SENATE COMMITTEE ON FINANCE

MINUTES OF THE

joint subcommittee on human resources / k-12

of the

SENATE committee on Finance

and the assembly committee on ways and means

Seventy-First Session

May 1, 2001

The Senate Subcommittee on Human Resources / K-12 of the Senate Committee on Finance and the Assembly Committee on Ways and Meanswas called to order by Chairman Raymond D. Rawson at 8:14 a.m., on Tuesday, May 1, 2001, in Room 3137 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.

SENATE COMMITTEE MEMBERS PRESENT:

Senator Raymond D. Rawson, Chairman

Senator William J. Raggio

Senator Bob Coffin

Senator Bernice Mathews

ASSEMBLY COMMITTEE MEMBERS PRESENT:

Mr. David E. Goldwater, Chairman

Mr. Morse Arberry Jr.

Mrs. Barbara K. Cegavske

Mr. Joseph E. Dini, Jr.

Ms. Sheila Leslie

Ms. Sandra J. Tiffany

STAFF MEMBERS PRESENT:

Gary L. Ghiggeri, Senate Fiscal Analyst

Mark W. Stevens, Assembly Fiscal Analyst

Georgia J. Rohrs, Program Analyst

Bob Guernsey, Principal Deputy Fiscal Analyst

Debra Petrelli, Committee Secretary

OTHERS PRESENT:

Don Hataway, Deputy Director, Budget Division, Department of Administration

Douglas C. Thunder, Deputy Superintendent for Administration and Fiscal Services,

Department of Education

Gloria Dopf, Educational Equity, Department of Education

DEPARTMENT OF EDUCATION

Distributive School Account – Budget Page K12/ED-11 (Volume 1)

Budget Account 101-2610

Senator Rawson pointed out to the subcommittee that discussion and input is needed regarding the closing of budgets, and the subcommittee needs to give instructions to staff on how to prepare the closing documents to reflect the decisions that need to be made on the Distributive School Account (DSA). He added that this is the single largest budget and in many ways the most difficult budget to close. He added that it is important that staff go through the issues for consideration as each one is handled. It will be important for the subcommittee to discuss concerns in any area, he said.

Georgia J. Rohrs, Program Analyst, Fiscal Analysis Division, Legislative Counsel Bureau, addressed her DSA Work Session handout (Exhibit C), and stated that student enrollment is estimated to reach 344,803 in FY 2002, and 360,931 in FY 2003. She said these are increases of 4.86 percent and 4.68 percent respectively. She stated that the enrollment projections appear reasonable.

Senator Rawson asked whether there is anything that needs to be looked at in reconsidering enrollment projections.

Don Hataway, Deputy Director, Budget Division, Department of Administration, replied no, and said he believes the enrollment projections are sound. He added that the division has looked at what the school districts project over time and it has been in the 99 percentile of accuracy. He said the Budget Division basically goes along with what the school districts have projected for their enrollment.

Douglas C. Thunder, Deputy Superintendent for Administration and Fiscal Services, Department of Education, stated that he would like to remind the committee that although there are significant enrollment increases statewide, in the last several years there have only been approximately four districts that are actually increasing. He pointed out that some counties are actually decreasing.

Senator Coffin asked whether Mr. Thunder’s statement infers that Clark County, due to its growth being faster than projected, tends to have its allocation dragged down by the overall average.

Mr. Thunder replied:

I don’t believe this is the case. There ends up being one factor, we’ve had a ‘hold harmless’ clause for one year, and a bill would take that back to the way it used to be 10 or 12 years ago, to a ‘2-year hold harmless.’ That amount ends up being an unbudgeted factor because we don’t know at the start what it is going to be, and that could be in the neighborhood of $3 million or $4 million per year.

Senator Coffin inquired whether $3 million or $4 million would be going to Clark County. Mr. Thunder replied that it would not be specifically for Clark County. He explained that it is funding where in most years, there is surplus in the DSA because of sales tax. He added that there is room to meet that kind of a commitment. He noted that is does not come out of the budget of a specific school district.

Senator Coffin said the budget gets what it was allocated, but some counties do not get what their growth may necessarily deserve. Mr. Thunder responded that he does not believe this is the case. He added that each county is getting what was developed in the budget process. He stated that because of declining growth in some counties, they will paid for student enrollment of the prior year, or the “two-year hold harmless” clause, if it is in effect.

Senator Coffin stated that if they are “hold harmless,” then money is coming out of other counties. Mr. Thunder replied that counties are not receiving other counties funding. He added that the counties basic support to meet that commitment is not reduced.

Senator Rawson said an example would be Esmeralda County, which has dropped enrollment from approximately 114 students to 85 students. He added that it affects this few students very little, and the approximate 240,000 in Clark County would be most affected. He said what is actually being represented is that it is not coming from Clark County, even though it is a very small figure.

Referring to an itemization of the DSA (Exhibit D), Ms. Rohrs said the basic support per pupil is recommended at $3,896 each year for the upcoming biennium. She said this is an increase of $90 over the FY 2000 rate, and an increase of $92 over the legislatively approved amount for FY 2001. Senator Rawson stated that with approximately 300,000 students in the state, that would add up to about $27 million per year. He asked how much new funding education is receiving this year.

Mr. Hataway remarked that the Governor’s budget recommends almost $296 million additional dollars that will be going into local school districts. He stated that total state support, which is the additional dollars from one biennium to the next, is $352,932,000 that the state is guaranteeing. Senator Rawson asked whether this is for growth, programs, increase in basic support, class‑size reduction, special education, and adult education. Mr. Hataway replied this is correct.

Ms. Rohrs said there are no salary increases included in the Governor’s budget. She pointed out that there is a “one-shot” appropriation for $57.5 million to provide for school district staff bonuses. She stated that a 1 percent salary increase through the DSA in FY 2002 would cost an additional $16.4 million. Senator Rawson asked whether this is only for teacher salaries. Ms. Rohrs replied that this number is for all school district staff.

Ms. Rohrs remarked that the 1 percent she referenced is a 1 percent in FY 2002, and not an additional amount in FY 2003. She said this would total $16.4 million in FY 2002, and approximately $16.8 million in FY 2003. She added that a 1 percent salary increase each year would cost $16.4 million in FY 2002, and $34.3 million in FY 2003. She noted it would be a total of approximately $51 million in the biennium.

Mr. Goldwater asked what the effect would be if the $57 million the Governor allocated in a bonus was added as ongoing raises for teachers, or was somehow included in the budget as ongoing. Mr. Hataway remarked that, in essence, that would create a hole in the budget for the next biennium because it is surplus dollars. In other words, he said, you could roll it into the next biennium and use it anywhere it is needed, including salaries, but that money will not be there in FY 2003 – FY 2005. He pointed out that you would need to come up with the difference at that time from other sources.

Senator Rawson stated that this issue should be explored further. He said if we were talking about a 1 percent raise per year, it would be a 1 percent raise in the first year of the biennium, and it would rollup into the second year of the biennium. He commented that another percent could be added the second year, so it is actually a 2 percent raise in the second year. He pointed out this would total approximately $51 million, working in increments. He said if you were working with a 2 percent raise, it would total approximately $102 million.

Senator Rawson asked if the $57 million was rounded off to a 1 percent raise each year to total $51 million, and is paid by “one-shot” funding, how big would the “hole” be in the second year of the biennium. Mr. Hataway replied that it would be $34 million. He added that there were some incremental increases and rollup value, but it would be the total in the second year of the biennium that would eventually make an impact “down the road.”

Senator Rawson said if it cost $16 million the first year of the biennium, then it would cost $34 million in the second year, because of the rollup in the first year of the next biennium, leaving a $34 million hole. Mr. Hataway stated this is correct. He added that if there were no other salary increases next biennium, the $34 million would roll with a 2 percent rollup each year of the following biennium.

Senator Rawson asked whether a cost of $34 million the first year would actually be what the second year of the next biennium totals along with rollups. In other words, he added, that cost would be $64 million plus rollup that would be needed in the second year of the biennium. Mr. Hataway replied that for the total biennium, this is correct. Senator Rawson said the subcommittee would need to consider budgeting principles and what the obligations are.

Mr. Goldwater stated that he does not disagree with this concept, or that it would necessarily create a “hole” bigger than the “hole” that is currently in the budget.

Mr. Goldwater added:

I guess we budget for this biennium and not the next biennium. So given the next biennium, we just start with a new pot of money and prioritizing that pot of money where it is needed. We examine the budgeting principles and if we’re budgeting for this biennium, then we take revenues from this year’s budget.

Senator Rawson stated that essentially if we do not have the growth, or the revenue increases, this creates a “hole” somewhere in the budget. Mr. Hataway commented that every 2 years the department looks at total resources and what is required for the budget. He pointed out that whatever decisions are made by the committee, in 2 years the Budget Division would have to look at total resources and the requirements to fund those requirements.

Senator Rawson said:

There is $57.5 million that is scheduled as a one-shot, and for staff this is a decision point, because until we’ve made our decision of what happens, don’t count your chickens before they hatch. I believe there are good intentions here to try to address the issues, but it is just on the table at this time, and are unspendable funds.

Ms. Tiffany asked whether there is consideration of giving a 1 percent increase in FY 2002, and then another 1 percent in 2003, and what would that total for the upcoming biennium. Senator Rawson replied that for the upcoming biennium it would be $51 million, but the rollup for the following biennium would be $34 million the first year, and $34 million plus the 2 percent for the second year. It will be close to $70 million, he added.

Ms. Tiffany asked whether the total would be $70 million if a 1 percent raise was funded in each year of the biennium. Senator Rawson stated that $70 million would be the amount of money needed to carry it forward for the next biennium. Ms. Tiffany commented, “Let’s say it’s not to carry it forward, what would the total be then? I get $51.5 million if you add a 1 percent and 1 percent in FY 2002 and FY 2003 respectively.”

Senator Rawson remarked that this is a running total of adding the first year plus the second year. However, the obligation for the next biennium is the total of the second year, he added. Ms. Tiffany said the subcommittee needs to see what the Economic Forum is projecting, even though we are looking at the “one-shot.” She added that it is also necessary to look at salaries for state employees. Regarding policy, she asked whether the subcommittee would want to provide a bonus or give a salary increase.

Ms. Tiffany said that in Clark County, without getting salary increases, the employees will collective bargain. She added:

When they collective bargain, we still ‘take it in the shorts in the press.’ That says we didn’t give them the salary raise, and then they go and collective bargain, and then the superintendent then says he’s going to cut music, art, or bus routes again, so, I think we’re between a rock and a hard spot on solving the problem. By looking at whether the ‘one-shot’ goes in for salary increase or not, because the bottom line is that the union is still going to collective bargain no matter what we do.

Ms. Tiffany said, assuming we have the $51.5 million and we wish to use it as a salary increase, would it ever be considered that the budget is not balanced if we don’t look at the rolling forward, and is it ever considered not balanced when we are done?

Mr. Hataway replied that the Budget Division builds certain rollup costs into the budget. He said that as far as the collective bargaining issue, it is a matter of when it is funded, and it becomes a “catch up” situation. He added that if the school districts and the unions agree to a certain salary increase, it is funded because the budget is built based on average salaries. He said that if decisions from the bargaining process increase the average salary by $1,000, for example, then 2 years from now the FY 2002 actual cost would be build into the budget and rolled forward. He stated that the budget does fund the collective bargaining process.

Ms. Tiffany said she is not sure whether collective bargaining would be better if a bonus was given or if a 1 percent raise was given. She added that she does not know whether that would help one way or the other. She commented, “It seems if it were a ‘one-shot,’ then they would take the one-shot and collective bargain, we may possibly get a ‘double hit,’ as opposed to just building it into a salary.”

Mr. Hataway stated that the unions and the school districts look at the “one-shot” as a base and bargain from that point. He explained these issues depend upon the projections of the Economic Forum, even though the Governor has tentatively not made any decisions on what would be affected.

Senator Rawson said the practicality of what will happen is that it probably does not matter whether the raises are given by a “one-shot,” they will eventually end up being built into the budget. He added there are some basic principles that are followed. He remarked that one of the “absolutes,” is that “one-shot” funding for non-ongoing programs is dealt with and continuing revenue is used to build programs. He noted that certain people may not agree with using “one-shots” to build ongoing budgets.

Senator Rawson commented that the problem with this is that a deficit or obligation is built into the next years’ budgets, and funding may or may not be available. He said that one of the functional problems facing the subcommittee is there is actually more ongoing debt than collections from growth. This is why, he added, we are facing this issue today.

Senator Rawson explained that revenues in this budget must be dealt with soon. He pointed out that the committee has a clear picture on these issues.

Ms. Rohrs said utility rate increases are built into the budget at 15 percent each year for heat and 16 percent each year for electricity. She pointed out that a table on page 1 of Exhibit C outlines the dollar amount of these increases. She added that at this time the full extent of expected utility increases is unknown.

Ms. Rohrs commented there has been discussion of establishing a special fund for utility rate increases that may go above budgeted levels, and the funds could be accessed through the Interim Finance Committee (IFC). However, she added, the problem for the school districts is that a special fund would not be available to school districts.

Senator Rawson said, “At best we could only guess what utility rates are going to be.” He remarked there is a fairly strong estimate that those rates will be increasing significantly. He asked whether it is likely that electricity will increase at a faster rate than heat will rise, or is the fuel source for heat figured into electricity at the same rate? Mr. Hataway responded that, the 15 percent for heat and 16 percent for electricity were recommended by the Public Utilities Commission (PUC) when the budget was built. He added that obviously things have changed since that time.

Mr. Hataway remarked that since the Legislature has “deregulated deregulation,” the department knows there are certain times when rate increases will kick in, but what those increases will be are unknown.

He said:

I would comment on the statement that a special fund would not be available to local school districts. I would think at least discussions with the Governor’s office, when you look at the university system, the prison system, buildings and grounds, local school districts that pay utilities and are funded by the General Fund support, we would most definitely have to include the districts in the mix. How that dynamic would work on the basis of the fact that we allocate funds on a basic support that potentially would require a special session just to amend the basic support allocations for the individual districts.

Mr. Hataway added that heat and electricity are an issue in urban areas and in rural areas as well. For example, he pointed out, in conservation camps within the prison system, a lot of propane is used, and they are seeing large increases. He said he assumes that some schools in the rural areas would also be in this same situation.

Mr. Hataway commented that the Budget Division is continually monitoring this situation. He said the Governor is on record of recommending the use of an allocation from the “Rainy Day Fund,” because whether the utility costs go as high as some projections, it would be a “rainy day” for many of these budgets. He added that this is an issue that is still emerging.

Senator Rawson said it appears, with the state of the law, that school districts would not be able to approach the IFC and access the Contingency Fund. He commented that he is unaware whether the Contingency Fund has been considered, but does not see it as a possibility without some significant change in the law or policy. He stated that the subcommittee has an obligation to do the best they can, without planning for a special session. He indicated that he is not willing to close any budget with the proviso that they will come back to “fix it” in a special session.

Senator Rawson pointed out that if something were to happen outside of the committee’s control at this point, that is what a special session is intended for. He said that he would not support a special session; it is not appropriate. The subcommittee needs to do the best they can, he added.

Senator Rawson commented that the DSA has the potential to outstrip almost any fund that it is placed in, unless there is an adequate reserve in place. Reserving a lot of money in this legislative session would not be appropriate, he added.

Senator Rawson asked what the specific law is concerning the “Rainy Day Fund,” because he is aware that it has very specific criteria. He said he believes there would be resistance in the Legislature to change the law so that those funds are easily accessed. Mr. Hataway responded that basically, the “Rainy Day Fund” is triggered through revenue, and whether the revenue drops below a certain level. Senator Rawson asked whether that level is 8 percent or 10 percent.

Mark W. Stevens, Assembly Fiscal Analyst, Fiscal Analysis Division, Legislative Counsel Bureau, said he believes the law states that if revenues fall below 5 percent, the “Rainy Day Fund” can be accessed. He added that both the Governor and the full Legislature must declare a fiscal emergency.

Mr. Hataway commented:

That’s the reason we refer to a special session. In a sense the bill that we submitted to provide flexibility for the IFC to assist, died for lack of processing. However, we are working on some language that we would like to suggest that you may want to consider adding to the appropriations bill under certain tight restrictions related to this issue. The school districts have something like 36 million square feet of space, with a big chunk in Clark County, with air conditioning. Obviously we have got to keep them in the mix to make sure they are treated just like any other state agency paying utility rates. That is just a fair situation that we need to work with.

Senator Rawson asked what would happen to the stabilization fund if there were a true 5 percent decrease in revenue, which is a serious financial problem. In other words, he said, if revenue is approximately $44 million, and we had a 5 percent decrease, what would the quality of an insurance policy be? He indicated that insurance is needed if the stabilization fund is not large enough, and the purpose of it changes with that kind of decrease.

Mr. Hataway commented that the current law states that it can be built to 10 percent of the ending fund balance, and believes that it is currently at the 7 percent level. He remarked it would take some time to spend the amount that is in the “Rainy Day Fund,” but this would depend on the severity of the economic issue. He pointed out that obviously the amount of money currently in that fund would definitely be a cushion against a downturn. Mr. Hataway said the “Rainy Day Fund” was not available in 1993, when there was a budget reduction process, because of the recession in the early 1990s. He noted there was nothing to fall back on at that time.

Senator Rawson asked what a 5 percent revenue decrease would mean in millions of dollars. Mr. Hataway responded that the total General Fund is approximately $3.4 billion. Senator Rawson commented that if the emergency was not more than a 5 percent decrease, the “Budget Stabilization Account” would pull the state through. He added that it is important that this account is in place.

Mr. Hataway stated that in the later stages of the 1997 - 1999 biennium, the Governor had to freeze positions and get into a budget reduction mode to build reversions. He said the 5 percent level at that time was not reached. It was an economic downturn, and the projections were not coming in as well as the Economic Forum had projected, although it still did not breach the 5 percent level. He commented that there would need to be a major downturn in the economy to reach below this level.

Senator Rawson commented that the language in the “Budget Stabilization Account” reads, “Money from the Fund may be appropriated only if total General Fund revenue for the biennium falls short of the anticipated amount by 5 percent or more, or if the Legislature and the Governor declare a fiscal emergency exists.” He added that if fuel prices really get high, it is possible that the Legislature and the Governor would be willing to declare that a fiscal emergency exists.

Mr. Hataway commented that currently the problem is the access point in the Legislature. He added that if this should occur during an off-session, a special session would have to be called.

Douglas C. Thunder, Deputy Superintendent for Administration and Fiscal Services, Department of Education, commented that he does not believe school districts have direct access to the Contingency Fund, but certainly the DSA has access. He said that if it were an issue that could be brought up through the DSA, he believes there would be access through that medium.

Ms. Cegavske stated that the school districts have always asked, especially in southern Nevada, that there be shut-off times for electrical/heat usage. In other words, she added, there are certain times they are turned off. She said she has been in school buildings during after-school hours, and because of no air circulation she could barely breathe. She remarked that she is aware that schools are attempting to conserve energy use, and possibly we need to think of other ways to help with the reduction in energy costs.

Ms. Cegavske said the cost is astronomical per vending machine, per school, throughout the entire state for electrical usage alone. She commented that she is aware of vending machines being put on timers at one school. She said there are things that can be done and this needs to be addressed. She added that she does believe there is a possible avenue in the DSA, and staff should look into this issue for a possible safeguard.

Based upon funds each school creates, Ms. Cegavske explained it would not be out of the question to ask each school to pay for its own vending machine usage.

While comparing the size of the DSA to the size of the stabilization fund, Senator Rawson determined the stabilization fund is a small account that could easily be depleted. He opined it would be feasible to consider a utility account, but he remarked it would be a problem to decide how this account should be funded, and the amount to put in it. He said one possibility would be to use the stabilization fund to subsidize a utility account that could be made accessible to any state agency, including the schools.

Mr. Hataway commented that, in essence, this has already been done through legislation and the Disaster Relief Fund. He said that those dollars come from the “Rainy Day Fund.” He pointed out that the interest earned on the “Rainy Day Fund” goes into an emergency relief program. He emphasized that currently utility rates are unknown, and what their impact will be. He said that many people project utility rate increases based upon what they read in the newspaper. For example, he added, utilities filing for a 30 percent rate increase, prior to the law reverting back to a regulated environment.

Mr. Hataway said that the overall rates and the impacts on individual budgets is something the Budget Division is unable to foresee at this time, and a definitive recommendation cannot be given. He stated that consideration should be given to expanding the Disaster Relief Fund, or the Emergency Fund language. He pointed out that in essence this is what is being talked about with the utilities. He said the Budget Division does not want nor does it support a broad base opening of the “Rainy Day Fund” for any use. He added that it needs to be well‑defined and well‑controlled. He stated that whether funds are put into a utility rate stabilization program or not, the division will work with the subcommittee’s staff on that issue.

Senator Rawson inquired whether the Disaster Relief Fund could be opened as a potential to being able to cover utilities. Mr. Hataway said, “To a lot of these budgets, it would be a disaster if utilities were to go as high as some people have been reading, but I don’t think it is going to be that way.”

Referring to interest raised from bond revenues in Clark County, Ms. Cegavske asked whether that interest amount is specifically designated, or are the school districts allowed to use it at their own discretion. She also asked if this issue could be looked into.

Mr. Thunder said in most cases if it is bond interest from bond revenue, it has to be used as part of the process for which it is intended. He said he personally does not work in that area, but it is his impression that funds earned as interest on bond revenue cannot be diverted for other purposes. He noted that he could be wrong.

Mr. Hataway stated that this is no different from bonds the division issues, and it depends on what the bond resolution says. He said bondholders are very protective of that issue. He added that if the state should start siphoning earned interest for purposes that are normally not related to the bond issue itself, it would probably start reflecting in interest rates being paid to the bondholders.

Mr. Arberry asked when the “Rainy Day Fund” would be discussed with the Governor and considered as an option to use for funding utilities. He further asked why it was decided that the budget could not be balanced without using the “Rainy Day Fund,” instead of increasing utilities. Mr. Hataway replied that the budget was built on recommendations, and the Budget Division always goes to the source, which is the PUC. He explained that toward the latter part of the budget preparation process, everything started to “break loose,” and at this time he does not believe that anyone can say what utility rates are going to be.

Mr. Hataway stated that with a large uncertainty and the tightness of the budget, the only other big block of revenue available, under controlled conditions, is the “Rainy Day Fund.”

Mr. Hataway pointed out that if the energy crisis had started six months earlier, the budget may have built in different amounts than what we have now. He remarked that in his experience with the state, inflationary increases have never been built into the budget for any purpose in the magnitude of 15 percent and 16 percent. He added that the attempt was made to get blocks of dollars into the budget, and whether that is going to be sufficient or not, he does not know.

Mr. Arberry commented that when the “Rainy Day Fund” was put together, that was what it was supposed to be, a fund in place for a disaster not created by man or woman or by the economy. He said that he was under the impression that the “Rainy Day Fund” was created for something uncontrollable and unforeseen, such as a hurricane. He added that it is very hard for him to open that fund for payments of utilities, because once that door is open, it will never close. He said every other avenue would be looked at before the "Rainy Day Fund" is used. He pointed out that he believes there are people who may disagree with him and ask why there is a pool of money just sitting there not being used. He added that in the long run, when that time comes, the state will be very happy that the “Rainy Day Fund” is available.

Mr. Arberry stated he is sorry there are problems in education, and with skyrocketing utility rates, but the state must “bite the bullet.” He reiterated that he does not support opening the door to the “Rainy Day Fund.”

Mr. Rawson commented that there would be a general resistance in trying to go into that fund.

Senator Raggio stated that he is troubled over the serious concerns about funding and what to do for the next biennium. He said he will reserve comment until everything is discussed, in order to comprehend and understand some of these concerns. He remarked that in 30 years of service in the Legislature, this is the first time anybody has given serious consideration to funding an ongoing obligation with one-time funds, which he believes is irresponsible.

Senator Raggio said:

I think everybody needs to know we talked about a salary, running it as a 1 and a 1 percent increase in the second year, creating a $70 million hole. Everybody seems to glide over that, and suggest, well okay, it’s a $70 million hole. But, that means in essence, that you are either going to take $70 million away from some other place, or not have it next time, and that means in essence it translates into an immediate commitment to a tax increase for that purpose.

Senator Raggio referred to the issue of opening the “Rainy Day Fund,” and said he has the same concerns as Chairman Arberry. He pointed out that the committee was very prudent when the stabilization fund also known as the “Rainy Day Fund,” was set up. He pointed out that limitations on this fund were put in for a very basic reason.

Senator Raggio remarked that there were difficult times in the early 1990s, when the Governor and the Legislature did not listen to the Economic Forum forecast, and decided to allocate more money than they knew they were going to have. As a result, he added, cuts to budgets had to be made. He pointed out at that time there was the realization that some type of stabilization fund would be necessary when revenues drop to a certain level. He added this is the reason for the 5 percent trigger being included in this fund.

Senator Raggio reiterated that he agrees with Chairman Arberry. He said this fund was not designed for the kind of usage at issue. He added that he foresees a potential problem and he agrees with Mr. Hataway that 15 percent and 16 percent increases for utilities in the DSA is unusual. He noted this is a very high amount, which historically has never been plugged into the budget.

Senator Raggio indicated that the committee should not loose sight of a couple of basic premises. He pointed out that when 15 percent or 16 percent is plugged into the DSA, it is not a requirement that the local school districts use 15 percent of their allocation for utilities. He said this is part of the structure of building the formula. He stated that funding of local schools is a shared responsibility of both the state and the counties. He further stated:

Collaterally, I get a little tired of reading in the newspapers about how the state neglected to fund the building of schools. That’s not our obligation, that’s why we gave up local revenues to local governments and they took on the obligation of ‘bricks and mortar.’ Similarly, it’s still a shared responsibility. The state is the guarantor of the total basic support per pupil. However, isn’t it also a mutual responsibility in this situation for the local school districts, as well, to be prudent about the realistic idea that utilities are going to increase and may increase more than this? What I’m saying is, yes, we should explore this option; however, I think it is going to be prudent for the local school districts to also realize that they may have to reserve something for utilities, to go beyond what is anticipated at this time. The school districts have funding outside of the DSA. There is a 50‑cent property tax that is outside of the DSA. I’m suggesting, while it’s prudent for us to explore this, it may also be prudent for local school districts to be put on notice immediately that they should set up some kind of a reserve for this as well. I think that any arbitrator is going to recognize the prudence of doing that. If we do nothing other than send a letter of intent, along with whatever our final decision is, I think that would be most appropriate, because it is a shared responsibility.

Mr. Hataway stated that he would like the “Rainy Day Fund” to be at the full 10 percent maximum currently allowed. He remarked that it is very important to maintain that fiscal responsibility and it reflects the state’s ratings with bond houses. He said, “We’re talking in this situation, on a short-term basis, because whatever happens, particularly in 2002, that we use to build the next budget, we pick up and reflect in the out-year budgets.” He stated that this is based on per‑unit cost. Using heat and electricity as an example, heat is a northern problem and electricity is a southern problem, he added.

Mr. Hataway pointed out that the cost of heat in 1998 was 16.4 cents per square foot, 15.5 cents in 1999, and in 2000, the cost was 14.1 cents per square foot. He stated that the base budget was built on 14.1 cents per square foot. With the inflation factor built in, he added, the Budget Division is looking at 18.1 cents per square foot in 2003. However, he noted, electricity was 70.3 cents per square foot in 1998, 66.1 cents in 1999, and 83 cents per square foot in 2000. He commented that utility costs have already impacted the budget. He added that the base budget was built on 83 cents per square foot for electricity. He commented that with the inflation factor, assuming it occurs the way the PUC advised, electricity would be $1.08 per square foot in 2003. He pointed out there are sizable increases built into the budget, but whether that will be sufficient or not is unknown. He stated that this is the reason the concept of the “Rainy Day Fund” was considered for the short-term transition into the next budget building process.

Mr. Goldwater commented that he heard Senator Raggio refer to the issue of reserving funds for utility rate increases. He said he is more familiar with Clark County’s budget. He stated that his cursory due diligence does not indicate that the balance sheet or the income statement, in Clark County, would reflect the ability to reserve anything. He opined that even though he has done cursory due diligence, Clark County is now cutting programs to pay for current ongoing expenses. He stated that the concept of reserving seems to be “foreign,” or undoable, because programs in the schools are being cut just to pay for current expenses. He asked whether this is accurate.

Mr. Thunder commented that given the school districts’ current budgets, it would be difficult. He said it would not be easy with future budgets as well, but possibly more doable. He reiterated the utilities issue would have to be weighed over and against all other items in the budget, including programs.

Mr. Thunder stated that to make everyone aware, the combination of heat and electricity for FY 2002 is approximately $40 million, which includes the 15 percent for heat. He added that the electricity portion is approximately $47 million and that overall, the department is looking at approximately $87 million over the biennium for these two line items.

Mr. Goldwater stated that after looking at the work document (Exhibit C), he is unsure whether health insurance and the health insurance contribution has been accurately accounted for. He pointed out the continual “tug-of-war” with cost of living increases and he is concerned the state is not accurately funding health insurance. Mr. Goldwater opined in order to maintain the same level of benefits, the state can either reduce benefits or increase the member contribution, and this would mean a decrease in take-home pay for teachers.

Mr. Goldwater inquired about funding of health insurance. Mr. Thunder replied that the normal pattern used over the last several bienniums to determine increases in group insurance rates, either the amount of per person or as a percentage of salary, is calculated from the base year. He pointed out that when looking at the 2 years of the biennium, that amount is carried forward as the base amount. He said that the school districts are also asked to give budgeted numbers for the current year. He added that the school districts must also calculate what they project their group insurance amounts to be for the current year.

Mr. Thunder said that this process normally represents a slight increase over the prior year. He stated it is that increase, either in terms of a percent increase, or an amount per full-time equivalency (FTE), that then becomes the increased amount used when determining growth or enhancements for the first and second years of the next biennium.

For example, Mr. Thunder stated, if that represented a .5 percent increase, which is the base budget and the projected year, which would be the current year, that .5 percent would be the augmented amount for each of the 2 years of the biennium. He added that if you look overall, that amount tends to be somewhat lower than the actual costs when the costs come in for the following years. He said he could get more information for the committee on what would be included in the work papers that support the budget, as opposed to what ends up being the actual cost.

Mr. Goldwater asked how things look as compared to what might actually occur in the budget that was presented. Mr. Hataway replied that the actual costs for medical in FY 2000, which was what the budget was built on, was $94 million as a total for all school districts. He added that the base budget for the DSA for FY 2002 is $98.5 million, and for FY 2003 is $100.5 million. He stated that this is not inflation, but rather the rate adjustment, which includes an additional $7 million built into the first year, and $7.5 million built into the second year of the biennium.

Mr. Hataway commented that with growth and the incremental increases in cost, the total amount of medical, as compared to $94 million in the actual year, would be $109 million in FY 2002, and $115 million in FY 2003. He emphasized that these are costs used to build basic support, which are given out to the individual school districts, and then the districts make their individual decisions of how to spend the funding. He added that a fairly sizable amount has been built into the budget for medical, but he cannot say whether that is enough for individual districts and the demands for medical costs.

Mr. Goldwater remarked that as budgets get tighter we are not giving the local school districts many options, especially in health and electricity; specifically in Clark County.

Ms. Rohrs commented that funding for textbooks is increased for enrollment growth, but there is no inflation built into the budget, and no increase above the FY 2000 per-pupil expenditure of $43.43. She said that whether funding for textbooks was increased by 1 percent, the amount budgeted for textbooks would be increased by $306,508 over the 2001-2003 biennium.

Senator Rawson asked whether Assembly Bill A.B. 450 was the bill that talked about replacing book sets and whether it was an appropriation for $12 million. Ms. Tiffany replied that was the program that was put behind the $20 million “one‑shot.” She said that what they came up with is $1 million for inflation. However, if you back out what the numbers will actually be, Ms. Tiffany said it would be between $10 million and $11 million.

ASSEMBLY BILL 450: Makes appropriations for purchase of textbooks and for other educational purposes. (BDR S-1164)

Senator Rawson asked whether this is a true “one-shot,” since every 5 to 7 years those books need to be replaced. Ms. Tiffany said the program was to extend over a 4-year buying period, because textbooks have a life of 7 years. She explained that the 4-year buying period is what the school districts need to be able to replace all of the books in all of the subjects. She added that it was not just the replacement of textbook sets, but also instruction books, amounting to 2 percent overall in all of the counties.

Ms. Rohrs stated that special education enrollment growth is funded at the same rate of growth as the general student population. She pointed out that the Governor recommends 2,402 special education units at a cost of $29,977 each, or $72 million in FY 2002, and 2514 special education units at a cost of $30,576 each, or $76.9 million in FY 2003. She added that in response to an earlier question by the subcommittee on basing special education funding on the special education population, calculations were done that show it would require an additional $1.1 million in FY 2002, and $2.6 million for an additional 85 special education units in FY 2003. She noted that would be about $3.7 million over the biennium.

Ms. Rohrs commented that there was another issue addressed earlier with regard to the regulation passed by the State Board of Education during the interim. She said that the question was whether there would be funding available to meet the caseload/class-size reduction components of the regulation. She indicated that she has received assurances from the department that increased federal funding will provide the funding needed to implement that regulation.

Senator Rawson asked whether there is any word on what the potential federal increase in special education funding will be this year.

Gloria Dopf, Educational Equity, Department of Education, replied that at the current time the department has been given a projection by the federal government of what the amounts will be for the school year beginning July 1. She said it will be approximately $34 million, which is a $7 million increase above our current year’s funding. She pointed out that this puts the target at 15 percent of the per‑pupil expenditure versus the 40 percent that is being requested throughout the nation by the U.S. Congress. Senator Rawson inquired whether that target was previously 13 percent. Ms. Dopf said that is correct. Senator Rawson pointed out that this is an increase, and asked how many units would $7 million buy. Ms. Dopf responded that it depends on what amount per unit, but at approximately $30,000 per unit it would buy about 230 units beyond what was expected.

Ms. Dopf added there are restrictions regarding the additional funds, which includes that the funds go to the district and not be available to the state for any additional discretionary activity. She explained that the increased amount would not increase any additional funds available for caseload reduction, so it remains a stable amount. In addition, she said, the school districts may not utilize more than 20 percent of the new funds to offset previous costs. She explained that it is as if those funds could actually be put back in and reduce the total shortfall because 80 percent will go to new programming.

Senator Rawson asked, hypothetically, with what the state is proposing as new units, could those units be paid for with this federal money and the state simply not put in the new units? He added that he is not advocating anything, but asked whether that would be possible. Ms. Dopf answered that technically could occur, the reality is that the new units do not even cover growth as has been discussed. Senator Rawson inquired how many new units the state is adding. Ms. Dopf replied she believes it will be 111 for the first year of the biennium, and the Governor recommends a little bit more than that in the second year.

Senator Rawson asked that Ms. Dopf give the committee a cost, not including federal money, of the units necessary to deal with growth that has been calculated for the special education community, not including general population growth. Ms. Dopf responded that the numbers Ms. Rohrs had discussed were numbers that were run utilizing the special education growth factor versus the general education growth factor. She stated that was the 33 additional units for the first year of the biennium, and then the aggregate of the 33 and 44 for the second year of the biennium, which would total 77 units for the second year of the biennium

Senator Rawson said one possibility to be considered would be to add 141 units the first year and add those units using federal money first. He said this would result in a saving of state dollars. Ms. Dopf stated it would be legally defensible. Senator Rawson commented that potential cuts in education have not been talked about, but the subcommittee would hear, later today, the budget cuts that must be made. He added that everybody’s first priority should be to save every aspect of education possible. He asked whether there is new federal funding that may help the state to preserve General Fund dollars.

Ms. Dopf stated that the context being discussed is the districts having provided $143 million of General Fund to support the special education programming. She explained that when you talk about the $7 million in that context, every little bit helps towards the $143 million deficit. She pointed out that the other aspect is that traditionally the way the structure has occurred, the unit funding provides the instructional program. She said that would include the classroom teacher working with a group of disabled youngsters, and the federal funds being used to support the services that we cannot pay for under unit funding. Those areas, she added, would include the teacher assistant and related services that are provided.

Ms. Dopf emphasized that when you talk about the $7 million going toward the unit funding, you are talking about that amount of services not being available in the related service area by virtue of how we define the unit. She added that traditionally, federal funds go to the related services that support the instructional program, which the unit provides. She explained that if you start utilizing federal funds directly to support the unit, the impact would be the related services that the youngster needs that would be significantly harmed.

Senator Rawson pointed out the subcommittee should be aware that if the federal government went all the way from 13 percent to 40 percent, special education would not be fully funded.

Ms. Rohrs said that class-size reduction is based on enrollment growth. She pointed out there are no issues relating to this area other than a pending bill (Senate Bill S.B. 127) on class-size reduction demonstration projects. She commented that if this bill is not approved, then the committees should keep in mind that special language may be needed to authorize the Elko County School District to continue its demonstration project through the next biennium.

SENATE BILL 127: Authorizes school districts and charter schools to provide programs of distance education for pupils at risk of dropping out of high school. (BDR 34-461)

Senator Rawson said S.B. 127 essentially allows Elko County to continue their project, and it allows other counties to apply for innovative programs. He added that he has no idea what the prediction is in the Assembly on that bill, but what was just said should be considered. If Elko County has invested a fair amount in classroom space to be able to do a pilot project, and the data seems to demonstrate that it has been a worthwhile pilot project, then if S.B. 127 does not go through, we need to consider language to allow them to continue, he added.

Senator Rawson remarked that if language were not put into the authorization bill, then presumably, Elko County would be forced to go back to the 16 to 1 student teacher ratio, and “scrap” the classroom. He added this is a decision unit that committee members need to be aware of.

Senator Rawson said the following:

One of the problems that we have is trying to recruit teachers this year, and we’ve been told by everybody that has come before any of the committees that it is likely that they will not be able to recruit the teachers that are necessary. Let’s just say that one possibility is that because there will be a problem, what if we held class size for a biennium at 16 to 1, or what if we went to 17 to 1? What impact would that have? Could the classrooms really adapt to that? Would that throw everything out of whack in the districts? Is it doable, and if it is doable, what would it save in the recruitment of teachers?

Mr. Thunder replied that someone from the school district would need to specifically address these questions. He said he believes that smaller school districts would have a greater difficulty dealing with this scenario. He pointed out that in terms of not having the same number of teachers, it would almost cause a migration to the counties that could use them. He stated he could obtain more information in terms of cost savings.

Senator Rawson commented that in just “ballparking” a rough estimate, it appears there would be a $10 million to $12 million savings if we “froze” classroom size where it is. He added that if we were to go to a 17 to 1 ratio, it might be a $20 million savings, or 350 teachers. He stated that this needs to be evaluated in terms of whether this actually solves the recruiting problem, or does it cause more problems than it solves.

Mr. Hataway remarked that this is the area where he really fees empathy for the local school districts, because it is a juggling act to provide space. He added that when class size reduction was initially started, the school districts stepped up to the plate and said, “You provide the funding for the teachers, we will provide the space.” He said this has been easier said then done over the years with the rapid growth that has occurred. He added that a 16 to 1 ratio appears to be a magical number because of the shear size of space.

Mr. Hataway commented that in a team-teaching situation, 32 kids in a classroom is about all that a modern classroom can hold. He said any funding above that would start to impact the logistics of the school districts in providing the space for all of the pupils. He noted this is a tough situation and the school districts could speak better on this subject. Space is a real problem, he added.

Senator Rawson asked whether it would result in a 16.5 to 1 student to teacher ratio if there were a freeze on classroom size to where it is this year and not hire any of the 80 or 90 teachers that have been requested. Mr. Thunder responded that he believes it would be close. He added that it would not take long to run those numbers. He commented that to leave it as it is now would be a 16 to 1 in grades 1 and 2, and 19 to 1 in grade 3.

Mr. Dini asked whether special programs would be continued in some school districts. For instance, he said, in Lyon and Washoe Counties they have remedial reading in third grade because they did not have the classroom space. Senator Rawson replied that he believes the budget is constructed for those programs to continue, but it will be a decision for the committee to make.

Mr. Dini commented that these programs are very successful in both counties, and they should both be applauded. He noted that in third grade in Lyon County they have been able to catch students up to that level of reading, which leaves fewer problems when they go forward from there. He said he would hate to see us go backward on that issue.

Mr. Goldwater said he has also been told that those programs are successful, and that the third-grade reading program proposed as a “one-shot” by the Governor would be as effectively used when enhancing those current programs, rather than starting a new program. Additionally, he added, “When we talk about reducing class-size reduction, or increasing the numbers, it’s no worse of a budgeting trick then using ‘one-shot’ for ongoing raises. It’s just more and more of our ability to move around the essential question here of whether or not we’re giving the school districts adequate funding for our share of the responsibility.”

Mr. Hataway pointed out that the Budget Division would work with the subcommittee staff on the language related to flexibility. He added he is not sure whether special language is necessary. He said the budget is not built on anything other than providing the school districts with ongoing flexibility in Lyon and Washoe Counties. He stated that if special language is needed, the Budget Division will make sure it is in there. He added that he believes Elko County would feel far more comfortable if they had specific authorization to maintain the 22 to 1 program. He pointed out that current law has the variance process built in to allow Elko County to seek a variance from the State Board of Education. He mentioned that all districts already do this just by the fact that the law says 15 to 1, and it has never been funded at 15 to 1. Therefore, he added, every year the school districts get a variance for a 16 to 1. (Student to teacher ratio).

Mr. Hataway commented that he believes the flexibility is there, but Elko County would probably feel more comfortable if they had specific authority. Senator Rawson indicated that committee staff would need to look into this matter further. He said he agrees this variance was put in place in order to deal with small differences, not 22 to 1 or 25 to 1 ratios.

Ms. Tiffany commented, “Particularly in Clark County, when you were talking about maybe changing the number on the class-size reduction, did anybody ever say how many teachers less we would have to add, if you change that reduction?” Senator Rawson replied it appears to be approximately 350 teachers per one shift. He said going from 16 to 1 and 17 to 1 would amount to about 350 teachers, or $20 million per biennium. He added that this is just one side of the situation; classroom space needs to be considered as well.

Ms. Tiffany asked whether this would increase the student to teacher ratio by one student per teacher. Senator Rawson commented that the problem is the number of classrooms that have two teachers to a classroom might now go to 34 students per classroom. This is a significant change, he added. Ms. Tiffany said she does not believe two more students would make a difference in classrooms she has visited, which have been in newer schools. Senator Rawson pointed out there are some classrooms with 40 students.

Ms. Rohrs commented that the issue on the adult high school diploma program is the department’s desire for approval of a change in the funding formula to be effective in FY 2003. She pointed out that the subcommittee has been provided with a spreadsheet on page 6 of Exhibit C, which indicates, if the change in the funding formula had been in effect in 2001, what the effect of the funding change would be. Specifically, she added, the prison programs would be reduced by a total of $579,322. She said that this would be the first of several phases to reduce prison funding and shift more resources to the school districts.

Ms. Rohrs stated that the funding formula change was not incorporated into the Governor’s budget because the funding formula had not been discussed at that point. She added that no additional increase in funding is being requested as a result of the funding change, and the subcommittee should note that the Adult Education Task Force did not support it.

Senator Rawson said he is not sure it would be good policy to simply change adult prison programs to English as a second language (ESL), because of the need for more ESL teachers and programs. He commented that a determination should be made whether prison programs are effective or needed before those changes are made. He added that he has always felt there was waste and possible abuse in prison programs. He feels that these cuts may not be necessary.

Senator Rawson remarked that if this program is left as it is, and there are no additional costs and the formula is changed, it would mean no cost savings, but it would amount to a $500,000 cut to the prison programs.

Ms. Tiffany asked whether individuals within the prison system actually received Millennium Scholarships. Senator Rawson stated that new language would stop that from happening. Ms. Tiffany remarked, “If six individuals received Millennium Scholarships, it must be working somewhere, unless a B grade is not a B grade in the prison. Is it different in the prison programs? Senator Rawson commented, “Lets face it, I think that is an abuse of the Millennium Scholarship Program. I think the language that is being proposed through this legislative session will stop that. You have to ask, does a B grade mean the same thing as a B grade for a junior or senior in high school. I don’t think so.” Ms. Tiffany reiterated she was curious if this meant the program was working or whether there was a problem.

Ms. Rohrs stated that a chart on page 3 of Exhibit C provides school improvement programs and the amount funded for each year of the current biennium. This chart also reflects what is proposed in the Governor’s recommendation for FY 2002 and FY 2003. She added that these are funded by estate tax. She commented that the department has requested the Governor’s budget be revised to reallocate funds from certain programs in order to augment the Proficiency Testing budget. She added that committee staff is waiting on further clarification on this issue.

Ms. Rohrs said staff has had discussions with the Regional Professional Development Programs and they have provided a reduced funding plan by which they would be able to maintain their existing programming level, and reduce costs by $171,318 in FY 2002, and $512,486 in FY 2003.

Senator Rawson stated that estate tax funds were originally used for enhancements, not for building into ongoing programs. He noted that it could be justified that this is a tough budget year, and maybe a one-time use of estate taxes could be considered to build into the budgets.

Mr. Goldwater asked how much money was used for the third grade reading program proposed by the Governor wherein all students should be able to read by the third grade. Mr. Hataway replied that the cost was $5 million per year, and it was for the Nevada Early Literacy Intervention Program. Mr. Goldwater asked whether the Regional Professional Development Program is analogous to that proposal. He asked whether that is funding that could be used to increase what is already occurring at the Regional Professional Development Program or the Nevada Early Literacy Intervention Program. He also asked what the differences are between these programs.

Mr. Goldwater explained there are some pilot programs in Clark County that seem to be working, but none better than what is going on in the development programs. Mr. Hataway responded these are both specialty-training programs. He said the Professional Development Centers are related to the standards that teachers have to use to teach, and is a generalized instruction program. He added that the Nevada Early Literacy Intervention Program is for Kindergarten through third grade teachers on reading. He noted that there are gray areas between the programs.

Mr. Hataway commented that the programs in Lyon and Washoe Counties are using their third grade class-size reduction for reading. He added they are inter‑related, but they have their own specialties. Until the Economic Forum recommendations are received, he noted, all of these programs are on the table for possible review.

Mr. Goldwater said in looking at some of the smaller counties, and the way the $5 million for the Nevada Early Literacy Intervention Program is allocated, it would end up to be the same amount of money in some of the counties, like Lyon and Storey Counties. He added that it is not quite enough to do any good, but it would do a lot of good if the state enhances the Regional Development Programs.

Mr. Hataway said some of the smaller counties are anticipated to pool their resources through the Professional Regional Development Centers to get the “biggest bang for the buck.” He commented that another issue is that the allocation process was on a per capita basis, but many of these programs start with some base amount. He added that it would not impact Clark County if everyone got a base dollar amount of $5,000 or $10,000, and allocated the balance on a per capita basis. We are amenable to that type of flexibility, he remarked.

Ms. Rohrs stated that the Governor’s budget predicts a 7.3 percent increase in property tax and assessed valuation for property taxes for FY 2002, over what was legislatively approved for FY 2001. She added that there is a 9.3 percent increase in FY 2003. She explained that the Department of Taxation’s most recent assessed valuation projection reflects an increase of 6.44 percent. She said this would be submitted to the local jurisdictions in the form of the “Red Book” for use in budgeting.

Ms. Rohrs commented that for closing, the subcommittee will need to determine whether the 25-cent portion of the property tax projection should be lowered to reflect the current projected increase of 6.44 percent. She noted that by leaving the 25-cent portion at the 7.3 percent level, it gives the appearance of a lower General Fund requirement. However, she added, since the 25-cent portion is inside the DSA, if the 7.3 percent increase does not materialize, the shortfall would have to be made up by the General Fund.

Ms. Rohrs said revising the property tax increase to 6.44 percent would result in an increased General Fund need of $1.8 million in FY 2002, and $1.96 million in FY 2003.

Ms. Rohrs pointed out that the subcommittee also needs to make a determination whether the 50-cent portion, which is outside the DSA, should be lowered to a 6.44 percent increase as well. She noted that the General Fund does not make up for any shortfalls caused by fluctuations in property tax collections on that side, because it is outside the DSA. She added that any excess over what the local school districts were budgeted does not revert to the General Fund portion, or reduce it.

Ms. Rohrs commented the effect has been, in the last 7 years, that the school districts have benefited by more than $17 million. She pointed out this is because projections were exceeded on the 50-cent side.

Senator Rawson asked how many years the school districts have benefited with $17 million. Mr. Rohrs replied that only the last 7 years had been looked at. She added that she believes in 1 year it was a little under the projection, but overall, it has been a $17 million increase.

Senator Rawson said, “The question before the subcommittee is do we lower this in the 25-cent portion, which if we do, it costs us money, or do we lower it on the 50 cent portion, which is outside the DSA, and if we do lower it, there is no effect on General Fund.” Ms. Rohrs agreed and said if the 50-cent side is not lowered and the 7.3 percent is not achieved, the local school districts have to find funding from other revenue sources. She added that if it exceeds 7.3 percent, once again, the school districts keep the excess.

Mr. Thunder said:

I would just like to point out with the 50-cent, of course it does comes into play when we put the whole package together, initially. But at the same time when you look at the effect on various districts, I think it would be a very uneven effect. Some school districts may benefit significantly more if that excess occurs, than other districts may suffer from it. I just want to point that out.

Ms. Tiffany asked whether those funds could be used for utility concerns if the 50‑cent side is not adjusted and it does exceed as normal. Senator Rawson said that certainly they could use those funds for that purpose. Mr. Thunder remarked that is part of the big mix from which the whole budget is funded, and he does not believe that a specific line item could be identified. He added that not until the year has concluded could that type of information become available as a true comparison.

Mr. Dini said he believes there are a lot of problems that have yet to surface with the existing funding. He referred to Storey County, and said at the beginning of last year they found themselves in a real dilemma. He said when revenue did not come in from the construction of a power plant, the tax commission declared it completed and the county no longer received the sales tax, which almost broke the Storey County School District. He remarked these are delicate areas. He noted that he represents three different school districts of which Storey County is one. Mr. Dini said last year funding cuts were made in the band program, art programs, and a school principal position was removed. He added that assessed valuation can be very tricky and possibly hurt some of these small districts.

Mr. Thunder remarked that the issue in Story County had to do with the centrally assessed value. He commented that when the power plant was being built, it was considered part of Storey County, and on completion the value was to be distributed along those lines. The amount of value dropped significantly for them, he added. He said the decision to move that project from local to centrally assessed valuation happened before it was anticipated, and this amounted to a significant drop.

Mr. Thunder commented that there is no way to deal with those types of specific issues, given the current program. Another significant drop can happen with the drop in proceeds of mines, he stated, as well as the reassessment of the value of those mines. He explained that the department is aware of these issues, but they have no way to grapple with them to come out with a helpful solution.

Senator Rawson stated that the forecast for the local school support tax is going to decrease.

Mr. Goldwater stated:

In direction of the closing sheets, it is equally that we are going to live by our budgeting principles and we are going to live by our precedents, then we ought to use the lower ‘Red Book’ projections for the property tax. We cannot, and I do not think it is consistent with principle or precedent to do anything but. If it has been a windfall in the past, it’s no guarantee it will be a windfall for some district in the future. If it’s up to my direction, I would like to see the staff prepare closing sheets based on ‘Red Book’ projections.

Mr. Hataway commented he is not recommending a change in this process, but if one were made, it would only be in the first year. He added that “Red Book” projections are only made in the first year. During the decade of the 1990s, the average growth and assessed valuation has been in excess of 9 percent, he added.

Mr. Hataway explained that the Department of Taxation, even though they certify for “Red Book” purposes, historically have always been more conservative than what the actual amount is. He pointed out that in talking with the Department of Taxation, he sees no reason why the 7.3 percent and 9 percent will not be realized. He said it will probably be 9 percent again, based on what we have seen, even though the recommendation was 7.3 percent.

Senator Rawson adjourned the meeting at 10:00 a.m.

RESPECTFULLY SUBMITTED:

Debra Petrelli

Committee Secretary

APPROVED BY:

Senator Raymond D. Rawson, Chairman

DATE:

Assemblyman David E. Goldwater, Chairman

DATE: