MINUTES OF THE meeting
of the
Assembly Committee on Ways and Means
AND THE
Senate Committee on Finance
JOINT Subcommittee on Higher Education/CIP
Seventy-Second Session
February 28, 2003
The Assembly Committee on Ways and Means and the Senate Committee on Finance, Joint Subcommittee on Higher Education/CIP, was called to order at 8:06 a.m., on Friday, February 28, 2003. Chairman Morse Arberry Jr. presided in Room 3137 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Guest List. All exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.
Assembly COMMITTEE MEMBERS PRESENT:
Mr. Morse Arberry Jr., Chairman
Ms. Chris Giunchigliani, Vice Chairwoman
Mr. Walter Andonov
Mrs. Dawn Gibbons
Mr. David Goldwater
Mr. Richard Perkins
Senate COMMITTEE MEMBERS PRESENT:
Senator William J. Raggio, Chairman
Senator Raymond D. Rawson, Vice Chairman
Senator Barbara Cegavske
Senator Bernice Mathews
COMMITTEE MEMBERS ABSENT:
None
GUEST LEGISLATORS PRESENT:
None
STAFF MEMBERS PRESENT:
Mark Stevens, Assembly Fiscal Analyst
Gary Ghiggeri, Senate Fiscal Analyst
Rick Combs, Deputy Fiscal Analyst
Connie Davis, Committee Secretary
Anne Bowen, Committee Secretary
OTHERS PRESENT:
Refer to Exhibit B.
PUBLIC WORKS ADMINISTRATION (101-1560) – BUDGET PAGE ADMIN-81
Chairman Arberry recognized Daniel K. O’Brien, Manager, State Public Works Board (SPWB). Mr. O’Brien identified himself for the record and introduced Gustavo Nunez, Deputy Manager, Professional Services, and Evan R. Dale, Deputy Manager, Administration and Finance.
Mr. O’Brien provided the following information:
Evan Dale, Deputy Manager, Administration and Finance, State Public Works Board, identified himself for the record. Mr. Dale referred to the SPWB Expanded Program Narrative (Exhibit C), and addressed the following enhancement units that were included in The Executive Budget for Budget Account 101-1560:
Senator Mathews spoke in opposition to providing funding to maintain the Manager and Deputy Manager’s professional engineer licenses. It was Senator Mathews’ opinion that professionals in any field had a responsibility to maintain their own licenses.
Senator Raggio also pointed out that funding to maintain continuing education requirements was not normally provided by the state.
In the interest of time, Senator Raggio requested that the SPWB staff address the Facilities Condition Analysis Program.
Mr. O’Brien recalled his commitment made to the Subcommittee during the Seventy-first Legislative Session that 300 state buildings would be surveyed by the end of the biennium. Mr. O’Brien reported that the Facilities Condition Analysis Program had exceeded 300 surveys over the biennium, and their new goal was to survey 300 buildings per year.
Mr. O’Brien pointed out that information on page 3 of the Expanded Program Narrative (Exhibit C) projected 150 buildings would be audited by the Facilities Condition Analysis Program in fiscal year 2002, while the actual number of buildings audited was 249. The number of buildings projected to be audited for fiscal year 2003 was 150, which Mr. O’Brien said would be easily met. Additionally, projections indicated that the Facilities Condition Analysis Program would audit 300 buildings in fiscal years 2004 and 2005.
Senator Raggio noted that the Facilities Condition Analysis Program currently required a General Fund appropriation of approximately $215,000 each fiscal year. Senator Raggio questioned whether eliminating the program for the next two years, in an effort to effect budget savings, would be a serious problem.
Mr. O’Brien responded that it had taken some time to recruit people familiar with facilities work and to bring the three positions up-to-speed. It was Mr. O’Brien’s opinion that eliminating the program would place the Board four years behind in facility condition analysis.
In response to a question from Senator Raggio concerning the types of problems the program identified, Mr. O’Brien indicated the program assisted in the Capital Improvement Program by defining maintenance needs for the various buildings. Mr. O’Brien recalled that the SPWB had provided letters to the Interim Finance Committee from agencies on how effective the program had been in identifying their maintenance needs.
In response to a question from Senator Raggio concerning reductions to the budget and what the SPWB might consider a lower priority, Mr. O’Brien indicated there was no lower priority.
Additionally, Mr. O’Brien indicated the Facilities Condition Analysis Program benefited the state and that various state agencies had requested reviews of their maintenance needs. Mr. O’Brien indicated the program was being expanded to include maintenance and training seminars for facility managers to assist agencies in maintaining their equipment and preventing equipment failures.
Senator Raggio again questioned whether there was anything in the SPWB budget of a Iesser priority, and Mr. O’Brien indicated he was unaware of anything.
Chairman Arberry questioned whether the three positions could be transferred in the event it was determined that the program would be eliminated.
Mr. O’Brien responded that there were some possibilities for transfer to vacant inspector positions.
Mr. Dale pointed out that the SPWB requested a reduction of one staff person in Budget Account 1560.
Mr. O’Brien indicated it was determined that the position targeted for reduction in Budget Account 1560 was a better fit in Budget Account 1562.
In response to questions from Chairman Arberry concerning the position transfers, Mr. Dale explained that if the transfers were approved, Budget Account 101-1560 would include nine positions rather than ten.
Speaking in support of the Facilities Condition Analysis Program, Mr. O’Brien recalled that when he had been questioned two years ago he had seen a tremendous need for the program, and he also pointed out that Nevada Revised Statutes (NRS) required that the SPWB inspect state buildings. Since then, Mr. O’Brien indicated the Facilities Condition Analysis Program staff had done an outstanding job in discovering problems in the various state facilities’ mechanical systems. It was Mr. O’Brien’s opinion that money spent for the program could be offset by the amount of savings the agencies would incur by extending the life of their mechanical equipment. Mr. O’Brien explained that because adequate training had not been provided to state agencies on how to maintain their equipment, there were currently requests to replace boilers that were only about 10 years old that should have had a life of 20 years. It was Mr. O’Brien’s opinion that the program was just getting started in the work that needed to be accomplished.
Chairman Arberry asked that Mr. O’Brien provide the Committee with information concerning the savings that would be realized by the state if the program were not eliminated.
Mr. O’Brien indicated that while the SPWB could provide information on cost savings, the figures would be estimates since they lacked a database that could provide hard numbers. However, Mr. O’Brien explained that if a boiler system had to be replaced at a cost of $500,000 or $1 million, payment would be the dollar amount utilized. Mr. O’Brien indicated they would provide the requested information.
Chairman Arberry stated that the point he and Senator Raggio were trying to make was that certain reductions had to be made during the current financial crisis, and those reductions would have to be made wherever it was necessary.
Mr. O’Brien expressed his understanding of the situation.
Assemblyman Andonov asked for information concerning the process used to notify entities of impending SPWB projects.
Using Carson City as an example, since there were several projects currently under construction at the Western Nevada Community College, Mr. O’Brien indicated that SPWB Project Managers normally appeared before city officials to obtain a special use permit. However, in the outlying areas, the Fire Department provided information concerning sewer and water connections. Mr. O’Brien further explained that the SPWB did not normally deal with building departments because they did not have jurisdiction over state property. Mr. O’Brien also explained that smaller jurisdictions had no formal process unless a special use permit requirement had been established.
In response to questions from Mr. Andonov concerning whether the SPWB was subject to the same zoning regulations as developers, Mr. O’Brien indicated they were. While the SPWB did not have to comply with all zoning regulations, Mr. O’Brien indicated that they had to comply with special use requirements. Mr. O’Brien added that the SPWB wanted to be a good neighbor and did not want to put in a special use that was incompatible with an adjacent use.
PUBLIC WORKS INSPECTION (101-1562) – BUDGET PAGE ADMIN-87
Mr. O’Brien advised the members of the Committee that Budget Account 101‑1562 was the SPWB Inspection account that funded project management and inspection services for all capital projects. The SPWB Inspection account also included 50 full‑time classified employees, and the total budget request for the 2003‑2005 biennium was a little over $9 million compared to the estimated $8 million in expenditures for 2001‑2003 biennium.
Mr. O’Brien advised the members of the Committee that the SPWB Inspection account received its funding “entirely through assessments against the projects included in the Capital Improvement Program.”
Mr. O’Brien addressed the proposed employee position issues:
Mr. O’Brien explained that the two positions they were requesting to transfer into the SPWB Inspection account from the General Fund account were working on contract documents and construction‑related activities. Additionally, Mr. O’Brien explained that the position they were requesting to transfer from Budget Account 101-1562 into Budget Account 101‑1560 was an overhead administrative position that served the managers.
Mr. O’Brien addressed the SPWB request for an increase in office space of approximately 800 square feet. Mr. O’Brien explained the increase in office space was tied to the relocation of the SPWB into the former EICoN (Employers Insurance Company of Nevada) building in Carson City. The move was expected to occur in approximately one year.
Mr. O’Brien reported that the SPWB budget request included approval to receive a revenue transfer from the Buildings and Grounds Division for Americans with Disabilities Act (ADA) compliance work, which would offset the need for management and inspection fees.
Mr. O’Brien addressed the need to replace the antiquated phone system in the SPWB Las Vegas office and replace and upgrade data processing equipment.
Chairman Arberry asked the SPWB representatives to address the difference in management and inspection fee levels for the library at the University of Nevada, Reno (UNR) (CIP 01-C24), which was a $64.4 million project, and the Science Engineering and Technology Complex at the University of Nevada, Las Vegas (UNLV) (CIP 03-C23), which was a $60.4 million project. Staff noted a significant increase in the percentage of each project that related to management inspection fees. Other projects of similar cost from a previous biennium were also compared and significant percentage increases were noted in those projects as well.
Mr. Dale indicated it was his assessment the project management and inspection fees for the 1999-2001 Capital Improvement Program (CIP) projects were inadequate for the amount of work involved. Mr. Dale explained that the fees were approximately 3 percent of the total CIP and generally less than two years of the SPWB operating budget. Mr. Dale indicated that matching the workload with the fees did not work out because neither of the CIP’s that the Chairman referred to could have been carried out in two years.
Mr. Dale advised that after reviewing the 2003 CIP, he determined there was approximately 2.5 years of workload and, therefore, put 2.5 years of the agency’s fees into the CIP as a type of match. While he was aware that going from 3 percent to 5 percent of the CIP for project management and inspection fees appeared to be a large increase, Mr. Dale said the fee, which included inspections, was reasonable and in line with fees charged by a project manager in the private sector.
Additionally, Mr. O’Brien addressed funding problems associated with uncompleted past projects and used the following examples:
Mr. O’Brien explained that revenue could not be charged to projects on hold and the agency did not have a fund, such as existed in the private sector, that covered stalled projects. Mr. O’Brien also explained that even though projects were on hold, the agency had to continue their services, finish projects they were working on, and get ready for the next set of projects, which caused some budgeting problems.
Senator Raggio expressed an understanding of the dilemma, however, indicated the Committee’s concern was that increased project management and inspection fees reduced the amount of funding available for the actual design and construction of capital improvement projects.
Mr. O’Brien indicated that if the SPWB initially planned for the fees, the available funding would not be reduced, and he pointed out the fees had been included in the CIP budget.
Senator Raggio reiterated the Committee’s concern that increased fees taken from an estimated project would reduce the available funding for the design or construction of a project.
Mr. O’Brien agreed that the scope of a project had to be worked within the budget and explained that the SPWB had started the CIP process early to ensure better project management in order to not have to reduce the scope of a project. Mr. O’Brien indicated that discussions had taken place with Clark County School District representatives concerning their project management program. Mr. O’Brien reported that Clark County’s project management costs for projects totaling $500 million in any one year were 5 percent, and they also provided inspections.
Mr. O’Brien reported the SPWB had recently implemented a cost accounting system. Currently, inspectors and project managers were recording time spent on specific projects, which would provide a good database for future reference and would accurately reflect the cost of a project.
Mr. Dale referred to page 5 of the SPWB Expanded Program Narrative (Exhibit D) and addressed decision unit E-275, a request to receive $35,000 from the Buildings and Grounds Division in each year of the biennium. In exchange for the money, the Public Works Board agreed to survey the buildings the state rented for ADA compliance. Mr. Dale reported that Buildings and Grounds Division representatives preferred having the survey work done by the SPWB rather than by private firms.
Mr. Dale addressed decision unit E-276, a request to receive $100,000 over the biennium from the 2003 CIP for in-house architectural work. Mr. Dale explained that there were several architects on the SPWB staff, and it was requested they be permitted to do some of the architectural work in-house rather than having the work outsourced.
Mr. Dale addressed decision unit E-277, a request to increase authority to receive revenue for plans checking. Mr. Dale explained that the SPWB was required to check plans for any construction that occurred on state property, or with state money, and they were attempting to take a more official role to make it easier for other agencies to comply with the requirement. Mr. Dale advised the Committee that the SPWB would be collecting additional fees for plans checking and expected to double what was collected in fiscal year 2002. Page 6 of the SPWB Expanded Program Narrative (Exhibit D) reflected a schedule of what the SPWB paid outside plans checkers, which would be used to assess the SPWB fees for in-house plans checking. Mr. Dale explained that the fees were tied to the architects’ estimated construction costs.
Mr. Dale addressed decision unit E-278, a request to allow the SPWB to relocate its Carson City office and in the process rent an additional 800 square feet of space from the Buildings and Grounds Division. Mr. Dale explained the move would be from the Kinkead Building to the former EICoN Building, which was recently purchased and currently under renovation. Page 7 of the SPWB Expanded Program Narrative (Exhibit D) reflected a schedule published by the Buildings and Grounds Division, which justified the number of square feet an agency could use. The schedule showed that the SPWB should occupy approximately 8,800 square feet, and in the move to the EICoN building, the SPWB would occupy approximately 8,700 square feet.
Page 8 of the SPWB Expanded Program Narrative (Exhibit D) included photographs that showed the crowded office conditions and architectural and engineering books lining the hallways.
Mr. Dale addressed decision unit E-280, a request to reestablish the agency’s budget for vehicle maintenance. Mr. Dale explained that in the 2001 budget, the SPWB was approved to receive up to three Nevada Highway Patrol (NHP) surplus vehicles, and during the last biennium only one of those vehicles was obtained from state surplus. Mr. Dale explained that the SPWB had anticipated obtaining a Ford Explorer, however, none had become available, which was one of the reasons the other two vehicles had not yet been acquired. Mr. Dale further explained that an agency-owned vehicle was less costly than reimbursing employees for mileage or renting a monthly Motor Pool vehicle. Mr. Dale reiterated that funding would be required to maintain the vehicles.
Mr. Dale addressed the following requests under decision unit E-300:
Chairman Arberry requested that the SPWB provide additional information to the Committee’s staff concerning the $36,000 request for Building Code reference manuals.
Mr. Dale addressed decision unit E-605, a request to eliminate one Inspector position in Las Vegas. Mr. Dale explained that the SPWB determined they could fulfill their inspection needs in the south during the biennium without the position. However, Mr. Dale said that, dependent on future capital improvement projects, the need could arise to request reinstatement.
In response to an objection from Chairman Arberry concerning elimination of the position from the south, Mr. Dale explained the position was eliminated because it was vacant and positions could be moved to wherever the workload was greater.
Chairman Arberry expressed reluctance to eliminate the Inspector position from the south and asked that the SPWB rethink their request.
Mr. Dale addressed decision unit E-710, a request to replace the agency’s outdated hardware and software. Information Technology staff advised that computers should be replaced every six years. Mr. Dale reported the agency currently operated over sixty computers, and if the replacement policy were followed, approximately ten computers a year would require replacement. The SPWB request was substantially below the policy and had been scaled back to what was considered necessary replacements.
Mr. Dale addressed decision unit E-720, a request for new equipment that included four laptop computers for the Inspection staff, six digital cameras for the Inspection staff, a new phone system for the Las Vegas office, survey equipment, and miscellaneous office furniture.
Gustavo Nunez, Deputy Manager, Professional Services, identified himself for the record and reported that the SPWB’s budget requested funding for four laptops to provide support for staff in remote locations, for example, Elko, Lund, Ely, Caliente, and Pioche. Mr. Nunez explained that as the Inspectors moved from job to job, laptop computers proved to be a cost-effective tool to complete the necessary paperwork, and since construction trailers were not provided for smaller projects, desktop computers were unavailable. Additionally, Inspectors on smaller projects inspected more than one project on a daily basis, and laptops provided the additional flexibility to complete their work.
Mr. Nunez reported that the SPWB’s budget request also included six digital cameras. Mr. Nunez indicated the digital cameras would allow electronic storage of photographs, and the technology would provide the Inspection staff the ability to illustrate field conditions in a matter of minutes rather than hours or days. Mr. Nunez further advised that digital photography was an invaluable tool for communication between project managers and architects to monitor construction progress and problems in the field.
With respect to the budget request for survey equipment, Mr. Nunez explained the new survey equipment would replace a 1950s era transit that was cumbersome to use and not cost-effective. The new survey equipment could be operated by one person rather than two and could be carried by project coordinators on small projects in remote locations to obtain necessary field data rather than hiring a field survey crew who would require travel time to the remote locations.
Mr. Dale addressed the budget request to replace the phone system in the Las Vegas office. Mr. Dale explained that the phone system in Las Vegas was antiquated and replacement parts were difficult to find. Mr. Dale advised that a recent quote indicated an appropriate cost for replacing the phone system was approximately $7,000.
Mr. Dale advised the members of the Committee that the remainder of the equipment request included small dollar items, such as file cabinets and bookshelves to accommodate expanded file storage capacity.
Moving on to decision unit E-900, Mr. Dale reported on the budget request to transfer position 0022 from Budget Account 1562, Public Works Inspection, to Budget Account 1560. Mr. Dale reported that the employee who currently filled the position was an assistant to the manager and deputy managers and did not work on specific CIP projects. The employee was involved in general administration of the agency, and it appeared more appropriate to fund the position out of Budget Account 1560.
Mr. Dale reported that decision unit E-901 requested a position transfer from Budget Account 1560, Public Works Administration, to Budget Account 1562, Public Works Inspection. The position worked specifically on CIP projects, prevailing wage compliance, and change orders. Since the position’s involvement with general administration of the entire agency was nonexistent, Mr. Dale indicated it appeared more appropriate to fund the position out of Budget Account 1562.
In reference to decision unit E-902, a request to move position 0007 from Budget Account 1560, Public Works Administration, to Budget Account 1562, Public Works Inspection, Mr. Dale reported it appeared more appropriate to fund the position out of CIP funds since there was no work involved with the general administration of the agency.
In reference to decision unit E-903, a request to transfer a position from Budget Account 1371, the Administrative Services Division, Mr. Dale reported that in fiscal year 2002, seven positions were transferred out of the Public Works Board accounts, to Budget Account 1371, Administrative Services. Over the biennium, Mr. Dale indicated it became apparent that one too many positions had been transferred out of Budget Account 1562, which left them understaffed in the area of maintaining accounting duties and records.
In response to concerns Chairman Arberry raised over the transfers, Mr. Dale assured the members of the Committee the request was not the beginning of a transitioning of positions back to Budget Account 1562. Mr. Dale explained that there were two fields in accounting, financial and managerial, and financial accounting was done in the Administrative Services Division. However, some managerial accounting within the agency concerning items “at a very specific level for projects,” was required. Additionally, approximately 30 pay applications per week were processed which included collecting 5 signatures on each application, and checking the budget, contract, change orders, and endorsements. Mr. Dale indicated that the request simply transferred one position back to Budget Account 1562 to correct their understaffing problem, and he said the SPWB would not request a return of any of the other positions.
In response to further concerns raised by Chairman Arberry regarding returning the position to Budget Account 1562, Mr. Dale advised that the Administrative Services Division had the capability to do the level of work, but it was not practical to have the work done in a different part of the Capitol Complex. Mr. Dale indicated that the State Public Works Inspection account needed a position to move documents between the managers, deputy managers, project managers, inspectors, architects, and the contractors, and it appeared inappropriate to place the burden on the Administrative Services Division. Mr. Dale also explained that the State Public Works Inspection account tracked information on projects by specific detail, which was not possible to maintain in the Integrated Financial System (IFS), and the position they were requesting would maintain that database.
Chairman Arberry asked the SPWB representatives to provide the Committee’s staff with a list of the position’s duties and the reasons why those duties could not be provided in the Administrative Services Division.
Mr. Dale agreed to provide the information to staff.
BUILDINGS AND GROUNDS DIVISION (101-1349) – BUDGET PAGE ADMIN-59
Mike Meizel, Administrator, Buildings and Grounds Division, identified himself for the record. Mr. Meizel reported the Buildings and Grounds Division provided facilities management and maintenance for most of the state-owned buildings excluding the Nevada Department of Transportation and the University and Community College System of Nevada (UCCSN). Additionally, the Buildings and Grounds Division was responsible for:
· Property management for buildings leased by the state.
· Mail Services.
· Management of the Marlette Lake Water System.
· Administration of the Clear Creek Youth Camp.
Mr. Meizel addressed the following performance indicators:
Mr. Meizel also attributed the rent increase to rebuilding the reserve in the event of additional utility increases or the failure of expensive boilers or air conditioning units that could cost in the neighborhood of several hundred thousand dollars to replace.
Chairman Arberry questioned the reasoning behind the flat rental rate recommended in The Executive Budget for state agencies despite whether they were located in buildings without security, with contract security, or security provided by the Capitol Police.
Mr. Meizel recalled that prior to the last two or three legislative sessions, there was only one rental rate. It was then decided that breaking those rates down to show a rate that included security provided by Capitol Police, or for those agencies that had contract security, could provide useful information. Mr. Meizel explained that as it turned out, security was just a small percentage of the total number of building rent variables. For example, certain buildings required more maintenance and cleaning; some operated 24 hours a day, seven days a week; and some required more utilities than other buildings. Mr. Meizel explained that too many variables provided an accounting nightmare and not enough useful information. Using the Capitol Building as an example, Mr. Meizel pointed out the historic building with its high ceilings was an expensive building to maintain, and its useable square footage did not compare to a building such as the Sawyer Building in Las Vegas. Additionally, Mr. Meizel indicated that moving agencies from building to building with a variable rent rate would prove difficult, and the General Fund would “suffer” because most of the federally funded agencies would be housed in buildings considered efficient rather than historical buildings.
Mr. Meizel continued his presentation and addressed budget enhancements beginning with E-605 – Budget Reductions. Mr. Meizel reported a budget reduction of two positions, a Water Treatment Operator, a position that had remained vacant for a number of years, and a Maintenance Repair Specialist position that had been filled until the employee retired last fall. Mr. Meizel indicated that while the Division would have preferred to retain the positions, a need to reduce the budget prompted some shifting between the Las Vegas and the Carson City offices to cover the reduction. Mr. Meizel further indicated that perhaps in two years, they would request a reinstatement of the positions.
With respect to E-710 – Replacement Equipment, Mr. Meizel requested replacement of a riding lawnmower in each fiscal year of the biennium.
Mr. Meizel addressed E-720 – New Equipment, and requested one Balometer, electronic equipment that measured supply and exhaust airflow, one HEPA vacuum cleaner, a brand of vacuum considered superior to other brands, and one Backflow Tester. Mr. Meizel advised the Committee the request for the new equipment was in response to clean air concerns over the years.
With reference to E-730 - Maintenance of Buildings and Grounds, Mr. Meizel addressed the funding requested for the renovation of projects that were deferred during the last biennium. Mr. Meizel noted that the projects totaled $1.4 million in the first year of the biennium, and $1.6 million in the second year. Additionally, Mr. Meizel indicated he had provided the Committee’s staff with a list of the projects, which included carpeting the Attorney General’s building for a cost of $220,000.
Chairman Arberry requested a description of the projects that were approved by the 2001 Legislature but were not completed and were not recommended for completion during the 2003-05 biennium.
Mr. Meizel agreed to provide a list of the projects to the Committee’s staff.
In response to questions from Senator Raggio concerning the renovation of Building 17 at the Stewart facility, Mr. Meizel advised that the first floor would be used for the Department of Corrections, and several agencies, including POST (Peace Officers Standards and Training) and Division of Parole and Probation were being considered for the second floor. Mr. Meizel indicated a need to fill the second floor with leased agencies and expressed confidence that the floor would be occupied.
Senator Raggio questioned the necessity of renovating the second floor if there was some uncertainty concerning occupancy.
Mr. Meizel indicated he could provide information concerning occupancy for the second floor within a month.
Chairman Arberry questioned whether the Division was confident that funding included in The Executive Budget for maintenance services contracts was sufficient.
Mr. Meizel expressed confidence that funding was sufficient to cover contract prices for maintenance services.
Rick Combs, Deputy Fiscal Analyst, had additional questions concerning whether an inflationary adjustment to cover an increase in contract prices had been included in The Executive Budget for the 2003-05 biennium. Mr. Combs asked for assurance that the amount requested was sufficient to cover inflationary increases in contract prices.
Mr. Meizel advised the Committee and staff that he would take a closer look at the inflationary factor concerning maintenance services contracts.
CLEAR CREEK YOUTH CENTER (101-1353) – BUDGET PAGE ADMIN-73
Mr. Meizel reported that Clear Creek Youth Center, located in the foothills between Carson City and Douglas County, was built by the federal government as a Job Corps Center and was transferred to the state of Nevada in 1970. Mr. Meizel indicated that the Clear Creek Youth Center encompassed between 40 to 60 acres of land and provided meeting space for community groups and organizations such as Boy Scouts, Girl Scouts of America, and Nevada Girls State.
In response to questions from Senator Raggio concerning the number of positions used to operate Clear Creek Youth Center, Mr. Meizel indicated that a Request for Proposal (RFP) had been initiated within the last year to contract for management and operation of the facility, and the only respondent to the RFP was the Future Farmers of America organization. Mr. Meizel advised the Committee that the Future Farmers organization proposed to operate and manage the facility in addition to holding classes and providing enhancements to the site. The state would be held harmless concerning all liability and maintenance with no costs associated with the agreement.
In response to additional questions from Senator Raggio concerning the number of people on-site and negotiations for a long-term agreement, Mr. Meizel indicated the Future Farmers would have a number of people on-site that included several maintenance employees. Additionally, he indicated a long-term agreement for occupancy of between 20 and 50 years was being negotiated. Mr. Meizel further advised that if negotiations for a 50-year occupancy were successful, the state would be precluded from selling the site. It was Mr. Meizel’s opinion that if an organization, such as the Future Farmers, took over operation and maintenance of the site, capital improvements would be required, and the organization would need a period of at least 20 to 50 years during which the state could not sell the site. However, the state would be faced with spending money to improve the site if they wanted to hold on to the Clear Creek Youth Center. It was Mr. Meizel’s opinion that the state should not hold the property with the thought that perhaps in 20 years it would be sold.
In response to a question from Senator Raggio concerning whether an appraisal had been obtained, Mr. Meizel indicated that while they had not obtained an appraisal, the property had value. However, Mr. Meizel advised that managing youth camps was an expensive proposition and not one that the state did well.
In response to questions from Senator Raggio concerning the number of state positions at Clear Creek, Mr. Meizel advised there was one full-time employee stationed at Clear Creek and one seasonal employee. The seasonal employee lived on-site but paid actual market value rent and worked in the summer.
In response to questions from Senator Raggio concerning the status of the project, Mr. Meizel advised that the Division was currently nearing the end of the negotiation process and the issue of a long-term lease.
It was Senator Raggio’s opinion that unless the Future Farmers of America made substantial capital improvements, they should not be given a long-term lease because the state might want to sell the property.
In response to questions from Senator Mathews concerning rent paid on the lease, Mr. Meizel clarified that while the Future Farmers would not be paying rent, they would be making improvements, providing maintenance, and paying the insurance that would hold the state harmless. Mr. Meizel further explained that if the state no longer maintained and operated Clear Creek Youth Center, the state would no longer be paying $288,000 a year for the maintenance and operation of the Center. Mr. Meizel indicated that if the state were to keep the site, additional monies would have to be spent on maintenance and on managing the youth groups.
Senator Raggio noted that about $1.6 million in much needed maintenance had been deferred and questioned whether Future Farmers, under the RFP, would be required to provide that maintenance work.
Mr. Meizel advised that the $1.6 million in maintenance was an issue that was still being reviewed; however, it was Mr. Meizel’s opinion that most of the maintenance work was related to life-safety issues and that if the lease was awarded on a long-term basis, the state should not have to pay the $1.6 million.
In response to questions from Senator Raggio concerning deed restrictions, Mr. Meizel advised that there were no restrictions on the deed.
Senator Mathews asked whether any of the life-safety issues at Clear Creek had been addressed since 1995.
Mr. Meizel responded that the Clear Creek life-safety issues were addressed during the Seventy-first Legislative Session, but about that time the Division began considering alternatives for operation that would result in the state not retaining the site. Mr. Meizel indicated it appeared unwise to spend $1.6 million on the property without the knowledge that the site would remain under state control. Additionally, he explained that several of the dorms were fairly modern and had been made compliant with the Americans with Disability Act (ADA). Mr. Meizel indicated he did not believe that anyone had been placed in an unsafe condition, but if the state wanted to meet all of the current codes, the $1.6 million would have to be spent.
BOND INTEREST & REDEMPTION (395-1082) – ELECTED-108
Robin V. Reedy, Deputy Treasurer Debt Management, Office of the State Treasurer, identified herself for the record.
Ms. Reedy addressed issues regarding debt issuance and the state’s rating and testified that currently Nevada’s bond ratings were AA+, AA, and Aa2 from Fitch, Standard and Poor’s (S&P) and Moody’s respectively.
Ms. Reedy explained that rating agencies generally evaluated four factors in reaching rating decisions, and those factors included financial, economic, debt, and administrative/management. Ms. Reedy provided the following information concerning each of the four factors:
Ms. Reedy indicated that the rating agencies recognized that every state was experiencing revenue shortfalls in fiscal year 2003 and would continue to do so in the near future. In conversations with the rating agencies, and after reading various proposals to resolve the structural deficit, Ms. Reedy said it was her opinion the rating agencies were looking to each state to formulate a plan to make up the revenues or pay back planned withdrawals from reserve accounts, such as the Rainy Day Fund in Nevada. Ms. Reedy indicated that the rating agencies were looking for plans with the following characteristics:
Ms. Reedy indicated the rating agencies were anxious to see the results of the legislative session, as were the citizens of Nevada.
Ms. Reedy reported that the proposed Capital Improvement Program (CIP) plan and the coinciding capacity report took into account the one-cent property tax increase proposed by the Governor to pay for debt service. Ms. Reedy explained that the expense side of Budget Account 395-1082 reflected expenses paid by that extra penny while the revenue side of the budget did not take the increase into account.
Ms. Reedy advised that the proposed CIP requested authorization for bonding, a portion of which spanned beyond the current biennium. According to the following Attorney General’s opinion:
The Legislature may authorize the issuance of general obligation bonds for capital improvement projects in excess of the debt limit prescribed in Article 9, Section 3 of the Nevada Constitution so long as the bonds are not issued in violation of that constitutional provision or the relevant provisions of NRS Chapter 349.
Ms. Reedy explained that the rating agencies actually would view that type of long-range planning as a positive for the state.
Ms. Reedy addressed Measure 1, a $200 million proposal to issue natural resource bonds, passed by the voters in Nevada’s most recent election, which also resulted in the need to increase the property tax above the current 15‑cent levy. The increase, which was based on estimates of $80 million in the current year, another $80 million the following year, with $20 million issued in each of the subsequent years, was currently estimated to be slightly less than a penny at $0.00891 in the first biennium, slightly less than two cents at $0.01960 in the next biennium, and the third biennium would result in the highest estimated increase of $0.01991. Ms. Reedy pointed out that the rate was consistently reduced during the following biennia. Additionally, Ms. Reedy indicated that the estimates could be adjusted in future sessions, dependent on the actual debt service once bonds were issued.
Turning to the Debt Capacity Report (Exhibit E), Ms. Reedy pointed out that the report was formatted similarly to the 2001-2003 Capacity Report. Page 1 reflected the “2003-2005 Capital Improvement Recommendation” prepared by the Office of Administration. Page 2 illustrated the underlying assumptions used to compute the report. Page 3 was the historical and forecasted assessed valuations from the Department of Taxation. Page 4 illustrated the “Debt Repayment Summary,” and page 5 illustrated the “Existing General Obligation Debt Paid with Property Taxes.” Page 6 compared the existing and projected debt to the fiscal year taxes and then reflected that balance as a percentage of the following year’s debt service and as a percentage of the next six months’ debt service. Pages 7 through 15 included estimated schedules for existing authorizations of debt and the proposed future authorization. Page 16 compared the outstanding and future debt to the 2 percent debt capacity limitation under the Constitution. The balance of the report described in greater detail what rating agencies analyzed while the final pages, prepared by the Office of Administration, illustrated future CIP programs in draft form.
In response to a question from Senator Rawson concerning the state’s 2 percent constitutional limit on the principal amount of general obligation debt, Ms. Reedy turned to the Debt Capacity Report (Exhibit E) and pointed out “The Constitutional Debt Capacity Calculation” schedule on page 16 reflected the Assessed Value, the Debt Limit, Outstanding and Future Debt, and Debt Capacity for what could additionally be bonded, provided the availability of funding.
In response to additional questions from Senator Rawson concerning funding availability, Ms. Reedy explained that Nevada had a 2 percent constitutional limit on the principal amount of general obligation debt as well as a statutory statewide property tax, currently $0.15 per $100 of assessed value, which she used to estimate how much debt could be supported.
Senator Rawson questioned what percent of the state’s assessed value was considered a reasonable level to encumber in order to maintain good credit ratings.
Ms. Reedy indicated that every state was different and many states found a revenue stream before they undertook debt obligation. Ms. Reedy indicated that Nevada was fairly conservative using the money from the $0.15 per $100 of assessed valuation but indicated she would research the issue and attempt to provide the information.
Senator Rawson indicated that it appeared that the state had a problem in not being able to fund the capital improvements that were needed. Senator Rawson recognized that while the state had a good rating, services could not be met and a way needed to be found to handle the problem.
Ms. Reedy pointed out it was the statutory statewide $0.15 per $100 of assessed property tax that currently hindered the state, not the 2 percent debt capacity limitation.
Senator Rawson questioned how much bonding capacity would be permitted if the $0.15 were raised to $0.16.
Ms. Reedy indicated that in simple terms about $6 million a year in revenue would generate an increase of about $60 million in what the state could bond. Ms. Reedy pointed out that interest rates could make those figures fluctuate.
In response to questions from Senator Rawson concerning how a one-cent increase in property tax would affect the homeowner, Ms. Reedy indicated she had not personally run those numbers; however, it was noted by several members of the Committee that the information was contained in “The Budget in Brief” and in the “Red Book” published by the Department of Taxation.
In response to a question from Chairman Arberry concerning the levy that would be necessary if the Legislature issued the entire $200 million in bonds during the biennium, Ms. Reedy indicated she suspected a three-cent increase would be necessary if the bonds were issued all at one time. Based on estimates, Ms. Reedy advised the Committee that the highest increase would be just under two cents if the bonds were staggered at $80 million, $80 million, $20 million, and $20 million in each year.
Chairman Arberry asked Ms. Reedy whether the state’s bond rating would be negatively affected by the proposed $100 million transfer from the Rainy Day Fund.
Ms. Reedy indicated it appeared that as long as a plan existed to replace the Rainy Day Fund, the state’s bond rating probably would not be affected. However, Ms. Reedy indicated she would wait until the end of session to issue bonds so that rating agencies had more information before the bond issuance.
In response to additional concerns raised by Chairman Arberry, Ms. Reedy pointed out that the Rainy Day Fund was one of the factors the rating agencies looked at during the rating process, and it appeared they liked the fact that the state had a Rainy Day Fund by the questions they asked. Ms. Reedy said it was her opinion the state’s bond rating would be negatively affected if there were no plan to repay the Rainy Day Fund within a certain time period. Ms. Reedy indicated the rating agencies would not be shocked if the Fund was tapped, given the circumstances nationwide, but they would like to see a plan to have the funds replaced.
Mr. Goldwater commented that bond ratings across the country were down, and the main factor concerning ratings was the state’s ability to pay, not the ability to accrue assets. Mr. Goldwater indicated he believed the state’s capacity to repay the debt was good, and said that he was not a fan of the Rainy Day Fund, nor believed it was the government’s job to accrue assets in any particular category. Additionally, Mr. Goldwater indicated the legislators worked for the citizens of Nevada, not the bond rating agencies. Mr. Goldwater asked Ms. Reedy if she was aware of a time line concerning how the bond rating agencies wanted a plan compiled.
Ms. Reedy indicated she was equally frustrated with the bond rating agencies because they did not look solely at the fact that the state paid their General Obligation debt from the $0.15 per $100 of assessed property tax and had a 2 percent debt capacity limitation under the Constitution. Ms. Reedy said the bond agencies looked at the state as a whole and the fact that the state’s economy was tourist-based. Ms. Reedy indicated she worked to try to maintain the state’s bond rating and could only provide an opinion from past conversations.
Mr. Goldwater indicated that in the wake of corporate scandals, bond-rating agencies had less credibility than they had ever had and while he was uncertain that municipal ratings had lost as much creditability, he defined bond-rating agencies as “rearview mirror folks.” Mr. Goldwater reiterated that he did not believe the Legislature was going to be slave to a good bond rating.
Chairman Arberry noted that staff had advised him that the Governor had a plan to repay the $100 million to the Rainy Day Fund.
CIP 03-S8 STATEWIDE ENERGY RETROFIT – APPENDIX-11
Daniel K. O’Brien, Manager, State Public Works Board (SPWB), identified himself for the record. Mr. O’Brien advised the members of the Committee that the Statewide Energy Retrofit Program was contained within the Governor’s recommended Capital Improvement Program. Mr. O’Brien indicated that there was no funding requested for the Statewide Energy Retrofit Program since the program was based on paying back charges for implementation of work through energy savings.
Mr. O’Brien pointed out that the Statewide Energy Retrofit Program was administered by the State Public Works Board pursuant to Nevada Revised Statutes (NRS) 338.1906,which provided for energy conservation contracts not to exceed $15 million at any one time. Mr. O’Brien reported that the state currently had outstanding debt of less than $3 million against the $15 million limit. Additionally, Mr. O’Brien said the report on the amount of debt utilized other recent activities of the State Public Works Board, including the development of a solicitation of the energy retrofit project advertised in August 1998, and the development of a uniform contract, first used in the summer of 2000. Mr. O’Brien indicated that the University of Nevada, Las Vegas, Reno‑Sparks Convention and Visitors Authority, Carson City, and Carson City School District, among others, had utilized the uniform contracts.
Mr. O’Brien reported on the following energy retrofit contracts:
Mr. O’Brien pointed out that the Sawyer Building project included other operational savings not taken into consideration under the current statute. Mr. O’Brien indicated that prohibiting the use of operational savings had slowed the operation of the Energy Retrofit Program because there were significant operational areas, such as savings on the use of labor and water that could be taken into consideration. Mr. O’Brien discussed Bill Draft Request (BDR) 487, initiated by the State Public Works Board, which would make various changes concerning bidding and retrofitting for public works projects and which would allow for the operational savings and expansion of the use of the Energy Retrofit Program.
Mr. O’Brien addressed pending energy retrofit projects at the Northern Nevada Correctional Center in Carson City and High Desert State Prison that would become available if the energy retrofit legislation were approved.
Mr. O’Brien introduced Ward Patrick, Project Manager and Energy Coordinator, State Public Works Board.
Mr. Patrick identified himself for the record and stated that since Mr. O’Brien had thoroughly covered the material, he would answer questions.
In response to questions from Chairman Arberry concerning the savings that had been realized, Mr. Patrick advised that the basis of the Statewide Energy Retrofit Program had been cost avoidance. Mr. Patrick indicated that essentially the plan for the project was that money saved went into creating improvements to the facilities, but also created a hedge on price increases. One example used to demonstrate savings was a biennial energy usage and cost survey. Mr. Patrick indicated that the State Public Works Board representatives compared the Legislative Counsel Bureau (LCB) building to Buildings and Grounds’ overall performance. Mr. Patrick pointed out that the energy usage in the LCB building was almost identical in fiscal year 2000 as it was in fiscal year 2002 and it was determined that the costs for LCB over those two years increased by approximately 45 percent while the energy usage remained the same. Buildings and Grounds had some varying energy usage considering buildings coming online or not in service, such as the Armory or the EICoN building, and their cost increase over those two years was approximately 15 percent. Mr. Patrick indicated that even though the contracted savings was to break even and simply pay for the improvements, the hedge on pricing created savings that might be in the magnitude of 30 percent in the comparison between the two years.
With respect to BDR 487, Mr. O’Brien indicated that the State Public Works Board had been working with the Governor’s energy advisor on the proposal for energy and operational savings, and they believed the bill would be a benefit to the state as well as other government entities across the state. Elaborating upon earlier testimony, Mr. O’Brien indicated that significant savings could be realized with passage of the proposed legislation, which would open up more projects for the state as well as other entities across the state.
In response to questions from Chairman Arberry concerning the type of projects that had been requested and whether the projects would be completed during the 2003-05 biennium, Mr. Patrick indicated that the State Public Works Board had been developing an implementation plan, and upon execution of the statutory changes that included provisions for a Request for Quotation (RFQ) and operational savings, he believed that the State Public Works Board could complete five projects every five quarters after execution.
The Chairman adjourned the meeting at 10:00 a.m.
Connie Davis
Committee Secretary
APPROVED BY:
Assemblyman Morse Arberry Jr., Chairman
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Senator William J. Raggio, Chairman
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