is no impact.
Senator Townsend wanted to know if there was subsequent legislation in the other states that included other healing arts practitioners. Dr. Bower responded South Carolina has the broadest scope, and includes dentists and other licensed providers. He clarified the volunteer physicians would be office-based and not procedure-based.
Senator Townsend said he had been asked about including dentists to provide needed care to children. Dr. Bower explained the South Carolina program is very sophisticated, with funding from a separate trust, and includes retired nurses, physicians, dentists, and other retired medical professionals.
Lawrence P. Matheis, Lobbyist, Executive Director, Nevada State Medical Association (NSMA), stated the association supports the bill in its concept, but thinks S.B. 271 should be looked at in broader terms. He conveyed there is a growing shortage of manpower in the medical field, but the number of retired medical professionals is growing. He noted with an increasing senior population, using the retired physicians makes a lot of sense.
Janice C. Pine, Lobbyist, Saint Mary’s Health Network, stated she strongly supports S.B. 271. She continued the bill does not limit the venue, it simply says to treat indigent patients. She conveyed Saint Mary’s Health Network vans would benefit when traveling to rural areas by utilizing the services of retired physicians in those areas. She acknowledged the great need for dentists, and asked dentists also be included in the bill.
Carl Heard, M.D., Clinical Representative, Great Basin Primary Care Association (GBPCA), and Chief Medical Officer, Nevada Rural Health Centers Inc. (NRHC), stated support of the bill, adding it should include tribal health centers and Federally Qualified Health Centers (FQHC) look-alikes, which operate like community health centers in caring for indigent patients. He said the concern is section 1, subsection 2, paragraph (d), the indirect payment not be interpreted to include or exclude the ability to pay for malpractice insurance, travel cost, per diem cost, or continuing medical education, and sundry other licensing costs for the physician. He noted even FQHCs might need to purchase supplemental insurance for the volunteer physicians, which could be a large cost in the name of an individual physician and construed as an indirect cost or payment. He asked the committee to consider wording to exclude those potential additional costs.
Dr. Heard noted another licensing cost might arise with the State Board of Pharmacy. He stated some of the health care sites dispense medication, which could require a dispensing license. He added many medical specialties are regulated by different boards, and this should also be taken into consideration in the bill.
Linda L. Sheldon, Lobbyist, Great Basin Primary Care Association, stated she is speaking on behalf of Health Access, Washoe County, a member of the GBPCA, who supports the bill and the additions mentioned so far. Commenting further, she said she is very active in providing dental care to those who need it but cannot afford it, and would like dental care included in the bill.
Bob Campbell, Concerned Citizen, stated coming from the prospective of having been chairman of the Dominican hospital board for 10 years, he is very much in favor of the bill and supports the proposed additions to S.B. 271.
Senator Townsend asked anyone present to address the issue on page 2, lines 1-4 in regard to direct and indirect payment. He stated the bill is very specific, direct or indirect compensation or expectation of payment will not be allowed, and concerns had been expressed about malpractice fees, et cetera.
Mr. Lessly responded it should be changed if the employer intends to pay for continuing medical studies to maintain current licensure. He stated he does not have a problem with adding that into the bill.
Steve Hanson, Chief Executive Officer, Nevada Rural Health Centers Inc. (NRHC), stated the NRHC operate 13 community health center clinics around the state, and they support S.B. 271 with the additions mentioned by others. He emphasized the bill would allow additional support and access by patients to doctors the centers could otherwise not afford.
Senator Townsend requested, Mr. Hanson, should the bill become part of the statutes, to keep the committee informed through contact with the Legislative Counsel Bureau, of how many medical people sign up for the program. He noted he also wanted to know how retired physicians could be informed of the program.
Dr. Bower communicated none of the medical societies keep a roster on retired physicians, especially if they are from out of state. He opined communication would primarily be by word of mouth, because of continued association.
Senator Townsend directed Senator Carlton to address the proposed amendments to the bill agreed upon by all who testified, and closed the hearing on S.B. 271.
Senator Townsend opened the discussion on state leases and payment for tenant improvements.
Dean Smith, Concerned Citizen, stated he and his wife own the Viewcrest Shopping Center in Reno. Reading from prepared text (Exhibit D), he articulated several state departments, key legislators, the governor’s office, and concerned business leaders were disturbed by the action of the Department of Employment and Rehabilitation (DETR) regarding its abrupt June 20, 2001, cancellation of a state lease signed in 1998 to rent 14,950 square feet of space with 8 1/2 years remaining.
Mr. Smith pointed out they agreed to $433,000 in tenant improvements, specifically customized for DETR, discounted the first 6 months of rent $58,916, paid approximately $83,000 in fees to the state’s leasing agent, absorbed about $63,000 in loan fees, and paid an additional $20,000 in property taxes because of the tenant improvements, for a total cost of $659,115. He said DETR cited its right under the lease to cancel upon 30 days written notification. He added, it is language required by state law and is included in every state lease in effect. He noted there was only one instance, about 15-20 years ago, where a state lease was cancelled prior to expiration, and it had involved a recalcitrant Las Vegas landlord. He commented the cancellation clause in state leases is well-known by renters and lenders, and all were comfortable with the language, knowing the state’s track record.
Continuing, Mr. Smith stated the infrastructure was designed and built to DETR’s architectural specifications to house a call center for claims and as a cross-training center. He said the call center received federal funds of $1.455 million for the program. He said DETR Director Myla Florence stated, in a letter to Senator William J. Raggio, Washoe County Senatorial District No. 3, “Service delivery is slowly being phased out of the local offices and transitioning to call centers, one-stop centers, and use of the Internet for self-service.” He added that is exactly what Viewcrest was built for, per previous DETR executives, one of whom is still with the department.
Mr. Smith continued saying the state Building and Grounds Division conveyed to DETR the action would have a negative effect on landlord-tenant relations, turning state leases into month-to-month agreements costing the state dearly. He elucidated there are currently 295 state leases totaling $18 million. He mentioned another consequence of such action is the funding of state projects by lending institutions. Mr. Smith emphasized the Viewcrest lender, Colonial Bank of Reno, has already taken the position state leases are not worth the paper they are written on.
Commenting further, he said, building and grounds estimated the settlement of the lease would cost the state $1.9 million for lost rent, more than $600,000 in front-end expenses, and another substantial figure to demise and retrofit the premises. He added the annual lease expense of $230,000 is .7 of 1 percent of DETR’s proposed budget of $33 million. He noted DETR also has 31 other active leases throughout the state.
Concluding his remarks, Mr. Smith stated his family borrowed, built, did exactly what the DETR asked, and bent over backwards to accommodate them. Now his family is left holding a substantially increased debt, which they will be unable to pay if the lease is cancelled.
Gloria Smith, Concerned Citizen, said she is married to Dean Smith and a partner in the Viewcrest Shopping Center. She stated she was brought up to honor agreements and the terms of agreements, whether verbal or written. She insisted, other than budget, the DETR has not offered valid reasons for opting out of its lease. She told the committee she and her husband were in their 60s, and asked for help so they would not have to start over.
Tim Ruffin, Vice President, Office Properties Group for Colliers International, stated his responsibilities include selling and leasing office properties in Northern Nevada. Reading from a prepared statement (Exhibit E), he said he has represented the state in several lease transactions, including State Industrial Insurance System (SIIS) when it was a state agency, the State Board of Pharmacy and the DETR. He maintained the funding out clause has not been a problem for landlords who cross-referenced the issue with lenders for additional due diligence. He pointed out had the state cancelled a lease using the funding out clause and not made the landlord whole, he could not have successfully negotiated leases. He added in fact, the state would have been in a weakened position.
Mr. Ruffin opined situations like this one would put the state at a great disadvantage with higher lease rates, higher security deposits, agencies having to fund their own tenant improvements, a lower class of building, increased impact on the state’s budget, and a loss of reputation.
Commenting further, Mr. Ruffin suggested subleasing the space to a non-state entity, or requiring state agencies with expiring leases to move into the vacated space until the lease term has been fulfilled.
John N. Donovan, Reno Area President, Colonial Bank, stated the committee has a letter and copy of the section of the lease addressing immediate termination of the lease agreement (Exhibit F). He expressed hope a solution could be found to alleviate the situation. He emphasized, from an industry standpoint, this was a dilemma because read literally and applied often, the value of the income stream off the tenants’ rents becomes a very nominal value in any real estate project. He said if applied the way it has been in the past 20 years, the income stream from a state lease is considered a very good source of repayment and is given a high probability for continued payment by any lender who looks at state leases. He concluded the industry is interested in how this lease rift turns out, because it will become a key element in lenders’ decisions in determining financing for property development for and leasing to the State of Nevada.
Mr. Donovan added the regional president for Colonial Bank has written to the Nevada Bankers Association’s executive vice-president requesting the lenders in the state be surveyed for a consensus on how the language has been interpreted in the past for a unified approach on how to proceed.
John P. Sande III, Lobbyist, Nevada Bankers Association, stated he just heard of the lease situation and it was shocking to him. He emphasized he would use stronger terms than Mr. Donovan. He said he presently serves on a loan committee, and previously served on Valley Bank of Nevada’s loan committee, and, categorically, he would not approve a loan if it relied on a lease stream from the state if the new interpretation of the lease exit clause prevails. He added if a Federal Deposit Insurance Commission (FDIC) examiner looked at the loan, the commissioner would immediately classify it as a month-to-month. He conveyed any time there is a contract, the law states there is an implied covenant of good faith and fair dealing, and he said he sees a lack of that.
Senator Amodei queried if everyone was relying on the brief wording in the lease. Mr. Donovan responded that is the wording, and those pages came from a lease in the bank’s files.
Senator Amodei wanted to know if anyone had received information reporting any finding the legislature or federal government had done something of an unforeseen and shocking fiscal nature regarding the DETR funding.
Mr. Smith answered the representation made by the DETR, in correspondence, was funding had been cut by $3.3 million or $3.4 million, and that was why they cancelled the lease.
Senator O'Connell mentioned the letter to Senator Raggio contains the explanation about the $4.3 million.
Senator Townsend asked Mr. Smith if it was his understanding the DETR had subsequently leased other space. Mr. Smith responded he had verified this morning with Mike Meizel (Chief, Buildings and Grounds Division, Department of Administration), the DETR had leased 6900 square feet in the Frontier Center to accommodate the call center. Mr. Smith added the Board of Examiners approved the Frontier Center lease last month.
Senator Rhoads inquired whether any other DETR leases around the state were cancelled because of budget constraints. Mr. Smith answered, according to building and grounds, the DETR had not cancelled any others. He added when negotiations were concluded and the lease was signed, everyone, including the bank, believed they had a 10-year lease. Additionally, he said, research by the bank on state leases satisfied the lender, and that satisfied him.
Senator Rhoads inquired if Mr. Smith would have invested so much money if he knew he did not have a 10-year lease, and Mr. Smith said, “Of course not.” Mr. Smith added, in fact, the DETR’s attorney called his attorney to get the amount of money put into the project, which was provided. Mr. Smith said he surmised it had not been a casual inquiry, but a hint of possible liability.
Senator O'Connell asked for reaffirmation of the DETR’s commitment to occupy the Crestview site until June. Mr. Smith stated it was correct, according to the letter of cancellation.
Senator O'Connell asked for confirmation as to whether the DETR is now paying rent on two properties.
Senator Townsend inquired if, when the contract is perused specifically to ascertain the amortization of the tenant improvements (TI), would there be some cause under detrimental reliance.
Mr. Sande communicated there are a lot of issues, the first being for the state, who does not want to pre-fund TIs on any lease. How is the state or the landlord getting funding, if this gets out into the community? He asked. He opined there could be a number of logical, legal arguments made as to why the state did not have the right to just unilaterally cancel, even though there may have been a little bit of tough times for an agency. He continued the actions of the parties in the lease negotiations, assuming putting in a substantial investment for improvements designed specifically for a tenant, are rational actions, based on the lease running its course, unless there is something catastrophic. Mr. Sande noted there is always the possibility a tenant could go bankrupt, but that is something the landlord is willing to take a risk on. But he said he would argue a landlord is not willing to take a risk if the state is going to look at saving a few dollars by leasing in another location instead.
Senator Amodei stated when he looks at the language in the lease, it brings to mind notions of catastrophe or the unforeseen, and noted Ms. Florence says in her letter the funding supposedly precipitating this action has been eroding since 1994. He said it does not lend credence to notions of catastrophe or the unforeseen, which predated the execution of the lease.
Senator Townsend stated he was perplexed, adding, and maybe it is because it has always been done that way, but if only the board of examiners can sign a lease, why is it only a department can terminate a lease.
Mr. Ruffin responded the language in the DETR lease says, “a notarized statement from the director or administrator of that department verifying the financial situation,” is the way the lease is actually written to give them the prerogative to do so.
Senator Townsend remarked it challenges the premise of logic to have one entity enter into an agreement, and allow another entity to rescind it. Mr. Ruffin commented that is the way it has been in all the state leases he has worked on.
Senator Townsend stressed if this catastrophic interpretation went back to the original group who signed the lease, they probably would have an entirely different point of view, since it is the Governor, the Attorney General, and the Treasurer, and these are people who deal a little more in contract law, as well as in the business world. Senator Townsend continued the next role for the committee is to gather the information, communicate with the Governor, the State Board of Examiners, and Department of Employment Training and Rehabilitation Director Myla Florence. He said he would keep the parties informed, and revisit the issue to decide a course of action.
There being no further business, the hearing was adjourned at 10:43 a.m.
RESPECTFULLY SUBMITTED:
Laura Adler,
Committee Secretary
APPROVED BY:
Senator Randolph J. Townsend, Chairman
DATE: