MINUTES OF THE

SENATE Committee on Judiciary

 

Seventy-First Session

May 25, 2001

 

 

The Senate Committee on Judiciarywas called to order by Chairman Mark A. James, at 9:09 a.m., on Friday, May 25, 2001, in Room 2149 of the Legislative Building, Carson City, Nevada.  The meeting was video conferenced to the Grant Sawyer State Office Building, Room 4401, Las Vegas, 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 Mark A. James, Chairman

Senator Jon C. Porter, Vice Chairman

Senator Mike McGinness

Senator Maurice Washington

Senator Dina Titus

Senator Valerie Wiener

Senator Terry Care

 

STAFF MEMBERS PRESENT:

 

Bradley A. Wilkinson, Committee Counsel

Allison Combs, Committee Policy Analyst

Ann Bednarski, Committee Secretary

 

OTHERS PRESENT:

 

Julie Whitacre, Concerned Citizen, Member, Nevada State Education Association

Kenneth Lange, Lobbyist, Nevada State Education Association

Warren B. Hardy II, Lobbyist, National Federation of Independent Businesses

June Hartman, Concerned Citizen

Rose E. McKinney-James, Lobbyist, Clark County School District

Pat A. Zamora, Lobbyist, Clark County School District

Samuel P. McMullen, Lobbyist, Las Vegas Chamber of Commerce

Danny L. Thompson, Lobbyist, Nevada State AFL-CIO

Dean Heller, Secretary of State

Tom R. Skancke, Lobbyist, Nevada Association of Listed Resident Agents, Inc.

John T. Olive, President, Nevada Association of Listed Resident Agents, Inc.

Renee Lacey, Chief Deputy Secretary of State, Office of the Secretary of State

Scott Anderson, Deputy Secretary, Commercial Recordings Division, Office of the Secretary of State

Robert L. Crowell, Lobbyist, Nevada Trial Lawyers Association

 

Chairman James opened the meeting stating this bill is one of the only pieces of special interest legislation he has introduced because, he said, the special interest is our children.  He said Senate Bill (S.B.) 577 is result-oriented and closes numerous loopholes in our system.

 

SENATE BILL 577:  Limits common-law and statutory liability of corporate stockholders, directors and officers and increases fees for filing certain documents with secretary of state.  (BDR 7-1547)

 

Chairman James described the loopholes as providing services for high-level corporations and business transactions in Nevada for a number of years without any increase in the cost.  He explained the 2 for 1 benefit of S.B. 577 as, first, closing loopholes, thereby providing the state with a means of recovering the cost of doing business, and secondly, generating funds to accomplish a critical objective for the state of Nevada.  But, he continued, the best thing about this legislation is it does no harm.  This bill, Chairman James said, will keep Nevada as the premier state for incorporation, for doing business, and the best state in the country to locate a corporate domicile.  “To boot,” he added, “an important enhancement for directors of Nevada companies is the protection provided them by law.”  Basically, Chairman James explained, S.B. 577 adjusts fees for services through the Office of the Secretary State.

 

Chairman James welcomed questions regarding the adjustments of fees or the technical application of these adjustments and fees encouraging people to come forward and voice their concerns.  Should the answer or solution to their query be unresolved during the meeting, the Chairman encouraged those with questions to please submit them in written form as requests for amendments.

 

Additionally, Chairman James announced the meeting was being video conferenced to the Grant Sawyer State Office Building in Las Vegas.  He acknowledged there were a number of people interested in voicing support for S.B. 577, both in Carson City and in Las Vegas, who have been waiting for a number of days for an opportunity to testify.  He mentioned, again, the result-oriented part of the bill; it generates money for our school children.  In order to facilitate discussion with the constraints of time, Chairman James asked groups to organize among themselves to accommodate everyone wishing to be heard.

 

Chairman James elected to have those in Las Vegas testify first, acknowledging they have been there for days waiting for an opportunity to speak.  Julie Whitacre, Concerned Citizen, Member, Nevada State Education Association (NSEA), said there was a representative in Carson City prepared to speak for the teachers’ organization.

 

Kenneth Lange, Lobbyist, Nevada State Education Association (NSEA), testified from the committee room in Carson City.  He said he represented the nearly 23,000 teachers and education-support personnel who are members of NSEA.  Mr. Lange asked to be on record in support of the efforts of the judiciary committee and their work to find more money for resources for the school children of Nevada.  He stated every dollar counts, adding to give every school child in Nevada a $10 workbook would cost approximately $4 million.  As part of a larger package, Mr. Lange said, the efforts put into this bill would get this state well on its way to improving the education of its children.  He expressed appreciation for the efforts put into S.B. 577 and recognized its complexities, concluding his comments with an urging for the two-thirds majority vote required to further its progress in the Legislature.

 

Senator Washington said he knew that NSEA had worked on S.B. 577 and been involved with the negotiations.  He asked Mr. Lange whether the NSEA is seeking more revenues for education from other sources.  Senator Washington said the NSEA plan for funding educational programs would assist him in making his decision on S.B. 577.

 

Mr. Lange responded he did not know, as the focus has been on S.B. 577 and the immediate and pressing need for revenues for schools.  He said there is a fundamental need to look at the tax structure of the state of Nevada and make some changes to assure ongoing funding for our schools.  The objective, he said, is to find strong, sustained financial support for our children’s futures.  With our children’s education in mind, he said, NSEA will continue to look at every option to make sustained financial support a reality.  He said the role of the NSEA is to advocate for our teachers and for our children.

 

Senator Washington said he is very aware Governor Guinn is most interested in improving education in the state and, therefore, aiming to make it well-funded.  No one should be construed as derelict or remiss regarding education obligations, but it is difficult to take care of the needs of all constituents.  The rhetoric goes out claiming legislators are not concerned, or are ill informed.  If his support for S.B. 577 is then followed by another initiative to fund education, his constituents would be unhappy with his decision.  Therefore, he suggested all parties get together and design a workable, comprehensive plan of action.  A plan supported by the state and the citizenry makes it is easier to do what is right for our children.  Senator Washington explained he has an obligation to answer to his constituents, adding he is very much in support of improving education, but he needs to know what direction is planned.

 

Mr. Lange responded there has never been a position before where there are more people expressing a need to be proactive and plan for the future.  These statements have come, he said, from the Governor, the Chamber of Commerce, and the Nevada State Education Association.  Currently, he said, the environment has been shaped for positive dialogue before the legislative session concludes.  Mr. Lange said he recognizes an urgency to move the dialogue along in a very timely manner.  He said if planning begins now, and objectives are identified, NSEA and the state would be prepared well before the next legislative session.  He continued, noting everyone has an opportunity to engage in community dialogue, and the policy-making discourse Nevada deserves and Senate Bill 577 represents.

 

Senator James agreed Mr. Lange’s comments were consistent with his sentiments and objectives, stating the need is to move forward, but admitting S.B. 577 is not the entire solution; rather, it is the “predicate for” the overall solution.  The senator expressed appreciation to the NSEA and others for their interest in attempts to draft a workable solution for Nevada’s educational problems.  Chairman James agreed with Senator Washington’s belief the process of finding solutions is better accomplished by harmonious cooperation.

 

Warren B. Hardy II, Lobbyist, National Federation of Independent Businesses (NFIB), testified there are over 600,000 small businesses in America with 2500 of them located in Nevada.  He said 90 percent of NFIB members have six or fewer employees.  Mr. Hardy described the organization as membership-driven explaining he is, therefore, unable to comment on S.B. 577 until the members have voted and therefore voiced their position.  However, Mr. Hardy said, he could comment on his perception of S.B. 577.  He said he believes it is a commitment on the part of this Legislature to protect small business; furthermore, he is extremely encouraged by the negotiations conducted over the last few days.  Mr. Hardy commented on the interest to preserve and protect small business, describing it as unanimous, complete, and bipartisan.  Nevada’s small businesses, he added, represent 60 percent of the employment in the state.  Mr. Hardy voiced his appreciation for the legislative effort and thanked the committee.  Chairman James expressed his appreciation to Mr. Hardy for following the process.

 

Senator Titus asked Mr. Hardy for verification he is pleased with the negotiations resulting in the current draft of Senate Bill 577.  She recalled Mr. Hardy did not feel small business was protected in the original drafting of the bill.  Mr. Hardy responded:

 

That is correct.  We felt there were some concerns that had not been anticipated that had unintended consequences in the first legislation.  We are much happier with this proposal because . . . This represents a genuine desire to protect small business.

 

Senator Washington asked for verification S.B. 577 would not hurt minorities who desire to open and operate small businesses.  Mr. Hardy responded, from his understanding of the concept, this bill would not be a detriment to starting any type of small business.  Mr. Hardy referenced his own family’s business, in operation for 45 years in Nevada without problems, stating when the business incorporated, things remained the same.  He said he believed most small, incorporated businesses would mirror his family’s experience.  Senator Washington said he needed to be sure it is on the record.

 

Chairman James said Mr. Hardy’s comments were apropos and consistent with Senator Porter’s concern about protecting small business and ensuring small business will not be hurt by this legislation.  Senator James mentioned the lady from the coffee shop across the street and invited her to speak on S.B. 577.  June Hartman, Concerned Citizen, announced she was the owner of a coffee shop and was in favor of Senate Bill 577.

 

Senator Porter said he appreciated the presence of Ms. Hartman because, he said, she represents Nevada’s small business people.  He said he rarely supports special interest legislation; however, he said, S.B. 577 is three-pronged.  He opined challenges are vastly different in schools today than they were, for example, in the 1960s, stating a reason for expulsion from school years ago was, perhaps, chewing gum in class, but today reasons include violence, rape, and broken families.  Senator Porter mentioned the crisis in southern Nevada’s schools, which are currently in need of hiring hundreds of professional teachers.  He said Senate Bill 577 closes long-ignored corporate loopholes and helps teachers and education.  Finally, he said, the majority of the Nevada community is expecting accountability.  Accountability, he said, is the final prong he was proposing this morning.  Senator Porter said accountability must be included because it goes hand in hand with this legislation.  Parents, he said, want assurance the dollars raised by this bill go into the classroom, education is funded properly, and the needs of the students are addressed.  He said he is proposing an amendment to S.B. 577 requiring an audit to assure parents and teachers the money is being spent responsibly.  Senator Porter applauded Senator James for crafting this bill closing corporate loopholes and improving the educational status of the state.

 

Senator Washington said he appreciated Senator Porter’s comments, particularly those related to an audit amendment being added to the bill.  He asked to expand the amendment to include an audit in Washoe County as assurance all schools are effectively using resources properly.  He said it is important to use the best technology available in schools and anticipated parents and teachers alike would be pleased.

 

Rose E. McKinney-James, Lobbyist, Clark County School District, thanked the committee for bringing forth S.B. 577, which she said has been anticipated throughout the entire legislative session.  Ms. McKinney-James said she had hoped to return to Clark County with some resources desperately needed in the classroom and for teachers.  Particularly, Ms. McKinney-James said, the balanced approach, ensuring dollars would go into the classroom for programs already developed, which address both performance and achievement, was needed.  She said she looks forward to the opportunity to study Senator Porter’s amendment and stated improved accountability is welcome.  She added, however, the auditing aspect, hopefully, will not interfere with the primary goal of the schools: to educate our children.  Ms. McKinney-James concluded her comments voicing appreciation for the opportunity to participate, and recognized it as a first step in an expanding discussion over the interim.

 

Senator Porter reiterated and summarized his thoughts stating the goal of this legislation was to enact a needs-based, result-oriented program assuring parents and the community that educational operations are working to reach the goals desired by the people of this state.

 

Senator Titus asked what an audit of the Clark County School District would cost.  She also wanted to know whether the funds acquired by this legislation would be earmarked for a specific use, or whether the school has the authority to choose how the funding is spent.  Ms. McKinney-James responded she believed it was the latter choice as nothing, to her knowledge, has been mentioned, specifically.  Senator Titus agreed nothing specific was apparent; however, she added, it seemed to be the direction it is going.  She asked the position of the school district.

 

Chairman James said the bill does not contain the entire program because the Governor will be presenting it.  The attention of this plan, he said, is designed to give teachers additional compensation, and part of the funds would go directly to specific programs in the Clark County School District, such as enhancement of technology, textbooks, sports, and music programs.  He said this is his perception of what the Governor intends to do.  Senator Titus asked if another bill would specify these objectives.  Chairman James said those specifics would not be part of S.B. 577; instead, they would be addressed in the budget legislation.  He explained this money, proposed to be generated by S.B. 577, is $30 million for an education enhancement program to which legislators aim to give 100 percent support.  He explained the concept of accountability proposed by Senator Porter would be part of the entire package, but said he doubted it would be included in S.B. 577.  He said the money generated from this bill goes into the General Fund and is allocated when the Governor prepares his budget.  Chairman James voiced appreciation for Senator Titus’ concerns about how the money would be spent.  He continued, stating the discussion today resulted in indications some money will go into the classroom, and some money will go towards giving teachers a salary increase.  “However,” he said,  “it is the Governor who will make those decisions, now that the groundwork has begun.” 

 

Senator Washington said it should be understood this bill is to support, continue, and enhance education.  Chairman James said his intention with this legislation is to find the means to acquire the money to improve Nevada’s education.  He said the design of S.B. 577 is to create ongoing, fiscally sound funding to keep things going in Nevada.

 

Pat Zamora, Lobbyist, Clark County School District, said the cost of an audit would be estimated at a maximum of $15,000 a year.

 

Samuel P. McMullen, Lobbyist, Las Vegas Chamber of Commerce, said he was accompanied by Kami Dempsey, Director of Governmental Affairs, Las Vegas Chamber of Commerce.  Mr. McMullen called the discussion today good, stating testimony is better and more supportive than it would have been 2 days ago.  He said many concerns existing just days ago have now been satisfied.  One of them, he said, was the impact on small business, but he recognizes now that business, especially small business, has been considered and protected.  Mr. McMullen mentioned the one-time fee incorporated into S.B. 577, as opposed to an ongoing charge or long-term taxation, caused some concern to business, but has now been addressed satisfactorily.

 

Mr. McMullen expressed appreciation for all seven members of the judiciary committee who weighed the concerns of everyone involved in the discussions.  The statement prepared for May 22 was one of commitment signed by 30 or 40 business groups that very seriously and sincerely endorsed it.  It reflected a great amount of effort and a willingness to participate during the interim in planning for solutions.  The business community supports the objective of educational enhancement; it is a “critical focus” during the interim planning.  Mr. McMullen made a direct and open invitation to others to provide input and ideas, particularly teachers with whom collaboration and communication is vital.  He asked that the record reflect the invitation to collaborate and work together to solve common problems was a most serious invitation.

 

Chairman James said he is “absolutely committed” to working on accomplishing this budget change through the legislative process.  He realized the chamber of commerce was a large group of business interests, both large and small.  He then related a dinner conversation he recently had with a businessman who supported S.B. 577 “1000 percent” because he believed, from a businessman’s point of view, if schools prepared students better, it would ultimately help business.  Chairman James thought this story would set the tone for a cooperative effort between businesses and schools.

 

Mr. McMullen commented about the chairman’s experience, stating the chamber of commerce has been having those kinds of conversations for years.  “If you think about it . . . the kind of collaboration we’re hoping for in the interim . . . business has no reason or desire to be at war with education.  That is not in anyone’s best interest.”  Mr. McMullen said the lifeblood of business, any business, is its employees.  The education system creates good employees; the business-related education programs currently offered are there to help the business community.  Mr. McMullen stressed the importance of schools and businesses working together.  Chairman James thanked Mr. McMullen and expressed the feeling of a new tone of collaboration, cooperation, and harmony between business and education.

 

Senator Titus said she respected the pledge put forth by Mr. McMullen on behalf of the Las Vegas Chamber of Commerce.  But, she said, she is concerned because during the last interim the Governor had great plans and nothing came of the meetings between mining, business, and gaming.  Senator Titus said, “Here we are again, piecing together little Band-Aids during the final hours of the Legislature.”  She said when Senator Porter presented his audit amendment, she would present an amendment calling for a legislative interim committee to study the taxes proposed for business.  Then, she continued, it will be a public forum, where everyone can participate and testify.  She thanked Mr. McMullen for his invitation to communicate, and said she believed a legislative interim committee would be better than boardrooms and backrooms.

 

Mr. McMullen said he appreciated Senator Titus’ reference to backrooms, adding he believed, whether or not there was a legislative interim committee, the chamber of commerce still needed their process.  He said during the last interim there was a need to get all taxpayers involved in the process for their input, but, instead, it was a missing ingredient.  Mr. McMullen said some long-term thinking and planning has already been done, and some analysis has begun regarding the status of the state of Nevada in 10 years in terms of needs and revenues.  Business, he said, likes long-term projections for planning, and those pieces of information need to be determined by a governmental process.

 

Senator Titus agreed with Mr. McMullen stating, again, an open forum with discussion with legislators involved throughout the process would be the way to find a collaborative solution.  Mr. McMullen responded he did not see a problem with an open forum, adding accountability is an important issue.  The objective is to find a way to measure what teachers do in terms of performance.  An argument is expected about the issue, but the business community needs to be comfortable with what happens in the classroom.  He voiced an interest in expediting the teacher certification process, as Las Vegas currently has a critical shortage of teachers, and he felt the process of teacher training takes too long.  Another consideration to accelerating teacher training is temporary certification as needed.  Mr. McMullen said these are some of the considerations to be addressed by the public.

 

Chairman James commented on the accountability of teachers issue stating there is no need for any law or to do anything to see accountability.  He said, “Just go sit in the back of a classroom . . . Pick any classroom in the state and just go sit in a classroom for the whole day and watch what happens.”  He said he had done this and believed any businessman would “feel a lot better about this issue” if he took the time to make a classroom visit.  He said, “It’s tremendous what’s happening there [even] with the lack of resources.”

 

Senator Care said there are some provisions in S.B. 577 which do not go to funding: the codification of the heightened ”clear and convincing evidence” standard and the codification of the “alter ego doctrine.”  These address the fiduciary responsibility of a corporation to a shareholder, he said.  Senator Care said, in the earlier version of this bill, Mr. McMullen took umbrage with these provisions.  He asked whether Mr. McMullen had any position on these provisions.

 

Mr. McMullen replied, “The jury is still out on those [provisions].”  He then said he also represents the retail association that met with chamber officials, and the result of the meeting was both sides agreed corporate boards of directors of corporations might need some protections.  Chairman James interjected, reliance on financial advisors, and those who give opinions regarding transactions to allow for an “out,” need to be included in the provision.  Then, he said, a different standard of proof and codifying fraud must be evident before piercing the corporate veil.  Mr. McMullen agreed, and admitted there had been little analytical time spent to date on those provisions.  Chairman James remarked the new tone about this legislation was evident in Mr. McMullen’s remarks.

 

Senator Porter focused on accountability in his comments.  He said he married a teacher and knows firsthand of the trials and tribulations of a professional educator.  A child, he said, is in the classroom about 9 percent of a year and, therefore, is somewhere else 91 percent of the time.  He noted parents place a lot of trust and faith in their children’s teachers, but there is mistrust of those who manage the educational system.  Accountability, he said, is welcomed by teachers who adhere to the standards required of them.  Where something is missing, Senator Porter said, is in management, operations, and procedures in allowing a teacher to teach and a parent to be involved.  He voiced great respect for the teaching profession, and said he believed parents expect a lot for the 9 percent of a year children spend in school.  Senator Porter announced his desire that emphasis be placed on an audit, which focuses on a look at management’s hiring practices, spending, and statistics to ensure professionals can do their jobs.

 

Danny L. Thompson, Lobbyist, Nevada State AFL-CIO, related each year the Nevada State AFL-CIO has two conventions, one is a constitutional meeting, and the other is a political convention.  He continued, stating at the last political convention a resolution passed unanimously supporting a quality schools plan presented by the NSEA.  Mr. Thompson said the Nevada State AFL-CIO represents 155,000 members and their families, or 360,000 Nevadans.  Therefore, to accommodate the concerns of membership, he said, the Nevada State AFL-CIO leaders debate many issues before a position on any given issue is decided.  He used the gaming tax as an example of something the organization opposed, stating the position of the Nevada State AFL-CIO was to diversify Nevada’s tax base.  Mr. Thompson claimed, with Indian gaming and gaming all over the United States, it would be prudent to seek other entities for state revenue in the form of taxes to avoid a financial disaster.

 

Mr. Thompson talked about the salary of teachers, stating a starting teacher is paid an average of $26,800 per year in Clark County.  Garbage truck drivers, he claimed, earn nearly twice as much money as teachers.  He identified the problem as the inability to hire dedicated, well-trained teachers, indicating, currently, there is a need for 1200 new teachers and only 500 have been recruited to date.  Mr. Thompson said the shortage of 700 professional teachers is directly related to the $26,800 salary.  He said Nevada leads the nation in the dropout rate of high school students, adding this number relates to the teenage pregnancy rate and other social problems.  He asserted long-term effects of lacking education include 82 percent of prison populations, mostly high school dropouts.  Mr. Thompson said the numbers all connect, stating he believed the best educators are not interested in teaching for a salary of $26,800, citing the Las Vegas teacher shortage as an example.  He added the business community is also interested in hiring people who have learned some skills, especially math and science.  Those skills, he said, are acquired in school.

 

Mr. Thompson said the Nevada State AFL-CIO, as a group, is committed to solving the problem.  He said he was sent to the judiciary committee meeting with a task:  “To solve this problem with whatever means we can.”  Mr. Thompson thanked the committee, and specifically Chairman James, for “having the courage and the leadership to do something about this.”  Mr. Thompson said:

 

We (Nevada State AFL-CIO) pledge to work with this committee and with whomever to solve this problem.  It is in all of our best interests, because all the numbers are connected.  If we don’t solve this problem now, if we wait 2 years . . . We cannot wait 2 years.  This problem is manageable today, and in 2 years it will be out of control . . . We will be here through the rest of the process to work with all parties concerned.

 

Chairman James thanked Mr. Thompson, agreeing it is the fiscally conservative approach to address these problems now.  He said once a problem is identified it gets worse if you wait to solve it.

 

Senator Washington also commended Mr. Thompson on his comments and those of Mr. McMullen, particularly references made to collaborative efforts.  The senator said during his tenure as a legislator he worked on welfare reform, and on standards and accountability measures.  He applauded other legislators for their dedication to ensure accountability is part of the educational system in areas of hiring, recruiting, and retaining the best teachers to do the best job for our children.

 

Senator Washington prefaced his concern with, “Maybe this is just philosophical,” and continued, saying he has watched schools, visited prisons, counseled young people and their parents, and he has been part of the process of enacting measures to improve education and get parents involved.  However, he said, in a prison setting, if one speaks to an inmate and inquires about his reading skills, for example, his family background and, finally, what the inmate says of his educational background, most have poor reading skills, come from either single or broken homes, and assess their education as “not supportive, denigrated, not encouraging, labeling, and, ultimately, a loss of interest in education.”  He contrasted his own educational experience to what is increasingly prevalent today.  Senator Washington said he was fortunate to finish college and complete an apprenticeship. 

 

Senator Washington said, as a consideration for spending more money on education in acts of hiring teachers and increasing their salaries, the quality of a teacher is vitally important for the overall outlook and future of children.  He said he was convinced it is the teacher who has the greatest impact on a child’s life, except for their parents.  He said not clergy or youth counselors, but teachers most influence the demeanor and concept of self in children.  With this conviction in mind, Senator Washington believed not only educational background but also the “heart” of a prospective teacher should be considered.  He said a quality teacher wants to see students succeed.  Senator Washington said it breaks his heart to see youngsters struggling; he knows their destiny is statistically decided very early in life.  He urged those involved to take an overall look at the long-term effects of a poor education.  He asked the certification processes, the role of principals, the objective of testing, and the effects of micro-management in the classroom be reassessed.  Senator Washington said teachers were not his chief concern, but it is the manner of delivery that bothers him.  Senator Washington proclaimed:

 

When a child walks out of the educational system and can’t fill out an application, or can’t apply for an apprenticeship program because he can’t add, then it tells me something is wrong.  And, when you go down to the prison and 90 percent of them can’t read, and then you look at the fact that a disproportionate share of inmates are minorities, something’s wrong.  Something is wrong.  I still believe that education is the key to delivering young people out of the trouble that they’re in now.

 

Mr. Thompson responded to Senator Washington, stating his wife was a social worker in the child abuse unit in Clark County.  He said teachers are not expected to solve problems of dysfunctional families; a good, strong family unit solves those.  Mr. Thompson applauded Senator Washington’s work in the prisons and agreed with many of his comments, but said he felt it was unrealistic to think of teachers as the “be all, end all” of our problems.  He concluded with a plea to all join together and solve these problems.  “If we don’t, we’re going to have a lot more problems, come two years.” 

 

Chairman James said he was most appreciative of testimony from both the business and education communities.  He then welcomed Secretary of State Dean Heller, explaining the Secretary of State’s office is the machinery to make all the plans and proposals work.  Chairman James publicly commended Mr. Heller for raising the level of his office by dedication to the tasks before him, and making it the machinery to address this critical issue before the committee.  Chairman James said there is a commitment to continue helping Nevada have the best Secretary of State’s office in the country.

 

Secretary of State Dean Heller thanked Chairman James and credited Renee Lacy, chief deputy secretary of state, and Scott Anderson, deputy secretary of state, from his office for the effort put forth to bring the S.B. 577 package together.  He then expressed appreciation to Chairman James for including his office in the process. 

 

Secretary of State Heller said, in 1991, corporate functions and statutes were revised, providing for broader application and enticements to bring business to Nevada.  One of the provisions was flexibility in the Office of the Secretary of State, the purpose of which, he said, was to allow Nevada to compete against 49 other states for business.  He added a corporation could file application anywhere.  He explained both the Department of Taxation and the Department of Motor Vehicles and Public Safety compete against no one.  Secretary of State Heller said, in 1991 a provision was added to the law to produce a special revenue account giving the flexibility needed to be competitive.  He said S.B. 577 alters the flexibility clause somewhat; it is an issue of concern.  The Office of the Secretary of State does not want to lose the competitiveness or the flexibility against the other states, he declared.  Secretary of State Heller specifically addressed section 58 of S.B. 577 stating, as currently drafted, it would cause an immediate loss of $2 million in payroll and $1.5 million used for technology.  He added he was aware the intent was not to cause loss, but reiterated special revenue operating funds placed in the general fund budget account were problematic.

 

Chairman James acknowledged he was aware of the concern and had already discussed the issue with the Governor and the chairman of finance.  He declared his commitment to the Office of the Secretary of State.  Secretary of State Heller stated he knew Chairman James’ position.  Mr. Heller did not want to see fees raised and services cut, pointing out 6 years ago it took 6 to 8 weeks to do a corporate filing, and today it takes, through the special revenue fund, 2 to 3 days.  He said those are the type of services Nevada needs to maintain in order to continue to be an attractive place in which to incorporate.

 

One other concern voiced by the Secretary of State was the continuance of the declaration, “under penalty of perjury,” instead of an affidavit.  He explained his office experienced a 30 percent rejection rate because businesses forget to file the affidavits, and the “under penalty of perjury” would help the office continue to render efficient service.  Chairman James said this issue would be addressed in bill drafting.  He repeated this legislation would not be possible without the help of the Office of the Secretary of State and, specifically, of Mr. Heller.

 

 Chairman James then introduced S.B. 51, a corporate business bill addressing similar issues to those of S.B. 577.

 

SENATE BILL 51:  Makes various changes pertaining to business associations. (BDR 7-255)

 

He explained S.B. 51 had to be processed to concur with the Assembly prior to addressing S.B. 577, which is pending for today on the Senate Floor.

 

SENATOR MCGINNESS MOVED TO CONCUR WITH THE ASSEMBLY AMENDMENTS TO S.B. 51.

 

SENATOR WIENER SECONDED THE MOTION.

 

THE MOTION CARRIED UNANIMOUSLY.

 

*****

 

Chairman James called a recess of the meeting at 10:32 a.m.

 

Chairman James reconvened the meeting and called the meeting to order at 4:05 p.m.  He announced the committee would hear further testimony on Senate Bill 577.

 

Tom R. Skancke, Lobbyist, Nevada Association of Listed Resident Agents, Inc., introduced the president of the association John T. Olive.  Mr. Skancke voiced support for S.B. 577 and was interrupted by Chairman James, who wanted to publicly thank both Mr. Skancke and Mr. Olive and their clients for making suggestions and actively working on solutions.  Chairman James stated there is a reliance on this organization to work closely with the Secretary of State’s office and make known to the business community the annual fee is not being raised.

 

Mr. Skancke said the suggested language changes in the amendment, initially removed, now need to be reinstated (Exhibit C).  He suggested staff from the Office of the Secretary of State, also requesting changes, join him in drafting an amendment for these desired changes.

 

Chairman James explained why he did not agree with these proposed changes.  John Olive, President, Nevada Association of Listed Resident Agents, Inc., accepted Chairman James’ explanation and stated if the Office of the Secretary of State concurred, he would too.  Chairman James verified with Ms. Lacey (Renee Lacey, Chief Deputy Secretary of State) there is no problem with the language of S.B. 577.  Mr. Skancke said, after a review with the committee and Ms. Lacey regarding each suggested change, most questions are answered and his concerns are satisfied.  The changes are also consistent with the proposals from the Office of the Secretary of State.

 

Mr. Olive stated, for the record, appreciation for the work and effort by the judiciary committee on S.B. 577.  He said the committee addressed a very important issue to business organizations in the state.  Mr. Olive continued, saying there is a dire need for assistance to improve the quality of education in the state.  He said the corporate citizens of Nevada feel a responsibility to step forward and offer assistance.  He added the corporate fee increase represented a serious attempt to help.  Mr. Olive commended the legislators for their strong desire to earmark these fees for the betterment of education, and committed his organization to an ongoing involvement in assuring it happens.  Mr. Olive concluded, stating:

 

We are in firm support of the need to enhance the quality of the education here in the state.  We appreciate the responsiveness of Senator James and others of the committee that have participated in this process in addressing some of our concerns.  We believe that the fee increase represents a way of augmenting funding to the state in a way that will help the state to enhance opportunities for economic development as well as growing small businesses here in the state . . . We wanted to just simply express our appreciation and say we are committed to this as an ongoing agenda item for our group to be involved in this.

 

Chairman James thanked Mr. Olive for his testimony and commentary.

 

Chairman James then addressed the section of S.B. 577 dealing with the placement of funds generated by this corporate fee increase, stating, for the record:

 

The increased fees and the new money generated by this bill from those kinds of fees will go to the General Fund and will be part of the money that is utilized in the way the bill is intended, and the Governor just outlined.  The rest of it (special services/revenue funds) will continue to be used in your office (Secretary of State) in the way it has been done . . . The bill drafters are coming up with that specific language so that, in fact, it will not be removed from the secretary of state’s budget.

 

Renee Lacey, Chief Deputy Secretary of State, Office of the Secretary of State, responded to Chairman James’ statement, commenting it allays the fears of the Secretary of State.  She added the Office of the Secretary of State is already working with the bill drafters, and thanked Chairman James. 

 

Senator Washington asked Ms. Lacey to verify the change regarding affidavits.  Ms. Lacey said the change was the word, “affidavits,” which has been replaced with the phrase “declaration under penalty of perjury.”  She said there is an amendment addressing the language change in every appropriate section of S.B. 577 (Exhibit D).

 

Chairman James asked Scott Anderson, Deputy Secretary of State, Commercial Recordings Division, Office of the Secretary of State, to explain the amendments proposed by his office.  Chairman James asked Senator McGinness to preside over the meeting, temporarily.

 

Senator McGinness invited Ms. Lacey and Mr. Anderson to proceed with the explanation of the amendments.

 

Ms. Lacey said the first several amendments address Senator Washington’s question on the change in language.  She said in another proposed amendment, a compromise was reached regarding raising the cap, and explained there would be an amendment allowing her office to take some funds from special services funds for additional space and additional employees.  She said, the fiscal impact and increased number of positions in the Office of the Secretary of State will be online on July 1, 2001, stating the filing forms have to be revised and the office anticipates an increase in business from the liability provisions (Exhibit D).

 

Senator McGinness asked whether the compromise would be part of S.B. 577.  Bradley A. Wilkinson, Committee Counsel, Legal Division, Legislative Counsel Bureau, answered affirmatively.

 

Ms. Lacey said the other concern was the effective date, stating the amendment proposed a change from July 1 to August 1, 2001.  She defended the request, saying the forms have to be revised, and most filings will be rejected simply because there will not be adequate time to give notification of the change in fees without this date change.

 

Senator McGinness suggested changing all the effective dates to August 1.  Ms. Lacey replied only Section 59 of S.B. 577 required a change to August 1, 2001 (Exhibit D).

 

Senator Care questioned the projections made by the Office of the Secretary of State.  Mr. Anderson responded the figures proposed by the resident agents were based upon revenue in volume figures provided by the secretary of state’s office 2 weeks ago.  He said the estimate of the initial list appeared to be 19,000 filings, but, after working through them, the number of filings appears to be closer to 17,000.

 

Chairman James returned and resumed presiding over the meeting. 

 

Robert L. Crowell, Lobbyist, Nevada Trial Lawyers Association, began his testimony by calling attention to serious concerns with the immunity language in sections 1 and 3 of S.B. 577.  He submitted proposed amendments to the bill (Exhibit E).  Chairman James asked him to explain the use of the word “or” instead of “and” in section 3 of S.B. 577.  Mr. Crowell responded this change is consistent with existing law.  Chairman James said as a matter of prudence, the Legislative Counsel Bureau (LCB) would be consulted on the use of the word “or.”

 

Chairman James then announced a work session to fine-tune the amendments would be convened tomorrow after the floor session, explaining he did not want to eliminate something that would decrease authority.

 

Senator Care asked Mr. Crowell about shortening the statute of limitations from 3 years to 2 years.  Mr. Crowell responded the preference was to leave it as it is at 3 years, but added the issue was not discussed.

 

Mr. Skancke asked for some clarification of Mr. Crowell’s proposed amendments to S.B. 577.  He stated he was not an attorney and wanted to know how this changes the bill.  Chairman James answered, “It takes out the alter-ego issue, and then it removes the ‘clear and convincing evidence’ standard, but leaves in place the blanket limitation on liability for officers and directors and lessens the breach of fiduciary duties or intentional misconduct.”

 

Mr. Olive then said his concern is elimination of the phrase, “clear and convincing evidence standard” would weaken the attractiveness of doing business in Nevada.  He said the nature of other corporate statutes, including this phrase, would be a positive step for the state, because, he explained, it would make it more difficult to attack an officer or a director from the outside.  He said he liked the elevation of that standard of proof from “preponderance” to “clear and convincing.”

 

Senator Titus responded to Mr. Olive stating, “Nevada is already attractive enough for businesses to come.”  She said the “clear and convincing” phrase was codified long ago, and conditions have changed considerably.  Therefore, she did not think it was needed anymore.  She continued, pointing out there is no corporate income tax, and fees remain much lower than anyplace else, and, she added, with the inclusion of the opt-out protection, Nevada is still better than Delaware or Wyoming.

 

Senator Washington said he also is not a lawyer, but thought “clear and convincing evidence” had a significant impact on corporations in regard to piercing the corporate veil.  He said he was not convinced it was wise to delete the phrase.  Senator Titus said the standard on other civil cases is not as high.  She said “clear and convincing evidence” is a standard used in criminal cases.  Senator Care added he applauds the chairman for his work on S.B. 577 and, in an effort to address Senator Washington’s concern, said the focus should be on the fees to enhance education, which has been done.  Therefore, he added, liability is not the issue.

 

Mr. Olive joined the conversation, stating the introduction of a higher standard or a “clear and convincing evidence” standard exists only in a couple of other states where it is associated with establishing liability on the part of a corporate principal.  Therefore, Nevada would not be the first, and he mentioned Ohio as one state using this standard.  “The value of it is that it makes it more attractive for an individual to step forward as a corporate principal and participate in the business start-up,” Mr. Olive said.  He said Nevada corporation statutes invite small businesses to set up here.  Mr. Olive added he would like to see the statutes as encouraging and attractive to market from his business vantage.  Mr. Olive then proclaimed:

 

There is no other industry in the state of Nevada that is as energetic with regard to the advertising and marketing of the state of Nevada and the things that make it attractive in the business arena as our industry.  We recognize this as something that would be important in furthering our efforts to market Nevada across the country.

 

Mr. Olive continued, asserting “clear and convincing evidence” does increase the level of protection.  He said Mr. Crowell’s comments regarding section 1 are true; therefore, his interest is only in preserving a new standard of proof, giving more protection to corporate principals.

 

Senator Washington reminded the committee of a testifier in the previous day’s meeting who said he would not object to higher fees if he could retain “clear and convincing evidence” and reduce the liabilities of corporate officers.  Senator Washington asked if lowering the fees, but eliminating the higher standard, reduces the appeal of Nevada for business interests.

 

Mr. Olive answered he did not believe it accurate to equate the impact of the level of fees with the importance attached to increased protection.  He said the level of increased protection proposed in S.B. 577 is critical to increase the attractiveness of the state of Nevada.

 

Chairman James asked for other testimony on S.B. 577.  Senator Porter said he wanted to refer back to his comments from this morning, specifically, the portion regarding an audit.  He said since this morning he had discussed the bill with Chairman James and staff and concluded S.B. 577 is not the appropriate place to include an auditing section.  Senator Porter said an audit section would be added to some other, more appropriate, legislation.  Chairman James offered to work with Senator Porter drafting other legislation necessary for inclusion in the education enhancements.

 

Chairman James closed the hearing on S.B. 577.  He said it would be appropriate to move the bill and summarized the proposed amendments.  He explained the amendments proposed by the Office of the Secretary of State, with the exception of an increase in cap, would be reworded by the LCB staff to include language to distribute funds to the Secretary of State and the General Fund, as discussed.

 

Senator Titus asked Chairman James about the increase in staff for the Office of the Secretary of State to accommodate the changes in corporate fees.  Ms. Lacey said there is an amendment to provide not only additional employees, but also more space.  Mr. Wilkinson confirmed the amendment for these needs would be part of S.B. 577.  Ms. Lacey said the fiscal department had participated in the discussion of this amendment and approved it.  Chairman James said he would verify this with the finance committee chairman.

 

The trial lawyers’ amendments, Senator James said, were discussed, and the language would be changed as proposed.

 

After a brief time without commentary from anyone, Chairman James asked whether everyone understood the amendments.  He asked for a motion to amend and do pass on that basis.

 

SENATOR TITUS MOVED TO AMEND AND DO PASS S.B. 577.

 

SENATOR WIENER SECONDED THE MOTION.

 

Senator Washington said he still believed “clear and convincing evidence” was important to the bill.  He said he supports the bill on the merits of helping education, but he felt it a mistake to delete such protection.  He reminded Chairman James the language was part of the original draft.  Chairman James referred to the amended bill as “a good compromise.”

 

THE MOTION CARRIED UNANIMOUSLY.

 

*****

 

Chairman James announced he would present Senate Bill 577 on the Senate Floor.  He adjourned the meeting at 4:58 p.m.

 

 

                                                                                        RESPECTFULLY SUBMITTED:

 

 

 

Ann Bednarski,

Committee Secretary

 

 

APPROVED BY:

 

 

 

                       

Senator Mark A. James, Chairman

 

DATE: