MINUTES OF THE meeting

of the

LEGISLATIVE COMMISSION’S BUDGET SUBCOMMITTEE

 

Seventy-Second Session

January 24, 2003

 

 

The Legislative Commission’s Budget Subcommittee was called to order at 8:36 a.m., on Friday, January 24, 2003.  Senator William J. Raggio presided as Chairman in Room 4100 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.

 

SENATE COMMITTEE MEMBERS PRESENT: 

 

            Senator William Raggio, Chairman

            Senator Barbara Cegavske

            Senator Bob Coffin

            Senator Bernice Mathews

            Senator Raymond Rawson

            Senator Dean Rhoads

            Senator Sandra Tiffany

           

 

ASSEMBLY COMMITTEE MEMBERS PRESENT:

 

Mr. Walter Andonov

Mr. Bob Beers

Mrs. Vonne Chowning

Mrs. Dawn Gibbons

Mr. Lynn Hettrick

Ms. Sheila Leslie

Mr. John Marvel

Ms. Kathy McClain

Mr. David Parks

Mr. Richard Perkins

 

 

ASSEMBLY COMMITTEE MEMBERS ABSENT:

 

Mr. Morse Arberry Jr. (excused)

Ms. Chris Giunchigliani (excused)

Mr. David Goldwater (excused)

Mr. Josh Griffin (excused)

 

 

STAFF MEMBERS PRESENT:

 

Mark Stevens, Assembly Fiscal Analyst

Gary Ghiggeri, Senate Fiscal Analyst

Bob Guernsey, Principal Deputy Fiscal Analyst

Bob Atkinson, Program Analyst

Mindy Braun, Education Program Analyst

Lila Clark, Committee Secretary

Connie Davis, Committee Secretary

 

Chairman Raggio announced that the subcommittee would review the budgets of the Department of Education and the Department of Taxation, beginning with an overview of the Department of Education. 

 

DEPARTMENT OF EDUCATION

BUDGET PAGES K12ED 01-06 AND 12-85 - VOLUME I

 

Chairman Raggio acknowledged Dr. Jack McLaughlin, Superintendent of Public Instruction; Dr. Keith Rheault, Deputy Superintendent for Instructional, Research, and Evaluative Services; Mr. Douglas C. Thunder, Deputy Superintendent, Administrative and Fiscal Services; and Ms. Gloria Dopf, Director of Special Education, Elementary and Secondary Education Act (ESEA), and School Improvement. 

 

Chairman Raggio asked Dr. McLaughlin to tell the subcommittee about the restructuring planned by the Department of Education.  He asked when the Department anticipated implementing the restructuring and how it would be implemented.  Dr. McLaughlin said that the restructuring was addressed on page 4 of Exhibit C.  He indicated he would explain the restructuring in his presentation. 

 

Dr. McLaughlin referred the subcommittee to pages 1 and 2 of Exhibit C, which pertained to the State Board of Education’s goals.  The first goal dealt with academic proficiency and career preparation.  He pointed out the list of the Board’s priorities and said that although the Board did not have direct responsibility for a number of areas that would further their agenda, the Board did support that learning was the number one priority in Nevada, or any other state.  The other goals‑quality instruction, student assessment, accountability, information and support systems, and funding levels‑were also major goals of the Department that supported the primary goal of academic proficiency and career preparation. 

 

Dr. McLaughlin pointed out the Department’s organization chart on page 3 of Exhibit C that existed when he became Superintendent two years before.  He said that he believed the Department was not organized in a fashion to really deliver on the number one goal of academic achievement.  The Department must be involved in instructional improvement and structural support to schools.  The chart shown on page 4 of Exhibit C showed how the Department had been reorganized since July 2002 with an emphasis on instructional support and instructional improvement.  There were no additional directors or staff included in the reorganization other than those granted by the Seventy-first Session of the Nevada Legislature or those who would be hired under a given federal project.  He said the right side of the chart dealt specifically with operations managed by Mr. Thunder.  The left side of the chart showed operations managed by Dr. Rheault.  According to Dr. McLaughlin, the Nevada State Board of Education had designated Ms. Dopf as Assistant Deputy even though she had received no raise in salary. 

 

Chairman Raggio pointed out that the change made to Ms. Dopf’s title could be referred to as a title in lieu of salary and Dr. McLaughlin agreed.  Dr. McLaughlin indicated that Ms. Dopf had increased responsibilities from the federal No Child Left Behind Act (NCLBA), Special Education, and the increased number of staff.  He indicated that the second and third columns from the left of the chart on page 4 of Exhibit C showed the changes in the School Improvement box and the Curriculum Development box.  According to Dr. McLaughlin, there would definitely be a role in the future for the state to support curriculum development.  He said the least intrusive way to help with the No Child Left Behind Act was to recommend a curriculum for a school or its district.  Dr. McLaughlin said that even though the Department had borrowed from every area in order to reorganize staff, the Department took great pride in creating new acronyms, such as school improvement in Nevada for Student Achievement Gap Elimination (SAGE), shown on page 5 of Exhibit C.  Dr. McLaughlin offered that the reorganization of the Department was focused on school improvement, in addition to everything else the Department did.  As additional positions were brought in through grants, school improvement and curriculum development would be “bulked up.”  In order to accommodate the No Child Left Behind Act and the real possibility that large numbers of Nevada schools would be designated in need of school improvement and would have to write school plans, Dr. McLaughlin felt that the reorganization was the right thing to do for Nevada.  The reorganization went into effect on July 1, 2002, according to Dr. McLaughlin. 

 

Dr. McLaughlin said he had included one page of the SAGE document, page 5 of Exhibit C; however, the entire publication was currently being printed and he would ensure that the subcommittee received the entire publication regarding school improvement.  He said that currently the Department did not have adequate staff to visit every Nevada school, so the schools would be sent the publication and advised of ways the schools themselves could become involved in school improvement.  He said that pages 6 through 31 contained information that a school could use to review its own programs, staff, staff training, and how well the staff was prepared.  Dr. McLaughlin stated that he had taken suggestions offered by many of the subcommittee members regarding the questions the Department of Education should be asking schools.  Even though the Department was not able to monitor all schools directly, it could definitely ask questions and when the schools submitted their plans, the Department would be analyzing the information received through SAGE.  The publication would tell the Department how it could help schools or provide resources. 

 

Dr. McLaughlin said Senator Cegavske had previously asked if the Department ascertained whether schools used state textbooks.  He said they had no mechanism to retrieve prior information but now SAGE would determine if schools were using textbooks adopted by the state.  He said the Department was trying its best with the resources available to focus on school improvement. 

 

Chairman Raggio stated that he had looked through Exhibit C and wondered if the pages beginning with the SAGE document on page 5 were meant to be a self-assessment for various schools or districts.  Dr. McLaughlin replied that since the Department did not have the manpower to make on-site assessments at all schools, the publication would be given to all the schools in the state to use as a self-checklist.  He believed that if a school used the SAGE document, the school would be better prepared to complete a school improvement plan.  All schools would be writing school improvement plans in the future, and the SAGE evaluation process would be a good start for schools to reassess what they were doing. 

 

Chairman Raggio commended Dr. McLaughlin on the project, and Dr. McLaughlin relayed that Ms. Dopf’s staff had done a great job on the project. 

 

Assemblywoman Chowning asked who filled out the data profile in the SAGE program.  She said she believed the Department had the information contained on page 8 of Exhibit C and she wondered if the schools were being asked to fill out the information as a comparison to the information known to the Department.  She believed it was important to have a true picture of the school, including the number of Limited English Proficient (LEP) students. 

 

Ms. Dopf responded to Mrs. Chowning’s question and stated that SAGE was a vehicle to collect information; the school and school support team, if applicable, would review the checklist to make their analysis.  The schools would look at the data based on information the Department had provided to the schools through the profiles on performance of the statewide assessment.  The statewide assessment would be provided in a disaggregated fashion through the office of Dr. Paul LaMarca, Director, Assessment, Program Accountability and Curriculula.  Ms. Dopf stated that in addition, there was an area for the district assessment and the supplements to the state assessment process.  That would be the material the schools and the districts would bring in uniquely because they had the classroom information.  That material would also be balanced in how they developed the profile.  In summary, Ms. Dopf said the Department would be providing the schools with information on the state assessments, and they would provide information on their own assessments and classroom reviews.  The schools would also use some of the additional information contained in the SAGE publication for teacher interviews and the other tools schools could use to broaden the information provided by the state.  SAGE was intended to create a profile on each of the content areas from a broad base of information; the state information assessment system would be one of the information sources. 

 

Senator Cegavske asked if the Department would conduct spot checks to evaluate the accuracy of a school’s response to the SAGE questions.  Dr. McLaughlin answered affirmatively.  Senator Cegavske asked if an evaluation from the parents would be part of the process and Dr. McLaughlin indicated it would be.  Senator Cegavske asked if the responses from the parents would be collected as data to be presented to the Legislature. 

 

Ms. Dopf said that in terms of the presentation and the spot checking, there were 12 schools currently designated as schools in need of improvement, for whom the SAGE program was not a voluntary process; it was required for fulfillment of the law pursuant to the No Child Left Behind Act. 

 

Senator Cegavske asked if the Department of Education would physically go in to the schools to do an evaluation and not rely on a self-evaluation.  Ms. Dopf replied that the Department, at the request of the school or the district, was part of the support team that was part of the review.  She said that the Department of Education had been asked to be a member of the support team in 5 sites out of the 12.  The others had the option to have an external person or persons on the support team or a combination of Department staff and external members.  Regardless of the composition of the support team and who completed the analysis, the Department had to look at the improvement of the schools to see if the plan yielded improvement.  The schools had two years to show improved achievement in order to remove the designation of a school in need of improvement.  In regard to the specific collection of information by the Department, she said that one piece of data would be provided externally in a separate process.  The parental component was part of the whole analysis and the Department would provide any information it had at the request of the Legislature as the process unfolded. 

 

Senator Cegavske asked if the Department considered that the data collected might be something the Legislature would want to look at.  Ms. Dopf replied that the entire information base would be something that ultimately the Legislature would want to look at.  She believed that the reports of the final results would be made to the Legislature. 

 

 

Senator Cegavske asked how long the response time to parents had been after the reorganization of the Department.  She wondered if the Department had kept a log of the calls with the response time. 

 

Ms. Dopf answered that in the special education area the Department had direct responsibility and oversight responsibilities.  Parental calls were received directly by their office and the problem resolution process was utilized either through referring the callers to due process or to initiate a complaint.  She said she did not keep a time log per se, but a log was kept to assure that all calls and correspondence were responded to. 

 

Senator Cegavske said her concern was the length of time it took for the Department to respond to parental questions, and she offered to discuss the matter privately with Ms. Dopf.  Senator Cegavske said she hoped that when the restructuring of the Department took place, some of the concerns of parents would be addressed. 

 

Ms. Dopf said she was unaware of specific concerns regarding the amount of time taken for Department response in areas under her jurisdiction.  Senator Cegavske said her concern was not directed at special education; her concerns were overall and she wanted those concerns noted for the record.

 

Dr. McLaughlin introduced Mr. Douglas C. Thunder, Deputy Superintendent, Administrative and Fiscal Services, and said Mr. Thunder would continue with the Department’s proposed budget. 

 

Mr. Thunder reported that the Department of Education had 19 budgets in The Executive Budget, including the Distributive School Account (DSA).  The DSA budget had been discussed at a prior meeting of the subcommittee.  He said the DSA was almost exclusively aid to schools.  The other 18 budgets were for the operation of the Department and accounted for a variety of federal and state programs.  He referred the subcommittee to pages 32 and 33 of Exhibit C for indices to help the subcommittee find specific budgets.  He said the indices also would help the subcommittee understand the comparative size of the budgets; the Department had simply provided a total for each budget account, which included all the decision units in those budgets and the total number of full-time equivalent (FTE) positions. 

 

Mr. Thunder continued by referring the subcommittee to pages 34 and 35 of Exhibit C for information regarding each budget and funding source.  The budgets were grouped into several categories and color-coded on pages 34 and 35 based upon their function.  Budget Accounts 2673, 2719, and 2720 were accounts that provided administrative support throughout the Department.  BA2673 was primarily state funding.  Budget Account 2719 was a new budget account that was added in the Seventy-first Session of the Nevada Legislature to facilitate the handling of employees who were paid out of more than one program.  They had been combined in that account and the funds to support them had been transferred from the original accounts.  Budget Account 2720 was funded by indirect costs collected from all the administrative expenditures in all the other budget accounts. 

 

Mr. Thunder continued by describing the next group of budget accounts as those that did not receive federal funding for specific purposes.  He had included BA2610 in that group, because it was the largest account the Department had.  He further described BA2697 as Student Testing Programs, BA2705 as Teacher Licensing, and BA2699 as Other State Programs.

 

Mr. Thunder went on to describe the next group of seven budget accounts as those that were federal programs that had no requirement for state funds.  One of the programs did have a matching requirement but not by state appropriation. 

 

Continuing on, Mr. Thunder described the next five accounts as federal programs that did have some state matching requirements.  They included Occupational Education, Nutrition Programs, Continuing Education, and the Student Incentive Grants.  The NRS 395 Program, which previously had its own budget account, was now included with that group as the state was required to match the funds for the students involved in the program on a 50-50 basis. 

 

Mr. Thunder said the next item on page 35 of Exhibit C showed Department totals and the amount available that the Department used for administration compared to the total.  He called the subcommittee’s attention to the fact that the amount used for Department administration was 1.06 percent of the total in the first year of the biennium and 1.01 percent in the second year.  He said the total of all the budgets was $1.17 billion in the first year and $1.22 billion in the second year. 

 

Mr. Thunder referred the subcommittee to pages 36 through 39 of Exhibit C and said he had attempted to display visually how the budget accounts fit together.  The color-coding of the budgets referred to how the budget accounts were funded.  For example, yellow coding indicated state appropriations, blue coding indicated federal programs, green coding was used only for the state Distributive School Account, pink was used for state-funded enhancements, and the purple coding was used to indicate that the total of that unit was not included in the total for the budget account.  The reason was that in many cases there had been an increase in funds needed and since there was no additional revenue source, the money to offset the increases was taken from another category.  It was an expense but it did not show up as revenue and the chart was primarily a report of the revenues of the various accounts. 

 

Chairman Raggio commended Mr. Thunder for the charts shown in Exhibit C being very clear.  He said it was the first time he had seen the budget accounts displayed in that manner and he found it very helpful. 

 

Mr. Thunder continued his presentation by commenting on the number of positions requested by the Department.  The total number of positions requested in The Executive Budget was 134.5.  Of the 134.5 positions, 46 positions, 34 percent, would be completely state-funded.  Fifty-five and one-half, 41.26 percent, positions would be completely federally funded.  Mr. Thunder said there would be an additional 12 positions funded from other sources; those were primarily the people employed in the Teacher Licensing Office and the salaries were paid from the licensing fees.  There were 21 positions, 15 percent, paid out of the indirect cost category.  The source for that funding was the administrative expenditures in the other budget accounts.  Mr. Thunder asked for two new positions in the budget.  One was in an M-200 decision unit in Budget Account 2673 and one was for an Administrative Aid II to help work with the schools in need of improvement as required by the Nevada Education Reform Act of 1997 (NERA).  Mr. Thunder said he would discuss the need for the second position later in his presentation on the Statewide Management of Automated Record Transfer (SMART).  The Department was asking for a SMART programmer, a position had been granted by the 2001 Legislature but had not been filled due to the financial situation in the state.  Because it had not been filled, it had been removed from the budget and the Department was asking that it be restored. 

 

Assemblyman Beers asked Mr. Thunder to describe the impact of the delay in hiring the SMART programmer.  Mr. Thunder said the Department had several vacant positions that had not been filled.  In most cases, the new positions did not involve state General Funds and the Department had been able to fill the positions.  He said he would provide details to the subcommittee regarding which positions had been left vacant and the effects of those vacancies. 

 

Mr. Beers said he believed the SMART system was supposed to provide a district-by-district comparison of a number of statistical analyses.  He asked if that ability had been compromised because the programmer position had not been filled. 

 

Mr. Thunder advised the subcommittee that a discussion of the SMART system would be held later in the presentation and he would answer questions then. 

 

Mr. Thunder told the subcommittee what had happened to the 8.5 FTE positions approved during the Seventy-first Session of the Nevada Legislature.  The Distributive School Fund (DSA) Administrator had been a very valuable addition to the Department.  For the first time, the Department had been able to document many of the elements of the DSA that had not had good documentation in the past.  He believed the position had been a wonderful addition to the Department.  Mr. Thunder said the Charter School Consultant had been a half-time position prior to the last session of the Legislature.  The position was made a full-time position by the Seventy-first Session of the Nevada Legislature.  At the time of that session, the Department had applied for a federal grant that had administrative money allotted for charter schools; the understanding was that if the grant were secured the half-time position that the Department had requested would be made full time and would be funded by the federal program.  The federal program became effective October 2001, and from that time the full-time position had been filled and the additional half of the funding had come from the federal program and the existing half of the position continued to be funded by the state program. 

 

Senator Cegavske said she would like to make a comment regarding the grant writer position after Mr. Thunder completed his discussion of the position. 

 

Mr. Thunder went on to say that the Department had hired an Assessments Consultant for criterion-referenced tests (CRTs) and two additional auditors.  The auditors had been very important with the addition of charter schools.  The Department had been able to visit all Nevada school districts each year; previously, the auditors visited each district every other year.  A half-time Administrative Aid position had been combined with another position the Department had available to provide service to both the Charter School Consultant and the auditors.  An Information Systems Specialist was hired to handle the Department’s variety of networks and all computerization duties.  One person had been providing all the technology needs of the Department, and the addition of the Information Systems Specialist had helped greatly in reducing the workload.  Mr. Thunder said the Department had also hired an Account Clerk to serve the increased staff and increased programs that required travel and other fiscal services support.  The final position the Department filled was a half-time Grants and Program Analyst position, which had been approved on a temporary basis, and was made a full-time position by the Seventy-first Session of the Nevada Legislature.  However, there had been no funding designated for the program.  The person had been hired on a full-time basis and was being paid out of federal funding. 

 

Dr. McLaughlin said he appreciated that the position was authorized even though it was an unfunded position.  He said the position had been filled by utilizing federal funds even though it was specific in the federal rules that the position could not be used to write grants.  The person hired had been able to screen grants and furnish potential sources to other employees.  Also, the position had been directly involved in the Department securing a highly competitive $2.5 million Character Education Grant.  There was $15 million available for the grant nationwide and Nevada was able to secure $2.5 million of that, to be disbursed over a four-year period, as a direct result of the position the subcommittee helped establish during the last session of the Legislature.  Dr. McLaughlin stated that the Department was trying to determine additional creative ways to fund the position using private sources.  If it were to be funded privately, the position could be used primarily to seek and apply for grants.  He said the position was somewhat limited currently because the position was funded out of federal funds. 

 

Senator Cegavske commented that she believed the position was previously a position paid as a half-time position and the last Legislature made it a full-time position.  She said she believed the Department had asked to do away with the position in the last session of the Legislature but it had instead been made a full-time position.  Senator Cegavske said she was very happy that the Department had secured some federal grant money.  She asked how many grants the Department had applied for statewide and nationally.  She emphasized that Nevada lost out on many dollars yearly because it did not even apply for them.  Senator Cegavske requested that she be kept abreast of the dollar amount of grants that the Department had applied for and she said she would share with the Department the list of grants that Nevada had not even applied for. 

 

Dr. McLaughlin asserted that the Department had been very aggressive in directly applying for grants or partnering with others on grants.  He said that Dr. LaMarca had just heard a rumor that Nevada had been chosen by the Chief State School Officers as the lead in a national assessment grant, although the official documentation had not yet been received.  He reiterated that Nevada was very aggressive in pursuing grants and he would provide the subcommittee a list of grants applied for. 

 

Mr. Thunder continued his presentation by directing the subcommittee’s attention to the boxes highlighted in yellow, the state-funded programs and decision units, on pages 36 through 39 of Exhibit C. In some cases, the budget account was repeated, which had been done when one side was state-funded and the other side federally funded.  The display showed the division of funds.  The exhibit showed the adjusted base, which was what was expended in the base year minus one-time expenditures and equipment costs.  The base was also adjusted for personnel costs and annualized any expenditures that were for part of a year.  Mr. Thunder said M-100 decision units were normally an inflation category and there were not very many M-100 decision units included in The Executive Budget.  He said the dollars that were shown in the M-100 categories were added to the budget late in the process.  They were increases in the state rent and various assessments by the state. 

 

Mr. Thunder went on to say that the increases in the employee fringe benefits, or costs to the employer for having the employee, were included in the M-300 decision units.  The primary increases in those decision units were the increased costs of the Public Employees Retirement System (PERS), which increased from a rate of 18.75 percent to 20.25 percent for the employer-paid plan.  Also, the increase in group insurance was included in the M-300 decision units. 

 

Mr. Thunder said the E-125 and E-600 decision units reflected the effect of the Governor’s request for 3 percent budget reductions and the “two times rule” that implied agencies were not allowed to ask for more than twice the funding for the coming biennium than they had received in 2003. 

 

Continuing, Mr. Thunder said the E-710 decision units were for replacement of equipment, primarily computer equipment.  The Department had a four-year replacement cycle.  In Budget Account 2673, the E-710 number was higher than expected due to the Department’s delay in the purchase of computers in the current biennium due to the revenue shortfall.  The amounts needed for the replacement of equipment were shown in the E-710 decision units for FY2004. 

 

Assemblyman Beers announced that the good news was that computers were cheaper and faster.  Mr. Thunder added that some of the operators were, however, not faster. 

 

Mr. Thunder advised the subcommittee that there were two enhancements that involved state money.  The first was E-325 in Budget Account 2699, shown on page 38 of Exhibit C.  Mr. Thunder said the E-325 decision unit reflected the continuation of signing bonuses for teachers.  The bonuses were $2,000 for a teacher new to the state of Nevada and funded by a one-time $10 million appropriation to be used over the 2 years.  Mr. Thunder did not have with him the amount that had already been spent but said he would provide the information to the subcommittee. 

 

Chairman Raggio asked if the signing bonus was $2,000 in the first year and $2,500 in the second year of the biennium. 

 

Mr. Thunder answered that was what the Legislature intended; however, the amount included in The Executive Budget only provided for $2,000 in each year.  Mr. Thunder reported that nearly $5 million had been used in the first year of the biennium, and if $2,500 had been granted for the second year it would most likely have exceeded the appropriated amount. 

 

Assemblywoman Gibbons asked if the $2,000 signing bonus had caused any jealousy in the already-employed teachers in the state. 

 

Dr. Rheault answered that he had not been made aware by school districts of any problems.  The information he had received was that the bonus had been a great boon to recruit young new teachers to whom $2,000 made a big difference when they had to move to the state, set up a household, and get busy teaching.  He said he noticed last fall that the only school district that still had real trouble recruiting teachers was Clark County School District.  Every other district had enough applicants and he believed that allowing the $2,000 incentive, although it did not seem like a great deal of money, went a long way in recruiting young teachers.  Dr. Rheault noticed a great improvement in the number of filled positions when school started in fall 2002, and he believed that was primarily based on the signing bonus incentive. 

 

Chairman Raggio asked a question about decision unit E-325, funding for the certification of school counselors and school psychologists.  He wanted to know if the funding reimbursed school counselors and school psychologists for their costs in obtaining national board certification, similar to what had been done previously for teachers. 

 

Mr. Thunder said the decision unit had been included in The Executive Budget based on a request on behalf of the counseling community and said he would provide additional information to the subcommittee on the decision unit.  Mr. Thunder said it was included in the second year of the biennium in Budget Account 2699 on page 38 of Exhibit C.  He said $285,460 was included in the decision unit and it had been patterned after the teachers’ national board certification. 

 

Chairman Raggio asked Mr. Thunder to explain what good purpose would be served by including funding for the certification of school counselors and school psychiatrists.  He said he knew that the Legislature wanted to encourage teachers to be certified and he wondered if the funding was to begin the process to encourage better-trained counselors and psychologists. 

 

Dr. Rheault answered that the purpose would be to encourage better-trained counselors and psychologists.  He said there were national standards that were well above what Nevada required for licensure, similar to the national board certification available for school psychologists and counselors. 

 

Chairman Raggio asked Dr. Rheault how many counselors or psychologists the funds requested would reimburse. 

 

Dr. Rheault said to calculate the figures he took the total number of school counselors and school psychologists and calculated 10 percent of those per year that might be eligible to complete the program.  He said the reimbursement would be limited to a maximum of $2,300 per successful applicant.  There would be no reimbursement if the applicant did not receive the certification.  As an example, Dr. Rheault said approximately 50 percent of the teachers that attempted the certification were successful.  Dr. Rheault said the success rate was about the same for school counselors in their national certification process. 

 

Senator Cegavske said that it was almost better for school counselors and psychologists to go into the private sector for earnings and there had been opposition from the Teachers’ Association to the reimbursement proposal.  She was curious to know whether the State Board of Education had contacted the Teachers’ Association and made an agreement in order to gain their support.  She said there were not enough special education teachers, school counselors, and school psychologists because there were not enough to go around.  In talking to them, they had said it was easier to go into private practice than it was to work for a school system.

 

Dr. Rheault commented that he had heard of some resentment because counselors and school psychologists had access to the national exam, but they had not been eligible for reimbursement nor had they any incentive to go after it. 

 

Senator Cegavske asked if the State Board of Education had discussed the bonuses with the Teachers’ Association and, if so, did the Teachers’ Association support the bonuses. 

 

Dr. Rheault said he believed the Teachers’ Association was aware of the proposal but he did not have anything in writing.  He said he would make a point of meeting with the Board to discuss the topic and report back to the subcommittee. 

 

Assemblywoman Chowning questioned Dr. Rheault on Budget Accounts 2610 and 2699.  She said BA 2610 proposed a full-day kindergarten for 450 at-risk schools and yet there were no additional personnel requested.  She asked if the existing staff would be able to handle the full-day kindergarten.  She also wanted to know if in Budget Account 2699, it was the Governor’s and Department’s desire to not fund board certification for teachers. 

 

Dr. Rheault said the funding for the board certification decreased.  The Department had been allocated more money in the last biennium than was being requested in The Executive Budget.  Part of the reason was that the Department had applied for federal funding that was available to support national board candidates, and in the current fiscal year the Department had received $68,000 in federal funds that could be used to subsidize the candidates in advance that would not have to be paid back.  The number the Department had estimated would successfully pass board certification in the last biennium had not been met.  There had been approximately 80 applicants each year and of those, 40 passed in the last year.  The federal funds secured by the Department to support the program were adequate and all the state funds that had been requested in the last biennium were not needed.  Dr. Rheault said he had worked with Legislative Counsel Bureau staff and he believed the requested amount would adequately fund what the Department had projected for new national board certified teachers in the next biennium. 

 

Mrs. Chowning suggested that if the federal funds were no longer available in the future, the Department would be back asking the Legislature for funding.  Dr. Rheault said that would be a possibility although the Department had received the federal funds for the last four years and there had been no indication they would be dropped. 

 

Mr. Thunder advised the subcommittee that concerning the kindergarten issue, when the Department requested the full-time kindergarten it requested additional staff for the program.  Unfortunately, because of the revenue situation, it had not been included in The Executive Budget.  He said that at some point if the program were approved, they would need additional staff. 

 

Chairman Raggio asked for confirmation that the Department would need additional staff if the full-day kindergarten for at-risk schools were ultimately approved. 

 

Mr. Thunder said the Department would make do but it was a pressure that eventually would force them to ask for additional staffing.  He reported that one additional education consultant and support staff had been included in the agency’s request but had been dropped due to the economic conditions in the state. 

 

Assemblywoman Leslie said that during the last session of the Legislature, requests for one-shot appropriations had been rolled into the base budget on the Public Broadcasting and the Peer Mediation Program.  She thought the funds had been rolled forward into the first year of the next biennium, but not into the second year, and she asked the Department to explain the rationale for that. 

 

Mr. Thunder said $50,000 for the Peer Mediation Program had been provided in the last budget in the first year but was available in either year of the biennium.  He said it had all been expended in the first year and the Budget Office had requested that the funds again be available in either year of the biennium. 

 

Ms. Leslie said it was her recollection that the funds be available in either year of the biennium. 

 

Mr. Thunder continued by saying that he believed the funding for the Public Broadcasting program was a one-shot appropriation and was never included in the base budget.  Mrs. Leslie said she believed that funding had been included in the base budget.  Mr. Mark Stevens, Assembly Fiscal Analyst, confirmed that the funding was rolled into the base budget. 

 

Mr. Thunder said the funding for the Public Broadcasting Program was included in the first year of the biennium only and it was not included in the second year of The Executive Budget. 

 

Chairman Raggio asked if there was an amount included for the national board certification program.  Mr. Thunder said he had just noticed there was an error in the budget.  He said the Department would work with the fiscal staff to correct the problem. 

 

Dr. Rheault said he would check to see if some of the funding had been rolled into the Counselor Certification Program.  He planned to research the problem and clarify it for the subcommittee. 

 

Mr. Thunder continued his presentation with a discussion of other General Fund expenditures.  The Proficiency Testing account, Budget Account 2697, contained Norm-Referenced Tests (NRTs) for grades 4, 8, and 10, formerly known as TerraNova, that was replaced by the Iowa Test of Basic Skills (ITBS); the writing tests in grades 4, 8, 11, and 12; the High School Proficiency Examination (HSPE) and the Criterion-Referenced Tests (CRTs) for grades 3, 5, and 8, which were based on new academic standards.  That budget account also provided some administrative funds for the Commission to establish academic standards.  The funding for the National Assessment of Educational Progress (NAEP) had been removed from Budget Account 2697 because the Department had received federal funding for it that had been included in Budget Account 2706, Discretionary Grants - Unrestricted. 

 

Chairman Raggio asked for confirmation that the funding was still available for the NAEP Program and Mr. Thunder confirmed that it was. 

 

Mr. Thunder referred the subcommittee to Budget Account 2720, Education Support Services, shown on page 39 of Exhibit C.  Those amounts reflected the indirect costs attributable to state expenditures in other budget accounts.  Starting with the Seventy-first Session of the Nevada Legislature, the appropriation was made directly to BA2720 instead of other budget accounts and then transferred into BA2720.  He said that, in his opinion, it was a wise move and had worked very well.  At the end of the year, the Department would do a reconciliation so if there had been more state money provided than could be assessed, an adjustment would be made. 

 

Mr. Thunder went on to discuss Budget Account 2699, Other State Education Programs, page 38 of Exhibit C.  He stated that General Fund expenditures were primarily pass-through in nature for other state education programs.  He said almost all the funds were for state-funded programs including the Apprenticeship Program; vocational student organizations, including the Peer Mediation funding; administrative expenditures for the Byrd Scholarship Program; and for the Project Leadership in Educational Administration Development (LEAD), Geographic Alliance in Nevada (GAIN), and Classroom on Wheels (COW). 

 

Continuing, Mr. Thunder said the appropriations in the four remaining budgets that had state appropriations included Occupational Education, Budget Account 2676; Adult Basic Education, Budget Account 2680; the nutrition programs, Budget Account 2691; and Individuals with Disabilities Education Act (IDEA), Budget Account 2715.  The state money in those programs was required to meet either matches or maintenance of effort.  According to Mr. Thunder, the only state money in Budget Account 2715 was to support the state share of funding for the NRS 395 special education program, which provided for the education of special education students whose Individual Education Plan (IEP) could not be met within their home school districts. 

Mrs. Chowning said she noticed in Budget Account 2699, Classroom on Wheels (COW), there was $301,000 budgeted in each year of the biennium, and yet she did not see anything about the program in the performance indicators.  She said she would like some performance measures for the program.  Mr. Thunder said that the Department received annual reports and had shared the most recent one with the fiscal staff. 

 

Mrs. Chowning asked if the Department had tracked any of the students in the program to see how well they had done in first grade to determine the efficiency of the program. 

 

Mr. Thunder said that the subcommittee had asked some questions in a previous meeting about the Early Childhood Education (ECE) Program.  He said that budget was not being reviewed in the current meeting but the Department wanted to provide the subcommittee some information on the program. 

 

Ms. Dopf pointed out on page 40 of Exhibit C an executive summary of the full preliminary evaluation of the ECE Program.  She said the full document had been provided to fiscal staff recently and she would provide full copies of the document to the subcommittee.  She said that an annual reporting process was required for the program, and the Department wanted something in place for the legislative session so the subcommittee could review the preliminary evaluation information.  Ms. Dopf said that the freeze on new programs had initially hampered the Department’s ability to get the funds to the school districts, but the funds were released in the second half of the first year of the biennium.  She said that the report covered one year of operations of the projects that had been able to start up upon release of the funds.  Many of the projects, because of the January 2001 release of funds, were merely able to set up the facilities and materials and did not get into operation with staffing, payment of staff, and actually serving children until the beginning of the second fiscal year.  That constituted approximately six months of operation for those projects where the delay affected their ability to start up.  Ms. Dopf went on to say that in spite of that, the preliminary report showed that there had been accomplishments and achievements of the goals set in the performance indicators and success in the program.  There were ten projects funded, eight of which were in school districts, one at a community college, and one in a community-based education program.  The ECE Program had funded 32 sites of operation; 18 were new sites where there previously had been no Early Childhood Education Programs. 

 

Chairman Raggio asked Ms. Dopf if there were a total of 32 sites and asked where they were located.  Ms. Dopf responded that the complete listing of locations was in the report.  There were two sites in the Carson City School District.  In Clark County there were five elementary schools, five community preschools, and an inclusionary project with special education. 

 

Chairman Raggio asked how parents were notified that the program was available.  Ms. Dopf reported that each of the sites that received funding had criteria not only for eligibility but for announcing the availability within the sites.  She said in some cases flyers were sent out by the start-up program, or public service announcements were broadcast.  Each publicity campaign announced the availability of the project unique to the locale being served.  She believed that word had gotten out since many of the projects had waiting lists. 

 

Chairman Raggio pointed out that according to the report there were 884 children served at a cost of about $3,686 per child.  He asked why the cost was so high for the program.  Ms. Dopf answered that the cost included the start-up costs of the project plus the staffing.  She said she would expect the per-student cost would come down for the projects now in place and she expected that more youngsters would be served with the present staff once the start-up costs had been incurred. 

 

Chairman Raggio asked how long students would stay in the program.  Ms. Dopf said the primary age intake was three- and four-year olds.  The idea would be that they would be in the program one or two years and then continue on into a kindergarten program. 

 

Chairman Raggio stated there were 809 families but 60 of them left the program.  He asked why they left the program.  Ms. Dopf said the primary reason families left the program was because they moved out of the area. 

 

Chairman Raggio asked if there were other programs that served the same function as the ECE Program.  Ms. Dopf said there were some programs that had some early childhood services attached to them that also had parenting and literacy classes but they did not serve the population being served by the ECE Program.  She said the Department had been very careful to make sure that it was a service primarily targeted for youngsters who would stay at home or in a care facility without an educational component.  The primary targets were youngsters who would not have any educational intervention in a formal sense without the project. 

 

Chairman Raggio asked if the entire $3.5 million would be utilized in the current fiscal year.  Ms. Dopf said the original $3.5 million for the first year was not utilized because of the freeze until January.  The statute was written so there would be no transfer of funds into the second year of the biennium which would result in a refund of the money that was not used in the first year.  The amounts in The Executive Budget were based upon the expenditures in FY2001‑02, so the amount was reduced to $2.9 million per year of the biennium. 

 

Chairman Raggio asked if the Department was anticipating that the cost per child might be less in the next biennium and asked if the Department had computed an estimate of the cost per child.  Ms. Dopf said she anticipated that the cost per student would be less because there would not be start-up costs included but they had not yet computed the costs.  She said the Department would have a better idea of the flow of the program costs after they got beyond one year of operation.  She said the testimonials to date had been very supportive of continuation of the project. 

 

Assemblywoman Chowning commented that 40 percent of the families in the program had family incomes of under $20,000 and it was no wonder that they were not involved in any other program.  She asked if the English language learners would be in the final report so the subcommittee would know the approximate percentage of children involved in the program who did not speak English proficiently. 

 

Mr. Thunder pointed out the enhancements pertaining to the Statewide Management of Automated Record Transfer (SMART) Program in Budget Accounts 2673, Education State Program, and 2699, Other State Education Programs.  He said that in Budget Account 2673 there was some money for WestEd, a contractor for the SMART Program.  That decision unit requested the programmer position that had been provided for in the last session of the Legislature but had not been filled; it had therefore been deleted, and the Department wanted it restored.  Mr. Thunder said that was the negative amount of money in Budget Account 2673.  The amount in Budget Account 2699 provided $1.4 million in each year for continuation of the SMART Program. 

 

Dr. McLaughlin referred the subcommittee to page 51 of Exhibit C.  It was the report that went to the Legislative Committee on Education regarding the status of the SMART system.  He said the deadline to have the program completely operational was March 31, 2003, and the Department anticipated that early in the legislative session they would provide all legislators a list of all reports that were available through the SMART system.  The Department would also be asking legislators if there were additional reports the legislators needed to help them make decisions.  The Department would then determine if the system could provide the desired reports through the SMART system. 

 

Chairman Raggio asked Dr. McLaughlin if all the districts would have all their student records in the system by the March deadline.  Dr. McLaughlin said there would be no exceptions although the Department was pressed for time with the student information system vendors to provide the districts the test scores that were being downloaded.  He said he was committed to meeting the March deadline, and the subcommittee had assured him they would help by sharing information with those that might not think that it could happen. 

 

Chairman Raggio asked if there was any indication that any district was not gearing up to meet the deadline.  Dr. McLaughlin said he had had several conversations with those districts and vendors that said it could not be done and he had repeated that it would be done.  The Department was committed to meet the deadline.

 

Dr. McLaughlin said that SMART was a repository of data.  Data could be retrieved by using the appropriate report formats.  He reiterated that the Department would be asking the Legislature if there were additional reports it wanted to help them make decisions.  Dr. McLaughlin said the report included in Exhibit C went into the status of implementation.  He said he had received questions for the legislative fiscal staff that were very helpful in developing the report.  Dr. McLaughlin mentioned a letter that had been provided to the Legislative Committee on Education and said he would provide it to the subcommittee.  He said the combination of the data dictionary in the SMART system and the information already contained in the student information system could provide any information needed. 

 

Chairman Raggio asked if all the information from the test vendors was also anticipated to be included in the SMART system by March 31, 2003.  He also asked if the data included not only the TerraNova testing but the new Riverside (ITBS) testing as well. 

 

Dr. Paul LaMarca said the system would include the new information from Riverside (ITBS) and the high school proficiency scores.  He confirmed Chairman Raggio’s belief that the information would be uploaded into the system. 

 

Chairman Raggio asked if the districts intended to generate classroom reports.  Dr. McLaughlin replied that would be part of the school improvement process.  The districts would have the data and they could tailor classroom reports using vendors, if they so desired, or use their own formats based on their needs for school improvement.  Dr. McLaughlin said he knew the districts were well aware of the need for data-driven decision making.  It was not just required, it was essential for school improvement.  He said it would be up to the district to decide the extent to which they generated reports because the Department did not have funding to add an additional product.  He said the Grow Network or other vendors did not collect information.  The SMART system and the student information systems collected the information.  The vendors then added products that could take that information and turn it into classroom reports.  Dr. McLaughlin said the Department encouraged districts to use vendors that offered products based on Nevada standards and linked to instructional techniques and strategies that would help students learn. 

 

Chairman Raggio asked about the $1.4 million allocation requested for ongoing maintenance and staff.  He said the state had made it clear that funding ongoing equipment costs and positions was not to be the state’s responsibility.  He asked where the Department was on that issue and what would allotting the $1.4 million send as a message with respect to the state’s position, particularly when the state was having a terrific problem just meeting its needs. 

 

Dr. McLaughlin referred the subcommittee to a concept paper on pages 66 and 67 of Exhibit C.  He said the Department had made contact with the legislative fiscal staff and they were spending time at the Department.  Dr. McLaughlin said that in the next few weeks he hoped to meet with the fiscal staff to get into the design mode of how the database project would move forward.  He said Nevada was one of the few states in the nation that had a data-collecting infrastructure.  He said it should now be designed to go beyond the data collection process into the instructional improvement process.  Dr. McLaughlin stated that it was not a maintenance budget at all. 

 

Chairman Raggio asked again why the $1.4 million was included in the budget.  Dr. McLaughlin said it would be used in maintaining and continuing to develop the statewide repository.  He said the repository did not have to be housed in the Department of Education; it could be in the Legislative Counsel Bureau or a joint project with other agencies.  The statewide repository and the data elements, upon which the March 31, 2003, report was built, were frozen in September 2002 in order to provide a system on March 31.  As new data elements had been added since September, due to new reporting requirements, the programs in the system had to be continually modified.  That included not only the extract that pulled the information out of all the district systems but also the product that the districts used, which had to be modified in order to accept it.  It was a constantly evolving technology process. 

 

Chairman Raggio said the subcommittee needed a breakdown of costs because originally the money was to be used to put the equipment in place.  There was to be an administrator in each school district except one.  He said he understood that it was not the state’s responsibility to continue that.  He believed that originally it was the school districts that wanted the system. 

 

Dr. McLaughlin answered that the Department needed to discuss the design phase with the legislative fiscal staff.  According to Dr. McLaughlin, the school districts had suggested the system and were supportive of the centralized collection of data.  He said the Department also needed the system from a school improvement and policy standpoint. 

 

Chairman Raggio asked Dr. McLaughlin to break down for the subcommittee the reasons and the need and how the $1.4 million was anticipated to be used each year.  He also wanted to know why the state should provide the $1.4 million.  Dr. McLaughlin said the Department would be happy to provide that information to the subcommittee. 

 

Assemblyman Beers said he might not understand the scope of the project but he believed it was a database that included information on each student in the state with 300,000 or 400,000 records in it. 

 

Mr. Thunder answered that it was not only one year’s data and there was a variety of elements in each record.  He said it had been some time since he looked at the size of the memory involved and the various functions that were required. 

 

Dr. McLaughlin explained that there were approximately 370,000 student records in the system; the records were based on a data dictionary with 90 data elements. 

 

Mr. Beers asked the Department to arrange a meeting with the system technician so that he could understand it better. 

 

Senator Tiffany said the intent of the bill was to collect enough data from all the schools to make reports, because all the information legislators could get was anecdotal and it was taking the school districts too long to analyze what was needed.  She said she would also like an update on the system since she had not been involved with it for four years.  She wanted to be included in the meeting with Mr. Beers to discuss the system. 

 

Mr. Thunder continued his presentation with the budget accounts that had funding from the recent federal No Child Left Behind Act (NCLBA) legislation.  The No Child Left Behind Act is also known as H.R.1, a reform of the Elementary and Secondary Education Act (ESEA).  He referred to page 68 of Exhibit C for a summary of all elements of the funding in the No Child Left Behind Act.  There were four budget accounts involved: 

• BA2605, the Safe and Drug Free Schools Budget Account
• BA2709, the discretionary grants that had a restricted indirect cost rate
• BA2712, the Title I account
• BA2713, Title II, V, and VI Programs

In Budget Account 2712, the Title I programs, there were a variety of programs, including the Basic Program, Program Improvement, Migratory Children, Neglected and Delinquent, Reading First, Even Start, Comprehensive School Reform, and the Fund for the Improvement of Education. 

 

Mr. Thunder said additional funding was provided in those programs primarily for schools.  One of the downsides was that, even though the funding had grown in the past, there had been a reduction in the administrative dollars to oversee those programs.  The program improvement aspect was notable.  Previously there had been a requirement or a recommendation that no more than $200,000 each year could be used for program improvement, and that could be focused on statewide programs and activities.  The new program provided for over four times that amount, but only 5 percent could be used for administrative and program activities, which had resulted in a significant reduction.  Also, Nevada had been one of the minimally funded states for administrative costs in the basic program in the past and he believed that the Department had moved past that.  Because of the minimal funding status, Nevada received $400,000 per year and that percentage might have stayed the same.  However, Nevada would have had a larger increase if it had not been minimally funded.  That would have meant that Nevada would have had to operate with less money in the past.  The total administrative money available for all Title I programs was approximately $445,000. 

 

Chairman Raggio pointed out there was $445,000 and $158,000 under State Education Agency administration.  Mr. Thunder said they would have had the $400,000 plus the additional $200,000 in the past so it was reduced to about $445,000 in the initial Title I programs.  With the other programs involved, Reading First, Even Start, and Comprehensive School Reform, there was some “pickup” in that, but there were many new projects involved and the administrative funding had dropped. 

 

Mr. Thunder went on to say that Budget Account 2713 contained primarily the School Improvement Programs, Title II, Title V, and Title VI.  Title II was the Teacher Quality Program, and it combined some programs that existed previously.  For example, the Class-Size Reduction program was eliminated but that was an acceptable use of some of the money in the program.  Title V was the former Title VI program for innovative programs.  The Title VI program involved the state assessments and related programs.  That funding was available to the states for the development and administration of some of the assessment requirements that were involved in the No Child Left Behind Act.  Because it was also included in related activities it was not specifically limited to that. 

 

Chairman Raggio asked if Title II included a Teacher Quality Grant.  Mr. Thunder responded that it did and also included educational technology grants. 

 

Chairman Raggio said he understood that class-size reduction was an acceptable use of the Title II funds.  Mr. Thunder said it was a replacement of some of the federal class-size reduction programs.  According to Mr. Thunder, there were a variety of other uses of that money also. 

 

Mr. Thunder said there were three programs in Budget Account 2709, including the 21st Century Community Learning Centers, which was a program that was previously only in individual school districts that was now becoming a state program.  As the school districts phased out their programs, the additional amount of funding at the state level would likely increase.  The other two programs were the Homeless Children Education Program and the English Language Acquisition Programs.  The English Language Acquisition Programs replaced the old bilingual programs and the immigrant education programs.  The total amount of funding was significantly higher than the combination of the other two. 

 

Chairman Raggio referred to page 68 of Exhibit C and asked if the English Language Acquisition Programs used Title III funds, the 21st Century Community Learning Centers Grant used Title IV funds, and the Homeless Children/Youth Program used Title X funds.  Mr. Thunder stated in the affirmative. 

 

Mr. Thunder went on to say that the other two Title IV programs were contained in Budget Account 2605:  the Safe & Drug-Free Schools program, and the Community Service program. 

 

Mr. Thunder said all of the Federal grants totaled $78,917,000 for the current year.  The Department had tried to construct the budgets based upon the current year’s grants.  Some of them could go up and some could go down but at least the Department had a good starting point.  The budgets in FY2004 and FY2005 were based on current information the Department possessed. 

 

Chairman Raggio asked Mr. Thunder what was available in Title VI money.  Mr. Thunder said that Title VI included the state enhancements and related activities.  Chairman Raggio said that it was currently $4.4 million and Mr. Thunder affirmed his statement. 

 

Chairman Raggio asked if the Title VI money was a grant to provide funds to pay the cost of the development of the additional state standards and assessments that were required under the No Child Left Behind Act.  He said he understood that Nevada had already developed the required standards and assessments, and if not, he wanted to know why not.  Once the standards and assessments were developed he wanted to know how the money could be used. 

 

Dr. LaMarca answered that the funding would be available for related activities.  The requirement was that the Department fully implement its assessment systems, the timelines for which were 2005-2006 and the addition of some new science requirements in 2007-2008. 

 

Chairman Raggio asked what the Department contemplated in the budget for the Title VI money.  He was concerned that the first priority was the cost of additional testing and, in his opinion, that should be the first priority for the money.  He wondered if the money in the budget would be used for additional testing or if it would be used to pay the cost of additional positions.  

 

Dr. LaMarca answered that the large majority of the money in that budget, approximately $3 million, was earmarked for development of assessments through state service contracts. 

 

Chairman Raggio said that the Legislative Committee on Education had made some recommendations.  Among the suggestions was some augmented Norm-Referenced testing and he did not want the Department to lose sight of that.  He did not want the money utilized for lesser priorities.  He emphasized that the additional testing should be the highest priority for the Title VI money.  Dr. LaMarca assured Chairman Raggio that the Department would use the money for the highest priority, additional testing. 

 

Assemblywoman Chowning stated the testing was extremely important and it was also extremely important to teach the students how to read in English.  She wanted to know how much money was available toward that goal or was the Department saddled with the requirement without any funding. 

 

Ms. Dopf said that with regard to the federal funding there was an elimination of the Emergency Immigrant Education and Bilingual Education Programs that was an approximate $1.2 million composite of which the Department now had a $3 million figure under the Title III English Language Acquisition Programs dedicated specifically to the population of limited-English-proficient youngsters.  That meant that there had been a slight “bump” in the amount of money available at the federal level with the emphasis on the limited English-proficient.  She said the funds would not be sufficient for those youngsters to become English-proficient. 

 

Chairman Raggio asked how the maintenance of effort requirement would be funded and what it meant. 

 

Dr. LaMarca reported that the Department’s understanding with respect to Title VI money was that the state had a responsibility to continue its financial support for the existing testing programs.  The federal money could not supplant those efforts; the current testing programs would be revised.  The Department’s understanding was that the state would still need to support the revision with its current amount of funding and that it would be supplemented with the federal funds. 

 

Chairman Raggio recalled that the No Child Left Behind Act required testing in each grade through the eighth grade and an additional test in high school.  He asked which of the tests were going to be supported by Title VI funding. 

 

Dr. LaMarca responded that currently the state had CRTs in grades 3 and 5 and had been developing CRTs in grade 8.  They also had the NRTs in grades 4, 7, and 10, and the high school proficiency tests.  The biggest gap in the testing was in grade 6.  Grades 4 and 7 would have to be either augmented or supplemented with some other standards-based tests.  The supplements to those tests would have to be funded out of federal money.  If the CRTs were changed at grades 3, 5, and 8, those changes could be supplemented through federal funding. 

 

Chairman Raggio asked Dr. LaMarca to work with the legislative fiscal staff to help the subcommittee understand how the testing would be funded.  He said again that the highest priority would be to meet the test requirements.  If there was money left over under Title VI, it was his understanding that it could be used for the SMART program.  Chairman Raggio asked if the Department contemplated using some of the funds for SMART. 

 

Dr. LaMarca agreed that assessment was the first priority and those contracts must be secured first.  The Department did anticipate, given the current level of funding the state provided, that the Department would have money to invest in Web-based reporting of assessment results and some other activities to support that. 

 

Chairman Raggio asked if the Department planned on funding three additional positions with those funds.  He asked the Department to submit a breakdown of the funding to the legislative staff early in the legislative session so the subcommittee could evaluate the concept and help make any needed adjustments. 

 

Mr. Thunder then discussed three programs that had been recently added after receiving Interim Finance Committee (IFC) approval.  The Nevada GEAR UP program, Gaining Early Awareness and Readiness for Undergraduate Programs, was adopted after the adjournment of the Seventy-first Session of the Nevada Legislature.  It would accumulate approximately $10 million of federal funding over the life of the program.  It was a unique program in that half of that money was provided for the state to invest in a trust fund, the purpose of which would be to eventually pay scholarships to the children currently going through the system.  That money was in Budget Account 2679 and was not included in Exhibit C.  The only purpose of that account was to hold the money that had been given to be invested.  The remainder of the money was in Budget Account 2678, previously used by the School to Careers program (STC), which no longer existed.  There were three staff positions approved for that budget account. 

 

Chairman Raggio asked Mr. Thunder what the status of GEAR UP would be in the new budget.  Mr. Thunder responded that there was a total of approximately $2.1 million in each year, but half of that amount would go into a trust account.  Mr. Thunder said it was a pilot program that would follow a group of youngsters through the system.  The money in the budget was intended to be used for enhancing their educational experience. 

 

Chairman Raggio asked if the program was entirely federally funded and Mr. Thunder confirmed that it was.  Mr. Thunder said there were matching requirements, but they were not cash-matching requirements. 

 

Chairman Raggio asked if the group’s progress would be targeted from the seventh grade.  Mr. Thunder said if the participants successfully completed the years of their secondary education, they would be entitled to a scholarship for college. 

 

Mr. Thunder mentioned the Partnerships in Character Education program that was budgeted at approximately $600,000 per year for four years and the Project Promises, a special education program to provide professional development for special education teachers.  Those two programs were federally funded. 

 

Chairman Raggio asked if there was any public testimony on the budget.  There being none, he recessed the Committee for a five-minute break. 

 

DEPAPTMENT OF TAXATION

TAX 1–5 – VOLUME I

 

Chairman Raggio advised the subcommittee members that the next budget to be reviewed was the Department of Taxation and recognized Mr. Charles E. Chinnock, Executive Director, as the spokesperson for that budget.  Chairman Raggio asked Mr. Chinnock to introduce himself and tell the subcommittee a little about himself. 

 

Mr. Chinnock said he was the new Executive Director of the Department of Taxation.  He said he had worked for the Department approximately 25 years ago in the Division of Assessment Standards.  For approximately 20 years he was a full-time member of the Air National Guard.  When he retired from that full-time position he went back to the Department as a Deputy Executive Director and in July 2002 he was appointed as the Executive Director.  He said it was great to be back with the Department of Taxation.  Chairman Raggio welcomed him to the legislative session. 

 

Mr. Chinnock stated that on behalf of the over 200 hardworking men and women of the Department of Taxation, and also on behalf of the Chairman and members of the Nevada Tax Commission, it was an honor to represent them before the subcommittee to present an overview of who the Department was, how it operated, and show the subcommittee what the Department’s requirements were.  He said he would answer any questions the subcommittee had. 

 

Mr. Chinnock referred the subcommittee to Section 1 of Exhibit D, the “Department of Taxation Budget Overview.”  Mr. Chinnock explained that the Department had a rich history of serving the state and its taxpayers.  Within the last decade the Department was provided statutory guidance through the Taxpayers’ Bill of Rights, Nevada Revised Statutes (NRS) 360.291.  The Department had more and more moved toward a department that focused on education, information and assistance to taxpayers, concentration upon voluntary compliance, concentration upon discovery and then compliance through additional means, all in that order.  Additionally, throughout the last biennium Mr. Chinnock’s predecessor reorganized the Department in the Compliance and Administrative Services Divisions, including implementation of decentralized information technology for programming services.  He said the reorganization would allow the Department to better meet its responsibilities. 

 

Mr. Chinnock communicated that the Department’s mission was straight forward; to administer the tax laws in a fair, uniform, and efficient manner; to serve the taxpayers of Nevada; and ensure that the Department was the employer of choice. 

 

Mr. Chinnock reported that the Department had direct responsibility for 17 taxes.  He referred to Section 2A of Exhibit D for a listing of the taxes and the amounts collected in the last biennium.  The Department collected nearly $3 billion each year.  Much of the revenue was represented by taxable sales of over $31 billion.  Depending upon the tax type and the statutory authority, revenue was collected primarily on a monthly or quarterly basis.  In a very few cases there were provisions for annual filings.  He said the state’s business license fee was a one-time fee currently at $25. 

 

Mr. Chinnock said that the direct involvement in the valuation for the local assessment tax rolls of all mining property in the state, or the oversight responsibilities that the Department had over property tax and equalization of assessments and for local government budgets were not reflected in the chart in Section 2A of Exhibit D. 

 

Mr. Chinnock pointed out a chart that represented the revenue as a percent of the total in Section 2A of Exhibit D. 

 

Mr. Chinnock noted that since the Department administered revenue collections it must distribute that which was collected.  A chart in Section 2B of Exhibit D reflected the revenue distributions.  Percentages of the distributions were also shown on a chart in Section 2B. 

 

Chairman Raggio asked Mr. Chinnock if the Department of Taxation had anything to do with the gaming tax and Mr. Chinnock replied in the negative. 

 

Mr. Chinnock went on to say that the Department’s organizational chart was shown in Section 3A of Exhibit D.  By statute the actual head of the Department was the Nevada Tax Commission, an eight-member board of professionals from throughout Nevada with substantial experience in real property, utility business, agricultural and livestock business, finance, and mining.  The other three positions required that a commissioner must be versed in areas of property taxation and have general business experience.  As Executive Director, Mr. Chinnock was by statute the Chief Administrative Officer of the Department.  The Department also provided staff to the State Board of Equalization, the Committee on Local Government Finance, and the Appraiser Certification Board. 

Mr. Chinnock described four separate divisions within the Department.  The divisions were: 

 

1. Administrative Services Division overseeing mail, accounting and processing, budget, tax distribution and statistics, and personnel
2. Division of Assessment Standards overseeing centrally assessed property locally assessed property, and the Local Government Finance Section
3. Compliance Division comprised of the Revenue and Audit Sections
4. Information Services (IS) Division that was responsible for the Department’s information technology 

 

Mr. Chinnock said that Section 3B of Exhibit D showed the number of employees by division and their locations.  The vacancies in the Department were also shown on page 3B.  Throughout the past year, and as a result of the recent budget pullback process, the Department had accrued 21 vacancies plus the 1 additional position in the Department of Information Technology (DoIT), a network technician position, or a total of 22 vacant positions.  Recently, in anticipation of the potential for tax change, the Department had been able to strategically identify 11 critical positions for filling.  Those positions were shown on the left-hand side of Section 3B of Exhibit D and were listed as “priority 1” positions for filling.  The filling of 11 positions would allow the Department to initiate hiring of difficult-to-fill positions, those that required longer training time. 

 

Chairman Raggio asked Mr. Chinnock if the unfilled positions had been frozen due to the budget shortfalls or had the Department just been unable to fill the positions.  Mr. Chinnock responded that the unfilled positions had been part of the Department’s 3 percent reduction. 

 

Chairman Raggio asked why the priority 1 positions had been authorized for hiring in December 2002.  Mr. Chinnock said the positions were authorized for hire because of the potential for tax increases with the Legislature in session and some of the positions had a long lead time for training. 

 

Chairman Raggio asked if the filling of priority 2 positions was contingent on substantial tax enhancements.  Mr. Chinnock replied negatively.  He said the Department looked at return on investment and also taxpayer service, which was how the positions were selected for priority 1 status.  Mr. Chinnock stated the Department would need all the priority 1 and 2 positions, and more positions, depending upon the amount of tax legislation enacted and the effect it would have on the Department. 

 

Chairman Raggio said he thought the Department needed to consider the potential of the Governor’s proposed tax package.  He asked if the tax package were enacted as proposed would the Department’s budget provide additional positions in addition to the vacancies being filled.  Mr. Chinnock responded that what he was briefing at the present meeting did not include additional positions required for implementing the Governor’s proposed tax package. 

 

Chairman Raggio asked if the Department’s budget contemplated the positions necessary to service the proposed taxes and Mr. Chinnock replied that it did not.  That would be a separate presentation as a result of the bill draft request to be submitted in the future. 

 

Chairman Raggio asked again to relate what was included in the proposed budget that was being presented that dealt with the Governor’s proposals for tax increases.  Mr. Chinnock answered that depending upon the changes proposed, there were some things the Department could do without additional resources and there would be some things it could not do unless additional resources were provided.  Those things the Department could not do without additional resources would be identified and briefed to the Legislature at a later date. 

 

Chairman Raggio said he was unclear as to what the Department was doing.  He asked for confirmation that the priority 1 positions were being filled and Mr. Chinnock responded that the Department was in the process of filling the priority 1 positions.  He said the priority 2 positions were still needed, however, they were the second group of positions to be requested at a later time.  He felt those positions could be filled on a shorter lead time than the priority 1 positions. 

 

Mr. Chinnock continued his presentation with a discussion of Section 4 of Exhibit D.  That section showed a summary of the requests in The Executive Budget for Budget Account 2361 and allowed for a comparison to the last biennium.  Mr. Chinnock pointed out that due to the nature of the Department’s makeup, salaries comprised approximately 80 percent of the total costs.  The base budget recommended continued funding for 223 full-time positions, 2 half-time positions, and 10 seasonal, intermittent positions.  Also requested was funding for expenditures to maintain ongoing operations and programs.  Base budget adjustments had been incorporated into The Executive Budget.  All one-time costs and one-shot appropriations from the prior biennium had been eliminated. 

 

Mr. Chinnock continued by discussing decision unit M-100 for inflationary adjustments made by the Budget Office.  Category 4, Operating, included funds for increased costs of insurance expense for employee bonds, property and contents, tort claim assessments, and increases in the DoIT Internet charges. 

 

Mr. Chinnock said Category 26 included funds for Information Services for increased DoIT utilization or rate increases for microwave channel rent, additional computer facility charges, data communication Silvernet charges, and DoIT Planning and Contract assessments. 

 

Mr. Chinnock said Categories 87, 88, and 89 funded increases or decreases due to various categories for cost allocation adjustments and M-300, fringe benefits, were Budget Office adjustments for the additional costs associated with employee benefits. 

 

Mr. Chinnock next discussed the enhancement proposals starting with E-600, budget reductions.  He said that in order for the Department to achieve an overall 3 percent budget reduction The Executive Budget recommended the elimination of funding in Category 26 for the base funding for a DoIT Network Technician assignment and recommended the addition of a Computer Network Technician II position for the Department to provide the services currently provided by DoIT.  That recommendation coincided with the pilot decentralization intent proposed by the Seventy-first Session of the Nevada Legislature.  The request fit into the Department’s overall Information Services Division operation and claimed ownership of a position that was trained in their network arena.  The Department reduced expenditures from that trade-off by $65,256 in FY2004 and $49,226 in FY2005. 

 

Mr. Chinnock continued by discussing decision unit E-710, replacement equipment.  That was a request for computer equipment to replace aging hardware or software providing upgrades necessary for the Department to continue business operations.  He said that $18,445 was requested in FY2004 and $249,121 was requested in FY2005.  The request was for printer and database servers, a minimum number of personal computers (PCs) and laptop computers in the second year of the biennium consistent with DoIT’s replacement schedule.  It also included software maintenance and subscription renewals. 

 

Mr. Chinnock then discussed decision unit E-720, new equipment.  That request was for new facsimile machines (FAX) for both Carson City and Las Vegas and a cash register for the Elko office. 

 

Mr. Chinnock said decision unit E-850 was for special projects.  That decision unit was for the anticipated ongoing cost of continuing lockbox services in house by the Department if the banking contract being renegotiated by the State Treasurer’s office did not include lockbox services.  Bank of America would discontinue its lockbox service effective July 1, 2003, and the Department was currently on a month-to-month contract with Bank of America for lockbox services. 

 

Chairman Raggio asked when the Department would have information on the banking contract and whether it would include lockbox services.  Mr. Chinnock answered that the Request for Proposal (RFP) was supposed to be put out in February 2003.  He was hopeful that the Department would know approximately April 1, 2003, whether the contract would be let.  He said it looked favorable. 

 

Chairman Raggio asked why the cost of lockbox services was so high.  Mr. Chinnock replied that it cost approximately $300,000 to $350,000 per year for lockbox services.  He said it took a large number of employees to process the $2.3 billion that went through the lockbox service. 

 

Chairman Raggio asked if the yearly cost included start-up costs and Mr. Chinnock explained that if the Department took over the lockbox operation it would need to have a supplemental appropriation for the current fiscal year. 

 

Chairman Raggio asked what the Department anticipated the start-up costs to be.  Mr. Chinnock said the start-up costs would be less than $350,000 per year. 

 

Assemblyman Beers asked if the cost of the lockbox service would be more a function of processing the number of checks that came in than the total of the funds received.  Mr. Chinnock said it was based on the number of accounts that had to be put through the service. 

 

Mr. Chinnock went on to say that approximately 73 percent of all sales, use, and business taxes were deposited through the Bank of America lockbox operation.  If the proposals were not representative of the Department’s needs or a successful bidder was not contracted by April 1, 2003, the Department would need to start preparation for the implementation of a lockbox operation in time for July 1, 2003, assumption of that function. 

 

Continuing on, Mr. Chinnock stated that the Department’s out-of-state travel was funded to cover costs for travel to meetings of the Streamlined Sales Tax Project (SSTP), or meetings of the Western States Association of Tax Administrators (WSATA).  Those trips provided first hand knowledge or hands on experience in areas of technology or tax administration. 

 

Mr. Chinnock said that the Department’s in-state travel was purely for administration of its taxes and responsibilities and was primarily used by the auditors, appraisers, and revenue officers. 

 

Mr. Chinnock stated that the out-of-state audit travel was for the Department’s out-of-state audit program.  The Department had auditor positions in the major cities of Los Angeles, Sacramento, and San Francisco, California; Dallas, Texas; Chicago, Illinois; Atlanta, Georgia; and New York City.  Additionally, the Department sent audit staff from in-state to out-of-state locations in order to ensure proper coverage. 

 

Mr. Chinnock explained that the Department’s training budget of $20,419 allowed an allocation of $91 per employee for training.  The Department incurred costs of approximately $2,000 per individual at the National Judicial College for training for a hearing officer.  With that training allocation, the Department had to be creative in working with on-line training programs, en masse training, and the use of the community college system.  Mr. Chinnock pointed out Sections 4A and 4B of Exhibit D as a budget summary for FY2004 and FY2005. 

 

Mr. Chinnock informed the subcommittee that Section 5A of Exhibit D showed that the Department had 3 district offices with 224 full-time equivalent positions plus 10 intermittent positions.  The Reno office had 26 employees and 1 intermittent position; the Elko office was a satellite to the Reno office and had 5 full-time employees and 1 half-time employee; Las Vegas had 66 full-time employees and 2 intermittent positions; and Carson City had 125 employees, 1 half-time employee and 7 intermittent employees.  The reason for the larger number in Carson City was due to having nearly all the Accounting and Processing staff, all the Administrative Services staff, all the Division of Assessment Standards staff, most of the Information Services Division staff, and all the Executive Section staff located in Carson City.  Reno, Las Vegas, Carson City, and Elko housed primarily the compliance functions.  Mr. Chinnock said the color shading on Section 5A related to the coverage of the various district offices although there was some variation with respect to the Department’s Revenue Officer assignments that were assigned based on zip codes. 

 

Mr. Chinnock continued saying that in Section 5B and the following pages of Exhibit D the Department had provided a full explanation of each section and division of the Department.  He said the Executive Section was located in Carson City.  It was comprised of directors, an internal auditor, one supervising auditor II, a hearing officer and two administrative assistants.  That section worked closely with the Nevada Tax Commission, the State Board of Equalization, the Committee on Local Government Finance, and the Appraiser Certification Board.  The section also worked very closely with legal staff of the Attorney General’s office. 

 

According to Mr. Chinnock, next was the Administrative Services Division.  That section handled the money collection, distribution, bill paying, budget setting, and personnel issues.  Also included in that division was the mailroom and facilities management. 

 

Mr. Chinnock said the chart in Section 5B of Exhibit D showed the number of accounts the Department handled.  Most sales and use tax accounts were filed monthly and the business tax accounts were filed quarterly.  Every quarter the Department processed almost 150,000 filings and in a year it processed over 1 million filings, all of which was done by mail or by lockbox, and all with minimal automation.  The Department’s postal budget exceeded $500,000 annually. 

 

Chairman Raggio asked Mr. Chinnock to verify that as of July 1, 2002, there were over 80,000 businesses paying business tax.  Mr. Chinnock answered affirmatively and said that was the number of business tax accounts the Department currently had. 

 

Chairman Raggio asked what was included under the heading “Total of All Account Types” on the chart in Section 5B of Exhibit D.  Mr. Chinnock said that meant that the figures in the Sales/Use Tax column added to the figures in the Business Tax column equaled the Total of All Account Types.  Chairman Raggio pointed out that the taxpayers paying Sales and Use Tax could be one and the same as taxpayers paying the Business Tax.  Mr. Chinnock said that was true, however, the filings for each tax were separate. 

 

Mr. Chinnock announced that the cost of sending a certified letter was $4.50 and the Department sent thousands of those out in order to provide all the necessary due process. 

 

Again referring to the chart in Section 5B of Exhibit D, Mr. Chinnock explained the “churn” in the “Numeric Change in Accounts.”  He said every year the Department added 20,000 new accounts and had 10,000 accounts close, netting a change of approximately 10,000 new accounts although the Department was actually processing 30,000 accounts to produce the net change. 

 

Mr. Chinnock continued his presentation with a discussion of the Department’s Information Services Division shown in Section 5D of Exhibit D.  That section was created as a result of the decentralization initiative approved by the Seventy-first Session of the Nevada Legislature.  The decentralization of programming services had permitted creation of an information technology (IT) organization in-house which had proven to be very relevant.  The reasons for that relevancy included:  IT employee buy-in, in other words, everyone had an understanding of the Department’s function and were part of a common vision, mission and goal; there had been substantial cost savings to the agency and they had gained enhancements in their IT infrastructure that they had never thought possible before. 

 

Mr. Chinnock said the Department’s integrated tax system was a legacy-based system called the Automated Collection and Enforcement System (ACES).  It had been built in 1995 using 1980s technology and was designed to handle sales, use, and business taxes.  It had cost $5 million and had never worked as advertised.  The system’s developers left the area before the problems were resolved or the system was fully tested.  He said it did do a job but it did not do the job of an integrated tax system.  It did the job of billing, collecting, and distributing.  There were no other effective modules for the system.  One of the Department’s programmers summed up the potential for the ACES best when he said it was “like an old pack mule, every once in a while it sat down and took a rest and someday it might sit down and not get up again.”  Mr. Chinnock said that in the Department’s new IT Division there were currently three programmers and one contract programmer who had been able to improve the limited capability of the ACES.  He said the remaining taxes administered by the Department were housed on desktop applications in either Microsoft Excel or Access.  That also meant there was no integration within those taxes. 

 

Mr. Chinnock continued saying the Seventieth Session of the Nevada Legislature had authorized an appropriation of $800,000 for a study for replacement of the ACES.  That money was not spent in the 1999-2001 biennium due to the determination there was a need to do some re-engineering within the Department.  Therefore, there was an increased reappropriation of $1.3 million approved by the Seventy-first Session of the Nevada Legislature in order to conduct such a study.  With the events of September 11, 2001, that money was also pulled back and eventually reverted.  Also, in the Seventy-first Session of the Nevada Legislature a separate $800,000 was appropriated for development of an imaging and scanning solution in order to automate the accounting and processing of returns, and also to design a proof of concept for a Web-based filing system that was not to be an operational filing system.  The contract for the imaging and scanning solution and for the Web-based proof of concept was started in July 2001.  At that same time the Department was also authorized a one-shot appropriation of nearly $400,000 for acquisition and replacement of computers.  The funds were approved to replace desktops and laptops, software and servers, and some funding was included for IT equipment for the imaging and scanning contract.  At that time, the Department’s best computers were 233s housing either Windows 95 or, in a few cases, Windows 98.  After July 2001, the Department did begin to purchase, on a phase-in basis, new PCs, laptops, current software, and network applications as an overall plan to upgrade all systems in order to take full advantage of the imaging and scanning technology, and also to permit the Department to move into the 21st century with respect to technology.  According to Mr. Chinnock, after the terrorist attacks on September 11, 2001, the subsequent economic downturn caught Nevada and affected the revenue flow to the General Fund.  At that time the Department had upgraded one-half of its IT system.  There it stood with one-half of the IT system incompatible with the other one-half.  What followed was a freezing and pullback of the remaining one-shot appropriation for IT replacement. 

 

Mr. Chinnock continued his presentation saying that at that same time the Department’s imaging and scanning contract was underway and due to the nature of the award of the bid, 100 percent of the appropriation was allocated for consulting services and that meant no hardware or commercial off-the-shelf software could be purchased under that contract.  The Department was in a quandary.  It could not finish a project without the additional money for the required hardware and software that would have been funded by the $400,000 one-shot appropriation.  As a result, the Department could not in good conscience proceed with the contract and instead took advantage of the “out clause” and terminated the contract.  A short time later, due to some unsolicited proposals that came in from other consultants, the Department was offered an expansion of opportunities for an imaging and scanning solution.  The offerings received included consulting services, hardware and software, and implementing an operational Web-based filing system for sales, use, and business tax.  Also included was the automation of other taxes and converting existing microfilm and existing material to digital storage.  The offering was at a price of one-half of the original contract, which was only for consulting services.  Needless to say, the Department had accepted the contract and was within a couple of months of completion of the imaging and scanning solution.  Mr. Chinnock said the Department could not have continued the project without the coordination efforts between the Governor’s Office and the Budget Office to release enough money to purchase critical IT equipment so that the incompatibility problem with the IT network within the Department could be solved.  Mr. Chinnock said the Department was currently postured to meet any challenges resulting from tax change. 

 

Mr. Chinnock mentioned one other element associated with the imaging and scanning project was currently being developed.  Along with the on-line filing, the Department was also working on an automated clearinghouse so it could do the electronic checking in order to accept credit card filing, which would then lead to the use of debit cards and electronic funds transfer. 

 

Mr. Chinnock highlighted one other program that the Department’s programmers had completed.  In the Seventy-first Session of the Nevada Legislature the Department was given an appropriation of $75,000 to develop an on-line budgeting system for nearly 290 taxing entities.  He said it was difficult to contract with an outside consultant with a budget of $75,000.  As a result of that and as a result of the new IS Division’s capabilities, it was decided that in-house development was the best approach to take.  Because of the economic turndown, the $75,000 was identified for return to the General Fund but the Department decided to continue the in-house development, hoping it would be able to get the minimum equipment and software to go operational.  Once again, the Department worked with the Governor’s Office and the Budget Office and had been able to purchase the software and server needed.  He said the program would be on-line in spring 2003. 

 

Mr. Chinnock said he was proud of the men and women of the Department and he was especially proud of what the IS Division had accomplished. 

 

Mr. Chinnock referred to Section 5E of Exhibit D that gave an overview of the Division of Assessment Standards (DOAS).  He said that was the division where he had started with the Department approximately 25 years ago.  That division currently had 27 people that determined the valuation for all centrally assessed property.  The property valuation amounted to $6.5 billion in taxable valuation or $2.3 billion in assessed valuation for all interstate/intercounty property.  That division also valued over $400 million of net proceeds of minerals valuation.  Additionally, it valued all mining property in the state which was placed on the local tax rolls and that came to a value of $969 million in assessed valuation. 

 

Mr. Chinnock went on to say that the Local Government Finance section oversaw the budgets and financial administration of nearly 290 county, city, and taxing jurisdictions, including the oversight of debt management. 

 

Mr. Chinnock said the Locally Assessed Property section oversaw the uniformity and equalization of locally assessed properties.  That was accomplished through studies, actual hands-on help, and by developing and issuing guidance procedures in accordance with statute.  The Division of Assessment Standards also had oversight of the Appraiser Certification process that was adopted in the l970s and that certification process had been a main contributor to the professionalism of assessments in Nevada. 

 

Chairman Raggio referred Mr. Chinnock to Section 5F of Exhibit D and asked what the assessed value was for tax year 2002-2003.  Mr. Chinnock said he did not have the numbers with him.  Chairman Raggio said the subcommittee had previously been provided with assessed value numbers and he believed the 2001-2002 total assessed value for the state had been approximately $57 billion.  Mr. Chinnock added that there were still some collections in 2003 for net proceeds that had not been made.  Chairman Raggio said the subcommittee had received some projections for years 2004 and 2005 and he believed they had come from the Department of Taxation.  Assemblyman Marvel interjected that the projections had been provided in a discussion of capital improvements and the state’s bonding capacity.  Chairman Raggio asked Mr. Chinnock if he had projections for 2004 and 2005.  Mr. Chinnock said he did not have the projections with him but he would provide that information to the subcommittee. 

 

Mr. Chinnock then directed the subcommittee to Section 5H of Exhibit D for information on the Department’s Compliance Division.  He said that a Compliance Division was located in all the Department’s district offices and operated through the tax examiners, revenue officers, auditors, administrative staff, and supervisors and included over 140 men and women.  The Compliance Division provided information and assistance to taxpayers, they accomplished discovery, they provided oversight and verification of tax liability, and they also provided enforcement.  Of the 17 taxes the Department administered, the Compliance Division was responsible for 15 of the taxes.  The chart in Section 5H of Exhibit D showed a relationship of revenue officer collections over the years.  The chart in Section 5I of Exhibit D showed the Department’s audit statistics.  Revenue collections had steadily increased while audit collections in the past three years had decreased.  It was the goal of the Department to have a 4 percent audit penetration.  That was a current target and subject to change as the Department moved forward.  It was important to keep in mind that the Department, and especially the Compliance Division, including the auditors, operated under statutory guidance contained in Nevada Revised Statutes (NRS) 360.291, the Taxpayers’ Bill of Rights, that provided for a specific way that the Department did business.  It was done in a fair, uniform, and equal manner.  Mr. Chinnock said that it was not until the term of his predecessor’s employment that that statute was given full effect.  Because of the full application of the statute, and because of appeals and litigation in areas such as audit, the Department had had to be much more deliberate in how they did their business. 

 

Mr. Chinnock went on to say that, additionally, there was one other issue with respect to the decreasing amounts of the audit statistics.  NRS 360.095 was passed in 1992.  Paragraph 5 of that statute stated, “Audits and other procedures for enforcement must be applied as uniformly as is feasible, not only among persons subject to a particular tax but also as among different taxes.”  Mr. Chinnock assumed that the reason for that statute was to preclude any possibility of audits being unfair and too focused.  In concert with giving full effect to the Taxpayers’ Bill of Rights, full effect was also given to paragraph 5.  The more strict interpretation that had followed was that the audit selection process was not totally random.  In a recent survey conducted by Governing Magazine, Nevada was listed as the only state that did audit selection by strictly random selection.  Mr. Chinnock emphasized that the Department did have a program of auditing for cases of fraud or suspected failure to comply with statute and regulations.  He said that he had explained the audit selection process to explain why over the last three years audit collections were less than one-half of what they had been in prior years.  It was because the Department’s audit selections were random and in strict compliance with the law. 

 

Mr. Chinnock pointed out that Section 5J of Exhibit D was a list of contacts for the experts within the Department.  He thanked the subcommittee for the opportunity to appear before it and asked if there were any questions. 

 

Chairman Raggio asked if the proposal for increasing the cigarette tax was passed before the end of March 2003 would the Department be sufficiently staffed to handle the increase in cigarette tax.  Mr. Chinnock replied that there were several factors that would have to be considered.  The factors were currently being considered and when the bill draft was released all of the factors would be addressed.  He continued by saying that some of the taxes were simple from the standpoint of a rate change and getting information to the taxpayers.  There were other considerations that needed to come into the equation, one of which included discussion of compliance issues that needed to be addressed.  With all those thoughts in mind, Mr. Chinnock said the plan would consider all those factors concerning the Department’s need for resources. 

 

Chairman Raggio advised Mr. Chinnock that the subcommittee would need to know the impact to the Department much sooner than “sometime down the road.”  He thought that since the budget had been presented and Mr. Chinnock was “in the loop” the subcommittee needed to know what the potential cost or expense would be if the tax proposals were enacted.  He was looking specifically at increasing the rate on excise tax, alcohol, cigarettes, and for tripling the business activity tax.  He wanted an estimate from Mr. Chinnock at that time of what the costs, if any, would be to increasing those taxes.  Mr. Chinnock said, “Sir, I don’t have those costs today.  We are working on those.” 

 

Chairman Raggio asked if merely increasing the amount of a tax would cause additional cost.  He said he would expect that merely increasing the rate of a tax that was already in effect should not have a cost.  Mr. Chinnock responded that when he looked at neighboring states he could think of one issue and that was the issue of gray-market cigarettes, or other products that did not have the proper tax on them.  It could be a compliance item issue. 

 

Chairman Raggio said it seemed to him that the question was so simplistic and he did not want to sound abusive, but if the rate was to be increased on the taxes by the end of March 2003 he did not understand why there would be additional costs.  Mr. Chinnock said the rates were relatively easy to change.  Chairman Raggio asked if there was any difference in the costs if the rates were increased by one cent, ten cents, or a dollar.  Mr. Chinnock said he was not sure there would be a problem in just changing the rates.  He said the Department would have to “get the word out” to the wholesalers.  Chairman Raggio said he believed the word was getting out without any assistance from the Department. 

 

Chairman Raggio continued by asking about a gross receipts tax and the time needed to implement such a tax.  He asked if anyone in the Department had looked at the potential administrative costs for such a tax.  Mr. Chinnock replied that the costs had been analyzed and the results would be released in the near future.  Chairman Raggio asked Mr. Chinnock to tell him what he knew at the present time about the costs.  Mr. Chinnock said the issue with implementing a brand new tax, and depending upon the nature of the tax and how it was structured, information technology was needed to implement that tax.  He said the time frame necessary to implement the information technology for the number of accounts directly involved affected the resources that were needed.  Chairman Raggio found it hard to believe that some discussion had not been had about the potential cost and the time needed for implementing a new tax.  He asked Mr. Chinnock if the Department had any information available on the costs and Mr. Chinnock said he did not have anything that day to testify to.  Chairman Raggio wanted to know what was so significant about that particular day.  He asked Mr. Chinnock if he believed that the meeting that day would be “an easy ride.”  Mr. Chinnock replied, “No, sir.”  Chairman Raggio asked if anyone had a response to his questions. 

 

Mr. Andrew Clinger, Deputy Budget Director, Department of Administration, introduced himself and said that nothing specific had been included in the Department of Taxation’s budget for the increased costs of implementing new taxes.  They had included an estimate of $12.5 million in fiscal 2004 and $20 million in fiscal 2005.  Those were accounted for as net reductions to the additional revenue that would be generated. 

 

Chairman Raggio asked how the numbers were arrived at and what they pertained to.  He wondered if they pertained to the proposed gross receipts tax or other taxes.  Mr. Clinger said the estimates he had offered pertained to all the proposed taxes.  Chairman Raggio said it should be elementary and he had no desire to pick on anyone, but he thought the costs associated with new taxes should be something identified right up front.  He asked if there would be an increased cost if the rates of the excise tax were raised and the business tax rates were tripled.  Mr. Clinger responded that it was not anticipated that there would be additional costs for that. 

 

Chairman Raggio asked what taxes could be implemented with $12 million in the first year and $20 million in the second year.  Mr. Clinger offered that the cost would include the implementation of the gross receipts tax and the business activity tax.  Chairman Raggio asked if the reported costs were factored into the total net anticipated to be received.  Mr. Clinger responded affirmatively.  Chairman Raggio asked if it was a cost to the Department of Taxation.  Mr. Clinger said it was and it was envisioned that once a bill was established for the new taxes that a fiscal note would accompany the bill and those costs would be funded in that bill.  Those costs would then be put into the Department of Taxation’s budget.  Chairman Raggio said that was the type of information the subcommittee had anticipated receiving that day.  Chairman Raggio said the subcommittee was discussing the budget of the Department of Taxation based upon what was contained in The Executive Budget as presented by the Governor. 

 

Assemblyman Marvel asked if the county treasurers would collect any increase made to the ad valorem tax.  Mr. Chinnock answered affirmatively.  He said there would not be very much additional cost involved. 

 

Assemblyman Hettrick said he was reviewing the number of audits completed by the Department and it had dropped by 400 but in the same time the amount of collections had dropped by one-half.  The 400 was a drop of approximately 15 to 20 percent.  He wondered why the Department was not doing high-risk audits instead of doing random audits where a business might be selected with a tax liability of much less.  He asked why the Department did not pick businesses with high reporting costs because the chance of finding something would be far greater.  It appeared to him that it was getting far more costly to do audits because the audits were not yielding the same amount of dollars to be collected.  Mr. Chinnock answered that the Department had taken a strict interpretation of the statute that was passed in 1992 calling for random audits.  He said the Department also believed it had statutory guidance or inference that it needed to be careful about targeting revenue collections.  He stated that the Department was trying to ensure that it had compliance and those factors that ensured compliance were looked at.  Mr. Chinnock said the Department would like to look at risk-based audits and might be able to do that even within the current statute.  Mr. Hettrick said he would like to look into changing the way the Department selected businesses for audit.  He said the current statute provided that random audit selections would be made but it did not prohibit the Department from conducting risk-based audits.  Mr. Chinnock concurred.  Mr. Hettrick said that did not necessarily represent “targeting.”  It was a reasonable analysis that the business owing the greater amount of tax was more likely to make a mistake.  If the Department found a mistake the amount would likely be larger and, therefore, justify the compliance audit and that was the intent of the audit.  Mr. Hettrick reiterated that he would like to take a hard look at the way the Department selected businesses for audit and said, in addition, he believed that if other taxes were to be added where a rate was added to an existing tax, he thought that the Department should start booking some kind of revenue generation from compliance audits.  As the rate went up, the Department would be more apt to find lack of compliance and then when audits were done, the Department would be more apt to find more money.  Mr. Hettrick said the Department should be booking revenue that would be found in compliance audits.  If that was not done, he believed the Department should take a hard look at how and why audits were being done and what could be found on audits.  Mr. Hettrick said an overall, concise approach to the selection of audits was needed by the Department and the revenue that could be found should be booked. 

 

Assemblyman Beers asked Mr. Chinnock what percentage of collections was realized from audit billings.  Mr. Chinnock replied that the Department collected a little less than half of what was billed.  Mr. Beers asked if that had changed over the past six years.  Mr. Chinnock said that it had changed and he would provide the subcommittee some information on the amounts collected. 

 

Mr. Beers then asked if the cost Mr. Clinger had estimated to collect proposed taxes included a cost for collecting the amusements tax.  Mr. Beers asked what the ancillary costs would be for the new taxes as the taxpayers had to change their systems in order to comply.  Mr. Clinger reiterated that the costs were estimated at $12.5 million in the first year of the biennium and $20 million in the second year of the biennium.  That was just for the gross receipts tax, not for the amusements tax.  Mr. Beers asked if there was any information on the potential costs to the private sector or the other governmental sectors.  He said local governments would be collecting additional property tax and their systems might need to be changed at an additional cost.  He wondered if they had been contacted and costs discussed.  Mr. Chinnock said an increase in the tax rate would not cost an additional amount to collect.  Mr. Beers questioned whether ACES could accommodate the proposed increase in business activity tax.  Mr. Chinnock answered that ACES had the capability to handle changes in the existing taxes. 

 

Mr. Chinnock said that he wanted the subcommittee to know that he was not being evasive regarding the costs of administering additional taxes.  He simply did not have the numbers at present but the Department was working on calculating the costs.  With respect to the business tax, one of the other initiatives was that it would be expanded to other taxpayers such as sole proprietorships.  If that was done the number of accounts would be expanded and many accounts could be added as a result. 

 

Mr. Beers asked if there was a proposition to remove the exemption for a one-person business and Mr. Chinnock answered yes.  He said if that were done there would be a substantial increase in the number of accounts. 

 

Mr. Chinnock referred back to a previous question Chairman Raggio had asked about increasing the cigarette tax.  He said that would be a relatively easy tax to increase because the billing system was in place. 

 

Assemblyman Marvel asked Mr. Chinnock to clarify that more businesses would be included in the proposition to increase the business license tax.  He said that was the reason the Legislature eliminated the original business license tax.  It had been so complicated and it was getting into trusts and partnerships and was not a good tax.  That was why the current tax had been put into effect.  Mr. Chinnock reported that the current interpretation was that sole proprietorships were not required to be taxed because of an exemption.  Under the proposal there were a substantial number of sole proprietorships that would be included that were not currently included.  Depending upon the number of accounts, the Department’s work could be substantial. 

 

Mr. Marvel said that at one time there was a rule of thumb that each auditor should generate approximately $400,000 per year and he asked if that still held true.  Mr. Dino DiCianno, Deputy Executive Director of the Department of Taxation, reported that he would like to be able to respond to Mr. Marvel’s question but the Department was prohibited from discussing such issues because it would lead to the evaluation of the auditors.  He went on to say that the evaluation of the auditors should be based on their administrative abilities in order to get businesses into compliance instead of evaluating them on the level of revenue they could generate.  Mr. DiCianno pointed out that he had appeared before the 1999 Legislature and was asked a very specific question by Senator Ann O’Connell as to whether the Department of Taxation was an enforcement agency or an administrative agency.  According to Mr. DiCianno, the Department was an administrative agency.  He said changing the audit selection basis would change the whole focus of the Department if that was the direction the Legislature wanted to take. 

 

Chairman Raggio acknowledged Mr. DiCianno’s remarks and said that when the Department asked for new auditor positions it always estimated the amount of revenue that an auditor could generate. 

 

Senator Coffin asked to return to the discussion on cigarette tax.  He wondered what the impact an increase in the tax would have to Indian tribes who sold cigarettes legally in the state and what amount of business would transfer to them.  He asked if there would be informal discussions with them about the prices they would charge in order to better estimate revenue.  Mr. Chinnock replied, “Yes, and statute required that also.  I think they are on-board with that and realize that.” 

 

Mr. Hettrick asked how many auditors the Department had.  Mr. Chinnock replied that there were 60 auditors in the Department.  Mr. Hettrick said he would do the math on the billings and the 50 percent collections.  He said he appreciated the Department’s help. 

 

Mr. Beers said he had a young child in his family who did babysitting.  She made approximately $200 per year and it sounded to him like she would be losing $100 per year if she babysat under the proposed business license tax.  Mr. Beers said she was essentially a legal proprietor with no federal income tax liability.  Mr. DiCianno asked if the babysitter was a minor and Mr. Beers replied that she was.  Mr. DiCianno said that as a minor she would not be subject to the tax.  Mr. Beers asked if a 20-year-old who started a business would pay the business license tax.  Mr. DiCianno responded that minors would not have to pay the tax if they had a parent or a guardian who would be held responsible for the payment of the tax. 

 

Chairman Raggio interjected that the current meeting was not the appropriate place for the Department to justify the taxes.  That would be done in the taxation committees.  However, he thought the cost and the impact on the Department’s budget was very relevant.  He suggested to the Department that it collect the information rapidly because the taxation committees would be going into questions such as Mr. Beers asked. 

 

Chairman Raggio asked if there was any public testimony on the Department of Taxation’s budget and there was none.  Chairman Raggio discussed the budget overviews to be presented to the subcommittee the next week and adjourned the meeting at 11:29 a.m. 

 

RESPECTFULLY SUBMITTED:

 

 

 

Lila Clark

Committee Secretary

 

 

APPROVED BY:

 

 

 

                       

Senator William Raggio, Chairman

 

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