MINUTES OF THE meeting
of the
ASSEMBLY Committee on Ways and Means
Seventy-Second Session
February 18, 2003
The Committee on Ways and Meanswas called to order at 3:49 p.m., on Tuesday, February 18, 2003. Chairman Morse Arberry Jr. presided in Room 3137 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Guest List. All exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.
COMMITTEE MEMBERS PRESENT:
Mr. Morse Arberry Jr., Chairman
Ms. Chris Giunchigliani, Vice Chairwoman
Mr. Walter Andonov
Mr. Bob Beers
Mrs. Vonne Chowning
Mrs. Dawn Gibbons
Mr. David Goldwater
Mr. Josh Griffin
Mr. Lynn Hettrick
Ms. Sheila Leslie
Mr. John Marvel
Ms. Kathy McClain
Mr. David Parks
Mr. Richard Perkins
GUEST LEGISLATORS PRESENT
Assemblyman John Carpenter
STAFF MEMBERS PRESENT:
Mark Stevens, Assembly Fiscal Analyst
Steve Abba, Principal Deputy Fiscal Analyst
Carol Thomsen, Committee Secretary
Lila Clark, Committee Secretary
Chairman Arberry called the Committee to order and invited Assemblyman Carpenter to present testimony as the sponsor of A.B. 76.
Assembly Bill 76: Makes appropriation to Department of Human Resources for establishment of branch office in West Wendover. (BDR S-229)
Assemblyman John C. Carpenter, District No. 33, called the Committee’s attention to Exhibit C, a letter of February 18, 2003, from the Mayor and City Council of West Wendover, Nevada, which pointed out their concerns regarding welfare and social issues in the area. Assemblyman Carpenter stated the reason he had sponsored the bill was to facilitate the collection of statistics to determine which Department of Human Resources (DHR) services had been offered in the West Wendover area.
Mr. Carpenter introduced Nancy Ford, Administrator, Welfare Division, and advised that she would provide explanation to the Committee regarding Exhibit D entitled, “Department of Human Resources Current Services to Wendover.” Mr. Carpenter stated that exhibit listed cases currently handled by the Division’s caseworkers stationed in Elko, and delineated the areas where persons were taking advantage of offered services in the West Wendover area. The Division anticipated accelerating the visits to West Wendover in order to determine the existing degree of need. Mr. Carpenter opined that given the budget restraints for the upcoming biennium, the future of A.B. 76 was unknown, however, he hoped that the Welfare Division would make an effort to visit the West Wendover area more frequently. He also pointed out that many persons were undoubtedly utilizing services offered by the state of Utah.
Chairman Arberry asked Ms. Ford to enlighten the Committee regarding the current situation in West Wendover, Nevada. Ms. Ford referenced Exhibit D, which depicted the various divisions of the DHR, and their service areas in West Wendover. She noted that the Welfare Division currently handled 117 cases in that area, and the staffing guideline for caseworkers was 237 cases; therefore, the Division would only be able to justify one half-time caseworker position should a branch office be established in West Wendover. Ms. Ford stated she had recently spoken to Assemblyman Carpenter, and it was felt that the best action for the Welfare Division would be to make an itinerant run to West Wendover once per month in order to determine the need, and to ascertain whether additional persons would apply for services. Ms. Ford pointed out that West Wendover was approximately 110 miles from Elko, which was the current service district office for that area. According to Ms. Ford, once the information was evaluated, a determination could be made regarding whether the need warranted opening a DHR branch office in West Wendover. Ms. Ford emphasized that it was not believed at the present time that the caseload would justify opening such a branch office.
Chairman Arberry noted that A.B. 76 requested $210,189 for FY2003-04, and asked what would be done with that allocation. Ms. Ford stated there was a caveat regarding the information contained in the fiscal note for the bill. She explained that when information was requested by Legislative Counsel Bureau (LCB) staff regarding the possibility of opening a branch office of the DHR in West Wendover, talks were underway regarding the possibility of restructuring the Nevada/Utah state line, and placing Wendover, Utah, within Nevada. Ms. Ford informed the Committee that Wendover, Utah, had approximately 370 cases, and if those cases were combined with the 117 Nevada cases, the Welfare Division could justify two caseworkers and a clerk in the proposed branch office; however, without those additional cases from Wendover, Utah, the Division could only justify one half-time caseworker position. Ms. Ford stated the fiscal note should be revised, and the revision would also include the General Fund allocation. Ms. Ford stated the General Fund need would be approximately $145,000 for the first year, and $110,000 for the second year of the biennium. According to Ms. Ford, even with revision of the fiscal note, based on one half-time position, the cost of rent and utilities for a branch office would exceed the personnel costs.
Chairman Arberry asked whether rent costs were included in the original fiscal note. Ms. Ford stated that rental costs were included in the operating category.
Assemblyman Carpenter believed that if a DHR branch office could be justified, and if the money could be found, the city of West Wendover, Nevada, might possibly pick up the rent and utility costs for the office. The city might also have a building available for that use.
Assemblyman Marvel asked how the Welfare Division for the state of Utah served clients in the Wendover area. Ms. Ford replied that they were serviced from the Salt Lake City office. Mr. Marvel inquired whether there was a branch office in the Utah portion of Wendover. Ms. Ford did not believe there was an office located in Wendover, Utah.
Assemblywoman Chowning referenced legislation sponsored by Assemblyman Carpenter that would provide a Department of Motor Vehicles (DMV) branch office in West Wendover, and asked whether it was suggested that the two proposed offices be combined, or would there be two separate facilities. Mr. Carpenter stated there would be two offices, which might be located within the same building, but would remain separate offices. He opined that the usage would ultimately justify the expense of the DHR branch office. Mr. Carpenter stated that after visiting West Wendover, he believed it was time for the Legislature to review the situation, because a substantial sum of money was generated by the gaming industry in that area. He advised the Committee that the local government believed the area could support a branch office of the DMV and the DHR; however, it appeared that a greater need would be required before the cost could be justified for a DHR branch office. Mr. Carpenter stated the statistics contained in Exhibit D provided the foundation, and would allow him to advise local governmental entities regarding what would be needed to convince the state to establish branch offices in West Wendover.
Chairman Arberry asked whether there were further comments or testimony regarding A.B. 76. Assemblyman Parks inquired whether the Department of Employment, Training and Rehabilitation (DETR) had a presence in West Wendover, and whether it performed similar activities. Assemblyman Carpenter stated it was his understanding that all services for the West Wendover area originated in Elko.
Chairman Arberry asked when the information regarding the revision of the fiscal note would be available. Ms. Ford stated that she would provide that information to LCB staff as soon as possible.
With no further testimony to come before the Committee regarding A.B. 76, Chairman Arberry closed the hearing, and indicated he would open the hearing regarding the review of the General Fund cash flow analysis. While awaiting the presentation from the State Treasurer, Chairman Arberry asked the Committee to consider introduction of the following bill draft request (BDR):
Chairman Arberry stated that BDR 23-399 was related to the Public Employees’ Benefits Program, and would require the Board of the Program to ensure that rates established for coverage were the same for all persons for that coverage who participated in the program, and prohibit the offering of options for coverage in a particular geographical area if such options were not made available in another geographical area of the state.
ASSEMBLYMAN GOLDWATER MOVED FOR COMMITTEE INTRODUCTION OF BDR 23-399.
ASSEMBLYMAN PARKS SECONDED THE MOTION.
THE MOTION CARRIED UNANIMOUSLY.
Chairman Arberry invited Mr. Krolicki to proceed with his presentation regarding the review of the General Fund cash flow analysis.
Brian Krolicki, State Treasurer, explained that the Committee had requested information from the Treasurer’s Office which would depict a weekly cash flow analysis from the present time through June 30, 2003. There were many issues such as tax increases before the Legislature for discussion, and Mr. Krolicki explained that cash flow and budget balancing were two very different exercises. The assignment for the Treasurer’s Office was cash flow, however, Mr. Krolicki was unsure whether the information would be sufficient for the Committee’s purpose, but it would provide a window into the Treasurer’s world.
According to Mr. Krolicki, the accuracy of the numbers within Exhibit E were subject to many different variables. The Economic Forum and others projected future revenues for the state, but it was not an easy task, and Mr. Krolicki explained that the sales tax figures from December 2002 were still unknown. He emphasized that it was a very difficult exercise that took several weeks, if not months, and he thanked the Committee for granting additional time to the Treasurer’s Office to complete the analysis.
Mr. Krolicki commended Mark Winebarger, Deputy of Cash Management, and John Adkins, Chief Deputy Treasurer, along with the staff of the Controller’s Office, who assisted in the compilation of the necessary information. Mr. Krolicki explained that the analysis used historical data, and there were over 450 budget accounts within the General Fund. He emphasized that it was unknown whether the Treasurer’s Office had all available information.
Mr. Krolicki referenced the cover letter contained in Exhibit E, which detailed some of the disclosures the Treasurer’s Office came forward with. The exhibit also contained a document entitled, “Statement of Materials Procedures and Assumptions,” which depicted the key information utilized in the preparation of the analysis. Mr. Krolicki referenced the chart entitled, “Average General Fund Cash Balances” contained in Exhibit E, and explained that was the average General Fund cash balance beginning in July of 2000. The events of September 11, 2001, fell in the middle of those figures, and produced a definitive trend, with the General Fund balance being significantly less today on average than it had been. Mr. Krolicki noted that the balance had regularly been within the $200 million to $250 million range, and today the balance was less than $100 million, which was considered quite good by the Treasurer for cash management purposes.
Per Mr. Krolicki, the crux of the cash flow analysis was depicted by the document within Exhibit E entitled “General Fund Deposits,” which outlined a weekly projection of the cash flow and expenses through June 30, 2003. Mr. Krolicki pointed out that the last page of the document projected, that as of June 30, 2003, if the state and the Legislature took no action in terms of utilizing the Rainy Day Fund reserves of $100 million, and did not implement revenue increases effective April 1, 2003, as requested by the Governor’s Office and others, the state would be in a negative cash balance of over $50 million. According to Mr. Krolicki, if the Legislature utilized the reserves in the Rainy Day Fund of $100 million, and the state realized the benefit of early revenues from the various recommended sources effective April 1, 2003, the state would have a positive cash balance of $51 million. One issue of note was the fact that even if certain revenues were slated to be increased effective April 1, 2003, those revenues would not be realized from a cash flow standpoint until July or August of 2003.
Mr. Krolicki reminded the Committee that the state closed its books at the end of August, and from an accounting standpoint in balancing the budget as of June 30, there were revenues that were not included in Exhibit E. Review of the figures depicted for June 30, 2003, and the offsets for supplemental appropriations, indicated that increased revenues would essentially be a “wash” with the expenditures. Mr. Krolicki commented that the state would realize an approximate $50 million positive balance, if the Legislature performed both of the aforementioned maneuvers involving the revenue in the Rainy Day Fund, and implementation of revenue measures effective April 1, 2003.
According to Mr. Krolicki, the state would have less than a 3 percent reserve in the Rainy Day Fund after utilization of the $100 million, which would leave a balance of $36 million. Essentially, explained Mr. Krolicki, if no action was taken prior to June 30, 2003, fiscally the state would be running on “fumes.” The Treasurer’s Office believed that would be highly imprudent, and a less than satisfactory way to steer a several billion dollar “ship.” Mr. Krolicki noted that the ability to steer the “ship,” as budgets were balanced and cash flows accessed, would take extraordinary lead time, and there were bond holders, credit rating agencies, and various others watching the state. Mr. Krolicki stated that essentially, the information contained in Exhibit E was the Treasurer’s best effort to be responsive to the request from the Committee, even though the figures were subject to variations.
Chairman Arberry thanked Mr. Krolicki and his staff for the effort put forth in completing the cash flow analysis (Exhibit E). He stated the information was critical and was needed for early review by the Committee.
Mark Stevens, Assembly Fiscal Analyst, LCB, stated The Executive Budget included the $100 million allocation from the Rainy Day Fund, and also contained a recommendation for a $50 million repayment to the Fund within the first fiscal year. He asked whether the figures provided by the Treasurer’s Office assumed the $50 million repayment would not be made in FY2003. Mr. Krolicki indicated that from a cash flow standpoint, any repayment would be after June 30, 2003. According to Mr. Krolicki, it was important to point out that even if there was not another September 11 event, or the economy turned around in such a way that the state could make ends meet with the $100 million from the Rainy Day Fund, the $50 million repayment would put the state much further ahead on replenishing the Rainy Day Fund going forward. Mr. Krolicki indicated that the state would realize a three-month window on the revenue if measures were implemented on April 1, 2003. It would be those who smoked or drank that would pay the additional taxes to help the state make it through to the end of the fiscal year.
Speaker Perkins commented that one of his concerns was the assumption that the Legislature wanted to raise taxes in order to put revenue back into the Rainy Day Fund, and he noted that would not be one of his reasons for considering tax increases.
Mr. Krolicki clarified that if the state did not have appropriate resources in place, it would play a very dangerous end game, because there would be no alternatives if the financial situation turned “sour,” but if the worst case scenario did not occur, and continued prudence was not deemed necessary, the $50 million repayment would give the state a head start in replenishment of the Rainy Day Fund. Mr. Krolicki emphasized that the effort was not about replenishment of the Rainy Day Fund, but rather was about making sure that the state could cover its liabilities at the end of the year.
Assemblywoman Giunchigliani felt the bigger issue was the fact that the Legislature continued to approve budgets that “over the long haul” contained “holes.” Once the problem had been identified, small “plugs” were used to fix those “holes.” Ms. Giunchigliani stated the Rainy Day Fund was duplicitous in and of itself, because it would be used as a one-shot fix for a “hole” from last session, and the Legislature would have to consider tax increases to deal with the problem. Ms. Giunchigliani opined that the Rainy Day Fund was one component, but the problem was a “moving target,” and she concurred with the comments made by Speaker Perkins, that replenishment of the Rainy Day Fund should not be the motivation for tax increases, if such increases met with legislative approval.
Assemblyman Beers remarked that at the beginning of the fiscal year, there was $90 million in General Fund reserves, and spending the Rainy Day Fund to fill the “hole” would not specifically address the situation that had created the “hole.” Essentially, the fundamental problem was that every month the state paid out more cash than it brought in. Mr. Beers indicated that spending the revenue from the Rainy Day Fund would not address the underlying problem, which was that revenues received were not as great as the spending.
John P. Comeaux, Director, Department of Administration, informed the Committee that one of the smartest things the Legislature had done was creation of the Rainy Day Fund in 1993, because of the nature of the revenue and economy in Nevada at that time. Mr. Comeaux explained that there were peaks and valleys in the structure, and the original idea was to use peak times to help fill in the valleys, in order to provide a consistent level of services to the people of the state of Nevada, no matter what the situation was regarding revenue. Mr. Comeaux stated he could not imagine cutting an additional $100 million from The Executive Budget, and noted that it would be very difficult to take such action before June 30, 2003.
Mr. Comeaux called the Committee’s attention to the “Statement of Projected Unappropriated General Fund Balance – Fiscal Years 2003-05,” on page INTRO‑2 of The Executive Budget. He advised the Committee that if the Legislature did not enact increases in excise taxes, business license tax, and other recommended increases effective April 1, 2003, the estimated approximately $84 million in revenue produced by those increases would be removed from the General Fund balance statement. Mr. Comeaux stated that the $50 million replenishment of the Rainy Day Fund would also be eliminated, which would leave the state with a net of approximately $34 million that would have to be deducted from the forecasted ending fund balance. That would leave an ending General Fund balance of approximately $71 million, plus the $36 million remaining in the Rainy Day Fund. Mr. Comeaux stated those two figures would provide the state with just over 5 percent in the ending General Fund balance, and based on his experience with the state’s cash flow over the past few years, that 5 percent ending balance would provide the state with a cash flow that was marginally adequate. According to Mr. Comeaux, the forecast depicted in The Executive Budget periodically contained negative numbers, when the state went into the “red,” but the bottom line was ensuring that the state would be able to pay its bills.
Mr. Comeaux emphasized that if the Legislature failed to implement the recommended tax increases effective April 1, 2003, the state could still pay the bills, if revenues came in as forecast by the Economic Forum, if the state experienced reversions to the extent forecast, and if everything on the General Fund balance statement occurred the way it had been estimated, as depicted on page INTRO-2 of The Executive Budget. If revenues decreased because of another incident such as the September 11 attacks, Mr. Comeaux reported the state would have no further options, because the Rainy Day Fund would no longer be available. He opined that even if the Governor called a special session of the Legislature, the opportunity to receive the revenue from early implementation of the proposed taxes would be gone. Mr. Comeaux emphasized that the estimate of the General Fund balance for FY2004 was not much better, and the state would have to hope for the best over the upcoming biennium, and that the revenue situation would improve dramatically. That was assuming that the Legislature passed The Executive Budget, which included reduced expenditures to achieve the recommended General Fund balance. Mr. Comeaux believed the state would be placed in a risky situation if the tax increases were not approved for implementation during the current fiscal year.
Chairman Arberry noted that the nation was faced with the possibility of war. When the budget was constructed, a portion of the revenue was based on projected tourism, and he asked what would occur should the revenue from tourism not materialize as predicted. Mr. Comeaux replied that if revenues were not received as predicted, the state would experience difficulties. He called the Committee’s attention to the chart contained in Exhibit E entitled, “Average General Fund Cash Balances.” The figures for the period between September 2001 and November 2001 had fallen dramatically, and Mr. Comeaux stated that would happen again should another incident occur. The state’s economy was heavily tied to tourism, and Mr. Comeaux stated if people were afraid to fly or afraid to spend money, Nevada would experience financial problems.
Mr. Comeaux opined that was why the Rainy Day Fund had been created, to ensure that resources would be available for the state when revenue was not realized as predicated; he noted that the state had experienced that type of problem at least three times within the past 22 years. Mr. Comeaux stated war or another terrorist event could make the numbers even worse, and he believed the Legislature had been smart ten years ago when it established the Rainy Day Fund. The state had not been facing the same situation then as it was now, and the consequences would be much more dramatic now than anyone thought possible ten years ago.
Assemblyman Goldwater asked what action would be recommended relative to the comments made by Speaker Perkins regarding replenishment of the Rainy Day Fund, and did Mr. Comeaux believe replenishment was absolutely essential. Mr. Comeaux emphasized that he believed it was absolutely essential to replenish the Rainy Day Fund, which would begin during the current fiscal year. The remainder of the Governor’s budget plan did not provide for additional money to be allocated to the Rainy Day Fund until the second year of the biennium, FY2005. Mr. Comeaux noted that should the Legislature not approve the recommended additional taxes, and took other action in an effort to balance the budget prior to adjourning the session, and some incident occurred that caused a decline in revenues, he did not think the Governor or Legislature could react fast enough to prevent the state from being forced to take very drastic budget action.
Mr. Krolicki indicated that there was value to the Rainy Day Fund outside the Fund in and of itself, and that was as a reserve. He pointed out that the cost of debt for Nevada was largely based on the state’s ability to pay bills, and the Rainy Day Fund played a large part in that equation. Mr. Krolicki advised that the state had received an update last year from Fitch Ratings, however, if the state no longer had the appropriate resources, Fitch would take notice, and Nevada could be downgraded, which meant the cost of its debt would be substantially higher. He also pointed out that another value of the Rainy Day Fund was to ensure that those persons who currently held Nevada securities would not lose money.
Assemblyman Goldwater appreciated the ratings, however, stated the Legislature had not been convened to serve the rating agencies, but rather to serve the people of the state of Nevada. He opined that it would be difficult to raise taxes to replenish the Rainy Day Fund rather than improve programs. Mr. Goldwater stated it represented a $50 million insurance policy, and asked whether the state had the ability to borrow for cash flow purposes. Mr. Krolicki said the state had some revenue anticipation note ability, however, essentially could not borrow for cash flow purposes.
Assemblyman Beers stated on January 31, the state had a negative cash balance, and was projected to again have a negative balance on March 28, and both of those events were prior to tapping the Rainy Day Fund revenue. Mr. Beers asked where the state was borrowing money to stay afloat, because a negative balance in the General Fund would necessitate borrowing cash. Mr. Krolicki pointed out there were two different ways to look at “cash.” One was cash on the books and one was cash in the bank. That essentially depicted the difference between the Treasurer’s Office and the Controller’s Office. According to Mr. Krolicki, from a cash management standpoint, hopefully the Treasurer’s Office would invest monies immediately, and worry about the paper trail at a later date. Mr. Krolicki stated if the Treasurer’s Office was able to identify the cash and verify that it would be received, it would make a payment, which was part of cash management. He further explained that a warrant would not be paid by the Treasurer’s Office without sufficient cash.
Mr. Beers asked whether the $6.5 million negative cash balance of January 31 actually borrowed from the Rainy Day Fund and was immediately repaid. Mr. Krolicki pointed out there was a general portfolio, which included different monies in different accounts. The Treasurer’s Office viewed the situation from a cash standpoint rather than from each account within the general portfolio and the different budget accounts within the General Fund. The Treasurer’s Office constantly utilized the available resources, however, in no way would it violate any prudent, or personal fiscal standard. Mr. Krolicki stated that was the reason the Distributive School Account (DSA) Fund was allocated on a monthly basis, because cash was not available on a quarterly basis.
Mark Winebarger, Deputy of Cash Management, informed the Committee that when the fund went into negative cash, the money would be drawn from the pool of cash, rather than any particular fund. There was no accounting entry that identified borrowing of money for the General Fund. Mr. Beers asked whether there was a “checkbook” for the General Fund, and how many accounts were involved in the General Fund. Mr. Krolicki explained there were many bank accounts set up for the state of Nevada, however, for the purpose of the General Fund, there was only one bank account. Mr. Beers stated it appeared the cash was available from other funds, and if the state attempted to account for an actual physical transaction on an accounting basis, it would amount to a short-term transfer receivables repayment. Mr. Krolicki indicated that reconciling the books to cash on a real-time basis was not possible.
Speaker Perkins appreciated the comments regarding the Rainy Day Fund, and believed it had great value, whether or not it helped the state’s bond ratings; however, he did not believe the case had been made to the public that the state budgets were as “lean” as they could be. He reiterated that the case had not yet been made to the public, and it would be difficult to approach that same public with an increase in taxes to put $50 million into a bank account. Speaker Perkins opined that perhaps the Legislature could reach that point if the proper information was provided to the public over the course of the next few weeks.
Mr. Comeaux hoped that he had made his point regarding the Rainy Day Fund, and stated he understood the remarks made by Speaker Perkins. He believed the Rainy Day Fund was vital to the state, and it was critical for the state to have an avenue available when and if revenues declined, and one which could be quickly accessed. Mr. Comeaux emphasized that the Rainy Day Fund provided that avenue.
Mark Stevens, Assembly Fiscal Analyst, provided an update for Committee members regarding upcoming hearings.
With no further business to come before the Committee, Chairman Arberry adjourned the hearing 4:32 p.m.
Carol Thomsen
Committee Secretary
APPROVED BY:
Assemblyman Morse Arberry Jr., Chairman
DATE: