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 21, 2003
The Assembly Committee on Ways and Means and the Senate Committee on Finance, Joint Subcommittee on General Government, was called to order at 8:14 a.m., on Friday, March 21, 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 Bob Coffin
Senator Sandra Tiffany
COMMITTEE MEMBERS ABSENT:
Senator Dean A. Rhoads, (excused)
STAFF MEMBERS PRESENT:
Mark Stevens, Assembly Fiscal Analyst
Gary Ghiggeri, Senate Fiscal Analyst
Joyce Garrett, Program Analyst
Jeff Ferguson, Program Analyst
Jim Rodriguez, Program Analyst
Lila Clark, Committee Secretary
Connie Davis, Committee Secretary
TAXATION
DEPARTMENT OF TAXATION (101-2361) – BUDGET PAGE TAX-1
Chairwoman Chowning said the Subcommittee had questions and concerns regarding the increased taxes as proposed by the Governor, such as how the taxes would be implemented and how the Department would implement the taxes if the tax package selected was not the same as that proposed by the Governor. She said the Subcommittee also wanted information on how the Department would administer the taxes through the use of the new technology and the assumption that the lockbox services would be done in-house. Chairwoman Chowning asked the Department also to discuss the audit recoveries.
Mr. Charles Chinnock, Executive Director, Department of Taxation, introduced himself and Mr. Dino DiCianno, Deputy Executive Director, and Ms. Lynne Knack, Administrative Services Officer III.
Mr. Chinnock said it was a privilege to appear before the Subcommittee to represent the men and women of the Department of Taxation. He said it was his goal to present a few highlights from The Executive Budget, which addressed some of the issues Chairman Chowning had mentioned. He said he would also discuss in some detail the Governor’s proposals for new taxes and answer any questions the Subcommittee had. Mr. Chinnock referred to Exhibit C, “Department of Taxation Budget Review, March 21, 2003.”
Mr. Chinnock referred to page 1 of Exhibit C that showed the Department was responsible for 17 taxes and the collection of $3 billion in tax revenue yearly. Mr. Chinnock stated that 83 percent of the tax revenue collected was sales and use tax, which represented taxable sales of $31 billion. Mr. Chinnock said that depending upon the tax types that were shown in the graph on page 1, they were either filed monthly or filed quarterly with a few instances where some people could file annually. Mr. Chinnock said the graph also showed the annual Business Tax and Fees.
Mr. Chinnock stated that not reflected in the chart shown on page 1 of Exhibit C were some other responsibilities that the Department had in the Centrally Assessed Property section and for mining property.
Mr. Chinnock referred the Subcommittee to page 28 of Exhibit C. He said that for every dollar that was spent on the Department of Taxation, the Department currently collected over $180 worth of revenue. He said the graph showed Nevada’s relationship to other states.
Mr. Chinnock said page 2 of Exhibit C showed the distribution of the revenue the Department collected. He said pages 3 and 4 had been presented prior to the meeting and were budget figures recommended by the Governor. Mr. Chinnock said that because the Department was a General Fund agency, 80 percent of its costs were allocated to salaries and the base budget recommended funding for 223 full-time positions, 2 half-time positions, and 10 seasonal intermittent positions.
Mr. Chinnock said that decision unit E-600 accounted for the 3 percent budget reduction requested by the Governor. Mr. Chinnock said the Department was also recommending that a Department of Information Technology (DoIT) technician be moved to the Department of Taxation.
Mr. Chinnock said that decision units E-710 and E-720 were for equipment. He said decision unit E-850, for special projects, was established originally for the ongoing cost of continuing lockbox services in-house by the Department of Taxation if the banking contract, that was currently being renegotiated with the State Treasurer’s office, was not renegotiated.
Mr. Chinnock referred the Subcommittee to page 24 of Exhibit C for the current status of the Department’s lockbox services. He said that Bank of America would definitely discontinue its lockbox service effective June 30, 2003. Mr. Chinnock said Bank of America was a bidder on an ongoing Request for Proposal (RFP) that he would discuss later in the meeting. Mr. Chinnock said a separate RFP had been solicited for lockbox services and that should be finalized within a week or two of the meeting. Mr. Chinnock said that currently the Department was processing 73 percent of the workload for sales, use, and business taxes through the lockbox. He said that if the proposals were not representative of what the Department’s needs were, the Department would need to start in-house preparation on approximately April 1, 2003, for an in-house lockbox system. Mr. Chinnock said that if there was a successful bidder for lockbox operations on a contract basis, the Department believed it was likely the operation might be located out of state. He said the lockbox operation would require separate, additional budgetary authority in fiscal year 2003 and the Budget Office had been alerted to that fact. Mr. Chinnock said that was necessary in order to allow for a seamless transfer from the current lockbox operations to the new lockbox operations. He said some travel expense would also be likely to coordinate the transfer to the new lockbox operation.
Mr. Chinnock said that the Department had been working closely with the State Treasurer’s office for six months on the lockbox operation. He said that because of the low interest rates that were currently in effect, any opportunity for “float” or compensating balance had probably all but disappeared and it appeared that any contract for lockbox operations would require a separate appropriation. He said the Treasurer’s Office had not provided for that expense and, therefore, it was up to the Department of Taxation to budget for the lockbox expense. Mr. Chinnock said that the Department had earmarked in its budget account up to $370,000 for in-house lockbox services. Mr. Chinnock said if the Department was successful in negotiating a contract with a vendor for lockbox services it would not know what amount of funding would be needed until the bid had been awarded.
Chairwoman Chowning asked the Department to submit the figures for the lockbox operation to the staff of the Fiscal Division. Mr. Chinnock answered that he would submit the figures to the staff of the Fiscal Division as soon as they were known.
Senator Tiffany asked if the amount needed for an outside vendor to do the lockbox functions was known. She also asked how much Bank of America had been paid for the lockbox operations. Mr. Chinnock said the contract with Bank of America for lockbox services included the provision that Bank of America had the master services agreement. Mr. Chinnock said there was no line item cost for the lockbox services as those services were included as part of the master services agreement.
Senator Tiffany asked if the Department would need additional funding even if a contract for lockbox services was awarded to an outside vendor. Mr. Chinnock responded that if the Department entered into a contract with a vendor for lockbox services no additional funding would be needed beyond the amount needed for the contract.
Mr. Gary Ghiggeri, Senate Fiscal Analyst, stated that the Department would need funding to pay for the services if it was not done in-house because the State Treasurer’s office would no longer cover the cost of the service through the float. The Department would need some funding to cover the costs.
Mr. Chinnock said that Mr. Ghiggeri was correct. The Department had indicated $300,000 to $350,000 for in-house lockbox operations but the Department currently believed that because there would be a cost for the lockbox services, instead of needing that money for in-house expenses, it would now be needed for contract services. Mr. Chinnock stated that if the Department used in-house services it would not need an additional appropriation.
Chairwoman Chowning asked Mr. Chinnock to provide that unknown cost to the Fiscal staff when it became known.
Assemblyman Beers asked when the status of the RFP and the costs would be known. Mr. Chinnock responded that he should know within two weeks.
Mr. Chinnock continued his presentation and stated that the Department’s out-of-state budget was primarily for staff to attend conferences on topics such as the Streamlined Sales Tax Program or some specialized conferences with respect to centrally assessed property. He said the in-state travel budget was purely for the administration of taxes and was used by the Department’s auditors, appraisers, and revenue officers. Mr. Chinnock said the Department had auditors located in Sacramento, San Francisco, Los Angeles, Dallas, Atlanta, Chicago, and New York City.
Mr. Chinnock said the Department’s training budget allocated approximately $91 per employee and that occasionally, because of the requirement for the Department to have a hearing officer, a new alternate hearing officer would have to be trained.
Mr. Chinnock said page 5 of Exhibit C showed the cost of the Governor’s proposals included in S.B. 238 and A.B. 243 by individual category with respect to the taxes proposed and also for information technology. Mr. Chinnock said he would go into detail later in the presentation on how the Department calculated the figures.
Mr. Chinnock referred the Subcommittee to pages 6 through 14 of Exhibit C, which showed the specific taxes and the costs calculated. Mr. Chinnock said the gross receipts tax proposed would require a new chapter be added to the Nevada Revised Statutes and the Governor’s proposal had a deduction for businesses with annual gross receipts of less than $450,000. He said the rate was .0025 and based upon the capabilities of the Department it would be filed on a quarterly basis. Mr. Chinnock said the proceeds of the tax would all go to the state General Fund and the yield would be approximately $200 million per fiscal year beginning in FY2005-06.
Mr. Chinnock said the Department currently had approximately 80,000 existing business accounts and there would be a potential of adding 60,000 sole proprietorships, or a total of 140,000 accounts. Mr. Chinnock said the Department estimated 25,000 accounts would have money to be processed although the number could be as high as 30,000 to 35,000. Mr. Chinnock said the cost shown for the gross receipts tax implementation for the next biennium was shown under the Resources Section of page 6 of Exhibit C. He said the total cost was estimated at $3.6 million. Mr. Chinnock said there would be a phase in of the personnel and a phase in of the costs because that tax would not be fully implemented until July 1, 2005. He said part of the two-year lead time was due to the need to have new information technology development in order to administer that tax.
Mr. Chinnock said the details of the Admissions and Amusement Tax was shown on page 7 of Exhibit C. Mr. Chinnock said that tax would also need a new chapter in the Nevada Revised Statutes. He said it was a tax on spectator entertainment and other related areas at a rate of 7.25 percent. He said it was a transaction tax upon the consumer that would yield $82 to $86 million yearly. Mr. Chinnock said the Department estimated there would be approximately 3,200 accounts and that the Department’s “gut feeling” was that there might have been as many as 5,000 accounts but recognized that the tax would not necessarily have to be administered on a location basis so the Department could administer it on an entity basis. Mr. Chinnock said that meant there might be a chain of movie theaters located in Nevada and that chain of theaters might report on all of its theaters in one filing. Mr. Chinnock said the tax would be implemented similarly to the sales and use tax where the taxpayers would report on a monthly basis. He said the total cost to the Department would be $1.1 million.
Chairwoman Chowning asked how many positions would be needed to administer the Admissions and Amusement Tax. Mr. Chinnock confirmed that 11 positions would be necessary.
Mr. Chinnock returned to his presentation and stated that the cost for the 11 positions would be $1.1 million and the lead time would be one quarter to implement the tax. He said the first taxes charged to a consumer would be on October 1, 2003, with the first report due beginning October 31, 2003. Mr. Chinnock said that tax could be programmed in the Automated Collection Enforcement System (ACES).
Assemblyman Beers asked for confirmation that the Admissions and Amusement Tax could be programmed in ACES and Mr. Chinnock said that it could.
Senator Tiffany asked when ACES would be replaced. Mr. Chinnock responded that the Department had a plan in its overall information technology plan, based on the Governor’s tax proposal, to first dedicate the workload to be ready to accept the gross receipts tax on July 1, 2005. He said if the Department was provided the money that was necessary to do that, that same money would also be able to provide an improved system such that the Department could then bring online those taxes that were currently not automated.
Senator Tiffany asked if the Department would run two parallel systems. Mr. Chinnock said the Department had no choice but to keep two systems in parallel. He said that ultimately the information technology strategic plan would take three years in order to have 100 percent conversion including the gross receipts tax.
Senator Tiffany asked how the Department would process the taxes on cigarettes and alcohol. Mr. Chinnock answered that those taxes were processed on desktop computers and would continue to be run on desktops. Mr. Chinnock said that sales, use, and business taxes were the taxes that were run on ACES and ACES could be reprogrammed to accommodate proposed changes in those taxes.
Senator Tiffany commented that the largest changes would be required to administer the gross receipts tax and the business license fee. Mr. Chinnock answered that the Department could accommodate the business license fee within its current structure.
Senator Tiffany asked if the gross receipts tax would have to have new information technology and Mr. Chinnock said that it would “absolutely” have to have new technology.
Senator Tiffany stated that if the state did not enact the gross receipts tax the state would have to look at what could be done and its impact on ACES.
Mr. Chinnock said that it was important to recognize that ACES needed to be replaced and if the gross receipts tax, for whatever reason did not occur, the Department would still need a strategic plan to replace ACES. That would still take three years to fully implement the replacement and in the strategic plan the Department would have the desire to have some soft return on investment up‑front to have things such as online registration and filing. Mr. Chinnock said he would discuss discovery modules and audit modules that could be added later but the portion of the program that could provide the services and benefits needed to be done.
Senator Tiffany asked if the Department had done an implementation plan to replace ACES. Mr. Chinnock said that the 2001 Legislature appropriated $1.3 million to do the study but because of September 11, 2001, those funds were pulled back and reverted to the General Fund. As a result of that the Department did not complete a true functional requirements study. He said when the Task Force report came out in November 2002, and eventually as the Governor developed his proposal, the Department developed an in-house plan, which was included in Exhibit C. Mr. Chinnock said the plan showed what the range of costs could be for information technology replacement. He said the Department took the plan it had developed in-house to the Department of Information Technology (DoIT) planning group for input. That group had been working with the Department for approximately one month to six weeks to develop a plan that would show the time line and the costs. Mr. Chinnock said that within one week DoIT would issue Requests for Information (RFIs) so that specific costs from various consultants would be available. Mr. Chinnock said DoIT would present four or five proposals of how ACES could be replaced. He said that written plan probably would not be finalized until the first week of May 2003. Mr. Chinnock said that if there were an appropriation to the Department for new information technology, he assumed it would be for the time period starting July 1, 2003, and as a result of that there would have to be a full, functional requirements definition completed first. The Department estimated that would cost between $500,000 and $750,000 and could automatically lead to a Request for Proposal (RFP) and then the Department would go into the actual plan to implement the new information technology within the Department.
Senator Tiffany asked if the Department should request a “functional spec” before issuing Requests for Proposals (RFPs). Mr. Chinnock said the Department had hoped to show the Subcommittee and other legislators a proposal that had not been done in-house. He said that would be a second set of numbers with a second set of eyes to review the notional concepts the Department had brought forward, which would either support the Department’s ideas or give more definition to one or the other notional concepts the Department had presented. Mr. Chinnock said the Department had presented a range either from doing all the work in-house to hiring a consultant to do the entire project.
Senator Tiffany asked if there were funds included in the Department’s budget to pay DoIT for its analysis. Mr. Chinnock said that the Department had an agreement with DoIT to do the analysis at no cost. He said DoIT had graciously agreed to do the work at no cost in order for the Department to present the information to the Legislature.
Senator Tiffany commented that she was unsure that DoIT did work without cost and she speculated that there might be a cost to the Department.
Assemblywoman Chowning said that the Department needed to understand the costs as soon as possible.
Senator Coffin stated that the Senate Taxation Committee had met to discuss the possibility of assessing a tax on services but he did not recall if Mr. Chinnock had been present at the meeting. Senator Coffin asked if the Department had calculated the cost of administering a tax on services.
Mr. Chinnock responded that the Department had not calculated the cost for administering a tax on services. He said the Department had not yet determined the extent of the workload. Mr. Chinnock said that a services tax would probably be as complex as the current sales and use tax. He said the difficulty was in trying to determine how many new accounts there would be. Mr. Chinnock said that the Department had 64,000 sales and use tax accounts and he thought that number could easily double if a services tax was enacted; he anticipated that the amount of manpower and the cost would be substantial if a services tax was enacted.
Senator Coffin asked Mr. Chinnock if he had discussed the costs of a services tax with the Budget Office or the Governor’s Office. Mr. Chinnock responded that he had not specifically discussed the costs with the Governor’s Office or the Budget Office although throughout the whole proposal process the Department had presented numbers, not only for the Governor’s proposal but for the Task Force, and all the issues that it had looked at.
Senator Coffin stated that there was a serious move in the Legislative Building to avoid the business tax and he did not know which tax proposal was going to succeed. Senator Coffin said the Department should be seriously looking at what a services tax would cost because the Department’s budget would be driven by the decision that would be made by the Legislature at the very last minute of the legislative session. Senator Coffin said the Department should have some feeling for what the tax would cost.
Mr. Chinnock assured Senator Coffin that the Department would calculate the costs to enact a services tax. Mr. Chinnock said he believed that Exhibit C contained a proposal for every type of tax except the services tax.
Senator Coffin said that meant the Department had “a tin ear.” He said the Department needed to have an open ear and an ear for politics because the time left in the session was very limited. Senator Coffin said the legislators were in a serious struggle behind the scenes, and out in public too, about which taxes to pass. Senator Coffin stated that the Department should have been very aware from the beginning of the session of what was going on and he wanted to be certain that the Department understood that alternative proposals for taxes had serious momentum. He said he did not know whether any of the alternatives would be accepted but there was a chance that one would be accepted. Senator Coffin asked Mr. Chinnock how long it would take the Department to calculate the costs for a services tax.
Mr. Chinnock answered that it would take the Department less than a week to calculate the costs of a services tax. He said the Department was working on the proposal but the numbers were not written down yet.
Senator Coffin said that information was reassuring because the Legislature needed the information.
Mr. Chinnock said that the Department had re-categorized some of the information based upon some of the questions that had been asked in other committees of the Legislature. He said the Department had shown the costs for implementation of the business tax and annual business license fee as one group but had separated the costs for components of the program. For example, the Department had broken out costs for information technology services separately and would do the same thing with the services tax so individual modules could be added together to see what the costs would be for any proposal that came forth.
Chairwoman Chowning asked if Mr. Chinnock was saying that the Department could put the estimates of the costs together within one week and Mr. Chinnock answered affirmatively.
Assemblyman Beers asked if the Department could have the cost information available one week from the date of the meeting. Mr. Chinnock answered affirmatively. Mr. Beers asked if the Department’s estimates addressed the possibility that the rates would change over time and Mr. Chinnock responded affirmatively.
Mr. Chinnock stated that the existing business tax fell under NRS 364A. He said the Governor’s proposal was to increase the tax to $300 per year and beginning on July 1, 2005, drop back to $80 per year. Mr. Chinnock said the $300 per year equated to $75 per quarter and was based on full-time equivalents of employees, not the number of employees. Mr. Chinnock said Exhibit C showed what some of the exemptions were and what the yield would be. He said that if the tax was expanded to all businesses, including the sole proprietors, it would bring in an additional $12 million for fiscal year 2004 and $21 million for fiscal year 2005. Mr. Chinnock said the existing workload was 80,000 active business accounts with the possibility of adding 60,000 sole proprietorship accounts. Mr. Chinnock said the cost for the implementation of the tax would be a total of $6 million, which included an annual business license fee. Mr. Chinnock said the increase in the business tax could be implemented on July 1, 2003. He said there was a statutory reference in NRS 364A.190 that would allow the Department to go back four quarters and pick up those that might be missed. Mr. Chinnock said the initial workload to the Department would be substantial and the Department might need to go back four quarters without having taxpayers incur any penalties on that program. Mr. Chinnock said that the information technology needed would be handled through the ACES program.
Chairwoman Chowning asked how the Department would identify all of the sole proprietorships. Mr. Chinnock said the Department used information and education to identify taxpayers and the Department had agreements with other agencies to receive listings of businesses. Mr. Chinnock said the Department had a one-way agreement with the Internal Revenue Service to obtain information.
Chairwoman Chowning asked how a business would be identified if it had no business license. Mr. Chinnock said the Department matched one of the databases he had mentioned to the Department’s existing database. He said if a business was identified that was not shown on the Department’s existing database, the Department followed up with letters and contacts made by the Department’s revenue officers.
Chairwoman Chowning pointed out that the follow-up would take some time and she wondered if a good majority of the taxpayers would be identified.
Mr. Chinnock pointed out that the yield for fiscal year 2004 would be $12 million and for fiscal year 2005 the yield would be $21 million as calculated by the Task Force. Mr. Chinnock said the Task Force knew there would be a “spin-up” period in order for the taxes to be collected. Mr. Chinnock said that was why he mentioned NRS 364A.190 that permitted the Department to go back on the business tax and assess the personnel without necessarily having a penalty or interest assessed.
Assemblyman Griffin asked if the Department’s increased costs were due exclusively to the addition of sole proprietors. Mr. Chinnock said the increases had only to do with the addition of sole proprietors and the addition of the annual business license fee. Mr. Chinnock said the numbers shown on pages 6 through 16 of Exhibit C came from page 16. Mr. Chinnock said page 16A of Exhibit C contained a further breakdown of those costs so the Department could specifically identify items such as the annual business license fee. Mr. Chinnock said the Department separated the support package so those costs could be identified individually.
Assemblyman Griffin asked what the yield would be on the revenues that would be generated exclusively by the new accounts that would be generated by changing the law to include sole proprietors. Mr. Chinnock said the additional yield would be $12 million in fiscal year 2004 and $21 million in fiscal year 2005 as a result of the increase to $300 per year.
Assemblyman Griffin asked if the state would be spending $6 million more per year to collect $21 million. Mr. Chinnock responded, “In this case, yes.” Mr. Chinnock also said that fairness should be considered. For example, there could be a sole proprietor who operated a heating and air conditioning business who should not be treated differently than someone operating the same type of business as a partnership or limited liability corporation. Mr. Chinnock said another concern was one of being able to capture the database so there could be good discovery and a good compliance program. Mr. Chinnock said that the existing business tax represented less than 3 percent of the total tax revenues for the state. Mr. Chinnock said the Department devoted a substantial portion of its workload to the collection of business tax and that was understandable because it was $100 per year from a business versus sales tax, which would be many times that amount.
Chairwoman Chowning asked how the Department kept track of the many businesses that constantly changed their names. Mr. Chinnock said the Department had a good procedure in place to track businesses that had previously signed up with the Department.
Chairwoman Chowning said it was frustrating to her, for example, that she would start processing a loan with one mortgage company, then the company would move upstairs with a new name, and by the time the processing of the loan was finished the company would be back downstairs with another name. She said all of that could take place in about three months’ time. Chairwoman Chowning said that all of the difficulties in locating companies needed to be kept in mind when considering the costs for administering new taxes.
Mr. Chinnock continued his presentation by pointing out page 9 of Exhibit C, an analysis of the business license fee. He said the proposal was to implement an annual business license fee of $100. Mr. Chinnock said the best way to implement the annual fee would be to have it renewed on the anniversary month as a separate item that the Department would mail out. He said that at some point in the future, with more robust information technology capabilities, the Department could then evaluate the potential advantages of sending out the renewals with some of the other taxes the business might be involved in. Mr. Chinnock stated that currently the business license fee was a one-time fee, and with the existing 80,000 active business accounts and the potential for adding 60,000 accounts, there would be a total of 140,000 returns to process. He said those 140,000 returns equaled approximately 13,000 returns monthly. Mr. Chinnock said the costs shown on page 9 of Exhibit C included the costs for business tax and the business license fee although there was a separate breakout of the costs individually in the back of Exhibit C. Mr. Chinnock said it would cost approximately $400,000 per year to collect the business license fee alone.
Mr. Chinnock said the Department could implement the collection of the business license fee starting July 2003 and it could be done utilizing the existing ACES.
Senator Tiffany asked if the Department could start online collections at the time ACES was updated to accommodate the processing of new taxes. She said that possibly that could be a separate module added to ACES so that revenue could begin coming in electronically.
Mr. Chinnock said that the previous Legislature had appropriated $800,000 for an imaging and scanning system. The purpose of that imaging and scanning system was to help automate the processors. Additionally, it was also supposed to do a proof of concept for Web-based filing. Mr. Chinnock said that was a test program. Mr. Chinnock said the Department had gotten off to a slow start with its consultants and the imaging and scanning program was just about to be completed. Mr. Chinnock stated that, rather than have a proof of concept or a test program for Web-based filing, the Department was able to negotiate and had received a lower price than what the original consultant was going to charge to also have an operational Web-based filing for sales, use, and business tax. Mr. Chinnock said that program should be online within a couple of months for the basic form. He said there were adjustments and supplementary forms that would be programmed into the system as time went on. Mr. Chinnock reiterated that the basic forms for sales, use, and business tax filings should be operational within a couple of months.
Mr. Chinnock said that in order to implement the imaging and scanning program the Department researched third-party vendors who could provide online checking and act as a third-party clearinghouse for credit cards. He said the Department went through the Board of Examiners and selected International Settlement Corporation on a no-cost contract. Mr. Chinnock said the reason the Department selected International Settlement Corporation was because that company agreed to do the up-front programming at no cost and to pass that cost on as an individual charge to the taxpayer. Mr. Chinnock said he believed the charge was approximately two cents per transaction. He said that International Settlement Corporation agreed to allow the Department to enter into telephonic filing in the future so those taxpayers who did not have a computer could still file their taxes. Mr. Chinnock added that the Department was also going to start doing electronic funds transfers. Mr. Chinnock said the Department would have Web-based filings with the existing ACES as a separate module. Mr. Chinnock said the Department had spent approximately 1,000 hours of an in-house programmer’s time to build a separate program that would match and access the ACES. He said that if new information technology came on, the interface could be changed.
Senator Tiffany asked what taxes could be collected online immediately utilizing the contract with the International Settlement Corporation. Mr. Chinnock responded that the taxes that could be collected currently were sales, use, and business tax. Mr. Chinnock said that forms, such as ocular forms, needed to be added for a complete package. He said the Department could do that in-house and the necessary forms would be added as time went on.
Senator Tiffany asked if the Department needed statutory authority to establish monetary limits at which certain taxpayers must use the online system.
Mr. Chinnock stated that some type of incentives to encourage taxpayers to file online would be beneficial. He said that if incentives were to be provided the law would need to be worded in such a way that online filing would be required only when the Department had the capability to handle it.
Senator Tiffany asked for clarification on when the Department would be able to process payment of taxes online. Mr. Chinnock said the three basic taxes could be done now and he hoped to bring excise taxes and any new taxes online.
Chairman Chowning asked if the Department needed statutory authority for taxes to be paid online. Mr. Chinnock said statutory authority would help but he pointed out that in the Governor’s tax proposal there was an initiative included that if a taxpayer paid early he would get a 1.25 percent collection allowance, if a taxpayer paid on time he would get a .75 percent collection allowance, and if a taxpayer paid late he would get no collection allowance. Mr. Chinnock said the Department’s current system could not do tiered collection allowances and was limited on how to apply some of the incentives.
Assemblyman Beers said that from his perspective as an operator of a small business, the Department would need statutory authority to get small business operators to pay early online. He said paying online was paying early because when a taxpayer paid by check he had four to five days “float” on the funds.
Mr. Chinnock said the Department could also “warehouse” payments. He said that if a taxpayer paid early the Department could promise not to deduct the payment from the bank account until a specific date. Mr. Chinnock said several states currently had such a procedure.
Assemblyman Beers said part of the benefit to the state of the online, instant filing was that the state would get the advantage of the “float” rather than the taxpayer getting the benefit. He said the other benefit was that the Department would not have to have an employee type numbers from the taxpayer’s return into the computer system. Mr. Chinnock agreed and said that also the Department would not have to print and mail a form to the taxpayer and have all the correspondence that would go with it. Mr. Chinnock said that the Department’s numbers showed that if no incentives were provided, approximately only 10 percent of the taxpayers would file online. He said he had seen numbers showing that if incentives were provided that number might be raised to approximately 30 percent. Mr. Chinnock said that perhaps those taxpayers that filed online could get a collection allowance and those that did not file online could get a lower collection allowance as opposed to setting the levels of the collection allowance upon time.
Assemblyman Beers pointed out that the Department included good information for taxpayers in the forms it currently mailed out. He said he personally had been educated and had benefited from some of the information in the newsletters included with the forms. Mr. Beers asked how that information would be disseminated if the monthly mailings were eliminated. Mr. Chinnock said the newsletters could be sent by e-mail and the information was currently posted on the Department’s Web site. Mr. Chinnock said a program would have to be developed and implemented to do that.
Senator Tiffany asked what dollar amount should be included in the law if a statute was enacted that required taxpayers with a certain amount to be paid to file and pay online. Mr. Chinnock said he did not know what the appropriate amount would be but he would think about it.
Senator Tiffany said she would like to see a statute requiring businesses of a certain size to file electronically. She said the taxpayers who would go online to pay their taxes had the capability to pay online.
Mr. Chinnock said another item included in the Governor’s tax proposal was a reference to electronic filing and a reference to allow the Nevada Tax Commission to develop regulations for that. He said one of the ideas behind that was that electronic filing was in its infancy within the Department and would have the potential to grow quickly. If some regulatory authority could be given to the Nevada Tax Commission the Department would be able to implement more features of electronic filing as the Department grew as opposed to having the specifics set in statute. Mr. Chinnock said he would think about how the regulations could be structured.
Chairwoman Chowning said she wanted to reiterate that even if a taxpayer did not have a computer, taxes could be paid by telephone. Mr. Chinnock said that plan was not currently in place but the Department had told International Settlement Corporation that it wanted to follow-up the online filing with telephonic filing.
Senator Tiffany asked if taxpayers could pay their taxes with electronic transfers from their bank accounts. She said there were many ways to make electronic payments as opposed to paying by check.
Mr. Chinnock agreed with Senator Tiffany and said the Department had not specifically addressed those options but would look into the possibilities.
Mr. Chinnock continued his presentation with a discussion of the Liquor Excise Tax, NRS 369. He said the Liquor Excise Tax was a tax at the wholesale level based upon when the liquor was warehoused. Mr. Chinnock said page 10 of Exhibit C showed the current rates, the proposed rates, and the difference. Mr. Chinnock said all of the distribution of the Liquor Excise Tax went to the state General Fund except for the liquor that represented alcohol of more than 22 percent. In that case, 50 cents out of the current rate went to the consolidated tax distribution, which went to the various local entities. Mr. Chinnock said that currently 15 cents went to the Alcohol and Drug Abuse Account. Mr. Chinnock said the Governor’s proposed plan would provide an additional $1.82 to the General Fund. Mr. Chinnock stated there were currently 66 wholesale accounts. He said that with respect to all the excise taxes that the Department oversaw, there would be a need for additional staffing, especially because of the cigarette tax.
Mr. Chinnock referred the Subcommittee to page 30 of Exhibit C. He said that chart showed the growth over the previous ten years in the excise taxes. Mr. Chinnock said the chart on page 31 of Exhibit C showed the number of excise taxes per employee over the previous ten years. Mr. Chinnock said the Department had five Tax Examiners and one Supervisor to complete the excise taxes. He said the Department had that number of employees for excise taxes for the previous ten years. Mr. Chinnock said the employees were “more than saturated,” especially from a compliance standpoint, and the Department needed to have one additional Tax Examiner and two additional Revenue Officers. He said the positions should be Revenue Officer III positions because of the investigation and compliance nature of the positions. Mr. Chinnock said one Revenue Officer III position would be located in southern Nevada and one in northern Nevada.
Mr. Chinnock said that for every dollar spent for the five or six employees handling the excise taxes, the employees brought in approximately $850. He said that was a good return on the work the employees were doing.
Mr. Chinnock stated that the excise taxes were processed on desktop computers utilizing either the Excel or Access programs. In order to change the excise taxes, two statutes with respect to rate would need to be changed. The statutes requiring change were NRS 369.174 and NRS 369.330.
Mr. Chinnock said the cigarette excise tax was a tax on the sale of cigarettes. He said the tax was implemented by selling cigarette stamps to wholesalers/manufacturers who then affixed the stamp and passed the cost on to the purchaser. Mr. Chinnock said the tax increase in the Governor’s Tax Plan was for a total of $.70 per pack of 20 cigarettes, added to the existing $.35 per pack, which meant a total of $1.05 per pack of cigarettes. Mr. Chinnock said the distribution of the additional amount of tax would go entirely to the state General Fund. He said there were 106 wholesalers/manufacturers that the Department currently managed. Mr. Chinnock said he had previously in the presentation discussed the Department’s needs regarding compliance personnel and the costs. He said the costs totaled $350,000.
Chairwoman Chowning asked what other states, such as New York, charged for cigarette taxes. Mr. Chinnock said other states charged substantially more, although he did not have the figures with him, and he apologized for that.
Assemblyman Beers asked that the Department provide the figures at a later time.
Assemblywoman McClain said she would like to see a realistic estimate of the revenue the state would lose to Internet sales of cigarettes. She said that currently cigarettes in Nevada were the same price that they could be purchased for on the Internet. She believed that if the taxes were raised an additional $7 per carton, many customers would be lost to the Internet.
Mr. Chinnock reported that, based upon testimony given before legislative tax committees, there were persons who believed the loss would not be substantial. He said it was estimated that there would be an initial “ramp up” of Internet sales and then the Internet sales would decrease and stay down.
Assemblywoman McClain said that she recalled the testimony given had used California as the example of a state not losing many sales to Internet sales. She said that over the past two years California had raised taxes on cigarettes to such an extent that they had already lost the business. Ms. McClain said the past increases in taxes on cigarettes explained why the most recent increase did not indicate a loss to Internet sales. Ms. McClain said Nevada would lose the initial $.35 cents in tobacco tax, the sales tax on cigarettes, and the additional $.70 cents. Ms. McClain said it was her opinion that an increase in the cigarette tax would be “a giant hit.”
Mr. Chinnock said that because the cigarette tax was implemented through stamps that were affixed to each package of cigarettes, the easiest way for the Department to do that would be to issue a new stamp or to charge a new price and send the stamps out to wholesalers and retailers. Mr. Chinnock said there had been discussion about whether there should be a floor tax, and the Department had given testimony before the taxation committees that up to that time people had not been attempting to stock up on cigarette stamps to take advantage of the situation by buying cigarette stamps at a lower price. Mr. Chinnock said that very recently the Department had started to receive requests from the wholesalers and manufacturers in excess of what it normally received. Mr. Chinnock said the wholesalers and retailers had been sent a letter requesting their support. He said that depending upon the cooperation received, the Department might need to look at other manners of implementing a cigarette tax change if it was enacted.
Assemblyman Beers asked what a floor tax was. Mr. Chinnock responded that on day one of a tax change an entity would have to report what their inventory was so that they could then be charged for the entire new tax based upon the inventory that day. Mr. Chinnock said it would be complex to try to do that at the retail level but there might be a way to do it at the wholesale level. Mr. Chinnock said the Department was investigating other ways to handle the tax depending upon how the request for cooperation was received.
Assemblywoman McClain said that in fiscal year 1997-98, the last full year before the $.50 per package increase took effect in California, California cigarette tax of $.37 per package generated $16.5 million per penny of tax. In FY1999-00, after the transitional effects of the higher tax had passed, California cigarette tax of $.87 per package generated $13.4 million per penny of tax. She said that was an 18.9 percent decline in taxable consumption over the two‑year period. Ms. McClain believed those statistics represented a starting point.
Mr. Chinnock referred the Subcommittee to page 14 of Exhibit C, a property tax analysis. He said the Governor’s proposal was to add $.15 to the tax rate for the state General Fund. The Task Force on Tax Policy also recommended changing the $3.64 tax rate cap by removing the school rates and the $.15 state debt rate, which was $.90. Mr. Chinnock said removing $.90 from the tax rate of $3.64 would leave $2.74. He said the proposal was to add $.40 to that so the local governments would have some room to grow underneath the tax cap. Mr. Chinnock said that the new rate of $3.14, plus the state rates, plus the $.01 Capital Improvement Project (CIP) rate, would equal a total rate of $4.20.
Chairwoman Chowning asked what the $4.20 represented and Mr. Chinnock explained that it would be $4.20 per $100 of assessed valuation. He said assessed valuation was 35 percent of taxable value. Mr. Chinnock said the yield on the proposed increase would be $100 million of additional revenue per year. Mr. Chinnock said there were no resources either at the local government level or at the state level to implement the increase. Mr. Chinnock stated that the last day the Nevada Tax Commission could adopt tax rates for the next fiscal year was by June 25 of each year.
Chairwoman Chowning asked if the increased property tax rate could be implemented for 2004. Mr. Chinnock responded that the increase could be implemented for 2004 as long as the rates were set by June 25. He said it could even be done later than that if needed by passing special legislation to delay the dates.
Assemblyman Griffin said that some of the tax proposals had more momentum than others and he wondered what the impact would be to the yield if a certain amount of assessed value was exempted. He also asked if exempting some assessed value would create assessing difficulties that would require additional costs. Mr. Chinnock said he had provided information with respect to what the effect would be on revenue although he was unsure what the effect would be on costs. Mr. Chinnock said the cost to implement the increase would be at the local level with respect to the Assessors’ offices and he said he would research the costs and report back to the Subcommittee.
Assemblyman Griffin asked for clarification on whether the Department knew the impact of the increase on revenue. Mr. Chinnock said he did not have the figures with him but he would provide them to the Subcommittee.
Mr. Chinnock referred the Subcommittee to page 26 of Exhibit C for an overview of how the Department calculated costs of the proposed taxes. Mr. Chinnock said the Department had 64,000 current sales and use tax accounts, 80,000 business tax accounts, for a total of 144,000 accounts. He said that in order to calculate the numeric change in the number of accounts the Department calculated that it gained approximately 20,000 new accounts per year and lost approximately 10,000 accounts. That resulted in a net gain of approximately 9,000 to 10,000 accounts.
Mr. Chinnock said that the calculations for the manpower determination were also shown on page 26 of Exhibit C. He said the calculations on the left-hand side of the page were for the Revenue Officers and Tax Examiners and the right‑hand numbers pertained to the Department’s Auditors. Mr. Chinnock said the Department looked at its existing accounts, added the 20,000 new accounts, and calculated the number of accounts handled per Revenue Officer and Tax Examiner. Mr. Chinnock said the figures for the Auditors were calculated in a different manner because the business tax accounts were fairly simple accounts unlike the complicated sales and use tax accounts. Mr. Chinnock said that for the calculations a 2 to 1 ratio was used with respect to the additions on business tax accounts.
Mr. Chinnock then referred the Subcommittee to page 27 of Exhibit C to see the existing number of Revenue Officers, Tax Examiners, and Auditors, and the projected numbers of new staff required. Mr. Chinnock added that the Department estimated doubling the existing staff for processing and cancellation functions because those functions were related purely to number of accounts. He said that a $25 account was just as much work for them as a $10,000 account. Mr. Chinnock said those staff members could have the potential workload of servicing 140,000 gross receipts accounts, 60,000 additional business tax accounts because of the addition of sole proprietorships, 140,000 annual business license filings, and admissions and amusements tax of 3,200 accounts. The Department already had an existing 144,000 sales, use, and business accounts, and 20,000 new accounts yearly. Mr. Chinnock said that from a processing and cancellation standpoint, the Department would go from 144,000 accounts per year to over 300,000 accounts per year.
Mr. Chinnock next referred the Subcommittee to page 15 of Exhibit C for information on the distribution of the Department’s positions in various locations throughout Nevada. He said the lower portion of page 15 showed the vacancy status earlier in the current fiscal year. There were a total of 22 vacant positions. The chart on page 15 showed the positions labeled Priority 1 for filling by the Department. Those positions were revenue generators who dealt with compliance issues. He said the Department had worked closely with the Budget Office and the Governor’s Office regarding those positions and had either filled or was in the process of filling the positions. He said the Department’s budget for the next biennium included all those positions.
Mr. Chinnock continued by referring the Subcommittee to page 16 of Exhibit C that showed the breakdown of costs by type of tax proposed. He said that the next several pages of Exhibit C showed additional detail regarding the number of positions required and when they would be phased in. Mr. Chinnock said the calculations included a support package of 14 positions for the business tax and business license fee. The support package was added because the Department had only one position in the Personnel Office, one position in the Mail Room, and one position in the Microfilm Section. Mr. Chinnock said those positions were reviewed to determine if they could absorb any additional workload, and if they could not absorb any additional workload, a position was added in some of the areas. He said that was how the figures for the support package were developed. Mr. Chinnock continued with the example of the Department’s Hearing Officer. He said that Hearing Officer could not absorb any additional duties and if substantial cases with contested issues were added the Department would have to have an additional Hearing Officer.
Mr. Chinnock said that the Department would need the same type of support package for the gross receipts tax as it would need for any increase in the business tax. For that, the Department calculated the need for four additional positions. Mr. Chinnock said that the Department included six information technology (IT) positions in the support package to implement new IT technology. He said that as a result of the questions that had been posed to the Department, it had redone page 16 of Exhibit C and he referred the Subcommittee to page 16A. He said the Department had reformatted page 16 and included the figures on page 16A. He said the business tax and the annual business license fees had been broken out separately. He pointed out that the Department projected that to implement the business license fee on an annual basis would take six positions and a total of approximately $402,000. Mr. Chinnock said the Department broke out the support package between the basic package and the gross receipts package and split the IT needs out separately. He said the reason for that was so the Department could identify what it needed specifically for development of new IT technology.
Chairwoman Chowning asked if statutory revisions were necessary to allow the Department to implement audits of high-risk taxpayers. She said the average collection per audit had gone down to approximately 50 percent of what it had been in 1997. Chairwoman Chowning also asked what the cost of recovery for the ACES would be. She asked if it was feasible to establish an assessment on local governments because they were benefiting from its use.
Mr. Chinnock referred the Subcommittee to Exhibit D, “Audit Report of the Department of Taxation.” He said the audit recommended that the Department consider some other audit selection methods other than purely random-based audits. He said the report suggested looking at indicators of noncompliance. Mr. Chinnock said the Department liked that terminology because when it thought of risk-based auditing, the Department saw a need to have specific information technology to properly implement a risk-based auditing program. Mr. Chinnock said that NRS 360.095, paragraph 5, read, “Audits and other procedures for enforcement must be applied as uniformly as is feasible, not only as among persons subject to a particular tax, but also among different taxes.” Mr. Chinnock said that particular paragraph had been interpreted at the Department, through the Attorney General’s Office to the Nevada Tax Commission, to mean random audits. Mr. Chinnock said the Department had taken a very strict interpretation of the paragraph. He said that if there was appetite by the Legislature to look at risk-based audits, he would suggest adding a short sentence to the end of the paragraph stating, “and must take into account indicators of noncompliance.” Mr. Chinnock said using the words “indicators of noncompliance” would still allow risk-based auditing and as IT became more sophisticated within the Department, and an audit module was added that could look at risk-based auditing, then it could still be implemented. Mr. Chinnock said that one of the issues in the past that had probably brought about paragraph 5 was the Department perhaps focusing on specific industry categories for audits. As a result of that, the statutory language went into effect with several changes to the Taxpayer’s Bill of Rights. Mr. Chinnock said the purpose of any audit program was to bring about voluntary compliance and the Department would propose that besides any risk-based auditing system that the Department also have a program of information and assistance for all taxpayers.
Mr. Chinnock said that the audit report suggested that even with the existing statute there could be a weighting of audits different than purely random based. Mr. Chinnock said that to do a weighting of audits the Department might be able to develop regulations through the Nevada Tax Commission. He said that workshops could be held that would include input from the public in order to develop language that would move away from purely random-based audits.
Chairwoman Chowning requested that Mr. Chinnock provide the Subcommittee with suggested language for regulations regarding auditing techniques.
Assemblyman Beers said that previously Assemblyman Marvel had indicated that approximately ten years ago the dollars generated per auditor, which had been used as a performance measure of the Department, was a great deal higher than it was currently. Mr. Beers said the statute as it was currently written might have “undone all that common sense in one fell swoop.”
Chairwoman Chowning suggested that Mr. Marvel be asked for input due to his vast institutional knowledge of the auditing process.
Mr. Chinnock offered that there were other factors involved in the auditing issue. Those factors included the due process that was provided through the Taxpayer’s Bill of Rights. Mr. Chinnock said that oftentimes the Department would get little or no cooperation from an audited taxpayer and would be forced to make its best estimate. In that case, the Department could look at a similar company and make its best estimate. Mr. Chinnock said it was amazing how the cooperation would improve once the Department had made an estimate. He said that when the audited taxpayers finally did cooperate and opened their records to the Department that showed what the company had actually sold or how they had paid the tax in some other manner, there would oftentimes be a considerable reduction in some of the determinations. Mr. Chinnock said that illustrated that there were many factors to consider other than the auditing but there was no doubt that the method of audit had affected collections. Mr. Chinnock said that a small Mom and Pop operation in rural Nevada would have the same weighting as a multimillion dollar corporation with respect to auditing.
Mr. Chinnock referred the Subcommittee to Exhibit E, “Collection Allowances/Discounts.” He said that exhibit showed the Department’s collection allowances. Mr. Chinnock said the Department had not yet looked at the General Fund commission. When the Department did collections for the local governments that commission was assessed, although he did not have the figures with him. Mr. Chinnock said assessments were a “two-way street” with respect to local governments because when the Department discussed increasing the General Fund commission, the local governments reminded the Department that they collected the property taxes. Mr. Chinnock said he would provide the General Fund commission numbers to the Subcommittee for analysis. Mr. Chinnock said he had been asked in the Taxation Committee whether the Department could pursue benefits funding strategy. He said that in the study the Department and DoIT were currently doing, at least two companies had been included that were interested in participating in a proposal that would also offer benefits funding for information technology. Mr. Chinnock stated that meant that those companies would pay some of the costs up front and over a period of three to five years, based upon return on investment, they would be allowed to recover some of those costs.
Chairwoman Chowning asked Mr. Chinnock to supply the Subcommittee with information on the General Fund commission.
Senator Tiffany asked if there were any other states that did electronic filing of taxes and, if so, did those states have statutory or regulatory authority. She also asked if the Department wanted to be independent of DoIT for technology needs.
Mr. Chinnock said that many other states were doing electronic filing for business and he would research what the statutory authority was and what incentives were provided for filing online. He said that the Department could not have accomplished what it had in the past two years without the initiative that was put forth in the 2001 Session of the Legislature to decentralize some of the Department’s programming services. Mr. Chinnock said that, based upon its experience in the preceding two years, the Department believed in the decentralization of technology.
Senator Tiffany said she assumed that Mr. Chinnock meant the planning and research when he referred to decentralization. Mr. Chinnock clarified that he supported the decentralization of programming and technical staff. He said the Department would like to continue using DoIT’s planning and development staff. He said enterprise purchases and enterprise management would be useful at a centralized level.
Senator Tiffany said it was not currently the policy in other departments to assess a fee to the taxpayer for using electronic payments. She asked who decided that a fee would be assessed to the taxpayer. Mr. Chinnock responded that the fee would be assessed to the taxpayer because the Department had no budget in house to absorb any costs.
Senator Tiffany said that seemed to her to be a policy decision that should be made by the Legislature and Mr. Chinnock said he would be pleased to have a policy decision made by the Legislature.
Senator Tiffany asked if the size of the contract for lockbox services would be reduced by the ability of taxpayers to make electronic payments. Mr. Chinnock said that he believed the lockbox contract would be affected at some point.
Senator Tiffany asked if the Department needed to go ahead with the lockbox contract and wondered if the contract should be written so it could be reduced as taxpayers began to make payments online. Mr. Chinnock said he believed the lockbox operator also would want the ability to renegotiate the contract if there was a reduction in the lockbox demand. Mr. Chinnock said the lockbox operation for the Department was a “dirty” operation because it had so many forms and the forms could possibly be better designed. He said that as time went on, those issues would be worked out so that the forms were better standardized.
Senator Tiffany asked if the Department would have a reduction in the number of employees as it became more fully automated. She was concerned about the large number of employees that were to be added to the Department between the current time and fiscal year 2006-07. Mr. Chinnock referred the Subcommittee to page 28 of Exhibit C. He said the page showed that for every dollar spent by the Department it collected $181. Under the Governor’s tax proposal, for every dollar that would be spent, the Department would collect $149. Mr. Chinnock said the chart compared Nevada with other states’ collections. He said that with or without a new tax plan Nevada still needed to spend approximately $20 million on new information technology, and capitalizing that over a ten-year period would drop the revenues collected to the “With IT” line shown on the chart.
Senator Tiffany asked if the number of employees would be reduced with electronic filing. Mr. Chinnock said that the number of employees had not been reduced in the plan because the Department would not know what its staffing needs were until the plan was implemented, although he believed the number of employees could be reduced. Mr. Chinnock said that additionally, no reduction in employees was shown because the amount of future workload was not known. Mr. Chinnock said he was not trying to evade the question but he was unsure of the number of employees that could be reduced because of the amount of growth in the state that would occur.
Senator Tiffany said she would hate to fund all the requested positions and then find they were not needed or different positions than had been requested would be needed. Mr. Chinnock responded that the Department felt that it was understaffed before entering into a new program. He said that if the positions were included in the budget and were not needed the Department would not hire the additional personnel.
Assemblyman Beers said that he believed that the feeling of understaffing at the Department contributed to Nevada leading all states in the chart on page 28 of Exhibit C, “Revenue Collected per Dollar Spent.” He said that the chart indicated that in order to purchase the one-sixth decrease in efficiency of the tax system, Nevada would have to make many one-time investments in both people and equipment in order to design and build the systems and establish the policies and procedures necessary. Mr. Beers asked what would be done with all the human resources that would be necessary for the one-time conversion.
Mr. Chinnock responded that there would have to be an analysis of where the Department was with respect to the amount of growth that had occurred in the state in the meantime. He said the information technology staffing that would be contracted out would be the staffing that would be discontinued after the programs were implemented.
Assemblyman Beers said the Department’s needs included more than an information technology (IT) investment. He said the Department would have to design and implement volumes of new audit processes and procedures due to the new taxes. He said that no one in the employ of the state of Nevada had ever audited a movie theater. Mr. Beers said that was not an IT process but would need a college graduate with an accounting and auditing background to design the manual by which all the auditors would audit movie theaters. He reiterated that the need was not IT.
Mr. Chinnock asked if Mr. Beers meant that the Department needed more staff.
Assemblyman Beers said that he was suggesting that if Nevada underwent a massive conversion of its tax system, which would change the emphasis of where taxes were collected from its residents, it would require a great deal more staff and would require even more staff in the conversion process than in the post-conversion period. It would not be simply IT staff, it would be accounting and auditing staff as well.
Mr. Chinnock said that the Department did not “robust the staff up front” to create the new infrastructure so that it could be reduced in the future. He said the Department had made an assumption that it would use all the employees to make the new programs work and then return the staff to their normal duties once the programs were set up.
Assemblyman Beers said he believed that the Subcommittee could look forward to frequent meetings of the Interim Finance Committee in the next biennium due to the implementation of the new programs.
Assemblyman Griffin said he was unclear on what costs there would be in fiscal year 2006-07. He asked if the Department would be “ramping up” dramatically after 2004-05. Mr. Chinnock responded that much of the gross receipts tax infrastructure “ramped up” in the back half of the second year of the next biennium.
Assemblyman Griffin asked if the ongoing costs for the program would change dramatically from the 2005 costs. Mr. Chinnock referred the Subcommittee to page 19 of Exhibit C, which showed full implementation costs in the second biennium.
Assemblyman Griffin asked if approximately $14 million was the total for two years, or $7 million for each year. Mr. Chinnock said that was correct.
Mr. Chinnock submitted Exhibit F, “State of Nevada Department of Taxation Annual Report Fiscal 2001-2002.”
Chairwoman Chowning thanked Mr. Chinnock for all the information and closed the hearing on the Department of Taxation. Chairwoman Chowning then opened the hearing on the Division of Financial Institutions.
BUSINESS AND INDUSTRY
B&I, FINANCIAL INSTITUTIONS (101-3835) – BUDGET PAGE B&I-103
Mr. Larry G. Hickman, CPA, Deputy Commissioner, Division of Financial Institutions, introduced himself and Ms. Phyllis Kale, Administrative Assistant.
Chairwoman Chowning asked the Division to explain its current collection process and its proposed process. She asked the Division to provide a schedule to the Legislative Counsel Bureau’s fiscal staff. Chairwoman Chowning said the assessments would be collected in a different manner than they had been collected previously. Chairwoman Chowning also asked the Division to discuss what amount was needed for an adequate reserve.
Mr. Hickman said he would ask Mr. Walshaw to explain the background for the method of funding that the Division had followed for the previous 15 years. Mr. Hickman said Mr. Walshaw had been instrumental in the development and implementation of that method.
Mr. L. Scott Walshaw, Commissioner, Division of Financial Institutions, said he would provide a history of how the Division got to where it was currently. Mr. Walshaw said that in the early 1980s the Division was combined into its current form from three different agencies. There had been a Credit Union Division, a Savings and Loan Division, and a Banking Division. A bill was enacted in the 1983 Legislature to combine those three agencies. Mr. Walshaw said that in the 1985 Legislative Session the industry came forward with a proposal to change the methodology under which the Division was funded. Mr. Walshaw said the bill proposed that the Division would become revenue neutral so that the industry would, in effect, be paying for the cost of its supervision and examinations. Mr. Walshaw said the Division was directed through legislation to pass regulations in all areas that the Division had licensing authority over to create the basis for that funding mechanism, which was still in place. Mr. Walshaw explained that the Division would get spending authority established by the Legislature based on budget projections. During the course of a biennium, the Division was required to bring in revenues that would offset the General Fund appropriation, which the Division had successfully done pursuant to the regulations and statutory directives for the previous approximately 15 years.
Mr. Walshaw explained that the Division was currently attempting to convert to a true, self-funded status. He said the Division was using the methodology it believed would be the least disruptive to the industry given the state’s current cash situation. Mr. Walshaw said the method chosen would be “subject to some conjecture on the part of the industry” simply because it would involve a disruption, particularly in the depository institutions, in their budgetary mechanisms, and in the manner in which they projected their cash flows for a particular fiscal year.
Mr. Walshaw said the Division needed to have a General Fund appropriation continue into the future based on a public policy issue. He explained that the public policy issue was that in times of need, for instance a depression, there would be bank failures. Mr. Walshaw said the statutory mandates and requirements would call for the Division to continue to examine those institutions to attempt to work out problems irrespective of whether or not those institutions could repay. Mr. Walshaw said the Division had a fiduciary responsibility to do that. Mr. Walshaw said the continuing very small General Fund appropriation would provide a fail-safe mechanism to be used in the event of a catastrophe that exceeded the Division’s expectations. If that occurred, the Division could return to the Interim Finance Committee (IFC) and explain the situation and the funding required.
Chairwoman Chowning interjected that the General Fund request was for $1,000 in each fiscal year. Chairwoman Chowning commented that the reserve anticipated by the Division was $1.71 million in FY2003-04 and a reserve level equal to 60 days of operating expense would equal approximately $484,000. She asked if Mr. Walshaw believed the reserve amount needed to be so high.
Mr. Walshaw said the size of the reserve was based on computations that the Division calculated to ensure that it had adequate funds available upon which to operate. He said the Division would operate similarly to any business and it would have to use cash flow projections in order to determine what its needs were. Mr. Walshaw said the Division knew its revenue flows came in at certain times and it needed to be able to bridge the gaps in order to ensure that it had adequate funds with which to operate between the time the Division took in assessments or licensing fees at the end of the fiscal or calendar year and what funds came in between times.
Chairwoman Chowning asked if a typical 60-day reserve was sufficient for the Division. Mr. Walshaw responded that it was probably not sufficient but Mr. Hickman could address that topic when he testified. He said the cash flow analysis was done based on historical fact and Mr. Hickman would present that information.
Senator Tiffany asked if the assessment fee would be increased. Mr. Walshaw said the annual assessment fee would not necessarily be increased but the initial frequency of the assessment would be increased. Mr. Walshaw said there would have to be more than one assessment in order to convert from billing in arrears to current billings. He said that currently, the Division received a General Fund appropriation at the beginning of the year, might take in $400,000 to $500,000 in a lump sum, and then during the course of the following few months there were certain fees that came in from licensing or examinations that would be built into the cash flow projections. He said that at the end of the calendar year there would be another large source of funding from assessments or licensing fees because that was when there was a renewal period. By the end of the fiscal year there would have been a final assessment that was levied on depository institutions such as banks, credit unions, and thrift companies. At that point, the Division would know exactly what the spending had been from the General Fund appropriation and that portion would be credited to the assessment. The Division would bill the institutions for the amount of the difference.
Senator Tiffany asked if the Division was attempting to calculate the amount of cash flow necessary to make the Division fully self-funded. Mr. Walshaw said that the current process had the Division paying back all of the funds to the General Fund by the end of the year. Mr. Walshaw said that the staff knew for approximately the last 15 years what the assessments had been and that information was built into the annual budgets or 5-year plans developed by the banks and credit unions. Mr. Walshaw said that the Division was now stating that it could no longer bill the institutions in the manner it had done in the past because it needed the money up-front to operate on and the timing of the assessment would need to be changed. Mr. Walshaw said that at least initially there would need to be an extra assessment to build up an operating reserve and that was where the problem would arise with the institutions.
Senator Tiffany asked if any of the Division’s collections could be done online. Mr. Walshaw answered that the collections could be made online “only to the extent where those people that we’re trying to collect it from have that capability and the desire to do it.” Senator Tiffany asked if the Division had the ability to collect online or had plans to develop that ability. Mr. Walshaw responded that the Division did not have the ability to collect online and Mr. Hickman would comment further on the Division’s plans.
Mr. Hickman stated that as a result of the implementation of A. B. 324, the Division looked at one of the software programs that was offered but there was a licensing issue. The determination was that the Division did not have enough transactions to justify the up-front costs that would be attendant to the program. With respect to the bank assessment, Mr. Hickman said it would probably be possible to do a funds transfer although the Division had not examined that possibility closely. Mr. Hickman said he had not had a chance to respond to a bill draft request that he received the day before the meeting, which addressed the issue. He said he would discuss the proposal with the bankers since the depository institutions were the primary ones that funded a substantial portion of the Division’s budget. Mr. Hickman said that he knew, however, that the Division did not have a sufficient number of licensing transactions to justify online processing.
Senator Tiffany asked how many licensing transactions the Division had. Mr. Hickman said the staff had looked at the number of loan agents and there were approximately 3,000 to 4,000 transactions. Senator Tiffany asked Mr. Hickman for the number of all the licensing transactions handled by the Division. Mr. Hickman said he had met with representatives from Star Systems who provided initial information on online services and the up-front costs were approximately $250,000. Senator Tiffany responded that the costs could be “worked out.” Mr. Hickman said that at the point of the discussion of up-front costs, the Division decided it could not afford the program and did not go forward.
Senator Tiffany asked if there was anyone that was innovative in the Division who was forward thinking, willing to spend the time necessary to analyze the needs, and talk to vendors to determine what the costs would be. Senator Tiffany said that she told every department that she talked to that she wanted agencies on the Web, online, and all licensing or processing done online. Senator Tiffany asked if there was a person in the Division who could do that.
Mr. Hickman responded that he was the one who would look at online options. He said the Division would consider the online options although the Division had not had the luxury of departing from its operational duties to devote the time to analyze the online options from a cost-benefit standpoint.
Mr. Walshaw stated that Mr. Hickman was the Deputy Commissioner in Carson City and office supervisor. He said Ms. Kale oversaw the administration in the office but Mr. Hickman was ultimately responsible for all the “nuts and bolts” of the administration of the office, including the budget. Mr. Walshaw said that Mr. Hickman would look at the online payment options available. Mr. Walshaw said that the Department had recently employed a new person in an accounting position and that person might also be a resource to analyze the options and make recommendations although that was not necessarily his job function. Mr. Walshaw said that the Division had looked at the online options once and it appeared, based on the initial analysis that it would not be cost-effective for the volume of activity the Division had. The Division would, however, look at the options again.
Senator Tiffany asked how many licenses were administered by the Division. Mr. Walshaw said the most voluminous area dealt with by the Division was the approximately 4,000 mortgage loan agents. Mr. Walshaw said that he “guessed” the total number of licenses administered by the Division was less than 5,000.
Mr. Hickman answered that there were approximately 400 licensed mortgage brokers, approximately 50 mortgage companies, and 200 check cashers. Senator Tiffany asked the Division to submit information on the number of licenses it issued as well as how often the fee was collected. She also wanted to know when the banking assessments were collected and how many transactions were done.
Chairwoman Chowning requested that the Division work with the staff of the Fiscal Division to provide information on the number of bank assessments, the current cycle and the proposed cycle. She also asked for information on when the institutions would be notified of the proposed changes.
Chairwoman Chowning asked about the status of BDR 55-463 that would implement the changes in the assessment cycle. She asked if there was another bill regarding mortgage bankers.
Mr. Walshaw said the first bill was the one the Department of Administration proposed and that bill would set up an account where the Division would deposit its funds. He said that bill had not yet been introduced. Mr. Walshaw said the second bill that Chairwoman Chowning referred to would have no fiscal impact on the Division because it essentially converted those companies that it presently exempted each year to a licensing process rather than an exemption certificate process. Mr. Walshaw said the work was already built into the Division’s workload.
Chairwoman Chowning asked about A.B. 324 of the Seventy-first Session of the Legislature. She said it appeared to her that the Division had a significant increase in workload overall and there was a backlog as well. Chairwoman Chowning asked how the Division was going to accomplish all the things that it was statutorily mandated to accomplish with the positions it had. She said it was her understanding that the Division had two vacant Examiner positions that remained unfilled.
Mr. Walshaw said the Division was not able to “do anything with” the mortgage agent situation until after the IFC approved the hiring of positions late in the previous fiscal year. Those positions were put in place and had been in place since July 2002. Mr. Walshaw stated that the bill was working as intended but the Division got into the process late and there were thousands of mortgage agents but the Division was not allowed to hire the positions until after July 1, 2002. Mr. Walshaw said the backlog for the Division was in the area of investigations of those mortgage agents. He said the Division only had one investigator and he was assigned to the Division from the Gaming Division. Once the backlog was worked through the Division would be back to normal and Mr. Walshaw said he did not believe the Division had the justification to demand that the Gaming Division hire another investigator at that time.
Chairwoman Chowning asked if the Division would be able to alleviate the backlog over the next biennium.
Mr. Walshaw stated that he had just received another resignation from an employee in Las Vegas who was taking a position with the county that would pay almost twice the salary he was earning with the Division. Mr. Walshaw said it was difficult to find employees with the unique set of skills needed for the job. He said there were two ways of finding employees. They could “luck out” and find someone with the experience that had moved from another state or was retired from a federal agency. The other way to hire was to find someone either out of college or that had been through a training program or had some experience with a financial institution such as a bank or credit union. Those people were hired and put through the training schools that the Division had available to it from the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve System, and the Credit Union Administration. Mr. Walshaw said it took years to train the staff to the point where they could be turned loose in the field with very little supervision. He said by the time the employees had three, four, or five years of experience, they left the Division to accept a higher paying position. That left the Division “back to square one again.”
Chairwoman Chowning agreed that it was difficult to recruit qualified employees with the salary structure as it was and, in addition, the Division was required by statute to accomplish certain tasks. Chairwoman Chowning said she did not know how the Division would be able to accomplish all that was required of it. Mr. Walshaw stated that the Division would do the best it could with what it had. Chairwoman Chowning said the public deserved to have the protection the Division’s work offered.
Mr. Hickman said that the Division had recently received authority to fill all the Division’s vacant positions that were vacant at the time of the request to fill. He said that the Division would have to go back for authorization to fill the newly vacated positions. Mr. Hickman said that the Division would like to have restored the one position that was given up as part of the budget reductions requested by the Governor. He said the unique thing about the Division was that when the expense side of the budget was cut there was a dollar for dollar reduction in the revenue. Mr. Hickman said the justification for filling the positions was that the positions were self-supporting. He said that once the Examiners were trained, in a short period of time they were able to perform the routine functions during the examination process and were a benefit to the agency. Mr. Hickman said that the Division was running at approximately 200 new registrations per month of mortgage loan agents and the present backlog was about 1,200 investigations. Mr. Hickman said the Division was dealing with the backlog by using the time of some trained Gaming Control Board administration staff as it was available. That staff was doing the criminal background checks, which was what was being done on the mortgage agents at the present time. Mr. Hickman said the Gaming Control Board had promised the Division that as of July 1, 2003, the Gaming Control Board would have some additional man-hours available to the Division to help reduce the backlog.
Chairwoman Chowning said she hoped the promises came through. Chairwoman Chowning said that if it could all be done online it would probably be a little faster but the investigation portion of the work would not be able to be done faster. Mr. Hickman responded that the investigative portion of the workload was done online through the use of various criminal databases. He said the Gaming Control Board had the ability to access the National Crime Information Center (NCIC) and ChoicePoint for statewide and national information that allowed the Division to respond as quickly as it did.
Chairwoman Chowning asked if the one position was restored would it help the Division significantly. Mr. Hickman responded that with the three open Examiner positions, the restoration of the one Examiner position would significantly help the Division to be in compliance with the statutory mandates for the frequency required on the examination process.
Mr. Walshaw commented that the background investigations being done on the mortgage loan agents should not be confused with the annual examination requirements for licensees. Chairwoman Chowning acknowledged his concern. Mr. Walshaw said the investigative process was supposed to be done when the agents were hired but because of the backlog the Division had told the institutions that the Division would register the people because the Division could not keep people from working while awaiting a background check. Mr. Walshaw said the Division told the brokers who were registering people that at some point in the future when the reports came back, the people may or may not be eligible to continue working because some of them would come back with blemishes on their records. Mr. Walshaw said that had happened infrequently, sometimes after someone had been employed three or four months. Mr. Walshaw said he did not want to confuse the fact that the vacant Examiner positions had nothing to do with the background investigations on the agents.
Senator Tiffany asked if the application process was automated so that applicants could apply online.
Mr. Hickman responded that applicants could access the Division’s Web site for forms but they could not actually apply online. Senator Tiffany asked what it would take to get the forms automated online with the ability to collect the fee at the same time. She asked Mr. Hickman to supply that information later.
Senator Tiffany added that a fee to use a credit card online could be included in the application fee. Mr. Walshaw stated that he believed the statute would need to be revised to accommodate online payments. Senator Tiffany said that might be necessary to put the forms online and collect the fees online.
Chairwoman Chowning asked the Division to advise the staff of the Fiscal Division of how it was making the industry aware of the proposed changes in assessments.
Chairwoman Chowning thanked the Division staff and said that the people of the state deserved to be served. She said that if one drove along the “spaghetti bowl” in Las Vegas there was one huge sign that was filled with false information regarding mortgage rates. Chairwoman Chowning said that because those people were not regulated in Nevada they could say anything they wanted and mislead the public. Chairwoman Chowning said she was very anxious to obtain relief for the public from that type of behavior. Mr. Walshaw said that he would like to clarify that if there was a business, no matter what type of business it was, that engaged in a deceptive trade practice or false advertising, that was something that could be investigated by the Consumer Affairs Division.
Chairwoman Chowning said she would encourage people to make those complaints when appropriate.
Chairwoman Chowning closed the hearing on the Division of Business and Industry, Financial Institutions, and opened the hearing on the Division of Minerals.
MINERALS
MINERALS (101-4219 – BUDGET PAGE MINERALS-1
Mr. Walter S. Lombardo, Senior Geologist, Chief, Southern Nevada Operations, Division of Minerals, introduced himself. Mr. Lombardo said that Alan R. Coyner, Administrator, was not present because he had undergone surgery the day before the meeting and had asked Mr. Lombardo to give budget testimony in his place. Mr. Lombardo introduced Ms. Wanda Martin, Program Officer II and agency accountant.
Mr. Lombardo explained that the Division of Minerals was privately funded and received no monies from the state General Fund. He said all the revenues were derived from fees assessed on the industry with the primary one being mining fees. Those fees were set by the Commission on Mineral Resources, which was comprised of representatives of the mining, oil, and geothermal industries. Mr. Lombardo said there were currently 9 positions statewide, a decrease of 3 filled positions from the mid- to late-1990s and down from 15 legislatively approved positions. He said that unfortunately the workload had not decreased along with the staffing. Mr. Lombardo said the decreases in staffing were primarily due to the decrease in the mining industry mainly due to lower profitability resulting from lower gold prices over the recent years. Mr. Lombardo said that recent increases in mining claims and gold prices led him to believe there was hope for additional revenues to the state through the General Fund and also to provide an adequate funding source for the next biennium.
Mr. Lombardo stated that in addition to the industry fees the Division had several grants from both the Bureau of Land Management (BLM) and the United States Department of Energy, which supplemented the Division’s revenue stream.
Chairwoman Chowning asked Mr. Lombardo to comment on the Division’s declining reserve balance. She asked if there would be a request for an increase in fees in the future.
Mr. Lombardo said the Commission on Mineral Resources preferred to keep the Division’s reserve at approximately $200,000 if possible. He said in past years it had dipped as low as $20,000. Mr. Lombardo said the fees normally were received in the fall; as mining claims were recorded the counties transferred the monies they received to the Division. He said that by the second half of the fiscal year the Division would be operating on fees it had already collected so the reserve sometimes got fairly low. Mr. Lombardo said that history showed that approximately $200,000 was an adequate reserve.
Chairwoman Chowning asked if the reserve would equal approximately $82,000 at the end of FY2004-05. Ms. Martin explained that the reserve should equal approximately $82,000 at the end of fiscal 2005.
Mr. Lombardo said there were some things the Division had not taken into account in the estimate of fees to be received. He said the Division received some funding when new mines came on line and there were several currently in the works. He said that if those new mines came on line the Division would have an additional revenue stream. Mr. Lombardo said the Division also received fairly consistent funding from several sources, including the BLM, for abandoned mine issues.
Chairwoman Chowning asked if the administration was in support of the Division’s request for unclassified salary changes.
Mr. Lombardo answered that the Commission on Mineral Resources established a Human Resources Subcommittee to review the salary structure for the Division. Mr. Lombardo said the reduction in positions over the prior six years due to decreases in revenue had caused increases in workloads. The Commission looked at comparable salary structures in industry and comparables in other agencies when they were available. The Commission had set new caps on salaries which might or might not be authorized depending upon the finances of the agency. Mr. Lombardo said that correspondence had gone from the Commission to the Governor’s Office and that office had agreed to request the increases in The Executive Budget.
Chairwoman Chowning asked if someone from the Budget Office would advise the Subcommittee that the increased salaries had been agreed upon. She also asked the Division to provide more detail regarding the positions to the staff of the Fiscal Division.
Mr. Mike Nowlan, Budget Analyst, Budget Division, introduced himself and said the Division’s request was submitted in its budget and submitted to the Governor’s Office as part of the unclassified pay bill. He said that he did not know at that time the status of the bill but he would get the information and provide it to the Fiscal Division.
Assemblyman Beers said legislation had been passed last session to encourage the development of alternative energy sources and he wondered if there had been any increase in the geothermal activity in the state.
Mr. Lombardo said there would be some increase reflected in the Division’s revenue although geothermal fees were not a principal source of revenue for the Division. He said that the Division was working as part of a “GeoPowering the West” group that had been funded through the Department of Energy. He said the Division was also involved with the Governor’s State Energy Office and working on several projects including increasing geothermal exploration. Mr. Lombardo said the Division had several research projects funded by the Department of Energy on new exploration techniques for developing geothermal power. Mr. Lombardo said the Division was also involved with the Department of Energy on new types of energy analysis and working with industry to reduce its current consumption of electricity, which would help them reduce their energy demands.
Chairwoman Chowning said she knew the Division had made progress in the abandoned mine program and she asked Mr. Lombardo to provide an update on the Division’s progress to the fiscal staff. She thanked Mr. Lombardo for all the education the Division did for high school teachers throughout the state and the interfacing the Division did with the mining industry.
Mr. Lombardo thanked the Subcommittee and said the information that had been requested would be provided.
Chairwoman Chowning closed the hearing on the Division of Minerals and opened the hearing on Budget Account 101-3258, DETR, Client Assistance Program. The Senate members of the Subcommittee left the meeting in order to attend Floor Session.
EMPLOYMENT, TRAINING, AND REHABILITATION
DETR, CLIENT ASSISTANCE PROGRAM (101-3258) –BUDGET PAGE DETR-63
Chairwoman Chowning said that Vice Chairwoman McClain would Chair the meeting in the brief absence of Chairwoman Chowning.
Vice Chairwoman McClain asked for an overview of the budget account and asked for an overview of decision units E-275 and E-710.
Ms. Myla Florence, Director, Department of Employment, Training and Rehabilitation, introduced herself. She introduced Mr. Marty Ramirez, Chief Financial Officer, Department of Employment, Training and Rehabilitation.
Ms. Florence said decision unit E-275 was an increase of $700 in in-state travel and $720 for a shared copy machine in the Reno office. She said the in-state travel would provide for the program director to make more trips to Las Vegas for support mediation.
Ms. Florence said the replacement equipment in decision unit E-710 was a standard cost allowance of $150 per full-time employee (FTE) and tape recording equipment for interviews with clients who were in dispute with their vocational rehabilitation plans.
Vice Chairwoman McClain closed the hearing on Budget Account 101-3258 and opened the hearing on Budget Account 101-2580, the Equal Rights Commission.
EMPLOYMENT, TRAINING, AND REHABILITATION
DETR, EQUAL RIGHTS COMMISSION (BUDGET ACCOUNT 101-2580)
BUDGET ACCOUNT – DETR-80
Ms. Lynda Parven, Administrator, Nevada Equal Rights Commission, introduced herself. Ms. Parven said the Equal Rights Commission was responsible for processing complaints of discrimination in employment and public accommodation when based upon race, religion, national origin, age, gender, disability, or sexual orientation.
Ms. Parven said the Commission had maintained one performance indicator from the previous biennium and presented three additional indicators that it felt would better indicate the performance of the Commission. The performance indicator that was maintained dealt with processing the intakes within 15 working days, and while the Commission projected that 70 percent of the time that would occur, during fiscal year 2002, due to the inordinate amount of complaints received, the Commission was only able to maintain 39 percent. However, since October 2002, the Commission had been able to meet the projected 70 percent because it had directed additional resources toward that area. Ms. Parven said the base for the budget requested continued funding for the continued operation of 20.5 full-time equivalent (FTE) positions in Las Vegas and Reno.
Vice Chairwoman McClain asked if the federal Equal Employment Opportunity Commission (EEOC) contract had been approved. She asked if Ms. Parven anticipated approval of the contract soon and what the Commission’s plans were if the contract was not approved.
Ms. Parven said the Commission had been given every indication from the regional office of the EEOC that the funding was due to be approved at any time and that the people in charge of the field and local operations had been requesting that it be done as soon as possible. She said she had requested information numerous times and she could not give an anticipated date.
Vice Chairwoman McClain asked what the Commission would do for funding if it ran out of General Fund money and the contract was not yet approved.
Mr. Marty Ramirez, Chief Financial Officer, Department of Employment, Training and Rehabilitation, introduced himself. He explained that there was a provision in the statutes that allowed the Commission to request 25 percent as a loan from the General Fund with the provision that the funds would be repaid in the current state fiscal year. Mr. Ramirez said the Commission would use the contract it received last year for 917 cases as a base, which would equal approximately $120,000 as a General Fund loan with the provision that it would be paid back in the current year.
Vice Chairwoman McClain asked if the Commission was required to appear before the Interim Finance Committee in order to obtain the loan from the General Fund.
Mr. Mark Stevens, Assembly Fiscal Analyst, answered that the request would not need to go through the IFC although the request must be approved by the Budget Director. He said the Legislative Branch would be notified if that advance was made.
Chairwoman Chowning asked Ms. Parven to comment on decision unit E-600. Ms. Parven said decision unit E-600 reflected the required 3 percent budget reduction. She said that due to the structure of the budget the only place the Commission could take the cut was in salary savings. Therefore, one vacant position had been frozen and that had affected the Commission’s ability to meet its performance indicators.
Chairwoman Chowning asked if the reduction would have a negative impact. Ms. Parven responded that it definitely would affect the Commission’s performance. She said there was no way to meet their performance indicators with 11 investigators.
Ms. Florence encouraged the Subcommittee to pass the Governor’s revenue package as quickly as possible to avoid negative impacts with regard to service delivery.
Chairwoman Chowning asked Ms. Parven to comment on decision unit E-501. She asked what changes had occurred that had allowed the Commission to increase the case closures by 30 percent and how the addition of two Compliance Investigators would reduce the backlog. She also asked how many additional cases could be closed with the addition of the two positions.
Ms. Parven said the Commission had improved its processes dramatically and that could be seen by the increase in resolutions. She said the Commission worked on that every day, however, there had been an increase of over 45 percent of the cases since the beginning of fiscal year 2002. Ms. Parven said the Commission was making an effort to increase its effectiveness, however, the addition of two investigators would allow the Commission to continue to resolve more cases so that eventually the cases could be closed within 270 days. Currently, because of the influx and the continued backlog, the Commission was at 365 days as an average case processing time.
Chairwoman Chowning said the Commission had a 39 percent rate for completion of the intake of the cases within 15 working days and the Commission had projected 70 percent. Ms. Parven commented that those statistics were true for fiscal year 2002 but additional resources had been assigned and currently the Commission was meeting the projected 70 percent rate. She said it had taken away from the processing time on the other end.
Chairwoman Chowning said the Commission had submitted a bill draft request that, if approved, would provide the Commission with the authority to prioritize discrimination cases filed with the Commission. She asked how prioritization would improve the Commission’s ability to process discrimination cases more effectively. Chairwoman Chowning said someone had come to her with an obvious case of discrimination. The person had worked for 12 years and had done the job adequately but suddenly there were several complaints and he was concerned that he would be fired. Chairwoman Chowning said that would impact the person’s personal and family life. She said she suggested the person go to the Commission. Chairwoman Chowning said that such a long period of time investigating a case was difficult because if a third complaint came from the supervisor the person would be out of a job before the case could even be addressed. Chairwoman Chowning said everyone was affected when someone was fired from the job because they would be unable to pay their bills.
Ms. Parven said the Commission was “taking a page” from the federal Equal Employment Opportunity Commission’s book because the EEOC had instigated the charge prioritization approximately ten years ago and had found that it dramatically decreased their backlog as well as improved their efficiency on new cases. Ms. Parven said that instead of treating every case equally that the Commission received there would be a prioritization based on the likelihood that discrimination had occurred. She said there was a screening process with three levels before the determination was made. Ms. Parven said that currently, regardless of whether a person filed 1 complaint or 300 complaints, every case would be treated the same. Each case would have to go through a full investigation.
Assemblywoman McClain asked if BDR-475 was a bill yet. Ms. Parven said that the BDR had not yet been introduced.
Chairwoman Chowning asked if BDR-475 was an exempt BDR that could be introduced later.
Ms. Florence said it was an Executive bill and she had been advised that it would be introduced on the day of the hearing or the next week.
Chairwoman Chowning said she found it interesting in decision unit E-500 that there was additional funding for increased in-state travel to Carson City to attend monthly meetings and to participate in the 2005 legislative budget hearing process. She asked what would happen to the funding if it was not used.
Mr. Ramirez responded that the authority would not be used and would contribute to the end-of-the-year General Fund reversion.
Chairwoman Chowning asked for closing remarks and there being none, closed Budget Account 2580 and opened Budget Account 3254.
EMPLOYMENT, TRAINING, AND REHABILITATION
DETR, SERVICES TO THE BLIND & VISUALLY IMPAIRED (101-3254)
BUDGET ACCOUNT - DETR-67
Ms. Myla Florence introduced Ms. Libby Jones, Deputy Director, serving as Acting Administrator of the Rehabilitation Division. She said that Budget Account 3254 was very similar to Budget Account 3264, the Vocational Rehabilitation budget account. Ms. Florence said the source of funding for both bureaus was federal Section 110 grant funds. Ms. Florence said that in fiscal year 2002 closures into competitive employment went down slightly; FY2003 closures were at approximately one-half of the projected number of successful closures; and percentage of clients exiting into full-time employment was at 71 percent for 2003. Ms. Florence went on to say that the average hourly earnings for 2003 to date were $11.54 and the percentage of clients from minority populations was at 27 percent. She said that despite the difficult economic times, clients served by the program were generally within the normal limits as reflected by the performance indicators.
Ms. Florence said there was a proposal last session of the Legislature for a Rehabilitation Coordinator II to be funded from the proceeds of General Electric stock. She said that with the downturn in the economy, stock at the time of the proposal was $60.50 per share and currently it was $26.98 per share. Ms. Florence said that the Division had to back away from that proposal but was still trying to provide the transitional services to schools for the 16 years to 21 years age population.
Chairwoman Chowning asked if there was still a need for the services and what alternative sources of funds were being considered.
Ms. Florence said that existing staff would continue to interface with the age 16 to 21 population. She said the pilot project, with the federal funding, would have enabled the Division to reach the below age 16 population to be served. She said the Division was not able to address the below age 16 population at the current time with the current resources.
Chairwoman Chowning asked if that population’s needs could be addressed in the future. Ms. Florence answered that if the stock market improved and other funding became available the Division would pursue assisting the less than age 16 population. Ms. Florence said she believed there was a need for the services; the issue was resources.
Ms. Florence stated that decision unit E-450 would readjust the base budget to provide for Social Security Administration reimbursement to actual levels for state fiscal year 2002.
Ms. Florence said decision unit E-451 would enhance the travel budget similar to what had been done in the Vocational Rehabilitation budget. She said there was activity on the federal level with regard to reauthorization of the Workforce Investment Act, the reauthorization of the Rehabilitation Act, and all the regional and national meetings associated with those reauthorizations.
Ms. Florence said decision unit E-453 modeled the Vocational Rehabilitation budget and would maximize the federal funding that would be available in fiscal years 2004 and 2005 with a state match. She said the Division had projected a 4.89 percent increase but in February 2003, the Division was notified there was an available increase of 6.1 percent.
Chairwoman Chowning asked if, based on the accomplishments in the past, the Division believed it could make use of the additional funding. She asked if the Division could handle the additional caseload.
Ms. Florence said that the client expenditures were often driven by the availability of rehabilitation counselors. She said that when positions were fully staffed, or more fully staffed than they were currently, the client expenditure level followed very closely. Ms. Florence asked Mr. Ramirez to report the amount of funds that were reverted the preceding year.
Mr. Ramirez reported the amount was approximately $150,000 the preceding year.
Chairwoman Chowning asked if the Division could utilize the federal funds if it had additional counselors and, therefore, provide additional services to more people.
Ms. Florence responded that if the Division could fill its vacant positions she believed that would be a major step forward. She said a $150,000 reversion out of over $6 million in client services was not material.
Chairwoman Chowning asked if there was unused federal funding. Ms. Florence said that because of the timing elements of the federal funding the Division would always draw down the prior year’s funding if funds were remaining there. Ms. Florence stated that the Division did not turn money back until such time as the federal funding went away. Ms. Florence said that the ideal situation would be to fully utilize federal funds within the federal fiscal year in which they were available.
Chairwoman Chowning said it appeared there was a large variance in what had been accomplished and what could be accomplished in the competitive employment outcomes. She asked if the reason for that was because the Division was unable to fill its positions and if so, how could the Subcommittee help.
Ms. Florence answered that until approximately one week prior to the meeting, the counselor positions within the budget account were filled. She said in fiscal year 2003, as of February 2003, the number of closures into competitive employment was at 56, almost one-half of the 119 that were projected. Ms. Florence said the Division had a vacancy coming up that would have some impact. Additionally, there tended to be more closures during the current quarter of the fiscal year because it could not be successfully measured until 90 days after placement. Ms. Florence said that closures between the current date and the end of March would have a positive impact on the numbers if the client was still employed on July 1.
Chairwoman Chowning asked how decision unit E-805 would benefit the Division and improve the ability to attract better candidates and provide equity among the Chief positions.
Ms. Florence said the approval of decision unit E-805 would place the Chief in the classified service and the ability to recruit, if needed, should be improved as the salaries were “not necessarily all that attractive.” She said that to move into an unclassified position without civil protection did dampen the ability to recruit for those kinds of positions. Ms. Florence said it would also be in keeping with similar positions within state service.
Chairwoman Chowning asked about the feasibility study conducted on the merging of two bureaus into one and the impact on services to the respective clients. She asked if the Department planned to make a formal recommendation to merge those budgets.
Ms. Florence responded that the administrative functions of the bureaus were being integrated, where appropriate, as opposed to combining two bureaus into one. She said that, based on earlier studies and comments from the community previously in a 1996 study, she was sure that no money would be taken from client services’ population to serve another population. Ms. Florence referred to the plan as “integration with integrity.” She said the Department was attempting to streamline the managerial processes where possible to create more front-line counseling opportunities. Ms. Florence said that for the past two years the Department had taken a number of steps to do that in a way that would not be perceived as a denigration of any population served.
Chairwoman Chowning said that was extremely important and she wondered how the perception would not be there. She asked if the name of the budget would be ‘Voc Rehab” and how could one be assured that the dollars were being spent correctly.
Ms. Florence said the Department would ensure that the funds were being used appropriately through communication with the Vocational Rehabilitation Council, and through public meetings such as the current meeting where budgets were publicly addressed. She said the practice over the years had been that of the total Title 110 funding available for client services, 80 percent of that would go to the general vocational rehabilitation population and 20 percent to the blind and visually impaired population.
Chairwoman Chowning said that would be very apparent and everyone would know it and be able to follow it. She asked if that was Ms. Florence’s formal recommendation.
Ms. Florence said her formal recommendation would be to allow the Department to proceed as it had. She said the summary that had been provided to fiscal staff showed a number of accomplishments that the Department had made administratively.
Chairwoman Chowning closed the hearing on Budget Account 3254 and opened the hearing on Budget Account 3253.
EMPLOYMENT, TRAINING, AND REHABILITATION
DETR, BLIND BUSINESS ENTERPRISE PROGRAM (101-3253)
BUDGET ACCOUNT - DETR-75
Chairwoman Chowning said the number of facilities operated by blind vendors was rather static and yet there had been significant growth overall. She said it seemed to her that there should have been more facilities operating and she wondered how many facilities had been opened.
Assemblywoman McClain asked that Ms. Florence prepare a report for the Subcommittee that could be used as a guideline for closing the budgets. She said there had been major concerns brought to the attention of several members of the Subcommittee. She asked that Performance Measure 2 be addressed. Ms. McClain asked how the recommendations in the audit that had been completed in 2000 had been implemented. She also wanted information on how the agency currently functioned, such as what types of services were provided to the blind vendors. Ms. McClain asked what the Division did to obtain new sites and negotiate terms of the contracts with the blind vendors and what the 5.5 full-time equivalents (FTEs) actually did in direct support of the vendors. Ms. McClain asked for an explanation of how the new committee replaced the old committee and the current status. She asked that in the report the Division comment on the grievances that had been filed with information such as, how many grievances had been filed, over what period of time had they been filed, and how many had been resolved. Ms. McClain asked Ms. Florence if she believed that the agency was following all the requirements of the Randolph-Sheppard Act and if there was more that could be done to help blind vendors.
Ms. Florence said she had provided the fiscal staff a summary that covered many of the questions asked by Assemblywoman McClain.
Chairwoman Chowning asked that Budget Account 3253 be put on a future agenda of the Subcommittee.
Ms. Florence said she would be happy to return and appear before the Subcommittee.
Assemblywoman McClain said that several representatives had appeared at several of meetings before the Subcommittee and she assumed they would be happy to return to a later meeting.
Chairwoman Chowning asked if there was any public testimony, and there being none, she adjourned the meeting at 11:09 a.m.
RESPECTFULLY SUBMITTED:
Lila Clark
Committee Secretary
APPROVED BY:
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Assemblywoman Vonne S. Chowning, Chairwoman
DATE: ____
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Senator Sandra Tiffany, Chairwoman
DATE: ____