MINUTES OF THE meeting
of the
legislative commission’s budget subcommittee
Seventy-Second Session
January 30, 2003
The Legislative Commission’s Budget Subcommitteewas called to order at 8:39 a.m., on Thursday, January 30, 2003. Chairman Morse Arberry Jr. presided 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.
ASSEMBLY COMMITTEE MEMBERS PRESENT:
Mr. Morse Arberry Jr., Chairman
Mr. Bob Beers
Mrs. Vonne Chowning
Mrs. Dawn Gibbons
Mr. Josh Griffin
Mr. Lynn Hettrick
Ms. Sheila Leslie
Mr. John Marvel
Ms. Kathy McClain
Mr. David Parks
Mr. Richard Perkins
ASSEMBLY COMMITTEE MEMBERS ABSENT:
Mr. Walter Andonov (excused)
Mr. David Goldwater (excused)
Ms. Chris Giunchigliani (excused)
SENATE COMMITTEE MEMBERS PRESENT
Senator Barbara Cegavske
Senator Bob Coffin
Senator Bernice Mathews
Senator William J. Raggio
Senator Raymond Rawson
Senator Dean Rhoads
Senator Sandra Tiffany
STAFF MEMBERS PRESENT:
Mark Stevens, Assembly Fiscal Analyst
Gary Ghiggeri, Senate Fiscal Analyst
Steve Abba, Principal Deputy Fiscal Analyst
Bob Atkinson, Program Analyst
Jeff Ferguson, Program Analyst
Joyce Garrett, Program Analyst
Jim Rodriguez, Program Analyst
Anne Bowen, Committee Secretary
Connie Davis, Committee Secretary
DEPARTMENT OF INFORMATION TECHNOLOGY
Chairman Arberry called the meeting to order and opened the budget overview for the Department of Information Technology (DoIT).
Terry Savage, Director, Department of Information Technology, presented an overview of where the Department had been, some of the challenges and issues being faced in the current budget, and proposals to solve those problems.
Mr. Savage stated the mission that the Department had adopted for themselves was to provide what was needed at a minimum cost to the Nevada taxpayers. He further stated that what was needed was not determined by the Department, but by what the user agencies had in their budgets to pay for Information Technology (IT) services. The Department had a projected service delivery of $28.7 million and an actual service delivery of $29.7 million. Thus, the Department had delivered 4 percent above what was expected in terms of IT services. The projected delivery cost was $31.2 million and the actual delivery cost was $26.6 million, 15 percent below what had been authorized for FY2002.
Mr. Savage explained that in FY2002 and FY2003 the Department had an authorized staffing of 215 full-time employees. The Executive Budget for FY2004 and FY2005 recommended 196 full-time employees. An increased workload of 19 percent was expected for the biennium with a decreased staffing level of 9 percent. Some of the savings had come from more efficient procedures that resulted in doing things better with less expense. Mr. Savage further explained that much of the savings came from “overdue maintenance and increased obsolescence.” Unfortunately, that increased the risk of failure on the systems. The directions that were given and the results to be achieved with The Executive Budget were to cut everything possible without creating any responsible risk of failure. Mr. Savage opined that the Department had done that even though the risk of failure increased because of the reduction in expenditures. However, Mr. Savage did not believe that they had cut the budget to an irresponsible level.
Mr. Savage compared the budget to fuel for a car in that if you run too rich, you waste money; if you are well tuned you will receive your maximum long-term efficiency. However, if you run too lean you will receive some short-term savings, but you can’t take that too far without doing permanent damage. The budget that was proposed minimized short-term expenses but not to the point of excessive irresponsible risk of failure. The budget did not minimize long-term expenditures. Mr. Savage explained that there were additional expenditures that would save money in the long run that would not be spent because the money wasn’t there. An obvious example of that would be the enterprise architect. There was a lot of inherent inefficiency in radio systems that were not compatible, in excess programming languages, and inefficiencies, inconsistencies and incompatibilities that were rampant throughout the IT services in this state. The Department wanted to hire an enterprise architect to start to consolidate all of these systems and bring some sense to it. They hoped to readdress the issue of hiring an enterprise architect in FY2007, but had not put it in the budget this biennium because of the budget shortfall.
Mr. Savage explained that the state needed to take the enterprise wide view because if you looked at small, isolated pieces you might get the wrong answer. The objective was to look at the entire statewide picture in order to minimize the cost to the Nevada taxpayer. That was how you would get the most “bang for the buck.” If you tried to locally optimize individual pieces you would not get the best results. He reiterated that you get higher expenses by not looking at the overall picture. Mr. Savage referred the committee to Exhibit C, the “Hidden Costs of Local 0ptimization,” which was written in May 2002, with an accompanying compact disc, Exhibit D. Exhibit C essentially pointed out if you were not looking at the enterprise level you could spend more money even if it looked as though you were not. Mr. Savage requested the committee peruse this document at their leisure and offered to answer any questions regarding the information presented.
Mr. Savage summarized what had been accomplished by the Department in FY2003. He had previously touched on financial performance, but went into further detail regarding IT coordination and oversight. The process had begun to get all state IT users together to develop technical standards, best practices, and consistency of systems in order to have more interoperability between systems. Mr. Savage elaborated upon a very important problem, communications integration. He stated in New York City during the terrorist attacks of September 11th more people died than needed to, because the first responders could not talk to each other. The police, firemen, and emergency medical technicians could not communicate with each other and were forced to pass notes and try to talk on cell phones. Not only was that economically inefficient, but lives were lost as a result. Mr. Savage stated Nevada was making huge progress in solving that problem.
During the previous session two project manager positions had been approved by the Legislature. Although the project managers were being overworked, according to Mr. Savage, progress was being made on all IT projects, specifically in a number of projects that received federal funding. Mr. Savage stated that a good part of the Department’s objective would be to get federal funds as opposed to using General Funds. The performance of the Web group had been outstanding. The way rate development and billing were handled had been transformed from two years ago. Although more work was necessary, progress had been stunning. Mr. Savage recalled that the first version of the rate model had been turned in two years ago and that version was wrong. In July of 2002 another version was submitted which was much improved; since that time, by working with the users, it had been refined. Mr. Savage stated that in FY2002 services were delivered at a cost 18 percent below that which had been projected.
Mr. Savage explained that in terms of the IT coordination and oversight, a structure was in place with eight working committees comprised of agencies around the state dealing with the following:
· Government
· Security
· Technical Standards and Architecture
· Issues Around the Work Force
· Strategic Planning
· Justice Integration
· Electronic Records
· Project Oversight
Mr. Savage further explained those committees were in various stages of operation, with some in full operation and others still in the start-up phase. As an example, Mr. Savage mentioned that several agencies were participating in the various subgroups of the Security Committee. These state agencies were diverse. Although this process was not a DoIT function, it was consciously intended to include all the state IT users that were in the Executive Branch. Certain standards had been approved, reviewed, and passed by the committees and they were being implemented. Mr. Savage noted that in the matter of security standards there were many issues, as Information Technology security was a growing problem. The Security Committee was the first committee to be implemented after authorization was obtained to build this structure. Mr. Savage further stated that because he had a background in security and the State Information Technology Security Officer was former military, they were very sensitive to security issues. The agency was also coordinating with the Homeland Security Committee and the Governor’s Homeland Security Advisor, Jerry Bussell.
Mr. Savage said he was very pleased with how well communication integration was going. For the first time in decades there was an explicit cooperative agreement signed by the Department of Transportation, the Department of Public Safety, and the Department of Information Technology regarding radio operability. Mr. Savage noted, however, that you did not solve a 20-year problem in just a few years. A plan had been formulated by working with the directors and technical people of all three agencies to merge those incompatible systems. Mr. Savage further informed the committee that because the first responders were often city, county, or federal agencies, a statewide communications conference had been held in Carson City in December 2002, which included representatives from state, city, county, and federal levels. This conference addressed the issues of communications and radio interoperability. A Communications Steering Committee had been formed as a subcommittee to the Nevada Homeland Security Committee and had been granted a charter by the Nevada Homeland Security Committee. The first meeting of that committee would be within two weeks and preliminary vendor briefings had already been submitted. Mr. Savage stated that the radios currently being used would not be disposed of immediately as millions of dollars were invested in those radios. The committee would be required to state their goal and submit an evolutionary path to obtain that goal within the constraints of the funding that would become available. Mr. Savage stated that ideally, federal funding would be provided by the National Department of Homeland Security. He further stated the Department was watching the grant process carefully and the agency was hopeful that funds could be received from that source. Regardless of whether federal funds were forthcoming, the committee would be identifying what needed to be done. Mr. Savage had been selected to chair that committee and was looking forward to doing so.
Mr. Savage stated the Department of Information Technology was beginning to work more with agencies in the short term as well. One of the problems with Information Technology in this state was that it had grown up organically, without any coordination or statewide architectural planning, which had resulted in much duplication. Over the past few months the Department of Information Technology (DoIT) had been working with the Health Division to identify overlaps between the statewide network and the Health Division network. The two agencies were trying to plug the gaps and delete the overlaps to determine the capacity that was needed, without redundancy.
Mr. Savage addressed the state’s communications backbone and said that the agency had integrated digital microwave and fiber optics, which was now used for a wide range of functions including telephone data, video, and radio. The old analog system was gradually being phased out.
Mr. Savage referred again to communications integration by stating that the interoperability question had gone from being just a buzzword to a matter of life and death. He continued by explaining that in the current environment we could not allow this inability to communicate to persist; it would be entirely irresponsible. The agency was taking the actions needed to prevent that from happening.
Mr. Savage addressed the project management function and stated that the federal government wanted to know where their funds were going. The people primarily responsible for that function were the project managers. The agency was currently providing project management oversight for over 20 different system implementations, which was still not sufficient. Unfortunately, the project managers were spread so thinly that they could only look for the largest problems. Mr. Savage used the example that if there were a thousand useful and good things that could be done, the agency had resources to do only six or seven hundred of them. They were constantly trying to decide what good, useful things were not going to get done because they did not have the resources to do them. Mr. Savage acknowledged that DoIT was not alone in this issue and that all the other state agencies were facing the same issues.
Mr. Savage stated that DoIT was adopting and implementing industry standard practices; namely, project management and quality assurance. A good example where this was working well was the Medicaid Management Information System (MMIS), the biggest ongoing IT project in the state. The agency had a very substantial contract for quality assurance (QA) and independent verification and validation (IV and V) with a vendor in the amount of $1.7 or $1.8 million. Mr. Savage explained that DoIT’s job was to have oversight over the QA and IV and V vendors and that he and a senior project manager were handling those duties. The first subsystem implementation of the point of sale system would be going into effect very soon, as it had been scheduled.
Mr. Savage emphasized that the projects that had succeeded featured solid planning and project managers. He explained that both project management and quality assurance should be viewed as insurance, taking the view that if you couldn’t afford professional project management and quality assurance, you couldn’t afford the project. Mr. Savage opined that historically there had been the attitude that if you could manage something, you could manage anything; however, that had proven to be untrue in terms of IT projects. You needed to have some experience in the field to make the project work.
Mr. Savage informed the Committee that the Web site performance had been amazing. In 2001 the state was ranked 31st in terms of the quality and usability of our Web site and today was ranked 8th. The first thing high-tech companies looking to relocate would do is check out the state’s Web site in order to see how easy it was to do business with state government. He further explained that the state Web site was ranked much higher than you would expect given the size of the state of Nevada and the budget allocated to this project. Although the budget continued to be minimal, very good results had been achieved. Mr. Savage commented that businesses considering relocation surfed the Web to get preliminary information about possible areas. The Web site was complete and user-friendly.
Mr. Savage stated that a Capacity Planner position had been requested and approved in FY2001. The Capacity Planner position forecast what capacity would be needed in terms of mainframe, network capacity, and programmer development time; that is, what would be needed and what users would demand. Mr. Savage said the turnaround time had been unbelievable. Just before he was appointed Director of the Department in August of 2000, Mr. Savage stated the Department had mainframes that were grinding to a halt and that problem had not been forecast. A report had been submitted stating that the mainframe was probably good for another year; unfortunately, that report had been incorrect. The main reason for that was the connection between the Department and the users was minimal. Mr. Savage informed the Committee that the Department had completely revamped that process and they were working with the users on an ongoing basis. The Department could accurately forecast mainframe use because of cooperation with the users. In August of 2000, when the budget was being prepared, it appeared as if two additional mainframe upgrades would be needed over the course of the current biennium. By the time the budget hearings in advance of the 2001 Legislative Session had been held, the conclusion had been reached that they could give up one of those upgrades. Mr. Savage continued that, so far, they had been able to keep the system under control by working extremely closely with the users. Nevada Operations Multi-Automated Data Systems (NOMADS), in particular, had done a wonderful job of monitoring and tuning their applications; thus, keeping the growth rate in check. There was some enlightened self-interest in that because, their systems operated more efficiently and their bills were lower for mainframe utilization. The Department was working with the Unified Nevada Information Technology for Youth (UNITY) because a large number of Clark County users would be converting to the UNITY system. The Department had received estimates of what the capacity impact would be, but would know definitely when production began. In addition to the MMIS project, the Department would be watching the UNITY mainframe utilization as well. Mr. Savage stated that he could not overemphasize how much mainframe utilization had improved and how much more control and visibility the Department had over the requirements of the upcoming session. Mr. Savage stated that a quarterly review of the rate model, by a consultant, had been implemented for both accuracy and compliance with the federal rules. He further stated that if the state does not follow the federal rules, federal funding cannot be used, and their goal was to get as many federal dollars into Nevada as possible. The rate model had improved as much as the forecasting; if utilization could not be forecast, accurate rates could not be set. Mr. Savage noted that in the past the rates were somewhat unrelated to reality, but in FY2003 the performance had been quite good as a better understanding of rates had been gained. By FY2005 the performance would be even better. Because of this better understanding, the Department was able to reduce the rates for telecommunication services in 2003 based on their usage in 2002. During the 2001 session there had been questions about whether the rates for telecommunication services were competitive with private industry rates and because of the increased utilization, reserves went up, reducing costs to the users.
Mr. Savage stated that the billings used to be late, wrong, and confusing. Billings had been improved and were now on time, mostly right, and definitely improved as to clarity. The Department had talked to the customers, listened to their input, and made changes to the way the bills were prepared and presented. Mr. Savage explained approximately 16 months ago the Department started holding customer workshops to explain the rate model. The feedback received from customers about those workshops had been almost universally positive.
Mr. Savage stated there was some bad news along with the good news. DoIT was seeing huge increases in the demand for both network capacity and mainframe utilization and seeing decreases in the need for Personal Computer (PC) Technician time and application development time. The organization had to adapt and propose organizational structure improvements to meet the evolving customer requirements. The IT security function was the only new function being proposed.
Mr. Savage explained that the service optimization question had to do with decentralization. He further explained that there were a couple of ways you could provide a service; 1) Internally, using state employees; 2) Internally, decentralized; or 3) Outsourced with the private sector providing the service. For the 2003-05 biennium, the Department was proposing 43 different cost pools; essentially, 43 individual Information Technology (IT) units around the state. Mr. Savage believed that an economic analysis should be done of every one of those services to determine how service optimization could be accomplished. The correct way, in this context, should be the way that minimized the cost of providing that service to the Nevada taxpayer.
Mr. Savage stated that BDR 535 had been submitted requesting revision of their chartering statute, NRS 242, which would officially place the position of Chief Information Officer (CIO) in the statute. The Governor had created this position and appointed Mr. Savage to fill it in October of 2001. No additional salary had been appropriated for this position, but there were additional responsibilities.
Senator Tiffany questioned Mr. Savage regarding his title of Chief Information Officer. She stated that the title of Chief Information Officer (CIO) only appeared to have made the CIO head of three or four different policy committees. Mr. Savage responded that had turned out to be incorrect. Senator Tiffany asked what the difference was between his present title and his former title as far as the job was concerned. Mr. Savage stated that the difference was that the Director of the Department was essentially to provide organization; the CIO function, which was an additional, distinct function, was coordination of the entire IT scope, statewide. Mr. Savage further stated that there were no exemptions from that process, as far as the Governor was concerned. The theory of this was that the entire IT community would decide on the best practices and common policies and make sure they were implemented. Senator Tiffany commented that Mr. Savage had switched from operations to being a policy maker. Mr. Savage responded that policy making was an added function, not a replacement function. Senator Tiffany commented that the position was “blended.” Mr. Savage responded that that was correct.
Senator Tiffany noted that there was an administrative assessment to all Executive Branch agencies and questioned whether that assessment had been in place before or if that had been added because of the Chief Information Officer title. Mr. Savage responded that it was not quite that black and white. In the former way of doing business there were assessments for the planning unit and for the contract unit, and those would continue. In addition, the security function was statewide and was included in the CIO function as well. Senator Tiffany asked whether this was a new assessment. Mr. Savage responded that the security assessment was a new assessment. Senator Tiffany stated that it was called an administrative assessment in the proposal. Mr. Savage stated that it combined elements of assessments that were previously in place with the new assessment, which was the security assessment.
Senator Tiffany noted that the new CIO assessment funded four positions. She questioned whether those were new people or previous employees and what the duties were for those four positions. Mr. Savage replied that presently those positions were not filled and requested that Shelly Person, Chief of Administration for the Department, explain further.
Shelly Person, Chief of Administration, Department of Information Technology, responded that there were three new assessments proposed for the next biennium as follows:
· CIO Support Assessment
· Common Enterprise Assessment
· Security Assessment
Ms. Person elaborated that the terms and titles of the assessments had not been completely refined; but the CIO Support Assessment covered Terry Savage’s position, committee support, and a documentation position that supported policy and standards management. Ms. Person stated all of the assessments might be combined for ease of billing, but for clarification in the proposal, the Security Assessment would include one current planner who did security for the state, the proposed four new Information Security Officer positions, as well as the $200,000 risk assessment for the first year of the next biennium. Ms. Person further stated that those assessments were in the best interest, as far as cost pools and rate models, to appropriately bill the agencies that received the benefit and service. Senator Tiffany thanked Ms. Person for her information.
Chairman Arberry asked if there were any other questions.
Mr. Savage requested that members view the Organizational Chart on the screen. The Administrative Group, headed by Shelly Person, remained essentially unchanged. A single unit would deal with IT security and quality assurance. Mr. Savage stated those were functions you did not want reporting to Operations. The existing Planning Group’s function had been expanded to include support of the policy as well, although resources had been reduced in that unit. The Project Management function had been combined with the Programming Group because they had been working on the same projects and the entire function was billable. Technical Operations was not changed with the exception of combining the Programming Group with Project Management. Mr. Savage stated that moving the Programming Group in with Project Management created a good balance because Technical Operations overwhelmed the other functions.
Senator Tiffany noted that the Programming Group and Project Management were combined under the same Organizational Chart and questioned whether job descriptions were interchanged or were they clearly differentiated. Mr. Savage responded each group had distinct functions but occasionally there would be some overlap. Senator Tiffany commented that quite a few projects had been cut in the last biennium because of budget issues but she had not seen any staffing changes and she wondered why there were a lot of programmers without many projects. Mr. Savage replied there had been significant reductions in the Programming Group since the beginning of the last biennium. He explained one of the reasons was that ongoing operation and maintenance was much more stable than new development because they had not experienced the peaks and valleys in programming. Mr. Savage explained the new trend was for large projects, such as the Medicaid Management Information System (MMIS) to be outsourced. In the case of MMIS there was an outside vendor managing the entire process. Senator Tiffany remarked that while it was not necessary to go into this matter at the present time she would like to revisit the subject of staffing in future joint subcommittees.
Mr. Savage stated Services Optimization was the broader subject of which decentralization was only one possible option. All plans for additional decentralization during the 2003-05 biennium had been terminated. Mr. Savage referred to Exhibit C, which analyzed the financial problems that could occur with decentralization. The Department of Administration had performed a study looking specifically at the proposed decentralization of the Nevada Operations Multi-Automated Data Systems (NOMADS). The study had determined it would have cost the state almost half a million dollars a year in federal funds to implement that change. Mr. Savage explained the proposal for the next biennium would be to implement a study looking at every service the Department provided to determine, on a service-by-service basis, the underlying economics.
Chairman Arberry commented that in previous years the Legislature had provided DoIT with funds for various studies, which had resulted in reports recommending modifications the Department could not accomplish. Chairman Arberry stated that it seemed to him that the Department was requesting another study “to study the study.” Mr. Savage replied that the previous studies had been more focused on the rate development process, determining the costs, and making the rates work. The study being proposed was a structural organization study, rather than a detailed rate study. The intent was to study the IT services organization statewide to better minimize the cost to Nevada taxpayers. Mr. Savage stated that study had never been done; he felt it was an important study and needed to be done. Chairman Arberry said the way he looked at it now, it was “over-study.” He asked what company had done the first study. Mr. Savage replied that the company’s name was MAXIMUS. Chairman Arberry asked what company had done the second study and what company was being proposed to do the third study. Mr. Savage replied that because no funding had been received as yet, the Department intended to write up the specific requirements for the study and request bids. There had been no contractor identified to do this particular study.
Brian Spencer, Administrative Services Officer III, Department of Information Technology, informed the Committee that in the 1997 Legislative Session, DoIT had requested funding for a study, but that funding had been cut. During an Interim Finance Committee (IFC) meeting early in FY1998, the Department requested and received $20,000 to determine if the rates that were in place met federal requirements. The rate study was completed by DMG-MAXIMUS; the study indicated that the Department was not in compliance with all federal requirements and changes needed to be made to the billing methodology. Mr. Spencer continued that during the 2001 Legislative Session a rate plan had been compiled and submitted to the Budget Office where it was deemed to be noncompliant with the requirements defined by DMG-MAXIMUS. DMG- MAXIMUS had conducted the rate study and developed the rates for FY2001 at a cost of $49,000. Mr. Spencer stated one of the recommendations from the 2001 rate study by DMG-MAXIMUS had been to purchase software from them to assist the Department in rate setting. The decision was made to not purchase the software and instead a massive spreadsheet had been compiled using Excel. The rates for the 2001-03 biennium were compiled using the spreadsheet, but when the rates were submitted it was determined that the rates were not acceptable. DMG-MAXIMUS again conducted a rate study at the cost of approximately $100,000 and at that time the Department decided to purchase the software that had been recommended years earlier. That software was used to prepare the rates for the upcoming biennium. Mr. Spencer stated that the Department had obtained the services of DMG-MAXIMUS and a consultant, Ed Perry, to assist in compiling quarterly reports that documented the results of their operations to see if rates were in compliance with expenses. Those quarterly reports had been presented to the Interim Finance Committee. Chairman Arberry asked if the rates were in compliance with expenses. Mr. Spencer answered that the study was to ensure that the revenues and expenses for the services provided were similar; that there were not massive amounts of overcharges or undercharges. Mr. Spencer stated that, in general, the results had been fairly good. The Department noted that telecommunication services had been over-collecting in FY2000 so as a result, rates for telecommunications services were reduced for FY2003.
Chairman Arberry asked what would be done regarding Application Design and Development, which appeared to be off roughly 22 percent. Mr. Savage stated that would be handled primarily with employee reduction by way of re-assignments, transfers, and leaving positions unfilled. The sudden downturn in development requirements that came about in late 2001 and persisted throughout 2002 was completely out of line with the historic trend. The programming staff of Application Design and Development for the 2003-05 biennium had been specifically pared down to meet the forecast demand that the user agencies had in their budget.
Chairman Arberry suggested that when Mr. Savage met with future joint subcommittees he would have a definition of how this could be achieved.
Assemblywoman Chowning asked if the contractor was still “on board.”
Ms. Person answered that Ed Perry was still contracting with the state and had been very astute regarding federal standards and policies compliance. Ms. Person stated that in the 2001 Legislative Session, the Department had requested approximately $71,000 for each fiscal year of this current biennium for Ed Perry to assist the Department in conducting the quarterly reviews and the annual assessment. The goal had been to transition that knowledge so the Department could internally prepare the quarterly reviews and the annual assessment. It had been very successful.
Assemblywoman Chowning wanted to know if the contract contained the provision that there would be oversight and recommendations leading into the future. She also wondered, if that provision was already in the contract, why an additional $125,000 had to be spent. Mr. Savage responded that the previous studies concerned the mechanics of developing the rates and the billing process for the services the Department was already authorized to provide. The new study being proposed was in a completely different field; it addressed the question of what services DoIT should be authorized to provide. Mr. Savage stated that was a question that had not been addressed up to this point. Mrs. Chowning requested a copy of the contract be provided to the Budget Subcommittee. Mr. Savage stated a copy would be provided.
Mr. Savage continued by stating money received from the federal government could be significantly affected by how the service provision was structured. The state of Nevada had, historically, not been focused on that issue. Because of the current economic climate and because it was a good idea, the Department had begun to look at the service provision structure every time. Mr. Savage stated that if the Department had to provide 100 units, and the federal government would pay for 70 units, that would be better than the federal government paying for 60 units. The intent was to complete the study in time for development of the 2005-07 budget. Mr. Savage reiterated that it was extremely important to take a holistic and statewide perspective because looking at individual silos would result in the incorrect answer. All of those services were tied together in a financial sense and changing one affected the others.
Mr. Savage explained that minimizing the cost to the Nevada taxpayer was the Department’s primary goal. If outsourcing the entire IT function was the correct solution, and DoIT would only manage the contract and supervise the people providing those services, that would be done. He stated Texas followed that model.
Mr. Savage stated IT security was an increasing problem. The Cyber Security Initiative that was proposed had four new Information System Specialist IV positions. He explained security was not a binary issue; there was no specific dollar amount you could name to be secure. It would be necessary to find the responsible level. The Security Committee had studied industry standard practices for IT security in a wide range of areas and identified over 100 security tasks that were not reliably practiced in this state. Mr. Savage explained that after estimating the amount of time necessary to implement those practices, it would have required approximately 40 full-time employees. Consideration was also given to waiting until the need arose and hiring employees at that time. Because there were some things that obviously needed to be implemented, a compromise was reached to request four IT security positions for the upcoming biennium.
Chairman Arberry questioned whether current programming staff could be utilized for the new Information System Specialist IV positions. Mr. Savage replied that some of the programmers might be transferred to those positions. He stated that in the 2003-05 budget the number of programmers that remained for the next biennium was consistent with the amount of identified programmer work. Significant staffing reductions had already been implemented in that group and more reductions would be implemented in the 2003-05 biennium. Mr. Savage further explained that the balance, in terms of the programming staffing and the programming workload for the 2003-05 biennium, had already been considered and resolved. The staffing had been reduced to the point where it was appropriate for the amount of work available. The four new positions were to fill the additional needs of the Security Unit. Mr. Savage emphasized that the Department had already gone from 215 authorized positions to 196 authorized positions.
Assemblyman Marvel noted that the audit subcommittee had questioned the Department’s handling of overtime and wondered whether anything had been done to correct that problem. Mr. Savage replied the problem had been addressed and the individuals involved had been reeducated. The entire process of handling overtime had been completely revised, in both documentation and approach of the supervisors.
Mr. Marvel further inquired as to the cellular telephone problem. Mr. Savage answered that policy had been changed, centralized, and tightened up as well.
Senator Tiffany requested clarification from Mr. Savage regarding programming cuts and additions to staff. Mr. Savage stated there was some confusion as to what constituted base as opposed to enhancements. Senator Tiffany specifically asked Mr. Savage if ten programmers had been cut with the 3 percent budget reductions imposed on state agencies. Ms. Person answered that in order to make a budget dollar threshold in the budget building process, five NOMADS positions had been cut. It was obvious that those staff members were still needed to support NOMADS so a decision unit was in the budget to bring back the five NOMADS programmer positions. Senator Tiffany asked if the Department had cut 10 programmer positions with the 3 percent budget reductions asked for in The Executive Budget. Ms. Person responded that to make a budget dollar threshold in part of the budget building process, the Department had cut 5 NOMADS positions to meet the threshold within the budget constraints. It had been obvious that the staff would still be needed to support the needs of NOMADS, therefore, a decision unit remained in the budget to reinstate those 5 NOMADS programmer positions. Senator Tiffany asked if programmer positions had actually been reduced. Ms. Person responded that some positions had been reduced, but not 10 positions. During the current biennium some probationary employees had been released because there had been a lack of demand to support those positions. Mr. Savage stated those positions had been cut from the budget and that information regarding cuts and additions to staff would be provided in more detail in the future joint subcommittees.
Mrs. Chowning questioned whether the excessive overtime within the Department had been addressed and what the overtime issues were and how they had been resolved. She specifically inquired as to whether the monies that were overpaid had been returned. Mr. Savage replied that while the assumption was that the Department had paid for more work than it received, that was not the case, therefore, he did not anticipate any repayment being made. Mrs. Chowning stated that if it was necessary for her to delve into examples again, she would, but when you had people not working where they were supposed to be and they were working elsewhere, she wanted to know how that had been corrected and how the money situation had been corrected. Mr. Savage stated his understanding of the situation was that the number of hours where the programmers worked, and had not charged, exceeded the number of hours where they charged, and did not work. The problem was one of unacceptably sloppy record keeping and not of a net overcharge. Mrs. Chowning stated the report needed to be extremely detailed when presented to future joint subcommittees.
Assemblyman Beers inquired as to what the people had been working on who had been paid overtime. Mr. Savage replied that those programmers had been almost entirely within the Web group and they had worked an enormous amount of overtime. The problem occurred in the recording of that overtime since more work had been performed than they were compensated for. Steps had been taken to avoid this problem in the future.
Chairman Arberry inquired as to how the new positions, transfers, and re-classifications would improve DoIT’s operations. Mr. Savage stated that it would realign the reduced work force to the actual work that needed to be done. To the extent that the Department had less programming work, there were fewer programmers; to the extent that an enhanced security requirement was required, more security people were recommended; to the extent that less personal computer (PC) technology work was required, the Department had fewer PC technicians; to the extent that more project management work had to be done, the Department had fewer project managers. He said that it was realignment from the areas where the workload had been reduced to the areas where the workload had increased, creating a net reduction in the staffing level of the Department. Chairman Arberry asked why, when DoIT was compared to city or county IT agencies, it appeared as though DoIT was in complete disarray. Mr. Savage replied that despite the sensationalism surrounding the discussion of some of those specific issues, the Department was not out of control or in disarray. Chairman Arberry stated that when you looked at a county function compared to DoIT, it appeared as if the state’s Department of Information Technology was not in control of other state agencies with regard to purchasing data systems. Mr. Savage said part of the problem had been the historic statutory exemption of some agencies. The creation of the CIO position was specifically targeted to coordinate those functions. Chairman Arberry suggested that Mr. Savage be prepared to demonstrate at future joint subcommittee meetings, why the position of Chief Information Officer (CIO) was necessary to the Department.
Mr. Savage continued with his presentation and stated a bill draft request had been submitted which addressed security questions. The Department had proposed doing an assessment of vulnerabilities, which would not be considered a public document because of security reasons. Unfortunately, under the current rules it would be considered a public document. BDR 536 proposed making the study a confidential document if it revealed information that increased the risk to state assets or to citizens. Mr. Savage noted cyber attacks in the United States were getting worse and the cost of computer crime was going up. Mainframe utilization had been increasing and an upgrade to the mainframe had been proposed to address that.
Assemblyman Beers commented that security was the main reason DoIT was important to all the other agencies.
Mr. Savage continued with his presentation regarding mainframe upgrades and stated increased utilization and system breakdowns were two reasons for the upgrade need. The Department had two mainframes of different generations. The older of the mainframes was due to go out of service in December of 2003. Mr. Savage presented a Mainframe Utilization Chart and said that, ideally, mainframe utilization should be no more than 70 percent; when utilization was over 90 percent mainframe degradation occurred. Mr. Savage said when peak utilization climbed too high, the Department worked with the users to adjust utilization to acceptable levels. He stated that for the past year and a half DoIT had been adjusting peak time usage to put off the need for a mainframe upgrade; however, there was no possible way that would work through the next biennium. The Department had looked at three long-term options. The first option was continuing with the status quo, which would avoid the up-front cost of purchasing new hardware; however, after December of 2003, the older of the two mainframes would be totally out of service.
Senator Tiffany questioned whether a gross receipts tax would be on the mainframe. Dorothy Martin, Deputy Chief of Computing, Department of Information Technology, stated that the Department of Taxation had a database that resided on the mainframe that contained all of their tax information. Any type of new tax that would cause the database to grow would have an impact on their mainframe utilization. A front end had been designed to allow the Department of Taxation to download the database to relieve analysis time on the mainframe and allow them to access their data more quickly. That tool was called Data Propagator. Ms. Martin further stated the Department of Taxation had not made a determination how they would deal with any new taxes, but if it were to go on the mainframe as part of the current database it would increase their utilization. Senator Tiffany commented that new taxes being contemplated in The Executive Budget would certainly have some impact on the mainframe. Mr. Savage stated while there would be some impact, the solution being proposed would simplify this task. The configuration in the hardware being used currently did not upgrade well; if it was upgraded, it had to be upgraded in large increments. That would result in having more capacity than was needed. The new system being proposed allowed for increases in smaller increments so that if a small increase in requirement was needed you were not paying for a large increase in capacity.
Assemblyman Beers inquired whether the Medicaid Management Information System (MMIS) would be a large impact to the system. Mr. Savage replied there would be some impact because the MMIS did its eligibility calculations through NOMADS, however, it would not be a large utilization driver. Mr. Beers asked if the Department was anticipating growth would be driven by caseload and population for existing systems, or if there were new systems coming online. Mr. Savage replied that it would largely be caseload growth, however, Unified Nevada Information Technology for Youth (UNITY) would be an interesting example because it would be a transition from a small number of users, who were not using it extensively, to a much larger number of users, who would be using it extensively. Mr. Beers inquired about data transport. Mr. Savage stated that the data transport capacity would be well handled. Even though UNITY was an existing system, they would be making a step change in their utilization, which would create a new way of operation in terms of the mainframe. Mr. Beers asked if the potential increase in demand correlated with the proposed unification. Mr. Savage replied that all issues were connected with the unification. Mr. Beers inquired as to whether there would be the anticipated increased demand to the mainframe before Clark County came online with Child Welfare. Mr. Savage stated there would be some increase during the development phase because there had been some Clark County personnel working on the mainframe to accomplish the migrations; therefore, incremental changes would be occurring before the transition.
Mr. Savage continued with his presentation and stated that the next option would be an R35 conversion, which would provide a short-term capacity but the conversion would go out of service about two years later. This particular option would merely be a “band-aid.” Another upgrade would be required in the 2005‑07 biennium to the system that was presently being proposed. Mr. Savage stated the preferred option was the Z104 option which provided the capacity needed now, could be upgraded in smaller increments, and would be around for at least five or six years without having to be upgraded. While it had a higher short-term cost it had no significant technical risk. The rate impact of the two different options was essentially minimal and there were sufficient funds in the facility reserve to address this requirement immediately. Mr. Savage addressed the Microwave Analog System, which was barely surviving. Often parts for the system had to be manufactured. The replacement for the Microwave Analog System was the Digital Microwave System. Phase I was already completed and in operation. The section that the Department was requesting funding for in this biennium was from Ely to Elko to complete the loop. Mr. Savage stated it was important to have the loop for redundancy and backup; for example, if the entire system was tied together, you could have failures at one point and route the data the other way. If you did not have a complete loop and you had a break there would be parts of the system out of service, which would seriously impact Public Safety, particularly in the rural areas.
Chairman Arberry questioned the use of Highway Funds for the digital microwave project. Mr. Savage stated that was the plan for that stage of the upgrade. Chairman Arberry asked how much of the Highway Funds would be used.
John P. Comeaux, Director, Department of Administration, responded that General Fund monies had been used to complete Phase I and the original plan had been to use General Fund monies for the entire project. However, General Funds had not been available so they began looking for another way to finance the next phase. The amount of usage estimated by DoIT attributable to highway funded agencies turned out to be a fairly significant percentage of the total usage of the system. Mr. Comeaux said that at the end of that phase the Highway Fund would have contributed less than the estimated percentage of their usage of the system. Chairman Arberry requested usage calculations be provided to the staff.
Mr. Savage continued by stating that the biggest problem the Department had was overdue maintenance and outdated systems. There was a tendency throughout the state, in terms of IT maintenance, to build a system and assume that it would last forever. Some of those problems were being addressed; for example, the mainframe update and the microwave upgrade. Mr. Savage stated, however, the overall picture was still not good. The intent during the next biennium was to identify the overdue maintenance, the outdated systems, to quantify it and compile a priority list. Mr. Savage listed the Capital Improvement Projects, which were not part of the core budget, as:
· Facility Building Renovation and Expansion
· Physical Security
· Remote Communications Shelter Renovation
· Upgrade the Stewart Communication System
Senator Tiffany asked Mr. Savage if there were any legislators serving on any of the various policy committees that he was serving on. Mr. Savage answered that on the Electronic Government Steering Committee there were, and part of the intent of BDR 535 was to take the existing IT Advisory Board and expand both the number of legislators serving on it and expand its role beyond DoIT operations. The IT Operations Committee reported to the Governor and it was being proposed that the Committee also report to the IT Advisory Board so concerns of the legislators could be addressed.
Chairman Arberry asked what percentage of DoIT’s staff was being recommended for reclassification in The Executive Budget. Mr. Savage replied that while they did not have those figures with them, they would have them to the Subcommittee today.
Mark Stevens, Assembly Fiscal Analyst, stated information on how DoIT’s rates were calculated based on the recommendations in The Executive Budget had been requested of DoIT. That information would be forthcoming soon; it would be analyzed by the Fiscal Division and submitted to the Subcommittee by the time of the joint subcommittee hearings.
Chairman Arberry recessed the meeting at 10:11 a.m. and reconvened the meeting at 10:35 a.m.
HEALTH DIVISION
Yvonne Sylva, M.P.A., Administrator, Health Division, introduced members of the Health Division Management Team. Ms. Sylva presented the Committee with two handouts titled “Nevada Health Overview of Programs,” Exhibit E, and “Healthy Nevadans,” Exhibit F. Ms. Sylva commented that she would not be using “Nevada Health Overview of Programs” during this presentation but for newer members of the Committee it would be a synopsis of Health Division programs. This handout had been produced at the very last minute and as a result the Oral Health Program had not been included. Ms. Sylva stated the primary document she would be using in her presentation would be “Healthy Nevadans,” Exhibit F. The Health Division had been the fastest growing division within the Department of Human Resources. There was a $90 million difference between the current biennium’s budget and the proposed budget for the FY2003-05 biennium. The $90 million difference was due to several items, one of which was annualization of grants in the FY2003-05 budget that had not been done very well in the past. Another reason for the difference had been the aggressive pursuit of new federal funds for the state to implement new programs to deal with emerging infectious diseases. The Health Division had been established by NRS 439 and operated under statutes in more than 30 different chapters of the Nevada Revised Statutes. Ms. Sylva stated the Division dealt with everything from safe drinking water to alcohol and drug abuse, as well as the registry of births and deaths. The Health Division had been authorized 425 full-time employees, and 465 full-time employees were being requested for the 2003-05 biennium.
Senator Mathews inquired as to whether the Division had oversight of x-ray machines. Ms. Sylva responded that they did.
Ms. Sylva continued with her presentation by noting that the large increase in the General Fund in this budget was due to new decision units relating to special children’s clinics and services for children. The Division also had a decision unit in Budget Account 3223 that would include a privacy officer. Ms. Sylva stated that most programs covered by the Health Insurance Portability and Accountability Act of 1997 (HIPAA) were actually General Fund activities, including those for children and other programs that transferred into the Health Division. Production of birth and death certificates were General Fund activities within the Division as well. Ms. Sylva noted there were three reductions within the budget that she wanted to discuss. The first was Budget Account 3209, Aid to Counties. Aid to Counties’ funds were utilized in 2003 to help make the Department’s 3 percent budget cuts. Those funds were included for special consideration but were not funded in the 2003-05 budget. Ms. Sylva referred to pages 10 and 11 of Exhibit F, and said that the Division had taken the funds requested in The Executive Budget and allocated them among the 17 counties in the state of Nevada. Those were not actually cash monies that went to the counties; instead, it represented a formula used to depict either services provided by the Division, or services provided by the counties and paid for by funds from the Health Division. Ms. Sylva noted an estimated $88 million would be invested by the Health Division, in terms of services, in Clark County. In Washoe County there would be approximately $26 million invested. She stated Budget Account 3209 did not represent the only aid to counties that came from the Health Division and went to Clark or Washoe Counties, either directly or indirectly.
Assemblywoman Leslie inquired as to whether the counties would be responsible for those services if the state did not provide funding; she referred to page 11 of Exhibit F. Ms. Sylva replied that the state provided the funds outlined in the chart on page 11 and would continue to do so regardless of funding in Budget Account 3209. Ms. Leslie said that her question was “If the state chose not to provide the $26 million for Washoe County, the county would not have the legal obligation to provide those services?” Ms. Sylva stated Washoe County would not, because those were primarily federal grants that were designated for a specific purpose.
Ms. Sylva referred the Committee to the chart on Page 8 of Exhibit F, and stated this provided a good picture of the growth of the Health Division. She stated that several years ago a real effort had been made to maximize General Fund dollars with the budget, as well as maximize federal revenue. The Division had more than a 400 percent increase in federal revenue over the General Fund. An increase in the General Fund from $13.5 million to $17 million, in the 2001‑03 budgets, was primarily due to transferring the Bureau of Alcohol and Drug Abuse (BADA) to the Division. In the 2003-05 biennium, increases in the General Fund were primarily due to services for children in the birth to two-year age group. Page 9 of Exhibit F outlined a total of 19 different grants that the Health Division had been successful in procuring over the biennium. Ms. Sylva further stated that seven of the grants would need to be added to the 2003-05 budget.
Senator Mathews commented that in the State of the County Address for Washoe County, she had heard that the Women, Infants & Children USDA Special Supplemental Food Program (WIC) would be phased out and wondered how the grant to the Health Division would affect that. Ms. Sylva responded that should the WIC program be phased out in Washoe County, the State Health Division had been working with Washoe County to find a place for the program. Federal funding was still available and there would be another vendor willing to manage the program and make services available to women and children. Senator Mathews stated that when she heard that, she had been somewhat disturbed because it sounded as if it had been one of the budget cuts, as their matching portion. Ms. Sylva stated that while there was no match required in WIC, there was a certain effort of county support needed to supplement those programs or they did not work very well.
Ms. Sylva continued the presentation by stating the second item not included in The Executive Budget was the MAXIMUS money in the Bureau of Alcohol and Drug Abuse (BADA). In 1999 those funds were added to the substance abuse budget in the amount of $500,000 a year. Those funds were earmarked specifically for treatment services for adolescents in Nevada. Based upon the availability of those funds, approximately 600 more adolescents a year were served. MAXIMUS funds were not included in the current budget and in order to continue that effort funds would have to be redirected.
Assemblywoman Leslie commented she believed everyone was aware of her feelings regarding this issue and inquired as to why MAXIMUS funds had not been prioritized in The Executive Budget. Ms. Sylva responded that it had been her understanding that MAXIMUS money was considered one-time funding over the biennium and therefore had not been included in The Executive Budget. Ms. Leslie asked if the Division had requested MAXIMUS money from the Governor’s Office as part of the General Fund request. Ms. Sylva stated that based upon instructions from the Budget Office they had included those items that fell within the cap; MAXIMUS was not requested as an enhancement unit. Ms. Leslie requested a report on what those funds had accomplished and outcome measurements.
Senator Cegavske congratulated Ms. Sylva and the Division on the number of grants that had been secured and inquired as to whether the grants were federal grants only, how many grant writers were employed in the Division, and how many grants were applied for on a regular basis throughout the year. Ms. Sylva replied that the Health Division had no specific grant writers as they were a multi-purpose agency. There were more than 100 different grants utilized within the state Health Division from a variety of sources, not specific to federal funding. Ms. Sylva stated she would be pleased to supply Senator Cegavske with a list of grants utilized by the Division.
Senator Rawson asked Ms. Sylva if MAXIMUS had under-performed during the past biennium. Ms. Sylva responded she did not have that information, as it would be a question for the Department of Human Resources (DHR). Michael Willden, Director, Department of Human Resources, informed the Subcommittee that MAXIMUS provided a projection each year as to how much could be collected on the state’s behalf from various work efforts, and that collection goal was not met. Mr. Willden stated that he believed MAXIMUS’s revenue maximization process would be ending over the next few years. Senator Rawson stated that his questions related to Assemblywoman Leslie’s concerns, and further opined that there was nothing of a permanent or important nature that he wanted to see funded through MAXIMUS, as the program did not seem to be reliable in the long-term. Mr. Willden stated for the record, that DHR would be bringing to the committee meetings a list of a number of projects deemed potentially worthy of MAXIMUS funding.
Ms. Sylva stated the Health Division had eliminated 27 full-time employee positions from its staff in the 2003-05 budget. Ms. Sylva referred the Committee to page 13 of Exhibit F, an FTE Distribution sheet. She stated that all the positions eliminated had been vacant; no one had lost their job. The Health Division had been the lead agency in the state for public health. Washoe County Health District and Clark County Health District served their counties independently from the state Health Division, other than purpose of mission and core objectives of public health. Ms. Sylva reminded the Committee that public health was different from health care. Public health’s role in this country and the state of Nevada was to investigate and control the outbreak of diseases. The Division had been dealing primarily with communicable diseases, now they were looking at things like biological agents as well. The Division also had the responsibility to collect and analyze public health data in order to develop programs and intervention services. Another responsibility of the Division was to educate and inform the public in order to promote and protect the health of individuals. In addition to the Health Division being involved with the environment, the Nevada Division of Environmental Protection (NDEP) was also involved. Ms. Sylva stated that proposals had been made to transfer some activities from the Health Division to NDEP. Ms. Sylva further commented that the terrorist events of September 11, 2001, had a profound impact upon public health as well as the way we lived in this state. The role of public health was much different because of new surveillance systems. Previously, public health was thought of in terms of man-to-man communicable diseases, not in terms of an agent that could come into the environment. She continued and said that the anthrax scare had brought attention to the vulnerability of everyone.
Ms. Sylva commented on the “worried well”; people who feared they had been exposed to anthrax in some manner and filled emergency rooms and offices of health care providers. The Division of Emergency Management served the lead role of activating the Emergency Operations Center (EOC) in Carson City in order to talk with the “worried well,” as well as health care providers, about how to deal with this scare. Subsequent to the anthrax scare, the Division had trained 85 employees. In the event of any bio-terrorism event, or public health concern, the EOC could be staffed. After September 11, 2001, Congress made $10.4 million available to the state of Nevada for public health preparedness. Nevada was the first state to apply for and receive those funds. Ms. Sylva stated that those funds had been put to good use, as there was now a laboratory on the campus of the University of Nevada School of Medicine, with the capability to perform anthrax testing. Clark County had been required to transport specimen long distances due to the lack of a public health laboratory, and from that funding, a public health laboratory had been developed in Las Vegas.
Ms. Sylva stated a priority for the Health Division had been redirecting some of the $10.4 million allocation for smallpox vaccinations, and the Division was doing everything possible to meet the needs as required. Last session the leukemia cluster in Fallon, Nevada, was just beginning. The Division had been working in partnership with Churchill County, the City of Fallon, Centers for Disease Control, and the Agency for Toxic Substance Disease Registry (ATSDR) in an attempt to identify any clue as to why the community of Fallon had so many cases of childhood leukemia. Ms. Sylva informed the Committee there had been very high tungsten levels identified in the control groups, as well as in children and families, but there was insufficient science available to make any informed decision as to what that meant. After the findings by the Centers for Disease Control and ATSDR were submitted, the Division would be reconvening a panel of experts from around the country to review the reports and provide direction. Although there had always been high levels of arsenic in Churchill County there had been nothing in the science to suggest an association between arsenic and leukemia. Ms. Sylva stated Churchill County’s new water treatment facility had been multi-funded by many agencies. Both the United States Environmental Protection Agency (EPA) and the United States Navy had provided funding. NDEP provided funding through Assembly Bill 198, which was a grant program, and the Health Division had a State Revolving Loan Fund for safe drinking water to provide funding as well.
Ms. Sylva continued with her presentation and commented on retirement, recruitment, and retention. Two key positions had been lost in the Health Division. Both the manager of the Special Children’s Clinic, Reno, and the manager of the Special Children’s Clinic, Las Vegas, would be retiring. Ms. Sylva thanked those two managers for their outstanding service. She said the Division has had a difficult time recruiting for two vacant Administrative Services Officer (ASO) positions. One ASO position had recently been filled, but one was still vacant, and there was also a Bureau Chief position vacant in the Bureau of Health Protection Services. Key program manager positions had been very difficult to fill, taking an average of seven months. Ms. Sylva stated that the State Health Officer’s position had been vacant since December 2001. While progress had been made in recruiting for the position, NRS 439 had caused some difficulty, as it required the applicant be eligible for licensure, or licensed, as a medical physician in the state of Nevada.
Senator Raggio asked whether a proposal to change those requirements would be submitted so that the position could be filled. He stated he had had some discussion regarding the matter and it seemed to him some amendment could be introduced to make the recruitment effort easier. Ms. Sylva responded that the Division had requested, and the Budget Office was going to include as part of their cleanup bill, changes in the language to eliminate some requirements that had been a hindrance in recruitment. In the interim, the Division had been contracting with Dr. Bernard Feldman, M.D., M.P.H., FAAP, former Chairman of the State Board of Health, and former Chairman of the Maternal and Child Health Advisory Board, to provide State Health Officer services. Within the Division, Dr. Tracy Green, M.D., had been providing the staff with direct, day-to-day, medical input when needed.
Ms. Sylva stated it was one thing to procure federal money and another to be able to spend it; you had to have the infrastructure in place in order to do that. One of the things the Division had attempted to do over the past few years was to build an indirect cost pool in order to use funding from federal grants in a negotiated rate with the Department of Health and Human Services, to fund the infrastructure needs. The Division was requesting three full-time positions to assist with building the infrastructure; an Administrative Services Officer II (ASO II); an Accounting Technician; and, an Administrative Assistant. Ms. Sylva stressed the need for the ASO II position to assist staff.
Ms. Sylva commented on the Cancer Registry in Nevada. She explained that Cancer Registries had a true test that was called the Gold Standard. Using additional funding that had been received from the United States Department of Energy, the Division had worked very hard to ensure that the Cancer Registry in Nevada would be meeting that Gold Standard. Ms. Sylva explained that no Cancer Registry would be able to identify a cancer cluster as it was occurring, because information in a Cancer Registry was not considered complete for 24 months. In Nevada, a cancer cluster was being investigated at the time it was occurring because the community alerted the Division about some strange incidents. However, a Cancer Registry could not inform you about anything happening today; it would inform you several years later when you were doing research.
Assemblywoman Leslie inquired as to why the budget for the Cancer Registry had been decreased. Ms. Sylva responded that a new Cancer Registry data system had been developed and new software would be utilized from a different source than had previously been used, therefore, there was no decrease.
Ms. Sylva stated that liability issues in the state of Nevada were not limited to medical malpractice. The Health Division had used the “Baby Your Baby” information and referral line as a barometer as to what had occurred, related to medical malpractice. Last session pregnant women in southern Nevada had approximately 100 physicians available to them. At the peak of the medical malpractice issue that number had been reduced to below 30, and after the Special Legislative Session that number had increased to 47. According to Ms. Sylva, there were two other liability issues that would probably surface this session: 1) The inability of group homes to procure liability insurance; and, 2) The inability and difficulty of skilled nursing facilities to procure liability insurance.
Senator Rawson asked about the Birth Defects Registry, and if the reason it had not been implemented had been because grant money had been unavailable. Ms. Sylva stated the Birth Defects Registry had been in place for three years. When the program was due to be renewed, the Division applied for those funds and had been informed the grants had been approved, but not funded. She said there was still a Birth Defects Registry, but not an active one. An inactive Birth Defects Registry received its information from birth certificates that relied upon the delivering physician noting birth defects at the time of birth. Senator Rawson commented that birth defect information would be flawed until funding was received for the registry and asked what The Executive Budget recommended for funding. Ms. Sylva replied that the Birth Defects Registry had been federally funded. Senator Rawson asked what the amount of the grant had been. Ms. Sylva replied that it had been a small grant of approximately $100,000 per year. Senator Rawson commented that through programs like the Birth Defects Registry, it had been discovered that children with spina bifida could be helped.
Senator Mathews inquired as to whether the Health Division had any jurisdiction over the x-ray machines used for scanning at airports. Ms. Sylva responded that the Division had no jurisdiction over those scanners. Senator Mathews commented that those scanners were as powerful as Magnetic Resonance Imaging (MRI) machines in terms of radiation. The workers were not monitored and were exposed to powerful amounts of radiation every day. Senator Mathews wondered how that could be resolved.
Senator Rawson related that he had done some reading about the subject and the machines were supposedly shielded and intensified, which resulted in a low-dose radiation emission. He observed, however, it would probably be a good idea for a state officer to look into that issue to see if there could be a health problem. Ms. Sylva stated she would request that her staff prepare a report to be presented in a future joint subcommittee meeting. Senator Mathews commented that her concern was for the health of the people who were exposed to those machines on a daily basis.
Senator Tiffany noted that she had survived severe sepsis and had introduced a bill draft request to require the Health Division to collect data from hospitals. She inquired whether that function would be the same as a registry. Ms. Sylva responded it could be included as part of a registry, but since the incidence of sepsis was so low, it could be treated differently.
Ms. Sylva informed the Committee that one of the Letters of Intent the Division had received required them to submit reports on a regular basis to the Interim Finance Committee regarding the Bureau of Licensure and Certification. Last session the Division had been faced with the major dilemma of trying to determine how to meet the revenue authorized in the biennium budget, based upon the amount of fees in the budget. Immediately after session, the Division began working with hospital associations, long-term care associations, and residential facilities for groups to identify what needed to be done, how much time was needed, and how the groups could assist in meeting state requirements. Almost $750,000 had been cut from the operating budget and the Reno office had been closed. Ms. Sylva stated that in this budget request 17 full-time employee positions had been eliminated and a thorough fundamental review had been accomplished.
Ms. Sylva stated that Pam Graham had been appointed as Chief of the Bureau of Licensure and Certification. The Nevada Revised Statutes required annual, on-site inspections of residential facilities for groups. Conducting 350 different on-site inspections, annually, had been a major problem as well as a major expense for the Division. The Division needed to create a program to protect the people who resided in the residential facilities for groups to ensure a safe living environment. In answer to that need, the Division had created a focus survey. This was a reduced survey, which, annually, took a maximum of approximately 7.5 hours per facility. If there had been any complaints about a facility, the annual focus survey could be expanded. The new survey system had been an asset to both the Division and facility management. Ms. Sylva continued by stating, if a facility had problems, surveys would be administered on a regular basis. The Division had ceased investigating Priority 3 complaints, as they held no potential to harm individuals, and they had been concentrating on Priority 1 and Priority 2 complaints. The total number of complaints being lodged with the Division had also been reduced. Fees had increased dramatically over the past biennium, but the Division had been considering the actual costs of providing services for the next biennium, and fees would be revised. There were two remaining areas of fundamental review that needed to be studied:
· Concern for Redundancy with the State Fire Marshal’s Office
· Mandated Plan Reviews for Facilities
Ms. Sylva opined that one of the most important topics in The Executive Budget would be related to Special Children’s Clinics and Early Childhood Services. The issues of waiting lists and delivery of services had always been focal points of past budgets. Ms. Sylva stated she had been pleased that The Executive Budget contained some solutions for Early Childhood Services. Special Children’s Clinics were located in Las Vegas and Reno and had provided comprehensive care to those children, primarily birth through age two, identified as having a developmental delay, or the potential for a developmental delay. The goal had been that every child should start school ready to learn. Starting early, from birth to age two, gave those children a better opportunity. Several agencies in Nevada provided those services, which were generally not available in the private sector. Those services were expensive to provide because working with children that young required specialty services. The Health Division operated the two Special Children’s Clinics. The Division of Child and Family Services operated services in Las Vegas. Community Connections offered services in northern Nevada through the Home Activities Program for Parents and Youth (HAPPY). Three separate agencies had been providing services to the same group of people. Ms. Sylva stated that while each agency had done a good job, each had used a somewhat different methodology with a different emphasis on various services. The Executive Budget recommended that all of those agencies be consolidated, placed within the Health Division, and a new bureau be created called the Bureau of Early Intervention Services. The Executive Budget further recommended funding an additional $4.8 million from the General Fund to ensure that there would be no waiting list for those services and an additional 352 children would be served over the next biennium. This would be the first time that children in this state would not have had to wait for services, or have received different levels of services depending upon where they lived. Ms. Sylva stated those services needed to be delivered in a more cost-effective manner. The average child in the early intervention system in Nevada had been waiting more than 130 days before an actual personal family services plan was in place. The Division had made this particular area a priority.
The Individuals with Disability Education Act (IDEA) grant in this state was approximately $3.1 million and an internal audit revealed that only 34 percent of those funds were being used for treatment. While that amount had increased to 64 percent, Ms. Sylva felt the Division would be able to do much better. The IDEA grant had been found to be approximately one year behind in receipt of federal funding. The federal government had agreed to give the agency an additional $250,000 per year for 10 years, which would be included in the agency budget to ensure service delivery occurred where it was needed. The Health Division had a transition team in place, headed by Alexander Haartz, M.P.H., Deputy Administrator. There had been inequities in classification of personnel, as well, and those classifications had been standardized.
Ms. Sylva stated that one of the ongoing issues that the Interim Finance Committee (IFC) had continued to ask the Health Division about was the Women, Infants & Children USDA Special Supplemental Food Program (WIC) and the Smart Card function. A pilot study of the Smart Card had been implemented in Washoe County. Senator Mathews voiced a concern about Washoe County District Health Department not managing the WIC program and Ms. Sylva stated if the decision was made to keep the Smart Card technology, optimistically, the new agency involved would be using it as well. The Health Division had been requested to enter into an agreement with the Department of Information Technology (DoIT) to provide a cost-benefit analysis to determine the benefits of taking this program statewide. That report had been due to be provided to the Health Division in December of 2002, but the DoIT contractor had defaulted on the contract. The Division had been working with DoIT to enter into a new agreement with a different contractor and the Division had been informed that a new report would be submitted within 90 days.
Chairman Arberry inquired about the contractor who defaulted on the contract with DoIT. Ms. Sylva replied that DoIT had entered into a contractual agreement with an outside agency to do a cost-benefit analysis; DoIT had been managing that contract and when the report was due to be delivered, the contractor defaulted and had not delivered a product. Chairman Arberry asked if the contractor had been paid. Ms. Sylva responded that the contractor had not been paid. Chairman Arberry asked how long the contractor had been working on the project before he defaulted. Ms. Sylva stated that it had been three to five months. There had been some deliverable items that had come under that contract, but the most important item, the outcome, had not been delivered. Chairman Arberry asked when the new contractor would be completing the study. Ms. Sylva stated, according to her most recent information, the contractor expected to have a delivery to DoIT within 90 days. Chairman Arberry asked if the anticipated due date was in writing and Ms. Sylva answered, “not at this point in time.” Chairman Arberry requested the Division get it in writing and inquired as to any additional costs. Ms. Sylva stated that it was her understanding that the state was not going to pay any more than had been agreed for the first contract.
Ms. Sylva continued with her presentation by informing the Committee that Budget Account 3211, the revolving loan program of the Safe Drinking Water Act, was in The Executive Budget for the first time and also the last time. It had been recommended that this particular budget account be transferred to the Nevada Department of Environmental Protection (NDEP). Over the next biennium some of the other environmental programs, including the Safe Drinking Water Act, would be transferred to NDEP. In addition, the Division was proposing to transfer the Environmental Lab Certification Program out of Budget Account 3216 and over to NDEP. Ms. Sylva commented that the Environmental Lab Certification Program had been an extremely troubled program when managed by the State Laboratory. The Health Division had been managing the program under the Bureau of Licensure and Certification. The program had been stabilized, no one was waiting to have a laboratory certified, and it had become an extremely well-run organization.
Senator Mathews requested that DoIT present information at a future joint subcommittee regarding the contract for the cost-benefit analysis that had been initiated by DoIT in conjunction with the Health Division. Chairman Arberry stated the subcommittee chairmen would be notified about the need for the information.
Senator Cegavske inquired about the Safe Water Drinking Act and whether the Health Division received reports about the various counties, in particular, the fluoride added to the water in Clark County. Ms. Sylva replied that the State Board of Health had adopted regulations that required those entities that had fluoride in their water to maintain it at the optimal level. She stated that the Division received reports about fluoride levels, as did the local entities. Senator Cegavske asked if the reports indicated any benefits of fluoride. Ms. Sylva answered that was a public health issue and not within the scope of water authorities.
Ms. Sylva informed the Committee that the Health Division had been the recipient of 10 percent of the Tobacco Settlement Funds that had been distributed during the 1999 Legislative Session. Interest and income earned on the settlement funds had been allocated in the amount of approximately $300,000. Assembly Bill 378 designated any funds that remained as a balance at the end of the last fiscal year be allocated to the University of Nevada, Reno to be used for a nursing loan program. Over the last biennium, 42 nursing students had received loans from that program, although 153 students had sought loans. There were no additional funds in this account to allocate for loans.
Senator Mathews asked if any of those funds had gone to Community Colleges or just to UNR. Ms. Sylva replied that a portion of the funds went to all University System schools.
Philip Weyrick, Administrative Services Officer (ASO), Health Division, stated in the interests of time he would present the major highlights of the budget that Ms. Sylva had not mentioned in her presentation. Mr. Weyrick pointed out, on page 14 of Exhibit F, the decision units in the 22 budgets of the Health Division contained in The Executive Budget. Mr. Weyrick noted that the Division had absorbed approximately $400,000 in inflation adjustments and over $1.1 million on fringe benefits increases. The Division was budgeting for routine replacement equipment in accordance with the DoIT replacement standard of every three to four years. Three budgets contained E275 decision units. Due to increases in salary, fringe benefits, and cost allocation charges, there was not enough revenue remaining in the budget to fund 2.2 positions in Budget Account 3194. Essentially, those were cut out of the base budget and added back into the budget in decision unit E275. Operating costs associated with those positions were included in that decision unit. A similar situation occurred in Budget Account 3101 and Budget Account 3224. Positions in those accounts did not have to be eliminated, but operating expenses were cut to the point that those budgets could not be sustained. The Division would be requesting fee revenue be increased to counteract those additional charges. Mr. Weyrick advised that Budget Account 3213, the Immunization Program, contained decision unit M200 for caseload growth based upon projections that doses administered would increase by over 19,000 doses in FY2004 and 38,000 doses in FY2005. Those increases were over the FY2003 levels. Federal guidelines determined that 57.8 percent of the population was covered by the entitlement program, “Vaccines for Children,” and 23.2 percent of the population was covered by Title 317 federal funds. The remaining state share was 19 percent. Decision unit M200 was based on those calculations.
Chairman Arberry inquired as to what would happen if the fee was not increased. Mr. Weyrick responded that those positions would be cut. Chairman Arberry asked if those funds could be acquired from another source. Mr. Weyrick stated that operational support costs had already been “cut to the bone,” and the salaries did not fit in the budget.
Assemblywoman Leslie commented that the Committee had not heard very much about the Bureau of Alcohol and Drug Abuse (BADA) and wanted to confirm that there would be no new funds in the budget for substance abuse treatment for adults or adolescents. Ms. Sylva replied that was correct; however, there were two federal grants in the amount of $3.1 million total, each year, for the next three years, that would be dispensed to BADA. Those funds were special grants to be used in the area of prevention, but there would be no General Fund increase. Assemblyman Leslie noted that President Bush, in his State of the Union address, talked about adolescent treatment funds. She asked if the Division would have any information about this during the budget process. Ms. Sylva answered that, at this point, the Division had minimal information, but would keep the Subcommittee apprised of further developments.
Senator Raggio inquired of Mr. Weyrick regarding the earmarked tax on alcohol. Mr. Weyrick answered that the tax on liquor in Budget Account 3255 went to alcohol prevention and treatment programs throughout the state. The basic alcohol tax was dispersed every year in conjunction with both state and federal funds.
Barbara Lee Hunt, R.N., M.P.A., District Health Officer, Washoe County, presented Exhibit G, a two-page summary of the District Health Department’s concerns regarding The Executive Budget. Ms. Hunt stated the Washoe County Health District was very concerned about the elimination of the Health Aid to Counties (HAC) funds. The problems in the Washoe County Health District were compounded by the fact that, in addition to the $300,000 of lost revenue from the state, the Department had to reduce its budget by $1.5 million because of Washoe County’s revenue shortfall. The loss of HAC funds brought total budget reductions to $1.8 million, or 12 percent of the budget for FY2004.
Ms. Hunt disclosed that she was recommending to the District Board of Health that a number of services be reduced or eliminated. Those that had been supported partially or fully by HAC funds included:
1. Immunizations: reduce hours of service by one third.
2. Tuberculosis Control: discontinue providing tuberculosis
testing and medical management of latent tuberculosis.
3. Child Abuse and Neglect Prevention: reduce public health
nurse home visits to high-risk families by one third.
4. Environmental Health: abolish a position and staffing for
after-hours calls, which has impact on ability to respond to
hazardous materials spills, foodborne illness and other
environmental emergencies.
5. Public Information and Education: abolish the Webmaster
position, which is critical to providing information in
emergencies and communication regarding public health
issues.
Ms. Hunt had also recommended the additional budget reductions:
1. Women, Infants and Children’s (WIC) program; discontinue
services at the District Health Department.
2. Family Planning: reduce services by one-third.
3. Senior Citizen Outreach: discontinue participation in
outreach services to vulnerable senior citizens.
4. HIV/AIDS: discontinue financial support for northern Nevada
HOPES, the local organization that provides medical treatment
and support services to persons with HIV/AIDS.
Ms. Hunt stated that these reductions resulted in a loss of 30 positions, or 15 percent of the workforce. Due to current budget restraints, the Department had been operating with 10 percent of their positions unfilled. One of the main concerns, according to Ms. Hunt, was public health emergency preparedness. Despite federal funds, this was largely an unfunded mandate, due to the scope of emergency planning and preparedness. Ms. Hunt further stated that the public health infrastructure was vital to Nevada’s well-being. A large foodborne illness or an outbreak of other communicable diseases could be devastating to tourism and would create an additional assault on tax revenues. A public health infrastructure primarily meant sufficient, competent staff that investigated communicable diseases and prevented outbreaks; inspected food handling practices; vaccinated against vaccine preventable diseases; monitored the safety of drinking water; protected against emerging diseases, such as West Nile virus; responded to bio-terrorism and other emergencies; and, many more.
Ms. Hunt explained that the two local health districts were charged with protecting almost 90 percent of Nevada’s residents and 40 million annual visitors. The two districts provided services that the state might otherwise have had to provide. Nevada had some of the worst health indicators in the nation and continued to be the fastest growing state in the union. Ms. Hunt expressed her belief that the reinstatement of Health Aid to Counties (HAC) funds was critical.
Senator Mathews inquired if the cities in Nevada contributed in any way to environmental health issues or if they were solely county responsibilities. Ms. Hunt explained that in Washoe County there had been an inter-local agreement between Reno, Sparks, and Washoe County to form the District Health Department and, as part of that agreement, the cities agreed to give a small portion of their property tax authority to the county. As a result of that agreement, the county assumed full responsibility for the support of the District Health Department, other than what could be provided through fees and grants. Senator Mathews asked if funds could be earmarked for hazardous materials spills and foodborne illnesses. Ms. Hunt replied that HAC funds were discretionary in the sense that, at the local health district level, distribution could be prioritized. A full-time position had been supported in environmental health using funds from HAC; however, those funds were no longer available.
Senator Rawson expressed that he had some grave concerns about the loss of this service and, therefore, putting the population at risk. He stated that for every item that was recommended as a cut, there would be a constituency with needs just as valid. There had been tuberculosis problems in the state before and when our tourist economy was considered, there could be serious risks. Ms. Hunt replied that the Health District was very concerned, as well, and wanted to be clear that the District intended to continue to provide medical management of active cases of tuberculosis. However, with the budget cuts that were being recommended to the Board of Health, there might be potential for increased instances of tuberculosis. If patients with latent tuberculosis were not carefully managed and followed, they could sometime in the future develop active TB. The District Board of Health would not be making final decisions about these budget cuts until March, however, the remaining programs were mandated by law, therefore, few alternatives or options were available.
Senator Mathews noted the reduction of hours in the immunization program along with the requirement of schools for immunizations, and questioned how the Department would be able to meet those needs. Ms. Hunt replied that the Department was mandated to provide at least one immunization clinic per year. The Department had conducted surveys of other health departments in neighboring states to discover how many hours per week they were providing immunization services and how that compared with their ability to maintain adequate immunization levels. The survey discovered that many departments were providing immunization services only three days per week, or half-days per week. The District Health Department had proposed to reduce immunization services from 45 hours per week to 32 hours per week, with one of the weekdays having significant evening service hours. The Department had been talking to other health care providers in the community to ensure delivery of services, even if the Health Department would not be delivering those services.
Senator Mathews commented that it was her understanding that the District Health Department worked on a sliding fee scale and her concern was that parents that used those services for their children would have nowhere else to get those services. Ms. Hunt indicated there were many complexities involved. Health Access Washoe County (HAWC), a federally qualified community health center, had been providing services for clients at a reduced fee, or for no charge, if necessary. The Department had been hoping to be as efficient as possible with the reduced hours and with assistance from other providers. The Orvis School of Nursing Clinic had been eager to assist and they had reasonable rates and sliding fee scales. St. Mary’s Hospital also had resources such as Take Care-A-Van and neighborhood clinics that were responsive to low income clients as well. Senator Mathews thanked Ms. Hunt for the information regarding community resources.
Karl Munninger, Director of Administrative Services, Clark County Health District, spoke to the Committee about funding for Health Aid to Counties (HAC). He submitted Exhibit H for the Committee’s perusal. Mr. Munninger stated that only 10 percent of any federal funding received by Clark County for various medical services was received by public health. Those federal funds had been specifically earmarked for definite purposes and could not be used for HAC services. Mr. Munninger further stated that The Executive Budget requested each agency reduce spending by 3 percent and the Department of Human Resources (DHR) addressed that issue by reducing HAC funding by 100 percent. Since one-quarter of the fiscal year had already passed, that translated into 75 percent of the annual funding. The loss of HAC funding during FY2003 prompted the following actions:
· A hiring freeze. The Department had 63 vacant positions or 13 percent of the workforce.
· Elimination of addiction treatment and home health programs.
· Reductions in other nursing and environmental health programs.
· Termination of the poison control hotline service on June 30, 2003.
The Executive Budget proposed to eliminate the remaining 25 percent of HAC funding for the current fiscal year, which would place 6 critical staff positions in jeopardy of elimination. Those positions were as follows:
· 2 communicable disease investigators who performed directly observed TB therapy and tracked contacts of persons with active tuberculosis.
· 1 communicable disease investigator who tracked syphilis and gonorrhea cases in high risk communities.
· 2 epidemiologists who investigated and contained outbreaks of foodborne illness in the restaurant industry.
· 1 sanitarian who reinspected restaurants in violation.
Mr. Munninger stated that if attrition was insufficient to handle staff reductions the District would have to instigate lay-offs of personnel, which had never occurred in the Health District’s 40-year existence. The District had been trying to avoid a wholesale shutdown of public health services in Las Vegas. A survey compiled by the National Association of County and City Health Officials reported that approximately 23 percent of local health department funding across the nation was derived from state sources. In the case of the Clark County Health District, that percentage equaled approximately $10 million. The Division was requesting HAC funding at the $1.10 per capita level. Mr. Munninger pointed out that when funding a health district, the county was not being funded, because the Clark County Health District was a freestanding hybrid, consisting of not only Clark County proper, but also five incorporated municipalities within Clark County. The Health District acted on behalf of, and in lieu of, the Nevada Health Division in providing services to the residents and tourists of Clark County. If the Clark County Health District did not provide those services, they would have to be provided by the Nevada Health Division at a much greater cost, because of remote locations and longer distances. Clark County and Washoe County accounted for almost 90 percent of the state’s population. Mr. Munninger stated that the $1.10 figure had not been adjusted for inflation. He commented that Senator William J. Raggio, Chairman, Senate Committee on Finance, and Assemblyman Morse Arberry Jr., Chairman, Assembly Committee on Ways and Means, had signed a directive requesting that the recommended budget for the 2003-2005 biennium include a per capita rate payable to the counties of $1.10 and that the funding in this account be financed 75 percent from the General Fund and 25 percent from the Pollution Control Account. He requested that the Committee continue HAC funding at the $1.10 level and follow through with what had already been deemed necessary.
Senator Raggio commented that while he believed everyone was empathetic and concerned about the problem, he did not want to leave the impression that everything that had been suggested for reduction or elimination would be as a result of the HAC funding deficit. He further stated that in FY2003, the HAC funding had been $69,000 to Washoe County and not $300,000 as stated in Exhibit H. Senator Raggio inquired of staff regarding a Department of Motor Vehicles (DMV) additional pollution control fee, of which $1.00 would go to Washoe and Clark Counties. If that fee was enacted it would generate $1.3 million per year.
Gary Ghiggeri, Senate Fiscal Analyst, stated that The Executive Budget contained a recommendation to increase the certificate charge on pollution control from $5.00 to $7.00. It was understood that $1.00 of that fee would be dedicated to Clark and Washoe Counties, however, there had been no spending plan issued on how that funding would be utilized.
Senator Raggio stated that funding could be of some assistance to the counties if the increased fees occurred. He further stated he wanted to keep this subject in focus and not have it be a cause for alarm; the facts were that Washoe County was able to provide those services for $69,000 from HAC funding in FY2003.
Ms. Hunt thanked Senator Raggio for his perspective and for clarifying what she might not have, which was that she had been talking about the upcoming fiscal year 2004. Ms. Hunt said the Health Division was managing, mostly because of the 10 percent vacancy rate, which would become a 15 percent vacancy rate in 2004, if those reductions were instituted. HAC funding was a small part of a much larger budget shortfall that Washoe County would have to deal with.
Senator Raggio said he believed everyone was concerned with shortfalls, not only at the state level, but at the local level as well.
Mr. Munninger also responded by stating the Clark County Health District had lost $831,000 in the current year and that had translated into a reduction of services, including the Addiction Treatment Program.
Senator Raggio said he understood that, but the amount that had gone from HAC to Clark County in FY2003 was $307,000 and he wanted to clarify the actual amounts that were discussed.
Chairman Arberry recessed the meeting to 1:30 p.m.
The meeting reconvened at 1:40 p.m.
DEPARTMENT OF BUSINESS AND INDUSTRY
Sydney Wickliffe, CPA, Director, Department of Business and Industry, introduced members of the Department present in the audience: Doug Walther, Chief; Bill Maier, ASO and Chief Financial Officer; Gail Anderson, Administrator, Real Estate Division; Joseph A. Dahlia, Acting Administrator, Taxicab Authority; and, Robert King, Acting Administrator, State Dairy Commission. Ms. Wickliffe stated that her belief was that an organization worked best when everyone was well-informed and the avenues of communication were open; when people understood their responsibilities and duties; were given tools; and knew the extent of their authority with which to accomplish their given tasks. Other goals of the Department were:
Ms. Wickliffe summarized that the Department’s purpose was to encourage and promote the growth and lawful operation of business and industry for the benefit of the citizens, workers, and consumers of Nevada. The Department consisted of consumer protection agencies, mostly in the form of regulatory agencies. A regulatory agency existed for the protection of the public, which was one of the ways this agency differed from other agencies of state government. The Department of Business and Industry (B&I) derived virtually no money from federal funds and very little from the General Fund. The Department’s budget was approximately $90 million per year; less than $8 million of that came from the General Fund. The remaining $82 million came from the agencies the Department regulated. Ms. Wickliffe stated that B&I agencies created revenue for the General Fund. Most notably, the Insurance Premium Tax was the third highest revenue generator for the state, with nearly $157 million for the past year and forecast to be $192 million in FY2005. Other agencies within the Department contributed to the General Fund as well. Ms. Wickliffe commented that this was her second legislative session she had attended in the capacity of Director of Business and Industry. Last session, the Department’s budget had been modest, keeping to the Governor’s requirement that total costs not be increased. For FY2003, the Department had requested $9.3 million of the General Fund. In FY2005, the Department was requesting $7.8 million, a 16 percent decrease in funding. Ms. Wickliffe stated the budget was Spartan, but the Department would be able to fulfill their regulatory responsibilities. Funds had been deleted for travel, training, new positions, and support for new programs, unless tied to legislation expanding the regulatory authority and providing funding for it. Nearly all agencies in the Department had eliminated job positions to comply with The Executive Budget. Some positions had been eliminated through natural attrition. The Department had been fortunate in that most, but not all, of the people in those positions had been able to move to similar vacant positions in other agencies. Ms. Wickliffe commented that she had not had to lay-off very many people in her career and it was an unpleasant and draining experience, but any further cuts to the budget would mean eliminating employees.
Ms. Wickliffe continued with the presentation by noting that The Executive Budget presented a plan for the Division of Financial Institutions to eliminate the General Fund appropriation provided at the beginning of each year. This appropriation was repaid at the end of the year, through assessments to depository institutions. Major issues that faced the Department during the coming biennium were:
· Insurance Division – medical malpractice and construction defects.
· Real Estate Division – the Homeowner’s Association growth.
· Financial Institutions – licensing and regulation of mortgage brokers.
· Director’s Office – development of technology within the Department to address common concerns over the stresses caused by a rapidly growing population and the need to provide better and more efficient services to the Department’s customers.
Ms. Wickliffe commented that four of the Department’s agencies had been asked to provide separate budget overviews: Financial Institutions; Real Estate Division; Housing Division; and, the Manufactured Housing Division. Two more of the Department’s divisions, Insurance and Housing, had been asked to provide reports on specific issues. Ms. Wickliffe did not wish to restrict the amount of time the agencies had for their presentations by speaking about their issues, but did want to comment on some additional issues in her summary. Ms. Wickliffe stated The Executive Budget presented a Department of Business and Industry request for a new integrated licensing system for the Real Estate Division. The request was not within the Real Estate budget, but was presented in a newly created Information Technology budget. The licensing system represented a major change in the way the Division would interact with its user groups. Under the present 1970s era data system, it was impossible to generate a license, the day of payment, or to make information available to an individual who arrived at the office, or called for information. The old mainframe application could not be updated and was expensive to maintain. The new system would automate many of the licensing functions as well as providing information through the Web. Many types of licenses and registrations were not on the present, minimal database, which required this information to be entered and filed manually. The technology utilized and the lessons learned through this project would later be adapted to similar regulatory agencies within the Department.
The Executive Budget reflected the transfer of the Governor’s Committee on the Employment of Disabilities to the Department of Employment, Training and Rehabilitation (DETR). The Governor’s Committee had been presented under a new title within DETR: The Office of Disability Employment Policy. This was consistent with action taken at the federal level, putting this office in an excellent position to access federal grants from the United States Department of Labor, Rehabilitation Services Administration and the Health and Human Services Department. This transfer would reduce the demand on the General Fund from $250,000 to $20,000.
Ms. Wickliffe stated that there were no new programs presented within the Department request, however, there were new position requests and enhancements to current programs. The Real Estate Division had requested 2.6 new positions. This request represented the Department’s only request for positions funded through the General Fund. Ms. Wickliffe stated she had approved this request as she considered the Real Estate Division to be the first priority for assistance. The Real Estate Division would also present the budgetary plan to address the enormous workload associated with the oversight and assistance provided for the state’s homeowner’s associations. This plan would include four new positions funded by homeowner association fees. The Nevada Attorney for Injured Workers (NAIW) was requesting three additional positions, to address increased workload and staff turnover rates. The Taxicab Authority request presented the restoration of fund balances, the restoration of 11 positions cut from base, 3 new positions, and continuation of the Senior Ride program. This request was dependant upon the passage of a companion bill draft request to increase fees. This rate increase was for Clark County only and increased fees from 15 to 20 cents per cab ride. The Transportation Services Authority had proposed an expansion of its impound authority, establishment of the authority to perform background checks on limousine drivers, the authority to allocate limousines, and to revise the application and renewal fees to pay for those regulatory responsibilities.
Ms. Wickliffe said the Manufactured Housing Division had addressed the decline in the industry through several pragmatic changes such as, reduced operations and elimination of positions within the past year. Additionally, industry support existed for increased fees to support the regulation of manufactured housing as well as statutory modifications to be addressed in a bill draft request. The Real Estate Division, the Division of Consumer Affairs, and the Insurance Division had also proposed small increases in fees.
Ms. Wickliffe stated that the Department of Business and Industry’s Division heads would present budget overviews in the following order:
Also present, for questions only, were Kitty Barth, Administrator, Governor’s Committee on Employment of People with Disabilities; Bob King, Acting Director, State Dairy Commission; Nancyann Leeder, Nevada Attorney for Injured Workers; and Terry Johnson, Labor Commissioner.
Roger Bremner, Administrator, Division of Industrial Relations, stated the mission of the Division of Industrial Relations was to ensure a safe and healthy workplace for Nevada’s employees and, in the event a worker became injured or disabled at a job site, to ensure the worker received all benefits to which they were entitled under Worker’s Compensation. Mr. Bremner touched upon an audit report completed by the Department of Administration’s Division of Internal Audits. The audit contained seven basic recommendations, four of which had already been accomplished and were as follows:
Mr. Bremner stated the Division had also continued development of a receivables ledger for tracking premium penalty transactions as recommended in the audit and that had been accomplished. Another recommendation of the audit had been to implement a procedure to reconcile collections against postings in a receivables ledger and the anticipated completion date was July of 2003. An audit recommendation to seek statutory change to place compliance audits on a five-year cycle would require legislative action. The Division had been required by statute to audit insurers on a three-year basis. This legislative action would bring the Division’s audit cycle in compliance with audits performed by the Division of Insurance.
Mr. Bremner stated that the budget for the Division of Industrial Relations was divided into four budget accounts by specific section and he proposed to present each budget account individually.
Budget Account 4680 dealt with the Industrial Insurance Regulation Section (IIRS), whose function was to regulate Worker’s Compensation programs to ensure timely and accurate service delivery to injured workers by insurers. The IIRS also enforced the requirement that all employers with one or more employees maintained a policy of Worker’s Compensation. Decision unit M100 was an inflation and per unit adjustment worked out through the Budget Division; decision unit M300 represented fringe benefit changes; decision unit M800 was a cost allocation to the Director’s Office; decision unit E600 reflected budget reductions and proposed the elimination of two vacant positions within the IIRS. Additionally, that decision unit proposed an $8,588 reduction in training. Decision unit E710 requested the replacement of one chair, three facsimile (FAX) machines, and one print server in FY2004, and two FAX machines in FY2005. Mr. Bremner commented that the only new equipment in the budget was a replacement telephone system for the Reno office. Decision unit E900 was a transfer-in of three positions from Budget Account 4682. Those positions were formerly in the Occupational Safety and Health Administration (OSHA) budget and developed statistics required by the United States Department of Labor.
Budget Account 4682 dealt with the Occupational Safety and Health Enforcement Section (OSHES). Decision units M100, M300, and M800 were budget figures driven by formula and provided by the Budget Office. Decision unit E500 proposed the deletion of a vacant position within the Section. Decision unit E710 requested the replacement of miscellaneous office equipment and equipment used for OSHES inspections. There was no new equipment requested in the budget account.
Assemblywoman Chowning questioned why actual worker safety inspections had numbered 19,700, but projected inspections numbered only 14,000 in this budget. Mr. Bremner responded that those were boiler/elevator inspections and positions had been transferred around the state in order to reduce the backlog of inspections. The 19,700 figure represented an abnormal workload and the Division had caught up and was now projecting a figure consistent with a normal workload. Mrs. Chowning stated the figures didn’t seem to be correct and requested further information be provided in future joint subcommittee meetings. Mr. Bremner acknowledged that a problem existed and stated he would provide an answer.
Budget Account 4685 dealt with the Safety Consultation and Training Section (SCATS), whose job it was to assist employers in developing workplace safety programs and aid in identifying unsafe and unhealthy workplace conditions. Decision units M100 and M300 were adjustments, fringe benefits changes, and inflation. Decision unit E600 proposed reducing the safety consultation and training media contract by $66,031. Decision unit E710 requested the replacement of two laptop computers in FY2004 and two laptop computers in FY2005. No new equipment had been requested in decision unit E720.
Budget Account 4686 dealt with the Mine Safety and Training Section (MSATS), which provided mine inspections, technical assistance, and safety training to Nevada’s mining industry. Mr. Bremner commented that this section did a very good job with a very small staff. He commented further that last year mine fatalities had been reduced to two from a high of seven a few years ago. Decision unit E300 requested funding in the amount of $6,800 for each year of the biennium for additional programming hours to modify the database that provided access to regulatory codes and information on the Internet. Decision unit E710 requested the replacement of one Respirator Fit Tester and one Mercury Analyzer in FY2004 and one Mercury Analyzer in FY2005. There was no new equipment requested in the budget.
Senator Tiffany returned to the subject of the Internet and asked when the Division would be able to accept credit cards for any public needs, such as permits or licenses. Mr. Bremner responded that the Division had not considered implementing that function. Senator Tiffany commented that she would like to see government move in that direction a little quicker, because if the Internet were available, she would like to see some benefit to the public. Ms. Wickliffe interjected that the Department had done some work at Division level, but because of the fiscal crisis they had been forced to abandon the project for at least a year. Senator Tiffany stated that the Department of Motor Vehicles took credit cards over the Internet and if it had been done with one agency she could not see why it could not be done with another. She requested that the Department reconsider the project, as she felt the cost might not be prohibitive, and she requested more information for a future joint subcommittee hearing.
Senator Coffin complimented Mr. Bremner on his presentation and noted that he had been Chairman of the Committee on Ways and Means during a previous budget shortfall. Mr. Bremner responded that he was aware, better than most, what a difficult job the Subcommittee was doing.
Ms. Wickliffe introduced Alice Molasky-Arman, Commissioner, Division of Insurance. Ms. Molasky-Arman presented the budget overview for the Division of Insurance.
Ms. Molasky-Arman stated she had administered the Division of Insurance for the past eight years. The Division had been accredited in March of 2002 by the National Association of Insurance Commissioners (NAIC). She further stated the Division was very proud to have received that mark of excellence from the NAIC. The accreditation team would return in May 2003 to evaluate the Division’s progress in conforming to certain statutes and national models, increasing the professionalism of the staff, and improving methods of financial examination processes. Ms. Molasky-Arman continued and said she was certain that with the support of the Legislature the accreditation earned in 2002 would be continued for the next five years following the team’s review.
As Commissioner, Ms. Molasky-Arman administered ten budget accounts, eight of which were included in The Executive Budget. The two budget accounts not included in The Executive Budget were the Self-Insured Worker’s Compensation Trust Funds, which guaranteed claims in the event of employer insolvency. Budget Account 3813 was the Division’s chief operating account and the only account that contained General Fund dollars. Ms. Molasky-Arman stated that budget was the most directly affected by the required budget reductions, which for the Insurance Division, amounted to approximately $350,000 over the biennium. The Division had met the targeted reductions without reduction of core services by implementing the following:
Ms. Molasky-Arman commented on the budgetary effect on the Division from the loss of the Medical Dental Screening Panel. Two and one-half employee positions were funded with fees paid by parties appearing before the Screening Panel. The Executive Budget reflected the loss of those fees and the elimination of two of those positions effective July 1, 2003. The Division requested that the half-time position, a legal secretary, be salvaged to assist with the Division’s growing legal caseload. For the remainder of the fiscal year the Screening Panel staff would be devoted to retiring 138 cases that had elected to remain in the Screening Panel process. Ms. Molasky-Arman could not be certain whether all the pending cases could be heard by the end of June 2003. If this could not be accomplished, she stated, she might be coming before the Interim Finance Committee (IFC) to request supplemental, temporary staffing for the first part of FY2004. The Division would do everything within their means to see that those remaining cases were completely processed. Ms. Molasky-Arman commented that another effect had been the loss of four new panel positions approved by the IFC in June 2002. The allocation in the amount of $220,000 had been returned to the Contingency Fund. Other than the loss of two seasoned employees, the Division would not be affected by the loss of those panels. Panel operations had been conducted by those dedicated positions, and filing fees had offset most of the costs.
The only notable decision units in The Executive Budget included the further refinement of the Intra-Agency Cost Allocation Plan; a transfer of examination fees to offset General Fund salary expenses attributed to supervisory examinations in E278, and the transfer of the supervisor of the Producer Licensing Section from the Education and Research Budget in E900. Ms. Molasky-Arman stated that the Division’s other budget accounts reflected upon the general health of the insurance industry in Nevada. The Division had aggressively pursued additional contract examiners to conduct statutory and zone examinations paid for by the examined companies through Budget Account 3817. This increased capacity enabled the Division to conduct all necessary examinations through the biennium. The Title Examiner position that had been approved and filled last session had pursued a vigorous schedule of examinations that had significantly improved the operations of the title industry. Examination fees had exceeded the salary and expenses for the Title Examiner position in FY2002. Fees were expected to continue to be collected in the future.
In the 1999 Legislative Session, captive insurers had been authorized to be licensed in Nevada. The Nevada captive insurance industry, while still young, had been growing beyond expectations. In 2002 seven captive insurers had paid over $150,000 to the state in premium taxes. In 2003 the Division expected to authorize two to three new companies and maintain growth through the biennium. Ms. Molasky-Arman suggested developing reserves in Budget Account 3818. She indicated that a new position of Captive Manager, to be funded specifically from this account’s revenue, was not too far off in the future.
Budget Account 3821 showed an increase in the number of licensees paying the Insurance Recovery Fee. The increase was $160,000 in FY2002. Ms. Molasky-Arman stated the Division’s budget request portrayed a continuing increase that inured to the benefit of Education and Research, Budget Account 3824. Year-end balances in excess of $40,000 in Budget Account 3821, the Insurance Recovery Fund, had been transferred to Budget Account 3824 to support the Division’s Research, Education, and Public Information efforts.
Ms. Molasky-Arman said she would be providing a status report, as requested, on the medical malpractice and construction defect issues. She brought to the Subcommittee’s attention, the major contributions to both issues provided by Chuck Nolsch. Mr. Nolsch was a retired state actuary and had been with the Division of Insurance for 25 years. During the past nine months the Division had contracted with Mr. Nolsch “and had been rewarded by his expertise.” Ms. Molasky-Arman stated that the issues confronting the Division about medical malpractice had seemed insurmountable when Mr. Nolsch had contacted her about returning to state service. Mr. Nolsch had been instrumental in establishing the Medical Liability Association of Nevada (MLAN) that had proved to be a stabilizing influence in the availability of medical malpractice insurance. Ms. Molasky-Arman said that Mr. Nolsch had worked tirelessly to research the best rating and underwriting practices, had consistently consulted with the MLAN Board, had investigated the market effect of rate and form filings, and had assisted the Rate and Form Task Force in their deliberations. In Budget Account 3824, Ms. Molasky-Arman requested in decision unit E276, that Mr. Nolsch’s contract be converted to a new unclassified position of Research Actuary. Mr. Nolsch had agreed to accept the position if it was approved.
Ms. Molasky-Arman continued and stated that other notable enhancements in Budget Account 3824 included a series of training events in decision unit E350 to introduce the Division’s prompt pay reforms to the medical community. Decision unit E720 proposed to purchase three laptop computers to enhance the Division’s videoconferencing facilities and for the use of Division staff when conducting or participating in hearings or meetings. Budget Account 3824 funded the Division’s annual NAIC dues and helped defray the costs of attending NAIC meetings. The current fee of $15 had not changed since 1971. NAIC dues and travel costs had escalated and the Division’s bill draft request proposed to increase the fee to an amount not to exceed $30, as established by the Commissioner. Ms. Molasky-Arman stated that if the bill were enacted, she would set the fee for FY2004 and FY2005 at $22. Decision unit E125 mirrored the increase in the bill draft request. The fee increase had received uniform support from the insurance industry.
Budget Account 3833, Insurance Cost Stabilization, housed a management analyst who functioned as a Division statistician and helped to support COSMOS, the integrated database. Ms. Molasky-Arman informed the Subcommittee there had been a developing desire within NAIC to prescribe a standard database for all states. The system that had been receiving the most current attention, however, was not COSMOS. To protect the investment in COSMOS, the Division analyst had been attending every meeting of the NAIC committees considering the different systems. Decision unit E500 had been funding that participation.
Budget Account 4684 funded the regulation of employers and associations of employers that had been authorized to self-insure their Worker’s Compensation coverage. While there had been no notable enhancements requested in this budget account, there was one item of high concern regarding the activities supported by this account: the high number of bankruptcies being experienced by self-insured employers. Ms. Molasky-Arman stated a business bankruptcy required the Division to intervene to seize security deposits and manage claims, which placed an additional workload on the staff. Unless the economy improved, the Division might have to address the need for additional resources with their funding source; an assessment levied by the Division of Industrial Regulations. Bankruptcies also posed a threat to the two self-insured insolvency accounts, 3802 and 3804. Despite added claims those two accounts remained sound.
Ms. Molasky-Arman returned to the Subcommittee’s request for an update on medical malpractice and construction defect issues. She stated the problems in the medical liability market had been brought into focus in 2002 when the St. Paul Companies notified the Division of their intent to withdraw from the market in Nevada. An availability problem was created when other insurers expressed little interest in filling the void. At the Governor’s direction, the Division of Insurance established the Medical Liability Association of Nevada (MLAN) on March 15, 2002. Ms. Molasky-Arman said the introduction of MLAN had solved the availability problem and initially stabilized the marketplace. Only nine months after being created, MLAN had insured nearly 500 Nevada doctors. Every Nevada doctor was able to find medical liability insurance, either in the voluntary market, if the doctor was relatively claims free, or in the secondary market, if the doctor had a significant claims history. In July 2002, the 18th Special Session of the Nevada Legislature was convened to address the medical malpractice insurance issue. Availability was only the first half of the problem; affordability was the second half. The reforms enacted by the 18th Special Session had been designed to make coverage less costly by containing claims expense. Ms. Molasky-Arman noted that the market had not yet responded to Assembly Bill 1, although she had begun to see some evidence of rate correction. Last week she had the opportunity to announce the adoption of new rating rules for obstetricians, by a major Nevada carrier, that would immediately result in lower rates for those doctors delivering the most babies.
Soon after the medical malpractice insurance problem was addressed, contractors began complaining about the cost and availability of construction defect coverage. Ms. Molasky-Arman said she convened a hearing on July 1, 2002, to evaluate the situation. Sufficient evidence had not been presented at the hearing to document an availability problem, leading to the conclusion that construction liability insurance, while limited, was available on the voluntary market at an exorbitant price. That finding limited the Division’s authority to intercede in the construction market. In September 2002, the Commissioner convened the Construction Liability Task Force to study the problems in the market. Ms. Molasky-Arman directed the Task Force to report their findings and recommended solutions to the Division and to the Governor. It was anticipated that the report would be submitted soon. The Task Force studied a variety of statutory changes designed to stabilize the market. The changes that the Subcommittee would be asked to consider during this legislative session included:
Ms. Molasky-Arman stated that if a bill was introduced incorporating those suggestions or other recommendations addressing construction defects, the Division of Insurance would be more than happy to provide any assistance or information needed.
Assemblyman Marvel asked whether premiums for construction defect insurance had been increasing. Ms. Molasky-Arman replied that construction defect insurance had not been an area the Division could easily monitor, as they did not regulate the rates for construction liability or any type of commercial liability. She stated that she was aware of one producer who had been successful in finding coverage on the surplus volumes market for a door and windows subcontractor, whose premium in 2002 had been $3,000. Although the subcontractor’s payroll and expectation for business in the next year did not change, his new premium was $21,000, a 700 percent increase. Ms. Molasky-Arman opined that since the July 1, 2002, hearing, the construction defect liability market had continued to disintegrate.
Assemblyman Marvel asked whether Ms. Molasky-Arman had read S.B. 800 from California. She replied that the Task Force had reviewed S.B. 800, but she had only read portions of it. Mr. Marvel stated he had a bill draft request that paralleled California’s S.B. 800.
Senator Tiffany commented that while it was wonderful that the Governor had made medical liability insurance available, and also that 500 doctors had taken advantage of it, she wondered about affordability. She asked, if it was affordable, what was the cost compared to the private sector, how was it funded, how the rates had been set, what the state’s liability was, and how long the state would have to provide this insurance. Ms. Molasky-Arman responded that essential insurance associations had been established to address an immediate problem. She stated that she believed there had been balancing in the marketplace because of the existence of MLAN, however, that did not mean eliminating it would be advisable because the market needed to continue to maintain balance. Chuck Nolsch had developed the premiums for MLAN, and he had used the most recent St. Paul rates, which included an approximately 80 percent increase. The increase had been based upon justifiable loss experience. Rates, in general, had been reduced, however, that reduction only reflected discounts that St. Paul consistently provided to its policyholders. St. Paul policyholders had been paying approximately 30 to 35 percent less because of certain discount plans. MLAN did not have a discount program.
Senator Tiffany inquired as to how MLAN had been funded and what the long-term possible liability might be. Ms. Molasky-Arman replied that MLAN had been initially funded with $250,000 from the Board of Examiners Emergency Fund for start-up costs only. Of the initial $250,000, $125,000 had been returned to the Emergency Fund and it was anticipated that the remaining $125,000 would be returned as well. MLAN had received in excess of $9 million in premiums in the first nine months since its inception. In the event MLAN’s assets were not sufficient to support its operation, principally the claims, the deficit would be distributed through assessments upon all casualty insurers in the state. They would be assessed in proportion to their market share of premiums in Nevada. While the state had no direct liability, there was an indirect cost, because the statutes provided that the insurers may offset their premium taxes by the assessments they pay. Senator Tiffany commented that she could see that it would fall back on property-casualty insurers, or the people that provided automobile insurance and she was surprised the industry had not been more vocal. Senator Tiffany asked if the doctors considered the insurance affordable and where were the rates compared with what they were paying St. Paul. Ms. Molasky-Arman stated she had not heard any comments, however, she did not think the doctors believed that insurance available through any insurer was reasonable or affordable. Senator Tiffany stated that she was hearing the same thing, and although insurance was at least available, the premiums were considerably higher than they were two or three years ago. Ms. Molasky-Arman agreed that premiums were still very high. Senator Tiffany asked Ms. Molasky-Arman what she meant by coverage being available and stabilized. Ms. Molasky-Arman stated what she had meant by stabilization was the availability of the insurance, not the rates. The insurers were waiting to determine what the effects of A.B. 1 would be for the industry. In all instances, insurers’ rates were based on a projection that was calculated in consideration of past losses. In rate calculations the insurers were still looking at the experience that occurred prior to A.B. 1.
Senator Tiffany requested clarification of a statement about obstetricians; whether they were being reimbursed more, or whether their insurance had changed. Ms. Molasky-Arman responded that MLAN, at the Governor’s request, had eliminated a rule that was held by St. Paul in the underwriting rules. In effect, it had been a discount in the premium for those obstetricians who delivered 125 or fewer babies. St. Paul also had a tiered system with increased premiums based upon the number of deliveries. Ms. Molasky-Arman had learned that other insurers were using the tiering system. Those insurers were contacted and informed that if they were going to use a tiered system, they would have to justify that those doctors delivering 125 or more babies, posed a significant increase in loss expectation. The insurers could not do that. One of the insurers submitted a new plan eliminating those tiers, which reflected a significant decrease in the premiums for obstetricians. The specific goal had been to encourage some of those doctors who had felt restricted to be more inclined to deliver more babies. Senator Tiffany commented that insurance was available, but the rate increase had not been solved; it was still not affordable and A.B. 1 had done nothing about the premium costs. Ms. Molasky-Arman agreed that affordability was an issue as the cost was still very high.
Senator Cegavske stated that she appreciated her colleague’s questions, and went on to say that it was disheartening to look at two entities that were small businesses that had to struggle hard to survive. Telephone calls received from constituents in her district told of third-generation businesses going out of business because of astronomical insurance rates. Senator Cegavske commented that she had heard about insurance companies that were based overseas providing construction liability insurance in Nevada, with the actual coverage provided from a foreign country, and asked if those companies were reliable. Ms. Molasky-Arman stated that there were many different licensed insurers and they were categorized as:
· Domestic – established in Nevada
· Foreign – established in other states
· Alien – established in other countries
She further explained that there were foreign insurers that held a Certificate of Authority. There was also a surplus lines market, in which insurers were not authorized, but were eligible to receive coverage referred to as exported. That coverage was not available on the voluntary market. Senator Cegavske asked what would happen if a claim were submitted and an insurance company did not pay because the company was basically unreliable. Ms. Molasky-Arman stated if there were a specific situation and specific names, she would like to discuss it, because it was something the Division constantly warned the public about. Senator Cegavske stated that sometimes a business would knowingly purchase insurance from an unreliable company because they were required to have insurance and they could prove they had coverage.
Ms. Wickliffe introduced Gail J. Anderson, Administrator, Real Estate Division. Ms. Anderson presented the budget overview for the Real Estate Division. She stated she had been Administrator since July 1, 2002. The Real Estate Division had five budget accounts, four of which were in The Executive Budget. Ms. Anderson stated she would specifically address the Administrative Budget, a General Fund appropriation budget, and also address some comments to the budget for the Office of the Ombudsman for Owners of Common-Interest Communities. The Real Estate Division administered 16 licenses, certificates, and permits. Ms. Anderson referred to Exhibit I, a handout chronicling statistics for programs that had existed five years or more. There were three new licensing programs that were added in 1997. That statistical comparison showed the growth in the industry, in the programs, as well as the new programs added to the Division’s jurisdiction in that time period. In 2000, projections were made for FY2002 and FY2003 that the Division would administer 4,490 licensing examinations. Actual examinations administered through the Division’s testing service numbered 12,492. In 2000, it was projected that the Division would issue 9,911 original and renewed licenses. In FY2002 the Division issued 16,694 licenses. Ms. Anderson stated that the unanswerable question was how long the unprecedented growth, particularly in southern Nevada, would continue. The real estate industry had been somewhat recession-proofed with low interest rates and additionally, had become an attractive investment option as stock market values declined. Ms. Anderson also noted that the number of licenses issued in FY2002 reflected a spike in licensing due to a push by people to become licensed before a new law took effect in July 2002. The new law reduced the original license term to one year and increased education requirements to 30 hours. It was expected that renewals and, therefore, projected revenues would be higher in even-numbered years and remain the same, or be lower, in odd-numbered years. Growth in the industry, for the Insurance Division, translated into:
Ms. Anderson stated there were two emerging programs in which significant growth was anticipated. One program was the Inspector of Structures program, which was a three-level certification program and the other was that of Community Association Managers. Representatives from the Community Association Management Companies stressed there was a shortage of Community Association Managers in the market. Growth in the industry and in the programs administered by the Real Estate Division were addressed in The Executive Budget with the addition of a Program Officer II to head the Inspector of Structures Program; an Account Technician to assist in the auditing of the required annual audit of Broker Trust Accounts; and an Administrative Assistant to assist the Projects Chief. Ms. Anderson commented the best way for the Real Estate Division to address growth in the industry was twofold. The first was processing paperwork, the effectiveness of the system and the tools with which it was done. The Integrated Licensing System would do much to expedite and consolidate processing. The other aspect that addressed growth would be the addition of the Program Officer II, Account Assistant III, and Administrative Assistant II positions. The Executive Budget for the Real Estate Division addressed the 3 percent budget cut by eliminating an amount from the Information Services category and by delaying the hiring of a Deputy Administrator for the agency. The Real Estate Division Administrative Budget had been operating with “bare bones” funding and the only way to achieve the 3 percent reduction, and later, the increased cost for the medical insurance fees, was through the personnel category. Ms. Anderson stated there was one position proposed for elimination from the administrative budget; a vacancy created due to another position in the agency having been filled. The position of Compliance/Audit Investigator II was eliminated, as the alternative would have been laying-off a current employee. The Real Estate Division had a bill draft request for the current session that would increase fees into the General Fund. The licensing increases were minimal, $20 for original licenses, $10 for renewals. There were other fees added to make consistent education accreditation for the different programs the Division administrated. The industry leadership had been supportive of the fee increases.
Ms. Anderson stated that the challenges of the Administrative Budget would be to meet the needs of new licensees; to meet the needs of emerging programs, such as Inspector of Structures and Community Association Managers; to respond to the industry’s need for fast turnaround time on applications and filings; and to utilize technology to become more accessible and efficient.
Ms. Anderson addressed the Common Interest Communities Budget, which was a self-funded budget. There were 1,396 registered associations in the state. The Ombudsman for owners in Common Interest Communities estimated there were 875,000 Nevada residents living in Common Interest Communities, a significant impact in the state. The challenges for the program were to identify non-registered homeowner associations and bring them into compliance through registration and payment of unit fees and to increase attendance of board members and Common Interest Community owners at educational workshops. The requirement to serve on a board for a common interest community was to sign a document attesting that they had read and understood NRS 116. The office of the Ombudsman had been providing educational programs for which there was no charge. Ms. Anderson stated that one of the strategic plan projections was to provide monthly education programs through the office of the Ombudsman. Other challenges for this program were to reduce and resolve internal association problems, to implement the requirement for a reserve study for Common Interest Communities, and to expand the public awareness of the rights and responsibilities under NRS 116. The two-year plan for this program was to add two Program Officer positions that would serve as field officers who would work directly with owners and boards to assist in their understanding of NRS 116; to conduct training, to attend association meetings; to answer questions regarding compliance with NRS 116; to visit associations; to assist with callers; and, to compile statistical reports for this program in order to make recommendations for regulatory or legislative changes. Also proposed was a Program Officer III position that would be paid out of this self-funded account but would report directly to the Administrator. This Program Officer III would do a number of administrative tasks including policies and procedures, request for proposals (RFP), contracts for educational services, fiscal internal control, create and maintain data tracking systems for the section, and develop and maintain information through the office of the Ombudsman. Also proposed was an Administrative Assistant I position to provide public information and assistance with clerical duties. The reserve balance in the Common Interest Communities budget was significant. It was projected at the end of FY2004 to be $1.7 million. Ms. Anderson stated she was well aware of this reserve and had been assessing this program. This reserve was being addressed by the program, which contributed $75,000 to the start-up costs toward the integrated licensing system. Homeowner associations would be listed and their database would be available with restricted information and access. The reserve was being addressed by four new positions to staff this section and develop the information and educational programs. It addressed costs for education workshops to be provided, under contract, to boards and owners at no cost to owners or board members, and 27 courses would be offered through the end of FY2003. The office of the Ombudsman had statutory authority to provide financial assistance for the alternative dispute resolution process. While that program had been in place, criteria needed to be established for meeting the financial assistance portion. In southern Nevada the office of the Ombudsman had moved into the Bradley Building, expanded their office space, and were completely paying for their exclusive office space rent plus paying half of the videoconferencing room rent.
Ms. Anderson commented there were 12 Common Interest Community bill draft requests that had been identified that the Division would be tracking. None of those BDRs had been submitted by the Real Estate Division, but one or more of those might include a program that involved further staffing and that would start to erode reserves.
Assemblywoman McClain stated she would be interested in the type of training and information the Division would be implementing. She further stated that, personally, she would rather see the per unit fee reduced in the future instead of finding programs to spend the money.
Ms. Anderson responded that once the short-term strategic plan was put into place, and if no new components were added to the function of the office by the Legislature, the Division would be exploring the possibility of reducing the per unit assessment, if the reserve continued to grow.
Assemblyman Hettrick stated that he had many of the same concerns about the reserve. If the Division waited until the end of the legislative session to see what legislation was enacted, it would be another two years. He further stated it seemed that instead of looking for ways to return the money, the Division was looking for ways to spend it, and in this environment he would prefer not to do that. There would be a great deal of money held in reserve, while the charges continued, waiting to see what legislation occurred.
Ms. Anderson responded that the Ombudsman would be using the office conference room for meetings with associations and other functions, but they had recently moved into the building and had not utilized the facility as much as had been planned. The education component of the classes had to do with homeowners and board members. They would be entering into the financial issues of the reserve study as their next phase. Currently there were six basic classes to help boards of directors understand and fulfill their duties. Ms. Anderson agreed that the reserve needed to be examined. She added that she believed the statute indicated that a fee of up to $3.00 per unit could be charged, and she did not think it would require a statute change to lower the fee.
Mr. Hettrick agreed that there would not have to be a statute change to lower the fee, however, typically the last thing that would happen would be a fee reduction. He wondered, since the reserve was up to $1.7 million, why the fee had not already been reduced. Mr. Hettrick stated the Subcommittee needed a definitive answer from the Division as to what would be done about the reserve. Mr. Hettrick asked if training programs were already being funded, why would more funds for training programs need to be taken out of the reserve and additionally, more units were being built and therefore more funds were coming in all the time. He stated that the office had been set up to be self-supporting, and apparently it was, but the Division should be looking for ways to reduce costs. When there was such a need for money, a large reserve was a concern.
Chairman Arberry suggested that when the Division came before future joint subcommittees they bring a plan to rectify this problem.
Assemblywoman McClain commented that if the Division needed help deciding how to spend the surplus, they could always funnel it into affordable housing for seniors.
Assemblywoman Chowning disclosed she was a state-licensed real estate professional. She stated everyone had not agreed upon the fee increase; she had never heard about it, and asked if the fee increase would be $20 initially and $10 added to the renewal.
Ms. Anderson responded that was correct, and in her statement had said “industry leadership” and had not meant to imply that the entire industry had been canvassed.
Assemblywoman Chowning stated there had been no canvassing whatsoever. She observed that some of the fees would be very helpful in other areas since there was such a surplus in the reserve. Mrs. Chowning requested that the Division be prepared to tell future joint subcommittees the following:
Ms. Wickliffe introduced L. Scott Walshaw, Commissioner, Division of Financial Institutions. Mr. Walshaw presented the overview of Budget Account 3835.
Mr. Walshaw introduced Larry Hickman, Deputy Commissioner, Division of Financial Institutions, and stated he would be specifically commenting on 1) the implementation of loan agent’s administration, registration and licensing provisions in A.B. 324 enacted in the 71st Legislative Session, and 2) converting the Division to a true self-funded status. Mr. Walshaw stated the Division had three different budget accounts, one of which was a General Fund appropriation, and the main operating budget. This budget had a status quo budget request this session, unless the proposal being made on the self-funded issue went into effect, which would remove the General Fund appropriation in its entirety. The General Fund appropriation would be replaced with a variety of assessments and fees currently being collected, but would be placed in a proprietary account.
Mr. Hickman stated that he had been the Division’s Certified Public Accountant (CPA) for approximately 15 years, but this was his first year to be directly involved in the budgetary functions. He spoke first to A.B. 324 that was enacted in the last legislative session that expanded the requirements on the Division for regulating and overseeing background investigations and registration of loan agents. The Division had appeared before the Interim Finance Committee (IFC) with the justification and filled the positions as of July 2002. At the time A.B. 324 was passed it had been estimated that the Division would be processing approximately 4,000 to 5,000 loan agent applications. To date, the Division had processed 9,300 transactions. What had not been considered in the original implementation of the registration had been the turnover rate of loan agents. By statute, terminations, registrations, and renewals each required the same amount of administrative time to process. While there were 4,400 registered agents, the Division had processed over 9,300 transactions, including ineligible and closed agents. The backlog of background investigations of the agents had decreased from 3,000 to 1,500. The total number of agents that had been ruled ineligible, out of all the transactions, was 82. The program had been implemented for six months and the Division had granted the industry a great deal of latitude in facilitating the processing of their agents; some agencies had over 2,000 registered agents. The timing of the registration, the renewal of some individuals, and the processing of termination reports had posed a substantial burden on the licensee as well as the regulatory agency. Because of this burden, the Division had not enforced some of the requirements to the strict “letter of the law.”
Assemblywoman Chowning complimented the Division on their good work and stated it was refreshing to be able to call and find out if a loan agent was registered with the state. She asked if complaints from the public had been increasing or decreasing.
Mr. Hickman responded that the Division probably received more complaints from licensees about loan agents than were received from the public.
Mr. Walshaw commented that information on registrations was available on the Division’s Web site. By logging onto the Web site you could find out who was registered with whom and who was licensed.
Mr. Hickman added that the Web site was only current through September 4, 2002, but the Division was attempting to complete the posting through December 31, 2002.
Mr. Hickman stated the principal issue addressed through the budgeting process had been to create the mechanism by which the Division could go from being revenue neutral to a self-funded agency. That proposal had been recommended in the Governor’s budget. A number of plans had been considered and this plan was the least onerous to the licensee groups.
Mr. Arberry inquired whether this plan would be fair and safe for the agency when the economy improved. The interest rates had been low and many companies had moved in, but when the interest rates went back up, many of those companies would fail. Mr. Arberry asked if that would reduce the Division’s revenue.
Mr. Hickman opined that it would probably work the opposite way. For financial institutions, as interest rates increased, their net interest margins increased as well and therefore would be more profitable. More funds would also be available as a lending source for brokerage operations. Many licensees were brokers only and the funding sources were out of state.
Mr. Walshaw commented on the Division’s revenue-neutral stance. The Division received a General Fund appropriation at the beginning of the year. During the course of a year, a number of fees, from licensing or examinations, were received. By the end of the fiscal year, the Division would have repaid every dollar spent from the General Fund. What was being proposed was to change the funding mechanism to recognize that the agency was producing its own revenue. The Division hoped to address the safety issue by still receiving a small General Fund appropriation that would enable them, in an extreme emergency, to appear before the Interim Finance Committee.
Assemblyman Marvel inquired as to whether money received from the IFC would be considered a loan.
Mr. Walshaw stated that remained to be seen, but the Division would have the capability through the current means of assessment to recoup that money. The mechanism for doing that would still have to be implemented.
Mr. Marvel stated he thought it would be better set up as a loan.
Ms. Wickliffe introduced Renee Diamond, Administrator, Manufactured Housing Division. Ms. Diamond presented an overview of Budget Accounts 3814, 3842, 3843, and 3847 and submitted Exhibit J, a handout entitled “Budget Presentation Before the Joint Senate Committee on Finance and the Assembly Committee on Ways and Means, January 30, 2003.”
Ms. Diamond stated the Division was a self-funded agency whose revenue was derived totally from user fees and was divided into four budget accounts for the programs administered. The Division’s primary mission was to ensure that manufactured homes and other manufactured buildings were constructed and/or installed in a manner that provided reasonable safety and protection to owners and users. The Division also provided resolution of landlord/tenant complaints and consumer product complaints. The Division licensed, tested, and provided continuing education and training for licensees and inspectors. The Division maintained “title” records, issued certificates of ownership, conversions to real property, and liens placed on homes. The Lot Rent Subsidy program assisted low-income homeowners through a subsidy toward their monthly lot rent in manufactured home communities.
Industry sales figures in 2001 for manufactured homes had decreased nationally by an estimated 30 to 40 percent. Some estimated as high as a 50 percent decrease in 2001 and an additional 21 percent decrease in 2002. Since the Division’s previous budgets were submitted, many of the primary lenders had discontinued lending on homes. This had caused a loss in funding for new loans on new and used homes, and additionally, caused a huge inventory of repossessed homes on the market. The downturn in sales had also created backlogs of inventories in factories. The reduced business climate across the nation also caused a number of retailers, including large corporations and small businesses, to close. This downturn had been mirrored in Nevada.
Previous budgets had been predicated on performance measures and revenues that were based upon pre-decline years of 2000 and 2001. The manufactured housing industry had predicted that 2003 would not show improvement over 2002. Ms. Diamond stated that in past years legislative committees had questioned her about the large reserves that were traditionally in the Division budget. She had always maintained that the reserve was needed because industry trends could not be anticipated. This had proved to be accurate.
Ms. Diamond stated that in July 2002 an analysis had been undertaken of the diminished reserve and the lowered performance measures. This process resulted in the following budget reductions:
Budget Account 3814 – Manufactured Housing
annually. Reduced the Las Vegas office by 1,575 square feet, saving $18,999 annually. Renegotiated Xerox leases, saving $4,150 annually.
Budget Account 3842 – Lot Rent Subsidy
Budget Account 3843 – Landlord/Tenant Program
Budget Account 3847 – Education and Recovery
1. Reduced Xerox lease, saving $606 annually.
Ms. Diamond noted that the Division had reduced spending in the amount of $260,493 for FY2004-05 and this budget requested no enhancements or additions. Ms. Diamond commended her staff for their work ethic and attitude in accepting the cuts to the budget and reduction in staff.
The Committee recessed at 3:29 p.m. and reconvened at 3:35 p.m.
Charles L. Horsey III, Administrator, Housing Division, presented the overview for Budget Accounts 3841, 3838, and 4865. Mr. Horsey submitted Exhibit K, “Housing Division Budget FY’04-05 Highlight Points,” and Exhibit L, “Nevada Special Needs Housing Assessment.”
Mr. Horsey stated he had been the Administrator of the Housing Division since 1986. He introduced Lon DeWeese, Chief Financial Officer, and Arthur C. Thurner, Chief of Federal Programs. He said that the Housing Division had been created in 1975 to augment, or supplement, the lending activities of the private sector. The Division had become the lender for affordable housing in the state of Nevada. Approximately 38,000 Nevada families lived in a home or an apartment that the Division had financed. Mr. Horsey commented that it had been widely acknowledged that the Housing Division had done an excellent job of meeting the housing needs of the state’s low-to-moderate-income population. However, much remained to be accomplished to provide housing for special needs groups. A study had been commissioned with BBC Consulting of Denver, Colorado (Exhibit L), to help identify nine of the most important special needs groups in the state. Those groups were listed as follows:
Mr. Horsey stated that most of the changes in priorities for those programs were not really part of the budget; they would be seen in other subcommittees. The Division had been asked to comment on their success in developing a special lending program for teachers, who were badly needed in the state of Nevada, and, for nurses, who were especially needed for the rural areas. The Division had not been very successful as the Housing Division statutes were created in 1975, and Nevada was not the same state that it was in 1975. The Division had encountered two basic obstacles in developing programs for teachers or nurses; 1) our statutes were geared toward first-time home buyers and also low-to-moderate-income families, 2) the Division had found teachers and nurses were not always low income and they were not always first-time home buyers. A bill draft request would be introduced this session that would provide the Division expanded lending authority, under special limited circumstances, to develop teacher and nursing programs especially for the rural areas. Mr. Horsey commented on the status of a program undertaken, in cooperation with the Department of Corrections, for parolee housing. The Department of Corrections had made a presentation to the Division’s advisory committee. The study, Exhibit L, confirmed that prison parolees were in dire need of affordable housing. Preference points were given in some programs, such as the Tax Credit Program. The success of this program would not be known until April 2003. The Division had been doing everything possible to ensure a successful program, but still required a permanent construction lender and someone to buy the tax credits that were allocated.
The Division had begun giving priority to housing for senior citizens approximately four years ago. Mr. Horsey stated the only place in the budget that the shift toward special needs groups appeared was in Budget Account 3838, the Low Income Housing Trust Fund. In Budget Account 3838 the Division had given preferential treatment to two special needs projects, parolee housing and an assisted living project in Clark County. The Division had committed $400,000 in two separate years for the assisted living project. For the parolee housing project, $400,000 had been designated to purchase the land.
Chairman Arberry asked whether parolee housing was limited to parolees, or whether it was housing for inmates and parolees.
Mr. Horsey responded that the housing would be for parolees only, not inmates, because any facility would have to comply with the federal Fair Housing Laws. Those facilities must have open access and must be available to the general public as well.
Chairman Arberry commented that he did not understand how this program could work because he thought there was a statute prohibiting parolees from associating with each other.
Mr. Horsey stated that it was his understanding that the Department of Corrections had, in essence, entered into a partnership agreement with a nonprofit entity in southern Nevada. This was a newly formed nonprofit entity with the primary responsibility for shepherding this project.
Chairman Arberry asked if this housing would be for parolees only.
Mr. Horsey responded that, according to his reading of the federal Tax Code, it would be limited to parolees only. The Division had apprised developers of the limitations to the program and had been trying to guide them in the right direction because there was a great need for this project.
Assemblywoman McClain commented that she had a special interest in senior housing. She requested that the Division bring information to future joint subcommittees on how the parameters were set on the 30, 40, 50, 60 percent median for rent on tax credit homes. She further stated, in southern Nevada, $600 a month was not affordable housing for many seniors.
Mr. Horsey responded he would be happy to present those figures at future joint subcommittee meetings.
Ms. McClain stated that she would like to look at possibilities for a lower rent rate.
Mr. Horsey commented that the Division had more direct control over bonding programs for the big projects. The federal government set the rent limitations on the Tax Credit Program, which was for the smaller projects.
Mrs. Chowning inquired as to why there had been such a drastic reduction in the single-family mortgage and why such an increase in the multi-family mortgage.
Mr. Horsey stated he would supply that information. He further commented on an article in the Bond Buyer that stated, in Las Vegas, the price of new homes had far outpaced the increase in incomes. What had been occurring was a decline in affordable housing units.
Mrs. Chowning commented that there was a lot of older housing that could qualify as affordable housing.
Ms. Wickliffe introduced Patricia Jarman-Manning, Commissioner, Consumer Affairs Division.
Ms. Jarman-Manning presented the overview of Budget Account 3811 and introduced Lorraine T. Newlon, Chief Financial Officer, Consumer Affairs Division.
Ms. Jarman-Manning informed the Subcommittee that the Consumer Affairs Division was a 32-year-old agency that assisted anyone doing business with a Nevada business. The Division held more than $11 million in sureties for consumer protection and restitution. Before the budget cuts in 2002 the Division had 20 full-time employees; they currently had 18 full-time employees, which represented an $82,000 cut from the Division’s budget. In 2002 the Division assisted more than 7,000 consumers who received more than $1.2 million in restitution or relief. In 2003 the Division had been handling the same workload with two fewer staff members.
Ms. Jarman-Manning stated that while the Division had requested no new programs in the budget, there were at least two bill draft requests that would, if passed, be placed under the Division’s jurisdictional authority and cause a severe decrease in services due to the reduced staffing and increased workload. The only enhancements requested in this budget consisted of five replacement computers and two heavy-duty printers for the front line staff.
Mrs. Chowning inquired as to how many employee positions had been eliminated.
Ms. Jarman-Manning responded that two full-time positions had been eliminated, and in a 20-person agency, with two offices, it had been significant.
Mrs. Chowning asked if the number of complaints and problems had been reduced.
Ms. Jarman-Manning stated that there had been no reduction and, in fact, the Division handled over 2,000 more cases in 2002 than had been handled in 2001.
Mrs. Chowning commented that she wanted to say thank you to the workers.
Ms. Wickliffe stated that the next two agencies would proceed very quickly because their budgets were extremely restricted and they would simply be describing proposed legislation.
Ms. Wickliffe introduced Joseph A. Dahlia, Acting Administrator, Taxicab Authority.
Mr. Dahlia presented an overview of Budget Account 4130. Mr. Dahlia introduced Rick Boxer, Administrative Services Officer I, Taxicab Authority. Mr. Dahlia stated that the Taxicab Authority was a self-funded agency, with 100 percent of funding coming from the taxicab industry in Las Vegas. The events of September 11, 2001, had decreased tourism in Las Vegas and the agency’s revenue had been greatly affected. The base budget called for the elimination of 11 positions and $278,000 a year that had been contributed to the Senior Ride Program in Clark County. A bill draft request would request a fee increase in trip charges and a fee increase to process permits for taxicab drivers. The Taxicab Authority had not implemented a fee increase since July 1987. The taxicab owners, within the industry, had requested and received 7 increases over the past 15 years. Mr. Dahlia emphasized that the Taxicab Authority needed the trip charge increase to continue to provide the level of service expected. The Taxicab Authority operated 24 hours per day, seven days per week, 365 days of the year. Although the Agency had not been mandated by The Executive Budget to reduce their budget by 3 percent, they had exercised a prudent management practice that had attained 8 employee vacancies, with a projected salary savings of $320,000. The Agency’s enhancement budget was predicated upon passage of the BDR that would increase the trip charge from 15 cents to 20 cents, and double the cost of driver permits. Those increased fees would fund the Senior Ride Program in the amount of $378,000 for each year of the biennium. The Agency would also be able to fill three vacancies in the front office. The front office staff handled 1,500 drivers each month. Mr. Dahlia stated it was his understanding that the limousine industry would be seeking to license their drivers and the Taxicab Authority would be asked to assist, which would create an increase of 32 percent in the office staff. Mr. Dahlia stated that for 34 years the Legislature had approved funds for the officers stationed at McCarran Airport, however, if the BDR did not pass, those positions would be eliminated by July 2004.
Ms. Wickliffe introduced Paul J. Christensen, Chairman, Transportation Services Authority (TSA). Mr. Christensen presented the overview of Budget Account 3922 and introduced Dave Kimball, Deputy Commissioner.
Mr. Christensen stated that the Agency’s mission was to administer regulations and state laws governing intrastate transportation of passengers, household goods movers, tow-cars, and taxis outside of Clark County. Mr. Christensen stated the Agency’s budget had remained almost the same and few enhancements were requested. The number of companies the Agency dealt with had increased by 50 percent, the number of investigations had increased by 135 percent, the number of citations had increased by 196 percent, safety inspections had increased by 29 percent, carrier contacts by 143 percent, and the number of dockets had increased by 129 percent. Bill Draft Request 537 would accomplish three items and the first would be to impound motor carriers of all kinds. Currently, only illegal limousines and illegal household goods movers were impounded. Without the ability to impound vehicles of other offenders, the Agency could only cite offenders who would either leave town, or continue operating and receiving citations. Mr. Christensen stated the taxicabs in the northern part of Nevada were licensed somewhat by local entities. He noted that the Taxicab Authority was seeking another increase in fees that would raise the licensing fees in Clark County to approximately $2,500 to $3,000 for each taxi. In Washoe County, and other parts of the state, the fee was $75.00 per taxi and that had just been increased. Mr. Christensen noted that limousine companies paid nothing to operate. He stated the Agency was working extremely well and complimented the staff and commissioners.
Senator Cegavske asked what warehouse permits were.
Mr. Christensen responded that household goods movers needed warehouse permits so that the Agency would know where goods were stored when not being moved on the trucks. Mr. Christensen further noted that warehouse permits had been inherited from the Public Utilities Commission and it was a small fee of $50 per year.
Senator Cegavske asked staff if any benefit could be realized if the Transportation Services Authority were combined into another agency, such as the Public Utilities Commission (PUC).
Mr. Christensen asked if he could respond to that question and Chairman Arberry said he could.
Mr. Christensen responded that he did not believe there would be any savings.
He further stated that if you asked the PUC, they would have to hire extra people to do the job, such as hearing officers, which would then result in no savings.
Senator Cegavske stated that combining agencies was something that had been discussed, and she believed there could be a cost savings. She stated that by FY2005 the TSA’s budget would be doubled and she requested that staff investigate the possibility of combining agencies.
Chairman Arberry commented that it would be “reinventing the wheel,” because the TSA had been under the PUC years before.
Senator Cegavske stated that the Transportation Services Authority had been created in 1997 and what she wanted investigated was recombining it with the PUC. She further stated that she believed it could benefit the state to eliminate this agency.
Senator Mathews stated that the agencies had been together and there had been a very compelling reason for their separation.
Mr. Christensen stated that one of the reasons for the separation of the agencies had been that the power companies had believed that transportation issues were being subsidized through the mil levy.
Mrs. Chowning stated the percentages that Mr. Christensen had cited regarding the increased docket fees were not reflected in the beginning of the budget and requested more information at future joint subcommittee hearings.
Chairman Arberry thanked Ms. Wickliffe and complimented the Department’s staff for doing a great job.
Ms. Wickliffe thanked the Committee for their attention to and concern for the Department’s issues.
DEPARTMENT OF AGRICULTURE
Paul Iverson, Director, State Department of Agriculture, stated that due to his recent serious medical problems, he had depended upon his administrative team to prepare the budget and to operate the agency over the past few months. In August 2002, Mr. Iverson had begun work on the budget but became seriously ill and remained in a coma for more than two months.
The Subcommittee welcomed Mr. Iverson back.
Mr. Iverson continued by stating that during a normal year he would have presented the budget himself, but since his condition remained very tenuous he had depended upon the Assistant Director and the Administrative Services Officer to handle most of the presentation.
Mr. Iverson presented the Subcommittee with Exhibit M, a handout entitled “Budget Presentation FY2003-2005 Biennium.” On page one of Exhibit M, Mr. Iverson pointed out the Department Goals that were reviewed with the State Board of Agriculture, on a quarterly basis, to make sure the Department was meeting the needs of the people. Mr. Iverson noted that the ten-member State Board of Agriculture managed the Department. The Board was composed of representatives from various areas of the agricultural industry and they basically set the agricultural policies for the Department. The Department had six divisions as follows:
· Division of Measurement Standards
· Division of Livestock Identification
· Division of Plant Industry
· Division of Animal Industry
· Division of Administration
· Division of Resource Protection
Mr. Iverson stated the Department had done a very good job over the past biennium with the funds available and were not requesting a great deal for the next biennium.
Mr. Iverson introduced Don Henderson, Assistant Director, Department of Agriculture, and Rick Gimlin, Administrative Services Officer, Division of Administration, Department of Agriculture.
Mr. Henderson stated that the changes brought about by the growth of the state had changed the Department of Agriculture. Agriculture in Nevada was no longer about hay, cattle, and sheep, but also about the inspection of 600 landscape nurseries, the testing of over 30,000 measuring devices, the sampling and testing of gasoline samples from 600 gas stations, and the licensing and policing of 1,100 licensed pest control operators. The demands and requirements of the Department had grown in proportion to the increased population. Mr. Henderson commented that agriculture reached many sectors of the state economy and was one of the basic industries. It was important to continue the quest to serve the rural counties and encourage and promote production agriculture. Production agriculture was still a mainstream for many of the 17 Nevada counties. Working with farmers and ranchers was essential and very important to the Department and was required to meet their statutory requirements as well.
Mr. Henderson stated the Department had directed more focus to urban areas. The task of regulating several industries had become very challenging. The regulatory activities were designed to protect the general public and the industries providing goods and services to citizens. The Department’s new Agriculture Enforcement Unit had become a keen element in keeping unlicensed and dangerous agricultural materials out of Nevada. It had also added to the state’s Homeland Security functions as many trucks and trailers had been checked as they passed through, or entered, Nevada.
Mr. Henderson introduced Jim Connelley, Administrator, Division of Livestock Identification. The Division had four full-time employees patrolling the state and participating with the Nevada Highway Patrol in checking produce at highway stops. Mr. Henderson stated Mr. Connelley had been overseeing that effort, which was a cooperative effort with the Division of Plant Industry. Mr. Henderson introduced Robert Gronowski, Administrator, Division of Plant Industry, and Steven Grabski, Administrator, Division of Measurement Standards.
Mr. Henderson stated the Department had addressed the challenges associated with growth by incorporating a new five-step formula for the regulatory and service programs. This formula provided an opportunity to prioritize activities to better meet the needs of citizens in both rural and urban areas. The elements of the formula were as follows:
· Exclusion
· Detection
· Control
· Enforcement
· Marketing
Mr. Henderson commented that activities in the focus area of Exclusion addressed efforts of the Department to keep unwanted and dangerous pests, plants, and agricultural materials out of the state. The main components associated with this function included quarantines, border and highway inspections, and delivery point inspections.
The second function, Detection, was an essential function of the Department, as pests and animal-related diseases must be discovered that might be introduced into the state, and could affect the agricultural industry and general public. The components under this function included survey, sampling, identification, and citizen/business samples. During the past several years the Department had become increasing involved with the survey of Mormon cricket and grasshopper populations, particularly in northern Nevada. If hatching areas could be detected early in the spring, insect populations could be destroyed before they reached highways, farmlands, and residential areas later in the summer.
Mr. Henderson pointed out that efforts spent on Exclusion and Detection reduced the costs of Control and Enforcement, which were very expensive. However, Control was still a major step because you could not catch everything that came into the state. Activities in the Control area included inspections, eradication, suppression, interior quarantines, and education. Mr. Henderson stated that some pests had already become established in the state and the spread of those pests must be limited. Prime examples of those species included tall whitetop and salt cedar. With the new Agriculture Enforcement Unit (AEU) now in place, the level of inspection had been greatly increased. Mr Henderson referred to Exhibit N, a brochure that explained the Agriculture Enforcement Unit.
Mr. Henderson explained that the final step in the program schematic was marketing. Marketing had become increasingly important to the Department. With the global economy, international trade, and the loss of thousands of acres of productive agricultural lands nationwide, the Department had focused on helping Nevada producers exist in a highly competitive marketplace. The Agency’s roles included having staff involved with grading of agricultural products for export; the grading function allowed added value to the various products that were graded. Staff was also involved with the certification of agricultural products. Normally the inspection of those products would be completed in the field and provided verification of the quality of the product purchased. The Department had recently entered the agricultural promotion and marketing field, and had been very pleased with the accomplishments of the past year. With the assistance of a United States Department of Agriculture (USDA) grant, and help from the Nevada Association of Counties (NACO), the Department had implemented an active agricultural marketing and promotion program. Mr. Henderson stated that a total of 62 separate projects existed to promote agriculture in Nevada, or to expand markets for agricultural products. Out of those 62 projects, 34 projects reflected direct financial grants to Nevada producers or agriculture businesses and organizations. Projects funded under this “first of kind” program in Nevada had been wide ranging; they covered everything from funds for education initiatives, to the Nevada Agriculture Council; from conducting test plantings of alternative crops, including native plant seed, to growing grapes for wine production. Some of the projects funded through the successful grant program included, 1) a feasibility study on alternative niche market opportunities for low-end beef cuts; 2) a watershed management and water quality demonstration project in an area under ranch production; and, 3) coordination and promotion of prescriptive farming in farm‑to‑chef connection initiatives. The Department had also participated in facility improvements and upgrades to increase specialty flower production for two producers in Nevada. Mr. Henderson referred the Subcommittee to Exhibit O, a brochure about agriculture in Nevada.
Mr. Henderson directed the Subcommittee to page 5 of Exhibit M, which outlined the Department’s budget from the previous biennium and summarized selected accomplishments.
Mr. Henderson mentioned the Agriculture Enforcement Unit (AEU) and what that Unit had achieved in the past year. The AEU had ten post-certified, part-time law enforcement officers participating in the overall program. They were trained to enforce quarantines, inspect vehicles at random or at NHP points of entry, and perform inspections at point of origin or destination throughout Nevada. Mr. Henderson stated that since the Unit had become operational in January 2002, 3,377 vehicles had been stopped and inspected, and 595 violations had resulted. Most of the emphasis for the program had been in Clark County due to the actual plant growing conditions and the growth of the cities in that area.
Mr. Henderson commented on the Imported Red Fire Ant Program. Over the past year the Department had installed 16,000 traps that had been placed at 750 sites in the Las Vegas area. Imported red fire ant infestations had been found at three sites, which had all been treated for eradication. The three infested sites would be resurveyed in 2003. Mr. Henderson stated that, so far, the Department had been winning the war on imported red fire ant infestations.
As part of the state and federal investigation into the Fallon Cancer Cluster, the Department tested 94 soil, 81 dust, and 41 water samples for 24 to 25 analyses. During the laboratory analyses, 25 different pesticides were evaluated in the soil samples, 24 in dust samples, and 50 in water samples that used three different analytical techniques. That work was accomplished by using General Fund personnel and fee-funded laboratory equipment.
Mr. Henderson stated another ongoing program the Department continued to maintain, was conducting annual groundwater monitoring in agricultural areas of the state to detect pesticide residue. The program consisted of sampling approximately 60 wells, twice annually, and analyzing the samples for pesticides. If pesticides were detected, investigations were conducted and corrections were made to the source.
The Bureau of Weights and Measures tested and inspected over 30,000 commercial weighing and measuring devices, with a device failure rate of approximately 8 percent. In addition, the Bureau continued with a program of package inspections and price verification to protect consumers, and registered commercial repair agencies and licensed public weigh masters.
Mr. Henderson stated that another issue under the topic of control was the Exotic Newcastle Disease. This was the first foreign animal disease outbreak in Nevada since the 1970s. The Division of Animal Industry had depopulated the infected premises, as well as adjacent premises, within 24 hours of diagnosis and laboratory verification of the disease. Quarantine had been instituted in Clark County and the southern portion of Nye County, prohibiting the movement or sale of live birds and poultry. The Secretary of the U.S. Department of Agriculture (USDA) granted an extraordinary emergency declaration and the federal government had been supervising the quarantine with the State Department of Agriculture advising them.
Mr. Henderson commented that another area of interest had been the Virginia Range Estray Horse Program. The program had increased by 53 percent the number of horses gathered and placed through adoption, over the past year. The goal over the next few years was to remove and place for adoption 250 to 350 horses per year, until a targeted herd size of 500 to 600 head was achieved.
The Department continued to play an extensive role in weed control and had developed and implemented the Nevada weed-free hay certification program. Over 3,500 acres of hay production had been field-inspected and certified as weed-free in FY2003.
Senator Rawson commented that the Subcommittee had learned during hearings regarding public health concerns having to do with terrorism, that there was good interstate cooperation when dealing with human diseases, and he wondered what relationship the Department of Agriculture had with bordering states.
Mr. Henderson stated the Department had an excellent relationship with other state veterinarians and what normally happened, as had happened with Exotic Newcastle Disease, was that most states had set up quarantines so birds could not be transported into their states. The federal government was very involved with all states as well. The Department had a proposed bill draft request that, if passed, would place a limit on how much ammonium nitrate could be purchased by an individual or a company. The Department worked very closing with neighboring states.
Senator Rawson commented that in some of the agricultural states it had been found that the Department of Agriculture could determine some threats faster than public health services, and he hoped the Department would continue contact with Homeland Security.
Assemblyman Beers asked what nearby state had the last outbreak of Newcastle Disease, and how it had arrived in Nevada.
Mr. Henderson answered that it had come from southern California, and there were four or five California counties that had been quarantined for Newcastle Disease since October 2002. In January 2003 it had been found in Nevada in a small backyard flock. While it was difficult to prove, the Department had no doubt that it had been brought in from California in the trunk of an automobile, and unless border inspectors checked each and every car coming into the state, it would be almost impossible to prevent. Nevada had no commercial poultry operation, mostly backyard flocks. Newcastle Disease was very contagious and not only did the bird have to be disposed of, you had to sanitize the site where it had been kept.
Senator Cegavske asked if any of those diseases could be transmitted to humans and further inquired about the status of bees and rats.
Mr. Henderson stated that chickens did not pose a health concern for humans; it was purely a bird disease. One of the threats, however, was the disease infecting the wild bird population.
Senator Cegavske asked if West Nile Disease posed a threat to humans.
Mr. Henderson responded that there was an outside possibility there could be some infection to humans through West Nile Disease, however, the Department was mainly concerned with horses and had been recommending vaccinations. The Department estimated a possible death rate from the disease at 2 to 3 percent.
Mr. Iverson commented that the Department tested flocks in the state for West Nile Virus so it could be tracked. The virus moved very fast, and the Department was going to start vaccinating the wild horses that they caught.
Mr. Iverson continued and said that the Department caught lots and lots of bees. After a bee swarm had been found in the Beatty area, the quarantine was moved to Beatty, Nevada. Because of the education program that was initiated, the problem had been taking care of itself. People in the nursery industry, casino workers, and water meter readers had all been trained and knew what to do when encountering bee swarms. The state still had thousands of bee swarms, but because the Department had been dealing with the problem for so long, people knew how to deal with them.
Mr. Iverson stated that the Department had not had a complaint about rats for at least a year. The Department had done education programs in the main rat‑infested areas.
Senator Cegavske asked if they had been eliminated in the Spanish Trails area.
Mr. Iverson responded that while they were not gone, people had learned to live with them; they would never be eliminated completely.
Mr. Iverson stated the Department would conclude the presentation with Rick Gimlin, Administrative Services Officer (ASO), informing the Subcommittee about the proposed budget.
Mr. Gimlin stated the 2003-05 budget contained six enhancements. One of the bullet points was the internal cost allocation plan. That was being continued for the administrative account for the upcoming biennium. As before, the intent was to equitably distribute costs of the administrative account across all programs. This used a combination of total budget authority and positions to distribute costs to each participating budget. The methodology was unchanged from last session. During the last biennium this plan had saved over $500,000 in General Fund support and that support had been used to fund the Agricultural Enforcement Unit.
Mr. Gimlin stated that one of the six enhancement units involved transferring two positions into the administrative account. Those positions, an administrative aide in the Las Vegas office and an administrative aide in the Reno office, provided services to multiple programs within the Department. The cost savings in the General Fund would be applied to the next enhancement, which would change the funding source for the salary of the Administrator of the Division of Livestock Identification. His position had been funded entirely by the Division of Livestock Identification, which was a fee-based account. Mr. Gimlin stated that the General Fund savings created by transferring the two administrative aide positions would be applied to the Administrator’s salary, which would approximate 50 percent of his salary. The pesticide operator control program would be transferred out of the General Fund account to create a partial transfer. That program had six positions, funded through a combination of General Fund and fees. Three positions had been left in the General Fund account and three positions placed in a fee-based account.
An Account Technician position had been requested for the Division of Administration. Mr. Gimlin stated the Division had planned to request this position during the past biennium, but at that time the Integrated Financial System had just been implemented, and had shown a great deal of promise. The Division explored many of the possibilities of that system and had made good progress, but volume had become a problem. Over the last two years there had been a 10 percent input increase into the Integrated Financial System.
During 1997, the Department had been given responsibility for managing horses on the Virginia Range. Over the last five years, the program had some limited General Fund support. As this was an ongoing program, funding had been requested to provide a budget based upon a population of 30 horses in the facility in Carson City.
The last enhancement was a quarter-time position for the Resource Protection Division. The Resource Protection Division removed predators, took ducks out of swimming pools in the Las Vegas area, controlled birds, controlled geese around the airport, and handled pigeon control. The position would provide clerical support to 12 state positions. In the past, the USDA had provided clerical support. The USDA had indicated they could not continue to provide support because they were under the same budget constraints as the state.
Mr. Marvel asked how healthy the brand inspection fund had been.
Mr. Gimlin responded that it would be a lot healthier when the Department began rerecording. Cattle production had been declining in the state, and there had been a recent fee increase just to keep the program operating. The Brands Advisory Committee would be having a meeting to look at a variety of options to determine how to progress with the program.
With no further business to come before the Subcommittee the meeting adjourned at 4:44 p.m.
RESPECTFULLY SUBMITTED:
Anne Bowen
Committee Secretary
APPROVED BY:
Assemblyman Morse Arberry Jr., Chairman
DATE:
______________________________________________
Senator William J. Raggio, Chairman
DATE:________________________________________