SENATE COMMITTEE MINUTES

MINUTES OF THE

JOINT Subcommittee on

Higher Education/Capital Improvements

of the

Senate Committee on Finance

AND THE

Assembly Committee on Ways and Means

Seventy-second Session

February 26, 2003

The Joint Subcommittee on Higher Education/Capital Improvements of the Senate Committee on Finance and the Assembly Committee on Ways and Means was called to order by Chairman William J. Raggio at 8:06 a.m. on Wednesday, February 26, 2003, in Room 3137 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. All exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.

Senate COMMITTEE MEMBERS PRESENT:

Senator William J. Raggio, Chairman

Senator Raymond D. Rawson

Senator Barbara K. Cegavske

Senator Bernice Mathews

Assembly COMMITTEE MEMBERS PRESENT:

Mr. Morse Arberry Jr., Chairman

Mr. Walter Andonov

Mrs. Vonne Stout Chowning

Ms. Dawn Gibbons

Mr. Richard D. Perkins

ASSEMBLY COMMITTEE MEMBERS ABSENT:

Mr. David Goldwater (Excused)

GUEST LEGISLATORS PRESENT:

Senator Bob Coffin, Clark County Senatorial District No. 7

STAFF MEMBERS PRESENT:

Gary L. Ghiggeri, Senate Fiscal Analyst

Mark W. Stevens, Assembly Fiscal Analyst

Brian M. Burke, Senior Program Analyst

James D. Earl, Committee Secretary

OTHERS PRESENT:

Dr. Jane A. Nichols, Chancellor, University and Community College System of Nevada

James W. Manning, Budget Analyst, Budget & Planning Division, Department of Administration

Daniel G. Miles, Vice Chancellor, Finance and Administration, System Administration Office, University and Community College System of Nevada

Dr. Patrick J. Ferrillo, Dean, School of Dentistry, University of Nevada, Las Vegas

Dr. Carol C. Harter, President, University of Nevada, Las Vegas

Dr. John Lilley, President, University of Nevada, Reno

Dr. Ronald Remington, President, Community College of Southern Nevada, Las Vegas

Patricia A. Charlton, Vice President, Finance & Administration, Community College of Southern Nevada

Dr. James Coleman, Vice President for Research & Business Development, Desert Research Institute

Christopher Ault, Director, Intercollegiate Athletics, University of Nevada, Reno

Greg MacRenairis

University and Community College System of Nevada – OVERVIEW

UCCSN System Administration – Budget Page UCCSN-1 (Volume 1)

Budget Account 101-2986

UCCSN – Special Projects – Budget Page UCCSN-5 (Volume 1)

Budget Account 101-2977

University Press – Budget Page UCCSN-8 (Volume 1)

Budget Account 101-2996

System Computing Center – Budget Page UCCSN-11 (Volume 1)

Budget Account 101-2991

National Direct Student Loan Program – Budget Page UCCSN-14 (Volume 1)

Budget Account 101-2993

University of Nevada – Reno – Budget Page UCCSN-16 (Volume 1)

Budget Account 101-2980

Intercollegiate Athletics – UNR – Budget Page UCCSN-20 (Volume 1)

Budget Account 101-2983

Statewide Programs – UNR – Budget Page UCCSN-23 (Volume 1)

Budget Account 101-2985

School of Medical Sciences – Budget Page UCCSN-26 (Volume 1)

Budget Account 101-2982

UCCSN Health Laboratory and Research – Budget Page UCCSN-30 (Volume 1)

Budget Account 101-3221

Agriculture Experiment Station – Budget Page UCCSN-34 (Volume 1)

Budget Account 101-2989

Cooperative Extension Service – Budget Page UCCSN-37 (Volume 1)

Budget Account 101-2990

Business Center North – Budget Page UCCSN-40 (Volume 1)

Budget Account 101-3003

University of Nevada – Las Vegas – Budget Page UCCSN-42 (Volume 1)

Budget Account 101-2987

Intercollegiate Athletics – UNLV – Budget Page UCCSN-46 (Volume 1)

Budget Account 101-2988

Statewide Programs – UNLV – Budget Page UCCSN-48 (Volume 1)

Budget Account 101-3001

UNLV Law School – Budget Page UCCSN-50 (Volume 1)

Budget Account 101-2992

Dental School – UNLV –Budget Page UCCSN-53 (Volume 1)

Budget Account 101-3002

Business Center South – Budget Page UCCSN-56 (Volume 1)

Budget Account 101-3004

Desert Research Institute – Budget Page UCCSN-59 (Volume 1)

Budget Account 101-3010

Great Basin College – Budget Page UCCSN-63 (Volume 1)

Budget Account 101-2994

Western Nevada Community College – Budget Page UCCSN-67 (Volume 1)

Budget Account 101-3012

Community College of Southern Nevada – Budget Page UCCSN-70 (Volume 1)

Budget Account 101-3011

Truckee Meadows Community College – Budget Page UCCSN-74 (Volume 1)

Budget Account 101-3018

Nevada State College at Henderson – Budget Page UCCSN-78 (Volume 1)

Budget Account 101-3005

Senator Raggio:

Today we have hearings on the higher education budgets. Chancellor Nichols, do you have opening remarks?

Dr. Jane A. Nichols, Chancellor, University and Community College System of Nevada:

I will be speaking from a packet you received this morning, entitled “University and Community College System of Nevada, Joint Subcommittee Hearing” (Exhibit C). It is a summary of other material you have received.

We believe the Governor’s recommended budget is reasonable and essential to the future of Nevada. The budget is based on enrollment growth and adequate funding of the formula for higher education established in the 2001 Legislative session. Our growth rate is the highest in the nation. The formula was set pursuant to a study committee established by the Legislature during the 1999 session.

I would like to address several important issues up front. The Nevada State College (NSC) is a critical part of our response to enrollment growth. Its creation was based on projected growth in southern Nevada and a comparison with cities and states with a comparable enrollment base. You will recall that the State does not pay the same amount per full time equivalent (FTE) at universities, state colleges, and community colleges. The education of a student, based on 15 credits, varies in cost to the student, the family, and to Nevada. As a result of the Rand study, we have been considering how the State will be able to afford the rapid growth. Obviously, there are critical pieces that have to fall into place if the State is going to be able to afford education for those students who want to attend college or obtain a bachelor’s degree.

Much of the budget is based on adequate formula funding. I am frequently asked to explain the difference between 79 percent formula funding and 86 percent formula funding. This section attempts to begin to address that issue. The State used to fund the University and Community College System of Nevada (UCCSN) for 100 percent of our instruction; the percentage of State funding in other areas would vary. With the new formula, the State funds all areas of the budget at the same percentage. This funding regime provides the presidents the ability to manage money to provide the most efficient operation possible. Inevitably, instruction comes first. Even when we receive funding at the 79 percent level, instruction is funded at 100 percent. The consequence is we find ourselves without the money to provide student services, equipment, and maintenance and operations support because these functions fall in budget categories other than instruction.

Constituent complaints about higher education are related to the lack of funds available for those support areas. Too few classes are certainly a consequence. With low budget funding, we cannot hire full-time faculty, but instead must rely on part-time faculty. Other consequences are positions held vacant, no new equipment or technology, longer lines, and inadequate services. If we were to continue at a 79 percent level of the formula, we would have to make long-term plans to eliminate programs. We would probably consider eliminating campus sites, off-campus sites, and branch campuses. We would be looking at capping enrollment, probably at all institutions. You would begin to see the erosion of quality at all institutions. The formula was built using comparative data from across the country for similar institutions. The lower funding goes, the more erosion will occur.

I have also attempted to define the term “hold harmless” for you in my handout. We use this concept in conjunction with the new formula. “Hold harmless” means the formula generates fewer dollars than the current adjusted budget, even with the growth in enrollment. With the new formula, the agreement has been that if an institution were to receive less money than its adjusted base, it would be held at the adjusted base. So, that institution would not have a decrease in its cost of doing business, even while, in every case, enrollment would be growing.

There is in the estate tax a portion of the “hold harmless” dollars now, which are really formula dollars for some of our institutions. You will see that when we discuss the estate tax. The Governor’s budget of 86 percent leaves only one institution in “hold harmless”, Truckee Meadows Community College.

Senator Raggio:

Let me interrupt you. Who is here from the budget office? On the issue of “hold harmless”, Truckee Meadows Community College would fall into that situation. This would be $138,000+ in fiscal year (FY) 2004 and $23,000 in FY 2005. Am I correct, the Executive Budget does not recommend holding Truckee Meadows Community College harmless? That is, you would reduce the funding to the 86 percent formula level, consistent with the other institutions? If so, what is the reason for that?

James W. Manning, Budget Analyst, Budget & Planning Division, Department of Administration:

Applying 86 percent to all these budgets does leave Truckee Meadows short. I believe the intention to keep them whole would entail estate tax funds.

Senator Raggio:

That is not recommended in the budget, hence my question.

Mr. Manning:

I would have to look into that.

Senator Raggio:

Why is the increase in the formula, from 80.29 percent, the base last time, to 86 percent, contained in a maintenance M-200 budget category?

Mr. Manning:

Typically growth is built into a M-200 decision unit.

Senator Raggio:

We have growth otherwise in the budget. In M-200 we show an increase from 80+ percent to 86 percent as maintenance. Clearly, this seems to be an enhancement. I question this now because of what the Chancellor was saying.

Mr. Manning:

I believe we have funded it in the past through this decision unit. If that is not the way you wish to see it, I will certainly look into it.

Senator Raggio:

The Chancellor indicated that if funding were not at 86 percent, some things would have to be cut or reduced. We do not understand the reasoning there. If the correct base is 80 percent of the formula, and I realize you cut 3 percent, why would you have to cut anything if funding were at the base? The Executive Budget does fund for growth. I do not understand why, if funding is raised to 86 percent, an enhancement, there is a need to cut anything. Am I off-base?

Chancellor Nichols:

There are two drivers in our budget. One is the percentage of formula funding. The other is the enrollment growth factor. I have tried to dissect each separately. Of course, this is impossible to do. If we were to be funded at 79 percent, which is what we have fallen to given the cutbacks in the last year.

Senator Raggio:

I understand that. Let us look at the base. The base is 80.29 percent. So, if you were funded at 80.29 percent, you would be kept whole if the enrollment money is in there.

Chancellor Nichols:

We would not. We have managed and scraped together over these last 2 years. We have held positions vacant. We have done without services. We do not consider ourselves able to be held whole. We have done short-term planning because we thought the problem was short-term. However, if we know we are going to be funded at that low level, then the measures I am referring to would become necessary.

Senator Raggio:

I am trying to distinguish the 3 percent cut you did take. I know you had to do things to accommodate that 3 percent. If the base is at 80.29 percent, and the budget accurately reflects enrollment growth, why would you have to cut anything?

Chancellor Nichols:

We cannot function at that level, that percentage of the formula, long-term. It simply is not possible.

Senator Raggio:

What if we were to approve funding at 86 percent of the formula, which we feel is an enhancement? Why would that not accommodate specific improvements of some kind in addition to your base budget?

Chancellor Nichols:

The recommendation of the Governor for our budget in the last session was, I believe, 85 percent of the formula. I thought there was a general recognition that the formula worked only if it were funded at about the 85 percent level. Below that, there is not adequate money for the basics. For example, we have computers we have been unable to replace or purchase under the 81 percent level. We cannot sustain the funding of our formula at that level and not begin to see some basic functioning impact on our institutions.

The other question I am asked is “What if there were no new revenue sources?” In some quarters, this question would be “What if there are no new taxes?” I think other agencies have posed this question. We tried to take a look at that. I must tell you, that is very difficult for us to do. We assumed we would keep the same percentage of the General Fund dollars that we currently have at 18.5 percent from the General Fund. We tried to take a look at what would happen to higher education if, in fact, there were no new revenue sources. We know we might not be able to keep 18.5 percent because there are parts of the budget that have to be funded. We might drop to a much lower level than this. The rosiest scenario assumed, we just wanted to get on the record the fact that we would be losing $69 million from our current year, less from our adjusted. If we look at the loss from the Governor’s recommended budget, it would be equal to the entire Community College of Southern Nevada (CCSN) and Truckee Meadows Community College (TMCC) budgets combined, in terms of the loss we would sustain. I do not want to spend time on this. I simply want to make the point that some new sources of revenue are essential for higher education to continue to educate our students.

We also wanted to give you information on the other kinds of funding we are working hard to bring in to support higher education. If you look at the General Fund, there is actually an error in this table I want to point out on page 2. The estate tax would, by any standards, have to be considered a State amount. This brings the non-State portion down. The point we want to make is we are working hard to bring in non-State dollars. We bring in grants and contracts. Our students are paying student fees. We have foundation money coming to the institutions. We do have self-funded accounts. All of those dollars are for specific purposes. I would not want you to think those dollars can be used to support general student costs. That is a State and student responsibility. We are working hard, and I believe you will begin to see that percentage of non-State funding increase in the years to come as our research institutions gain more and as our community colleges get more grants and contracts.

It is always important for you to be aware of economic development aspects of higher education. This is not money that stops with the expenditure for higher education. It is money that grows the economy of Nevada. We know, for example, that key decision factors in relocation of businesses are the quality of life for employees and the availability of an educated workforce. Higher education is critical to that. I provide you some clear examples of the value to Nevada of some of the things we are doing such as the Applied Research Initiative. This is funded through estate tax dollars. It goes to the institutions and they use it for matching grants that will stimulate the economy in Nevada. For example, in the current biennium, the Applied Research Initiative funds enabled the University of Reno (UNR) to partner with 27 private companies, 2 venture groups, 3 governmental entities, 2 national labs, and 1 small business innovative research program through the National Institute of Health. Those are good investments for the State to be making. They bring back money over and over again to the State in terms of economic growth.

Last time I mentioned the Management Assistance Partnership, which generates more than $20 million in positive industrial economic impact for Nevada. I must mention workforce development and the reliance Nevada businesses have on our community colleges. Both old and new businesses rely on them for training. We are creating new programs to help the State in this time of crisis. Some of you may have seen in this morning’s Reno paper the insert from TMCC dealing with business and industry, the veterans upward bound program, the reentry program, and others currently offered by all community colleges.

Finally, I want to address the quality of life issue and remind you of the dependence of the State on our graduates and the services our colleges and universities provide. The University of Las Vegas (UNLV) Dental School, for example, has treated about 20,000 children through Medicaid and the Nevada Check Up program since February 2002. This exceeds the statewide total of 16,293 in these categories who received services in the entire year 2000. Our schools of education have graduated 1600 kindergarten through grade 12 (K‑12) teachers. Our schools of nursing have graduated 550. We know we need to do more. With this budget we can do more for all of the other workforce needs and areas where we graduate students.

We have stepped up reforms and efficiencies. I have talked to you about this previously. We are looking at every single way we can to increase the efficiency and productivity of our institutions on every front. The problem for the State is two-fold: to fund enrollment growth and to adequately fund the colleges and universities in the face of the disappearance of the estate tax and the tax structure that we have. As we answer questions on the budget today, we think these are questions about what kind of Nevada we want to live in.

I would like to ask Vice Chancellor Miles to walk through the basics of the budget structure.

Daniel G. Miles, Vice Chancellor, Finance and Administration, System Administration Office, University and Community College System of Nevada:

I plan to provide an overview of the entire budget so you will know where individual items fit. I will continue in the same booklet (Exhibit C). The chart on page 6 illustrates the spike we are experiencing in enrollment over the last 4 or 5 years. The chart on page 7 repeats information from the January hearing. It depicts the enrollments by campus that are included in the formula calculations for FY 2004 and FY 2005. These are based on the 3-year weighted average formula, which here is based on FY 2001 and FY 2002. In April we will have figures for spring enrollment. Using numbers from the fall, we will then be able to calculate average FTE enrollments for this year. Under the formula, those numbers will be dropped in, and the oldest year would be dropped out. As a result, these numbers will change in the final analysis.

I want to draw your attention to several of the campuses. Nevada State College (NSC) reflects our original request of 750 FTEs in FY 2004 and 1000 FTEs in FY 2005. In contrast, the Governor’s recommended budget used a set budget to achieve the work to be done in NSC. The numbers are agency requests rather than Governor’s recommendations. Great Basin College (GBC) figures are not based on the 3-year weighted average because that average was negative. A negative number projected forward would result in projections in enrollment less next year than this year, and even less in FY 2005. We do not think this was an intended purpose of the formula. We think GBC is a unique circumstance, so GBC has a small enrollment growth increment planned in the budget calculations. GBC is back on an increased enrollment path; its FTE grew 3.6 percent in the fall semester. We expect that to continue.

Senator Raggio:

When will you be able to provide us with the final student enrollment count?

Chancellor Nichols:

The information comes to the System Administration Office on March 15. We have promised to get it to you around March 24.

Senator Raggio:

We are going to hold you to that date, March 24. We need to have the final enrollment count to prepare budgets. That is an outside date for our process.

Mr. Miles:

Page 8 of the handout depicts the current registration fees for the next two years as approved by the Board of Regents. Below the registration fees are the various fees assessed to all students.

Page 9 displays information we provided in January regarding the UCCSN request, the Governor’s recommendation, and the differences in the three general revenue areas: state appropriations, UCCSN revenues, and the estate tax. The biennial increase is 22.8 percent. I would like to point out that higher education’s share of total State appropriations, currently 18.9 percent, drops to 18.5 percent in the Governor’s new budget.

Page 10, for your information and reference, contains the total budgets by what we call “Appropriation Areas.” These are the different categories within the State-approved budget receiving State and other funds. You can see the total Governor’s recommended budget for FY 2004 was $618.2 million, and for FY 2005 is $646.5 million.

Senator Raggio:

The title is “Budget Comparison.” What are you showing? Is the recommendation compared with the request?

Mr. Miles:

That is correct. What is shown is the net difference between the request and what the Governor has recommended.

Page 11 shows the decision units of the budget. The two columns at the far right show the Governor’s recommended budget levels. I will be concentrating on these figures. I want to run through each decision unit so you will understand what is in each maintenance area. The base includes our current budget plus adjustments by the budget office for vacancy-savings calculations. Interim finance allocations made during the biennium have been added. Movements on the classified pay schedule have been added. Merit pay for professional employees is included. Also, certain adjustments have been made in the energy area related to action by the Interim Finance Committee (IFC) addressing shortfalls in utility budgets during FY 2002.

The first maintenance decision unit is M-100 dealing with inflationary cost adjustments. These amounts have been inserted by the Governor’s office. They are primarily statewide rate changes involving changes in calculations for fidelity bond, tort liability assessments, and vehicle insurance paid back to the state to cover our vehicles.

M-101, Special Inflationary Adjustments, contain adjustments specific to higher education. There is a small amount for paper and shipping inflation costs for University Press. Software license expenses under current contracts at TMCC are included.

M-102 is the adjustment for medical malpractice at the School of Medicine. You may recall we had to come back to the IFC for estate tax funds during the year for the School of Medicine to meet its share of the obligations for increases in medical malpractice insurance. This is where the Governor’s recommended budget placed that adjustment on a going-forward basis.

M-200, Formula Funding, is the most significant item. It includes enrollment growth, and, as we have discussed, includes movement to 86 percent of the formula funding.

M-201 involves formula calculations for new space coming on line during the biennium.

M-202 is space adjustment for rental space at CCSN and a recharge adjustment at UNR.

M-203, demographics and case load adjustment, contains several different maintenance items in addition to the Experimental Program to Stimulate Competitive Research (EPSCoR) grant of $400,000 annually. Additional funds address system computing services to keep up with our immense enrollment growth, the associated staff and faculty growth, and maintaining the student information system, the finance and human resources system, data warehousing, and NevadaNet. This decision unit also includes moving to the second and third year of enrollment in the Dental School; adding another class involves faculty to deal with higher enrollment. The Dental School adjustments were provided in the estate tax recommendation of the Governor.

M-204 is a request to recognize the impact of growth on our business centers. These two operations have not had an increase in a number of years. Every time enrollment increases, staff increases also. This has an additional impact on the business centers. The Governor did not recommend this item.

M-205 provides an additional $100,000 annually for the law school library to meet American Bar Association requirements. It also would start a library for NSC. Neither of these items was included in the Governor’s proposed budget.

M-207 is to extend cooperative extension services to Mineral County, the only county currently without these services. The county commission decided to accept cooperative extension, and, under State law, we need to provide these services. This funding was not recommended in the Governor’s budget.

M-208 involves NSC financial aid. We are trying to establish a baseline within the budget for financial aid so that it will be included in later years. We request $125,000 annually; that was not recommended in the Governor’s budget.

M-300 is a decision unit inserted in the Governor’s recommendation across all State-funded budgets to address fringe benefit adjustments. The largest adjustment is for group medical insurance for all employees. There is also an adjustment for retired employee group insurance. There is an increase covering the change in public employees retirement system contribution rates as required by law. Finally, there is a personnel assessment adjustment included in this decision unit. We have issues with each of these in terms of how they were recommended in the budget. I hope to return to this.

M-303 is a statewide decision unit. There was an occupational study in the librarian employment series. That affects the libraries on some of our campuses through salary adjustments.

M-307 is the Merit Maximum Adjustment. The Governor’s recommendation considered those individuals whose salary exceeds the salary schedule. The incremental cost of that was removed from the calculation of the merit increase. We do not have a problem with that.

M-501 entails compliance with a federal mandate in the Animal Welfare Act and the impact on our programs using animals. We need coverage both in the north and south to comply with that law. This money would provide an additional associate veterinarian in the second year to assist the program in complying with federal obligations.

M-580 deals with changes at the federal level under the Safe Drinking Water Act related to the State laboratory associated with the School of Medicine. New testing procedures will be required related to radium, uranium, and radon. The lab’s capability will have to be expanded.

Technically, it is not true that we do not have any enhancement (E) items. There is one enhancement item for $3800. We do not believe this should be treated as an enhancement. The National Direct Student Loan Program is brought up to its current expenditure level.

This ends my description of the separate pieces of the budget as recommended by the Governor.

Senator Raggio:

Let us look at Dental School issues to accommodate the Dean’s scheduling.

The M-203 item appears to deal with Dental School. The budget recommends $5.27 million in additional estate tax funding to cover increased enrollment at the Dental School. Apparently that includes 24 new positions in FY 2004, and 29 additional positions in FY 2005. This is a total of 53 new positions for the biennium. All but one are in the instructional function to support basic and clinical sciences. Since this is not a formula budget, we are interested in how that number of positions was calculated. It just seems like a lot of new positions.

Dr. Patrick J. Ferrillo, Dean, School of Dentistry, University of Nevada, Las Vegas:

We request an annual increase in dollars as we increase enrollment at the Dental School. We will be adding faculty each year as the school adds another year of students until we reach our complement of 4 years of students. The total increase will be 75 students per year. The increase in funding also reflects our gearing-up for clinical services and services to the population as we provide patient care in meeting the educational needs of the curriculum. As we open the Shadow Lane Clinic, we will need support personnel to maintain provided services.

After I looked at previous budgets before my arrival, we began to consider how best to carry out an education program and services to the community within those limits. We looked at redistribution of some positions based on a plan submitted some time ago. We are using the same dollars as originally in the budget, but redistributing that budget based on position needs. Prior to my arrival, decisions were made on what positions should be created. After careful analysis, we found we needed to redistribute those positions in order to meet the education and service components of the School of Dentistry.

Senator Raggio:

How many total positions would this provide?

Dr. Ferrillo:

There are 42.5 existing positions. Some of these are vacant. Rather than fill positions rapidly, we are trying to find the best people we can in light of the dollar amounts we have. My philosophy is that it is better to keep a position vacant than to hire someone just to fill a position.

Senator Raggio:

We may want you to revisit this calculation to determine whether all positions are essential and necessary.

Dr. Ferrillo:

Okay.

Senator Raggio:

What is the status of the Shadow Lane Campus?

Dr. Carol C. Harter, President, University of Nevada, Las Vegas:

That campus is in the planning and early renovation stage. The entire building on Shadow Lane will be devoted to the Dental School.

Senator Raggio:

I thought some of it was going to be leased out.

Dr. Harter:

Building A will be totally dedicated to the Dental School. Building B has about 25,000 square feet devoted to the Dental School and some additional space we are building now for biotechnology, DNA (deoxyribonucleic acid), forensic analysis, and cancer research laboratories funded by the federal government. Under the bond covenants we would be permitted to lease about 10 percent of the space to other related businesses or activities. We have not yet done so. We are talking to possible partners.

Senator Raggio:

I think Dr. Anthony Flores indicated there was the potential to lease 10 percent of the building space. This is revenue that could help reduce some of the operation and maintenance costs of this complex. When will we have a decision?

Dr. Harter:

We are talking to several different potential partners.

Senator Raggio:

Will that space have to be remodeled before it is let?

Dr. Harter:

The new tenant might remodel some space. We are talking with Dr. Lilley about possible relocation of facilities of the College of Medicine. We have a series of potential partners ranging from State interests within the UCCSN to private entrepreneurs involved in biotechnology.

Senator Raggio:

We are interested because the operation and maintenance (O&M) costs for this complex are quite high. We are looking at $1.2 million in FY 2004 and $1.4 million in FY 2005. If that can be mitigated, it would be helpful.

Dr. Harter:

If we lease to private entrepreneurs, we will obviously mitigate the cost to the State.

Senator Raggio:

Mr. Miles, you mentioned the recharge mechanism used at UNR, why is that not also employed at other institutions like the law school and dental school? Is that feasible?

Dr. Harter:

I think we charge them directly.

Mr. Miles:

I would defer to the campus for that answer. My memory is that the O&M recharge was born from the fact that there was a single heat plant at UNR serving everyone. There was no way to distribute the cost of that to other buildings and programs without instituting some type of recharge program.

Senator Raggio:

Please look into that. It might be feasible here. Let us move on.

Mr. Miles:

There are several more pages in the handout (Exhibit C) I would like to draw your attention to. Page 12 contains a listing of the estate tax expenditures as recommended in the Governor’s budget. It totals $92.6 million. You already know there are adjustments to that number to bring it down. It will be closer to $90 million.

Senator Raggio:

Do you want to comment on your proposal to deal with the estate tax portion of the budget?

Mr. Miles:

Let me refer to the large binder (Exhibit D. Original is on file in the Research Library.). Information on the estate tax is at Tab 11. In our last hearing, you asked that we address our latest projection on the estate tax through the next biennium. Let me review the federal changes in the estate tax. The Congress has phased out the estate tax over 10 years; this amounts to an actual phase out over 8 years. Our problem is that Congress also phased out the allowable state credit against the estate tax, the so-called “pick-up” portion, over 4 years, beginning January 1, 2002. As of that time, the estate tax credit would be reduced by 25 percent. Starting January 1, 2003 that is reduced to 50 percent, to 25 percent in January 2004, and in January 2005, it is eliminated altogether. Additionally, under the old estate tax, there was an exclusion of $675,000. This meant that an estate below $675,000 was untouched by the estate tax. Congress increased that threshold in January 2002 to $1 million. So, as of that date, only estates above the $1 million threshold would be subject to estate tax. Starting January 1, 2004, that threshold is increased to $1.5 million. That eliminates a lot of estates that Nevada normally would have had a “pick-up” tax levied against.

When this federal legislation was passed, we asked the Department of Taxation to forecast estate tax for UCCSN going forward. Their response was that a forecast was impossible since no one could forecast who would die or what the size of their estates might be. I agree. The history of the estate tax over the last 18 years, UCCSN’s collection has ranged from $2.5 million in 1 year to $41 million in a year. You will recall that UCCSN receives half of the State’s total collection. The Department of Taxation went back to FY 2001, the last completed fiscal year, and posited the following situation: if the same returns came in during 2003, 2004, and 2005, and the new federal rules were applied, then the resulting revenue is reported on pages 187 and 188 in our large binder. If you refer to the top of page 188, the Department of Taxation said, based on a revenue collection of $41 million in 2001, it expected a loss of $14 million from that amount in 2001, a percentage loss of 33 percent. In FY 2004, the department expects a $23 million loss from the $41 million or a percentage loss of 55 percent. In FY 2005, the department expects $33.5 million less than $41 million, or a loss of 80 percent. We know we will not get the same amount in tax returns year after year, but the department has provided a guideline of what could happen.

We took those percentage reductions and forecast them out for this year and the next 2 years, and reduced the amount of expected revenue by those same percentages, 33 percent, 55 percent, and 80 percent.

The real question is what revenue level to assess that against. We looked at collections for higher education over the 18-year period; it has averaged about $12 million a year. We looked at it for the last 10 years; that averaged about $15.8 million a year. We took that last 10 year period, kicked out the high year because it was extremely high and kicked out the low year. That resulted in $13.7 million. We chose the $15.8 million as a typical estate tax year. We then applied the 33, 55, and 80 percent reductions. If you look at page 179, there is a spreadsheet bringing all this together.

This is our latest projection. There is an important caveat: as I mentioned before, it is impossible to project the estate tax. This table represents our best take, and it may be an optimistic forecast.

Senator Raggio:

You are estimating Estate Tax Fund would be under funded by $10.63 million?

Mr. Miles:

That is correct. The bottom line is that at the end of the biennium, the Estate Tax Fund would be in a deficit of $10.63 million.

Senator Raggio:

I think the answer is that none of us will know how the estate tax receipts will come in. I do not know whether the budget office would agree or not. Do you find fault with this, Mr. Manning?

Mr. Manning:

I do not find fault with the analysis. However, as you mentioned, we feel it is hard to make a determination on what the results will be.

Senator Raggio:

The budget has $92.63 million recommended as a biennium total to come from the estate tax. The issue is, if it does not come in at that level, would this result in an actual shortfall of $10 million for the biennium? Or, would it wipe out all of the estate tax funds entirely?

Mr. Manning:

At that time, it would wipe out all of the estate tax funds. There may be some old filings that would trickle in after that. We expect this to be the case. But, at that point in time, there would be no estate tax funds.

Senator Raggio:

The UCCSN proposal is what, to shift the risk to the State?

Mr. Miles:

That is correct.

Senator Raggio:

Would you have written the same thing were you in the fiscal division?

Mr. Miles:

Considering the value of higher education to the State, certainly. Would you like me to explain this proposal?

In light of the situation, realizing that this Legislature is caught in a very difficult position trying to balance available revenues and needed expenditures, we developed a proposal for your consideration. In order to protect UCCSN from a shortfall in the estate tax, if in the end, the Legislature can not find a way to replace the estate tax with State funding, there is a process that could be helpful while providing us a sense of relief. It follows what I call the HECC (higher education capital construction) funds model, which are a portion of the statewide annual slot tax. This money comes to the University, is transferred to the General Fund, and is then re-appropriated back to UCCSN for renovation and repair, and building and grounds expenses. Applying an analog would provide a fallback position to the estate tax problem.

Half of the estate tax money goes to K-12. That money goes into the Distributive School Account (DSA) with a lot of other funds. If there is a shortfall on the K-12 side, this is not so serious to my mind, because there are other funds that might exceed their budgeted levels, which would make up for the estate tax shortfall. The sales tax, if it is above its projected level, could make up the shortfall. If K-12 enrollments are below what is budgeted, that could make up the shortfall. So, there is basically a fallback or failsafe system for K-12.

There is none for higher education. If estate tax dollars come up short, and they are all planned to be expended in areas critical to the mission of higher education, we really have no viable fallback position. Our only fallback would be elimination of those programs and the elimination of some or all of the 275 positions currently funded through the estate tax.

We are looking for a safety net. Here is what we came up with. If the forecast of $90-some million available and expenditures of a like amount are to be programmed and authorized, we could, as we do now, transfer about $3 million monthly to our campuses to pay for these programs currently funded by the estate tax. We propose transferring that money to the General Fund instead. We would then have you appropriate those expenditures through a General Fund appropriation. This shifts the risk away from these UCCSN programs that might be lost entirely and on to the General Fund. I do not think this is any different from the risk the General Fund carries right now. You run a risk that gaming taxes will not come in at projected levels. You run a risk that sales tax might not come in. This would be one more tax that might not come in at those levels, but it would at least allow UCCSN programs to survive to the end of the biennium.

Senator Raggio:

If the estate tax money is in excess of forecasts, would the State keep the balance?

Mr. Miles:

There is a constitutional limitation that provides the money shall be divided evenly between higher education and K-12. Therefore, in that circumstance, I propose the money come to UCCSN and be invested just as they are today, but UCCSN transfer up to the amount authorized during the biennium to the General Fund. In a perfect world, if everything happens the way we would like, we would transfer $90 million to the General Fund and you would appropriate $90 million back to UCCSN.

Senator Raggio:

But if $100 million came in, you would keep the extra $10 million?

Mr. Miles:

If $100 million came in, we would have the extra $10 million. I think we would have to do that constitutionally.

Senator Raggio:

That is wanting it both ways. Right?

Mr. Miles:

If, for instance, over the course of the next 2 years, you appropriated and we expended $90 million, but only $80 million came in, the State would be on the hook for that $10 million. But, we would likely have estate tax collections occurring after June 30, 2005. Those could be made available to reimburse the State.

Senator Raggio:

We are already looking at a potential shortfall in the biennium following because the $92 million is coming out of the estate tax. Now, also remember it was not the Legislature that dictated all of these UCCSN programs be funded by the estate tax. A lot of these were suggested initially from the UCCSN.

Mr. Miles:

We do not deny that.

Senator Rawson:

I have two short items. First, my recollection, going back to when the estate tax regime was established, is that we specified this fund create enhancements. It would build things we could not build otherwise. There was an assumption that at some point those would be picked up by general funds. We divided the funds between K-12 and higher education, and they were used in different ways. I am not sure any of us perceived when they would go away. Second, there is a statutory requirement that $2.5 million in interest be produced. At what point do we have to change the statute. It seems we are about at that point now. We need to develop Legislative provisions to address this issue either in our budget authorization or in a special bill.

Mr. Miles:

By the end of this fiscal year, we will have reached the point where we will not have the income necessary to meet the statutory requirement of earnings of $2.5 million annually. I know the budget office is aware of this. It is my understanding that office is submitting a BDR to change the statute so as to eliminate that threshold requirement.

Senator Cegavske:

I need to disclose I have two students in the university, one at UNLV and one at UNR. I pay handsomely for that. Would you provide an estimate of costs per student at each campus, including community college campuses? Do we have a waiting list at any campus for nurses or teachers?

Chancellor Nichols:

We have waiting lists for nurses at every campus. We presented the actual numbers at an earlier hearing before another committee, but I can get them for you. We are not as confident about the waiting list for teachers. I believe all institutions have met that demand. This is not to suggest that there is not a waiting list associated with some classes. Program admission is one issue; admission to individual classes is another. This may be a problem in our teaching programs.

Senator Cegavske:

When the enrollment falls short of projections, what funding adjustments are made?

Chancellor Nichols:

We do not see that often, given how rapidly our campuses are growing. We did see this with NSC. What happens, of course, is that the money is not there. Institutions watch their enrollment carefully because of the income from student fees. Institutions do not assume that this income will be there, they have contingency plans if this income does not materialize. The obvious place to cut is instruction since it has a direct link to enrollment.

Senator Cegavske:

How would you estimate the formula for the 3-year weighted average for NSC?

Chancellor Nichols:

We budgeted for the first year based on an estimate of 500, knowing that this was a high number for a start-up institution. We also thought we would have start-up money the year before, and this turned out not to be the case. We have abandoned the formula for the next 2 years. We are now using a minimum operating number for the college to get started. The formula will kick in for NSC for the next biennium when there will be a history of 3 years, and a weighted average for that college.

Senator Rawson:

I need to make a disclosure. I am an employee of the university and community college system. I am on unpaid leave of absence. I am also an unpaid, adjunct professor in the medical and dental schools. I know we tire of making disclosures, but it is important for our colleagues to understand our frame of reference.

Assemblywoman Gibbons:

How would additional cuts affect my constituents? My greatest concern is delayed graduation because classes may be unavailable.

Chancellor Nichols:

This is one of the clearest results of an under funded formula. The ability to offer sufficient classes to satisfy student demand will simply not be there. As a result, families and students will pay more. Often a student must take twelve credits per semester to retain financial aid. If they cannot get the classes they need, they may have to fill in with other classes. This would result in taking more classes and more time than necessary in order to graduate. In this way, families and students are impacted directly by our budget.

Senator Raggio:

Does the budget for UNR omit adjustments for utilities? Are you requesting a General Fund increase in each year for this purpose?

Mr. Miles:

The Governor’s recommended budget included amounts authorized last session for additional utilities.

Senator Raggio:

The increase for utilities is not included in the base budget, is it?

Mr. Miles:

We believe that is an omission. The amount is $470,000.

Senator Raggio:

We have not put weather modification expenditures into the budget, but rather have allowed the Desert Research Institute (DRI) to come back to the Interim Finance Committee (IFC) for that purpose. This seems like a reasonable policy since the money may not be needed.

Mr. Miles:

If you agree that the letter of intent of a number of years ago remains in effect, we will approach the IFC.

Senator Raggio:

Could the budget division comment on vacancy savings? Historically, vacancy savings of 1 percent for professional positions and 3 percent for classified positions are included for the formula funded accounts. Non-formula funded accounts are usually budgeted at 2 percent for professional positions and 3 percent for classified positions. This was not done in the budget for non-formula accounts. I understand you sent a memo suggesting the subcommittee consider correcting the vacancy savings amount using the traditional 2‑percent non‑formula factor for professional positions. The system supports that. This would result in some General Fund savings. Can you confirm adjusting non-formula vacancy factors, resulting in something like $460,000 in the first year and $470,000 in the second year?

Mr. Manning:

You are correct. That adjustment for the 1 percent that is missing in the non‑formula budgets is required. I think the amount is $483,000 one year and $492,000 the next.

Senator Raggio:

Will you get together with staff on these numbers? Do you have a comment on this issue, Mr. Miles?

Mr. Miles:

We were expecting this. I understand the budget office has sent a formal request to make that change. We will be happy to work out the small difference in numbers.

Senator Raggio:

I have not looked carefully at the positions funded by estate tax. There may be some positions in that group that may have vacancy savings associated with them. Would you get together with staff to explore this?

Mr. Miles:

We will be happy to discuss that.

Senator Raggio:

It is our understanding that you have identified input and calculation errors that have a total cost of about $7.7 million for the biennium, is that correct?

Mr. Miles:

We have been in discussions with your staff and the budget office.

Senator Raggio:

I think that the General Fund savings would be a little over $5 million.

Mr. Miles:

We think there are adjustments going both ways that need to be made.

Senator Raggio:

To be clear, the errors include student revenue input errors, duplication of input on high tech center costs, merit calculation errors, and adjustments to the non-formula vacancy factor. There is a net General Fund cost of about $5.18 million. We want you to work with staff to resolve these issues early.

Mr. Miles:

We will be glad to do that.

Senator Raggio:

We need budget office participation as well. If this is true, we need to know where another $5.18 million will be found for higher education.

I have a question on the fire service academy. Are you requesting a revision to the funding recommendation because additional acreage was initially omitted from the calculation? Is it true this would require $170,682 annually as an addition to O&M costs? There also appears to be a one-time funding of equipment of about $40,000.

Dr. John Lilley, President, University of Nevada, Reno:

We have tried to clarify the number of acres used by the fire science academy. There are over 400 acres; we are requesting support for the 30 acres actually used to carry out academy activities.

Senator Raggio:

Why should General Funds be used for fire service academy operations?

Dr. Lilley:

I recently wrote to the Governor about this issue. The fire service academy has operated as part of the university since 1972. It received O&M support for the 28 years it was located at Stead. The State provides O&M support for self-supporting operations such as athletics, the motor pool, printing services, 4‑H Camp, and other activities. The Board of Regents recently reaffirmed the role of the fire science academy in its adoption of our campus master plan. The enrollments are exceeding revenue projections, and the expenditures are consistent with the restructured business plan. State funding of O&M expenses is a key element of that business plan. After the legal agreements were struck in the summer of 2001, it became clear that the students at Reno were going to have to bear the burden of this capital budget. This means that for approximately 30 years, our campus and our students will endure a budget cut of approximately $2 million in order to pay off that facility in Elko. These payments are in spite of the fact that the students in Reno have no direct benefit. As a result, the O&M part of the business plan is incredibly important. The fire science academy is doing a wonderful job. It does support regional economic development. It is also an important part of homeland security. We hope you will support the traditional funding.

Senator Raggio:

Can you clarify the use of student fees dedicated to support the construction of the authorized library?

Dr. Lilley:

At the hearing in January, I spoke of the fees that had already been approved. I may have left the wrong impression. There are $4 per credit of student fees that are dedicated to the library and $4 devoted to the fire science academy. All of our student fees are pooled to support a variety of activities. In talking with the Regents about approving the necessary level of funding for both the library and the fire science academy, they asked specifically, “Do the fire science academy fees in any way threaten the funding of the library?” I assured them they would not. It is true that there is a dollar to be added in 2005, 2006, and 2007; however, given the fee increases already planned, those dollar fees will be directed from the fees the Regents are expected to approve. The schedule has been approved although the fees themselves need to be approved. We are currently collecting $2 for the library, but in the next round of fee approval, we will get the next $2.

Senator Raggio:

Ultimately there will be $4 in fees dedicated to the bonding required for construction of the library?

Dr. Lilley:

Four dollars for the library and four dollars for the fire science academy.

Senator Raggio:

Someone indicated that new space at CCSN will require further modification. We would like to know what additional changes are needed.

Dr. Ronald Remington, President, Community College of Southern Nevada, Las Vegas:

Are you referring to the accessible space project?

Patricia A. Charlton, Vice President, Finance & Administration, Community College of Southern Nevada:

Actually, we are requesting a reduction in the amount of supported square feet. The size of the building will be 25,000 square feet. The community college will be committed to 3000 square feet of that building. We are asking that only the 3000 square feet be supported by the State.

Senator Raggio:

Does this result in a decrease of supported space?

Ms. Charlton:

Yes, it does.

Senator Raggio:

Turning to the grant match on the Experimental Program to Stimulate Competitive Research (EPSCoR), in 2001 we increased matching funds by $1.5 million annually, if current recommendations are approved, the EPSCoR matching funds would total a little over $5 million for the biennium. What specific programs and proposals would be supported from the proposed matching funds?

Dr. James Coleman, Vice President for Research & Business Development, Desert Research Institute:

There are several EPSCoR programs. The main program is from the National Science Foundation (NSF). Last August the State was awarded $3 million for each of 3 years. This money goes to the university system where it is matched by $1.5 million annually from the State, resulting in a total of $13.5 million. There are also EPSCoR programs from National Aeronautics and Space Administration (NASA), and the U.S. Departments of Defense and Energy. Each requires matching funds. The budget would cover all of this.

Senator Raggio:

Do we have a report on how the EPSCoR funds were used this biennium?

Dr. Coleman:

I do not have that information, but can provide it.

Senator Raggio:

Over the years there have been very valuable projects. We would like to keep abreast of the use of funds.

Dr. Coleman:

For the last NSF EPSCoR grant, ending in the last FY, we used a total of $2.4 million in State funds to match only $3 million in NSF funds, but that resulted in over $50 million in new funding to the State. That ratio is over 20:1, and is one of our best programs.

Senator Raggio:

We have a question on fringe benefits adjustments. Could the budget division comment on the fact that preliminary estimates show a retirement assessment shortfall of $3 million and a retired employee group insurance assessment shortfall of $3.4 million. Are we together on these amounts?

Mr. Manning:

I am aware of about $5.8 million we have not totally reviewed and analyzed.

Senator Raggio:

Let me see if we are on the same track. The budget includes $9.5 million in FY 2004, and $15 million in FY 2005 for fringe benefits costs, that is, retirement, group health insurance, retired employees group insurance, and personnel assessments. There appear to be significant errors in calculating these assessments. The Governor has recommended an increase in the retirement contribution, but the budget appears to address only the classified and professional employees who have chosen the Public Employee Retirement System (PERS) retirement option. The professionals in the system have an alternative retirement plan. If we fund the increased contribution rate for these professional employees, there is an estimate that this will cost about $3 million over the biennium. The retired employee group insurance assessments appear to be under funded as well; the shortfall may be $3.4 million there.

Mr. Manning:

I have discussed this with Legislative staff. I am aware that the retirement fringe benefits, the non-PERS costs for those people not in the employee retirement system , and the retired group insurance were not included in the increase that was reflected for the PERS people. I have also considered the self-supported budgets and associated dollar amounts.

Senator Raggio:

We need to ensure we are on the same wavelength and we need to figure out where that money will come from. We have a certain amount of money in a pot and if we use it here we have to take it from somewhere else. So, are you going to be helpful and tell us where to take it from?

Mr. Manning:

I will try.

Senator Raggio:

Mr. Miles talked about revising the back language of the authorization act to allow expenditure of excess student fees under controlled circumstances like additional instructional needs.

Mr. Miles:

I sent a proposal to Legislative staff suggesting that we begin to talk about possible changes to the back language of the general authorization act. That is the language that authorizes..

Senator Raggio:

I think we covered this last time. We had a commitment that this was going to be used for those purposes that were intended. What is your proposal?

Mr. Miles:

The current provision requires that we come back to the IFC. This is an awkward mechanical process because the decision on how many new sections and part-time faculty to add has to be made in September, and then again in late January for the second semester. These campuses are put in the position of having to make a decision not knowing whether they are going to get these expenditures authorized by the IFC. I was hoping we could set up a structure within the statutory language that would limit…

Senator Raggio:

What if we did that with respect to resident student fees?

Mr. Miles:

That is why I suggested we get together with staff.

Senator Raggio:

Then you would know what new class sections you would need, right?

Mr. Miles:

Of course the out-of-state students are also part of the enrollment factor. There is a financial impact associated with fees from out-of-state students.

Senator Raggio:

I think that is a question: whether those non-resident student fees are needed or not. Why not talk to staff so we do not take everyone’s time.

Mr. Miles:

That is what we were hoping to do so we could come to a meeting of the minds as to what that would do.

Senator Cegavske:

I have a question on taxonomy.

Senator Raggio:

To open this up further, we did ask last time that you revisit it and see what could be done to deal with taxonomy on a non-cost basis so it would not cost money. Have you done that? So that it would be cost neutral.

Chancellor Nichols:

We have been working on that. I am embarrassed to say we do not have an answer for you today. We are still crunching numbers and trying to see if there is a way to address the two purposes of the taxonomy while being cost neutral or very close to cost neutral. We have not yet figured out a way to do that, but we are still working on that and pledge to work with Legislative staff to try to arrive at some solution on the taxonomy.

Senator Cegavske:

I was curious why all the campuses were not included?

Mr. Miles:

The question posed to us, and to which we responded at Tab 7 in the large binder, was, “What would the formula funding rate drop to if you were held at the same amount of State funds and the new taxonomy were implemented?” When we ran that, the way the formula works, we could not run it with NSC in it, because NSC’s budget is not formula derived in the Governor’s recommendation. It was necessary to pull NSC out of that mix and treat it like a non-formula budget so we could let the formula run on all those accounts that are enrollment driven. We did not want to effectively change the funding recommended in the Governor’s budget for NSC.

Senator Raggio:

The unfunded item, number 15, dealing with nursing enrollment expansion, are you still working on a proposal?

Chancellor Nichols:

I am still working with the presidents on a proposal to look at what we can do for nursing at reduced cost with the current 86 percent of the formula. I will be taking a revised plan to the Board of Regents meeting in mid-March and working with your staff to bring that forward also to the Legislature.

Senator Raggio:

You provided some information on minority enrollment: college going population figures, remediation, measuring report cards, and indirect cost comparisons. Do you want to comment further on any of this? We do have your report, but we would be happy to hear any highlights?

Chancellor Nichols:

We were asked a question that we provided information on at Tab 8, page 141 of the large binder. We have not addressed the enhancement requests we made because we have understood the fiscal situation of the State.

Senator Raggio:

Does tab 8 deal with the percentage of indirect cost recovery?

Chancellor Nichols:

Retained by the State. We did look up that information to provide it to you. As you can see, it does vary, but in general, there are two other states that keep a portion of the indirect cost recovery for the institutions. Nevada keeps 25 percent of the indirect cost recovery of grants and contracts and uses that as a revenue source for the funding of the institutions. We did provide that information to you and just wanted the committee to be aware of that.

Senator Raggio:

Did you really search out all the ones that keep it all?

Chancellor Nichols:

We did not pick and choose. They provided the list. I have to admit I was surprised how often it is a zero return to the state.

Dr. Lilley:

I would like to reinforce what the Chancellor was talking about. The full use of indirect cost recovery is very important both for UNR and UNLV. It gives us a chance to reinvest that money in intensifying our research effort and bringing more federal dollars into the State. Also, I wanted to raise tuition fee waivers as an issue. Let me turn to Mr. Ault.

Christopher Ault, Director, Intercollegiate Athletics, University of Nevada, Reno:

There are several issues. Intercollegiate athletics at both universities is a major economic driver in both communities in terms of generating funds, local opportunities, and State opportunities. We have two issues on both campuses affecting intercollegiate athletics that other units on the campuses do not have. That is the federal mandate of Title IX of the Education Amendments of 1972 (PL 92-318) involving gender equity. Now, on our campuses 56 percent of our athletes are female. The budget for our female student athletes is $4.6 million for all our sports programs. That is a federal mandate. But more important, what that has done for us with our twelve women’s sports is provide us an opportunity to show the community the interest has increased. We have 19 sports at the university, 12 are female, 7 are male. We have a $13 million budget. The annual inflation has been about 3.5 percent or a little over $450,000 annually. Tuition and fee waivers are important for this reason. The cost of education is skyrocketing at both institutions. It has to in order to meet academic needs. We do not want to affect the academic side. But when we have the mandate of Title IX, that we have to form, function, and guide by, it is very important we continue with the progress we have made. Secondly, as we look at sports programs at both institutions, we generate millions of dollars for the local and State economies through our sporting events, both male and female. What we are asking is that tuition waivers be supplied for all of our sports programs on both campuses. This is approximately $3.5 million for the biennium. In return, this gives us an opportunity to take those monies we are not having to invest in tuition and fees and put them in the operating budgets we have to have in order to compete in the different conferences we are in. Studies are showing that at both UNLV in the Mountain West Conference and UNR in the Western Athletic Conference are well below the conference averages in terms of money appropriated or in terms of monies for our budgets. This would provide us an opportunity to take those monies we were spending on tuition and fees and the escalating costs associated with that and put them into our operating budget.

More importantly, an item I believe has been missed is this: the State has a grant-in-aid appropriation for both institutions. Both institutions provide the athletic departments with about $500,000 annually to help offset the cost for tuition and fees. If we were able to get tuitions and fees at both institutions, this $500,000 would now become available for something important, to provide opportunities for the need based students in Nevada. There is not any money in the State budget appropriated or requested by the university that goes for that. So, there are three things I see that are beneficial. One is that with tuition and fee waivers, we would not be back for any legislation dealing with gender equity monies, because each institution would be required to handle gender equity within that funding level. Two is the monies that would be freed up in the form of grants-in-aid for student needs on campus other than athletic needs is significant when we are talking about $0.5 million dollars annually in perpetuity. Thirdly, this would provide each institution with an opportunity to stabilize its budget, to take the monies that we go out into the communities to generate and put them into the operating budgets and the escalating costs that is mandated to compete at the Division One level.

Senator Raggio:

Is there a flow sheet of some kind to project costs describing how this would operate?

Mr. Ault:

There is. The projected cost is $3.5 million for the biennium. It is about $760,000 annually at UNR, and about $850,000 annually at UNLV.

Senator Raggio:

If you will provide that in written form, that will help the committee.

Assemblywoman Chowning:

Something you said sparked a huge question. You just said there is nothing in the budget for need-based students. You need to clarify that for me. The student fee increase was supposed to be used for financial aid. If that is not based on need, then I would like to know what is in that formula.

Chancellor Nichols:

I think when the comment was made about nothing being in our budget request, the request for General Fund dollars did not include an increase in need-based aid. We already have need-based aid, some funded through the General Fund, some funded through the estate tax. What we did, as we talked about in January, is we set aside half of all fee increases to stay at the campuses to fund need-based aid. We believe this method will ensure that as our fees increase, more and more dollars will be available for those families who cannot afford the cost of the fees. We think it is a method recently endorsed by a national study on financial aid, which advocates linking tuition increases to increases in financial aid. You do not see it in this budget. One of the binder tabs shows a section on fees we actually keep on campus. You will see at Tab 9, page 145, student access fees, our terminology for need-based aid.

Assemblywoman Chowning:

Thank you. We will work with staff as well. If money is coming in and is promised to be for need-based aid, that is what I want to ensure happens.

Chancellor Nichols:

I can guarantee that will happen.

Dr. Lilley:

Clearly in the case of the university, we are now spending $500,000 annually on the scholarship tuition and fees of athletes. So, it is the $500,000 the university is spending on athletes that could be transferred and added to need-based aid.

Assemblywoman Chowning:

Can you provide information on how much of that is coming from the special license plate income? That is also used for scholarships. We need to know where this is within the overall money figures.

Senator Mathews:

I want to ensure that in the money you ask for in athlete fee waivers, there is a footnote explaining how gender equity fits into the entire issue. I want to have that outlined for me to ensure it is not lost.

Assemblywoman Gibbons:

I have noticed a number of cuts made at UNR. In December and January the library was closed. Is it more expensive to operate UNR than UNLV because the buildings are older? The computer systems in some of the colleges are very outdated. It seems we are behind the times.

Senator Raggio:

Perhaps I can be helpful. I know when we discussed the formula to be utilized, the aging of buildings was a factor included in the formula.

Dr. Lilley:

I cannot comment on the comparison. However, in the cuts we sustained this year to meet the 3 percent target plus other factors that created cuts, obviously it has been a challenge. It is a challenge, of course, if you have an old campus with buildings that need to be renovated. In another year or two, a third of our campus buildings will be over 45 years in age and need total renovation as the public works board suggests.

Dr. Harter:

I think the differences are in the weather too. Clearly, the cheapest season for us utility-wise is in the winter. We would be better off shutting down in the summer, but we cannot. We have three semesters going simultaneously in the summer because air conditioning uses up tremendous amounts of energy at UNLV. While I agree that UNR buildings are older, and in that regard, are more expensive to operate, we have different utility demands that are quite huge for electricity for UNLV. It is hard to make an exact apples and oranges comparison.

Senator Raggio:

I reiterate. My recollection is we built this into the formula. Is there public comment?

Greg MacRenairis:

I have many concerns about how the university is conducting its contracting business. First, I would like to read something received through the Freedom of Information Act (FOIA). This will give you a general idea about how the university runs its energy conservation measures. This is a conference call between Rose Bergman, Ray Moran, Lyle Woodward, Marcella Yeates, and Randy Jacobsen. On line thirteen or thereabouts, we find, “by doing things this way, at least it looks like a legitimate bid.” This is hand written. That is bad enough, but three lines further on, it says this, “Maybe other contractors will recognize this for what it is and not bid on it.” The university has been running
its energy conservation measures under the radar of the Legislature and the Executive Branch. Complaints have been brought forward since 1996. The university has failed to comply with any of the questions. At the last meeting, Senator Raggio asked Ms. Nichols to comply with the questions. She has not done so. At the audit committee meeting at the university, Mr. Lilley and the vice president could not answer a single question. I will answer them now.

This is how a performance contract was set up in Nevada. For every million dollars spent, you were supposed to regain a million dollars to pay for it, and have a million dollars extra in profit. The university runs its system this way. From approximately $5 million, it paid approximately $4 million in interest to Sierra Pacific Power through financial contracts without a bid. They just pulled them out of a hat. Then, the stuff that was put in was of inferior quality, machines like R11 chillers. Eight of them have to be replaced. Why? There was no oversight at any of the work done at the university. Instead of saving $5 million to pay for it, and having another $5 million in energy savings, the university has transformed that into $5 million invested, $4 million in interest, only to have to redo it all over again. This has been going on since 1996. These questions have been asked at every committee I can think of. The university has constantly been asked these questions, and it has simply not bothered to do so.

Senator Raggio:

We would like a copy of what you are reading from for the record (Exhibit E).

Mr. MacRenairis

I have copies of that and copies of complaints going back to 1996. I have tapes. I have taped interviews with complainants. I have 4000 pages of documentation. I would gladly give it all to you.

Senator Raggio:

I think you appeared at our earlier meeting. I think there is a bill requesting an audit of the university system. It may be more appropriate to go into these matters at those hearings.

Mr. MacRenairis

My major concern is this. When the chairman of a committee directs the Chancellor to comply with these questions, and she refuses to do so.

Senator Raggio:

She is here so she can respond. I do not want to get much further this morning. Your comments are noted.

Chancellor Nichols:

I do not want it to be on the record that I ever did not follow through on a directive from the Chairman of this committee. We did receive the material from Mr. MacRenairis. We have reviewed it. Our internal audit division is looking into the allegations. UNR is preparing a written report as well as our report from the system level. At that time, it will be provided to all committee members and to Mr. MacRenairis.

Senator Raggio:

This committee is adjourned at 10:33 am.

RESPECTFULLY SUBMITTED:

James D. Earl,

Committee Secretary

APPROVED BY:

Senator William J. Raggio, Chairman

DATE:

APPROVED BY:

Assemblyman Morse Arberry Jr., Chairman

DATE: