MINUTES OF THE meeting

of the

Assembly Committee on Ways and Means

AND THE

Senate Committee on Finance

JOINT Subcommittee on General Government

 

Seventy-Second Session

March 4, 2003

 

 

The Assembly Committee on Ways and Means and the Senate Committee on Finance, Joint Subcommittee on General Government, was called to order at 8:07 a.m., on Tuesday, March 4, 2003.  Chairwoman Vonne Chowning presided in Room 2134 of the Legislative Building, Carson City, Nevada.  Exhibit A is the Agenda.  Exhibit B is the Guest List.  All exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.

 

Assembly COMMITTEE MEMBERS PRESENT:

 

Mrs. Vonne Chowning, Chairwoman

Mr. Bob Beers

Mr. Josh Griffin

Ms. Kathy McClain

Mr. David Parks

 

 

Senate COMMITTEE MEMBERS PRESENT:

 

Senator Sandra Tiffany, Chairwoman

Senator Bob Coffin

Senator Dean A. Rhoads

 

 

COMMITTEE MEMBERS ABSENT:

 

None

 

 

STAFF MEMBERS PRESENT:

 

Mark Stevens, Assembly Fiscal Analyst

Bob Guernsey, Principal Deputy Fiscal Analyst

Bob Atkinson, Program Analyst

Jeffrey A. Ferguson, Program Analyst

Anne Bowen, Committee Secretary

Lila Clark, Committee Secretary

Chairwoman Chowning called the Joint Subcommittee on General Government to order.

 

PUBLIC EMPLOYEES BENEFITS PROGRAM – BUDGET ACCOUNT 1338,  BUDGET PAGE PEBP-1

 

Chairwoman Chowning stated that the Public Employees’ Benefits Program (PEBP) would be presenting possible recommendations to the Subcommittee before presentation to the Public Employees’ Benefits Board on March 5, 2003.

 

P. Forrest Thorne, Executive Officer, Public Employees’ Benefits Program, stated he wanted to present some background and plan design options that would be submitted for the Board’s consideration on March 5, 2003. 

 

Mr. Thorne presented Exhibit C, Public Employees’ Benefits Program, FY2004 Plan Design Options; Exhibit D, Rate and Plan Design–July 2003 through June 2004; and Exhibit E, Option Comparison Summary. 

 

Mr. Thorne stated that he would present some of the background information that had been presented at the last hearing and then review the plan design options that were going to be proposed for Board consideration at tomorrow’s meeting.  All the proposals were based on claims experience, plan design options, recent Board decisions on providers, the HMO renewal rates received from the vendor, the recommended state subsidy, and the employee/employer share.  For state employees, NRS 287.0434 required that experience of state actives and retirees be commingled for the purposes of establishing rates.  For the non-state participants, the same considerations applied, however, in accordance with NRS 287.045, there was no commingling of the retirees of non-participating agencies with other retirees or active state employees.  Over 90 percent of non-state retirees were enrolled from non-participating local entities.  The current cost trend, based upon the most recent experience, was running higher than projected.  There was no recommendation for any change in the state subsidy.  The current projected funding levels and new projections for expense resulted in a $20.5 million shortfall.  The shortfall had to be eliminated, either by increasing the premium side of the equation, reducing the benefit side, or a combination of both.  Mr. Thorne said the options for the Board’s consideration were intended to implement a more long-term approach to the plan’s benefit structure.  Each option would involve additional participant expense as deductibles and co-pays were recommended to increase each year in accordance with the medical consumer price index (CPI). 

 

Mr. Thorne stated there were two basic options to be presented.  One plan was to continue the current benefits with all participants contributing toward the plan, including those with single only coverage.  The objective of this option was to maintain the current benefits, but participant premium increases would offset the cost in all tiers.  This would result in significant premium increases, but did nothing to alter the current utilization patterns that were generating the high claims. 

 

Mr. Thorne continued and said that the second option was a core benefit plan with a buy up to a plan with more extensive benefits.  The objective was to protect against catastrophic expenses and provide some consumer choice for enhanced benefit levels.  Individuals could make the determination of which plan was best for them.  The plan was designed with incentives to curb utilization and to encourage the use of the spending account available through Section 125 of the Internal Revenue Code.  PEBP was recommending an increase from $3,000 to $5,000 annually in those accounts. 

 

Under the first option of maintaining current benefits, all state participants would contribute an additional $20.00 per month.  The balance of the cost increases would be passed along through increased deductions for dependents.  In addition, it had been recommended that all premium deductions, whether Option 1 or Option 2, be defaulted to a pretax basis so that the participants could pay their premium costs on a pretax basis and reduce the impact on their bottom line. 

 

Mr. Thorne stated that currently, with single coverage, 60 percent of the state active participants incurred no cost for their benefits.  Option 1 would result in extraordinary increases for participant premiums.  Only state Medicare retirees had the favorable claims experience that would lower their premiums.  Non‑state retirees’ rates were “smoothed” between the early retiree group and the Medicare retiree group to try to mitigate some of the increase for retirees.  Option 1 would increase the self-funded reserve to $9.7 million by June 30, 2004.  The impact on rates for active employees was an increase of 79 to 89 percent.  Early retirees and Medicare retirees would see a reduction in rates.  With Medicare retirees, the Medicare-based medical experience was not commingled.  The plans were commingled where the benefits were the same for the participants.  For Medicare retirees, Medicare was the primary payee and the self-funded plan was the secondary payee.  With the Medicare retirees’ favorable experience, when the percentage contribution for all the retirees was calculated, both early and Medicare retirees benefited.  Non-state actives would face a 20 percent increase, and non-state early retirees a 4.6 percent increase, in addition to an already very high premium. 

 

Mr. Thorne stated the second option offered a two-tier plan.  This represented a fundamental change in plan design.

 

Chairwoman Chowning asked if the Subcommittee had any questions regarding Option 1 before Mr. Thorne moved on to Option 2.

 

Senator Tiffany inquired about the pretax basis and if it was deducted from the paycheck before taxes were taken out.  Mr. Thorne stated that was correct.  Senator Tiffany asked if the pretax basis would work in her case as she did not get a check from the state, or a subsidy from the state.  Mr. Thorne responded that she would not be eligible for the pretax plan as she was not a state employee and it was an employer-provided mechanism for paying premiums on a pretax basis. 

 

Assemblyman Beers commented that legislators might be eligible for an Internal Revenue Code Section 125 plan through the Legislature. 

 

Assemblywoman McClain asked what would happen to the self-funded insurance plan in a year or two if Option 1 were chosen and utilization kept increasing. 

 

Mr. Thorne responded that was the problem because Option 1 continued doing what had been done for the past several years, which was adding money to the system and hoping the utilization trend would not continue. 

 

Chairwoman Chowning requested that Mr. Thorne explain the $20 per month premium for employee-only coverage and also explain why it would be necessary to charge the premium as it established a precedent whereby each employee would be participating in the cost of his or her own insurance.  The Executive Budget recommended the state contribute $495.68 per month, per employee, for the FY2003-04, which exceeded the cost of coverage. 

 

Mr. Thorne stated that in Option 1 the only way to maintain current benefits would be to increase the funding.  Because 60 percent of the participants had employee-only coverage, all the additional cost would fall on the participants who had dependants.  In order to minimize the cost increase per participant it had been decided to implement a nominal additional charge for all participants, regardless of tier, which would include the employee-only category.  The $20, per active employee, would generate approximately $5 million per year.  The additional charge applied across all tiers and not just to the active employees.  Mr. Thorne commented that all that was being done was to increase the revenue side of the equation, and it had to be spread over the broadest possible base. 

 

Chairwoman Chowning stated that it was important to go over the drastic increase to state employees with dependants. 

 

Mr. Thorne stated that employees with dependants that could use the HMO would be paying a 72 to 86 percent increase and for the self-funded plan it would be a 79 to 89 percent increase. 

 

Chairwoman Chowning requested that Mr. Thorne clarify the “smoothing adjustment.” 

 

Mr. Thorne stated the non-state early retirees were in a very difficult situation and because the Medicare retirees fared better, the PEBP had attempted to even out the rate increase for just that group.  The “smoothing adjustment” happened within the non-state retirees’ category to even out the increase between the early retirees and the Medicare retirees, which helped to reduce the impact on those without Medicare.  The “smoothing adjustment” had been done in both options that would be presented to the Subcommittee. 

 

Chairwoman Chowning asked if 90 percent of the claims were attributable to only 10 percent of the participants, why had it been determined to raise all participants’ costs and further questioned if Option 1 addressed utilization or was merely a revenue fix.

 

Mr. Thorne responded that Option 1 would be a revenue fix only and would not address utilization in any way.  In answer to why all participants’ rates would have to be increased because of only 10 percent of the participants, Mr. Thorne stated that was the basic principle of insurance; all participating in the pool were paying a proportionate share of the total cost.  Many of the large claimants were a rotating group and the same claimants this year would not be the same next year.  Most of the time it was a single, acute health event that caused the high expense. 

 

Chairwoman Chowning suggested the Subcommittee members keep in mind that Option 1 did nothing about the overall utilization. 

 

Ms. McClain inquired about Medicare versus non-Medicare retirees and wondered if the non-Medicare retirees were mostly people who retired early and had not become 65 years of age yet, or were people who would never qualify for Medicare because they had never paid into it.


Mr. Thorne responded by stating early retirees were retirees who had not reached the Medicare age of 65.  The Public Employees’ Benefit Program had been concerned and had conducted a full survey of all Medicare age retirees, state and non-state, in 2001.  The survey found that over 99 percent of the Medicare age retirees had Medicare and that should not be a significant issue in the future. 

 

Ms. McClain asked if it was the middle ‘80s when the law was changed regarding public employees paying Medicare premiums.  Mr. Thorne replied he believed the law was changed in 1987.

 

Senator Tiffany commented that she would not be able to present Option 1 to the Board with a straight face and asked if it was being presented because the PEBP felt compelled to have an option with the same benefits and if it would be taken seriously. 

 

Mr. Thorne responded that Option 1 was being presented because it provided a benchmark. 

 

Senator Tiffany stated that Option 1 made no sense and the Legislature would not continue to bailout the insurance plan.

 

Chairwoman Chowning commented that it should be remembered that there was no recommended pay increase for state employees, so there would be a “deficit out of the pocketbooks of state employees.” 

 

Mr. Thorne continued with the presentation of Option 2, which contained a two-tier plan.  Option 2 represented a fundamental plan design change with a Core Plan provided to protect against catastrophic expenses and encourage wellness through increased benefits, and an Extended Plan where participants could make the choice to purchase more comprehensive coverage.  Option 2 provided for:

 

·        Annual increases based upon medical CPI for co-payments, deductibles, and out-of-pocket maximums

·        Established specific relationships between deductibles and out-of-pocket maximums

·        Established specific relationship between co-payments at increasing levels of care

·        Increased self-funded reserve to $15 million by June 30, 2004

 

Mr. Thorne continued and said that the Core Plan deductible was $1,000 individual deductible with $5,000 out-of-pocket maximum and $2,000 family deductible with $10,000 out-of-pocket maximum.  In the Extended Option 2 the deductible would be $500 for an individual and $1,000 for a family, and out-of-pocket maximums of $5,000 for an individual and $10,000 for a family.  Relationships between the individual deductible and the out-of-pocket maximum had a multiplier of 5 in-network, and 10 out-of-network in the Core Plan and 10 in-network, and 20 out-of-network in the Extended Plan.

 

Mr. Thorne stated that for co-payments, the primary care physician office visit was currently $15 and would increase to $20.  Using a multiplier of 1.5, a specialist office visit would increase the co-payment from $20 to $30 and urgent care would increase the co-payment from $30 to $45.  Emergency room and hospital inpatient care would move away from a co-payment method and be replaced with an additional charge of $70 and $105 respectively, and the plan would pay 80 percent and the participant would pay 20 percent.

 

Senator Coffin asked if there would be an incident cap or an annual cap on the emergency room and inpatient care additional deductible.  Mr. Thorne replied that the additional deductible would be per incident and the 80/20 percentages would be limited to the plan year.  If a participant had multiple inpatient hospital stays there would be an additional $105 deductible for each incident.  Senator Coffin asked if there was a stop loss.  Mr. Thorne replied that there was a stop loss in that a participant’s 20 percent share would be subject to the out-of-pocket maximum for that plan year. 

 

Mr. Thorne continued with the presentation by stating that, except for the changes in the deductibles and out-of-pocket expenses, all of the co-pays and additional deductibles would be the same in both the Core Plan and the Extended Plan. 

 

Mr. Thorne enumerated the changes in the prescription drug plan:

 

 

Ms. McClain asked how much the discount was on third tier prescriptions.  Mr. Thorne replied that he could not name a specific figure but it was a discount from the average wholesale price and there could be deeper discounts for some.  Ms. McClain asked if it were comparable to discounts Medicaid recipients would receive, or higher, and did the Subcommittee understand that the average wholesale price for prescriptions was the “best-kept secret on the face of the earth.”  Mr. Thorne was not sure how the discounts would compare with Medicaid.

 

Chairwoman Chowning commented that if Option 2 was accepted it would be up to the Board to communicate to the prescription drug vendor the Board’s desire to know exactly what the average wholesale price was for prescription drugs.  Mr. Thorne commented that when a participant went to the pharmacy and presented their identification card pricing was already logged in the pharmacy computer system and the participant would be charged based upon the plan. 

 

Ms. McClain asked how often the average wholesale price and the discounted prices to participants were revised.  Mr. Thorne stated he believed it was annually, but it could be more frequently and the formulary for prescription drugs changed annually. 

 

Chairwoman Chowning stated she had been receiving e-mail from constituents asking that their ability to purchase less expensive prescription drugs over the Internet not be impeded.  She commented that she believed that those less expensive prescription drugs came primarily from Canada and asked if Nevada had anything to do with stopping those purchases or if it was a federal government issue. 

 

Mr. Thorne stated there were various interpretations at the federal level as to whether purchasing prescription drugs from Canada over the Internet was legal.  There was a move among some insurance plans to consider allowing their participants to purchase prescription drugs from a Canadian pharmacy and then reimburse them. 

 

Senator Tiffany asked if there were any preventative services that fell outside the $1,000 deductible.  Mr. Thorne stated there were specific wellness benefits that were exempt from the $1,000 deductible and normal office visits were subject only to a co-payment.  The deductible would apply for surgery, hospitalization, or extensive testing.  Mr. Thorne stated that the PEBP did not want to discourage the utilization of the wellness benefits, particularly well-child care and immunizations.  Senator Tiffany asked if Pap smear tests and mammograms were covered under the wellness category.  Mr. Thorne stated that those tests were covered.

 

Senator Tiffany asked if the $1,000 deductible was included in the $5,000 out- of-pocket expense, or if the $1,000 deductible was added to the $5,000 out-of- pocket expense.  Mr. Thorne replied that the $1,000 deductible was added to the $5,000 out-of-pocket expense, making a $6,000 total. 

 

Chairwoman Chowning asked Mr. Thorne to discuss examinations for diabetes and heart problems because those were big expenditures.  Mr. Thorne stated that for a normal office visit a participant would pay a $20 co-payment; additional testing or services that the doctor provided, or were acquired from another source, would be subject to the deductible and co-payment.  Diabetics would have the expanded benefit of receiving testing supplies with 100 percent coverage, as testing supplies were considered preventative. 

 

Chairwoman Chowning asked whether an electrocardiogram (EKG) would be covered because she believed it would be preventative.  Mr. Thorne responded that an EKG was considered diagnostic and would be paid after the deductible had been met and with the 80/20 provision. 

 

Senator Coffin stated he was aware of certain prescription drugs that could not be dispensed through the mail-in plan because the State Board of Pharmacy would not allow a 90-day prescription to be filled for those drugs, even though the drug was available through the mail-in plan.  Senator Coffin asked if Nevada was unusual in that respect.  Mr. Thorne responded that the 90-day supply was restricted to a true maintenance drug and a maintenance drug was defined as treating the disease or problem as opposed to treating the symptom.  Controlled substances were also unavailable through the mail order prescription plan because that had been a particular area of abuse. 

 

Senator Coffin stated that because of the State Board of Pharmacy restriction against writing more than a 30-day prescription for certain controlled substances, participants in the plan would have to pay 3 co-payments instead of taking advantage of the 90-day cost saving mail-in program.  Senator Coffin asked if the PEBP communicated with the State Board of Pharmacy regarding the mail-in prescription plan.  Mr. Thorne responded that the PEBP relied upon the pharmaceutical company that administered the prescription drug plan, as they were in constant contact with various boards. 

 

Chairwoman Chowning asked if someone went to urgent care could they get their prescriptions filled at the same place.  Mr. Thorne replied that they could not; any prescriptions would have to be filled by a pharmacy.

 

Mr. Thorne continued his presentation with the dental and vision portions of Option 2, which contained a two-tier plan as well.  The Dental and Vision Plans both contained relatively low limits in benefits in the current plan, but there were important elements from a preventative standpoint.  In the Dental Plan, preventative care continued to be provided in the Core Plan, but basic and major services were available only in the Extended Plan. 

 

Chairwoman Chowning commented that if preventative care showed the need for services not covered by the plan, unless the participants were responsible enough to save and purchase those services on their own, the problem could continue to deteriorate causing other health problems.  Mr. Thorne stated that was precisely the kind of change in behavior the PEBP was hoping to make.  Participants would have to recognize their responsibility for their health, save for it, budget for it, and take care of it.  Mr. Thorne said the annual dental maximum was $1,500 per person and about one-third of the total dental care expense was spent on the preventative plan.  Approximately $1,000 per year could be budgeted for expenses by the participant.  It was even more obvious in the Vision Plan where $125 every two years for materials was an expense that could be budgeted as opposed to having coverage.       

 

Chairwoman Chowning commented that in the Dental Plan approximately $500 of the $1,500 maximum would be covered by the cost of the preventive care.  Mr. Thorne stated that based on total cost, most people only had the preventive work done.  In the overall cost to the plan, preventive work took up about one-third of the total dental expense.

 

Chairwoman Chowning inquired about the Vision Plan and the $40 annual examination fee that would be covered.  Mr. Thorne replied that coverage was the same as the current coverage.  Chairwoman Chowning further inquired whether the regular eye examination included testing for glaucoma and if there was a stipulation that participants could only go to optometrists.  Mr. Thorne replied that the eye examination included testing for glaucoma and there were no restrictions regarding optometrists versus ophthalmologists. 

 

Mr. Thorne continued with his presentation in the area of wellness benefits and stated that wellness benefits would be increased from $300 to $600 annually.  The increase included well-child examinations and immunizations.  Weight control, which was not previously considered a wellness benefit and had a lifetime cap, would be moved into the wellness benefit portion. 

 

Mr. Thorne stated that in the second tier of the Extended Plan for Medicare retirees, a Medicare Supplement Plan would be offered, which would supplement the amount that Medicare did not pay.  Additionally, there were a few items that were not covered by Medicare that were included in the supplement.  The additional benefits were:

 

·        Prescription drug program

·        Chiropractic care

·        Hearing examination

·        Vision examination

·        Vision hardware

 

According to Mr. Thorne, this area had been of particular concern to Medicare participants, and it had been determined that this would provide a needed enhancement to the program. 

 

Ms. McClain asked about the foreign travel emergency benefit with the Medicare supplement, as she saw it often and had surmised that people assumed if you were retired you could be a world traveler.  She inquired what cost was associated with having the foreign travel emergency benefit in Schedule F of Medicare.  Mr. Thorne stated that the foreign travel emergency benefit was the Medicare element of the coverage.

 

Mr. Thorne said that other changes were being suggested to address utilization patterns even though they were not significant from a cost standpoint.  Those changes were as follows:  

 

 

Senator Coffin commented that Mr. Thorne had prefaced the last few plan changes as making no difference in the rates because they only affected utilization patterns.  He asked if there were no cost savings, why make the changes. 

 

Mr. Thorne responded that the overall plan and the richness of the plan had been compared to other programs.  While the cost involved was not significant, there was still a cost factor, which had an impact on the plan.  If there had been an indication that certain levels of coverage should be provided, and those levels were statutorily mandated, that was considered a reasonable level of care.  Mr. Thorne stated that there was an ongoing debate regarding mental health services, whether those services made sense from an overall cost standpoint, and whether the benefit derived was equal to the cost.  The Public Employees’ Benefit Program was not weighing in on either side of that debate, as it was an ongoing issue.

 

Senator Coffin commented that the PEBP had weighed in by recommending Option 2. 

 

Mr. Thorne responded that the PEBP had weighed in on the side of statutory maximums and if those maximums changed, the plan would change.

 

Senator Coffin stated there had been a reduction in the plan benefits.  Mr. Thorne acknowledged that was correct. 

 

Senator Coffin commented that President Bush had endorsed parity and he did not know anyone who was not moving in that direction, therefore, he was curious as to why the PEBP had sought the lowest common denominator.  He further commented that he did not understand why changes that did not save money were made, since the plan participants were “rattled enough” about physician-patient relationships that had been disturbed.

 

Mr. Thorne responded that if radical changes had to be made, it made sense to dramatically alter the baseline, get it done, and move forward from there.  If there was a change in a particular area, if there was a move toward parity, or a change in the statutory mandates, that could easily be accomplished, as opposed to eliminating something later. 

 

Senator Coffin asked if Mr. Thorne was suggesting that a bill draft request be proposed to change the statutory minimum.  Mr. Thorne stated that was not what he had said.  Senator Coffin stated that was what was being suggested  “because our statute has a minimum, we should move to the minimum.”  Mr. Thorne said a recommendation was being made for the Board’s consideration and if there was any feedback the Subcommittee would like presented at the Board meeting he would be happy to present it. 

 

Chairwoman Chowning suggested that Senator Coffin raise that subject at a later time and, if possible, the Subcommittee would add it into their recommendation. 

 

Chairwoman Chowning asked if there were any dollar figures to backup Mr. Thorne’s statement that those plan changes were a fraction of the cost.  Mr. Thorne stated that he had no dollar figures at this point. 

 

Mr. Thorne continued with his presentation and commented on the impact on rates and the proposed two tier plan.  With the Core Plan and the reduction of benefits, the PEBP wanted to maintain employee contributions, but preferably reduce them in concert with the drastic change in the plan.  Offering the Extended Plan would allow individual employees, who wished to spend the additional premium amount every month, to buy up to the more comprehensive coverage.  The Core Plan looked at a reduction in state active employee costs of 55 percent, early retirees, 5 to 67 percent, and state Medicare retirees, 21 to 70 percent.  The non-state actives would essentially break even, non-state early retirees would receive a reduction of 14.3 percent, and non-state Medicare retirees would receive a reduction of 12.8 percent.

 

Mr. Thorne stated that Option 2 was going to be recommended to the Board.  Both employers and participants could not afford the continued cost increases that had been seen over the past several years in the self-insured plan.  There was no indication that trend would abate and fundamental changes were needed to alter utilization patterns.  The two-tier approach allowed for choice to determine what was important to the individual plan participant.  It established a new cost baseline before embarking on long-term options that would include disease management and consumer-driven funding models.

 

Senator Tiffany asked if the PEBP had considered issuing a Request for Proposal (RFP) for an insurance plan similar to Option 2, and what that cost might be compared to the cost for the present self-funded plan. 

 

Mr. Thorne responded that until there had been some experience with the new plan it would probably make no cost difference.  The main negative issues for insurance companies that considered the self-funded program were demographics and the terrible claims experience over the past few years.  Until that situation began to change, insurance companies were going to be reluctant to assume the risk.  States across the country were facing the same insurance issues as Nevada. 

 

Senator Tiffany stated that she had been told that the baseline was so rich that it was difficult for insurance companies to compete, but now that the baseline was changing perhaps response to an RFP would change as well.

 

Mr. Thorne said that until there was a year’s worth of experience to establish the true cost baseline with Option 2, there could not be a true comparison with a competing product.

 

Senator Tiffany commented that if the PEBP issued Option 2 as an RFP, they might receive a much different result for responses as well as costs. 

 

Chairwoman Chowning requested that Mr. Thorne review Option 2 with regard to the actives versus the retirees and the non-state actives versus the non-state retirees.  She also asked if every participant that chose the Core Plan would receive a reduction in premiums. 

 

Mr. Thorne responded that the rates under the Core Plan for both state and non-state participants would either remain the same or be reduced as there would not be an increase in the Core Plan cost.  Non-state actives were essentially going to break even, because the experience in this group in the most recent 12 months was such that it offset the reductions that had been made. 

 

Chairwoman Chowning requested information regarding HMO participants versus non-HMO participants and asked if the HMO had increased the rates.

 

Mr. Thorne responded that the HMO had increased their rates by 10.3 percent.  The HMO package included both medical and vision.  The dental, life, and long-term disability for the HMO participants was provided through PEBP.  It worked out for non-state actives to essentially breakeven with the HMO.  For the early retirees it increased 1.71 percent and for the Medicare retirees it increased 0.29 percent.

 

Ms. McClain asked if the non-state early retirees would actually save over $100 per month with the Core Plan.  Mr. Thorne replied that was correct.  Ms. McClain commented that it gave non-state retirees a little break but that was the segment from which they received the most letters, and a couple, who were both non-state retirees, had been paying $1,400 per month for health insurance.  Mr. Thorne commented that a single early non-state retiree enrolled in the Core Plan would go from approximately $712 per month to $609 per month, a participant with spouse would go from $1,435 to $1,229 per month, and a participant with family would go from $1,968 to $1,686.  Ms. McClain asked if she was correct in assuming that when the early retiree became 65 he or she would receive a big break.  Mr. Thorne responded that was correct and a single retiree would drop to $219 per month since they would be eligible for Medicare. 

 

Chairwoman Chowning asked how the overall picture was being addressed relating to Option 1 versus Option 2 and, specifically, the shortfall.  Mr. Thorne stated that if the current benefits were continued with the expected revenue, there would be a shortfall of approximately $21 million.  Both options would recover that shortfall, but Option 2 would rebuild the reserves more quickly. 

 

Senator Coffin commented that he wanted to get back to the specifics of the non-state retiree benefits and asked whether a third option had been presented with a very large deductible.  Mr. Thorne stated that the PEBP had not presented a third option and unless an additional option was offered to all participants it could not be offered to non-state retirees only.  Senator Coffin asked why a third option with a high deductible was not offered to all plan participants. 


Chairwoman Chowning asked if the PEBP could offer both Option 2 and the proposed Option 3.  Mr. Thorne responded that for every option that was added, the coverage offerings were fractionalized and you began dealing in smaller subgroups, which became more difficult to rate separately, making them more volatile.  One of the difficulties in dealing with a large deductible, for instance $5,000, was that it was an individual deductible compared to a monthly premium of $609.  A participant might save $80 per month in premium cost, but would incur an additional $4,000 potential expense.  Senator Coffin commented that he was not trying to engage in an argument, but a retired participant might welcome assuming that risk.  Mr. Thorne stated that the feedback the PEBP had received from non-state retirees regarding plan changes had not included requests for increasing the deductible to lower the premiums.  Senator Coffin wondered if the PEBP had asked participants what they wanted.  Mr. Thorne stated that participants had been consulted in focus groups and public meetings and much of the feedback received had gone into the choices that were being presented.  Those were the areas in which participants had indicated they wanted some type of option. 

 

Senator Coffin stated that perhaps the PEBP had not heard requests for a larger deductible from the focus groups because at that time they had not been faced with such an increased premium.  He further requested that Mr. Thorne present the request for an increased deductible to the Board.  Mr. Thorne responded that he would present Senator Coffin’s request to the Board.  Senator Coffin requested clarification of the time line for the Board’s meetings.  Mr. Thorne stated that the Board met monthly and would be meeting tomorrow.  The Board had received the plan information and recommendations earlier and would be meeting, having the plan presented, getting feedback from public comment, and would be making a decision at that meeting. 

 

Chairwoman Chowning referred to page 2 of the rate chart contained in Exhibit E, and commented that the most expensive category was the Non-State Early Retiree Self-Funded Plan.  In that category the largest monthly premium was currently $1,967.92 for the participant and family in the self-funded plan and with the new Core Plan the premium would be reduced to $1,685.89 per month.  In the Non-State Active category for the HMO plan, the participant plus family category, showed an increase of about $4.00. 

 

Senator Tiffany inquired about Senator Coffin’s suggestion to add another tier to the program, and asked if another tier were added, would there be increased administrative costs and would the pool be too small.  Mr. Thorne stated that for each tier or option that was added to a line of coverage, adverse selection was received in one of the groups or lines.  That adjustment had been figured into Option 2 and it was unknown what offering a high deductible option would do to that option. 

 

Senator Tiffany asked if the state had ever approached the cities or counties about subsidizing their retirees’ or actives’ insurance, and if legally that could be accomplished.  Mr. Thorne responded that in the time he had been with the state he had not seen cities or counties approached about subsidizing the health care benefits for their retired employees, and he would have to leave the answer to the legal part of the question to the Legislative Counsel Bureau.  Non-state retirees had been given a choice of staying with their local plan or going to the state plan, however, once they had left the local plan they would be unable to return and the state plan offered no subsidy for non-state retirees.  Senator Tiffany noted that it removed choice from the consumer and asked if it had always been that way, or if it could be legally changed.  Mr. Thorne stated it would have to be a bill draft request. 

 

Chairwoman Chowning noted that there were four bill draft requests being presented regarding this subject during this session, and if any of those BDRs became bills and were passed, a mandated change could occur as early as July 1, 2003.  Mr. Thorne informed her that no change could go into effect until January 1, 2004.  The PEBP had to make decisions on the plan in order to meet time lines for printing, distribution, the 60-day notice requirement, and education of the participants.  Because there were significant changes occurring in the plan, participants needed as much information as possible to make an informed choice about what was best for them.  Chairwoman Chowning commented that whatever choices the Board made this week would be in effect until July 1, 2004.  Mr. Thorne stated that was correct. 

 

Senator Coffin commented that he was familiar with the concept of adverse selection as he had been in the group insurance field since 1969, and he remembered offering and selling policies in the ‘70s and ‘80s, with a deductible of $25,000.  Those policies were purchased by people who felt they would not have a claim, but had assets that could be lost if the premium was too costly.  Senator Coffin stated he was not sure that offering a high deductible option would create an adverse selection.  There would be very few people taking advantage of a high deductible option, but the ones who did would have good reason.  Senator Coffin said he was planning to ask the Department of Insurance if they had any policies on file that contained large deductibles for individuals and asked Mr. Thorne if he knew of any such policies.  Mr. Thorne responded that he assumed there would be some, but had no direct knowledge of any large deductible policies on file. 

 

Mr. Thorne commented that if there were a mandate for the local entities to provide a subsidy for their retirees, it could go into effect July 1, 2003, but any changes regarding commingling could not go into effect until July 1, 2004.  Mr. Thorne questioned whether it was appropriate for this plan to become an insurance carrier on an individual choice basis, and whether it should be a group plan for all public employees and all public retirees, or just state actives and retirees.  In that hybrid situation the plan became the assigned risk pool for the entire state and that was not good for either the plan or the participants.

 

Senator Coffin stated that the plan had already been bifurcated as evidenced by Option 1 and Option 2, and he was not sure that another option would pose a problem, as any participants that chose a third option would still be part of the group.  Mr. Thorne commented that another option would still have to be priced.  

 

Ms. McClain commented about non-state retirees opting to go back into their local insurance plans and suggested that they keep in mind that option would not necessarily cost them any less.  

 

Chairwoman Chowning called for public testimony.

Jim Richardson, Nevada Faculty Alliance, commented that he was trying to understand this complicated situation, and was not without some experience,    but felt he did not fully understand what was being proposed and what the impact would be on state employees and the state of Nevada.  Mr. Richardson continued that he had assumed, 1) the Governor’s recommended increases in per employee contributions would stand, 2) that money would be available and, 3) there was a perceived shortfall of some $20 million even after the Governor’s recommended funding was considered.  He stated if those assumptions were not correct, he would like clarification.

 

Chairwoman Chowning interjected that she would like staff to answer Mr. Richardson’s question because it was the Subcommittee’s understanding that the Governor’s recommendations would continue.

 

Bob Atkinson, Program Analyst, stated that it was his understanding that the current proposals included the state subsidy amount as it was recommended in The Executive Budget. 

 

Mr. Richardson stated that what appeared to be driving the need for the new insurance plan was the dramatic increase of regional rates in the medical area.  Rates in dental and vision seemed to be holding and the prescription drug plan had rates a little lower than the regional rates.  The bad experience with the medical during the past few years seemed to be causing the dramatic changes proposed for the state health plan.  Mr. Richardson said those dramatic changes concerned him, and he had considered the suggestion of choosing Option 1 with a sunset provision, because he was not convinced that the present utilization rate would continue into the future.  The Core Plan was a safety net, but as Mr. Richardson had read it and Senator Tiffany had pointed out, that safety net was sometimes very far away.  If what was driving that proposal was an effort to correct the problem of the dramatically high cost for early retirees in the non-state category, Mr. Richardson suggested going back to the drawing board to discover other ways of resolving that difficulty.  There were a few hundred people that fell into the non-state category and they had a terrible problem this biennium because the state law that required them to be rated separately had increased their rates astronomically.  Mr. Richardson commented that he would be in favor of aggregating the non-state retirees into the health plan rather than decimating the health plan. 

 

Mr. Richardson said there were two types of bills that were being proposed, some of which had already been introduced, that would address the problem of the non-state retirees, and particularly those non-state retirees who were retiring early.  One option was to aggregate those non-state retirees into the plan.  Another option was to group all public employees into a health plan and make it a truly public employee health plan.  At present, a strange hybrid was working to the disadvantage of the state employees for whom this plan was originally set up.  Mr. Richardson stated an odd situation had been created where non‑state entities could “dump their retirees,” and it did not solve the problem to tell them to go back to their plans because some of them no longer had a plan for their retirees.  There was a radical solution that Senator Tiffany mentioned that needed to be considered when a non-state entity sent their retirees to the state health plan.  The non-state entities should contribute funds to alleviate the pressure put on the individual retiree.  It was not fair for them to be dumped into a plan that was going to charge them the astronomical rates that the state was forced to charge because of separate ratings.  Mr. Richardson stated he did not understand how the Board, tomorrow and Thursday, could adequately consider those matters and make a decision unless they knew what the Legislature was going to do about aggregation in those four or five bills that were pending, and also what the Legislature was going to do with the pending bill that considered a state health plan for all public employees.  No changes could go into effect until July 1, 2004, at the earliest. 

 

Mr. Richardson went on record by stating he favored Option 1 with a surcharge for all state employees that would sunset in two years.  Option 1 would provide the PEBP time to determine what to do, rather than make the radical changes that were being planned.

 

Chairwoman Chowning asked Mr. Richardson who would pay the state surcharge he had spoken about.  Mr. Richardson responded that the state employees would pay the surcharge at $20 per month for all tiers in Option 1, with a sunset in two years, to allow determination of what laws were going to be passed by the Legislature.  Chairwoman Chowning asked Mr. Richardson if he believed the Board should make no changes to the present plan until June 2003, when the Legislature adjourned.  Mr. Richardson stated that he was aware of the time line and the Board would have to make the changes this week.  He favored Option 1 because Option 2 seemed too dramatic and difficult to understand and would result in a weaker state health plan. 

 

John Yacenda, State of Nevada Employees Association (SNEA), commented that a larger, statewide public employees insurance plan would be an evolving process over the interim and he was hoping there would be some directed activity from the Legislature to actually look into that plan.  He stated that he was very concerned about the fact that the process had happened so quickly and the time for deliberation had been so short.  Major changes had been proposed that shifted the risk and cost from the state to the participants.  The bigger issue was whether the Board would implement a system that would allow a longer period of deliberation, consideration of changes, and factor in the different alternatives.  Mr. Yacenda stated that he had questions about how the focus groups were constructed and who had conducted them. 

 

Marty Bibb, Executive Director, Retired Public Employees of Nevada, stated that Option 2 as presented today gave some short-term relief to the non-state participants in the self-funded plan.  He felt it was important to remember that the experience in this plan had been within the last couple of years, with between 25 and 30 percent growth in terms of medical claims utilization.  In the past, either local or regional trends had been used in an attempt to set rates and, unfortunately, those trends had not been adequate in terms of what the experience had been in the plan.  The projected financial condition presumed that the Governor’s recommendation for an increase in the amount subsidized for state actives and state retirees would be approved.  Mr. Bibb commented that other plans needed to be examined as well as the possibility of a larger pool of participants, along with the collateral issue of receiving funding from local governments for their plan participants.  He stated that the problems with the self-funded insurance plan would be an excellent subject for an interim legislative study.  Mr. Bibb said he would like to be on record concerning the focus groups by commenting that “we find it kind of refreshing that the administration of this group health insurance plan has reached out and tried to get some bounce-back, if you would, from the groups affected in the program in terms of soliciting their opinions on this issue.” 

 

Chairwoman Chowning asked if there was any more public comment.  There being no more public comment, Chairwoman Chowning requested that Mr. Thorne return to the witness table. 

 

Chairwoman Chowning inquired regarding the precedent established with requiring a $20 per month premium contribution from state employees with no dependents.  Mr. Thorne responded that the first indication that he had seen that it wasn’t the Board that made that determination was in S.B. 3 of the 18th Special Session.  Additional money had been specifically tied to the requirement that there be no contribution by the employee with single coverage.  S.B. 3 was only in effect until June 30, 2003, but Mr. Thorne believed that after that date the Board would establish the rates that were required. 

 

Chairwoman Chowning requested a clarification of that issue for the public, the legislators, and the PEBP Board. 

 

Chairwoman Chowning asked the Subcommittee members if they had anything they wanted to add in terms of giving the Board direction or recommendations from the Subcommittee. 

 

Senator Coffin asked where and when the PEBP Board was meeting.  Mr. Thorne responded that the Board was meeting March 5 and 6, 2003, in Room 1214 of the Legislative Building, beginning at 9:00 a.m.  Senator Coffin asked Mr. Thorne to convey some of the ideas and recommendations to the Board that the Subcommittee had discussed in today’s meeting.  Mr. Thorne responded that he would be happy to do so. 

 

Chairwoman Chowning asked Mr. Thorne to convey the parity issue to the Board as well as Option 3, the high deductible policy. 

 

Senator Tiffany commented that Assemblywoman Chris Giunchigliani was already talking about an interim study, and she wanted to support the concept of having an interim study.  She also spoke in favor of issuing a Request for Proposal after the first year of the new plan when statistics had been collected.  Senator Tiffany also requested investigation into approaching the local entities on behalf of the non-state actives and retirees to request revenue to aid their participants.  She inquired as to whether the PEBP Board or the Legislature would initiate a bill draft request to address the matter.  Mr. Thorne responded that he assumed any mandate to the local governments would have to come from the Legislature and be enacted into law. 

 

Senator Tiffany asked how much of the premium of an individual with no dependants was used as a subsidy for participants with dependants.  Mr. Thorne responded that a full-time employee of the state was currently paying nothing toward the cost of their insurance.  In establishing the rate that was the state’s subsidy there had been an overpayment of 60 percent.  Senator Tiffany stated she not only wanted to know how much the overpayment was, but how many participants were subsidizing someone else’s dependents.  Mr. Thorne responded that dealing with a single dollar amount for each employee, regardless of dependent status, made an inherent problem in the funding mechanism.  If a differentiated subsidy for employee coverage, dependent coverage, and multiple tiers of dependent coverage were implemented, the impact from a budgeting standpoint would be unknown.  Senator Tiffany suggested that would be a good subject for an interim study as this had been brought up a number of times that the individual’s premium was not an individual’s premium and there was an overage.  Mr. Thorne stated that he believed that the Board would be very supportive of an interim study.  He also believed an interim study should look at mechanisms for a pre-funding of retiree health care benefits; some way that during a participant’s working career a portion could be set aside to provide the assistance needed to pay the premiums after retirement.  Senator Tiffany complimented Mr. Thorne on the plan that the PEBP had presented.

 

Mr. Parks asked Mr. Thorne to clarify the answer to Senator Tiffany’s question regarding how much a single individual paid into the plan that subsidized a dependent.  Mr. Thorne responded that for FY2004 the state subsidy was $495.68 for an active employee and the total cost for an individual was $462.71, and the difference would go toward defraying part of the dependent costs.

 

Mr. Richardson commented it was worth noting that if there was any concern regarding the legality of state employees being charged for insurance premiums, it had happened before.  In the past, employees in northern Nevada who had enrolled in the HMO had been charged $75 per month.  While there had been considerable discussion at the time about setting a bad precedent, it had been determined that it was legal. 

 

Chairwoman Chowning thanked Mr. Thorne and the PEBP staff for the presentation.  Chairwoman Chowning stated that the Subcommittee appreciated the opportunity to hear the presentation, but declined to choose Option 1 or Option 2 without having more information.  She requested that Mr. Thorne present the concerns voiced during this meeting to the Board and stated the Subcommittee appreciated all the hard work that had been done to find a solution to the problem.  Chairwoman Chowning advised everyone to remember that the decisions made about the health plan would have a 16-month life until July 1, 2004. 

 

Mr. Thorne thanked the Subcommittee for the input that had been provided and the favorable comments. 

 

Chairwoman Chowning opening the hearings on the Department of Agriculture.

 

Senator Tiffany assumed the Chair in the absence of Chairwoman Chowning and stated that in the interest of time she would like to review the individual budgets with a minimum of commentary. 

 

Don Henderson, Acting Director, Department of Agriculture, stated he would be happy to defer his prepared remarks and turned the presentation over to Rick Gimlin, Administrative Services Officer, Department of Agriculture.

 

Mr. Gimlin introduced himself and submitted Exhibit F, “Nevada Department of Agriculture, FY2003-2005 Budget.”  Exhibit F summarized E900 transfer units of positions being moved from one account to another and highlighted six enhancement units that would impact General Fund accounts.  

 

ADMINISTRATION – BUDGET ACCOUNT 4554,  BUDGET PAGE AGRI-1 

 

Senator Tiffany stated there were four issues in this budget that the Subcommittee would be looking at:

 

 

Mr. Gimlin addressed enhancement unit E-225, which was a pilot program to provide job-related rewards to employees for what would be considered exceptional performance.  The Department planned to use part of the interagency cost allocation to reward a deserving employee with something tangible that did not involve cash. 

 

Senator Tiffany inquired as to how the Department’s proposed Employee Reward Program related to the State Merit Award Program.

 

Mr. Gimlin said the State Merit Award Program, as he understood it, rewarded a standard or above evaluation with an increase in step until an employee reached step nine and then the employee was “topped-out.”  There was also longevity pay, which rewarded an employee for the years in state service after being topped-out.  Mr. Gimlin commented that the Department wanted to try something in-house which would reward their employees above the usual merit increases.

 

Senator Tiffany asked how the Employee Reward Program would remain objective.  Mr. Henderson stated that if the program was approved, it would be developed by the Department’s administrative team.  He added that the State Board of Agriculture had requested the Department to consider this program.  The Board recognized that the Department had good staff members who worked very hard and received very little benefit beyond the merit increases in the first part of their careers. 

 

Senator Tiffany asked why the State Board of Agriculture believed there was a need for this program.  Mr. Gimlin replied that it was a combination of motivation and recognizing an individual employee’s performance as being over and above standard. 

 

Bob Guernsey, Principal Deputy Fiscal Analyst, stated that what Senator Tiffany had been making reference to was the State Merit Award Program, which administered an annual appropriation of approximately $5,000.  The Program rewarded meritorious suggestions from state employees for either improving the operation of government or other innovative ideas.  The State Merit Award Program was different from a merit salary increase.

 

Chairwoman Chowning asked if the Department wanted to install a completely new system, as the State Merit Award Program awarded cash and this was somewhat different. 

 

Mr. Henderson stated that with the program, the Department was planning to reward individual performance, not necessarily cost saving actions.  The State Board of Agriculture consisted of private industry people for whom it was a common practice to recognize exceptional work in this manner, and they put a high priority on this program for the Department.  This was the Department’s initial attempt to do a pilot project to see how it worked.

 

Senator Rhoads asked why the Nevada Beef Council was withdrawing from the Department of Agriculture.  Mr. Gimlin stated that over the years the Nevada Beef Council had discussed withdrawing from the state to better utilize their resources.  One of the tasks of the Nevada Beef Council was to promote the consumption of beef.  Being in the state system constrained their ability to use their resources.  Mr. Gimlin commented that the Beef Council could function better outside of the state environment.  There had been precedent for this as there were other qualified state beef councils that functioned outside of state government and did not need to be part of the state structure.  It allowed the Beef Council to operate more efficiently and have lower costs. 

 

Chairwoman Chowning asked what had been done within the Department in terms of positions and coordinating with the Beef Council operation to reduce staff duties.  Mr. Gimlin stated that the cost associated with the Beef Council was presently approximately $7,600.  When the Department was first assigned the Beef Council, the administration had been an ancillary type of duty and it was accommodated with existing staff.  The Department’s funding at that point was reduced and the Beef Council funds were introduced to offset that funding.  There had been no dedicated staff member to deal with the Beef Council as duties were parceled out to various core employees.  The Department would retain the core staff and offset the reduction from the Beef Council by an increase in interagency cost allocation. 

 

Chairwoman Chowning asked about the new and transferred positions in the Department’s budget, and why the two transferred positions were funded at 52 percent General Funds/48 percent cost allocation, while the new position was funded 50/50.  Mr. Gimlin stated that during the budget process the Department had reviewed the clerical staff throughout the agency to determine if any clerical staff was providing services to all programs within the agency, both General Fund and non-General Fund.  The Department found two members of the clerical staff that met those criteria.  One staff member was paid out of Budget Account 4540 and the other out of Budget Account 4550.  Those two staff members were transferred out of each of those budget accounts and into the Administrative Account.  The Administrative Account was created because, in prior years, Budget Account 4554 had been funded by the General Fund, but there were a large number of fee-based accounts within the Department of Agriculture.  Those two clerical positions were removed from Budget Account 4550 and Budget Account 4540, and brought into the Administrative Account where the source of funding was reallocated.  Therefore, the General Fund was no longer paying for clerical positions that supplied support across all programs.

 

Chairwoman Chowning asked why the two transferred positions were funded at 52 percent General Funds/48 percent cost allocation, while the new position was funded 50/50.  She asked why all the positions were not funded 50/50.

 

Mr. Gimlin stated the new position of Accounting Technician was brought in at 50/50 as just a general rule at that time.  When the budgets were finished the Administrative Account would be reviewed to make certain that it adhered to the cost allocation schedule. 

 

Chairwoman Chowning asked who would make that decision.  Mr. Gimlin stated Jeff Ferguson, Program Analyst, would be making the decision at the close of session.  The Department had the schedule, they would ascertain the costs at the end, and then firm up all those cost allocations.

 

Chairwoman Chowning asked if it was the intention to have those three positions funded differently.  Mr. Gimlin responded that was not the intention, everyone should be funded in the same manner. 

 

Senator Tiffany asked if the Department was transferring two positions and adding one position.  Mr. Gimlin stated that was correct.  Senator Tiffany attempted to clarify that the two being transferred were not being physically transferred, the budgets were being transferred to save General Fund money, those positions and the third added position would be funded 50/50, and overall there would be savings in the General Fund.  Mr. Gimlin stated that was correct.

 

Senator Tiffany asked why the Department was adding a third clerical position and for what office.  Mr. Gimlin responded that it was in the Reno office and it was a fiscal position.  The Department had intended to request this position last session, but with the advent of the Integrated Financial System (IFS) it was decided to wait and see if the position would be needed.  Over the past 6 years there had been a 5 percent increase in programs, there had been a 5 to 7 percent growth in code in the IFS, and it was becoming very difficult to keep up.  Mr. Gimlin stated the Department would either have to add a position or stop adhering to internal controls. 

 

Chairwoman Chowning stated there were differences in costs in decision units M-100, M-300, M-800, and E-800 and asked if the Budget Office concurred that the Department’s budgets did not contain sufficient transfers to cover those decision units.  Mr. Gimlin stated that Jeff Ferguson, the Legislative Counsel Bureau’s Program Analyst, had discussed the problem with him and he had reviewed the budgets and discovered that the M-100 and M-300 decision units appeared to be unfunded.  Mr. Gimlin stated that the Department would make sure the M-100 and M-300 decision units were funded.

 

Chairwoman Chowning inquired about new leases for the Department, which would have a General Fund impact of approximately $12,000 for each year of the biennium.  Mr. Gimlin responded that leases on both the Reno offices would expire March 31, 2003.  Those leases were being renegotiated and once that was completed, figures would be supplied to staff and the budgets would be modified as needed.  Chairwoman Chowning asked how long it had been since the lease rates had been increased.  Mr. Gimlin replied that each property had one rate increase since taking occupancy.  Chairwoman Chowning noted that the Public Works budget contained a Capital Improvement Program (CIP) project for a new building and asked where that building would be built.  Mr. Gimlin stated the new building would be in Reno and the leases on the present buildings would be held to a maximum of four years. 

 

Chairwoman Chowning welcomed visitors from the Reno/Sparks Chamber of Commerce Leadership Program and from North Valley High School.

 

Mr. Parks asked if the visiting students were job shadowing and they responded that they were.

 

PLANT INDUSTRY – BUDGET ACCOUNT 4540,  BUDGET PAGE AGRI-10

Chairwoman Chowning requested that the Department discuss the following major issues for Budget Account 4540:

 

·        Transfer of two positions to the Agriculture Registration/Enforcement Account

·        Transfer of an Administrative Assistant to the Administration Account

·        Proposed amendment to The Executive Budget

 

Mr. Gimlin stated that the LCB had audited the Department in 1997 and one of the audit findings had been the need to develop funding policies.  The Board had decided that the funding policy for the Pest Control Operator Program would be 50 percent General Fund participation and 50 percent fees.  Over the years the Department had attempted to implement that policy, and the final implementation of that funding policy was in place.  That particular Pest  Control Operator Program had six positions, with five of those positions in Budget Account 4540 and one in Budget Account 4545.  The Department planned to leave three positions in Budget Account 4540 and move two positions to Budget Account 4545, which already contained one position.  The end result of those transfers was three positions in Budget Account 4540 and three positions in Budget Account 4545.  Chairwoman Chowning asked why the positions could not all be in the same budget account.  Mr. Gimlin responded that Budget Account 4540 was a reverting account.  If fees were collected in that account and the fees equaled more than what had been budgeted, those fees reverted back to the General Fund, which would be good for the General Fund but not good for the fee-based program.  The intent of the E-900 decision unit was to remedy the problem of collected fees being reverted to the General Fund.  Chairwoman Chowning commented that accountability was very important.

 

Chairwoman Chowning asked Mr. Gimlin to explain the requested budget amendment.  Mr. Gimlin stated that when the budgets were built the Department attempted to predict, or estimate, the maximum amount of fees that would be collected.  That became the building block and the very end revenue source became General Fund.  As more fees came in, the General Fund was reduced.  When reviewing the program to try to match up General Fund and fees, it had been discovered that there were more fees coming into Budget Account 4540 than were needed to support the two positions being removed.  Rather than create a “hole” in General Fund, and incur additional General Fund costs for this biennium, the Department was planning to leave some Pest Control Operator funds in Budget Account 4540 to help offset those three positions. 

 

Chairwoman Chowning asked about license fee revenues and whether they should all be transferred to the Agriculture/Registration account, or be collected in the Enforcement account.  Mr. Gimlin responded that those license fees were offsetting what had seemed to be a rather large reserve in Budget Account 4540.  The proposal was to remove those license fees from Budget Account 4540, but also remove the corresponding expense item of reserve.  In that way, all license fees would go into Budget Account 4545.  

 

Chairwoman Chowning said that it appeared there was some extra revenue in Budget Account 4540 and asked how it would be utilized.  Mr. Gimlin stated those funds needed to remain in Budget Account 4540, because if the funds were removed, the Department would require additional General Fund revenue.  The funds would be left in Budget Account 4540 for the 2004-05 biennium to offset the General Fund portion of the account. 

 

Chairwoman Chowning inquired about the Agriculture Enforcement Unit that was authorized by the Legislature last session and was funded 75 percent from the General Fund and 25 percent from fee revenue.  Mr. Henderson stated the Department appreciated the support from the Legislature to implement this Unit and it had been functional and active for approximately one year.  There were four full-time employees in the Unit working very closely with the Nevada Highway Patrol on temporary inspection sites, patrolling the highways, and visiting construction sites and nurseries.  Over the past year the Agriculture Enforcement Unit had stopped 3,377 vehicles for inspection and had recorded 595 violations.  Mr. Henderson commented that people were recognizing that Nevada was no longer an open state and the Department was seeing more compliance.  The Agriculture Enforcement Unit was being viewed as a successful venture and the Department was looking for an opportunity to expand the program.  Some Plant Industry funds had been matched with Agriculture Enforcement funds to hire part-time employees. 


Chairwoman Chowning asked how many of the 3,377 inspections were routine inspections.  Mr. Henderson replied that all of those inspections had been “above and beyond” routine inspections.  Chairwoman Chowning asked whether the 595 people who had been issued violations were fined or had goods confiscated.  Mr. Henderson stated that typically, if plants were being imported into the state, the violator had the option to leave the state with the plants or the goods would be confiscated.  Citations were issued after the first violation.  Chairwoman Chowning asked the amount of the fines.  Mr. Gimlin stated that the fines varied, but the Unit was authorized to fine from $1,000 to $5,000, depending upon the severity of the violation.  Mr. Henderson commented that refusing the shipment or turning the vehicle around often cost the violator more than the fine. 

 

Chairwoman Chowning asked if fire ants and palm rats had become less of a problem for the Department.  Mr. Henderson stated both had been reduced, but the Department did not have 100 percent inspection on everything coming into the state.  The Department was making great headway on the unintentional introduction, but people who brought in illegal stock were still able to do so and were fairly successful. 

 

Chairwoman Chowning complimented the Department on the Agriculture Enforcement Unit and the job they were doing. 

 

AGRICULTURE REGISTRATION/ENFORCEMENT – BUDGET ACCOUNT 4545,  BUDGET PAGE AGRI-23

 

Chairwoman Chowning requested that the Department cover the following issues in Budget Account 4545:

 

·        Two positions transferred from Plant Industry

·        Budget Amendment

·        Replacement laboratory equipment

 

Mr. Gimlin stated that the transfer of the two positions from Plant Industry to Agriculture Registration/Enforcement had been covered in Budget Account 4540.  Chairwoman Chowning reiterated that those transfers were funded 100 percent through the license fees.  Mr. Gimlin stated that was correct and those positions would continue to be funded by license fees when they were transferred into Budget Account 4545 as their funding source followed them. 

 

Mr. Gimlin commented on the budget amendment, which would reduce the reserve in Budget Account 4540 that was offset by the Pest Control Operator fees, and move that fee income into Budget Account 4545.  The fees followed their expenditure source. 

 

Chairwoman Chowning asked how those reserve fees would be used.  Mr. Gimlin stated that if in the future it was necessary to hire additional staff on the fee-base side, reserve funds could be used.  The reserve funds could be used for equipment or supplies as well.  At the present time the Department did not have a program expansion planned, it would be a matter of response to growth.  Chairwoman Chowning asked if the Department would have to come before the IFC to clarify the needs.  Mr. Gimlin responded that they would if they wanted to request another position outside of the normal budget process.

 

Chairwoman Chowning inquired about the need for replacement of $226,363 of laboratory equipment.  Mr. Gimlin stated that the present laboratory equipment was at the end of the average life cycle for that type of equipment.  Most laboratory equipment had an average seven-year life cycle and all the Department’s laboratory equipment was at least ten years old.  The gas chromatograph handled one sample at a time, which was very inefficient as current lab methods allowed the analysis of multiple samples at one time.  Chairwoman Chowning asked if this equipment would be shared among various laboratories.  Mr. Gimlin stated that the chemistry laboratory was funded by a combination of fee-based funds and federal funds from the Environmental Protection Agency (EPA).  The EPA helped the Department to purchase equipment and supplies and offset the salary for one chemist.  The Department’s equipment was purchased with fee-based funds as a match for the federal EPA program. 

 

NOXIOUS WEED & INSECT CONTROL – BUDGET ACCOUNT 4552,  BUDGET PAGE AGRI-29

 

Chairwoman Chowning thanked the Department for the monthly updates that were sent to the Subcommittee members.  Mr. Henderson stated that the Department now had a weed specialist as well as a state weed strategy.  The Department had recently received some federal wildfire funds through a grant to fund a position for one year with an opportunity for renewal.  That position’s responsibility was to establish cooperative weed management areas throughout the state.  Chairwoman Chowning commented that what should be remembered was that if the weed situation were not controlled, there would be more fires, which would be very costly both in terms of lives and dollars. 

 

Mr. Henderson commented on the imported red fire ant problem and the thorough surveillance program that had been instituted in southern Nevada.  Three infected sites had been found and treated and appeared to be clear. 

 

Mr. Henderson addressed the Mormon cricket and grasshopper problems.  He stated it had been a large problem in 2002 and it was expected to be equally large in 2003.  The Department worked with federal agencies as much as possible to procure federal money to aid with the surveillance and control of the problem on public lands.  Grasshoppers resided primarily on private land, however, there had been some state emergency money applied to that problem.  The offer had been made to all parties involved, through the state entomologist, to survey grasshopper populations early in the spring to map the problem areas.  The infestations on public lands would be addressed before they moved onto private lands. 

 

Senator Rhoads complimented the Department of Agriculture because his district had gone through a disastrous year with grasshoppers in 2002.  He stated that normally he put up 2,000 ton of hay per year, but because of the drought had planned on 700 ton, however, after the grasshoppers arrived, only 60 ton were realized.  Senator Rhoads said that he had been told that unless there was a very cold winter with a lot of snow, the grasshoppers would return, so he expected another bad year.  Mr. Henderson stated that he believed the best course was to catch the grasshoppers as early as possible and that was the Department’s focus at this point. 

 

Mr. Beers asked if grasshoppers and crickets had any natural enemies.  Mr. Henderson replied that seagulls and turkeys had been known to eat grasshoppers and crickets, but the main control of those populations depended upon the weather. 

 

VETERINARY MEDICAL SERVICES – BUDGET ACCOUNT 4550,  BUDGET PAGE AGRI-33

 

Chairwoman Chowning requested that the Department clarify the goals and objectives of Budget Account 4550. 

 

Mr. Henderson stated that the Department’s best guess, at this point, was 1,200 wild horses on the range.  The goal over the next biennium was to remove 200 to 300 wild horses per year for adoption placement, as that was the most the Department’s facilities could handle and was the best estimate of adoption capacity for those horses.  Those estimates were in the face of a possible reproductive increase of approximately 20 percent.  Even after removing 200 to 300 horses during the next biennium, the Department would be at the upper end of the target population.  Mr. Henderson said that the funds requested would maintain a minimum program with one employee.  Once the 500 to 600 head level was reached the Department would have to constantly work to maintain that number, even with annual removals, because of the 20 percent reproduction rate.  Also, at that point, the herds would have to be monitored to determine if they were fitting into their habitat. 

 

Chairwoman Chowning stated that this program depended totally on General Fund dollars and asked if the Department had pursued other funding sources, such as gifts and nonprofit organization donations, to replace or reduce the General Fund requirement.  Mr. Henderson stated that option had been explored and, in fact, the Department had assisted in implementing the prison wild horse training program in hopes that the training would increase adoptability of the wild horses.  The Bureau of Land Management would sell a horse for $125 and they had hundreds of horses for adoption.  The federal government established the upper level of the price range for selling the horses.  Mr. Henderson said the Department had explored the area of animal rescue groups and they seemed very interested in keeping the wild horses from going to a slaughterhouse.  There seemed to be a potential for more adoptions with the animal rescue groups and the Department was going to pursue that possibility in order to reduce holding costs. 

 

Chairwoman Chowning requested an explanation of decision unit E-375 that would convert seasonal and part-time positions into one permanent position to oversee the Virginia Range Wild Horse Program.  Mr. Gimlin stated that decision unit E-375 would convert an existing half-time position to a full-time position at an annual cost of approximately $33,000 for the upcoming biennium.  Chairwoman Chowning asked if that position would take the place of any seasonal or part-time positions.  Mr. Gimlin replied that it would not. 

 

Chairwoman Chowning asked how the estimated $33,000 annual savings would be accomplished.  Mr. Gimlin stated the projected savings was due to a mechanical error on his part in the budget. 

 

Chairwoman Chowning requested clarification regarding decision unit E-600 that requested a Veterinary Diagnostician position for six months in each year of the biennium.  Mr. Gimlin stated that the position had been filled for quite some time and the person in the position had indicated they intended to retire at the end of the fiscal year.  The intent was to hold the position vacant for the first six months of the fiscal year and then hold it vacant for the second six months.  He stated it had been an error to show vacancy savings in FY2004 and FY2005 and there should be no savings shown in that account.  Mr. Gimlin said he would correct the error. 


LIVESTOCK INSPECTION – BUDGET ACCOUNT 4546,  BUDGET PAGE AGRI-40

Chairwoman Chowning asked specifically about decision unit E-500 in this budget account and why the Livestock Inspection Administrator position was funded through the Plant Industry account.  Mr. Gimlin stated that in 2002, four positions were moved out of the Livestock Inspection Account to create the Agriculture Enforcement Unit and they were funded 75 percent General Fund and 25 percent from fee revenue in the Livestock Inspection account.  The Administrator of Livestock Inspection was located in Budget Account 4546 and that position was supported entirely by fees from that budget account.  The proposal was to take some of the savings garnered from transferring two positions into the Administration Account and apply them to offset the salary of the Administrator of Livestock Inspection.  The Administrator spent over 50 percent of his time administering the Agriculture Enforcement Program.  The Department was requesting that the General Fund savings received from transferring those four positions be applied to offset the cost of the Administrator’s position.  Ultimately, the person administering the Agriculture Enforcement Program would be funded 50 percent by General Fund and 50 percent by brands fees. 

 

Chairwoman Chowning requested information regarding decision unit E-501, which recommended eliminating the Program Officer II position in the Livestock Inspection budget account.  She also asked how the head tax would be collected under the reorganized unit and what the purpose was of the technical services contract with the University of Nevada, Reno (UNR).  Mr. Gimlin responded that the Department received a really good “bang for the buck” by working with UNR.  The Administrator of Livestock had reviewed the various positions in the Livestock Inspection Program and determined that the Program Officer II position could be eliminated.  An Administrative Assistant II position would handle the day-to-day functions of the Brand Rerecording Program and UNR would be helping by providing information technology support. 

 

PREDATORY ANIMAL & RODENT CONTROL – BUDGET ACCOUNT 4600,  BUDGET PAGE AGRI-57

 

Chairwoman Chowning asked why the Division needed a new clerical position in Predatory Animal and Rodent Control (PARC) when it had not had a clerical position in the past, and why the Division was asking for General Fund appropriation to help increase a federal employee’s salary.

 

Mr. Gimlin replied that the request for a one-quarter full-time equivalent (FTE) Administrative Assistant was based upon a request from the United States Department of Agriculture (USDA).  This program was a cooperative effort between the USDA and the state of Nevada.  It was unique in the sense that the USDA administrated the program, all the 12 staff members were field staff, and the USDA Administrator, who worked in concert with the Nevada Department of Agriculture, provided supervision.  For years the USDA had provided clerical support to this program; however, they had reached the point where they could no longer provide any additional support.  At the present time there were 12 state employees, with no clerical support.  The USDA approached the state and indicated that they needed clerical support.  Last session the Department had requested a clerical position based upon fees and General Fund and the General Fund had not materialized. 

 

Chairwoman Chowning stated that it sounded to her that the federal government was asking for something that they were not willing to provide. 


Mr. Henderson stated that he could understand that sentiment, however, this was a cooperative state and federal program that had been in place for a long time and if it was broken down it would be apparent that the federal government provided more in the way of infrastructure than the state. 

 

Chairwoman Chowning stated that the Subcommittee would like to have a breakdown of the relationship between what the state was providing and what the federal government was providing to this program. 

 

Mr. Beers commented that most of the land that the state was protecting from rodents belonged to the federal government.  Mr. Henderson stated that if one checked, on a site-by-site basis for rodents and insects, it would be clear that there would be more of those animals on private land than public land. 

 

Senator Tiffany asked what the federal employee’s salary was at the present time.  Mr. Gimlin replied that he did not have that figure.  Senator Tiffany stated that she would love to have a guaranteed raise every year, but Ely was on an economic decline and some people would be happy just to have a job and live in Ely where the cost of living was fairly reasonable.  She further stated she would like to know what the salary was for the position before considering giving a raise.  Mr. Gimlin stated those figures could be provided. 

 

Chairwoman Chowning asked that best wishes be conveyed to Paul Iverson and adjourned the meeting at 11:04 a.m.

 

RESPECTFULLY SUBMITTED:

 

 

 

                                                           

Anne Bowen

Committee Secretary

 

 

APPROVED BY:

 

 

 

                                                                                         

Assemblywoman Vonne Chowning, Chairwoman

 

 

DATE:                                                                             

 

 

 

                                                                                         

Senator Sandra Tiffany, Chairwoman

 

 

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