SENATE COMMITTEE ON LEGISLATIVE AFFAIRS AND OPERATIONS

MINUTES OF THE

SENATE Committee on Legislative Affairs and Operations

Seventy-First Session

April 3, 2001

The Senate Committee on Legislative Affairs and Operationswas called to order by Chairman Jon C. Porter, at 3:30 p.m., on Tuesday, April 3, 2001, in Room 2144 of the Legislative Building, Carson City, Nevada. This meeting was video conferenced to the Grant Sawyer State Office Building, 555 East Washington Avenue, Room 4406, 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 Jon C. Porter, Chairman

Senator William J. Raggio

Senator Raymond D. Rawson

Senator Dina Titus

Senator Bernice Mathews

Senator Valerie Wiener

COMMITTEE MEMBERS ABSENT:

Senator Mark A. James, Vice Chairman (Excused)

STAFF MEMBERS PRESENT:

Robert E. Erickson, Committee Policy Analyst

Scott G. Wasserman, Chief Deputy Legislative Counsel

Johnnie L. Willis, Committee Secretary

OTHERS PRESENT:

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

Robert A. Ostrovsky, Lobbyist, Nevadans for Affordable Health Care

Marilyn Peshek, Owner, Pip Printing

Kami L. Dempsey, Lobbyist, Las Vegas Chamber of Commerce,

C. Louise Bayard-de-Volo, Lobbyist, Nevada Women’s Lobby

Larry Hardy, Nevada Health Underwriters Association

Allen Wiebe, Owner, GroutPro

Guy Perkins, Supervisor, Life and Health Section, Division of Insurance, Department of Business and Industry

Fran Grabowski, Independent Insurance Agent, Alpine Insurance

Joyce Magenheimer, Agent, Northern Nevada Association of Health Underwriters

Dale Lazzarone, Agent, Northern Nevada Association of Health Underwriters

Keith Beagle, Nevada Care Incorporated, and Chairman, Health Maintenance Organization Association

John R. Egermauer, Partner, Kia Insurance

Larry S. Harrison, Owner, Harrison Insurance, and Representative, Clark County Association of Health Underwriters

Bob Bishop, Insurance Broker, Las Vegas

Marvin Leavitt, Lobbyist, City of Las Vegas

Christine Robinson, Director, Air Quality Division, Health District, Clark County

Helen A. Foley, Lobbyist, Clark County Health District

Senator Porter noted the committee hearing would open on Senate Bill (S.B.) 169 as a subcommittee until the complete committee arrived.

SENATE BILL 169: Requires preparation and distribution of report on effect of legislation that requires policy of health insurance to provide coverage for treatment or service. (BDR 17-128)

Warren B. Hardy II, Lobbyist, National Federation of Independent Businesses (NFIB), said S.B. 169 is a major issue for the members of the business federation. He explained when the federation polled its members on their greatest challenges, mandated benefits are always mentioned. Mr. Hardy continued to explain that the business federation recently asked the members whether they have had to cancel insurance benefits for their employees. He said of those who responded yes, the number one reason was the cost of providing benefits, in particular mandated benefits.

Mr. Hardy said the federation’s members want to provide insurance benefits, because that is how to attract quality employees.

Mr. Hardy stated the NFIB was in favor of S.B. 169.

Senator Porter stated the Senate Committee on Legislative Affairs and Operations now has a quorum and would continue the hearing as a full committee.

Robert A. Ostrovsky, Lobbyist, Nevadans for Affordable Health Care (NAHC), said his organization has been concerned for a long time about the rising costs of health care. He noted the cost of health care has risen significantly for individual and small group policies. Mr. Ostrovsky stated NAHC fully supports S.B. 169. He said S.B. 169 is a way of providing the Legislature with the information to make good decisions on these issues.

Mr. Ostrovsky said often when these issues have come before the Legislature, there has been conflicting testimony. He said one side will say it is expensive and the other side will say it is not expensive. He emphasized S.B. 169 is an independent study by the Legislative Counsel Bureau, that can then advise the Legislature, which can then advise the public as to the cost and value of mandated benefits. He said in addition to that, there is a need to find a way to help employers and individuals purchase health insurance benefits.

Mr. Ostrovsky said the laws the Legislature pass only affect about 30 or 35 percent of the marketplace. He said the rest of the market is covered by the Employee Retirement Income Security Act of 1974 (ERISA) if they are self-employed, or by the Labor Management Relations Act, 1947 (Taft-Hartley Act) if they have a union negotiated plan. He said any bill passed that affects health insurance dramatically has an effect on individual policies and small group insurance plans.

Marilyn Peshek, Owner, Pip Printing, said her company is unable to provide health insurance for the company’s employees because the cost is so high. She said she first purchased an individual health insurance policy with her provider in 1996, and at that time, the cost was $257 per month. She stated her current cost is $598.44, and if her employees wanted to insure themselves and their families, it would cost them $892 per month. Ms. Peshek pointed out she has a higher co-payment now than she did before, with fewer benefits.

Senator Mathews inquired as to whether that price was just for Ms. Peshek. Ms. Peshek answered yes it was just for herself.

Kami L. Dempsey, Lobbyist, Las Vegas Chamber of Commerce, said one of the growing concerns of the chamber of commerce’s members is the fact that mandated health care has increased significantly not only for small business owners, but also for their employees. She said the chamber polls its membership every year and has found the more mandates that are implemented the more the companies have to either pass the cost to their employees or withdraw the insurance altogether. She said not offering insurance to employees is bad for the overall economy.

Ms. Dempsey said this bill is very important, because knowing how a mandated coverage will affect the costs of health insurance will help the Legislature understand how those mandates are going to impact the economy and the people they are suppose to help. She pointed out when emotional stories are heard in a hearing everyone wants to do the right thing. However, lawmakers need to know how an added mandate will affect the state as a whole. Ms. Dempsey said having that information available to everyone will help them understand how this kind of legislation can affect everyone’s lives.

Ms. Dempsey said the Las Vegas Chamber of Commerce supports S.B. 169.

Senator Porter asked if the chamber of commerce had polled its members as to the average costs of premiums, or how many of its members provide health care for employees. Ms. Dempsey replied the chamber had polled its membership in the last 2 weeks and were in the process of assembling that data. She said the chamber could provide that data as soon as it becomes available. She said the information the chamber asks is:

Do you offer health insurance to your employees? What is the percentage you cover for your employees? What is the percentage you cover for your employee’s dependents? If the insurance were to increase by 10 percent, what would you be more likely to do: Pass on the cost, absorb the cost, reduce other benefits, or drop the insurance? If the insurance were to increase by 20 percent, what would you be more likely to do: Pass on the cost, absorb the cost, reduce other benefits, or drop the insurance? If the insurance were to increase by 30 percent, what would you be more likely to do: Pass on the cost, absorb the cost, reduce other benefits, or drop the insurance?

Ms. Dempsey said as soon as the data is assembled it would be provided to the Legislature.

C. Louise Bayard-de-Volo, Lobbyist, Nevada Women’s Lobby, said the women’s lobby supports S.B. 169. She said it is important that clear information be available before the Legislature makes decisions about adding mandated benefits.

Ms. Bayard-de-Volo said it is also important for the short-term and long-term costs savings from providing screening, and preventative health benefits be included. She pointed out, usually, when an analysis is prepared the report only includes the immediate costs for providing the health care issue being studied. However, she said, there are many cost savings that need to be considered. She explained that most proposed benefits are proposed because they avoid many long-term health problems by screening, which assures early treatment and lower costs.

Ms. Bayard-de-Volo pointed out these long-term costs are costs to the state and counties, not just to insurance companies or employers. She explained many of these people are being served by Medicaid and other programs that will incur costs to state and county agencies.

Ms. Bayard-de-Volo said the Las Vegas Chamber of Commerce believes that looking at just the immediate cost is short sighted and inappropriate. She said an example is the mammogram, which is a mandated benefit. Ms. Bayard-de-Volo explained if a mammogram can detect early breast cancer, then that early detection could be treated with a simple procedure, but if the cancer is not detected early then the long-term treatment could become enormous. Also, she added, early detection with regular screening could save lives.

Ms. Bayard-de-Volo said prenatal care is also a mandated benefit. She explained statistics show that if early prenatal care is provide then there are fewer low birth rate babies, and healthier pregnancies, which translated to long‑term savings for the insurance companies. Ms. Bayard-de-Volo said complicated births can be very costly and the ongoing health problems of children whose parents do not have early prenatal care can be extremely costly.

Ms. Bayard-de-Volo asked the committee to add language to this bill that would include the report short-term and long-term cost savings for early screening of mandated coverage. She said the Las Vegas Chamber of Commerce would also like the report to address the quality-of-life issues attached to these long‑term health care problems that might have been diverted with early detection and care. Ms. Bayard-de-Volo stressed the report should also include how many lives that might have been saved with early detection.

Senator Porter pointed out on page 1, line 12 of S.B. 169 says the report will include “(c) An analysis of the extent to which the required coverage may increase or decrease the cost of the treatment or service.” The Senator explained on page 1, line 16 it says, “(e) The effect the required coverage will have on the cost of health care provided in this state, as determined by an independent actuary.” Senator Porter said, “Your point is very well taken and we will make sure that is a part of our testimony and make sure that information is provided.”

Larry Hardy, Nevada Health Underwriters Association, stated the underwriters association is in favor of S.B. 169.

Allen Wiebe, Owner, GroutPro, said last year for the first time his small corporation was able to offer five of their seven employees health insurance. He said the rate at that time was about $1263 per month for five employees. However, he continued, in 1 year’s time the rates went up 41 percent to $1800 per month.

Mr. Wiebe stated if his business were to raise rates on products 41 percent in a year’s time, his company would get “a lot of flak.” He said the insurance agent he uses works very hard to find his company the lowest insurance rates possible. Mr. Wiebe emphasized the rates need to be watched very carefully and when mandated coverage is ordered the Legislature needs to know what the impact to the cost is going to be and whether mandated coverage is going to force businesses to drop employee health benefits.

Guy Perkins, Supervisor, Life and Health Section, Division of Insurance, Department of Business and Industry, said in the past when the Legislature has had insurance issues to consider the Division of Insurance is often called on to testify. He said his department is pleased to help in anyway it can. Mr. Perkins stated his department sees a need for S.B. 169 and the better informed everyone involved is the better decisions that can be made.

Fran Grabowski, Independent Insurance Agent, Alpine Insurance, said certain small employers offer plans to their employees, unfortunately the high cost of the plans prevent the employer from paying the full cost of the plan. As a result, she explained, the employee has to pay a portion of the plan coverage. She said when those rates go up employees are unable to pay the added rate increase and are forced to drop the health insurance. Ms. Grabowski pointed out if enough employees drop the plan the company could lose the whole plan. She said she supports S.B. 169 because it is important that new mandates be evaluated to keep the costs down.

Joyce Magenheimer, Agent, Northern Nevada Association of Health Underwriters, said she works with many small businesses, which employ less than 50 employees, and with individual health plans. She explained the high cost of health insurance is leaving more and more people without coverage.

Dale Lazzarone, Agent, Northern Nevada Association of Health Underwriters, said he also supports S.B. 169. He said last week he received a rate increase for a client with a group of four people that was a 91 percent rate increase. Mr. Lazzarone said he is working with the Health Division to find out whether this excessive increase is allowable. He said 91 percent is the largest rate increase that he has seen, and the trend seems to be getting worse.

Mr. Lazzarone said many of these increases have to do with mandated benefits and this bill will help legislators understand the impact that mandated benefits will have on the rising costs of health insurance.

Keith Beagle, Nevada Care Incorporated, and Chairman, Health Maintenance Organization Association, said many times there is a misconception that the managed care plans will absorb the costs of mandated health benefits. He commented, obviously, that is not the case from the ever-increasing costs of health care. Mr. Beagle said what happens is the insurance actuaries incorporate the new mandate into the cost estimates data and that estimated cost increase is passed along to the client.

Mr. Beagle stated the uninsured population will continue to grow as insurance rates increase, because individuals will be unable to afford the cost of private health insurance and will not qualify for Medicaid.

John R. Egermauer, Partner, Kia Insurance, said in the mid-1980s there were 22 mandated benefits, which represented about 22 to 28 percent of the benefit costs. He said today there are 29 mandated benefits in Nevada.

Mr. Egermauer said he supports this bill because the state needs to look at the value of the benefit versus the cost of the benefit before deciding to add another mandated benefit to the list.

Mr. Egermauer explained health insurance costs are increasing from 25 to 100 percent or more. He noted one group in his office had a 254 percent increase. He stated most of his clients cannot afford these kinds of cost increases. He commented these kinds of increases lead to higher uninsured populations.

Senator Titus asked whether there were any bills this session for mandated benefits. Robert E. Erickson, Committee Policy Analyst, replied that research would have to look into it before he could give Senator Titus an answer.

Senator Rawson commented that the Senate Committee on Human Resources and Facilities, or the Senate Committee on Commerce and Labor usually hear bills dealing with mandated benefits. The Senator said there are a few things that may impact mandated benefits such as the bill on prostrate screening. He explained that last session there were many more bills that dealt with mandated benefits and he believes that is why this bill may have been generated.

Larry S. Harrison, Owner, Harrison Insurance, and Representative, Clark County Association of Health Underwriters, said as an insurance broker his job is to improve his clients’ benefits in the most economical way possible, however, with the market as it is now that is not easy to do. He said he was in favor of S.B. 169.

Mr. Harrison said he has a client who in January 2001 was paying $10,000 per month, and in February 2001 his premiums where raised to $15,000 per month. He said, as a small businessman, his client finds it difficult to justify those kinds of dollars. He pointed out for the premium to go from $10,000 to $15,000 from one month to the next is a huge increase, and most small businesses cannot pay those kinds of increases.

Senator Mathews asked which mandated benefits could be dropped in good faith, or what insurance brokers would carry if all the mandates where dropped. Mr. Harrison replied some of the mandates are very good such as prenatal care or the Baby Your Baby Program. He explained there are situations where people disregard the recommendations of their health care providers. The aforementioned are people who do not lose weight, start an exercise program, or change their diets when advised to do so by their physician, he added. Mr. Harrison stated smokers should also be rated higher, because of the health hazards of continuing to smoke.

Mr. Harrison stated if a person wants maternity benefits or mental health benefits they should have to buy them as extras. He said health insurance policies should be basic on “must have needs” and “like a Chinese restaurant” they can then select what to add on as “wants.” Mr. Harrison said those people who are not doing what their doctor is recommending should pay higher premiums for the same services.

Senator Mathews inquired whether Mr. Harrison was suggesting an “àl a carte” sort of menu for health care. Mr. Harrison replied, “Yes.” Senator Mathews stated under that plan she would not be able to afford anything. Mr. Harrison responded, “That is the point.” Senator Mathews reiterated if there were no mandates she would not have health coverage. Mr. Harrison replied there are “must haves.” However, he said, people who do not do as their physician suggests should have a high deductible.

Mr. Harrison said he is not a legal expert and was not the best person to be answering these questions. He said his goal is to improve his client’s benefits and to save them money.

Senator Rawson stated this is a complicated area of study, which makes it difficult to inform all of the committee members at the same rate so that everyone understands the whole concept. He said he often thought community rating would be a more equitable way to assess health needs, but the Legislature made decisions many years ago that took the state in a different direction. He explained the elderly have been separated out through Medicare, and the poor separated out through Medicaid, and the high-risk individual separated out, and that leaves the uninsured. Senator Rawson stated, basically, 49 percent of the people in Nevada are insured through a government program. He said all of these public-funded programs tend to contribute to the rate increases of private insurance. The Senator continued to explain it is difficult to change any aspect of this system without throwing the whole system “out of whack.” He said the system is not very stable and making changes could cause it to collapse. Senator Rawson continued by saying the legislative body made the decision that some people would have health coverage paid for by the state. He said people who do not fit into one of the medical programs come to the Legislature one by one. The Senator said when the Legislature hears these extremely sad stories everyone wants to do the right thing and so the reaction is to implement various mandates. However, he said, every time the Legislature does that it has an effect on the whole system, it is not as simple as trying to cover one individual condition or disease. He said this bill is for the legislators to consider the issues and effects of adding mandates before adding mandates.

Senator Rawson explained, for instance, cervical cancer, if that was not covered and it came before the Legislature, then the legislators could evaluate what the effect on the whole system would be. Then the legislators could assess whether there was another way to handle the issue or perhaps a public health way of handling the issue. Senator Rawson emphasized, essentially, the Legislature cannot make good decisions if it does not have all the facts to study.

Senator Rawson said the weight of 29 mandates on the health system puts a burden on the system, which results in more uninsured people. He pointed out for every percent of increase in premium costs, there will be hundreds of thousands of people that are no longer insured. Senator Rawson said the net effect is more uninsured people in Nevada.

Senator Rawson asked whether the Legislature has “met the public good” by adding mandates that result in fewer people having health insurance. He said this bill is not to stop mandates; it is for the Legislature to consider the effects of adding mandates.

Senator Mathews asked what community rating was about. Senator Rawson said community rating is a philosophy that you cannot pick out the high-risk conditions and not insure them. The philosophy says you have to insure everyone and they are all rated the same, which drives the rates up, he added. He explained, because you cover everyone it is not a very big increase. He reiterated the country has made decisions that have gone in a different direction and now needs to decide how best to deal with those decisions.

Senator Titus explained that several sessions ago, there was a bill passed allowing small businesses, if they met certain qualifications, to be provided a “bare bones” insurance police that covered only the basics. The Senator wondered what had happened to that legislation. Senator Rawson responded the bill was passed with high hopes that it would be an answer for small business. He said the policy was about $70 per month. He said only 19 policies were sold in the whole state. Senator Rawson stated the insurance provider did not make much profit and the brokers did not make any profit, so there was no reason for brokers to sell the policy. Senator Rawson pointed out the Legislature could revisit that program and design another policy that would allow riders to be added so the policy could be customized for individual needs.

Senator Raggio said one of the problems is a committee hearing a bill receives opposing testimony. He said those proposing the mandate have research that says the mandate will be of little cost and that studies show it only adds 4 cents to the premium. The Senator stated then those who oppose the mandate have research that says this mandate will add so many hundreds of dollars. These apposing testimonies result in the committees not having valid information, he added.

Senator Raggio expressed he could not fault those who are proponents or opponents because that is their job. He said these people probably do it with the best intentions. However, the Senator explained this situation calls out for something like this that has actual costs, actual benefits, and actual cost increases that might be expected for premiums. He said in essence these are fiscal notes, and are needed before a decision can be made.

Bob Bishop, Insurance Broker, Las Vegas, said the state presently has a basic policy that has been designed and in use since the passing of the Health Insurance Portability and Accountability Act of 1996 (HIPAA). He said the purpose of that policy was to eliminate a lot of the mandate benefits and put restrictions on what would be covered. Mr. Bishop explained when the committee designed this basic plan, the intent was to provide a basic small group plan that small employers could use to for their employees. He continued to explain that what happened is that carriers were mandated to provide costs to the brokerage and to the employee for these policies. However, he added, the insurance providers were pricing the basic plan, which was restricted in benefits, anywhere from 40 to 60 percent higher than their preferred policy. Mr. Bishop pointed out rather than the brokers receiving a policy priced according to its options, the basic no-frills-added policy, the policy the brokers received cost more than the provider’s other policies. He commented as a member who served on that committee with many other people who spent many hours working on it and thought they were doing something good, he was very disappointed at how it turned out. Mr. Bishop explained the plan is there, but brokers do not set the price of a policy.

Mr. Bishop said there are no mandates on the books that anyone can say are bad mandates. He pointed out they are all important to the people whose lives they affect. But, Mr. Bishop added, it is time to put a price structure on those mandates and document what they will cost the consumers, and give the consumer the chance to buy those options if they choose.

Senator Rawson said an example would be a disease such as Amyotropic Lateral Sclerosis (ALS). Few people in Nevada are affected by this disease; however, it is catastrophic when it hits, the Senator added. He said if this disease is not covered, it is easy to say that it should be mandated, by viewing the results of what happens to a family when ALS hits one of its members. Senator Rawson explained there may be a public health approach to dealing with the disease that would be a better solution. He said there are creative, compassionate, and good ways to deal with almost every situation if the Legislature has the ability to weigh the consequences of adding it as mandates.

Mr. Bishop explained that the health advisor association and committees of the Division of Insurance have researched what is happening in other states. He said many states have what is called a “reinsurance pool” and an uninsurable individual can be put in that category. Mr. Bishop continued to explain those individuals could then share costs based on their incomes. He said the problem then is how to fund it, will it come from the General Fund, or will providers be required to pay more taxes to fund the reinsurance pool.

Mr. Bishop stated different states are doing different things to deal with these problems. He said mandates are only one element that brings on high costs of health insurance. He commented if the Legislature is going to look at the problem, they should at least be able to put a price tag on all of the elements.

Senator Porter asked whether Mr. Bishop handled group and individual plans. Mr. Bishop replied, “Yes.” Senator Porter asked what is happening in the market place as far as the premium increases. He also asked whether very many of his clients were dropping their health care plans. Mr. Bishop responded if an employer has an HMO-based (health maintenance organization-based) product the rate increase would be between 12 to 20 percent per year, but if an employer has only a preferred provider organization (PPO)/self-funded plan, the rate increase is going to be between 40 to 80 percent.

Mr. Bishop said his office employees received a 61 percent increase. He explained now it becomes a morale problem. Continuing to explain, he said, he had just given all his employees a raise, they were good employees, and deserved that raise. However, he said, now he has to say, “Sorry, Maxine, to cover you and your husband it is now going to cost you $643 per month.” This takes away from her more than her recent raise to cover her and her husband, he added.

Senator Porter asked whether Mr. Bishop’s office represented more than one provider. Mr. Bishop replied, “Yes.” Senator Porter stated, so, if there were options available Mr. Bishop would be able to find them. Mr. Bishop responded that last year his office received commissions from 73 vendors. He stated his office serves over 300 clients. Mr. Bishop explained his agency represents a good cross section of what is going on in the health insurance market. He said he wished he could say it is all because of mandates, but that is not true mandates are only one factor.

Senator Porter revealed, although he is in the insurance business, he is not in the health insurance business.

Senator Porter closed the hearing on S.B. 169 and opened a work session on S.B. 65.

SENATE BILL 65: Makes various changes to provisions relating to legislative committee to study distribution among local governments of revenue from state and local taxes. (BDR 17-698)

Marvin Leavitt, Lobbyist, City of Las Vegas, explained S.B. 65 deals with the extension of a committee that has been around for 5 or 6 years. He said the committee has dealt with a number of problems relating to local government. Mr. Leavitt continued that the committee deals with finances, tax distribution, and many other issues.

Mr. Leavitt stated there are several major problems that the state is facing now. He said the situation the state faces now is a little different than it has faced in the past.

Mr. Leavitt explained in the past major legislation could be developed during a legislative session. He commented now it is difficult for the committees to hear all the bills that come before them and working through a detailed legislative process is almost impossible. Mr. Leavitt pointed out because of the time constraints on the Legislature, a committee such as the one in S.B. 65, which has a very deliberate process and goes through a huge amount of work for all the subjects that come before them, can add real value to the legislative process.

Mr. Leavitt noted the committee documented in S.B. 65 has an interesting structure in that it has legislators who make the decisions, then there is a technical subcommittee composed of individuals that have expertise in finance, tax, and other related subjects. He said the subcommittee does a lot of detail work assisted by the Department of Taxation, then advises the full committee.

Mr. Leavitt explained the state is facing a couple of major problems that need to be studied for possible solutions. He said there are some severe problems in some of the rural counties. Mr. Leavitt went on to explain these counties are up against the maximum tax rate with declining assessed property values, which pushes some of these rural counties to the point they may be unable to provide basic services to their citizens. He pointed out the committee received this information mainly by word of mouth, and the committee has not compiled a detailed study of exactly what the problems may be or what might be the solution.

Mr. Leavitt explained another big problem is the utility-restructuring situation. He said an example of the problems is that over many years this state has had one company that owns the power generator, owns the transmission lines, and sells the power to the consumer. He said the taxes generated by that company have been distributed based on “line” miles, the number of miles of power lines that are in a county. He said there are two counties in the state where greater than 50 percent of the counties’ total assessed tax valuation comes from this one source. He said this system is probably going to change to a situation where there will be one generation plant owned by one company, the transmission lines will be owned by a different company, and power will be sold to the consumer by many companies. He asked how this new system will be taxed. What do you do when the generation plant is in one county which does not want to pay taxes based on transmission lines that they do not even own. Mr. Leavitt stated this is a major problem that will be facing the state and an equitable solution needs to be found.

Mr. Leavitt commented the members of the committee and the technical subcommittee have done a great job. He noted the members have spent many hours trying to find solutions to the problems they encounter. Mr. Leavitt stated there is a real need to continue the work this committee is performing.

Mr. Leavitt pointed out the bill has a sunset date of 2005, however, the tax laws need to be continually reexamined. He said the state has gone 30 or 40 years without examining some of the laws on the books and those laws need to be examined and evaluated for their effectiveness. He stated this kind of work is almost impossible to accomplish during a legislative session.

SENATOR RAGGIO MOVED TO DO PASS S.B. 65.

SENATOR RAWSON SECONDED THE MOTION.

Senator Titus said she would vote no on this bill. She said she was one of the few people who apposed the 120 days’ legislative session, because she felt just this sort of thing would happen. She said there is not time for elected officials to make good decisions, or hear a lot of testimony.

Senator Titus said she knows the committee on S.B. 65 has done a lot of good work, but this was the committee that came up with a local tax distribution formula that is now coming unraveled. She inquired whether as a result of the failing formula there was some kind of deal so that Henderson could get more money, and all of the deals were being made in “back rooms.” Mr. Leavitt responded the taxes are levied by the Legislature and are distributed to local governments. He said there was a method in existence prior to 1997 that everyone agreed was unfair and unworkable. Mr. Leavitt explained there was a system developed where taxes within the counties were distributed based on a new method that has been in effect for the last 3 years. He said there has been universal agreement that the system seems to be working. He said the City of Henderson has expressed some concern because they felt the tax distribution plan did not provide enough money for growth.

Mr. Leavitt said S.B. 65 provides a mechanism in the bill that prevents governments from creating substantially more or less revenue for a local government, or combination of government entities, than would otherwise be available if the system of taxation were not changed.

Mr. Leavitt stated there has been discussion in Clark County as to whether it might enter into some agreement in accordance within the provisions of the bill to distribute taxes on a different method that would recognize and give added consideration to some of the growth in Clark County. He said in general that is the only time there has been a discussed change of the formula.

Mr. Leavitt said the system is working very well, even in Clark County. He reported, since implementation, $1.6 billion has been distributed through this tax formula. He said the disagreement is over $25 million out of $1.6 billion and does not represent a major problem with the system.

Mr. Leavitt said it is an interesting process, every local government in the state heard it understood it and bought off. He said it is a good program.

Senator Titus asked whether the formula was now being reworked, such as changing the base, and looking at the Consumer Price Index (CPI), and other factors to rework the whole formula. Mr. Leavitt replied there has been some discussion among three local governments in Clark County to enter into an agreement separate from the formula which is allowed under the bill. He said if they come to an agreement it would change the distribution of their portion of the taxes. He said even if governments are trying to do this kind of maneuvering, the plan is a good one. He said the plan is based on an allocation of a certain amount of money, recognizes changes in price levels, and if there is money left, then those funds are distributed on growth which provides stability to the system. Mr. Leavitt reiterated it is a good formula and it works.

Mr. Leavitt said the escape mechanism in S.B. 65 allows for individual counties, where the formula plan is not working, to make allocation changes that give some resolution to the problems. Mr. Leavitt explained the Henderson problem has not been resolved and no agreement has been reached.

Senator Titus said what bothers her is the fact so few legislators are actually involved in the process. Also, she said, there has been very little public involvement in the decisions being made. The Senator maintained technical committees that do not involve the Legislature, the press, or the voters will continue to expand and will become the norm, instead of the open forum that government should be. Senator Titus explained it is not just the committee in S.B. 65 that she is unhappy about. She said this kind of committee is becoming a trend that is an unfortunate, unintended consequence of the 120 days legislative directive. She reiterated this trend makes the legislators less accessible and less accountable. Senator Titus emphasized that not being accountable to the voters is not a good trend. Mr. Leavitt responded that attendance at every one of the technical subcommittee’s meetings has been more than at normal legislative hearings. He pointed out local governments, taxpayer associations, and the public attend the meetings. The agendas are widely posted to give notice to anyone who wishes to attend, he added.

Senator Mathews asked what happens if S.B. 65 does not pass. Mr. Leavitt replied the work the committee has been doing would not be done. He said the effect of that would be presented before the next legislative session when the rural counties will be in bigger trouble than they are now.

Mr. Leavitt explained, as he had mentioned earlier, the problems of deregulating the electricity. He said if those problems are not addressed then there will be a need for another committee to do the work or the Legislature will have to try to handle it during the next legislative session.

Mr. Leavitt reiterated if the committee provided for in S.B. 65 does not do the work then some other committee will have to be provided to do the work. He said this committee will have the option to look at the problems over a long period of time to come up with some solutions, instead of the Legislature trying to solve the problems when they become a crises situations.

Senator Raggio said it would be very unwise for this committee that has been very effective to cease to exist. He said the committee in S.B. 65 is one of the hardest working productive committees that the state has had during the interims.

Senator Raggio said he disagrees with the idea that the 120 days has anything to do with the problems. He said 36 other states have the 120 days’ limits. He said a fact of life is that the Nevada Legislature has been more effective, made better use of the time, and the Legislature does not go through weeks and weeks without accomplishing much, because there is a general conception that there is plenty of time to accomplish what needs to be done. The Senator said the rules that were established have been very successful.

Senator Raggio pointed out the Legislature could not do the kind of analysis, research, and receive the extensive input that this committee does, unless it was a full-time Legislature. He noted this bill would add the ability of the committee to study tax distribution among local governments along with allowing the committee to study the system of taxation on central assessed properties. The Senator stated it would be a great disservice to the legislative process not to allow this committee to continue and if it was not given the additional capabilities outlined in S.B. 65.

Senator Porter said the Henderson issue has been discussed. He stated the hearing process is very open and planned. He said the communities are involved with the legislators. Senator Porter said this issue is very complex and challenging, because of the science involved in tracking the distribution of taxes in Nevada. He said as a member of the Legislature and a member of the committee in S.B. 65 he comprehends the need for the Legislature to receive the input from this committee’s work.

THE MOTION CARRIED. (SENATOR TITUS VOTED NO. SENATOR JAMES WAS ABSENT FOR THE VOTE.)

*****

Senator Mathews pointed out that she voted yes, but said she may or may not support the bill on the Senate Floor.

SENATOR RAGGIO MOVED TO DO PASS AND REREFER S.B. 169 TO THE SENATE COMMITTEE ON FINANCE.

SENATOR RAWSON SECONDED THE MOTION.

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

*****

SENATE BILL 475: Requires Legislative Auditor to contract for audit of Emission Reduction Credit Program in Clark County. (BDR S-1497)

Senator Porter informed the Senate Committee on Legislative Affairs and Operations that S.B. 465 is exempt and action is not required at this time.

Christine Robinson, Director, Air Quality Division, Clark County Health District, said the Emission Reduction Credit (ERC) is a program for businesses in non‑attainment areas that fall under a certain threshold of pollutants, but above a certain minimum of pollutants. She said some of those businesses include casinos that have cooling towers and boilers, hospitals, asphalt bath plants, paint booths and other such businesses. She said an independent audit of the Air Quality Division’s ERC program was recommended for a variety of reasons. She said there has been extensive public criticism of the program, there is pending litigation, and the Clark County District Attorney has suggested an independent audit.

Ms. Robinson said a request for proposal (RFP) was put out, and then the RFP was brought before the health board, which selected a subcommittee to oversee the audit. She said there were four proposals received based on the RFP. The proposals were presented to the health board with a recommendation for the selection of the agency to do the audit, however, she said, the cost of the proposal was approximately $500,000. She said at that time the board of health “tabled” that item and asked that the staff return the following month to report on the status of the program and make recommendations so the board could decide on the future of the program. The following month, she reported, the health board directed the staff of the Air Quality Division to revamp the entire program over the next 4 to 6 months. She said the program is expected to be almost a completely new program as the air quality staff works with the community in workshops and makes the program what it needs to be. She said the current program is obsolete.

Ms. Robinson said the air quality staff made its report to the health board and immediately following that the Senate Committee on Legislative Affairs and Operations took action and introduced S.B. 475. She said at the March meeting of the Clark County board of health the ERC program was rediscussed and the board directed air quality staff to work with the District Attorney’s office to do an investigation of the program. She said the air quality staff recently received a letter from the District Attorney’s office (Exhibit C) stating it had not found sufficient evidence of criminal intent, but the District Attorney did recommend an independent audit of the unit.

Ms. Robinson said the air quality division seems to be on a merry-go-round, the division is going from audit to investigation to audit. She said she is not sure what everyone is looking for, as the object of all the investigations and audit proposals has not been clearly identified.

Ms. Robinson stated there have been two audits of the ERC program, one in 1998 (Exhibit D), and one in 1999 (Exhibit E) by Stewart, Archibald, and Barney. She said both audits suggested there were problems with the program. She said one of the significant outcomes of the first audit was that there was not sufficient documentation to conduct a financial audit.

Senator Porter asked for clarification as to whether Ms. Robinson had indeed said “not sufficient documentation.” Ms. Robinson replied there is missing documentation, such as files. She said on page 6 of Exhibit D there is an example. She said the audit suggests that for 15 of the 39 permits, documentation to support the assessments made was missing from the files. Also outlined, she added, in the audit is that for 10 of the 39 permits, the assessments made differ from what the documentation indicated.

Ms. Robinson explained she has had extensive conversations with accountants, who have said repeatedly that an audit would be very difficult due to the lack of documentation.

Senator Porter stated for the 1998 audit, for 15 of 39 permits, the assessment documents were missing, for 10 of the 39 permits the documentation differed from the documentation, an environmental study suggests an independent audit, and the Clark County District Attorney’s office suggests an independent audit. He asked what steps the health board plans to take now that the District Attorney’s office has indicated there is insufficient evidence of criminal intent. Ms. Robinson replied one of the recent discussions is that the City of Las Vegas’ auditor is willing to present this issue to the City of Las Vegas’ audit committee in an effort to have the City of Las Vegas audit the program. She said the Air Quality Division would follow up on that offer.

Senator Porter said Erin Kenny, Board of Commissioners, Clark County, had indicated in the verbatim minutes of the Clark County Board of Health, March 22, 2001 (Exhibit F), there were no secrets being held back, and the Legislature’s intrusion into this issue was inappropriate. He explained Ms. Kenny also stated that Clark County Board of Health has done its “due diligence” in looking at the issue. Senator Porter further quoting Ms. Kenny’s statement said, “ . . . the notion that folks who are not here on a regular basis should be thinking that we should do something when as a policy we decide that it is not a good idea was probably not a correct thing to do and as a result I think a compromise has been reached . . .” The Senator pointed out Ms. Kenny is saying the Board of Health has looked at everything, and everything is okay. “However,” Senator Porter emphasized, “there is still this bill that insists an audit take place.”

Senator Porter explained he did not believe the board has had enough time to discuss the most recent response from the Clark County District Attorney’s office, and he would like a response submitted to the Legislature as soon as possible, so the Senate Committee on Legislative Affairs and Operations could move forward on S.B. 475. He stated the committee will move forward on this issue based on the information it already has. Senator Porter said the committee wants specific information on the missing documentation.

Helen A. Foley, Lobbyist, Clark County Health District, said if the Senate Committee on Legislative Affairs and Operations decides to go forward with S.B. 475 she would strongly recommend the committee add some “meat” as to what the audit is supposed to do. She said the bill is very deficient in its scope.

Senator Porter said the discussion as to what this audit should include was very clear and that information is available. Ms. Foley replied that Senator Porter’s information was appreciated. She said one of the major problems is when an audit is done the auditors need information to use. Ms. Foley pointed out that is what is mentioned repeatedly, that there are missing documents and assessments are different from the documentation. She said the health district could supply this information to the committee again. Ms. Foley stated it is very clear that the program was mismanaged, and there were severe problems with it. She said the program is in the process of being reorganized. She said comments by a member of the health board were just that, “a member of the health board.” Ms. Foley reiterated there are sever problems with the ERC program; however, the program is extremely necessary. She said the Air Quality Division wants to make sure the problems are corrected, that the confidence of the public is regained, and that the division moves forward.

Ms. Foley said if an accounting firm is directed to do an audit, an audit can mean very different things to different firms. She said accountants will expect records and the division does not have many of those records.

Senator Porter said he has asked staff to provide for the committee what the next step would be on this issue, whether it would be a grand jury investigation, or investigation by the Office of the Attorney General, or an audit by legislative staff. He emphasized the issue is very serious and he has asked the health district to take some steps. He said the legislative committee needs to have some planned steps that the health district is going to take by April 15, 2001. Ms. Foley said the health district will deliver a plan, and it has asked the Clark County District Attorney’s office to investigate this issue twice. She said the responses the health district has received from the District Attorney’s office is that although misconduct has occurred it does not believe criminal intent can be demonstrated. Ms. Foley stated if there has been criminal activity the health district wants very much to uncover that.

Senator Porter adjourned the meeting 5:00 p.m.

RESPECTFULLY SUBMITTED:

Johnnie L. Willis,

Committee Secretary

APPROVED BY:

Senator Jon C. Porter, Chairman

DATE: