minutes OF THE
SENATE Committee on Government Affairs
Seventy-First Session
February 26, 2001
The Senate Committee on Government Affairswas called to order by Chairman Ann O'Connell, at 2:10 p.m., on Monday, February 26, 2001, in Room 2149 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 Ann O'Connell, Chairman
Senator William J. Raggio, Vice Chairman
Senator William R. O’Donnell
Senator Joseph M. Neal, Jr.
Senator Dina Titus
Senator Terry Care
COMMITTEE MEMBERS ABSENT:
Senator Jon C. Porter (Excused)
GUEST LEGISLATORS PRESENT:
Lorraine T. Hunt, Lieutenant Governor
STAFF MEMBERS PRESENT:
Kimberly Marsh Guinasso, Committee Counsel
Juliann K. Jenson, Committee Policy Analyst
Sherry Rodriguez, Committee Secretary
OTHERS PRESENT:
Maddie L. Fischer, Lobbyist, American Consulting Engineers Council of Nevada
Kathy Augustine, State Controller
Brenda Laird, Chief Accountant, Financial Reporting Section, Office of the State Controller
Mark Winebarger, Chief Deputy Controller, Office of the State Controller
Bob Gagnier, Lobbyist, Executive Director, State of Nevada Employees Association
John E. Adkins, Chief Deputy Treasurer, Office of the State Treasurer
Bill Isaeff, Lobbyist, Special Assistant to the City Manager, City Manager’s Office, City of Sparks
Mary Henderson, Lobbyist, City of Reno
Marvin Leavitt, Lobbyist, City of Las Vegas
We have three bills we have requests to introduce and everybody knows this is the last chance to do this. The Lieutenant Governor is going to be first, speaking to a bill for which she has requested a bill draft.
Lorraine T. Hunt, Lieutenant Governor:
Thank you, Madam Chairman and esteemed members of the committee. For the record, my name is Lorraine Hunt, Lieutenant Governor, and I am here today also as the chairman of the Nevada Commission on Economic Development and with me is our division’s executive director, Bob Shriver.
This is a relatively new draft; we are still looking at it intensely. I will give you some background on the intent of this bill draft request.
Since I became Lieutenant Governor, and active in promoting our state’s diversification efforts, it has come to mind that we needed to do things that were unique to Nevada; we needed to do some things that were ahead of the curve. Technology is definitely one of the targeted areas we are looking at for many reasons.
In analyzing other states as to what they had to offer in incentives, we realized we have a lot of built-in incentives: no state income tax, no inventory tax, and so forth, some of which other states give; we already have that. We have our business tax abatements, property tax, and so forth.
I was looking for something that would be like a really strong draw for the high-tech industry. Obviously, we talk about Intel Corporation or a big company moving into the state. Looking at it in a more creative way, a more subtle way, it dawned on us that in many cases, venture capital, the bricks and mortar, follow the talent. If we could become a safe haven for the talent, that means these brilliant young geniuses sitting in garages somewhere concocting all these wonderful new ideas, they would come to Nevada, for not only our affordable housing and quality-of-life issues, but additionally, because we could protect them in the area of intellectual property. We began an outreach to attorneys, asking them what is new in patents and lawsuits, what is happening in this field. If we could come up with some law that would make us the premier state in the United States for intellectual property, a safe haven for the talented, that would bring a lot of people into the state. Consequently, the rest would come, venture capital and companies, and all these things that we are trying to target.
We thought it was a smart strategy. We did search, put the word out, and some ideas came through, but not what we were looking for. Most recently, I am not at liberty to say who, but a very outstanding, internationally acclaimed inventor genius of patents galore, who has lived in Nevada about 10 years very quietly, and has a great love of the state, brought forward the body of this bill draft. We have not refined it, yet. The idea, basically, is, the proposed legislation is designed to provide incentives to high-tech businesses, venture capitalists, inventors, entrepreneurs, engineering and computer science educators, university faculty members included, and the legislation will only apply to individuals who are established residents of Nevada and who do business or have their home offices in primary facilities in Nevada.
As you know, we encourage companies to also incorporate in our state. More and more of that is happening. So, this legislation is based upon the premise that high-tech businesses, inventors, entrepreneurs, and educators would flock to a state that provides significantly improved protection for intellectual properties, patents, trade secrets, and so forth. So, the legislation is also based upon the premise that high-tech venture capitalists would form their businesses in a state that provides significantly improved protection for intellectual properties and improved protection against industrial espionage.
So, there are some incentives in the legislation: technological incentives, business incentives, safe-haven incentives, Nevada-residency incentives and provisions, and privacy incentives. That is the basis of this bill draft request.
Chairman O’Connell
Committee, we do not have a draft to show you, yet. It is just conceptual and we will be working on the ideas with the people who are involved.
Is there any objection from the committee to request a bill draft on this? Since we have no objection, we will entertain a motion.
SENATOR RAGGIO MOVED TO REQUEST A BILL DRAFT TO PROVIDE HIGH-TECH INCENTIVES FOR THE PURPOSE OF DRAWING BUSINESSES TO THE STATE.
SENATOR O’DONNELL SECONDED THE MOTION.
THE MOTION CARRIED. (SENATOR PORTER WAS ABSENT FOR THE VOTE.)
*****
Senator Raggio:
Madam Chairman, upon additional requests for a bill draft, a matter came to my attention from a constituent some time ago, and I had indicated that this is a bill which would go to the judiciary committee if it is introduced.
The situation occurred when a government agency imposed a lien on someone’s property, in this case it was going back to when it was the State Industrial Insurance System (SIIS), and a lien was placed against this person’s property. What happened then was, they never enforced the lien and the time for enforcement of the lien went by, but the lien still stays on the property. Down the road, the property owner is not able to either get clear title or to transfer the property. So, I would request a bill draft that would require, without expense to the property owner, that after the time for enforcing the lien has expired, the government agency that imposed the lien would be required to remove the lien.
SENATOR NEAL MOVED TO REQUEST A BILL DRAFT THAT WOULD REQUIRE, WITHOUT EXPENSE TO THE PROPERTY OWNER, AFTER THE TIME FOR ENFORCING THE LIEN HAS EXPIRED, THAT THE GOVERNMENT AGENCY THAT IMPOSED THE LIEN WOULD BE REQUIRED TO REMOVE THE LIEN.
SENATOR RAGGIO SECONDED THE MOTION.
THE MOTION CARRIED. (SENATOR PORTER WAS ABSENT FOR THE VOTE.)
*****
Maddie L. Fischer Lobbyist, American Consulting Engineers Council of Nevada:
Bill Draft Request 28-236 proposes to define “Design Professional,” it also clarifies some of the components of a contract between a design-build team and the public works board. It also addresses liability in those contracts where the design-build team has been negligent and where it has not been negligent. Those are the basic provisions of the bill, and we would ask for your authorization of the introduction.
BILL DRAFT REQUEST 28-236: Makes various changes concerning contract between design professional and public body for provision of services in connection with public work. (Later introduced as Senate Bill 255.)
Chairman O’Connell:
Committee what is your feeling?
Senator Care:
Do I understand we are talking about a bill that would have a definition of a design-builder? Last session we enacted bills about design-builders but we did not have a definition, is that it?
Ms. Fischer:
No, this defines “design professional.” Design-build team is still defined. Design professional would be in addition to that, I guess the design professionals had some concern that the way it is currently written, it looks as if design professional was just a person and they wanted to make sure that it also encompassed the person’s firm.
SENATOR O’DONNELL MOVED TO INTRODUCE BDR 28-236.
SENATOR CARE SECONDED THE MOTION.
THE MOTION CARRIED. (SENATOR PORTER WAS ABSENT FOR THE VOTE.)
*****
Chairman O’Connell:
We will be hearing Senate Bill (S.B.) 202.
SENATE BILL 202: Makes various changes concerning state financial administration. (BDR 18-170)
(“Nevada State Controller’s Office Senate Bill 202 Testimony,” a written summary [Exhibit C], was distributed to the committee.)
Kathy Augustine, State Controller:
Senate Bill 202 is an omnibus bill, it has some housekeeping changes that we had last session, and handles some other accounting issues. If we could start with section 1 (Exhibit C), that amends Nevada Revised Statutes (NRS) 227.110, which requires a preliminary financial report to the Governor, we are now mandating the controller to produce a comprehensive annual financial report.
Chairman O’Connell:
Ms. Augustine, let me just stop and ask you, there is no time specific with the language that you have taken out. You have talked about annually, is this a calendar year?
Ms. Augustine:
Yes, it is a comprehensive annual financial report which is produced at the end of every year. You receive your copies, as does the general public, in January.
Right now, we prepare a preliminary financial report for the Governor. We only prepare 15 copies. Although the General Appropriation Act, 1951, allows the controller to pay the legal claims against the state from the prior fiscal year until the last Friday in August, my office is not able to close the books until the end of September. So, the 60-day reporting requirement currently in place is more than halfway over before we can even be able to begin our analysis of the prior year’s transactions. Senator Raggio, Madam Chairman, is very familiar with this as we had some problems with interim finance last year. So, the detail behind the required reports is large, and to produce a preliminary report within 60 days always requires overtime for us to complete it in the office.
Since we only print 15 copies of the report each year, the majority of the savings would be in the personnel cost. All of the information, as I said, is currently in the CAFR (Comprehensive Annual Financial Report). So the state’s CAFR already satisfies these reporting requirements, except for the county revenue report.
The county revenue report can easily be added to the statistical section in the future CAFRs, since the CAFR is not available for distribution until early January. We will provide the fiscal analysis section of the report to the Legislative Counsel Bureau, if they need that information, by mid-November.
Are there any questions on section 1?
Sections 2, 3, and 6 (Exhibit C) require new employees of the state to direct deposit their payroll checks. Exceptions are granted when the practice will impose practical difficulties or unnecessary hardships such as the employee does not have a bank account or something of that nature. The controller’s office believes the state will benefit from the direct electronic deposit of payroll checks. Approximately 80.46 percent of current state employees are already using direct payroll deposits.
This is not only a cost-savings measure, but it also increases our efficiency and streamlining in government. As the state moves towards more electronic fund transfers, as we are going to be doing with welfare checks and child support, it seems reasonable to encourage all employees to take advantage of a system that allows them to have direct access to their money on paydays.
The Debt Collections Improvement Act of 1996 was passed at the federal level in 1996, and that act required that effective July 26, 1996, federal payments, except for tax refunds to newly eligible recipients, must be made electronically unless the recipient certifies that he or she did not have an account with a financial institution. This is one of the exceptions that we are allowing as well.
Beginning on January 2, 1999, all federal payments, with the exception of tax refunds, now have to be made electronically. The financial management service estimates that the federal government saves more than $100 million annually by using the direct deposits.
Chairman O’Connell:
What do we save?
Ms. Augustine:
I have that a little further down. An estimated 70 cents is saved for each check deposited through the Automated Clearing House or as we call it the ACH network.
Senator Titus:
Just following up on that, I was under the impression that you might save that just in the paperwork of the deposit. But you would lose money on interest that you do not collect when you do that direct deposit, is that not the case?
Ms. Augustine:
If you are looking at the day that a check is issued, then on the accounting books, that is the day that the money is gone out of the account. The treasurer’s office likes to have money sit in those accounts as long as it can to earn interest. It is not good or sound public policy to say, “Well, we are hoping that an employee does not cash his paycheck for 4 or 5 days, so that we can continue to get interest on that employee’s paycheck.”
Senator Titus:
But, indeed you do get interest, so there would be some loss on that side to counter this savings in this direct deposit. Right?
Ms. Augustine:
Yes.
Senator Titus:
Whether it is good policy or not, it is a practice; so, there would be some loss of money?
Ms. Augustine:
Yes.
Senator Titus:
Do we know how much that is? Is that just a floating amount?
Ms. Augustine:
I do not have those figures, but I also have the figures on the direct deposit for the clearing house, too.
Senator Titus:
We need to put both figures out there. One, you are going to save some direct deposit . . .
Ms. Augustine:
Well, I think the treasurer’s office is here, Senator, so I am sure that they can address that for you, because as I said, that has nothing to do with our office.
Senator Neal:
I have a question relative to this, this is on section 6 (Exhibit C). Have you checked the legality of that language? Why I asked the question, how is it you can refuse to hire, or even transfer people, if they refuse to allow you to direct deposit their check?
Ms. Augustine:
That is why we allow for exceptions. If they do not want to do it, it is not mandated.
Senator Neal:
It is not mandated?
Ms. Augustine:
If they have a hardship. It is not mandated if it is not practical, if they are living in a town that does not have a bank, or if they are in a rural area.
Senator Neal:
Well, what if they live in Las Vegas, or Reno? Are you saying that these people cannot be hired or transferred to another agency unless they agree to have their checks direct deposited?
Ms. Augustine:
No, because if they do not have a bank account, they cannot have a direct deposit. They will still have to get a paycheck and take it and cash it, wherever.
Senator Neal:
Well then, you are saying the exception would be in section 2 (S.B. 202), where does it say that?
Ms. Augustine:
“If the chief officer of the hiring or appointing entity determines that the application of subsection 1 will impose great practical difficulties or unnecessary hardship on the person,…” (section 6, subsection 2, paragraph (d) of S.B. 202) there is your exception right there.
Senator Neal:
Great hardship on the person, but it is the chief officer who is making that determination, it is not the individual.
Ms. Augustine:
The individual can go to their hiring officer and talk about a hardship. They come to me now if they have a hardship or a problem in their paychecks.
Senator Neal:
The point that I am making is that, if I work for a company, and I wanted to receive my paycheck in my hand, I should be able to do that without any restriction whatsoever. To put any other condition upon that, seems to me to go towards the contract . . .
Ms. Augustine:
Well, this is legal because the federal government is doing this now. You cannot get a paycheck from the federal government without having it mandated as auto deposit. So this is superceded by federal law. This is legal, this is allowed.
Senator Neal:
What do you mean you cannot get a paycheck from the federal government. You can have an option of whether or not you want your check to come to your mailbox at your house or . . .
Ms. Augustine:
No, as of January 2, 1999, all federal payments, with the exception of tax refunds, have to be made electronically, period.
Chairman O’Connell:
Is that their policy, or is that the law?
Ms. Augustine:
Yes, it was put in place by the federal government. Because of the cost savings and also because they are safer for the checks, recipients do not have to worry about their check payments being lost or stolen. The Government Finance Officers Association also recommends that governments promote the use of EFT (electronic fund transfer) for protection against check fraud.
Chairman O’Connell:
And it is the law?
Ms. Augustine:
No, it was in the Debt Collection Improvement Act of 1996, July 26, 1996. Beginning on July 2, 1999, it was mandated for everything.
Senator Raggio:
You get Social Security checks, they deliver those.
Ms. Augustine:
These are federal employees I am talking about.
Senator Neal:
So, this is your basis for including this, because the feds are doing it?
Ms. Augustine:
No, because we have over 80 percent of our state employees already doing auto deposits. We are going to auto deposits with welfare checks, the contract was already signed with Citibank on that, so we are going to be doing it almost exclusively anyway.
Electronic fund transfer payments are faster than checks, the funds are delivered right on the day. If employees are out, ill, on personal leave, unable to cash their checks, the money is already there waiting on payday. They do not have to wait until they return to the office, or have the check mailed out.
Senator Neal:
Let me ask you a question on the other end of that. What if the bank refused to pay? If something happens to the bank, who is responsible for the check or the employee’s money?
Ms. Augustine:
That is why you have Federal Reserve accounts, in case a bank goes belly-up.
Senator Neal:
Yes, but the Federal Reserve account only covers so much money. It does not cover everything. If you read the contract on the Federal Reserve, I think, particularly, the individuals who put money in there are covered up to $100,000. You see if it covers everything, then let me use the bank.
Ms. Augustine:
Why, do you know of a state employee that is making that much?
Senator Neal:
No, I do not know of that, but I am talking about if something happens to the bank, if the bank decides to go belly-up. That has happened in the past.
Senator O’Donnell:
I guess I do not understand the question. If the bank goes belly-up, it does not matter whether they get a direct deposit or a piece of paper, the money is going to be no good.
Senator Neal:
Well, the question is: when we are mandating by statute that these checks should be going to the bank, if we mandate it, that these people’s money go to the bank and they receive their money from the bank, then the state has to have some obligation to see that the person gets paid.
Ms. Augustine:
Yes, and we would have to do that with every other check we issue in the state as well, Senator, which is in the millions and millions of dollars.
Senator Neal:
So, you issue a person another check?
Ms. Augustine:
Yes, in fact, we do that now. If somebody does not get a payroll check for some reason, we issue a handwritten check.
Senator Neal:
OK, that is what we need to understand.
Senator Titus:
This authorizes it with certain exceptions, is that right? Elected and appointed officials would not fall under this?
Ms. Augustine:
That is correct.
Senator Titus:
Why, what would be the rationale for that? Why would it not be just as good for them as for anybody else?
Ms. Augustine:
Because of the rotation in and out of office. Right now, we only have a little over 50 percent of our elected officials on ACH (Automated Clearing House).
Senator Titus:
I look up here (looking at the committee members) and I see people who have not been rotated out in a long time.
Ms. Augustine:
This is only for central payroll, for state employees.
Chairman O’Connell:
Any other questions?
Ms. Augustine:
I might also add, I know that Bob Gagnier (Bob Gagnier, Lobbyist, State of Nevada Employees Association) is here and the association has not liked electronic payroll for a long time. Bob is near and dear to my heart, but I know that he does not like this either.
Chairman O’Connell:
The first time that issue came before the committee, we killed the bill because we had so much opposition. And that is probably why Mr. Gagnier is still opposing it.
Ms. Augustine:
I think the other bill also mandated it for everyone. This would not affect those employees who currently do not have electronic benefit transfers.
Senator O’Donnell:
Would you have a problem if we changed the bill to include all elected officials?
Ms. Augustine:
That, actually, is quite humorous because, as I said, it is the elected officials who have the worst record of electronic benefits. We have over 80 percent of state employees, currently. I do not know what the reason is, I guess elected officials want to hold that green in their hand.
Senator O’Donnell:
I am being very serious, would you have a problem if we changed it to make it include all legislators and elected officials?
Ms. Augustine:
This is not a hill to die for, for us; there are lots more important things than this bill. It was suggested, by the Legislative Counsel Bureau, we do one general accounting bill, and that is why this was included here, as opposed to in a separate bill draft.
Senator O’Donnell:
My wife has direct deposit. She knows that on a certain day of the month, she can go ahead and write a check. It is kind of convenient.
Ms. Augustine:
It is a convenience, especially if somebody is not on the job. If employees are away on vacation, they can be in Europe and still access monies that have gone into their bank accounts. Wherever they might be, if they are sick at home on extended sick leave, they know that paycheck is auto-deposited every 2 weeks.
Senator Care:
I have answered my own question, I was going to ask about section 11, the extension from 1 to 6 years, but it is to conform with statutes of limitation language already in the statute, so that answers that.
Ms. Augustine:
OK, we will move on to sections 4, 5, 7, 8, and 13 to 43 (Exhibit C) to Brenda Laird.
Brenda Laird, Chief Accountant, Financial Reporting Section, Office of the State Controller:
These sections of S.B. 202 are basically language changes to the statutes. The purpose of these changes is to update the designations of certain funds and accounts to comply with the new governmental standards board’s Statement 34. This statement mandates a new model of financial reporting that we will be required to report under.
The Governmental Accounting Standards Board establishes Generally Accepted Accounting Principles for all governmental entities. It is important to note that these changes relate to language only, they do not change the purpose or the function of any of these funds or accounts.
Senator Neal:
On Generally Accepted Accounting Principles, why would it be necessary to write that out in the form that you have put that in section 9? What is the difference?
Ms. Laird:
I do not understand the question.
Senator Neal:
Well, apparently you are putting it down in the language here as being something new. What is the difference between that which you have already been doing, if that is the case?
Ms. Augustine:
It is so we do not have to come before the Legislature or a future controller does not have to come before the Legislature every time there is a change in what is mandated by the Governmental Accounting Standards Board to change the statute. So, every time there is a change in the Generally Accepted Accounting Principles, which, you are right, has always been the ongoing language, we do not have to come in and amend the NRS.
Chairman O’Connell:
While we are on this subject, would you turn to page 8 (S.B. 202). In section 17, where the language is talking
about “municipal bond bank” and we have that language as being deleted and are
replacing it with
”water projects loans,” could you tell me, are those two terms interchangeable,
as far as your accounting process goes?
Ms. Laird:
Actually, the municipal bond bank currently accounts for various activities; and to comply with this new reporting standard, we are going to break it out so that we can report . . .
Chairman O’Connell:
I see, instead of having an umbrella, you are going to identify . . .
Ms. Laird:
Correct, because some belong to enterprise funds, some belong to special revenue.
Chairman O’Connell:
I think we went through and did an awful lot of this fund and account term changing last time, as well. I am sure most everybody on this committee will remember that.
Ms. Laird:
On the written testimony you have for these sections (Exhibit C), I have listed, by section, the fund or account name that is involved. What it was previously designated in the statute, and the new designation. Basically, it changes the fund types, or changes from funds to accounts. I would be happy to answer any questions you might have on any of those individual items.
Senator Neal:
I notice that, in section 13, you are adding new funds: “permanent funds,” “pension trust funds,” “investment trust funds,” “private purpose trust funds,” “agency funds” and, I guess, you are changing the name of one there from “permanent trust” to “special revenue.” Why is that necessary? Do not tell me that this is what is required of the generally accepted approval standards, or whatever you want to call those standards, now.
Ms. Laird:
Well, we are required to report under governmental . . .
Senator Neal:
Where are these terms coming from, and what do the terms mean?
Ms. Laird:
These are specifically stated in GASB (Governmental Accounting Standards Board). Statement 34; it is mandated. They have set these particular funds that we must record our activity under. This is not an option. They have stated, these are the funds you can use.
Senator Neal:
So, your testimony to the committee is that you have examined these particular funds and they fit these particular headings you have listed here?
Ms. Laird:
Correct.
Senator Neal:
And it does not change or give you any additional authority that you did not have before?
Ms. Laird:
There is no additional authority, it is just how these funds appear in the financial statements. The only difference may be whether it is on full accrual basis or modified accrual basis. Basically, the only change you will see is . . .
Senator Neal:
You are not taking any other fund that was in any other department or anything like that?
Ms. Laird:
No, the purpose of the fund is staying the same, nothing will change how the fund operates.
Senator Neal:
All right, we just want to make sure.
Senator Care:
On that note, also under section 13, coming out is “fiduciary funds,” that word “fiduciary,” will always get an attorney’s attention, and it is out; but, we have new language, “pension trust funds,” “investment trust funds,” those would be your former “fiduciary funds,” is that correct?
Ms. Laird:
Correct, yes.
Senator Care:
Any others, just those two?
Ms. Laird:
Well, under the statutes, currently we have some gift funds that are classified as nonexpendable trust funds and under this new statement those will be special revenue funds.
Now, I am going to go on to the testimony for sections 9, 12, and 13 (Exhibit C). Ms. Augustine did touch upon this. These sections mandate that the state controller comply with Generally Accepted Accounting Principles as interpreted by the Governmental Accounting Standards Board.
Sections 9 and 12 define these Generally Accepted Accounting Principles used in financial accounting for the state that we must follow.
Section 13, subsection 2, mandates the state and its financial accounting must comply with the terminology required by the Governmental Accounting Standards Board when the Nevada statute uses different language. As mentioned earlier, this will limit the number of housekeeping bills required each session. I would be happy to answer any questions.
Senator Neal:
I think it was in sections 21 to 24, there you are dealing with accounts and funds for workers’ compensation and safety. I guess that has changed from a claim fund to an account? Section 21, page 10, line 3.
Ms. Laird:
Correct, the uninsured employers’ claim fund is now an account within the workers’ compensation.
Senator Neal:
So, with the subsequent injury fund, you are making that an account?
Ms. Laird:
Correct. They all fall under the workers’ compensation and safety program and they should all be within an enterprise fund.
Senator Neal:
What is the significant difference between an account and a fund?
Ms. Laird:
A fund, we report our financial statements at the fund level; an account is, basically, in a breakdown, the agencies’ or budget uses to account for various activities. So, it is a smaller unit. For financial reporting purposes in our office, those are rolled up into funds, and you only see the fund level.
Senator Neal:
So, when you change the subsequent injury “fund” to “account,” it denotes that there is a small amount of money involved and that it is a part of a larger unit?
Ms. Laird:
Yes.
Senator Neal:
Yes, what?
Ms. Laird:
It is part of a larger unit; it is an activity accounted for within a larger scope, which is the workers’ compensation and safety fund.
Senator Neal:
Is there a definition for “account” in this statute?
Ms. Laird:
I do not know.
Senator Neal:
Is there a definition where you got this from, your Generally Accepted Accounting Principles?
Ms. Laird:
Where I got the definition of fund, or account?
Senator Neal:
Account.
Ms. Laird:
That, generally, except for the accounting policies, does not define “account.” Account is used within basically the state budgeting.
Senator Neal:
But you see, we are changing something here that the Legislature decided, we called the subsequent injury fund a fund. We did not call it an account when we put it into the statute. We had a reason, I guess.
Ms. Augustine:
Madam Chairman, this is just to differentiate between the funds that are required by GASB (Governmental Accounting Standards Board) and the accounts that are used within the state.
Chairman O’Connell:
If memory serves me right, when we went through that omnibus bill that you had the last time, we kind of put you all through the same exercise. It seems to me, Ms. Guinasso, as though we did have a definition at that time, between the two. Is that what you are scanning right now?
Kimberly Marsh Guinasso, Committee Counsel, Legal Division, Legislative Counsel Bureau:
Yes.
Chairman O’Connell:
Some of the concerns that you are raising, Senator, I had raised.
Ms. Augustine:
Yes, Madam Chairman, this is part of the problem and why we are bringing this forward, to allow us to just report the funds in accordance with the Governmental Accounting Standards Board, instead of having to go through here every session and change the funds and the accounts.
There is no change in the account of the fund, per se; it is just what it is called.
Chairman O’Connell:
It is just the language?
Ms. Augustine:
It is the language.
Chairman O’Connell:
Ms. Guinasso, did we not identify what a fund was and what an account was in the law when we did this the last time?
Ms. Guinasso:
Senator, I do not recall that, specifically, and I do not see anything. I was trying to do a search of the NRS. We do have a definition of account in the Local Government Budget Act (NRS 354.470 to 354.626), which says it means: “systematic arrangement of items showing the effective transactions on a specific asset, liability, or equity.” The terms, “account” and “fund,” are used quite frequently throughout NRS.
Chairman O’Connell:
But they are not interchangeable?
Ms. Guinasso:
No, they are not interchangeable. Typically what is conceived as an account is a subset of a fund.
Chairman O’Connell:
It was a huge bill, where they tried to take care of all of the things. I guess they are just picking up on some of them this time.
Senator Neal:
Well, I know that some of my questions might be aggravating, Madam Chairman, but as a person who is sitting up here with a responsibility, I have to understand it before I vote on it.
Chairman O’Connell:
No, that is perfectly all right, Senator Neal. I just happened to remember it because I was asking some of the same questions you are asking this time.
Senator Neal:
Do we need a definition of account?
Chairman O’Connell:
I do not think that we do, I think that it is already pretty clear as to what it means, but we will double-check on that.
Mark Winebarger, Chief Deputy Controller, Office of the State Controller:
I am going to be speaking on sections 10, 11, and 44 (Exhibit C). Section 10, very simply, is just deleting unnecessary language in NRS 353.130.
In section 11, the state controller is requesting to extend the (reissue) time period for payment of stale, voided warrants from 1 year to 6 years from the date of the original warrant. This will allow our financial reporting to comply with subsection 1, paragraph (b) of NRS 11.190, regarding the statute of limitations.
Currently, NRS 353.140 directs the controller to write off the liability to reissue a stale, voided warrant as soon as 1 year from the date the original warrant was written. After 1 year and up to 6 years from the date of the original warrant, the payee may renew his claim for payment by presenting it to the State Board of Examiners. Since the State Board of Examiners has already approved the original payment voucher, section 44 of this bill, requests the repeal of NRS 353.145, which requires the claim be presented to the State Board of Examiners. The state controller will reissue replacement checks directly from the account for lost and stale warrants.
By making these changes to NRS 353.130 and .140, and by repealing NRS 353.145, three goals will be accomplished.
First, the controller will account for and report the liability for valid claims, for which warrants were not cashed, for the full time of the statute of limitations or until the claimant requests another warrant in lieu of the original warrant, whichever comes first.
Secondly, the State Board of Examiners will not have to approve, for a second time, payments previously approved for which the warrants had grown stale and were voided. Payments to satisfy claimants’ renewals of claims will not have to be made from the stale claims account, instead they will be made from the lost and stale warrants account in the appropriate fund.
Finally, subsequent payments of valid claims will be expedited.
Chairman O’Connell:
I was not familiar with the term, “warrant,” would you tell us specifically what that means?
Mr. Winebarger:
The statement means “checks,” but throughout the NRS it is referred to as warrant.
Chairman O’Connell:
Anybody else have any questions on the bill?
Senator Neal:
The repeal section,
Ms. Augustine:
Excuse me, Madam Chairman, we also had another repeal section that we have not testified to yet.
There is another repeal, for the minimum amount of drawing warrants. This is needed to comply with the changes, so we are requesting it in section 44 of S.B. 202.
When this measure was first passed by the Legislature for the $25 warrants, I was in the Senate as well and voted for this. It seemed like a good cost-savings tool at the time. However, it was not included in the Department of Administration’s ISF (Integrated Financial System) contract with the American Management Systems (AMS). Now the amount of money required to modify the current accounting system makes the implementation of this cost-prohibitive.
American Management Systems completed a cost analysis for us, which indicates system design changes would cost approximately $44,000 and would require approximately 80 hours of integration and acceptance testing at a cost of approximately another $10,500. Based on estimated annual cost savings of only $5900, it would take us over 9 years to recoup the costs. The cost of tracking and storing unpaid invoices in the check distribution section of the treasurer’s office, and responding to inquiries by vendors for up to 14 months must also be considered. The state could also be charged late fees and/or interest on payments that are late by delaying the issuance of the checks. The Legislative Counsel Bureau, in its audit of the state controller’s office, recommended if the analysis concluded there was “No financial benefit to the state, then consideration should be given to seeking legislation to repeal NRS 227.215,” which, in fact, is what we are doing.
Senator Neal:
Are we now saying no limit is needed?
Ms. Augustine:
That is right, in fact, we are federally mandated on child support checks and some others; we have issued checks for as little as 50 cents. If the monies come in, we must issue the check. And that was excluded from this $25 anyway. These, we just say, if we owed a vendor $10 or $12, this mandated us to hold that $10 or $12 check until we owed them another $30, and then at that time, if it was over $25, we would go ahead and issue the warrant.
Senator Neal:
If 1 cent is owed, you can issue a check?
Ms. Augustine:
That is correct, and we are mandated to do so with welfare and child support benefits.
Chairman O’Connell:
When you had issued your report earlier this year on funds, it claimed the state had lost money from the non-collection of those funds. How far back do you still count a stale account? For instance, do you go back further than 5 years, do you go back to the year 1?
Ms. Augustine:
Currently, our receivables due the State of Nevada are now up to $182 million. Our original report was at $158 million, but agencies are getting more used to reporting to us, and the amounts continue to go up. Those amounts, some of those stale write-offs, have to go to the State Board of Examiners for write-off. I believe that they have already written off $250,000, because of the age of the monies.
Chairman O’Connell:
So that would not be included in your next report.
Ms. Augustine:
That is correct, once they are written off by the State Board of Examiners, they are dropped off our report.
Chairman O’Connell:
What is the length of time they are allowed to carry it on their books?
Ms. Augustine:
It is 6 years.
Chairman O’Connell:
It is 6 years that we talked about in here, and it was only 1 year before? That is what we are replacing the 6 years with, is it not?
Ms. Augustine:
You are talking about if somebody comes back to us for a stale check, that is different than a write-off for the debt collection of bad checks. We are talking about, if the state issues a check to you and you lose it and you do not cash it, and then you come back to us 5 years from now and say, I had this check, I lost it, and I would like you to reissue it.
Chairman O’Connell:
I am sorry I confused you on that Ms. Augustine. No, I am talking about the accounts that, for instance, I think the tax department had carried. They reported some of those things were older than 10 years.
Ms. Augustine:
But, those are not all bad checks. Those could just be payments that are outstanding that have never been collected.
Chairman O’Connell:
I realize that, but I wonder how long they can keep them on their books or when they should write them off. Or can they write them off?
Ms. Augustine:
No, it has to go to the State Board of Examiners for write-off.
Chairman O’Connell:
And is there a period of time that they bring those forward.
Ms. Augustine:
We did find that some agencies had carried them for well over 10 years. Your chance of collecting on something that old, to be reasonable, you are not going to be able to go back and collect.
Chairman O’Connell:
I guess that is the point of my question. Of the $200,000 that was written off, were they all 10 years old, were they 8 years old?
Ms. Augustine:
We do not know. I do not sit on the State Board of Examiners, so I would not know; the Governor chairs the State Board of Examiners. They could provide you, I am sure, with a list of what the write-offs were.
On a positive note, we have approved debt collection agency contracts and the final approval, again, goes to the State Board of Examiners at their April meeting. So, we will now have debt collection agencies in place to go after a lot of these monies and the bad checks. We are working in conjunction with the Washoe County and Clark County district attorney offices.
Chairman O’Connell:
Any other questions?
Senator Neal:
Just a general question, did the treasurer approve this bill?
Ms. Augustine:
I do not know, Senator Neal, you will have to ask him.
This is an accounting bill, not an investment bill. I also have a couple items you do not have, that I would like to add in regard to section 6 and those payroll checks. Ten states currently allow for compulsory direct deposits, where an employee selects a financial institution. Eleven states now allow for businesses to mandate direct deposits. Our net biweekly payroll is $16,181,638. As I mentioned, we have 80.46 percent in our central payroll and our elected officials are at 57.50 percent. Nevada Department of Transportation (NDOT), which currently has a separate payroll system, is at 68.51 percent. The other cost savings that we foresee are savings in our check stock, bank check-processing charges, bank reconciliation maintenance, check storage, and our microfilming, which we currently have to do. Then, bank stop-payment charges when checks are lost or destroyed and check reissuance costs. Those are all the cost-savings measures.
Chairman O’Connell:
OK, anything else on this bill, committee?
Senator Neal:
Yes, Madam Chairman, I asked a question about whether or not the treasurer had approved this, and I guess the answer that I received is that this would not have an impact on the treasurer’s office, the treasurer does not deal with any of these funds, I gather.
Ms. Augustine:
No, these are all accounting funds, it does not have a direct impact on the treasurer’s office.
Senator Neal:
The treasurer would not be paying any checks out of this fund?
Ms. Augustine:
We draw all the checks; the state controller draws all the warrants. The state treasurer co-signs the checks and then the treasurer’s office disburses all the warrants after they are drawn by the state controller.
Senator Neal:
They co-sign all the checks?
Ms. Augustine:
They co-sign all the checks, and all the checks go to their office for disbursement. The state treasurer actually mails out all the warrants that are drawn by the controller.
Chairman O’Connell:
OK, any further questions or comments?
Senator Titus:
I am just looking at the federal rule that applies to it, and it says that the federal rule simply refers to individuals who determine that payment by electronic funds transfer would impose a hardship. In other words, all they have to do is say, “I do not want to do this, it is a hardship.”
Ms. Augustine:
Right.
Senator Titus:
They do not have to not have an account?
Ms. Augustine:
Right, and that is what it says.
Senator Titus:
When you presented that, it was a little misleading. You suggested that it was a requirement unless they had a hardship, as opposed to just that it was their choice because it was a personal hardship.
Ms. Augustine:
Well, if they have a hardship, and that is what we have stated here as well. It does not say hardship, it says great practical difficulties. I suppose you could interplay that with hardship.
Senator Titus:
So, anybody could say they do not want to use it, and you would say they do not have to use it? So, how is that different from what we have now?
Ms. Augustine:
How is it different from what we have now? Because this is for new employees. We cannot go out now and mandate that all state employees go for electronic ACHs (Automated Clearing Houses). This is for new employees.
Senator Titus:
Well, if a new employee could simply say, “I have a hardship and I do not want to do that,” how does that differ from the policy that you have now?
Ms. Augustine:
Because, we cannot go to state employees and tell them that they will be mandated to ACH their paycheck.
Senator Titus:
Exactly, but if they do not have to do it if they do not want to, that is not a mandate. You are telling me two different things. Either you have a mandate you have to do unless you have a hardship, or what you say is a hardship, or else you can do it if you want to and you do not have to if you do not.
Ms. Augustine:
Right, so the language is permissive.
Senator Titus:
That is not what you have been saying for the last half hour.
Ms. Augustine:
Madam Chairman, through you and to the Senator, yes it is. That is exactly what we have been saying: it is mandated unless it is a hardship and they do not want to do it. It is permissive language, except for those other exceptions, for elected offices and so forth, and our part-time service.
Senator Titus:
Well, if you do not have to do it if you do not want to, then why do you want it as a mandate, why not leave it as it is now?
Ms. Augustine:
Would you not rather have the permissive language in the statute?
Senator Titus:
What is wrong with the way it is working now, if it is permissive now?
Ms. Augustine:
Because, there is nothing in the statute that refers to it. So, it is permissive language that is added to the statute.
I suppose we could put it in regulation, you are right.
Senator Titus:
Are you not doing it now with existing employees? You just gave us some figure, about 80 percent.
Ms. Augustine:
We cannot go back. A state employee, right now, has the option.
Senator Titus:
And, what is wrong with that?
Ms. Augustine:
That is fine, but we do not have anything in statute that talks about ACHs for new employees. This is adding all new language.
Senator Titus:
The new employees today would not have the same option as the existing employee under the way it works now? They do not have the same option?
Ms. Augustine:
Yes, they do have the option. We are just trying to put it in the NRS, Senator. If you would rather us do it by regulation, we will be happy to do it by regulation.
Senator Titus:
I would rather you tell me what you are going to consider a hardship, on the record. If somebody comes to you and says I do not want to do this, just because I do not want to do it, are you going to recognize that as a hardship or not?
Ms. Augustine:
Yes, we do, right now, recognize that as a hardship.
Senator Titus:
Yes, but that is before you put it in the statute with this definition of a hardship, as something that is financially impractical.
Ms. Augustine:
It says, ‘great practical difficulty’.
Senator Titus:
I am sorry, I got the terms a little wrong, I have not memorized it yet, but you know what I mean.
Ms. Augustine:
Well, that was the language that was drafted by the LCB (Legislative Counsel Bureau) Legal Division.
Chairman O’Connell:
OK, thank you all very much. Is there anyone else who wishes to testify on S.B. 202?
Bob Gagnier, Lobbyist, Executive Director, State of Nevada Employees Association:
I wish to make it clear in the beginning, that I only wish to address one section in the bill, section 6. While in testimony, the state controller indicated there were sections that addressed this issue; they do not address it in the same manner.
We read section 3 as being entirely permissive, and therefore, we have no problem with that. Section 6 is the only section, I believe, that we have difficulty with.
Today, I am here to speak on behalf of the 2500 or so state employees who have chosen not to have direct deposit. Many people, obviously given the statistic, like the concept of direct deposit and have opted to have that, and that is fine for them. I certainly would not want to hold up the federal government as an ideal for us to follow and infer that the federal government mandates this; there are a lot of other things we do not like that the federal government does, too.
Section 6 is worded a little bit differently than some of the previous legislation that has come before this body on this subject from the previous controller. It is a limiting thing. It does not mandate it for everybody, but it would mandate it for everybody who transfers or promotes from one agency to another agency, and we have quite a few of those in state government. There is a great movement from one agency to another agency. We would view that, while a limiting factor, still a difficulty for us and we would still oppose it.
Going to the issue of hardship, and I think that is the term used in the past and we now have on page 4, line 15, “great practical difficulties.” I would point out to you the language does not leave it up to the employee to make the decision but rather the employee’s management. So, the employing officer or entity would be the one that would determine whether a person had such a great practical difficulty. In any event, we would oppose it, even if it was the employee’s determination. Warrant or check, regardless of what you call them, the employee says this is mine, I have earned this and I have a right to it. I should not have to go justify to someone how I receive it. That is the way people feel, and for whatever reason they have, there are people who do not have bank accounts. I cannot imagine living without one, but there are such people. There are people that are on a cash basis, they do everything with cash. There are a myriad of reasons and it does not really matter, they have their reasons, and it is their money. That is the way we look at it, and why we think they should be the ones who control whether they receive it in a check or whether they receive it an automatic electronic transfer.
We also have a number of people who have had “great difficulties” with their electronic transfers and getting it straight at the bank for whatever reason. We do not think this is necessary and we would like to encourage you to delete section 6 from the bill entirely. Thank you.
Chairman O’Connell:
Questions?
Senator Neal:
Mr. Gagnier, I do not know whether or not you know the answer to this question, if not, we can bring the controller back. The more money the bank is allowed to receive in terms of these deposits, do they actually make money off of those?
Mr. Gagnier:
I would have to assume so, but I think your best option would be to direct that question to the state treasurer’s office. I have to assume there would be, I know if you did away with the checks, the treasurer’s office, through their interest account, would be losing substantial sums of money for the float they have in the 3 or 4 days between the time the check is issued and the time it is cashed.
So, there is a considerable amount of money which would be lost to the state in that manner. I would have to assume the banks are going to get some float in the reverse.
Senator Neal:
I would like to get clarification from the controller on that.
Ms. Augustine:
I do not know, as I said, we have nothing to do with the interest on the monies left in the account.
Senator Neal:
Yes, but is there a contract or something signed with the bank?
Ms. Augustine:
The state treasurer, the Bank of America is our state contract. But, the state controller’s office has nothing to do with that.
Senator Neal:
So, the state treasurer is involved from the standpoint of signing the contracts with the banks.
Ms. Augustine:
No, I believe the Purchasing Division signs all the contracts for the state, Senator.
Senator Neal:
So, what is the role of the treasurer’s department?
Ms. Augustine:
The treasurer invests all the state monies from monies that are in the General Fund.
John E. Adkins, Chief Deputy Treasurer, Office of the State Treasurer:
You were asking a question, Senator Neal, about the monies.
Senator Neal:
Yes, are there any contracts of some type signed with the bank to receive the direct deposit for the employee?
Mr. Adkins:
Yes, sir. The treasurer’s office has its agreement with Bank of America, a cash-management agreement with them. We pay them approximately 3 cents apiece for each of the ACHs they process for us. There is no other profit associated with the ACH contract for the Bank of America. The monies go directly out of our account and are transferred to another bank account.
Do you have some other questions here that we might be able to clear up for you?
Senator Neal:
Well, I wanted to know whether or not the treasurer was involved in any way with these transactions we have been talking about.
Mr. Adkins:
We had not seen the bill before it came across, but we were looking at it and we really had no objections to it. There were several references, with respect to the earnings, associated with the float associated with the ACH, I would look at. Approximately, on the last payroll we had $11.8 million in electronic transfers. We had approximately $2.5 million in payroll checks, as such. Just looking at the float, we would say, “Well, we have $2 million-worth of checks there, they are going to be outstanding for 3½ or 4½ or even 5 days, so we would pick out a date there. Then, we would calculate the interest, say two and a half million dollars at 6 percent, that is what we would normally earn on it; $2.5 million at 6 percent will give you approximately $150,000 a year, divide that by 365 days and you will get approximately $411 a day. Then, say you will have 5 days’ float, so 5 days times the $411 gives you approximately $2065; multiplying that by 26 pay periods gives you approximately $53,000 interest that we would earn on that transaction. If you take that from payroll checks and change it to an ACH transaction, we would lose that $53,000.
Did that help?
Senator Neal:
Yes, that helps quite a bit, in terms of our understanding.
Mr. Adkins:
I have another section with respect to the warrant, the old-time history of it. The warrant was written by the controller, and he/she determines which and what amounts will be allowed. She writes a warrant, that warrant is then presented to the treasurer’s office, and the treasurer, when he signs it as such in the olden days, he signed it and assigned a bank number to it and assigned a special bank account to be used. Now, under our present procedures, we sign them simultaneously under one bank account, so we do not have to do all of that activity. Nowadays, a warrant and a check are very synonymous in the way we handle them. It could be handled differently, but right now they are synonymous. Did that help?
Senator Neal:
That helped a lot.
Senator Titus:
Just listening to all this testimony kind of confirms my feeling that we should collapse the controller’s office into the treasurer’s office and do away with that position.
Mr. Adkins:
I did not say that, did you?
Chairman O’Connell:
Any other testimony on Senate Bill 202? OK, we will close the hearing on that and open the hearing on Senate Bill 155.
SENATE BILL 155: Authorizes change in boundaries of certain cities to become effective in certain circumstances within specified period before certain elections. (BDR 21-650)
Bill Isaeff, Lobbyist, Special Assistant to the City Manager, City Manager’s Office, City of Sparks:
I am here to testify in favor of S.B. 155, proposed by Senator Washington. This bill seeks to amend current Nevada Revised Statutes (NRS) 268.660 for the limited purpose of allowing cities to change their boundaries through annexation, which is currently prohibited by law.
The current law of the state of Nevada says that there cannot be a change in the boundaries of a city within 90 days immediately preceding any general election at which officers are chosen or issues are determined for such city. I can well understand why there would be such a statute on the books of the state of Nevada. To allow annexations of occupied areas, where people are residing and are listed as registered voters within 90 days of an election, certainly could tend to cause confusion in the voters’ minds if they are moved from one political jurisdiction to another within a short period of time before an election, confusion as to which officers they should be voting for and studying up on, and which issues they should be voting for and studying up on.
However, what the bill proposes to do is not change that at all. It would merely allow an exception if the area to be annexed into the city is, what is called in the statutory language proposed here today, vacant land. Vacant land is defined in the proposed bill as land that had not been developed for any purpose and is not used as a residence by any person.
The exception, I think, continues to leave in place the original reason for the statute, as I understand it: that you do not wish to move voters from one political jurisdiction to another within a short period of time preceding an election within the city where officers or issues will be decided. I believe it also carries out what we believe to be the objective of this proposed amendment: to allow for a more efficient and effective implementation of the annexation plans of Nevada’s various cities. This could also help prevent errors from occurring. I can cite you that we actually had this incident occur in the city of Sparks this past year. We were moving forward toward annexation of a “vacant” piece of land, when it was brought to our attention the existence of NRS 368.666, as it currently is written. We, quite frankly, had to do an awful lot of hurry-up work to get this done within the 91 days to assure that we were able to bring into the city, a “vacant” piece of land for which a substantial development effort and monies had already been expended. As you know, when people are working very rapidly, sometimes errors will occur. I think this amendment, which I believe, again, does no harm to the original intent of the statute, would also help prevent that type of occasional error that regrettably sometimes does occur, whenever anyone, be they public or private employee, is having to work under some sort of a restrictive timetable.
The basic purpose of the statute, Senators, is to allow for a more efficient and effective implementation of annexation plans. Again, this is only vacant land, which has no residence or other development upon it at the time, and keeps in place the very logical statute as it currently exists with respect to occupied land, particularly with residents or voters present. I would be happy to answer any questions, Senator, that you or the committee may have.
Senator Care:
I note that the current language in the statute says, “preceding any general election,” this simply says, “preceding an election.” I assume the bill you have requested here, or Senator Washington, actually, would apply to both primary elections and general elections?
Mr. Isaeff:
It could, Senator, upon the issue under consideration. As I understand the language in the statute, it is an election in which officers are chosen for the city; officers are only chosen for a city in a general election. You will notice also, it says, elections at which issues are to be determined for the city. Issues are sometimes on the ballot of a primary as well as a general election in city elections. So, depending upon what the ballot issues are, whether it is officers or issues or some combination of both, it could theoretically apply to either a primary or a general election. I do not particularly have a problem with what the bill drafter did here in that section of the language. We did not specifically ask for that, but we do not have a problem with the way it is written.
Chairman O’Connell:
Does anybody else wish to testify of S.B. 155? OK, we will close the hearing on S.B. 155 and open the hearing on S.B. 200.
SENATE BILL 200: Expands authority of certain local governments with respect to administration of municipal finances. (BDR 21-631)
Chairman O’Connell:
I need to share with you, since most of you are interested in bills that come before this committee, this committee will try to hold a workshop at least once a week. The only reason we are not having our workshop today is because Senator Porter had to be absent. We will be carrying the bill over and voting on all of the bills that we have heard today, as well as the ones we heard last week, on Wednesday.
Mary Henderson, Lobbyist, City of Reno:
Senate Bill 200 is a City of Reno bill that probably should have been something that we took care of last session. It is a fairly unique area for us in terms of how we utilize our room tax proceeds.
What we have discovered in the past couple of years with a couple of long-term projects where we were actually collecting room tax monies but were not expending those dollars, yet, for example, our events center downtown, is that we cannot use the interest money we are investing and collecting to help pay off that debt.
This bill would do a couple of things. It would clarify that the proceeds of the room tax may be pledged to special obligations as well as general obligations. It would permit us to invest the bond proceeds under NRS 350.658 and 355.170, and allow interest earnings to be used for the cost of the project the bonds were issued for, as well as debt service on the bonds. It does expand it into NRS 350.658, because many times when you are involved in projects such as this, it does not always fall under the city bond law. It falls under, maybe, a special act of the Legislature and that is the situation that we have found ourselves in with a couple of these special room taxes that are pledged for certain functions.
Chairman O’Connell:
Committee, questions?
Anyone else wishing to testify on S.B. 200? If not, we will close the hearing on S.B. 200 and open the hearing on S.B. 201.
SENATE BILL 201: Makes various changes relating to certain loans made by local governments. (BDR 31-367)
Marvin Leavitt, Lobbyist, City of Las Vegas:
This bill is being introduced on behalf of the Nevada League of Cities and Municipalities at the request of the committee on local government finance.
This bill deals with a situation we have been starting to see around the state, where we have local governments making loans. Normally they are interfund loans or loans between two local governments, but these are most likely local governments that are under the control of the same governing board, although they would not have to be.
We have seen a case where we have our local government try to further a project, essentially, pretty well gathered up all the money they had in all of their funds and loaned them for a long period of time. Some of these funds are normally in the category that we would think of as “restrictive,” as to use. Let me just mention that when we talked about restrictive as to use, that would be not restrictive internally by the local government, but externally by some contract or other. For example, if you have issued bonds and those bonds have to be used for a particular purpose, that would be termed “restrictive money.” So, in other words, this bill would prohibit taking money of that kind and loaning it for some other use, with the anticipation that that would be repaid sometime in the future.
Those monies could be invested in a normal investment vehicle that is allowed by law. But, it would seem inappropriate, for instance, to take bond funds that you have received to construct a road, this would prohibit that.
It would also require the local government, if they were going to loan money, and in the bill it says, “The loan of the money will not compromise the economic viability of the fund from which the money is loaned.” (Section 1, subsection 1, paragraph (b) of S.B. 201).
Mr. Leavitt:
It also provides that you have to determine the time the money will be on loan, whether it will bear interest, the terms of the loan, and all of those things. We believe this would strengthen the situation we have, because we have some fear, as we look at some of the local governments that are having problems. There is a real inclination, if you have a shortage in the general fund, to take whatever money is available and try to loan it to that general fund to get you through this difficult time. The fear is, if you take bond money and loan it to your general fund, and then resources are not forthcoming in the general fund and you have no ability to pay back the bond fund, now you have essentially used those bond monies for an illegal purpose.
It does not seem to really help the local government. All it does is put yourself in financial difficulty if you do things like this. That is the purpose of this bill.
Chairman O’Connell:
We actually had a government who had taken funds from two other funds that were prohibited by federal law as well as by our state law, and loaned it to a third fund, and it did not quite come out even at the end.
That is one of the situations that brought this to our attention.
Senator O’Donnell:
I have a question on line 15 of the bill. It says that “the rate of interest, if any,” and those are the words that bother me the most: “if any” to be charged for the loan. Now, when you borrow money and you understand the time value of the money, if you hold that money for 4, 5, 6 years, and you do not pay it back with any interest, basically the fund that loaned you the money, because of inflation and the cost of living, has actually lost. They have subsidized, not loaned.
You cannot loan from one fund to another without a certain reimbursement rate, an interest rate that would at least be 200 basis points over the T-bill (Treasury Bill) rate at which you can borrow money from the county. I know, Mr. Leavitt, that I am telling the truth. But, this language says, basically, you can charge zero, and that is not right.
Mr. Leavitt:
I think the senator is right. Whenever you loan money, of course there is at least a loss of what you possibly otherwise could have done with the money. We have a situation, however, I will give an example of what we had in Nye County and their hospital. We had a hospital that was struggling, right on the brink, almost. We had Nye County trying to keep that open just as long as they possibly could until we could come up with an alternative. We did come up with an alternative, and it was privately managed. I was speaking with one of the county commissioners there just several days ago. The use of that hospital has more than doubled since we were able to get this private individual in there.
Anyway, we were faced with a situation in that hospital. They could have charged them interest, but practically, if they have the ability to simply repay the loan, they would be doing very, very well. In other words, I am afraid we could put an interest charge in there, but in some of these cases, I think we would be very close to writing it off. So, what we are really looking at is they loaned them the money and essentially subsidized the interest. You could provide for a grant, I suppose, of the interest, if you want to have another transaction in here. So you could, say, charge interest, and then have the county grant them, if it is a county, grant them the amount of the interest, in another book entry. The end result would essentially be the same.
Senator O’Donnell:
Madam Chairman, I understand that concept as well. However, that is not a loan, that is a subsidy. If you want to call it a subsidy, then call it a subsidy; do not call it a loan.
Mr. Leavitt:
I think there is probably a loan for the principal. We are probably talking about a subsidy for the interest.
Senator O’Donnell:
OK, you are right. But nonetheless, we have to tell one account, at least, that we are doing what we are doing. If you do not know the time value of money, you can very easily be persuaded to accept a loan thinking it is a loan, but in fact, you are going backwards. The fund that made the loan is really taking it, or at least losing money, in the end.
Mr. Leavitt:
I think that is one of the reasons we established in this bill that they have to establish at public hearings what they are going to do with regard to interest. At least that puts on public notice what they have done, so that anyone who wants to look at the transaction could see that, essentially, they are loaning the money, but are subsidizing interest.
Senator Raggio:
Well, I was only going to add this: I think the senator is correct. In most cases, you probably would have an interest situation. I could envision a situation of compelling need, where the loan might be for a short period of time and it might, after public hearing, which I think is a good improvement, circumstance would warrant, maybe, a noninterest-bearing loan for a short period of time.
I think, even in most cases where you would have an interest situation, the language should not be so strict that that could not be accommodated. So, I would not argue with that.
Senator Care:
I believe, being on this committee, I have seen this language in other statutes, but in line 6, “Determine at a public hearing . . .” By majority vote, majority vote of those present, two-thirds vote, how do we determine?
Mr. Leavitt:
That would be a determination made according to, I suppose, the legal counsel (Ms. Guinasso) could answer this if she disagrees with me, but, it would normally be a determination made by the governing board of whatever entity it was, following the rules they are governed by. We have varying rules around the state, but, say for instance, whatever their rules call for, they would have to make that determination based on their own individual rules.
We have such a wide variety of local governments, from cities, counties, to special districts, and all of those type things around the state.
Senator O’Donnell:
Thank you, Madam Chairman, I was curious. I have a bill draft I have not seen yet which addresses that very issue.
Senator Neal:
I just have one question. This bill proposes to deal with two types of situations in a very disjunctive manner. Loaning funds to other funds, and loaning money to other local governments. In your experience, which is likely to occur most? Is it interfund loans or loans to a local government?
Mr. Leavitt:
Senator Neal, I would think, probably, the one that occurs the most is the interfund loan, where we have a situation, and it occurs fairly often, where you might have a cash-flow problem, say for instance in a general fund, and you have some other fund that is not restricted and you make a short-term loan. Say payroll is due to be paid this Friday, and you have insufficient cash, but you have money coming in from some tax that is due next week. That type of loan is fairly common.
Now, the situation between two local governments is less common, but it can involve one where you have the same governing board. For instance, you have a board of county commissioners that serves as the governing board for several different entities, even though they are independent of each other. We have hospital boards, and we have water authorities, and sanitation districts, and all of these kinds of things that are essentially under the governance of one board. We could have that situation, it would be the second situation type.
The third would be where we have another type of local government, say within a county, if we had the County of Nye loaning money to the City of Gabbs to get them through a bad situation when they are in trouble, the way they currently are. I do not know if that has happened, I just suppose it could. That would be another situation that would fall under this type of provision.
Senator Neal:
My other question would be, are we not required here to take into account expediency. Because, as the language is written, you must have a public hearing. But, if you have a situation where a board and city government would come together, say, dealing with payroll, I would think they would want to act on that immediately.
Mr. Leavitt:
I would think you are exactly right, Senator Neal. I think this makes the local government probably do their planning a little better than we have seen in the past, where they do some cash-flow analyses. We have had difficulty, not just practical basis in this state. We, for instance, have seen local governments prepare a budget and show within that budget they have the ability to fund all of their expenditures for the year. Then, some revenue source does not bring in the money they originally anticipated it would be bringing in, but since they have the authority to spend, somehow or other they feel that they can continue to spend even though they do not have revenues coming in to provide cash to meet those expenditures. They have done that, and ended up in difficulty.
Any of us that can, have been encouraging local governments over the last several years to plan these things better. You usually know if you are keeping careful track of these things. For instance, we had a visit down to Mineral County several weeks ago because we know that is one of the counties in the state having real financial difficulties. Their staff was very carefully aware of their cash-flow needs and were making adequate provisions for those needs so they do not end up in this desperate situation. I think the local government can do it; it just makes this sort of formalizing what they need to do. Otherwise, you just have a transaction, they have entered into the transaction, but with no approval. The governing board might never know.
Senator Neal:
Our attempt here, if we pass this proposal, is to create some forward-looking people.
Mr. Leavitt:
Nudge them a little bit, to do what they should be doing anyway, I suppose.
Chairman O’Connell:
Any other questions from the committee? Anyone else who wishes to testify on S.B. 201? OK, if not, we will close the hearing. I would encourage everybody to look at the bill we will be voting on Wednesday.
Chairman O’Connell adjourned the meeting at 3:42 p.m.
RESPECTFULLY SUBMITTED:
Sherry Rodriguez,
Committee Secretary
APPROVED BY:
Senator Ann O'Connell, Chairman
DATE: