SUBCOMMITTEE ON THE USE OF LONG-TERM FORECASTS
TASK FORCE FOR LONG-TERM
FINANCIAL ANALYSIS AND PLANNING
Legislative Building, Room 2135
Carson City, Nevada
SUBCOMMITTEE MEMBERS PRESENT:
Mark Arrighi, Chairman
Diane Torry, Vice Chairman
John P. Comeaux
SUBCOMMITTEE MEMBERS ABSENT:
LEGISLATIVE COUNSEL BUREAU STAFF PRESENT:
Mark Stevens, Assembly Fiscal Analyst
Ted Zuend, Deputy Fiscal Analyst
Sherie Silva, Secretary
Chairman Arrighi called the meeting of the Task Force Subcommittee on the Use of Long-Term Forecasts to order at 11:10 a.m. Exhibit “A” is the Agenda; Exhibit “B” is the Attendance Record; Exhibit “C” is the Meeting Packet.
Since Mr. Comeaux had not yet arrived, approval of the minutes was deferred until a quorum was present. Moving to Item III of the agenda, Chairman Arrighi asked Mr. Zuend to begin the review of the forecast issues decided at the March 8, 2000 meeting.
Ted Zuend referred committee members to the Use Subcommittee Decisions section of the meeting packet (Exhibit “C”, original on file with Legislative Counsel Bureau Research Library), and for the record, he read the issues agreed to at the March 8 meeting:
Mr. McNeely asked if the forecast committee will have an opportunity to update the forecast between the time the initial report is done in March and the December meeting. Mr. Zuend replied that issue had not entirely been resolved, and it was listed as an item to be discussed under Agenda Item IV, Discussion and Selection of Preparation and Use Elements.
Diane Torry asked if the statement that long-term forecasts approved by the forecast body are “the official state forecasts to be used for all state planning and budgeting purposes” captures the committee’s intent. She realizes that use of the forecasts cannot be mandated, but the committee would certainly want the forecasts to be a part of the planning and budgeting process. Is the word “used” strong enough or perhaps too strong?
Mark Stevens, Assembly Fiscal Analyst, Legislative Counsel Bureau Fiscal Analysis Division, thought the issue was one that should be debated by the committee. The statement may not be strong enough, but at the last meeting, it was decided not to mandate that the forecasts be used, but rather to send a message that the forecast information should be utilized and not sit on a shelf. Mr. Stevens said the subcommittee, and then the full committee, needs to determine if the statement provides the proper balance.
Chairman Arrighi remarked it is a matter of verbiage. Diane Torry agreed, saying that stating that “the forecast is to be used” is stronger than saying “the forecast is to be considered,” but not as strong as “the forecast must be used.” She wondered what reaction the users of the forecasts would have from a practical standpoint.
Mr. McNeely said when he read the statement, he was struck by the fact that use of the forecasts is not mandated. It seems to him that much of the efforts of the committee have focused on having one forecast to be used in determining revenue. If it is not to be used, then it begs the question of why go through the effort of putting it together and having it available to be used as one document? Mr. McNeely personally thinks use of the forecast should be required in terms of state planning and budgeting purposes. He recommends that the language be strong enough to compel people to use it. As far as the ultimate product, those using the forecast will make a judgment call. However, it is his opinion that the forecasts should be required to be used in their planning.
Ms. Torry affirmed that if an entity was using the information and decided to deviate from it for all of the right reasons, the forecast would then become a baseline from which changes could be made. Mr. McNeely concurred. Ms. Torry said that had been her thought also – not necessarily mandating that the forecast be used if it is not realistic, but it must be taken into consideration, and if something different is going to be done, justification must be provided. She again asked if the word “used” is strong enough language to voice the intent.
Mr. McNeely suggested the statement “used or shall be considered for all state planning purposes” might be better. He said he absolutely agrees with Diane Torry’s statement, but the appropriate wording is needed.
Mark Stevens said the Fiscal Division always thinks about the mechanical/technical side of things versus the policy side, and he agreed with Mr. McNeely’s suggestion. He suggested that the agencies would have to use the expenditure forecasts, and if they did not use them, they would have to explain what factors were taken into account that deviated from the forecasts. Mr. Stevens explained the budgets are submitted on August 15, the forecast will be completed on March 1, and the Economic Forum issues revenue projections on December 1 and May 1. If an explanation of the reasons for changes between March 1 and August 15 was required, the forecast would have to be used as the starting point.
Mr. McNeely agreed, adding that the agencies can be given latitude to change, but if something has happened to alter the forecast numbers, they would be required to explain why changes are implemented.
Ms. Torry said the process would also be beneficial in that if the long-range forecasts are continually having to be significantly altered, feedback would be provided as to whether the process is providing the best information. Without some mechanism guaranteeing that the information is going to be used, the intent of the overall legislation will be escaped.
Mr. Zuend said an attorney from the Legislative Counsel Bureau will be attending the full Task Force meeting. He suggested the subcommittee make its intent known, and as the bill drafting stage approaches, the attorney can draft proposed legislation to be reviewed by the Task Force members.
Mr. Arrighi asked who will have responsibility for deciding what changes need to be analyzed for the effects on the long-term forecasts. Mr. Zuend said that question was included in the issues to be resolved. He said the Fiscal Division staff and Budget Office staff had met after the last Task Force meeting to discuss the issue. It was agreed that an automatic threshold will be needed. If coordination of the process is assigned to the Fiscal Division’s Office of Financial Analysis and Planning, then, based upon Mr. Guindon’s analysis, if a proposed program would exceed a designated threshold, e.g., a certain percentage of General Fund revenues, the technical committee would then develop estimates of long-term impacts.
Mr. Zuend said a second mechanism had also been discussed, that being a “wild card” concept. For instance, the Governor could request the technical committee to review two proposals he might be interested in, and perhaps the Senate Majority Leader and Assembly Speaker could have one wild card. Mr. Zuend said the process should provide enough flexibility to allow review of proposals that might not normally be reviewed under the threshold standard.
Referring to the proposed organization chart of the Office of Financial Analysis and Planning (Exhibit “C”, Preparation Decisions, original on file at Legislative Counsel Bureau Research Library), Mr. Zuend explained the process will be somewhat similar to the Economic Forum, with two technical groups—one representing the expenditure side, and the other being the revenue technical advisory committee. The proposed legislation may pass regardless of the long-term impacts, but at least the information will be made public. Mr. Zuend said the mechanics of the process still need to be determined by the use subcommittee. He explained that a formal long-term forecast will be prepared every two years, and the technical committees will have the ability to review important issues, either proposed by the Governor or during the session, that could have long-term impacts.
Ms. Torry asked if there were any recommendations in terms of what the threshold should be. Mr. Zuend said a firm number had not been decided upon, but it would have to be fairly significant. In discussions with Mr. Comeaux’s staff, it was felt there would be only a handful of these issues to be dealt with each session—five or six at most.
Mark Stevens said a recommendation could be developed. He would guess that if the process is endorsed, the wild card requests would be more numerous than the issues meeting the automatic threshold figure. He explained that everyone is taxed very hard during the legislative session, and there would not be time to perform forty or fifty analyses. However, it may be necessary to analyze the long-term impact of a number of issues. Mr. Stevens said during past sessions there have been a number of items passed that have come back the following session with projected costs that were unknown at the time of initial passage.
Mr. Arrighi said if the fiscal note policy is expanded to cover two bienniums, the four-year analysis should reveal information that the two-year analysis would not have shown, and this will probably eliminate some of the problem. Mark Stevens agreed, saying five threshold issues would be a lot, and the number will more likely be two or three. However, it is critical to analyze the four or five important issues that seem to have some support behind them so that the people making decisions have the information before decisions are made.
Mr. Zuend said a two percent threshold would compute to about $30 million over a biennium in the long-term, and there are not many programs that would meet that figure. Mark Stevens said it is possible one percent would be a better threshold. He said the Fiscal Division staff could do a more detailed study and then return to the Task Force with data on the levels and the pros and cons of each. The goal of this meeting is to determine if the subcommittee is comfortable with the concept. Once that is determined, Mr. Stevens said the staff will begin working on details of the process.
Mr. Arrighi noted a proposal could have a minimal two-year budgetary impact but might have major impacts in the future. He wondered if the two percent would represent what someone might think would be the effect four years out. Mark Stevens replied that would be when the wild card would come into play. The threshold can be defined any way the committee wants, e.g., it could be one percent of the budget and four years out, or it could be one percent of the budget the first year of implementation. The threshold or criteria used to trigger the threshold can be developed in a variety of ways. Mr. Stevens cited the dental school program as an example. It did not have any General Fund impact at all when it was proposed during the 1999 Legislative Session, but there was concern that it would at some point in time. This would have been a wild card situation; either the Governor or the legislative leadership could have requested a technical group estimate of the long-term impacts of the program. However, he clarified, regardless of where the threshold was placed, the dental school program would not have been triggered because it was proposed with no General Fund impact.
Ms. Torry asked if the proposed trigger would represent a percentage of the budget before the legislature for the current year. Mark Stevens replied the subcommittee could choose to set a dollar level, but he would not recommend that method because it would become outdated as the budget grows.
In response to Ms. Torry’s question, Mr. Zuend suggested that the biennial revenue forecast by the Economic Forum prior to the legislative session could be used as the standard to determine whether the cost of a proposal exceeds whatever threshold has been established. He noted, however, that the proposal itself could be valued at some other point in the future. Such an approach would better recognize the long-term consequences of the proposal should it become a burden on the General Fund or otherwise require replacement revenues.
Mr. Zuend cited the example of class-size reduction, which is partially funded by the estate tax. He noted that estate tax revenues are unpredictable, and that Congress is even considering eliminating the tax. Thus, if a similar program were being considered in the future, it may be more appropriate to compare the full long-term cost of the program to the General Fund revenue base to determine whether it meets the threshold. Mr. Zuend reiterated that General Fund revenues would simply be the standard to judge whether a proposal should be reviewed, and he cited other examples where it would be more important to take a longer view of the cost of such proposals. He was not sure whether this was consistent with Mr. Stevens’ view of how the threshold would work.
Mr. Arrighi said he was still not clear. In those situations, he would think the process of identifying the proposals or legislation would be in place to trigger the long-term analysis. However, if the proposal does not meet the current biennium impact percentage, who is going to determine that six years out it will have a 2 percent effect on the General Fund? It would have to come across somebody’s desk and some sort of preliminary analysis would have to be conducted in order to determine whether it meets the standard and needs to be analyzed. Mr. Arrighi reiterated he still does not understand how the process will work.
Mark Stevens remarked this process would apply more to the legislative proposal area rather than the Executive Budget, since programs in the Executive Budget are usually well outlined. He explained that as legislative proposals advance through the committee process, they start generating interest. He does not know what the threshold should be, but at some point in time, legislators ask Fiscal Division staff to review the projected costs of a program. Mr. Stevens said this is the current process, but costs are not analyzed out six or ten years. However, under this proposal, either the Governor or the legislative leadership would utilize one of their wild card requests for the technical group to analyze a program. He does not know when this would occur in the process, although it probably would not be the day the legislation is introduced. There may be 50 proposals that trigger an analysis during the legislative session, but not all of them will have enough support to justify a detailed cost projection. Mr. Stevens reiterated there may be only five proposals that have enough support to go forward, and those would be the proposals to concentrate on. He explained that support is generated through the committee process and legislators talking among themselves—it kind of evolves.
Mr. Zuend said if the subcommittee agrees to the concept, then staff can conduct some analyses in conjunction with Mr. Comeaux’s office, and report back with recommendations at the next meeting.
Mr. Zuend then proceeded to a review of issues yet to be resolved:
· Should the forecast body have the ability to review and redo, if necessary, long-term forecasts outside the required schedule?
Mr. McNeely said he feels the body should have the flexibility to review the forecasts; it should not be mandated or required, but the option should be provided in the event something changes.
· Who can decide to call for a review of the long-term forecast (e.g., chairman only or any public member of body)?
Mr. Zuend said the reason for referring to public members only is because the private members are not involved in the process itself or the economic issues that affect state government.
Mr. Arrighi said he envisions the authority for a review would be placed with the chairman of the technical committee, and a review could be prompted by a request from the Governor, legislator, or state government official.
Mr. McNeely and Ms. Torry voiced their agreement with Mr. Arrighi.
· Should the report include forecasting information for local governments and school districts? If yes, how should reports be made available to local governments?
Mr. Zuend said obviously there will be revenues, and possibly expenditures, that will have some effect on local funding, e.g., property taxes.
Mr. Arrighi wondered who will make the decision as to how detailed the reports should be, and whether it should be included in statute. Mr. Zuend replied the amount of detail could be stipulated in the statutes if the committee so desires.
Mr. McNeely said it makes sense to include information that has an impact on city and county operations, e.g., property tax, sales tax. That information and its likely impacts on local governments and school districts is valuable and should be made available for use by those entities. Mr. Arrighi agreed, saying if the information is available and can easily be broken down for local entities without a lot of cost, it should be included.
Mark Stevens said a general statement stipulating that any information developed is to be provided to the local entities would be appropriate, but he expressed concern with mandating that property tax projections be conducted for local governments. Obviously, if the process develops information that would be valuable to local entities, it should be provided to them.
With regard to distribution of the forecast reports to local governments. Mr. Zuend said copies could be provided to the Department of Education to furnish to the school districts throughout the state, and copies could be sent to Nevada Association of Counties (NACO) and the League of Cities for distribution to local governments.
Ms. Torry asked if a statement to the effect that “an appropriate cost-effective means of distribution should be developed” would be appropriate. Mr. Zuend said it would be. Mr. Arrighi asked if the forecast report would be put on the state’s website. Mr. Zuend replied that might be possible.
· Should long-term forecasts be presented to a joint meeting of the legislative money and/or tax committees?
Mr. Zuend noted the legislative money and tax committees meet regularly during session. Presenting the forecasts to the committees near the beginning of session would bring public attention to the forecasts. He said there is considerable discussion going on now about the state’s so-called structural deficit because long-term revenues don’t keep up with expected expenditures due to growth in K-12, caseloads, and so on.
Ms. Torry remarked she thought a key issue in terms of using the information is to communicate it in a variety of high profile ways to ensure that the information is used and not put on a shelf. Presentation in a public forum raises that exposure; she thinks it is a very good idea.
· What criteria should be used to determine whether the appropriate technical committee must estimate the long-term effect of an Executive Budget proposal or legislative proposal (e.g., two percent of General Fund budget)? Should the Executive and Legislative Branches be allowed to request estimates of long-term impacts of budget proposals that may not strictly meet the criteria for review? If yes, how should these “wild-card” requests be limited (e.g., two for Governor and one each for Speaker of Assembly and Senate Majority Leader)?
Mr. Zuend recalled this issue was discussed earlier. To make use of the technical committees during the legislative sessions to review proposals that have long-term impact, creating an objective standard and making certain wild cards available to both the Executive Branch and the Legislative Branch is suggested. Mr. Zuend questioned whether this stipulation needs to be included in the statute, because obviously the Governor will take Mr. Comeaux’s advice and the Legislature will take Mr. Miles’ or Mr. Stevens’ advice if there are bills or proposals needing further review for long-term impacts.
For her own clarification, Ms. Torry asked if the purpose of the process is really to provide an extra mechanism to predict long-term impacts outside of the formal process of forecasting. She thinks it makes sense to have it a working process rather than only an academic process.
Mark Stevens said the Forecast Council would not be involved in the legislative process because of the short timelines, but the technical committees that would report to the Council in advance of March 1 of each year would be responsible for developing information during legislative sessions.
Mr. Arrighi agreed with the limitation of wild cards in order to keep those issues at a minimal level of workload. Mark Stevens said the proposal to expand the fiscal note process will capture more of the future cost issues. He reiterated the wild card process should be targeted to those few high profile items that seem to have the support of a number of legislators and/or the Governor and may actually move forward and be approved.
As far as the specifics of any language concerning a dollar amount, Mr. Arrighi asked if the Fiscal Division can work with the Executive Branch to develop recommendations before the next meeting of the Task Force. Mark Stevens replied recommendations can be prepared for both ends of the transaction policy-wise if the Task Force feels the concept is worthy of consideration.
· What are the due dates for the appropriate technical committee to produce estimates of the long-term impacts of Executive Budget and legislative proposals (e.g., March 1 of odd-numbered years for proposals included in the Executive Budget)?
Mr. Zuend remarked that March 1 of the odd-numbered years seems like a reasonable date for the Governor’s budget proposals that are presented in mid-January of odd-numbered years. The legislative issues are more floating, and he asked Mark Stevens what would be the last date before the end of session they could be done.
Mark Stevens said 30 days in advance of the end of the session would be a reasonable time. The money committees are in full operation as far as closing the budgets and making decisions. The larger budgets will not be closed 30 days in advance, but they could be two weeks in advance. It takes staff time to write the necessary bills based on the agreements that have been made. Twenty days out might be acceptable, but 30 days would be better. The technical advisory committee would need a few weeks to analyze the issue before preparing the information by the deadline. Mr. McNeely said he would have no problem with a 30-day deadline; Ms. Torry concurred.
Mark Stevens said he envisions the process to be fluid—there might be two or three issues at one time, but they would be staggered. The final information from the technical committee would have to be received 30 days in advance of the end of the session in order to give the money committees time to review it.
Mr. Zuend said he does not believe there would be any major proposals having long-term impacts that would not surface before that date. It would be very hard to garner support that late in the session.
Mr. Comeaux arrived at this point, and Mr. Zuend recommended the subcommittee take formal action on its recommendations. Mark Stevens referred Mr. Comeaux to the first item on Page 1 of the Use Committee Decisions, “Specify in statute that the long-term forecasts approved by the forecast body are ‘the official state forecasts to be used for all state planning and budgeting purposes’.” Mr. Stevens advised Mr. Comeaux that the subcommittee had indicated the language should be strengthened somewhat. Although there was no discussion regarding mandating that official caseload projections be used, as a potential compromise to strengthen the provision, there were discussions concerning agencies being required to use the projections as a starting point for deliberations of their agency requests. If the agencies choose to modify the forecasts, they are free to do so, but they must explain in the budget request what factors were taken into account when making the modifications. Mr. Stevens said he wanted to ensure that Mr. Comeaux was aware of the requirement. There may be other options to strengthen the language without going so far as mandating their use. There are six months between March 1 and August 15, so there may be a number of factors that influence the projections between those dates.
Mr. Comeaux said after the last meeting, he took the recommendations of both subcommittees to the Governor and his staff for their reactions. The only major area of concern was the statement that these would be the official long-term forecasts of the state. The Governor’s staff questioned what the statement meant, and Mr. Comeaux said he also had some of the same reservations. The Governor does not want to be bound to the forecasts if he feels there is evidence to indicate otherwise. However, as long as there is the option to deviate from them with an explanation, Mr. Comeaux feels the Governor’s concerns would be alleviated.
The only other concern Mr. Comeaux had was the make-up of the technical advisory committee on the preparation side, but he would bring the subject up in full committee. He said the Governor’s office was basically pleased with the general direction of the process.
Mark Stevens said the next step appears to have the Fiscal Division and Budget Division develop more specific language to bring to the next meeting. In general, the statement should indicate that the official state forecasts shall be used by agencies in their initial biennial budget requests and any deviations from them, as well as the reasons, must be explained. Mr. Comeaux agreed, saying that language along that line would be satisfactory to the Governor’s Office.
Mr. Arrighi noted that the chairman of the technical advisory committee would have the authority or ability, outside of the normal March 1 formal date, to revisit the forecasts and revise them, which will hopefully mitigate the Governor’s concerns.
Mr. McNeely said he thinks the goal is to have only one forecast to be used. From that point, options should be available to the Governor or anyone else, but everyone should agree as to the beginning forecast. The numbers are simply decision-making tools, and the ultimate decisions are going to be made from those numbers and any other factors that come into play. Mr. McNeely said he did not see any flexibility being taken away from the decision-making piece, but the same base of information should be used. The staff can develop the appropriate wording to satisfy the Governor’s staff and others involved, but from a concept standpoint, he supports having stronger wording while at the same time maintaining flexibility.
Mr. Zuend informed Mr. Comeaux that the subcommittee had agreed on the other issues. Mr. Comeaux indicated for the record that the Governor’s Office had expressed concern about the ability during legislative session to prepare long-range forecasts for recommendations that may arise during session. Mr. Comeaux said he explained that a choice must be made to either take responsibility and do the forecast analyses or not do them. If they are not done, then the long-term forecasts would basically be rendered meaningless. He said if problems arise during the session, then alternatives can be tried, e.g., adding staff. The Governor’s Office indicated that if Mr. Comeaux was comfortable with the process, then they would agree.
Mark Stevens said he has the same concern, i.e., how the process should be executed and how many proposals should be reviewed. It is his view that the reviews should be minimal. The committee had earlier discussed that if a proposal was sufficiently large it would automatically trigger a review. The subcommittee wants the Fiscal Division and Budget Division staff to recommend at what levels the trigger should take place. Also, there should be a minimal number of “wild card” requests where the Governor’s office or legislative leadership can ask the technical advisory committee to convene.
Mr. Comeaux said he thought earlier discussions had been in the 2 to 3 percent of the state budget range, which would amount to $30-$45 million. If the impact is suspected to be that much, then a review would be required. He agreed the reviews need to be limited to potentially significant items.
Mr. Zuend reviewed the subcommittee discussion concerning issues to be resolved:
· Should the forecast body have the ability to review and redo, if necessary, long-term forecasts outside of the required schedule? The subcommittee agreed it would be a good idea to redo the forecasts if necessary at the call of the chair.
· Should the report include forecast information for local governments and school districts? Yes, information should be included from school districts, and legislation should include sections relating to implications for school districts and local governments for such things as property taxes (at the state level).
Mr. Comeaux agreed this would be necessary for school districts because the state has to estimate local revenues in order to determine what the General Fund impact will be, and as long as that is being done, property tax estimates should be provided as well. Sales tax would also be easy to do. Mr. Comeaux asked if Mr. Zuend was saying that the state would provide the local government component of whatever is being forecast for the state to the local government. Mr. Zuend said a policy could be developed for the most cost- effective way to distribute the information to local governments. Copies could be sent to the Department of Education for distribution to the school districts, and to the Nevada Association of Counties and League of Cities for disbursement to the local governments.
· The subcommittee agreed presentations of the formal forecasts should be made before the legislative money and tax committees. Technical details can be formalized by the Fiscal Division and the Budget Office.
· The subcommittee feels that March 1 would be a good deadline for the technical committee’s review of long-range impacts of any major proposals included in the Executive Budget. Legislative proposals must be reviewed 30 days prior to the constitutionally-mandated end of session.
Mark Stevens said obviously the 30-day deadline would apply to only those proposals triggered late in the session. Mr. Comeaux asked if there is presently a rule with regard to submission of those kinds of bills. Mr. Stevens replied the introduction dates are fairly early in session; bills need to be introduced within a month.
Mr. Comeaux again brought up the subject of the dental school situation during the 1999 Session, and Mr. Stevens said in those instances, the Governor and the legislative leadership will have a minimal number of requests that can trigger the technical advisory group to convene, and it would not have to specifically be a bill or a budget proposal.
Mr. Zuend suggested the subcommittee take two actions: First to approve the previous meeting’s minutes, and then to approve the list of proposals for recommendation to the full Task Force, with the understanding that some technical details will be left to the Fiscal Division and Budget Division to develop prior to the final meeting of the Task Force.
Ms. Torry moved for approval of the March 8, 2000 minutes; Mr. Comeaux seconded the motion, and it was unanimously passed.
Mr. McNeely moved to approve the subcommittee recommendations, with the suggested modifications to be made by the Fiscal Division and Budget Office staff. Diane Torry seconded the motion, and the motion was unanimously approved.
There was no public testimony. The motion to adjourn was made and seconded; the meeting was adjourned at 12:20 p.m.
Sherie Silva, Secretary
Mark Arrighi, Chairman