MINUTES OF THE meeting
of the
Assembly Committee on Ways and Means
AND THE
Senate Committee on Finance
JOINT Subcommittee on General Government
Seventy-Second Session
February 25, 2003
The Assembly Committee on Ways and Means and the Senate Committee on Finance, Joint Subcommittee on General Government, was called to order at 8:05 a.m., on Tuesday, February 25, 2003. Chairwoman Vonne Chowning presided in Room 2134 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:
Mrs. Vonne Chowning, Chairwoman
Mr. Bob Beers
Mr. Josh Griffin
Ms. Kathy McClain
Mr. David Parks
Senate COMMITTEE MEMBERS PRESENT:
Senator Sandra Tiffany, Chairwoman
Senator Bob Coffin
Senator Dean A. Rhoads
STAFF MEMBERS PRESENT:
Steve Abba, Principal Deputy Fiscal Analyst
Bob Guernsey, Principal Deputy Fiscal Analyst
Jeff Ferguson, Program Analyst
Joyce Garrett, Program Analyst
Carol Thomsen, Committee Secretary
Lila Clark, Committee Secretary
Chairwoman Chowning called the meeting to order, and indicated she would open the hearing on Budget Account (BA) 3813. She noted there would be questions from the Subcommittee pertaining to the elimination of the Medical Dental Screening Panel, and the Subcommittee would also request a report regarding the status of the medical malpractice insurance program established by the Division of Insurance. Chairwoman Chowning referenced the problems in the Las Vegas area regarding the lack of obstetrical care, which appeared to have been corrected, however, recent television commercials indicated that a severe problem still existed in southern Nevada regarding the lack of doctors and medical malpractice insurance.
B&I, INSURANCE REGULATIONS (101-3813) – B&I-34
Alice Molasky-Arman, Commissioner of Insurance, Insurance Division, introduced John Orr, Deputy Commissioner of Insurance, and informed the Subcommittee that the most up-to-date data regarding medical liability, construction liability, auto insurance, home owner’s insurance, and the other issues that the state had faced over the last approximately two years, had been addressed in a publication which was distributed to Subcommittee members during the first week of the 2003 Legislative Session. Ms. Molasky-Arman advised that she had provided the following booklets as exhibits for the Subcommittee’s perusal:
Ms. Molasky-Arman stated that BA 3813 was the Division’s main operating account, and supported the activities and administration of the Office of the Commissioner, along with the following Division Sections:
According to Ms. Molasky-Arman, those sections were devoted to carrying out the Division’s mission of protecting the rights of Nevada’s consumers. Obviously, stated Ms. Molasky-Arman, the Property and Casualty Section had been busy during the past year, particularly with the medical malpractice liability crisis that Nevada had faced during that time. She explained that the Division had immediately held a hearing in March of 2002 on the subject of medical malpractice insurance, and as a result of that hearing, had established the Medical Liability Association of Nevada (MLAN) to provide professional medical liability insurance coverage on a self-supporting basis. Ms. Molasky-Arman stated the MLAN received $250,000 in start-up funds from the Board of Examiner’s Emergency Fund. Only $125,000 of that money was transferred to the MLAN, with the balance, plus interest, returned to the Emergency Fund, as depicted in the Insurance Division’s budget.
Ms. Molasky-Arman noted that the state of Nevada did not have liability for the performance of the MLAN, and in the event of a deficit, the cost would be allocated among all other casualty insurance companies. There would be an indirect impact upon the state because the insurers who paid those assessments would then be able to apply those as a credit against their premium taxes in the event of dissolution of the MLAN. Ms. Molasky-Arman stated it would be a very, very dark day if that assessment ever had to be triggered, as there were nearly 500 doctors insured by the MLAN at the present time, and approximately $9.5 million in premiums had been collected. It would soon be announced that the MLAN would receive reinsurance, which was difficult to obtain by a joint underwriting association. It was Ms. Molasky-Arman’s understanding that the MLAN was the first association that had achieved reinsurance.
The MLAN, together with another new domestic company, had helped with the availability problem, and Ms. Molasky-Arman explained that in Nevada today there was no reason why a doctor could not purchase medical malpractice insurance. What still remained in question was the affordability. Ms. Molasky-Arman remarked that A.B. 1 of the Eighteenth Special Session was encouraging for Nevada’s insurers, and the reason the rates had not decreased as a result of that legislation was that insurers based their rates on past experience and projected that experience into the future. Insurers were still reviewing the negative results that occurred prior to passage of A.B. 1 of the Eighteenth Special Session, and until the legal environment settled and it was known whether there would be constitutional challenges against the provisions of the legislation, Ms. Molasky-Arman stated the insurance companies would still have to calculate their rates based on sound actuarial principles.
Ms. Molasky-Arman commented that she had seen recent newspaper articles that indicated every insurance company had filed for rate increases, and she assured the Subcommittee that was absolutely not true. Just recently, Nevada Mutual Insurance Company, which was the state’s new domestic company with approximately 600 policyholders and approximately $10 million annually in premiums, had eliminated the “tiers” surrounding the delivery of babies. According to Ms. Molasky-Arman, with elimination of those “tiers” the company also effectively reduced most of the premiums charged to obstetricians in Nevada. She was unsure whether there was any real method of measuring the number of doctors that had left the state. Ms. Molasky-Arman understood that the Board of Medical Examiners had not received notice from a significant number of physicians that they were departing the state.
The existing medical malpractice insurers were still not interested in expanding the number of policyholders that they wrote, and Ms. Molasky-Arman pointed out that the state of Nevada was unusual in that compared to other states facing the same dire circumstances in medical liability, Nevada continued to have insurers. There were approximately ten medical malpractice insurers in Nevada, and Ms. Molasky-Arman stated the problem that had existed when the MLAN was created still existed today, in that the existing insurers were not willing to accept any new policyholders. Until the environment changed, Ms. Molasky-Arman did not believe that insurers would change their policy; she reiterated that other states simply had no insurers remaining, so Nevada was indeed very fortunate.
Senator Tiffany stated that it appeared Ms. Molasky-Arman had contradicted herself by her earlier remarks that the MLAN was available, and all physicians currently had access to insurance via the MLAN or the ten other insurers in the state, however, she had also stated that the MLAN, as well as the other ten insurers, were not willing to expand or write new policies, and she asked whether that was correct. Ms. Molasky-Arman explained that the MLAN would write policies for doctors and would also underwrite, but if an applicant had a less than spectacular history, the MLAN might not write that doctor. Senator Tiffany stated that many physicians shared a practice with multiple doctors, and if one or two of those doctors had previously been sued, none of the doctors were able to secure coverage. Ms. Molasky-Arman stated that should not be the case with the MLAN. Senator Tiffany indicated she had heard personal circumstances where that had occurred, and she was not sure that access, let alone affordability, but simply access was truly available for all physicians.
Ms. Molasky-Arman remarked that the MLAN operated in the same manner as most insurance companies in accepting new business, and if a physician had a bad loss history, the MLAN would not accept that particular doctor. Senator Tiffany pointed out that when there was a practice with multiple doctors, and a few of those doctors had experienced medical malpractice lawsuits, the remaining doctors were also unable to secure coverage as part of the practice. Ms. Molasky-Arman indicated that one or two claims that had not been adjudicated should not provide circumstances where the entire practice would be rejected. It would depend on the nature of the claim, the history regarding claims that had been paid, and the seriousness of those claims. Senator Tiffany stated there had been cases where one doctor had not experienced any claims, while his partners might have experienced one or two claims, however, all of the doctors in the practice experienced difficulty with insurance coverage.
Senator Tiffany stated she had recently been contacted by one of the physicians in a partnership in the high-risk specialty of pediatric cardiology, and that physician had informed her that the practice recently lost two doctors. She noted that doctors were not required to advise the Insurance Division or the Board of Medical Examiners that they were leaving the state, and she did not believe the Division had accurate numbers regarding the physicians who had left Nevada. Ms. Molasky-Arman explained that such information was not collected by the Insurance Division, but rather was collected by the Board of Medical Examiners, and she believed that physicians were required to report to the Board when they relocated their practice. Senator Tiffany wanted to point out that there did not appear to be accurate numbers regarding how many doctors had left the state, and there were some practices consisting of several physicians that had experienced difficulty in securing insurance coverage.
Chairwoman Chowning remarked that it was very difficult for policymakers to react when the numbers were not known. She stated the Subcommittee would like to know whether the Medical Liability Association of Nevada (MLAN) had proven to be helpful to physicians, how many physicians had taken advantage of that help, the number of doctors who initially signed up for the plan, the number currently covered, had the coverage for doctors continually improved, and how long the MLAN would be needed. Chairwoman Chowning applauded the state of Nevada and the Governor for devising the plan to establish the MLAN, as other states had not been proactive and did not offer such a plan. She asked whether doctors were continually taking advantage of the MLAN, how long the state plan would be needed, and how the MLAN compared to other companies in the handling of high liability claims.
Ms. Molasky-Arman opined that the length of time the MLAN would be in existence would depend on the market, and until there was stabilization in the area of insurers who were willing to underwrite those policyholders, the MLAN would continue. Per Ms. Molasky-Arman, the MLAN could be extinguished in one of two ways: (1) By order of the Insurance Commissioner to extinguish the association; or (2) If the Commissioner ordered the MLAN to form into a stock insurance company.
The Insurance Division had proposed legislation which included provisions that would enable the MLAN to convert to a mutual insurance company, which seemed to be a more desired form of insurer with respect to the policyholders. Ms. Molasky-Arman explained the MLAN could accomplish that with a request to the Commissioner via the Board of Directors, which operated the MLAN. She emphasized that she did not have any more oversight over the MLAN than over any other insurer. The Nevada Revised Statutes (NRS) stipulated that the MLAN would hold the same obligations and responsibilities, and have the same rights as any other insurance company. Ms. Molasky-Arman stated she could not tell the Subcommittee how long she envisioned the MLAN remaining in existence, and her preference would be for the MLAN to convert to an insurer at the time it was no longer deemed necessary to continue as an association.
According to Ms. Molasky-Arman, approximately 3,000 doctors were actually practicing in Nevada, and the approximately 500 insured by the MLAN plus the approximately 600 insured by Employers Mutual Casualty Company, would encompass about one-third of the doctors that required coverage. There were eight other insurers within the state of Nevada, however, Ms. Molasky-Arman reported that the MLAN continued to receive applications.
Chairwoman Chowning questioned the handling of large claims. Ms. Molasky-Arman stated if a large claim was brought against one of the physicians insured by the MLAN which resulted in an extraordinary judgment, the MLAN would either consider raising the rates for the physician based on that experience, or would consider not writing that physician.
Assemblyman Beers asked for clarification regarding payment of a large claim that would exceed the MLAN’s reserves, and questioned whether that would be paid by the industry. Ms. Molasky-Arman stated that hopefully the MLAN would have developed the surplus in reserves to pay such a claim together with the reinsurance. Mr. Beers stated it appeared that the reliance would primarily be on the reinsurance. It was Ms. Molasky-Arman’s understanding that the reinsurance was $750,000 in excess of the first $250,000, and she also noted that a premium was paid for the reinsurance. Mr. Beers asked what would occur if there was a $4 million claim. Ms. Molasky-Arman explained that the coverage was limited to $1 million per occurrence and $3 million in aggregate, which would be the maximum paid under the MLAN’s policy. In some cases, there had perhaps been refusals to settle, which would affect the amount of the ultimate judgment. If a judgment exceeded the policy limits, Ms. Molasky-Arman advised that in many cases, it became the liability of the defendant physician.
Chairwoman Chowning inquired whether there was further testimony regarding the issue, and noted that Ms. Molasky-Arman had not advised the Subcommittee that the situation was totally under control, but at least it appeared that the situation was not as severe as it had been in the past. Ms. Molasky-Arman stated that based on history, the state had formed a similar joint underwriting association in 1975, and within two to three years, that association was able to privatize and convert to what had become the insurance company with the second largest market share in the state of Nevada. She explained that company had ultimately been acquired by The St. Paul, but she did not believe that would ever occur in the state of Nevada again, as the state had learned from history. Chairwoman Chowning asked for clarification, and Ms. Molasky-Arman explained that the aforementioned domestic company had been acquired by The St. Paul. Chairwoman Chowning asked whether Ms. Molasky-Arman believed such a situation would never occur again in Nevada. Ms. Molasky-Arman stated she did not believe it would ever occur in the state of Nevada again, and the state had learned by history. She emphasized that she would perhaps be more jaded in receiving commitments and promises from insurers who wanted to conduct business in Nevada.
Senator Coffin asked whether there was any pending legislation that would keep the MLAN intact and not allow the association to either dissolve or become private. Ms. Molasky-Arman replied that there was no such pending legislation. Senator Coffin believed it would be a good idea to prevent the future acquisition of the MLAN by a company that sold it out and then left the Nevada market. Ms. Molasky-Arman indicated that legislation to continue the MLAN might cause the state to end up with an essential insurance association that had no reason for its existence because the voluntary, competitive market had returned to the state. In that case, she explained, Nevada would not want the cost of the association; she noted it had been perceived that the state had simply “waved a magic wand” which triggered the existence of the MLAN. According to Ms. Molasky-Arman, that was far from the truth, and it had been necessary to, in effect, establish an insurance company with underwriting standards, rates, adjustors, and all other aspects necessary for an insurance company. She did not believe the state would want to prolong the expense of those activities should the need no longer exist. Senator Coffin opined that would be a policy decision that Ms. Molasky-Arman might be required to execute in her capacity as Insurance Commissioner.
Senator Coffin asked what had happened to the reserves which had been accumulated by the company that was acquired by The St. Paul. He wondered whether that company had also purchased the reserves, or whether the state received any revenue from those reserves. Ms. Molasky-Arman explained that the company which had been acquired by The St. Paul had become a private insurer, and was no longer a joint underwriting association. As a private stock insurer, the stockholders of that company were the doctor policyholders, and Ms. Molasky-Arman stated the company had been acquired by The St. Paul in the exact same manner that any other insurance company would normally be acquired, which would include all assets and liabilities.
Senator Coffin asked whether the state had advanced a small amount of money to assist with the start-up of the MLAN. Ms. Molasky-Arman stated $250,000 had been advanced, however, $125,000 was returned to the Board of Examiners’ Emergency Fund when it was determined that the MLAN would not require those funds in order to function; she emphasized that the remaining $125,000 would be returned within the next few weeks. Ms. Molasky-Arman explained that the return had been held up in order to determine the interest, as the amount would be paid back with interest, as stated in the contract.
Assemblyman Beers remarked that if it only cost $125,000 in capital to start-up an insurance company, why did the private sector not do the same, and asked whether there had been a special dispensation afforded to the MLAN, being a specific legal creation. Ms. Molasky-Arman replied that there had been a special dispensation, and she explained that a joint underwriting association or an essential insurance association could be commenced by the Commissioner of Insurance without any capital in surplus. The aforementioned company that was created in 1975 was able to start-up without any funding whatsoever, however, the population of Nevada was much smaller at that time, and there were far fewer doctors to be serviced. She reiterated there was no requirement for capitalization.
Chairwoman Chowning referenced decision units E-276 and E-277, which recommended the elimination of the Medical Dental Screening Panel and associated positions, and asked for clarification. Ms. Molasky-Arman testified that A.B. 1 of the Eighteenth Special Session eliminated the Screening Panel, and decision unit E-276 recommended the elimination of one of the positions that had been provided to the Screening Panel process, and decision unit E-277 recommended elimination of the remaining position. Ms. Molasky-Arman explained there were two and one-half positions dedicated to that panel, and the Division’s budget request had retained the half-time position, which was a legal secretary who also served the Las Vegas office staff of legal counsel and investigators. The request for retention of that position was included in The Executive Budget.
Ms. Molasky-Arman reported that there were currently 105 cases remaining in the Screening Panel process and those were in various stages of completion. If those cases had not completed the process by June 30, 2003, the Insurance Division might find it necessary to approach the Interim Finance Committee (IFC) to request that the positions be prolonged until such time as all cases were closed. Ms. Molasky-Arman emphasized that she had urged the Las Vegas office, which managed the panel, to expedite the cases as quickly as possible. In some instances, however, that would not be possible because of the legal technicalities and the time frame surrounding certain filings. Ms. Molasky-Arman stated if the Division were able, it would reduce the caseload to a point where it would be manageable by other staff in the Las Vegas office familiar with the process. She noted that one case had been stayed by court order and could not be moved, which she found disturbing.
Chairwoman Chowning asked whether Ms. Molasky-Arman was stating that the remaining cases would be completed with a half-time position working with legal counsel. Ms. Molasky-Arman informed the Subcommittee that the Deputy Commissioner in the Las Vegas office was very familiar with the process, and had worked with the panel for many years. Her feeling was that at the time when only a handful of cases remained, those could be handled by existing staff in the Las Vegas office.
John Orr, Deputy Commissioner, explained that another consequence of elimination of the Screening Panel was the elimination of a revenue source. In the base year, the Division collected $216,000 in Screening Panel fees, which was basically used to offset the cost of the positions and the operating costs associated with the panel; he explained that revenue source would be gone along with the positions.
Chairwoman Chowning asked that the Division keep the Subcommittee updated regarding the status of the remaining 105 cases in order to determine whether the lion’s share of those cases would be completed, or whether additional cases were stayed and could not be resolved, which would prove problematic. Ms. Molasky-Arman verified that only one case had been stayed at the present time. She explained that the Screening Panel process was fairly mechanical and Division staff made very few decisions; decisions were actually made by the panelists themselves. Encouraging panelists to sit and hear a particular case remained an area of difficulty, and had been problematic for the Division for many years. Ms. Molasky-Arman stated there was not a great deal of incentive to sit as a panelist.
Chairwoman Chowning referenced the Construction Defect Insurance issue, and pointed out that the Commissioner had indicated the Construction Liability Task Force was close to issuing its report. She asked for a summary of that report and any potential actions the Division might be required to take as a result of the report. Ms. Molasky-Arman advised the Subcommittee that the report from the Task Force had not been published at the present time and was actually a report to the Governor. The report would be a matter of public record and had been prepared by the Construction Liability Task Force, which had been appointed to review the problem of construction liability in Nevada. Ms. Molasky-Arman explained that the members of the Task Force consisted of a coalition of builders, i.e., a representative of the subcontractors, a representative of the developers, a representative of the insurance industry, a representative of insurance agents, and a representative from the Nevada Trial Lawyer’s Association.
A list of issues had been prepared by the Division based on comments received from members of the public and the industry, and Ms. Molasky-Arman advised that a list of issues presented by the Nevada Trial Lawyer’s Association was added to the Division’s list. She mentioned that the report delineated consideration of several issues by the Task Force and advised that there had been consensus by the members in very few of those issues. Ms. Molasky-Arman noted that the report did state both the majority and the minority opinions and contained a number of recommendations. The majority of Task Force members recommended the repeal of Chapter 40 of the Nevada Revised Statutes (NRS), but did not provide any substitutes for that chapter. Ms. Molasky-Arman advised that the minority felt there was no support for the elimination of Chapter 40.
Per Ms. Molasky-Arman, the Task Force also discussed the right to repair, and the majority felt that the laws in the state of Nevada should be stronger with respect to the right to repair. The Trial Lawyer’s Association did not believe there was any evidence showing that homeowners had refused a right to repair or a contractor’s offer to repair. Ms. Molasky-Arman noted there had been discussion regarding how to define a construction defect, and the Task Force did review a new expansive California law regarding definition of a defect. She stated that while the Task Force did not adopt those definitions, it did state certain criteria it believed should be met in the establishment of a construction defect. Ms. Molasky-Arman informed the Subcommittee that subcontractors had discussed their concerns regarding the joint liability provisions with respect to construction defect cases, and the Task Force did recommend that joint liability be removed or limited in construction defect cases. In connection with construction quality, explained Ms. Molasky-Arman, the Task Force determined that contractors and their insurers would be required to report all closed construction claims to the State Contractor’s Board and to the Division of Insurance. The minority worried that reporting such claims would improperly cast a shadow on the contractor’s license. Ms. Molasky-Arman commented that the minority also questioned whether settlements and judgments should be reported to the Contractor’s Board when the homeowner was made whole as a result of a settlement or judgment.
Ms. Molasky-Arman stated the Division received reports of closed medical claims from insurers, however, that was not required for construction defect claims, and the Division’s awareness of the marketplace regarding construction liability was very limited. Construction liability was commercial insurance, which was principally deregulated, and the Division did not review the rates. Ms. Molasky-Arman advised that construction liability was general liability, and there were any number of insurers who provided general liability insurance as a line of insurance, but might not necessarily write contractor liability. Ms. Molasky-Arman indicated if claims were reported, the Division would gather data in the same manner as it did for medical liability and would have a better idea regarding the cost of construction liability in Nevada.
Chairwoman Chowning believed reporting was needed and would defuse many of the horror stories from all sides, however, without the numbers, the overall picture was unknown. She asked how that could be accomplished, where the state would go from here, and whether the report would become a part of the hearings conducted by the Assembly and Senate Committees on Commerce and Labor. Ms. Molasky-Arman stated it would depend on the members of the Task Force; those members were certainly welcome to use the report, as it was a product of the Task Force. Any hearings on construction defect were outside the Insurance Division’s environment. Ms. Molasky-Arman stated that insurance had certainly been affected by the cases of construction defect, and the Task Force had also attempted to determine how and why insurers had effectively abandoned the Nevada marketplace.
Chairwoman Chowning asked Ms. Molasky-Arman what action she foresaw the Insurance Division taking as a result of the report from the Task Force. In reply to Chairwoman Chowning’s question, Ms. Molasky-Arman stated she could not arbitrarily return a marketplace to Nevada. One suggestion put forth by the American Insurance Association, which was an association of insurers, was the process conducted in California, which, in effect, was an alternative dispute resolution of construction defect cases. Ms. Molasky-Arman explained that program was actually supported by insurers. Her dilemma in instituting any comparable program in the state of Nevada was because the insurers were not actually operating in the state. According to Ms. Molasky-Arman, staff had been asked to discuss whether there was any willingness to establish something similar in the state of Nevada with those insurers.
Chairwoman Chowning noted that it was a huge problem and the ramifications from it continued to occur. She noted that homes built in the 1940s, 1950s, and 1960s did not appear to cause such problems, and she wondered why those homes were not causing problems. In some cases there were minor problems, but no major problems such as cracking or coming apart at the seams. Chairwoman Chowning stated that many companies indicated that the insurance companies had been raising rates because of the fear of construction problems. If the facts were known, she believed rumors and fears could be eliminated, but because of the fear, many contractors and subcontractors were being run out of business and could not meet the required $1 million in collateral in order to secure $1 million insurance. Chairwoman Chowning wondered if the state did not have companies in place to provide the product and the service, what other options would be available.
Ms. Molasky-Arman indicated that all members of the Task Force had expressed their desire to see quality homes for Nevadans, and their belief that everyone should be secure and comfortable in their homes. Chairwoman Chowning stated the Subcommittee would look forward to receiving the report from the Task Force and thanked those involved. She asked that the Insurance Division keep the Subcommittee apprised of future action in the area of construction liability.
Chairwoman Chowning opened discussion of decision unit E-900, transfer in of a Producer Licensing Supervisor. She asked Ms. Molasky-Arman to inform the Subcommittee why the position should be moved from an account where there was no General Fund appropriation to an account where it would be funded entirely through the General Fund, and whether the duties and responsibilities of the position would change. Ms. Molasky-Arman disclosed that one individual had held the position for the past eight years, and that individual did, and always had, supervised the Producer Licensing Section. Ms. Molasky-Arman said she had been questioned several years ago by the Legislature regarding why the position resided in Budget Account 3824 when the majority of the responsibilities were supervisory. Ms. Molasky-Arman noted that all licensing positions were within Budget Account 3813 except the Producer Licensing Supervisor. The position was originally created in 1991 and had been called the “Education Coordinator” because some of the responsibilities of the position were coordination of the education requirements for the Division’s licensees, who were required to have pre-licensing education as well as continuing education. Ms. Molasky-Arman stated that the bulk of those activities had consumed 80 percent of that position’s time. She also noted that Budget Account (BA) 3824 contained a request for a new unclassified position of Research Actuary, specifically to address some of the problems the Division was facing with the hard market. Ms. Molasky-Arman indicated that the Division did not believe that revenues would support both of the positions, and believed it was appropriate to place the Producer Licensing Supervisor position in BA 3813. That, reported Ms. Molasky-Arman, along with inadequate funding in BA 3824 to fund both positions, was the reason the Division had requested the transfer of the position.
Senator Tiffany stated that the Governor had asked some agencies to continue with the 3 percent funding reduction, and in order to comply with that request, The Executive Budget recommended that the Division supplant a total of $356,590 in General Funds with corresponding transfers from the Insurance Examiners Account, Budget Account (BA) 3817. She asked Ms. Molasky-Arman how the Division would maintain the 3 percent funding reduction.
Electing to respond was Mr. Orr, who explained that the reverse was true, in that the decision was made by the Commissioner that the Division could not afford to cut positions during the past year, the current year, or in the upcoming biennium, given the environment and the insurance market, therefore, the Division had developed a plan to support the Governor’s 3 percent budget reduction through a transfer of excess administrative fees during the 2003‑05 biennium only from the Insurance Examiners account, BA 3817, to BA 3813. Mr. Orr explained that transfer would offset the approximately $300,000 in General Fund support.
Senator Tiffany stated she had been unaware that agencies had been asked to continue with the 3 percent budget reduction, as some budgets did include proposed increases. Mr. Orr emphasized that the Insurance Division had definitely been asked to continue the reduction. Senator Tiffany asked whether the transfer of funds would be from a reserve account, and Mr. Orr replied in the affirmative.
Chairwoman Chowning noted that the Insurance Division had received provisional accreditation from the National Association of Insurance Commissioners (NAIC), and had submitted a bill draft request (BDR) which would amend the NRS to match model laws. Ms. Molasky-Arman explained that the Division had received provisional accreditation principally because one of the NRS contained a drafting error. When the accreditation team came to Nevada, it found that the statute was incorrect and not only conflicted with model laws, but also conflicted with sound accounting principles. She stated that alone was sufficient to keep the Division from being accredited. The accreditation team, however, suggested that if the Commissioner could obtain the commitment of the Chairmen of the Senate and Assembly Committees on Commerce and Labor to correct that statute during the 2003 Legislature, the Division could achieve provisional accreditation. Ms. Molasky-Arman advised the Subcommittee that she had written to Senator Randolph Townsend and the former Speaker of the Assembly, Joseph Dini, and had received letters of support from both. That resulted in the drafting of S.B. 11, which had already been heard by the Senate Committee on Commerce and Labor, and had also been passed by the Assembly Committee on Commerce and Labor on February 24, 2003. Ms. Molasky-Arman stated she would hopefully be able to show S.B. 11 to the accreditation team, which would return to review the state for permanent accreditation in May of 2003.
Ms. Molasky-Arman stated the Division also had a lengthy bill pending that included a number of provisions related to accreditation. She explained that accreditation was principally based on a number of model laws, which were consistently being expanded; the number of laws which accredited states were required to have were continually increased over a period of years. Ms. Molasky-Arman noted there were new standards deemed to be appropriate that were discovered through difficulties that insurance commissioners throughout the United States had faced because of insolvent insurers. The Division’s bill contained a number of those provisions, and many were of a technical nature, while many were definitional only. Ms. Molasky-Arman stated if that legislation were enacted, it would enable the Division to receive extra points in the accreditation review, since the legislation would be enacted on a timely basis. The Division was reviewed by the accreditation team in several areas: (1) Statutes and regulations; (2) Process of examinations and how effectively the Division dealt with those processes; (3) How effectively the Division analyzed the financial information of the state’s domestic insurers; and (4) The professionalism of the Division of Insurance. Ms. Molasky-Arman was happy to report that, for the first time since she had become Commissioner, the Division had a full staff in its Corporate and Financial Section. The section had a Chief Examiner and an Assistant Chief Examiner who were both Certified Public Accountants (CPAs), and several analyst positions currently in training, which she felt would make a very good impression on the accreditation team.
Senator Tiffany stated she had reviewed some of the BDRs as well as the bills that had been introduced, and there were a fair amount that would impact the Insurance Division. She asked whether the Division was tracking those bills. Ms. Molasky-Arman replied that the Division tracked every bill that might create an impact. Senator Tiffany asked whether there were any bills that Ms. Molasky-Arman particularly felt would impact the Division’s staffing or budget. Ms. Molasky-Arman stated there were any number of bills that might impact the Division and upon request, it had provided the appropriate fiscal notes. Senator Tiffany indicated she had specifically been reviewing legislation that would provide additional oversight of insurance companies, as part of the argument with medical malpractice issues was that there was a problem with the insurance companies because they had made bad investments and therefore, raised rates for the policyholders to make up the difference. The pending legislation would require the Division to review that issue and audit the insurance companies more thoroughly. Senator Tiffany asked whether that would impact the Division’s budget and staff. Ms. Molasky-Arman replied in the affirmative. Senator Tiffany asked how that might impact the Division. Ms. Molasky-Arman stated it would include the cost of review, the cost of enforcement, the cost of research and analysis, and the cost of possible hearings. There would certainly be staffing issues, as well as the establishment of computer programs to track additional data. The needs of the Division would depend on the legislation, and Ms. Molasky-Arman noted that there were several bills under consideration.
Mr. Orr advised that to date, the Division had written six fiscal notes, and none of those notes had identified the need for new staff, but many had identified the need for overtime hours for existing staff. The Division’s staff was currently working at the very “edge of the envelope,” and any additional requirements, such as a regulatory requirement that did not provide additional staff, would translate into overtime hours.
Chairwoman Chowning stated that prior to the close of session, depending on the passage or non-passage of those bills, the Division’s budget might require adjustments. Mr. Orr concurred and advised he would work with the Subcommittee and LCB staff to reconcile the policies adopted by the Legislature with the dollars needed by the Division.
Chairwoman Chowning referenced the booklets presented as exhibits to the Subcommittee by the Insurance Division and commented that they appeared to be very well done. She asked whether the booklets were fairly new and whether the Division had many requests for the material. Ms. Molasky-Arman noted that the booklets appeared to be in great demand, and one of the most popular was Exhibit F, “Nevada 2002 Consumer’s Guide to Auto Insurance.” The information contained in the exhibits was also available on the Division’s Web site. Chairwoman Chowning asked whether Exhibit F was available in Spanish; Ms. Molasky-Arman replied in the affirmative.
Mr. Orr explained that funding to translate the booklet relative to auto insurance into Spanish had been approved by the 1999 Legislature; however, the translation into Spanish had been extremely difficult, and the actual booklet was not published until 2001. Surprisingly, stated Mr. Orr, there appeared to be very little demand for the Spanish version, so the Division had not reprinted that version. He noted that the 2001 version was still available, and the Division would reprint a Spanish version of any insurance guide, if it were aware of the demand.
Chairwoman Chowning inquired how the Division would know if there were demands for the publications. Mr. Orr stated that information would come to the Division via the insurance agents, or the Division’s Consumer Services section. That section handled 30,000 phone calls per year, and if it received a sufficient number of calls for information in a language other than English, that information would be tracked and relayed to the Division. Chairwoman Chowning pointed out that the language of the majority of the non‑English speaking residents was Spanish, and asked whether the Division would translate its booklets into other languages. Mr. Orr stated the Division had not published its booklets in other languages, but it certainly could. The Division did rely a great degree on the insurance agents as the translator for the information. Chairwoman Chowning stated that had appeared to be problematic in the past, because it appeared that agents had not done a good job of translating the laws. In that instance, Chairwoman Chowning believed the policy and responsibility to provide the facts rested with the state.
With no further testimony regarding Budget Account 3813, Chairwoman Chowning closed the hearing, and opened the hearing for BA 3817.
B&I, INSURANCE EXAMINERS (223-3817) – B&I-41
Chairwoman Chowning asked for clarification regarding the status of the reserve level in the account, which was an issue of great concern. She also asked what the level of the reserve would be and how the Division would restore the reserve.
Mr. Orr explained that the Division was concerned about the level of the reserve in the account at the end of the second year of the biennium. As a standard for the reserve in BA 3817, the Division had adopted a policy to retain 60 days of the cost to maintain the account in reserve at the beginning of any fiscal year. Mr. Orr stated the cost of the account was the cost of the insurance examinations, and during the past fiscal year, the Division paid $156,000 per month for contract examiners, which would suggest that the reserve should contain $312,000. At the end of the second year of the upcoming biennium, the account was projected to contain $52,374. Mr. Orr noted that the reason the Division had developed the budget with confidence was that there was an expenditure in BA 3817 of $100,000 in both years of the biennium for liquidation. That continued a practice that had been approved by the Legislature for many years and gave the Commissioner the authority to reserve the cash in the event the Division had to take over a company in liquidation or receivership. Mr. Orr indicated that had never happened; the Commissioner had taken over companies, but the Division had never been required to tap that authority. The Division did not expect to tap those funds over the upcoming biennium, and that would raise the second year-end reserve by $200,000, for a total of $252,374.
Mr. Orr stated the Division recognized that it had to maximize the efficiency of its billing procedures to shorten the time frame between conducting examinations and payment of examiners until the time the Division was reimbursed by the examined companies, and it was willing to make that commitment in order to achieve the required 3 percent budget reduction in General Fund support.
Chairwoman Chowning asked whether it was recommended in The Executive Budget to lower the amount for liquidation to $100,000. Mr. Orr replied in the affirmative, and reiterated that at the end of the second year of the biennium, the Division would have an additional $200,000 in reserves over the amount depicted in the budget. Chairwoman Chowning asked whether the Division planned on keeping the liquidation amount at $100,000 in the future; Mr. Orr replied in the affirmative.
Chairwoman Chowning noted that when the reserve for the Division decreased to $52,374, that caused alarm, however, the plans to restore the reserve were noted. She asked whether the overhead charge of 50 percent would increase for the upcoming biennium. Mr. Orr indicated that administrative fee had bounced between 50 percent and 100 percent and was a cost borne by the examined companies. It was a cost that the Division imposed in order to recapture the administrative costs for managing the examinations. Mr. Orr stated at the present time, there was no intent by the Division to increase the 50 percent level, and the budget request would suggest that the 50 percent administrative fee would continue through the biennium.
Mr. Orr stated that the budget request continued an accounting through the upcoming biennium, which had been approved by the Interim Finance Committee (IFC). One element of accreditation was the quality of the Division’s examinations, and the accreditation team expected every ongoing examination to include on-site supervisory review. Mr. Orr explained that the Division did not provide supervisory reviews via contractors, but rather via senior Division staff. According to Mr. Orr, the Division incurred costs because of that procedure, and had been incurring those costs since the supervisory reviews were initiated at the recommendation of the accreditation team. The Division had not initially charged the companies for that review, but as the senior staff conducting the reviews were General Fund positions, Mr. Orr stated the Division felt it was only fair to charge the companies for the reviews and transfer an amount equal to those imputed charges from BA 3817 to BA 3813, to offset a portion of the General Fund support for those senior management positions. Mr. Orr indicated that procedure had been in place for the current fiscal year, and the budget request for the upcoming biennium asked that the procedure remain in place.
Chairwoman Chowning asked whether that amounted to approximately $357,000. Mr. Orr stated the amount was approximately $101,000 each year, and was delineated in decision unit E-275 of BA 3817, which was a companion to decision unit E-278 in BA 3813.
Ms. Molasky-Arman stated that with respect to supervisory reviews, the accreditation applied to financial examinations. The Division also conducted market conduct examinations. She explained that the National Association of Insurance Commissioners (NAIC) had considered moving forward to establish accreditation standards for the states with respect to market conduct activities. Ms. Molasky-Arman informed the Subcommittee that the Division had been audited two times by the Legislative Counsel Bureau (LCB), and one of the very astute recommendations by auditors concerned the Division’s failure to perform the appropriate supervisory reviews of the market conduct examinations. As a result of that recommendation, the Division established the program which utilized technical staff and managers within the Life and Health, and Property and Casualty sections, who knew the areas of insurance and were very qualified to test the work of the examiners and conduct the supervisory reviews. Ms. Molasky-Arman stated that was actually how the program was initiated, and it worked so well that it was also used to achieve the accreditation standards; she indicated it was thanks to the LCB audits that the Division had arrived at that method of supervisory reviews. Ms. Molasky-Arman reported that should the NAIC require accreditation of the states for market conduct examinations, the Division would be far ahead of the game because of its program.
With no further testimony forthcoming regarding Budget Account 3817, Chairwoman Chowning closed the hearing, and opened the hearing on BA 3824.
B&I, INSURANCE EDUCATION AND RESEARCH (101-3824) – B&I-49
Chairwoman Chowning stated there were three issues that the Subcommittee wanted to discuss in BA 3824:
Ms. Molasky-Arman concurred that decision unit E-276 was the Division’s request for a new unclassified position of Lead Actuary. During the June 2002 meeting of the IFC, the Division requested a number of new positions, which were supported by the Governor. Ms. Molasky-Arman stated the majority of those positions were based on addressing the issues currently facing the Division in the hard market of liability insurance. At that time, the Division had intended to bring forward the contract Research Actuary position, however, learned that the IFC did not have the jurisdiction to establish a new unclassified position.
According to Ms. Molasky-Arman, the individual who was performing the work, Chuck Nolsch, had been retained under contract until such time that the Division could seek a new position. She stated that Mr. Nolsch had been the actuary at the Division for 25 years, and remained highly respected throughout the nation for his expertise, his ability to listen, his reasoning, and his knowledge of Nevada law. Mr. Nolsch had contacted Ms. Molasky-Arman after reading about the insurance crisis in the state, and offered his assistance. Ms. Molasky-Arman pointed out that Mr. Nolsch had worked through other crises, however, had not seen anything of the nature of the current crisis. She noted that the contract Research Actuary position had been designed for Mr. Nolsch, and the purpose was to conduct complex research, and review those filings that contained enormous issues, particularly regarding medical malpractice rates. Ms. Molasky-Arman informed the Subcommittee that the state might see those same issues arising in other areas of insurance, such as homeowners and auto insurance, where there were also signs of unrest and growing difficulties in the marketplace.
Ms. Molasky-Arman explained that the position mirrored the position of Lead Actuary previously approved by the Legislature, and would enable the Division to retain the same level of expertise as that of insurance companies. Insurance companies had any number of actuaries, and during rate hearings, what occurred was termed “the battle of the actuaries,” because the actuaries never seemed able to agree. Ms. Molasky-Arman stated the actuaries were all highly skilled, highly knowledgeable, highly trained, and well-educated individuals, who lived in the rare atmosphere of being able to command almost any salary level that they desired. Ms. Molasky-Arman believed that Mr. Nolsch, teamed with the Division’s current Lead Actuary, Janice Moskowitz, would be a force that would be fully able to discuss and negotiate complex insurance rates, forms, and issues with any other actuaries.
Chairwoman Chowning commented that the Division currently had one Lead Actuary position and six Actuary I positions, however, the Subcommittee duly noted that the additional actuary position was desperately needed to conduct complex research. She wondered whether the position would be providing any education and/or research services, since the position was placed in BA 3824, Insurance Education and Research. Ms. Molasky-Arman explained that Mr. Nolsch’s duties in relation to rates, forms, and policy issues were principally research. The six Actuary I positions within the Division were not true actuaries, and she explained that Mr. Nolsch was a member of the Casualty Actuarial Society, which consisted of two levels, a Fellow and Associate. Ms. Moskowitz, the Division’s current Lead Actuary, was an Associate, along with Mr. Nolsch, and she did not believe Mr. Nolsch would ever pursue a Fellowship, however, she believed that Ms. Moskowitz would. The Actuary I classification was the name given those positions by the Department of Personnel, and those persons might be studying to obtain actuarial credentials.
Chairwoman Chowning asked whether the requested Lead Actuary position, currently staffed by Mr. Nolsch as a contract Research Actuary, would ultimately complete the research, or would it be a truly permanent position. She wondered whether the position was requested because Mr. Nolsch’s qualifications were needed at the present time, however, would eventually be eliminated. Ms. Molasky-Arman stated one of her concerns was that the Division was actually requesting the position for one individual, and what would occur when that individual no longer wished to remain a full-time employee, and wanted to resume his retirement. She informed the Subcommittee that Mr. Nolsch had given certain oral commitments that he would remain with the Division as long as needed. However, Ms. Molasky-Arman stated she did not envision the world of insurance becoming any less involved or less difficult in the future. The state was currently being swept along with currents that would be long lasting, and had to do with the terrorism issue, and with the state of the economy worldwide and statewide.
Ms. Molasky-Arman advised the Subcommittee that she saw insurance matters becoming more complex as the years went by, as it had in years past. The situation was not getting any easier. Chairwoman Chowning asked whether Ms. Molasky-Arman believed the position should be in BA 3824. Ms. Molasky-Arman replied in the affirmative. Chairwoman Chowning asked what would happen when the person with the extensive qualifications left full-time employment. Ms. Molasky-Arman hoped that the Division would be able to locate a person almost equally qualified. When the Legislature created the position of Lead Actuary at the Division’s request several years ago, Ms. Molasky-Arman stated she had serious doubts about the ability to fill the position, because even though the salary was greater than originally contemplated, it was still not competitive with private industry. The person who ultimately filled that position loved Nevada and cared about societal affairs, and had the ability to help the consumers of Nevada. Ms. Molasky-Arman concurred that it would be difficult to find a person to fill the position, but she did not believe it would be impossible.
Senator Tiffany stated that the Lead Actuary position was important, and LCB staff had informed her that Mr. Nolsch had assisted in setting the rates for the insurance program offered doctors during the Eighteenth Special Session, which was a very specialized expertise. Senator Tiffany asked whether there was a way to bring in another person as an understudy, and did the Division use a recruiter or the Internet to post positions. She noted that she had conducted job placements for many persons who would like to be employed in state government because of the stability, the benefits, and the retirement plan. Senator Tiffany indicated she was somewhat surprised, as an actuarial would be someone who liked security, and a stable, consistent job. Ms. Molasky-Arman stated the Division had used publications to advertise some of the positions. Senator Tiffany pointed out that the Casualty Actuarial Society would also be a good source of advertising. Ms. Molasky-Arman indicated the Division would seek possible candidates through the Casualty Actuarial Society, and would also seek possible candidates via the National Association of Insurance Commissioners (NAIC).
Senator Tiffany asked whether the Division had to work under the confines of human resources. Mr. Orr replied that the Division worked first with the personnel manager within the Director’s Office of the Department of Business and Industry, and also with the State Department of Personnel. Senator Tiffany opined that recruiting for the Lead Actuary position would be very complicated. Mr. Orr stated that it was important for the Subcommittee to realize that a member of the Casualty Actuarial Society earned approximately $300,000 per year in private industry, which would significantly exceed any salary the state could offer. Senator Tiffany indicated that salary would be for a topnotch position, rather than entry level for a person recently out of school or who was not a Fellow in the Society.
Mr. Orr emphasized that an Associate or a Fellow of the Society were not those persons recently out of school, and explained it required significant career development to achieve that distinction. The Division had six Actuarial I positions, none of which were filled by persons who would qualify for the Lead Actuary position. Mr. Orr indicated that the Division offered continuing education as a career development, and sent the staff to various insurance industry classes to enhance their actuarial knowledge, but the fact remained that none of the six persons currently classified as Actuarial I within the Division would qualify for either the existing Lead Actuary position or the requested unclassified Lead Actuary position. Perhaps in three or four years, those persons would be qualified, but at the present time, they were not. Mr. Orr assured the Subcommittee that the Division would work to develop that expertise, but for the present, the Commissioner had found the needed expertise in Mr. Nolsch, and the Division would like to take advantage of that expertise. Senator Tiffany agreed that the Division should take advantage of the expertise. Ms. Molasky-Arman reported it was BA 3824 which enabled the Division to promote education among its staff.
Senator Tiffany noted that many agency budgets included increased expenditures because of Department of Information Technology (DoIT) charges. She stated that BA 3824 included a charge in each year of the biennium for database administrator charges and Web services. The charge in each year of the biennium was $15,294 for Web services, and she asked what the Division actually received as Web services. Mr. Orr explained that computer facility charges were not his area of expertise, and DoIT was much of a puzzle to him. The two decision units, E-300 and E-301, together represented a cost that was not charged to the Division in the base year, even though it had received the services. Mr. Orr reported that decision unit E-300 was for database administrator charges in support of COSMOS, which was the Division’s integrated database. He explained that BA 3824 supported COSMOS. Senator Tiffany asked what services DoIT actually performed for the Division, and whether it required a database administrator. Mr. Orr replied that COSMOS was updated in November or December of 2002, and there was much activity surrounding the Oracle database, which was the foundation on which COSMOS sat, and the update was performed by DoIT staff. He remarked that the $13,698 charge in each year of the biennium for database administrator charges was to continue that level of support for COSMOS.
Senator Tiffany asked for the parameters of the service that DoIT provided to the Division. Mr. Orr explained that the service was handled remotely at the DoIT facility, and while the Division maintained its own file server for COSMOS, the program was serviced by DoIT. Senator Tiffany inquired whether the charges were to support the file server. Mr. Orr replied that the database administrator charges were in support of the software that was resident on the file server. Senator Tiffany asked whether the charges were to host the software on the Division’s server at the DoIT facility. Mr. Orr stated the server did not sit at the DoIT facility; DoIT had suggested that the server be moved to its facility at an additional charge of $15,000, however, the Division declined that request. Mr. Orr explained that the $13,698 charge in each year of the biennium for database administrator charges was the minimum that the Division could expend with DoIT and keep the COSMOS system up and running. Senator Tiffany commented that DoIT was not necessarily adding charges, but it appeared that the $13,698 was somewhat like “safety net” money. Mr. Orr stated the budget worksheets were developed in concert with DoIT through July 2002, in order to identify the services DoIT would perform for the Division. The total cost would have been approximately $2.5 to $3 million per year, and Mr. Orr stated the Division had whittled that amount down to approximately $30,000 per year.
According to Mr. Orr, decision unit E-301 specifically supported the Division’s Web site. Senator Tiffany noted that charge was solely for hosting the Division’s Web site. Mr. Orr concurred, and stated the charges that made up the $15,294 were:
· $64 per month for the domain name
· $1,250 for the session count
· $13 per month for storage volume
Those figures amounted to $1,327 per month, which equated to $15,924 per year.
Assemblyman Beers asked whether the aforementioned $64 for the domain name was paid on a monthly or yearly basis. Mr. Orr replied that the $64 fee was paid monthly.
Chairwoman Chowning asked Mr. Orr to work with LCB staff to ascertain what was needed regarding DoIT charges, and she asked whether DoIT was currently providing the services to the Division. Mr. Orr replied that DoIT was and had been providing those services, even though the Division had not paid for those services in the past. He indicated that DoIT began billing the Division for the services during the past year, however, the Division could not pay charges it was not authorized to pay. Mr. Orr noted that the Division did agree to work with DoIT to implant charges within its budget that constituted the bare minimum charges required to support its file servers and database.
Mr. Beers commented that it did not appear anything could be done regarding the DoIT charges, however, he pointed out that his yearly cost for his Web site, Nevadabudget.com, was $20 for the domain name. Assemblyman Griffin believed that the site he utilized charged $9.95 a year for the domain name.
Assemblywoman McClain noted that it was amazing that the DoIT figures were actually broken out in the Division’s budget.
Chairwoman Chowning asked for information regarding decision unit E-900, which recommended transfer of the Producer Licensing Supervisor from BA 3824 to the Insurance Regulation account, BA 3813. She noted that the position was currently funded via the reserve, and transfer to BA 3813 would fund the position via the General Fund. Chairwoman Chowning also asked for clarification regarding the reserve balance.
Ms. Molasky-Arman informed the Subcommittee that decision unit E-900 in BA 3824 was the companion of decision unit E-900 in BA 3813. The Division was requesting that the position of Producer Licensing Supervisor be transferred into BA 3813, rather than the Insurance Education and Research budget. Ms. Molasky-Arman explained that the supervisor position devoted 80 percent of the time to supervisory requirements, and the remaining 20 percent to education, which included monitoring educational courses for agents, and providing Division staff with assistance in enrolling in course programs.
Chairwoman Chowning commented that the problem was the funding of the position from either the reserve or the General Fund, and she asked whether 20 percent of the position could be funded via BA 3824. Mr. Orr remarked that the Division would fund the position in the method determined by the Legislature. He explained that the second year reserve in BA 3824 was not problematic like the reserve in BA 3813, although it was significantly reduced from the base year. Mr. Orr testified that the reason for the reduction was the increased salary of the Lead Actuary compared to the Producer Licensing Supervisor, which accounted for some of the difference, along with some of the new initiatives such as the ongoing support for the prompt pay initiatives. Mr. Orr offered to work with Jeff Ferguson, Program Analyst, Legislative Counsel Bureau (LCB), to calculate the retention of 20 percent of the salary in BA 3824. His preference would be to move the entire salary to BA 3813 and not split the salary, which could be done with a legislatively directed transfer.
Chairwoman Chowning noted that times were tight, and the Subcommittee was attempting to save every General Fund dollar it could. She asked about the reserve balance of $145,000 in the Insurance Education and Research budget, and whether that amount would be sufficient. Chairwoman Chowning pointed out that if 20 percent of the salary for the Producer Licensing Supervisor position were retained in the budget account, it would obviously change the reserve balance. Mr. Orr stated if 20 percent of the salary and fringe benefits were attributed to BA 3824, it would amount to approximately $13,000 to $14,000 additional cost to the account. The second year of the biennium reserve balance was $283,000, and Mr. Orr explained that salaries were spoken for at the beginning of the year with the reserve account, and the $283,000, or should it be reduced by 20 percent of the position, the approximately $270,000 would cover the salaries adequately, whether it was the Lead Actuary salary or the existing salary for the position, or a combination of both. Chairwoman Chowning instructed the Division to work with LCB staff to ascertain whether there was a possibility of saving General Fund dollars.
Chairwoman Chowning closed the hearing on Budget Account 3824 and opened the hearing on BA 4684.
B&I, SELF INSURED – WORKERS’ COMPENSATION (210-4684) – B&I-64
Ms. Molasky-Arman stated BA 4684 was funded via an assessment levied against employers by the Division of Industrial Regulations. The budget account supported the Division’s work in regulating self-insured employers for workers’ compensation, both individual employers and associations of employers. Ms. Molasky-Arman explained that with the advancement of three-way insurance, the Division did expect that the number of individual self-insured employers would decrease. All of the Division’s statistics indicated that the situation had stabilized. Ms. Molasky-Arman stated that in FY2001, there were 229 individual employers; in FY2002, there were 208; and in FY2003, there were 205; the Division did believe the situation was balancing. She noted that there had been no changes since FY2001 in the number of self-insured associations of employers.
According to Ms. Molasky-Arman, the Division’s main concern in the area was the increase in insolvent employers. There had been a number of self-insured employers who had filed for bankruptcy such as K-Mart and Consolidated Freightways, which were self-insurers. Ms. Molasky-Arman stated the Division had recently discovered that the security deposit for one of the older self‑insured employers, Robert L. Helms Construction and Development Company, which had closed years ago, was not sufficient to fund the claims, nor was the claims account sufficient, and the Division would have to access the trust account to pay those claims. Ms. Molasky-Arman pointed out that because of the long “tail” connected to workers’ compensation claims, other like situations might also arise. She did not believe those payments would harm the trust account, as that was its purpose.
The Division’s concern surrounded the growing number of insolvent employers and the Division’s responsibilities of oversight. Ms. Molasky-Arman indicated there were some inconsistencies between state and federal bankruptcy laws. Nevada’s existing laws required that the Commissioner decertify employers who filed for bankruptcy, yet the federal bankruptcy laws stayed those proceedings. Ms. Molasky-Arman advised that the Division had submitted a bill draft request (BDR) that would address that situation. In almost all instances during the pending period of the bankruptcy, the Division maintained the employer’s certification as long as it knew that the claims would be funded either through the deposit, or another mechanism established by the employer, or with the approval of the bankruptcy court. Ms. Molasky-Arman reported that there had been one instance where the employer refused to pay the additional deposit, refused to fund existing claims, or take any action, and she had decertified that employer.
Senator Tiffany asked about the size of a company allowed to become self‑insured for workers’ compensation. Ms. Molasky-Arman reported that the individual employer had to have a tangible net worth of not less than $2.5 million. Senator Tiffany wondered whether it also depended on the number of employees. Ms. Molasky-Arman indicated there was no limitation or restriction on the number of employees. Senator Tiffany explained that she wondered whether there were a certain number of employees required for self‑insurance versus private insurance. Mr. Orr stated that Senator Tiffany was referring to spreading the risk, because if there was only one employee, and that person was injured on the job, the decision to self-insure would be a poor one. There was, however, no statutory threshold regarding the number of employees required before a company could become self-insured. Senator Tiffany said she knew there was no statutory requirement, but employers would review the benefits between a fully insured or self-insured plan, which usually began with the number of employees.
Senator Tiffany referred to the aforementioned tangible net worth of $2.5 million, and asked whether businesses could be small in margin. She wondered how many more businesses would be harmed by imposition of a gross receipts tax, and asked whether the Division considered the solvency of a business. Ms. Molasky-Arman stated in some instances where the tangible net worth was not met, the Division required that the business provide a certificate of deposit, an assurity bond, or letters of credit. Senator Tiffany indicated that should the Legislature implement the gross receipts tax, there might be additional companies going out of business. Ms. Molasky-Arman stated the majority of the self-insured individual employers were also very large employers. A number of employers that had left the state, which caused the Division to withdraw their certification, were nationwide employers that might have had very few employees in the state of Nevada, and carried insurance with commercial insurers in other states. Ms. Molasky-Arman commented that once Nevada adopted three-way insurance, and companies could insure those same employees under commercial insurance, many companies had made the decision to do so.
Mr. Orr commended Jeff Ferguson, Program Analyst, LCB, who had assisted the Division with its budget preparation. Chairwoman Chowning concurred that the LCB staff worked very hard, and the taxpayers benefited from all entities working together.
Chairwoman Chowning closed the hearing on Budget Account 4684, and opened the hearing on BA 3814.
B&I, MANUFACTURED HOUSING (271-3814) – B&I-73
Renee Diamond, Administrator, Manufactured Housing Division, Department of Business and Industry, introduced Nancy Barnhard, Accounting Assistant III, and Bill Maier, Administrative Services Officer, Department of Business and Industry, who worked very closely with the Manufactured Housing Division on the budget. Ms. Diamond testified that the Division had reduced personnel and operating costs by reducing space, copy machines, and a number of other items, for a savings over the previous year of $214,665. The Division had increased revenue by $47,200 based on the previous year’s experience by canceling contracts with local governments, and with Division personnel assuming those duties.
Ms. Diamond referenced Exhibit G, entitled, “Testimony on February 25, 2003, Joint Subcommittee on Government Affairs, Senate Finance and Assembly Ways and Means.” She noted that performance indicators for FY2004-05 were projected and based on the actual occurrences during FY2002, because the Division expected FY2002 to be the low point in the industry reduced sales. Ms. Diamond reminded the Subcommittee that as a self-funded agency, the Division’s revenue was based on sales of new homes, because it received inspection and title fees from new home sales. When a person sold a used home that was left in place, there was no inspection, and Ms. Diamond stated the national downturn had a very serious impact on the state of Nevada. The latest figures indicated that new home production was lower than the previous year, and the Division cancelled contracts for inspections with local jurisdictions in order to assume the revenue produced by new home inspections.
According to Ms. Diamond, she had recently reviewed the inspections for the first six months, and the Division had conducted approximately 1,100 inspections. Those inspections were somewhat seasonal, particularly in the northern portion of the state, and Ms. Diamond explained that there were more new homes placed when the ground was not frozen. She explained that the previous six months were not the best six months, and the best months would begin in the spring and continue through the end of the fiscal year. Ms. Diamond pointed out that performance indicators were sales-driven, and amounts were therefore reduced. The only area of BA 3814 where the Division had enjoyed tangible success was in the area of consumer complaints. Ms. Diamond stated the Division had worked very hard to put those dealers utilizing unscrupulous business practices out of business, and what remained were the better dealers who dealt with consumers in a more ethical fashion. The Division had enjoyed 85 fewer consumer complaints, which Ms. Diamond believed was positive.
Ms. Diamond reported that the Division had been utilizing the reserve and when budgets were reviewed in terms of reducing the reserve, the Division had laid staff off, with only two inspector positions remaining in Las Vegas. She reported that one of the inspectors in Las Vegas had recently left the Division to accept employment for North Las Vegas at double the salary. Ms. Diamond pointed out that the Division had only three inspectors statewide, and other than that, there was only one person doing each job, i.e., one person producing real property notices, one person handling titles, and one person conducting education. She emphasized that the Division had been very spare and lean, and was constantly monitoring what could be done to assist with the budget. Currently, explained Ms. Diamond, the Division would review positions in other budgets to ensure that when a person was working on more than one item, the salary costs would be appropriately charged.
Chairwoman Chowning asked whether the inspector that transferred to North Las Vegas had been the person who was so helpful to her constituents. Ms. Diamond explained that the person who left was a manufactured housing inspector, and the person Ms. Chowning referred to was the Codes Compliance Officer. The inspector who transferred had a particular skill that the Division enjoyed, in that he was code-rated by the International Conference of Building Officials (ICBO), and other code organizations, so he could approve plans for the Division. Ms. Diamond reported the Division currently had only one inspector to approve plans, and because of the vacancy, that person would actually perform inspections and approve plans.
Chairwoman Chowning recognized the significant problem facing the Division regarding the declining reserve and revenue shortfall, and asked whether there was any action the Division could have taken to address the issue, or was the shortfall based on the 25 to 30 percent downturn in Nevada’s manufactured home sales. Ms. Diamond advised that the downturn was more severe in some areas of the state, and had been at least 25 percent in the previous fiscal year, and approximately 39 percent during the current fiscal year. She explained that when she met with administrative agencies from other states, the same issue was discussed, however, the difference in Nevada was that the Division was a self‑funded agency. Ms. Diamond advised the Subcommittee that in Arizona, vacant positions were not being filled, but that state’s agency was part of its General Fund and could secure additional funds. Industry spokesmen had informed Ms. Diamond that the industry had suffered a downturn prior to 1995, so it was not an unknown cycle within the industry. She noted that since that time, there had been an amazingly enlarged industry trend, and the Division had actually added employees.
Ms. Diamond believed the Division had been run like a business, and significant support and assistance had been received from the Director’s Office of the Department of Business and Industry, and from the State Personnel Department. According to Ms. Diamond, in private business, similar to a self-funded budget, when times were tough the Division had laid off employees. She noted that the Division was unhappy about that fact, but had located other jobs for those employees. Ms. Diamond stated that other than the constant monitoring conducted by the Division, she was unaware of any other action the Division could have taken to prevent the shortfall. Perhaps action could have been taken sooner, however, by the time action was initiated the Division was not able to initiate personnel savings until October 2002. Ms. Diamond remarked that the Division’s other savings in terms of copy machines and reduced space did not commence until November 2002, even though she had commenced working on those savings in June and July 2002. Perhaps she could have acted sooner, but industry people on the national level had expected 2003 to be an “up year” for the manufactured housing industry, and the Division had simply held on, perhaps too long.
Chairwoman Chowning asked what Ms. Diamond envisioned in the future for the Division, and wondered how the Division would address the unavoidable increases in M-100 inflationary adjustments, and M-300 fringe benefit changes, if the revenue did not increase. She noted that projected performance indicators remained status quo, and wondered how that would occur in light of the decline in the industry. Ms. Diamond stated that in the history of the Division, fees had only been raised twice; after the Legislative audit in 1993, there was a recommendation to raise fees, and fees were again raised in 2001. The Division would review actual costs of employee activities to ascertain whether the fees were appropriate.
Ms. Diamond remarked that in BA 3814, two additional employee positions might possibly be eliminated, however, she pointed out that the Division could not balance shortfalls not of its making, which were simply part of a historical industry trend, on the backs of its employees, as the Division did not have a sufficient number of employees to take such action. Ms. Diamond informed the Subcommittee that the Division constantly monitored the situation, and she frequently conferred with Mr. Maier and the Division’s budget analysts. She also pointed out that the Division monitored its revenue flow from week-to-week.
Chairwoman Chowning asked whether Ms. Diamond believed that a fee increase was needed. Ms. Diamond stated she would withhold judgment on an increase because revenues traditionally increased during the spring through summer months. The Division had been tracking revenue on a balance basis, but would begin tracking on a monthly basis, particularly in terms of performance indicators. Ms. Diamond stated if figures for inspections were down slightly from last year, the cuts in personnel would balance that downturn, however, a major downturn could not be balanced by such cuts.
Ms. McClain asked what the Division predicted for the southern Nevada area, other than what the industry projected regarding the slump, as manufactured homes in that area were not as popular as in the past. That appeared to be because lot rents had become so exorbitant in mobile home communities that it was not cost-effective to purchase a manufactured home. Ms. Diamond indicated that new mobile home parks had not been built anywhere in the state in recent years, and existing parks were experiencing vacancies as never before because of rent costs. In 2002, stated Ms. Diamond, 145 parks out of 459 in the state raised rent anywhere from $5 to $50 per month, which caused an impact. She explained that park sales of used homes were not a huge revenue generator for the Division, because those homes remained in place and there would be no inspection fee involved in those sales. The Division did receive a fee for title change in those sales. She explained it was the new home sales that affected the revenue of the Division most significantly, and pointed out that Nevada was not out of line with other states in terms of its decline. Ms. Diamond stated the downturn was a national trend.
Ms. McClain asked about the transfer fee from used home sales. Ms. Diamond reported the fee was $30, and had been $15 when fees were raised in 2001. Ms. McClain stated if that was going to be the trend, perhaps the title change fee was the one that should be raised. Ms. Diamond advised that the Division was reviewing those fees, and she explained the title change fee was most related to the consumer. For example, a person who lived in a manufactured home and decided to change the title for any reason would pay that fee. Ms. Diamond stated that although the industry passed costs on to the customers, those customers were generally purchasing a new home and the fees were included in the price. Ms. Diamond explained that she tried to keep the fees from becoming a major impact for the consumer who came to the Division to change a title, as those consisted mainly of widows. She emphasized that the Division was considering all avenues.
Senator Tiffany referred to the employee who had transferred to North Las Vegas, and asked whether local jurisdictions had persons on staff that reviewed issues regarding affordable housing, particularly manufactured homes. Ms. Diamond explained the person was an inspector who left the Division for employment with North Las Vegas in the Building Department to become a building inspector. The person’s experience with manufactured homes would be moot since the Division had taken the inspection contract away from local entities. Ms. Diamond stated manufactured housing inspectors generally had certifications with national code organizations, and the employee who left the Division had such certification. She pointed out that the former employee had earned approximately $33,000 per year at the Division, and had been hired at $47,000 per year by North Las Vegas, with the promise of $62,000 at the end of the probationary period. Ms. Diamond stressed that the Division lost inspectors to building departments in local jurisdictions quite often.
Senator Tiffany stated when there was a decline in the industry, and staff salaries were greater than the fees for the services, a business in the private sector would question whether to continue doing business. She asked whether manufactured housing inspections could be provided by local entities. Ms. Diamond did not believe that would be possible, and part of the reason the Division had taken back the contracts was that local governments scorned manufactured housing. The Division had ongoing issues with a variety of local governmental building departments, and Ms. Diamond stated a national prejudice had developed among builders who dealt with the Uniform Building Code (UBC) regarding manufactured housing. The building departments of local jurisdictions in southern Nevada hated manufactured housing, and inspectors would drag their feet, and simply were not the experts that the Division’s inspectors were. Ms. Diamond believed that there could be no higher purpose for state government than to ensure that people’s homes were safe. An installation inspection gave approval that a utility company could connect a manufactured home without serious problems.
Senator Tiffany indicated that the point had been reached where the Division was paying out more in salaries than it was receiving in the delivery of services, and the question was whether the industry was willing to pay the Division more for the noble cause. Ms. Diamond noted that in 2001 the industry in Nevada agreed to the Division’s increases, however, she had not discussed current conditions and what those might require with the industry. Ms. Diamond believed the Division could continue within the proposed budget for the upcoming biennium, and did not feel the Division was over the edge. She explained that she had asked personnel in other budgets to take on some of the duties included in BA 3814.
Senator Tiffany noted that in many budget accounts, the high-level managerial positions had been retained, and the staff cuts were being initiated at a lower level of salary, and she assumed that the Division had considered that balance. Ms. Diamond advised that the Division never had deputy positions, and the only person in a supervisory position was the Codes Compliance Officer, who would conduct inspections along with plan approvals. Ms. Diamond reported that she provided the supervision within the Division, and noted that in the hierarchy of state government, her coworkers who performed the everyday work were probably underpaid, while she might be overpaid. Ms. Diamond reported that the reason the Division had a supervisory Codes Compliance Officer was that there were both local and federal code requirements on manufactured housing, and the Division needed an expert in codes. While she could tell the difference between a prescriptive code and a performance code, she could not provide the details, and the Codes Compliance Officer could differentiate between the two, which was necessary because of fire safety and inspection issues.
Chairwoman Chowning requested that the Division update its performance indicators based on the reality of the situation. Ms. Diamond stated the Division would comply with that request. Chairwoman Chowning concurred that some entity had to be responsible for guaranteeing safety and protection, not only of consumers in general, but also of the owners of manufactured homes. The worst scenario would be for a manufactured home to catch fire with a family inside. Ms. Diamond stated that some things were not under the control of the Division such as the use of space heaters, but being a proactive agency, the emphasis placed on issues of public safety was an important policy issue. Because of the disdain expressed by local jurisdictions for manufactured housing in general, those entities would not conduct inspections in the same manner as the Division. Ms. Diamond stated the Division also realized a great advantage because its services were standardized. The Division trained its inspectors and installers in order to control the quality of those persons, as opposed to each entity controlling the quality of inspections.
According to Ms. Diamond, she had sent packets of Nevada’s statutes to the states of New Mexico, Oregon, and Washington, who were contemplating placing all services within one agency. Ms. Diamond noted that if services offered by the Division were assumed by other state agencies or local jurisdictions, it would have a fiscal impact on those entities. In years past, the Fire Marshal’s Office had inspected the few manufactured homes in Nevada, and the Department of Motor Vehicles (DMV) had issued titles. The Division provided somewhat of a relief to the General Fund in that respect, because its services would have to be assumed by other entities for safety purposes.
Chairwoman Chowning closed the hearing on Budget Account 3814 and opened the hearing on BA 3842. She asked Ms. Diamond to discuss the declining cash balance in the Lot Rent Subsidy Trust Fund.
B&I, MOBILE HOME LOT RENT SUBSIDY (630-3842) – B&I-77
Ms. Diamond noted that the dilemma within the budget was articulated within Exhibit H, entitled, “Assistance for Low-Income Owners of Mobile Homes – Report on the Administration of the Rent Subsidy Program, A.B. 451, 1991 Nev. Stats. Ch. 689, p.2270, NRS 118B.213 et. seq., December 5, 1994,” a copy of which had been presented to Subcommittee members. Ms. Diamond noted that the report dated December 5, 1994, had been prepared by Rose McKinney‑James, former Director of the Department of Business and Industry, in response to a request from the Legislature to assess the new subsidy program entitled, “Assistance for Low-Income Owners of Mobile Homes.”
Ms. Diamond referenced page 6 of the report contained in Exhibit H, which indicated that the reserve was predicted to no longer exist by FY2003, which had occurred. The depletion of the reserve was not unexpected, and Ms. Diamond pointed out that the program was a huge success in subsidizing lot rent. One position within the budget had been eliminated, and the program was currently administered by the remaining position. Ms. Diamond explained that recipients reapplied for the subsidy and had to prove their financial thresholds twice per year, which created a substantial amount of paperwork for the remaining employee.
According to Ms. Diamond, the subsidy could not be computed more finitely because the amount of rent increases was not known. Currently, the Trust Fund paid 25 percent of a low-income person’s lot rent, up to a maximum of $100. She noted that the maximum amount had been reduced from a previous maximum of $150. There were more parks with higher rental fees and, therefore, the Division was paying the maximum in a larger number of cases. Ms. Diamond reiterated that one position would remain vacant, and she had approached the Nevada Mobile Home Park Owners Association to ascertain whether that entity would consider increasing its $12 contribution per space to an $18 or $20 contribution per space. The Association declined to accept that increase, and Ms. Diamond explained the Division had a finite amount of money, and the only way that the subsidy would work for the number of persons in need who applied, was to continue the policy by attrition; as recipients were no longer eligible for the subsidy, those slots were not filled. Originally, explained Ms. Diamond, there had been approximately 400 funded subsidy recipients, which had been reduced to approximately 270 funded subsidy recipients.
Chairwoman Chowning asked for clarification. Ms. Diamond explained that the program currently subsidized approximately 270 recipients, with a waiting list containing approximately 120 persons who were pre-qualified. She stated her dilemma was whether to reduce the subsidy by 20 percent with a cap of $75.00, which was within her scope by regulation, and thereby allow additional people to receive the subsidy, or continue the present program with fewer recipients. Ms. Diamond reported that action would not recreate the reserve. The executive director of the owners’ association had informed Ms. Diamond that the original bill for the subsidy program afforded two years of collection before the first subsidy payment would begin. The Legislature had decided to change that to one year of collection, which meant that the reserve had been smaller than anticipated. Ms. Diamond stated when the report contained in Exhibit H was written, it reflected prepayment of fees for one year; park owners had paid fees for one year before the subsidy payments were initiated.
Ms. Diamond reiterated that she was in the process of determining how many additional persons could be added to the program if the payment were reduced. However, that was not predictable because costs were computed based on the current rent, but within the time frame of one year, approximately 145 parks would have raised space rent.
Chairwoman Chowning stated that one position had been cut, and it was unclear what other action could be taken by the Division to address the reserve. She asked whether the Division would hold hearings to determine what future action to take, either by reducing the waiting list or the subsidy payment. Ms. Diamond remarked that the Division continued to discuss fees with the owners’ association, even though the request to increase fees had been declined. Ms. Diamond explained that the parks were also suffering because of the vacancies, which created somewhat of a balancing act on her part with responsibility to the agency, the consumer, and also to business. She indicated that government should not be in the position of penalizing business, and she respected the decision of the owners’ association to decline a raise in fees. Ms. Diamond reported that the association and recipients were very pleased with the subsidy program, which gave people such as widows and widowers the ability to remain in their homes after the death of a spouse, and the subsequent decrease in income. She opined that it was a very heartwarming program.
Chairwoman Chowning stated that along with being heartwarming, it was a business decision as well, because if a person were forced to vacate the space, there would be no income to the park owner. Ms. Diamond indicated that she reminded the park owners that the program was not completely altruistic.
Senator Tiffany asked if a person paid $225 per month lot rent over the past five years, what was the typical raise that would cause the Division to review the subsidy payment. Ms. Diamond explained that there was a bill before the Legislature that would make the Division responsible for governing lot rent increases. During 2002, 13 parks had raised the rent by $5 per month, 33 parks had raised the rent by $10 per month, and 10 parks raised rents by $50 per month. Senator Tiffany said if it appeared persons were maintaining rent payment until it was increased, perhaps the Division should subsidize the increase itself. Ms. Diamond stated the percentage was of the whole with the maximum cap, so in essence, the Division was assisting with the rate increase. The problem was that many parks had been in the range of $250 for space rental several years ago, however, the rents had risen above that rate on a statewide basis. Ms. Diamond stated that in a number of parks, the owners were giving discounts rather than advising people to apply for the subsidy. Senator Tiffany believed that a park in the private sector with openings would provide an opportunity for persons to move in with a rental incentive. Ms. Diamond advised that she had approached the association and asked how it made sense to have vacant spaces, and the association informed her that business dictated otherwise, which she failed to understand.
Sydney Wickliffe, Director, Department of Business and Industry, informed the Subcommittee that she did not want any misconceptions about Ms. Diamond’s position. Of the 17 agencies within the Department of Business and Industry, Ms. Diamond’s position was the second lowest paid of the administrators. Ms. Wickliffe stated that every time she had asked Ms. Diamond for budget cuts, she had offered to take a salary cut.
Chairwoman Chowning thanked Ms. Wickliffe for her testimony, and felt that message should be broadcast to the public, because the perception was that every salary should be cut. She suggested that perhaps the administrator’s salaries should match those of the legislators.
Chairwoman Chowning closed the hearing on Budget Account 3842, and opened the hearing on BA 3900. She informed Mr. Walshaw, Commissioner, Financial Institutions, that there was a possibility his budget would be rescheduled, and instructed Mr. Johnson to commence with his presentation.
B&I, LABOR COMMISSIONER (101-3900) – B&I-165
Terry Johnson, Labor Commissioner, introduced Michael Tanchek, Deputy Labor Commissioner, and Judith Honea, Administrative Assistant IV, and informed the Subcommittee that he would make himself available for any questions regarding BA 3900. Mr. Johnson reported that the budget was fairly straightforward and would fund 20 full-time equivalent (FTE) positions over the next biennium, comprised of auditors, investigators, administrative staff, and agency management. The budget would enable the Office of Labor Commissioner to:
Mr. Johnson informed the Subcommittee that over the interim, the agency had reviewed its program statements, its strategic plan, and had proposed performance measurement indicators in working with the Budget Office and others, that would measure how effective the agency was carrying forth with its mission, rather than simply measuring the workload or volume. Obviously, stated Mr. Johnson, the volume would always be there, however, he believed it was more important to measure the outcomes and results of the agency’s efforts. He pointed out that the agency planned on going forward with some specific goals regarding how effectively it planned on administering the laws it had been charged to enforce.
Chairwoman Chowning voiced appreciation for the action taken by the agency over the interim. She asked for clarification regarding decision unit M-400, in light of the Governor’s directive to minimize travel, which recommended funding for in-state and out-of-state travel relative to compliance audits and council meetings. Mr. Johnson stated the travel costs referred to the Apprenticeship Training Representative’s responsibilities. He explained that the Labor Commissioner served as the Director of the Nevada State Apprenticeship Council, a seven-member body. Currently, there were 184 apprenticeship programs sanctioned by the state of Nevada and registered throughout the state, enrolling 4,592 apprentices as of today, in various occupations from nursing assistant, to construction worker, to child care assistant.
Mr. Johnson indicated that the Office of Labor Commissioner wanted to make sure that the programs approved and sanctioned by the state were actually producing quality, trained individuals. He believed it was very meaningful that the state of Nevada had come forward and developed a training program that would prepare those persons for the workforce, and the compliance component for the Apprenticeship Training Representative’s position helped the agency carry forth in that area. Mr. Johnson explained that relative to the travel costs for that position, because of the reductions made throughout the course of the current fiscal year, compliance audits had basically been put on hold or rescheduled in rural and northern Nevada. Those audits had been rescheduled after July 1, 2003. Mr. Johnson stated the agency had shifted its duties, and had spent the funds from the current fiscal year working in southern Nevada, and had scheduled audits for northern and rural Nevada within the next fiscal year. There were 29 compliance reviews planned beginning on July 1, 2003, in northern and rural Nevada.
Chairwoman Chowning said that information provided assurance that the audits would be completed. She asked about the current backlog of wage claims, the number of wage claims that had been under investigation for more than 60 days, the time period the backlog included, and whether there was still a backlog of 994 claims. Mr. Johnson stated the current backlog was approximately 489 claims as of January 31, 2003. Chairwoman Chowning noted that in 1999 the backlog had been 1,200 claims, which meant it had been reduced by approximately two-thirds. Mr. Johnson believed those figures should be reconciled, and noted that he was not the Labor Commissioner during the 1999 Legislature, but believed that backlog claim figures had been dramatically higher, in excess of 2,000. In 2001 Mr. Johnson had reported to the Legislature that the backlog had been reduced to approximately 1,900; he stated he would work with LCB staff to verify those numbers. According to Mr. Johnson, the next milestone was a backlog of approximately 984 claims, and as of January 31, 2003, the backlog was approximately 489.
Chairwoman Chowning stated that was good work, and advised that the best thing the Legislature could say about any agency was that it had heard nothing. She noted that Mr. Johnson had done an excellent job in his capacity as Labor Commissioner, and even though his efforts had been recognized in the past, the Subcommittee wanted to enforce that recognition, as his services were very important to businesses and employees to ensure that all were treated fairly.
Chairwoman Chowning closed the hearing on Budget Account 3900, and opened the hearing on BA 4680.
B&I, INDUSTRIAL RELATIONS (210-4680) – B&I-119
Roger Bremner, Administrator, Division of Industrial Relations, explained that the Division was charged with the responsibility of ensuring timely and accurate service delivery for injured workers, and also enforced the statutory requirement that all employers with one or more employees maintained a workers’ compensation policy.
Chairwoman Chowning asked for clarification regarding decision unit E-900, which recommended transferring three positions into the Industrial Insurance Regulation Section from the Occupational Safety and Health Enforcement Section (OSHES). She asked for an explanation regarding the anticipated benefit of the recommended transfer, and whether it would have an effect on the future performance of either section. Chairwoman Chowning stated the Subcommittee also would like information regarding the FY2001-02 audit projections, and why those were not met. Also of interest to the Subcommittee were the quality assurance audits, and why the agency had not met its projections for FY2001-02. Chairwoman Chowning indicated those were the areas of interest to the Subcommittee, however, Mr. Bremner was welcome to provide additional testimony.
Mr. Bremner advised the Subcommittee that decision unit E-900 was the transfer of positions that developed labor statistics from BA 4682, the OSHES, to BA 4680, Industrial Relations, and there would be no fiscal impact to either agency. He further explained that those positions simply developed labor statistics and were located in Carson City. In order to maintain better control, the positions were under the supervision of the Administrative Services Officer for Industrial Relations rather than located in Reno under BA 4682. Mr. Bremner advised that the OSHES office in Reno had been consolidated and the positions proposed for transfer were located in Carson City. Since the positions were under the supervision of the Administrative Services Officer under BA 4680, the transfer had been proposed as a matter of better control.
Chairwoman Chowning asked if the transfer would assist in achieving the agency’s goals. Mr. Bremner stated those positions had nothing to do with the performance indicators, and the transfer was simply a budgetary transfer from BA 4682 to BA 4680, and would basically allow for better supervisory control over the positions.
Mr. Bremner testified that the agency was required statutorily to audit every workers’ compensation provider once every three years, and some private insurers were licensed to conduct business in the state of Nevada, however, wrote no business. A portion of those businesses was included in the performance indicator that projected 166 audits for FY2001-02, however, the agency saw no reason to audit those businesses when there were no claims, therefore, the number of audits conducted was somewhat lower than projected.
Regarding complaints investigated and resolved, Mr. Bremner pointed out that the number was approximately 25 percent higher than projected, and he explained that the agency was required to complete those investigations within 30 days. Those were complaints from individuals regarding service delivery, and some of the investigations required as much time as an audit. Mr. Bremner indicated that the agency set the priority that those investigations were more important than either the compliance audits or the quality assurance audits, so much time had been spent on the investigations. That would basically account for the reduced numbers in the audit areas, and the increase in the investigation area.
Chairwoman Chowning asked whether the process would remain the same, and if so, perhaps the agency should revise its performance indicators. Mr. Bremner stated the performance indicators were constantly under review, and in FY2003, the agency had projected a lower number for both compliance audits and quality assurance audits. He explained that quality assurance audits mainly originated from complaints from providers regarding payment, and the agency had revised those figures. Mr. Bremner stated that harsh economic times often led to additional complaints. The agency was also investigating more uninsured claims, and he explained that because of the economic situation, some employers became creative in ways to get around the provision of workers’ compensation. Mr. Bremner stated one rumor was that in the Mound House area, if employers made their employees secure a business license, they would not have to provide workers’ compensation for them. Those were some of the things investigators faced in the field, and Mr. Bremner indicated there were many businesses that, quite frankly, no one knew existed because they did not have a business license and had simply opened up shop.
Chairwoman Chowning indicated that one of her opponents in the last election had been asked why he did not have a business license in southern Nevada, and he indicated he chose to go to Gardnerville in Douglas County, as that county would not require that he have a business license. Unfortunately, stated Mr. Bremner, that opponent was not the only person who had attempted to use that ploy, and others had rented a post office box in Douglas County thinking they could get around all the requirements, not just the business license requirement, but also workers’ compensation, unemployment security, and so on. Chairwoman Chowning said that was unfortunate, because then the people with whom those individuals chose to conduct business were not being served as they should. Mr. Bremner indicated the “good guy” that was trying to comply often times had to pay the claim for the guy that was not in compliance.
Chairwoman Chowning closed the hearing on Budget Account 4680, and opened the hearing on BA 4682.
B&I, OCCUPATIONAL SAFETY & HEALTH ENFORCEMENT
(210-4682) – B&I‑125
Mr. Bremner testified that BA 4682 enforced workplace safety and health standards under the Occupational Safety and Health Administration (OSHA). The Occupational Safety and Health Enforcement Section (OSHES) conducted workshop inspections and handled discrimination complaints, among other things.
Chairwoman Chowning asked about inspection fee revenue, which remained flat in the budget request for the upcoming biennium, and implementation of the new inspection fee schedule, which the agency predicted would result in approximately $1 million in revenue in each year of the next biennium.
Mr. Bremner advised the Subcommittee that Tom Czehowski, Chief Administrative Officer, OSHES, was present at the hearing. Mr. Bremner explained the fee schedule was for boiler and elevator inspections that had not yet been devised. A public hearing would be held on March 19, 2003 to review the proposed schedule. He noted that the schedule was authorized by the 2001 Legislature, in order to charge users of the service for that service, and the fee schedule would not be devised until after the public hearing. Mr. Bremner stated it was anticipated that the total revenue would be approximately $1 million in each year of the biennium, which would be used as an offset against the next year’s assessment, and would not be new money for the agency to utilize.
Chairwoman Chowning asked whether an adjustment to the budget would be required. Mr. Bremner stated the adjustment would be on the revenue side, as the assessment for the next biennium would be reduced by the amount of those fees each year of the biennium. Chairwoman Chowning asked whether there would be a decrease in the annual assessment of the insurers. Mr. Bremner stated the amount would decrease by that amount in the future. Chairwoman Chowning noted that before the end of the Legislature, an adjustment in the budget would be necessary. Mr. Bremner emphasized that an adjustment would not be necessary, as the fee schedule would not be adopted by the time the Legislature ended. The public hearing was scheduled for March 19, 2003, to review the schedule, however, it was hoped that the fee would commence on July 1, 2003.
Chairwoman Chowning noted that some reorganization was recommended in decision unit E-900, which would have no fiscal effect on the division as a whole. Mr. Bremner stated those were the three positions transferred to BA 4680, and there would be no fiscal impact.
Chairwoman Chowning asked about Performance Indicator 4, which measured the total number of Voluntary Protection Program certification applications processed. Mr. Bremner stated that Mr. Czehowski would provide explanation for that new program, which was the brainchild of the federal Occupational Health and Safety Administration (OSHA). Chairwoman Chowning inquired whether there would be a need for additional employees to administer the program. Mr. Bremner assured the Subcommittee that no new employees would be needed.
Mr. Czehowski stated the Voluntary Protection Program was a federal OSHA National Recognition Program for partnership with those large businesses that had:
Mr. Czehowski explained that the large business would apply for the exemption from federal OSHA-planned inspections or from the state-planned inspections performed by OSHES. Once the application process was complete, the facilities would be audited, employees and management would be interviewed, and the business would then receive the exemption whereby OSHES would no longer conduct state-planned inspections. Mr. Czehowski noted that OSHES would conduct inspections on a complaint referral or a fatality. The business would then be required to supply data annually to OSHES so it could ensure that the business was still meeting the goals of the exemption program. According to Mr. Czehowski, that would then allow OSHES to move on to other employers rather than spending time on the large employer that had the significant safety program.
Chairwoman Chowning closed the hearing on Budget Account 4682, and opened the hearing on BA 4685.
B&I, SAFETY CONSULTATION AND TRAINING (210-4685) – B&I-129
Chairwoman Chowning stated that decision unit E-600 recommended a reduction to the safety consultation and training media program, and asked Mr. Bremner to comment regarding the overall effectiveness of the program during the next biennium. Mr. Bremner explained that the Division of Industrial Relations included the Safety Consultation and Training Section (SCATS), which contained the multimedia budget. He noted that at one time the Media Safety Program had been over $400,000, which had been utilized for the promotion of safety- oriented media advertisements. When it became necessary to pare down the budgets for the upcoming biennium, rather than cut safety trainers, safety consultants, and industrial hygienists, the Division chose to make cuts in the SCATS budget in the area of the media program. Mr. Bremner stated budget cuts left the section with $25,000, and that funding would be utilized to announce the program throughout the industry, thereby generating more safety consults and safer workplaces. Mr. Bremner explained that was how the Division had complied with budget cuts in BA 4685, rather than cutting personnel.
Chairwoman Chowning noted that the amount had also been reduced during the last legislative session. Mr. Bremner concurred, and stated the amount had been pared down two years ago, and was again being pared down for the upcoming biennium. Chairwoman Chowning asked whether, with the paring down of the education funds, the agency had noted an increase in injuries. Mr. Bremner indicated that the SCATS numbers had been very good, and it had been fully staffed now for approximately two years; he reiterated that the SCATS training and safety consultation numbers were up, so the decrease in funding had apparently not had an adverse effect. Mr. Bremner explained that there was a risk when the Media Safety Program stopped advertising, but given the economic condition of the state, that had been the decision of the Division.
Chairwoman Chowning asked Mr. Bremner to comment regarding the number of safety and health surveys, which were projected to decrease in the next biennium. She also asked about the bilingual safety and health training in southern Nevada.
Mr. Bremner stated that throughout the agency, a strong emphasis had been placed on bilingual capability, and approximately 20 percent of the safety inspectors in the Occupational Safety and Health Enforcement Section (OSHES) were bilingual, which the Division felt was very adequate. Mr. Bremner stated that the Division had found it absolutely necessary when conducting safety inspections or accident investigations, that staff were able to communicate in at least one other language, that being Spanish. Mr. Bremner advised the Subcommittee that Jan Rosenberg, Chief Administrative Officer for the SCATS, was present and he would address Chairwoman Chowning’s question.
Mr. Rosenberg explained that the reason the number of surveys was projected to go downward was because the SCATS had received requests to conduct bilingual training, particularly in southern Nevada. The SCATS saw a lesser demand for consultations in northern Nevada, and through the Department of Personnel, and with approval of the Division, Mr. Rosenberg reported that a position which had become vacant because of retirement was reclassified as a bilingual trainer, and transferred to southern Nevada. Consequently, stated Mr. Rosenberg, there was an increase projected for the upcoming biennium for the number of employees and employers to be trained.
Chairwoman Chowning asked whether there were bilingual employees throughout the state, and whether training, job descriptions, and duties would be provided for those persons on a statewide basis. She noted that some people were of the opinion that if persons could not speak English, they should not be in the country; however, tragedies had occurred in the past because of the language barrier, and it was the state’s responsibility to ensure that such tragedies did not continue to occur. Chairwoman Chowning noted that the SCATS had redirected the impetus of its bilingual training into southern Nevada, and asked whether it was neglecting rural and northern Nevada. Mr. Rosenberg stated that if the SCATS received bilingual requests in rural or northern Nevada, the bilingual trainer would travel to that area. Mr. Bremner stated that throughout the Division, the attempt was to react to the various situations without requesting additional staff. The Division was attempting to redirect its resources to the areas where such resources were most needed.
Chairwoman Chowning closed the hearing on Budget Account 4685, and opened the hearing on BA 4686.
B&I, MINE SAFETY & TRAINING (210-4686) – B&I-1133
Mr. Bremner stated the Division of Industrial Relations included the Mine Safety and Training Section, which provided mine inspections and training for workers in the state of Nevada. In addition, the section had a responsibility for the sand and gravel operations, which were particularly heavy in the southern Nevada area. Mr. Bremner stated decision unit E-300 recommended approximately $13,600 over the next biennium to modify the existing database developed for the section by the Department of Information Technology (DoIT). The database had “never been quite right.” Chairwoman Chowning asked why the database had never been right. Mr. Bremner stated he could not answer that question, but would like the database to function properly so it could be used effectively. Chairwoman Chowning asked whether personnel from the Division could accomplish that task without support from DoIT. Mr. Bremner replied that the Division did not have the technical expertise on its staff to conduct that modification, however, given the opportunity, he believed he could locate that technical expertise. Chairwoman Chowning asked whether it would take the full $13,600 to fund that modification to the database. Mr. Bremner stated that DoIT had provided that figure, rather than the Division.
Chairwoman Chowning referenced the performance indicators, which indicated there would be a 38 percent decrease in the number of mine safety and health training sessions from the FY2001 actual of 160 to the 100 projected in each year of the next biennium. She noted that the agency indicated the reason for the decrease was due to the agency increasing the number of people attending each training session. Chairwoman Chowning asked Mr. Bremner to comment regarding the 2,700 employees attending training sessions over the next biennium. Mr. Bremner explained that many of the training sessions conducted by Mine Safety and Training were in “far away places, with strange-sounding names,” and trainers had to travel great distances to hold training sessions. The Mine Safety and Training Section would attempt to train more people with larger sessions, and holding fewer sessions. Mr. Bremner advised that mine owners had been advised that training could not be scheduled for 10 or 15 people, and sessions would require at least 30 to 35 people.
Chairwoman Chowning asked about the number of actual inspections of the mines, and had the numbers increased or decreased; she also inquired about the closing of abandoned mines. Mr. Bremner stated that the abandoned mine program was the responsibility of the Division of Minerals, and was not under the auspices of the Division of Industrial Relations, which only handled the active mine program. He believed the abandoned mine program would be ongoing for quite awhile, and he did not think all of the abandoned mines had even been identified and located within the state of Nevada. Mr. Bremner indicated it was his understanding that there were many mines in the state that the Division of Minerals had no knowledge of. Chairwoman Chowning stated that program was of great concern and the state had done a good job in tackling that problem. It was interesting to note that with the growth in southern Nevada, there were mine sites that had not been accessible before, however, as the city continued to grow, accidents began to occur in abandoned mines.
Assemblywoman McClain suggested that if the Division was rewriting the method used to calculate performance indicators, perhaps it should consider rewriting the indicators in a way that more accurately reflected reality. Mr. Bremner stated performance indicators were something that was continuously under review by the Division, and he believed it was difficult to arrive at an outcome-based performance indicator. Mr. Bremner wished that the Division had the ability to collect statistics that would provide more outcomes to the Legislature; the current performance indicators showed that the Division was working, but did not show how effectively it was working.
Chairwoman Chowning concurred that performance was difficult to measure, but if there were fewer injuries around the state, that would be an effective measurement factor. Mr. Bremner indicated he would like to “pat the mines on the back,” because there had been only two fatalities during the past year, which was down from seven fatalities three years ago. The mining industry worked very hard to maintain safety, and took it very personally when something went wrong. Mr. Bremner stated the two fatalities that occurred last year were a safety team in training that had experienced an equipment failure. It was more of a “fluke” than a true accident, but it was a horrible tragedy for the persons killed 2,000 feet underground because of safety equipment failure.
Chairwoman Chowning thanked the Division for its continued hard work, as Nevada needed to protect its citizens on a continual basis, and she opined that training should also be kept at the forefront.
Chairwoman Chowning informed L. Scott Walshaw, Commissioner, Financial Institutions, Department of Business and Industry, BA 3835, that due to time constraints, it would be necessary to reschedule his budget hearing, and apologized for the inconvenience.
With no further business to come before the Subcommittee, Chairwoman Chowning adjourned the hearing at 11:04 a.m.
RESPECTFULLY SUBMITTED:
Carol Thomsen
Committee Secretary
APPROVED BY:
Assemblywoman Vonne Chowning, Chairwoman
DATE:
Senator Sandra Tiffany, Chairwoman
DATE: