SENATE COMMITTEE ON FINANCE

MINUTES OF THE

SENATE Committee on Finance

Seventy-First Session

April 5, 2001

The Senate Committee on Financewas called to order by Chairman William J. Raggio at 4:09 p.m., on Thursday, April 5, 2001, in Room 2134 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 William J. Raggio, Chairman

Senator Lawrence E. Jacobsen

Senator William R. O’Donnell

Senator Joseph M. Neal Jr.

Senator Bob Coffin

Senator Bernice Mathews

COMMITTEE MEMBERS ABSENT:

Senator Raymond D. Rawson, Vice Chairman (Excused)

GUEST LEGISLATORS PRESENT:

Senator Mike McGinness

Assemblyman P. M. Neighbors

Senator Valerie Wiener

STAFF MEMBERS PRESENT:

Gary L. Ghiggeri, Senate Fiscal Analyst

Bob Guernsey, Principal Deputy Fiscal Analyst

Jennifer Ruedy, Committee Secretary

OTHERS PRESENT:

Randy Robison, Lobbyist, Nevada Association of School Boards

Mr. Vaughn Higby, Private Citizen (former Superintendent, Lincoln County School District)

Lorell Blake, Superintendent, Lincoln County School District

John P. Comeaux, Director, Department of Administration

George Caan, Director, Colorado River Commission

Douglas Beatty, Finance and Administration Chief, Colorado River Commission

Jackie Crawford, Director, Department of Prisons

Barbara Caskey, Substance Abuse Program Director, Department of Prisons

Janet Johnson, Assistant Director, Support Services, Department of Prisons, Carson City

Dorothy B. North, Lobbyist, Board of Examiners for Alcohol & Drug Abuse Counselors and Two Roses Investment Corp.

Tracy M. Duarte, Lobbyist, Nevada Association of Counties

May S. Shelton, Lobbyist, Washoe County

Robin Keith, Lobbyist, Nevada Rural Hospital Project Foundation

Charles Duarte, Medicaid Administrator, Division of Health Care Financing and Policy, Department of Human Resources

George Pyne, Executive Officer, Public Employees’ Retirement System

Ronald P. Dreher, Lobbyist, PORAN/Peace Officers Research Association of Nevada

Ricky E. Umberger, Lobbyist,Las Vegas Law Enforcement Association (LVLEA)

Ronald D. John, Sergeant, Carson City Sheriff’s Department

Deborah K. Cahill, Lobbyist,Nevada State Education Association (NSEA)

Martin Bibb, Lobbyist, Retired Employees of Nevada

James T. Richardson, Lobbyist, Nevada Faculty Alliance

Raymond C. McAllister, Lobbyist, Professional Firefighters of Nevada

Michael E. Hood, Chief, Nevada Highway Patrol Division, Department of Motor Vehicles and Public Safety

Bob Schreihans, Captain, Carson City Fire Department

Andy Anderson, Lobbyist, Las Vegas Police Protective Association and Nevada Conference of Police and Sheriffs

Gary H. Wolff, Lobbyist, Nevada Highway Patrol Association

Richard R. Ziser, Lobbyist, Coalition for the Protection of Marriage and Nevada Concerned Citizens

Mark Winebarger, Chief Deputy Controller, Office of the State Controller

Senator Raggio opened the hearing on Senate Bill (S.B.) 498.

SENATE BILL 498: Revises authorized uses of appropriation made in previous session to Lincoln County School District and changes date of reversion of appropriation. (BDR S-1439)

Senator Mike McGinness stated S.B. 498 would allow Lincoln County to utilize money saved from the Pioche Elementary School project for the Lincoln County High School project. He pointed out the bill also postpones the reversion date for the appropriated funds from June 30, 2001, to June 30, 2002. He stated the 1999 Legislature appropriated $1 million to Lincoln County for the construction of an elementary school. Lincoln County was able to complete that project without utilizing all of the appropriated funds because of “hard work and diligence,” and the county would like to use the remaining funds for the completion of the new Lincoln County High School currently under construction, he added.

Senator Raggio inquired about how much of the appropriated funds was saved. Senator McGinness replied that $200,000 was saved.

Assemblyman P. M. Neighbors stated his agreement with Senator McGinness’ statement. Mr. Neighbors asked Mr. Randy Robison, Lobbyist, Nevada Association of School Boards, to address the committee.

Mr. Robison largely attributes the cost savings to the use of honor camp labor in the construction of Pioche Elementary School. He provided photos of the Pioche Elementary School construction project (Exhibit C). He added many volunteers donated time and supplies to the project, further contributing to the total cost savings of approximately $200,000. He stated that the 1999 Legislature established a special fund to assist school districts with capital improvements through Assembly Bill (A.B) 597. He added that the Lincoln County School District received an allocation from that fund.

ASSEMBLY BILL 597 OF THE SEVENTIETH SESSION: Revises provisions regarding school facilities. (BDR 34-1574)

Senator Raggio inquired about the amount of the allocation received from the special fund. Mr. Robison responded that the Lincoln County School District received $5.9 million for the construction of the high school in Panaca.

Mr. Robison explained that, prior to the construction of the high school in Panaca, they need to demolish and remove two existing buildings, which will be fairly costly because of the existence of asbestos. He estimated the cost of removing those two buildings at approximately $230,000, which was not originally accounted for in their proposals.

Senator Raggio asked what the total cost of the high school project in Panaca will be. Mr. Robison said the total cost would be $6.3 million to $6.4 million.

Senator Raggio questioned whether the county has adequate funding to complete the project. Mr. Robison responded the county is currently working with the State Public Works Board, and he said he hopes to maintain a cooperative relationship with them throughout the project. He commented the project bid was much lower than anticipated, so there will be some cost savings. He said he believes they will have sufficient funds to complete the project.

Senator Raggio asked why the county needs the additional $200,000 in this bill if they have sufficient funding. Mr. Robison clarified the county would only have sufficient funding with the inclusion of the additional $200,000.

Senator Raggio inquired about the status of the project. Mr. Robison responded both allocations for the elementary school and the high school were received near the same time. He commented the Pioche Elementary School is nearly completed, but the high school is still in the bid process.

Senator Raggio stated past testimony in support of the allocation for the high school indicated “It was almost a dire situation that the high school was condemned, one of the buildings. So how have you existed, if it was that dire, without starting on the high school?” He inquired why construction had not started on the high school.

Mr. Robison explained the two condemned buildings were the auditorium and the gymnasium, from which students were immediately removed in 1999. He stated those buildings have not been used since that time, but they continue to use much of the main building. He commented that the special fund created required Department of Administration to establish guidelines and develop an application process. He said Lincoln County promptly completed an application as soon as one was available, which was approved approximately six months after the establishment of the special fund. He added there were significant delays in the review of their submitted plans by the State Public Works Board, and the county is just completing the bid process. He said construction is scheduled to begin toward the beginning of summer 2001.

Senator Raggio inquired about the anticipated completion date. Mr. Robison conferred with an unidentified expert from Lincoln County seated in the audience before responding, “February 2002.”

Senator Raggio questioned whether the high school program was able to continue without safety concerns. Mr. Robison responded the program would be able to continue without safety concerns because the two condemned buildings are inaccessible.

Senator Neal said he has always liked to support Lincoln County, and he would appreciate their support in his efforts to increase the gaming tax.

Mr. Robison invited Mr. Vaughn M. Higby, former superintendent of Lincoln County School District, to address the committee.

Mr. Higby commented he was very concerned when the two buildings were condemned during his tenure as superintendent. He conveyed his appreciation for the Legislature’s support in 1999. He said the flexibility the 1999 Legislature allowed them in utilizing the construction funds enabled them to save a great deal of money. He said he believes similar flexibility in the use of current construction funds will enable Lincoln County to complete this high school project and provide for its own needs in the future.

Senator Raggio inquired as to the number of students in Lincoln County High School. Mr. Higby responded there are approximately 200 students.

Senator Raggio asked whether the Lincoln County High School continues to provide education to the Caliente Youth Center. Mr. Higby stated they provide all of the education to the Caliente Youth Center.

Senator Raggio complimented Mr. Higby on his past work on behalf of the Lincoln County School District.

Mr. Robison said that after consultation with Bob Guernsey, Principal Deputy Fiscal Analyst, Legislative Counsel Bureau, and John P. Comeaux, Director, Department of Administration, he wanted to point out a technical correction to the bill. He said Section 3 of the bill refers to the reporting deadline, which passed three months ago, and should be deleted. He stated it was merely an oversight in drafting.

Senator Raggio asked Mr. Guernsey whether he agrees with Mr. Robison’s proposed deletion. He further clarified Mr. Robison is referring to subsection 3 of Section 1 of the bill not Section 3.

Mr. Guernsey responded that he advised Mr. Robinson to make the committee aware of all technical changes to the bill.

Senator Raggio inquired as to the purpose of subsection 3. Mr. Robison replied subsection 3 pertains to a reporting requirement for the 1999 legislative allocation to the Lincoln County School District. Mr. Robison clarified subsection 4 of Section 1 of S.B. 498 pertains to the reporting requirement for the current proposed allocation of funds, so subsection 3 is no longer necessary. He commented the additional language “paragraph (a) of subsection 1” is erroneous because there is no paragraph (a) in subsection 1.

Lorell Blake, Superintendent, Lincoln County School District, thanked the committee for its efforts to help the students in his district.

Senator Raggio closed the hearing on S.B. 498 and opened the hearing on S.B. 138.

SENATE BILL 138: Exempts Colorado River commission from State Budget Act. (BDR 31-344)

George Caan, Director, Colorado River Commission (CRC), said CRC has specific statutory authority, a separate board to handle their budgets, and does not receive funds from the state; therefore, the Governor recommends exempting CRC from the State Budget Act to streamline the budget submittal process. He explained CRC’s current budget process. He said the first review of the budget is by customers of CRC, who also provide the funding for CRC. The budget is then reviewed for approval by CRC’s board, then included in The Executive Budget, before finally being presented to the Legislature, he added.

Mr. Caan explained this bill would allow CRC to provide the budget to The Executive Budget for information purposes only, thereby expediting the process of delivery to the Legislature. He pointed out this bill would still require the budget to be approved by the Legislature and all subsequent changes to be approved by the Interim Finance Committee (IFC).

Senator Raggio asked whether Douglas Beatty, Finance and Administration Chief, Colorado River Commission wished to add any comments. Mr. Beatty did not.

Senator Raggio closed the hearing on S.B. 138 and opened the hearing on S.B. 197.

SENATE BILL 197: Authorizes department of prisons to request money from contingency fund if offenders’ store fund has insufficient money to provide for needs of therapeutic community. (BDR 16-23)

Senator Raggio pointed out this bill was referred to the Senate Committee on Judiciary and re-referred to the Senate Committee on Finance because of the potential fiscal impact. He indicated the committee would like to hear brief comments regarding the purpose and necessity of the bill before evaluating the fiscal impact.

Senator Valerie Wiener stated that she had sponsored legislation in 1997 that created a therapeutic community within Nevada’s prison system. Since October 1998, the therapeutic community, known as Willing Inmates in Nevada Gaining Sobriety (WINGS) has been housed in the Warm Springs facility. She said the program has enjoyed three successful years as evidenced by statistics she provided (Exhibit D). She pointed out the statistics indicate “outstanding advancement in the prison population for those who participate and substantial savings.”

Senator Wiener mentioned she is proposing an amendment to S.B. 197 (Exhibit E). She explained the amendment would allow the Director of the Department of Prisons to appeal to IFC for an allocation when it is deemed necessary. Currently the program receives 25 percent of its funding from the Offenders’ Store Fund and 75 percent from the federal fund match; therefore, no General Funds are used for this program, she added.

Senator Raggio explained the committee is “reluctant to open the door to General Fund money here because there seems to be sufficient money available for this program.” Senator Wiener asked Jackie Crawford, Director, Department of Prisons or Barbara Caskey, Substance Abuse Program Director, Department of Prisons, to respond to his concerns.

Senator Raggio inquired about the status of the Offenders’ Store Fund and the necessity of accessing the General Fund. Ms. Crawford said the Offenders’ Store Fund is currently sufficient, and the request to potentially access the General Fund is purely a contingency plan.

Janet Johnson, Assistant Director, Support Services, Department of Prisons, stated the Offenders’ Store Fund has a balance of approximately $900,000, which is an adequate balance.

Senator Raggio commented the committee discourages use of the General Fund unless it is absolutely essential, which it does not appear to be in this case.

Ms. Johnson said she is concerned WINGS would be forced to discontinue if an inmate suffered a severe injury that qualified under A.B. 389 of the 1995 Legislative Session for payment of medical expenses from the Offenders’ Store Fund. This could potentially deplete the fund and jeopardize the continuity of WINGS, she said.

ASSEMBLY BILL 389 OF THE SIXTY-EIGHTH SESSION: Revises provisions governing payment of medical expenses of offender incarcerated in state prison. (BDR 16-1775)

Ms. Johnson clarified access to the General Fund is only a contingency plan to ensure the continuity of WINGS.

Senator Raggio inquired about the number of inmates who have participated in WINGS. Senator Wiener responded 108 inmates have participated in the program. Senator Wiener noted there have been no positive test results of the 755 random drug tests performed on the participants, which is substantially lower than the results of the general inmate population. She added the participants also have half the rate of discipline incidents compared to the general inmate population. WINGS participants typically have better meritorious records, which enable them to be released earlier. Senator Wiener pointed out earlier releases save the state money.

Senator Wiener provided a written statement of three proposed amendments to S.B. 197 (Exhibit E). She added she would be happy to introduce the amendments to the next committee if Senator Raggio would prefer to pass the bill out of his committee without slowing down the process with further review of amendments.

Senator Raggio asked her to discuss the amendments.

Senator Wiener pointed out the first change is to replace “he” with “the director” in Section 1 of the bill to avoid gender specificity. The second amendment she proposed, within subsection 5 of Section 4, expands the timeframe the inmate may participate in WINGS from twelve months prior to release to twenty-four months prior to release. She added the second amendment would more closely mirror the federal programs.

Senator Raggio clarified the second amendment proposes an inmate may not participate earlier than twenty-four months prior to their release. Senator Wiener agreed with his clarification. She added the program would then have more flexibility and discretion in determining program participants.

Senator Wiener addressed the third amendment. She pointed out she originally believed the director would have some control in the “post-prison aftercare program,” which was later determined not to be viable. This amendment proposes the Division of Parole and Probation work with the Bureau of Alcohol and Drug Abuse in providing the aftercare follow-up in lieu of the director, she added. She said the follow-up would include tracking to help determine the success and failure rate of participants over a longer time period.

Senator Raggio asked whether the Division of Parole and Probation would then require an additional fiscal note to provide these services.

Senator Wiener said this program would be part of the inmate’s release plan.

Senator Raggio asked whether an additional fiscal note would be necessary for the Division of Parole and Probation to provide this aftercare.

Senator Wiener responded she was unsure and suggested the Division of Parole and Probation would be better able to respond to the question.

Senator Wiener stated she would be happy to address that concern “on the other side.” Senator Raggio said, “It has to get to the other side first.”

Senator Wiener said, “I don’t want to lose the whole bill for that. So, I would be happy to negotiate whatever it takes to get this bill moving on.” Senator Raggio indicated he would like to see a fiscal note on the proposed amendment.

Senator Raggio asked Ms. Johnson to follow up on the fiscal note with the Budget Division. She agreed to comply.

Dorothy B. North, Lobbyist, Board of Examiners for Alcohol & Drug Abuse Counselors and Two Roses Investment Corporation, spoke in support of S.B. 197 as the Chief Executive Officer (CEO) of Vitality Center. She explained Vitality Center is the private non-profit organization that administers WINGS within the Warm Springs Correctional Center. She said, “This bill provides a financial safety net for the therapeutic community to ensure that the Department of Prisons will always be able to make the 25 percent state match necessary to receive the federal dollars.” She said every inmate who completes WINGS and successfully reenters the community would save the state money by not returning to prison. She said successful reentry into the community translates into fewer crimes and fewer victims, creating a positive outcome both for the former inmate and the general population.

Senator Raggio asked how long Ms. North has been involved with this program. Ms. North replied she has been involved with WINGS since its inception two and a half years ago. She provided a written copy of her statement (Exhibit F).

Senator Raggio closed the hearing on S.B. 197 and opened the hearing on S.B. 321.

SENATE BILL 321: Makes various changes relating to state plan for Medicaid. (BDR 38-313)

Senator Mike McGinness stated he was the chairman of the 1999 to 2000 interim committee for the Study of Long-term Care in Nevada. He commented the interim study committee wanted to address the “Medicaid percentage,” but it did not have sufficient data to properly address the issue. He explained he is proposing S.B. 321 now because he has sufficient data. He said the bill is proposed in an effort to assist counties in their burden of caring for Medicaid patients. The bill proposes to increase the net countable income per month to 158 percent from 156 percent of the supplemental security income benefit rate, he added. He pointed out the fund to assist counties that are unable to meet their long-term care commitments is $300,000, which he suggested testimony will show is an insufficient amount that will be depleted during this summer. He indicated testimony would be presented requesting the increase of the fund to assist counties from $300,000 to $500,000.

Senator McGinness advised the committee numerous bills addressing long-term care will be presented this session and many of those bills will have extremely large fiscal notes, which reflect the size of the problem.

Tracy M. Duarte, Lobbyist, Nevada Association of Counties, clarified the net countable income per month is currently 156 percent of the supplemental security income benefit rate which is currently $530 per month.

Senator Raggio asked Ms. Duarte to clarify the current and requested percentages. Ms. Duarte responded it is currently 156 percent, and they are requesting an increase to 157 percent effective July 1, 2001. She clarified Senator McGinness addressed the second proposed increase included in the bill that would take effect on July 1, 2002, thereby increasing the rate to 158 percent.

Ms. Duarte explained the percentage increase would result in the state’s paying an increased portion of costs for eligible Medicaid recipients. She referred the committee to her handout (Exhibit G), which is a tri-colored chart. She said the blue portion represents the fifty-fifty match program, which indicates counties provide the 50 percent match for federal funds. She stated counties are requesting an increase in “the bailout fund” from $300,000 to $500,000 because of the increased cost of long-term care.

Senator Raggio asked her to clarify the request in Section 3 of the bill to increase the fund for the institutional care of the medically indigent to $500,000.

Ms. Duarte responded the increase is needed because of the increasing cost of long-term care. She said the 1 percentage point increase in the state’s responsibility is not sufficient to cover the long-term care costs, specifically in the rural counties. She added that neither Clark County nor Washoe County has accessed the fund for the institutional care of the medically indigent. She said the problem is compounded by the departure from the rural counties of many young families while the elderly population remains.

May S. Shelton, Lobbyist, Washoe County, testified in support of S.B. 321. She clarified the original legislation has been in place since 1989, and it has been very beneficial. She said the Fund for the Institutional Care of the Medically Indigent is vital to support any of the seventeen counties that may need to access it.

Senator Raggio inquired which counties have accessed the fund in the past. Ms. Duarte responded that since 1995, Lyon, Mineral, Pershing, and White Pine Counties have all accessed the fund. In a poll conducted last week, White Pine, Pershing, Lincoln, Lyon, and Mineral Counties all indicated they might need to access the fund later this year. She pointed out there is currently $193,000 in the fund, which would rapidly be depleted with so many counties potentially accessing the fund this year.

Senator Raggio stated he wonders whether the mere existence of the “bailout fund” encourages counties to access it while they might discover other means of financial support in its absence.

Ms. Duarte said she believes the Board of Trustees of the fund is always very critical of the counties seeking assistance and encourages them to locate funds elsewhere.

Robin Keith, Lobbyist, Nevada Rural Hospital Project Foundation, testified in support of S.B. 321.

Charles Duarte, Medicaid Administrator, Division of Health Care Financing and Policy, Department of Human Resources, stated acknowledgment of the increasing financial burden counties continue to incur as the upper income limit established by the Social Security Administration goes up and the percentage of the net countable income per month of the Supplemental Security Income benefit rate does not increase correspondingly. He stated the current analysis his division has is from June 2000, but he anticipates new information to evaluate the General Fund impact of raising the percentage to 157 percent by the middle of next week.

Senator Raggio stated the committee needs a fiscal note on the bill. Mr. Duarte assured him the division would work on it.

Senator Raggio closed the hearing on S.B. 321 and opened the hearing on S.B. 349.

SENATE BILL 349: Makes various changes regarding public employees’ retirement system. (BDR 23-752)

Senator Raggio stated the committee had heard previous testimony on the Public Employees’ Retirement Board’s proposal. He asked Mr. George Pyne, Executive Officer, Public Employees’ Retirement System (PERS), whether today’s testimony would include new information.

Mr. Pyne responded he would attempt to focus primarily on the new information in the interest of expediting the testimony.

Senator Raggio said he recalls testimony provided earlier this session addressing legislation sponsored by Senator Mathews that allowed police officers and firemen to retire at any age after at least 25 years of service.

Mr. Pyne stated “the 25 and out provision” is part of S.B. 349, which is PERS’ proposed fiscal legislation this session. He provided a handout (Exhibit H) including a written copy of his testimony and proposed amendments to the bill. He indicated the amendments were drafted after careful consideration of extensive testimony provided by constituent groups. He stated that PERS asked the Governor to allow them to maintain the present contribution rate using the actuarial gains PERS had as of the June 30, 2000, actuarial valuation to provide to the plan some necessary plan design amendments.

Mr. Pyne said he would omit a review of the contribution rate structure from his presentation as he had recently reviewed it before the committee at a previous meeting.

Senator Raggio said the committee has historically discouraged any increase in the contribution rate. He indicated the committee would not like to raise rates this session either.

Mr. Pyne responded that PERS is not recommending a contribution rate increase. He referred the committee to PERS’ proposed amendments to S.B. 349 (Exhibit H). He commented that when the PERS Board drafted the original legislation, board members were very concerned about the possible entry of a defined contribution plan in Nevada. Mr. Pyne pointed out the Governor’s office has assured the PERS Board there is strong support for its currently-defined benefit plan structure; therefore, the board has decided to remove some of the original proposed legislation from the bill.

Mr. Pyne addressed the proposed amendments. The first amendment is to withdraw the request to change to 3-year vesting from the current 5-year vesting requirement, he said.

Senator Raggio inquired the reasoning for the initial request and the current request to withdraw the change to 3-year vesting.

Mr. Pyne commented it was originally recommended because the Governor’s fundamental review committee was reviewing proposals to convert the public pension plan to a defined contribution plan. He added there were similar proposals nationwide to convert other public pension plans. He said PERS does not agree with the argument set forth by some people that everybody’s core pension plan should be a defined contribution plan. However, he added, that argument forced PERS to reevaluate its plan. He said PERS considered many of the criticisms of its plan, the first being that participants in defined benefit plans have to wait too long to be vested. By reducing the vesting requirement to 3 years of service, PERS could immediately vest another 5,000 persons in the plan, he added. He indicated there were no significant cost increases with the proposal, and PERS felt it was an adequate response to the criticism regarding the lengthy waiting period for vesting.

Mr. Pyne said PERS originally requested a 1 percent hedge against inflation for individuals who had vested benefits in the plan, but no longer participate in the plan. He elucidated a teacher who terminates his or her position after ten years employment would be vested but not drawing retirement until reaching 60 years of age. PERS originally proposed to hedge that benefit against inflation, starting at 1 percent each year, he said. He commented this proposal is in direct response to the argument that defined benefit plans should do more to hedge against inflation for people in this deferred-vested status. He said the Governor’s office has assured PERS its defined benefit plan is well supported by the Governor’s office, thereby eliminating any immediate threat to PERS’ operations.

Mr. Pyne explained another reason to withdraw the “hedge request” is that the Governor and numerous constituent groups have voiced their preference for a higher multiplier in lieu of the 1 percent hedge against inflation. He pointed out the proposed amendment to delete the 1 percent hedge affects subsection 5 of Section 3 of the bill.

Senator Raggio clarified Mr. Pyne proposes to delete all of subsection 5 of Section 3. Mr. Pyne agreed.

Senator Raggio inquired whether the amendments Mr. Pyne is presenting are the recommendations of the PERS Board. Mr. Pyne responded affirmatively.

Mr. Pyne continued his discussion of proposed amendments. He stated the PERS board proposes to increase the benefit multiplier that participants receive for each year of service in the plan. He explained that participants receive 2.5 percent of their average wage at the time of retirement for each year of service in the plan. He proposes that the benefit multiplier rate be increased from 2.5 percent to 2.67 percent as of July 1, 2001. He stated that amendment affects subsection 1 of Section 3 of the bill.

Senator Raggio inquired whether 2.67 percent is in lieu of 2.6 percent currently in the bill. Mr. Pyne responded affirmatively.

Senator Raggio asked whether that would affect all classifications of service. Mr. Pyne responded affirmatively.

Senator Raggio questioned whether there were any differentials at all between the different classifications of service. Mr. Pyne said there were none.

Mr. Pyne referred the committee to his handout (Exhibit H), which illustrates the effect of increasing the multiplier. He said the benefit contribution rate would not increase, despite the plan enhancement he is proposing. He addressed both the “25 and out for police and fire” and the preretirement death enhancements in his breakdown. He pointed out the enhancements do not increase the statutory rate enough to trigger mandatory increases in the benefit contribution rate in July 2001.

Mr. Pyne addressed the preretirement death benefit for unmarried members, which is referenced in Sections 1, 5, 6, 7, 8, 9, and 10 of the bill. He said PERS “has over last session and this, acted to purge the Retirement Act of discriminatory provisions relating to benefit availability on the basis of marital status.” He pointed out PERS asked the 1999 Legislature to remove provisions penalizing the recipients of flat dollar survivor benefits if they remarried. He said, “The Retirement Act penalized the act of marriage in some instances and penalizes an individual for being single today.” He discussed Section 1 of S.B. 349, which attempts to remedy the penalty against single participants. He elucidated a single member currently contributes into the plan, including the survivor benefit program, but does not receive any survivor benefits in case of death while actively employed. He stated, “Extending survivor benefits to a named beneficiary, be it parent, son or daughter, friend, or whomever, provides all members of the plan with the same insurance type of benefit they have paid for.” The amendment allows unmarried members to designate a beneficiary while actively employed, he concluded.

Senator Raggio inquired whether a married member has the right to designate a beneficiary other than a spouse. Mr. Pyne responded they do not, as it is based on the right of survivorship.

Senator Raggio asked whether unmarried members would have any limitations in designating a beneficiary. Mr. Pyne said there are no specifications limiting which beneficiary they designate, but they must choose only one person, no animals.

Senator Raggio clarified the designation is limited to a spouse for married members. Mr. Pyne responded affirmatively.

Mr. Pyne pointed out Section 2 of the bill includes a provision for 25-year retirement at any age for police and fire members. He said this enhancement is intended to promote “the public policy of maintaining a youthful and vigorous front-line public safety workforce.” He acknowledged the PERS Board had opposed this proposition in the past because it would have tripped the statutory rate trigger, thus increasing benefit contribution rates, which it will not do this year because of gains in the police and fireman’s retirement fund. He concluded the enhancement would provide early retirement for police and fire members who hire on before the age of 25, affecting 2,000 of the 9,000 members in the fund.

Mr. Pyne discussed his handout (Exhibit H), which includes an example of the effect of the multiplier increase. He stated the increased multiplier is limited to future service not past service, which would have been a very costly proposition. He indicated through his handout (Exhibit H), the increased multiplier could result in a difference of $34,081 over the course of the retiree’s life expectancy. He said the increased multiplier would help members maintain self-sufficiency in their retirement years.

Mr. Pyne pointed out additional amendments to the bill including the removal of language related to the “inflation hedge” for inactive members of the plan in Section 3 to allow for the increase in the benefit multiplier. He reiterated the proposed amendments to replace 3-year vesting language with 5-year vesting language in Sections 4 and 11 and to modify survivor benefit program language for single members in Sections 5 through 10.

Mr. Pyne stated the PERS board would like the increased benefit multiplier and the “25 years and out” for police and fire enhancements to be effective July 1, 2001. He added they propose an effective date of January 1, 2002 for the preretirement death benefit for unmarried members to allow sufficient time for the unmarried members to complete the necessary paperwork to designate a beneficiary.

Senator Coffin inquired whether Mr. Pyne had provided the effect of each measure on the fund. Mr. Pyne said he discussed associated costs, and they are included in his handout (Exhibit H).

Senator Coffin pointed out that when he joined the legislative body in 1983 there was a great deal of concern over the health of the plan. He noted people were concerned back in 1983 about the survival of the plan, not enhancements, so the Legislature set goals for the plan. He said one goal was to establish full funding for the plan, which often meant enhancements resulted in corresponding increases in the benefit contribution rate. He acknowledged a downturn in the stock market has affected the plan’s portfolio to an extent unbeknownst to him. He asked Mr. Pyne to provide “the projected, tested actuarial figure for full funding and what is the impact of each one of these measures on our goal for full funding.”

Mr. Pyne responded that on January 1, 1984, PERS initiated action to progress toward fully funding the system over a 40-year period, which would take place in 2024. He said PERS has made some very good progress with the plan now being approximately 85 percent funded. He noted the plan was probably only funded approximately 60 percent in 1983. He said he believes the plan has made good progress for about the last decade, and specifically since 1989, regarding the percentage of assets on hand compared to liabilities.

Mr. Pyne pointed out the Nevada Revised Statutes (NRS) provides a mechanism where contribution rates are not adjusted if the actuarial rate for the preceding even-numbered year is within one-half of one percent of the existing statutory rates. For example, if the actuarial rate for 2000 is within one-half of one percent of the existing statutory rates, then the statutory rates are maintained at the same level, he added. He noted the plan has provided some good enhancements, such as higher COLA increases for retirees, without tripping the mandatory rate increase, because of significant gains in the plan’s assets. He said this practice has historically worked very well for the plan. He commented the value of the portfolio, along with the investment market, goes up and down over time and it is difficult to predict the future with respect to investment return.

Mr. Pyne reiterated he thinks the mechanism PERS has been using over the past decade to provide plan enhancements to the fund has functioned well while maintaining level contribution rates. He indicated the next valuation would take place June 2002 to determine whether or not rates would be increased, and it is difficult to project what will happen to rates. He said investment return is one very important component of the actuarial progress. He stated funded progress continues to improve. He acknowledged concern regarding volatility in the investment markets, but pointed out the plan maintains “a very long-term approach to this business. We know markets are going to go up and down in the short term. We ride out that short-term volatility.”

Senator Coffin stated, “We set a goal back in 1983 of getting to full funding in 25 to 30 years. Now you have said the year 2025 or 2024 now is the goal.” Mr. Pyne responded, “2024 is the goal that you set. It’s still the goal. It’s always been the goal.”

Senator Coffin inquired whether the original goal had been 40 years. He further stated the portfolio must be down currently.

Mr. Pyne responded the portfolio is currently down somewhat, and the June 30, 2002, valuation will determine whether contribution rates should be adjusted to maintain a fully funded system.

Senator Coffin asked what each proposed enhancement would cost the plan in terms of the number of additional years to reach full funding and in terms of additional costs to the fund. He said the information would help the committee make some difficult decisions. He acknowledged each enhancement has a large constituency that expresses their support through numerous letters, but the committee has a fiduciary responsibility.

Mr. Pyne said the actuarial rates could currently be lowered because of significant gains in the plan, but PERS is proposing to provide a few enhancements instead. He acknowledged the enhancements would add costs to the plan. He explained that one percent of the approximate $3 billion payroll is subject to contribution each year, which would be $30 million. These enhancements do have some costs, which are indicated in Exhibit H such as 0.3 percent for the preretirement death benefit for regular PERS members and 0.56 percent for the increased multiplier benefit for regular PERS members. He said he is confident the enhancements can be added without tripping the statutory trigger for a contribution rate increase.

Senator Coffin reiterated his request for the individual cost of each enhancement prior to voting on the bill.

Senator O’Donnell acknowledged Mr. Pyne has positioned the requested enhancements shy of tripping the statutory trigger for a contribution rate increase. He added the actuary would determine on June 30, 2002, whether an increase is necessary to maintain full funding. He commented, “When you increase these benefits to bump up against that 0.5 percent, you almost guarantee that there is going to be an increase down the road.”

Mr. Pyne responded:

The actuary does use various smoothing mechanisms when they do their evaluation as well. Most public pension plans in this country, the great majority of them, use a smoothing mechanism when they determine the actuarially-determined contribution rates. So, when we have big gains in the plan, we don’t always recognize all the gains. And when we have losses we don’t recognize all the losses as well. Anything we earn over 8 percent, we spread out over a 5-year period. Anything we lose under 8 percent, we spread out over a 5-year basis as well. Most pension plans do that. Again, that is to control contribution rate volatility from an investment return standpoint because we do know there is volatility in the markets.

Senator Raggio inquired whether anyone else would like to testify on S.B. 349.

Ronald P. Dreher, Lobbyist, PORAN/Peace Officers Research Association of Nevada, testified in support of S.B. 349 in its amended form and provided a position paper (Exhibit I. Original is on file in the Research Library.) He indicated he had previously provided a position paper on S.B. 11, which was the “25 and out” benefit for police and fire members that has now been withdrawn and merged into S.B. 349.

SENATE BILL 11: Reduces number of years of service required for retirement of police officer or fireman at any age. (BDR 23-134)

Mr. Dreher requested that the position paper on S.B. 11, which had been provided to the committee on March 5, 2001, be included in the committee’s consideration. He said he believes S.B. 349 provides benefit enhancements to PERS participants without triggering a contribution rate increase.

Mr. Dreher expounded on the benefits of the proposed bill: increased retirement multiplier from 2.5 percent to 2.67 percent, a preretirement death benefit that establishes equity for single and married employees, and the option for police and fire members to retire after 25 years of service without penalty. He added that peace officers in Nevada have sought this enhancement for over ten years. He said he believes the three enhancements could potentially provide salary savings to local government, which is addressed in a memorandum from the City of Henderson included in Exhibit I. He indicated numerous letters of support for the bill are included in Exhibit I, and he urged the committee’s support.

Senator Raggio inquired which groups are represented by PORAN. Mr. Dreher responded there are twenty-six organizations in PORAN.

Mr. Dreher concluded there is a matrix of the benefits provided by S.B. 11, S.B. 349 and A.B. 356 within Exhibit I.

ASSEMBLY BILL 356: Makes various changes regarding public employees’ retirement system. (BDR 23-1249)

Ricky E. Umberger, Lobbyist,Las Vegas Law Enforcement Association (LVLEA), indicated he is a police officer with the Las Vegas Metropolitan Police Department. He provided a written copy of his testimony (Exhibit J) in support of S.B. 349 with the proposed amendments. He commented the police and fire members deserve the option to retire without penalty after 25 years of service because of the abnormal risks and stress associated with their careers. He said he supports enabling unmarried PERS participants to name the beneficiary of their own benefits, which he believes has been requested without any “hidden agenda.”

Ronald D. John, Sergeant, Carson City Sheriff’s Department, said he has been a law enforcement officer for 30 years and urges support of S.B. 349 as amended on behalf of himself and the Carson City Sheriff’s Office Supervisors’ Association.

Deborah K. Cahill, Lobbyist,Nevada State Education Association (NSEA), stated her support of S.B. 349 as amended.

Martin Bibb, Lobbyist, Retired Employees of Nevada, stated his support of S.B. 349 with the proposed amendments set forth by Mr. Pyne.

Senator Raggio asked how the increased multiplier would affect retired people.

Mr. Bibb responded he believes the multiplier will not affect currently retired people, but it will benefit future generations of retired people.

James T. Richardson, Lobbyist, Nevada Faculty Alliance, testified in support of S.B. 349 as amended.

Raymond C. McAllister, Lobbyist, Professional Firefighters of Nevada, stated his support of the bill as amended.

Senator Raggio asked what groups Mr. McAllister represents. Mr. McAllister responded he represents an organization comprised of 14 professional firefighter groups within the state.

Michael E. Hood, Chief, Nevada Highway Patrol Division, Department of Motor Vehicles and Public Safety, stated his support of the bill as amended. He explained it would affect approximately one-third of his agency’s membership.

Bob Schreihans, Captain, Carson City Fire Department, stated his support of the bill with the proposed amendments. He said he has been with the fire department for 18 years.

Andy Anderson, Lobbyist, Las Vegas Police Protective Association and Nevada Conference of Police and Sheriffs, stated he believes the multiplier should be increased to 2.75 percent in lieu of the recommended 2.67 percent. He said an increased multiplier is universally fair to the members whereas the “25 and out” proposal only affects a small number of participants. He said all members contribute toward the benefits which should be shared equally; therefore, he withholds his support of the “25 and out” proposal in favor of a larger increase to the multiplier. He provided a packet of letters (Exhibit K) from various law enforcement agencies urging support of the 2.75 percent multiplier.

Senator Raggio indicated a letter (Exhibit L) provided by Robert J. Gagnier, Lobbyist, State of Nevada Employees Association, who was unable to attend the committee meeting, would be included in the record. His letter states support of the 2.75 percent multiplier increase for all participants. Senator Raggio asked whether Mr. Anderson is a member of the PERS Board.

Mr. Anderson replied affirmatively. He stated he represents all city and county employees, not just police and fire employees, as a PERS Board member.

Senator Raggio inquired whether Mr. Anderson is aware the PERS board had made the recommendation he is not supporting. He further questioned whether these recommendations were approved by a unanimous vote of the PERS board.

Mr. Anderson replied he was aware the board supported the recommendations, but the vote had not been unanimous.

Senator Raggio explained the committee is in an awkward position because it cannot approve all the recommendations in addition to an increase in the multiplier to 2.75 percent. Senator Raggio clarified Mr. Anderson would prefer to forego the other enhancements in favor of increasing the multiplier to 2.75 percent.

Mr. Anderson replied affirmatively.

Senator Raggio questioned what law enforcement organizations Mr. Anderson represents. Mr. Anderson replied, “North Las Vegas Police Officer Association, Henderson, Clark County School Police, Lincoln County, Mesquite, White Pine County, and State Peace Officers’ Council.”

Gary Wealth stated his support on behalf of the Nevada Highway Patrol Division, to increase the multiplier to the maximum amount that would still be fiscally responsible for PERS. He said if they have to forego the “25 and out” enhancement in order to add the 2.75 percent multiplier, they would support that. He commented his division would strongly support PERS amended bill if the 2.75 percent multiplier were not possible at this time.

Senator Raggio responded it is not feasible at this time to raise the multiplier to 2.75 percent with the other proposed enhancements. This would trigger a contribution rate increase, he noted.

Mr. Wealth responded he does not want to have any contribution rate increases.

Richard R. Ziser, Lobbyist, Coalition for the Protection of Marriage and Nevada Concerned Citizens, stated the coalition is concerned with the creation of a new status of survivor beneficiary, which has the same legal standing in Nevada law as a spouse. He said this is his only objection to the bill with the proposed amendments. He indicated, through discussions with PERS staff and various other organizations, the problem appears to be an issue of timing for the unmarried members. He proposed to solve the timing problem without the addition of a survivor beneficiary.

Senator Raggio asked why Mr. Ziser objects to the term “survivor beneficiary.” Mr. Ziser responded his group does not object to the term but “to the creation of another status in Nevada law that is set right along spouse.” He said the same problem arises when a disabled member dies prior to the board’s approving his or her application for disability retirement. He proposes a remedy (Exhibit M) to the timing problem by amending Section 1 of chapter 286 of the NRS.

Senator Raggio asked Mr. Pyne whether Mr. Ziser’s amendment would accomplish the same goal. Mr. Pyne responded he had seen the proposed amendment. Mr. Pyne stated Mr. Ziser’s amendment provides a new type of benefit available to single members, which is a richer benefit than the current survivor program offers for spouses of members. He noted, “This amendment would actually cause us to seek an opinion from our actuaries as to the cost of the new program because of the expansion of the benefit beyond our current survivor program.”

Senator Raggio requested clarification.

Mr. Pyne replied that survivor benefits within the current program are graduated, based on how much time the member had in the system at the time of death. He expounded a member with 2 to 10 years of service in the system would provide a flat rate of $450 per month benefit for the surviving spouse. He explained a member with 10 to 15 years of service results in a calculated benefit equivalent to the beneficiary payment under what is called retirement option three; members with over 15 years of service entitle their surviving spouse to the option two spousal benefit, which is the best protection possible.

Senator Raggio questioned whether Mr. Pyne believes the proposed amendment is lacking the proper language to reference other sections and whether additional language, which would reference these other sections might solve the problem.

Mr. Pyne replied that he is uncertain. Senator Raggio asked Mr. Pyne to review it. He indicated he would have the bill drafters review the language for potential problems also.

Senator Neal inquired whether a member whose spouse dies could designate his or her child as the beneficiary under Mr. Ziser’s proposed amendment.

Mr. Pyne responded the child could be designated under the amendment, and it would be a richer benefit because a person could designate any option for the child to receive. He explained PERS currently does not allow a person to designate the option for the child because it is prescribed by the number of years of service within the system.

Senator Raggio questioned whether Mr. Ziser sought to provide richer benefits to survivors. Mr. Ziser responded that was not his concern with the language.

Senator Raggio closed the hearing on S.B. 349 and opened the hearing on S.B. 480.

SENATE BILL 480: Authorizes governor to set date for submittal of agency budgets and requires economic forum to make certain projections and estimates earlier. (BDR 31-1441)

John P. Comeaux, Director, Department of Administration, stated S.B. 480 proposes to make two changes in chapter 353 of the NRS. He indicated one change is the elimination of the fixed date of August 15 of each even-numbered year to allow the governor to set the date for the deadline of budget request submittals to the Budget Division. He said the date would likely be set each even-numbered year when budget instructions are sent out to each of the individual agencies.

Senator Raggio inquired what date Mr. Comeaux envisioned, earlier or later then it currently is. Mr. Comeaux said he would probably request the budgets a little later if there were no big changes or new issues because the agencies would be able to provide more accurate information. Mr. Comeaux said it would depend on the circumstances.

Senator Raggio commented it would be more difficult for Mr. Comeaux to prepare The Executive Budget on time with a later deadline. Mr. Comeaux responded the difficulty in the budget process is the decision making not the initial number crunching. He indicated the initial number crunching would be considerably easier if the state ever reached a point where the agencies could input their budget directly into The Executive Budget system.

Senator Raggio stated the Governor presently has the authority to request the budgets at an earlier date. Mr. Comeaux agreed.

Senator Raggio commented the LCB staff also receives copies of the agencies’ budgets for analysis at the same time as the Budget Division, so they would require sufficient time for their analysis. Senator Raggio inquired whether it would suffice to reset the deadline at 15 days later.

Mr. Comeaux said the deadline could easily be changed to September 1 of even numbered years.

Senator Raggio encouraged discussion of the second part of the bill.

Mr. Comeaux commented the bill drafters included a small “housekeeping change” to line 36 of the second page of the bill, but the second meaningful change is to change the deadline the Economic Forum must submit the written report of its projections of economic indicators and estimate of future state revenue. The proposed change is from December 1 to the earlier date of November 1, he explained.

Senator Raggio said the change would result in one less month of revenue from sources such as gaming and sales tax being reported, so it seems the report would be slightly less accurate.

Mr. Comeaux agreed the extra month of data would be valuable during volatile economic times.

Senator Raggio noted the Budget Division recently indicated to another legislative committee that it would prefer to refrain from recommending any budget modifications until the next month of gaming tax revenue is received. Mr. Comeaux responded that was due to special current circumstances regarding gaming. Mr. Comeaux said he believes the extra month of data is less beneficial than the extra month of having the firm estimates from the Economic Forum.

Senator Raggio said that, prior to forming the Economic Forum, the LCB and the Budget Division prepared their own economic information, so nothing would prevent the Budget Division from utilizing its own information to prepare a tentative budget. He explained the Economic Forum requires all parties involved to use their figures in the final budget document, but not for any tentative budgets. He indicated his reluctance to forego the extra month of information.

Mr. Comeaux said the finality of the Economic Forum’s report allows decisions to be made at an earlier time with an earlier deadline.

Senator O’Donnell explained the Governor is responsible for drafting a budget, which is destroyed a couple months later by the Economic Forum’s report. He said, “It makes the Governor look terrible if things are going down economically. It makes the Governor look too fiscally conservative if the things are going the other way.” He said he believes Mr. Comeaux is attempting “to marry up the Economic Forum’s decision with the budget closing time frame.”

Mr. Comeaux agreed. He noted if the Budget Division consistently forecasted revenues very close to the Economic Forum’s ultimate forecast, there would be no problem, but that is not the case.

Senator Raggio stated he is not convinced to change the deadline.

Senator Raggio closed the hearing on S.B. 480 and opened the hearing on S.B. 492.

SENATE BILL 492: Clarifies provisions governing transfers of money to fund to stabilize the operation of the state government. (BDR 31-1476)

Mr. Comeaux stated the Fund to Stabilize the Operation of State Government is commonly referred to as the rainy day fund. He pointed out the rainy day fund had a balance of $128,866,608 prior to the closure of FY 2000. He added the unrestricted General Fund balance was approximately $175.8 million at the close of FY 2000, which triggered the calculation to determine the amount of funding that should be transferred to the rainy day fund. He noted the historical methodology results in a calculated transfer of $7,681,210 as displayed in the schedule, provided to the committee (Exhibit N). He commented that differences of opinion arose between the State Controller’s office, the Budget Division, and the Fiscal Analysis Division of the LCB regarding the calculation. Therefore, the Budget Division requested an opinion from the Attorney General concerning the interpretation of Section 1 of NRS 353.288, which is the calculation of the rainy day fund transfer, he added.

Mr. Comeaux noted the Attorney General’s opinion, issued on January 23, 2001, indicated that the approach historically used by the Budget Division and the Fiscal Analysis Division of the LCB to calculate “the amount of the transfer is consistent with what reason and public policy would indicate that the Legislature intended.” He added, the Attorney General’s Office recommended amending NRS 353.288 to clarify the terminology used to calculate the amount of the transfer.

Senator Raggio asked whether the bill clarifies the historical approach is the method that would be required. Mr. Comeaux responded affirmatively.

Senator Raggio questioned whether the transfer is pending the decision on this bill. Mr. Comeaux indicated that it is.

Senator Raggio indicated the bill should be acted upon immediately to expedite the transfer into the rainy day fund. He asked Mark Winebarger, Chief Deputy Controller, Office of the State Controller, whether he had any objections to the bill. Mr. Winebarger responded from the back of the room that he had no objection to the bill and the State Controller supports the bill.

Senator Coffin asked how much money would be transferred.

Senator Raggio responded that, under this historical approach, $7.6 million would be transferred. The State Controller had proposed to transfer a great deal more, he added.

Mr. Comeaux stated the State Controller proposed to transfer approximately $27 million.

Senator Raggio indicated he would entertain a motion to do pass S.B. 492.

SENATOR O’DONNELL MOVED TO DO PASS S.B. 492.

SENATOR COFFIN SECONDED THE MOTION.

THE MOTION CARRIED. (SENATOR RAWSON WAS ABSENT FOR THE VOTE.)

*****

The meeting was adjourned at 5:50 p.m.

RESPECTFULLY SUBMITTED:

Jennifer Ruedy

Committee Secretary

APPROVED BY:

Senator William J. Raggio, Chairman

DATE: