MINUTES OF THE SENATE COMMITTEE ON FINANCE

Seventy-Eighth Session

February 3, 2015 The Senate Committee on Finance was called to order by Chair Ben Kieckhefer at 8:02 a.m. on Tuesday, February 3, 2015, in Room 2134 of the Legislative Building, Carson City, Nevada. The meeting was videoconferenced to Room 4412 of the Grant Sawyer State Office Building, Las Vegas, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. All exhibits are available and on file in the Research Library of the Legislative Counsel Bureau. COMMITTEE MEMBERS PRESENT: Senator Ben Kieckhefer, Chair Senator Michael Roberson, Vice Chair Senator Pete Goicoechea Senator Mark A. Lipparelli Senator David R. Parks Senator Joyce Woodhouse COMMITTEE MEMBERS ABSENT: Senator Debbie Smith (Excused) GUEST LEGISLATORS PRESENT: Senator Moises (Mo) Denis, Senate District No. 2 STAFF MEMBERS PRESENT: Mark Krmpotic, Senate Fiscal Analyst Alex Haartz, Principal Deputy Fiscal Analyst Michael Archer, Proofreader Stella Blood, Legislative Assistant Brian Burke, Senior Program Analyst Emily Cervi, Committee Assistant Jackie Cheney, Committee Secretary Cynthia Clampitt, Committee Secretary Leanndra Copeland, Program Analyst Cathy Crocket, Program Analyst

Senate Committee on Finance February 3, 2015 Page 2 Jaimaire Dagdagan, Program Analyst Joi Davis, Senior Program Analyst Mandi Davis, Program Analyst Lona Domenici, Committee Manager Adam Drost, Program Analyst Jeff A. Ferguson, Senior Program Analyst Jennifer Gamroth, Program Analyst Shelle Grim-Brooks, Proofreader Jeanne Harrington-Lloyd, Committee Secretary Karen Hoppe, Senior Program Analyst Kristen Kolbe, Program Analyst Brody Leiser, Program Analyst Susan McArthur, Committee Secretary Andrea McCalla, Program Analyst Arzella Moots, Supervisory Proofreader Trish O’Flinn, Committee Secretary Jennifer Ouellette, Program Analyst Patti Sullivan, Management Analyst Julie Waller, Senior Program Analyst Jason Gortari, Committee Secretary OTHERS PRESENT: Barbara K. Cegavske, Secretary of State, Office of the Secretary of State Scott Anderson, Chief Deputy, Office of the Secretary of State Bart London, Information Systems Manager, Office of the Secretary of State Karen Michael, Business Portal Administrator, Office of the Secretary of State Diana Foley, Securities Administrator, Securities Division, Office of the

Secretary of State Wayne Thorley, Deputy for Operations, Office of the Secretary of State Steve Hill, Executive Director, Office of Economic Development, Office of the

Governor Steve Woodbury, Administrative Services Officer, Office of Economic

Development, Office of the Governor Tom Piechota, Ph.D., P.E., Vice President, Division of Research and Economic

Development, University of Nevada, Las Vegas Warren Rapp, Business Development Director, Nevada Advanced Autonomous

Systems Innovation Center, University of Nevada, Reno

Senate Committee on Finance February 3, 2015 Page 3 Steve Wells, Ph.D., President, Desert Research Institute, Nevada System of

Higher Education Alan Gertler, Ph.D., Vice President for Research, Desert Research Institute,

Nevada System of Higher Education Ken Ladd, Special Assistant to the President and Senior Advisor, Nevada Center

of Excellence in Water, Desert Research Institute, Nevada System of Higher Education

Rob Hooper, Executive Director, Northern Nevada Development Authority Chair Kieckhefer: We will first discuss adoption of the “Standing Rules for the 2015 Session” (Exhibit C) for the Senate Committee on Finance. Mark Krmpotic (Senate Fiscal Analyst): Each committee member has a copy of the rules. Proposed new language is in bold lettering, deleted language is lined out. Changes in Rule No. 1 allow members attending by videoconference or teleconference to be counted for a quorum. Rule No. 8, concerning minority reports, has been deleted under direction from Claire J. Clift, Secretary of the Senate. Rule No. 9 has been amended to include laptops and other electronic equipment, reflecting the historic practice of the Committee. Rule No. 10 has been amended to allow the Committee to recess to a time certain. Upon approval of the rules, they will be finalized and provided to the Committee. Chair Kieckhefer: It seemed awkward to include Rule No. 8 as there is no formal process in place within our Senate Rules. A minority report may be submitted, but it will not be presented to the full Senate. Nothing prevents members of this Committee from objecting and publicly releasing an objection to a Committee action. Are there any questions about the rules?

SENATOR GOICOECHEA MOVED TO ADOPT THE REVISED SENATE STANDING RULES.

SENATOR LIPPARELLI SECONDED THE MOTION. THE MOTION CARRIED UNANIMOUSLY.

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Senate Committee on Finance February 3, 2015 Page 4 Chair Kieckhefer: Next, we will discuss the handout titled “Budget Closing Recommendations to Be Developed by the Full Committee” (Exhibit D). Mr. Krmpotic: Each Session, staff identifies accounts that require a hearing and suggests those to be closed without a formal hearing in Committee or subcommittee. There are 442 budgets accounts presented for consideration in the Executive Budget. A number of those budget accounts have few new recommendations or enhancements and no policy issues for consideration. Exhibit D describes the accounts to be considered by the full Committee and those assigned to each of the four subcommittees, as well as those recommended to be closed by staff in the full Committee. Accounts listed on the left are to be reviewed and heard in subcommittee. The Committee will review the closing recommendations of staff for the accounts listed on the right. The list has been reviewed thoroughly by staff, but there may be instances where members want to hear a particular account. If there is an issue with an account, please contact Alex Haartz or me. Chair Kieckhefer: The next handout, “New Budget Accounts Created by the 2013 Legislature or Included for the First Time in the 2015-2017 Executive Budget” (Exhibit E), provides resource information regarding new budget accounts. Mr. Krmpotic: Each of these accounts will be heard in subcommittees and will be considered by the Committee for closing. Chair Kieckhefer: The following two documents outline the subcommittee assignments. The handouts are titled “2015 Session Joint Subcommittee Assignments” (Exhibit F) and “2015 Session Finance Subcommittee Assignments” (Exhibit G). A matrix indicates membership, both in the Senate and Assembly, including Chairs for each of the subcommittees and the areas of jurisdiction after this Session. A copy of the Legislative Counsel Bureau fiscal staff and the areas of responsibility assigned to each analyst has been provided, “Fiscal Analysis Division Agency Assignments January 1, 2015” (Exhibit H).

Senate Committee on Finance February 3, 2015 Page 5 Mr. Krmpotic: The last document is a sample of the “Senate Committee on Finance Progress Report” (Exhibit I), which is updated by staff on a weekly basis with the number of budget accounts heard. The report lists the budget accounts assigned for subcommittee recommendation and budgets closed by the full Committee. The document shows the bills referred to the Committee, bills currently in Committee, bills heard and not heard and capital improvement projects assigned to the Committee. Chair Kieckhefer: We will now move to the budget hearing for the Secretary of State (SOS). ELECTED OFFICIALS ELECTED SOS - Secretary of State — Budget Page ELECTED-159 (Volume I) Budget Account 101-1050 Barbara K. Cegavske (Secretary of State, Office of the Secretary of State): Page 5 of the “Secretary of State Budget Presentation 2015 to 2017” (Exhibit J) shows the SOS has 132 positions, of which 123 are filled. The SOS budget request for the upcoming biennium includes the addition of seven full-time equivalent (FTE) positions. The SOS serves as the collector of various fees, fines and penalties. The majority of the revenue collected goes to support the General Fund. In fiscal year (FY) 2014, the SOS collected $167.3 million in revenue and 99.6 percent went to support the General Fund. The SOS has two primary budget accounts: budget account (B/A) 101-1050, the general operating budget, and B/A 101-1051, the Help America Vote Act (HAVA) budget. In 2002, the U.S. Congress passed HAVA, which allocated grant money to assist states with implementation of, and compliance with, HAVA provisions. Since no additional HAVA funding is anticipated from Congress, the SOS would like to transfer two FTE HAVA-funded positions to B/A 101-1050 beginning in the 2017-2019 biennium.

Senate Committee on Finance February 3, 2015 Page 6 SOS - HAVA Election Reform — Budget Page ELECTED-170 (Volume I) Budget Account 101-1051 The SOS is requesting $42.8 million of General Fund money for the 2015-2017 Biennium. Page 14 of Exhibit J describes major budget enhancement units E-550 and E-231. Enhancement unit E-550 will fund replacement of the electronic Secretary of State (e-SoS) application and its existing system software and hardware. The e-SoS system is the primary application used by the SOS and it is antiquated and increasingly difficult to maintain. The estimated cost of E-550 is $21.9 million over 5 years. For the 2015-2017 biennium, SOS is requesting $11.8 million in General Fund appropriations, which does not include the costs for E-231. E-550 Technology Investment Request — Page ELECTED-165 Enhancement unit E-231 requests three new information technology (IT) positions and a General Fund appropriation of $327,372. The new positions will assist in the modernization and updating of platforms which are critical for business filings. E-231 Efficient and Responsive State Government — Page ELECTED-163 Page 15 of Exhibit J describes major budget enhancements E-234 and E-235. We are requesting $212,432 of General Fund appropriations over the biennium between the two decision units for two new IT professional positions. Both positions will assist in the development and support of SilverFlume, Nevada’s business portal. E-234 Efficient and Responsive State Government — Page ELECTED-164 E-235 Efficient and Responsive State Government — Page ELECTED-164 Page 16 describes major budget enhancements E-225 and E-232. Enhancement unit E-232 requests securities revenue of $238,968 over the biennium for two new compliance/audit investigator positions in the Securities Division. Enhancement unit E-225 requests General Fund appropriations of $393,533 over the biennium for discount fees paid by the Office for financial service companies processing credit card and debit card transactions.

Senate Committee on Finance February 3, 2015 Page 7 E-225 Efficient and Responsive State Government — Page ELECTED-161 E-232 Efficient and Responsive State Government — Page ELECTED-163 Page 17 of Exhibit J lists minor budget enhancements E-226 and E-227. Enhancement unit E-226 requests $5,108 of General Fund appropriations each year of the biennium for in-state travel related to document preparation services and compliance visits. Decision unit E -227 requests General Fund appropriations of $2,012 each year of the biennium for out-of-state travel to attend the annual International Association of Commercial Administrators conference. This allows the SOS to monitor national and international business filing practices. E-226 Efficient and Responsive State Government — Page ELECTED-162 E-227 Efficient and Responsive State Government — Page ELECTED-162 Page 18 describes minor budget enhancements E-237, E-710 and E-720. Each year of the biennium, E-237 requests $500 for an online research program in the Securities Division. Enhancement unit E-710 requests $1.4 million and E-720 requests $297,814 for new and replacement office and computer equipment over the biennium. E-237 Efficient and Responsive State Government — Page ELECTED-165 E-710 Equipment Replacement — Page ELECTED-167 E-720 New Equipment — Page ELECTED-167 Page 19 of Exhibit J describes two budget-reduction proposals for B/A 101-1050. Enhancement unit E-600 eliminates a vacant administrative assistant position, which equates to $96,245 of General Fund savings over the biennium. Enhancement unit E-601 eliminates unnecessary training, resulting in General Fund savings of $79,338 over the biennium. E-600 Budget Reductions — Page ELECTED-165 E-601 Budget Reductions — Page ELECTED-166 Two million dollars remain in the HAVA budget, B/A 101-1051, and no additional funding from the federal government is anticipated in the future. The HAVA Base Budget includes a $100 General Fund appropriation each fiscal year to allow access to the Interim Finance Committee (IFC) Contingency Fund.

Senate Committee on Finance February 3, 2015 Page 8 Budget enhancement unit E-229, B/A 101-1051, shown on page 21 of Exhibit J, requests $51,036 in FY 2017 to fund data matching initiatives for the statewide voter registration database before the 2016 general election. Printing and mailing expenses would be covered under the requested funding. E-229 Efficient and Responsive State Government — Page ELECTED-172 Chair Kieckhefer: Discuss E-550 of B/A 101-1051 and explain why you need the three IT positions included in the request. Scott Anderson (Chief Deputy, Office of the Secretary of State): Enhancement unit E-550 is a significant improvement to our Office. Full implementation of e-SoS was conducted in 2005. Since that time, this system has become bleeding edge instead of leading edge. The three positions we are requesting will be required to help maintain and enhance our system and are vital to maintaining a technological edge. Chair Kieckhefer: Will the system be developed by an outside vendor and then maintained and upgraded once it is in place by these additional positions as necessary? Bart London (Information Systems Manager, Office of the Secretary of State): The three positions will be used to augment my staff and provide maintenance as we build the system. We will bring on one of the positions in the first part of the biennium and the other two in the second. Chair Kieckhefer: Can you repeat the timing for the hiring of the positions? Mr. London: In the first part of the current fiscal year we will hire an IT professional IV position. As the project ramps up, we will hire the other two positions. Senator Moises (Mo) Denis (Senate District No. 2): Is the first person you are bringing on working with the vendor to determine your needs?

Senate Committee on Finance February 3, 2015 Page 9 Mr. London: Yes. Senator Denis: Once the other two positions are hired, will their responsibility be to keep the system up and running? Will there be an ongoing contractor? Mr. London: Yes. A small amount of money is allocated in this budget for the maintenance contract with a vendor who can provide support. Senator Denis: Will the three new positions just have maintenance duties or will they have update responsibilities in the future? Will it strictly be the vendor who does the updates? Mr. London: It will be a combination of both. For an IT project of this size, most of the effort is required in the beginning. As the project goes on, less resources are needed. My staff will do most of the work and the vendor will bring in specialized skills as needed. Senator Denis: To assure we are getting what we need, will the new positions work with the vendor to educate our staff and the end users of the system? Mr. London: Yes. They will work together to ensure the project is delivered successfully. Senator Denis: When we put in a new system of this magnitude, we sometimes realize we have forgotten to implement items after the system has gone live. This ends up costing us more time and money. I want to make sure we are doing that ahead of time.

Senate Committee on Finance February 3, 2015 Page 10 Chair Kieckhefer: There probably are similar questions about the IT positions related to SilverFlume. Is contract staff supporting that? Will we bring in-house IT staff to help support the system and increase its functionality? Karen Michael (Business Portal Administrator, Office of the Secretary of State): The two positions we are requesting for SilverFlume are developer positions. Our Office integrates with a large number of State agencies. As we expand out to other agencies, we need to continue to expand our development base to ensure we can support new features and the ones we have built already. Chair Kieckhefer: Do you have a schedule for implementing the additional functionality components and agreements with these other departments? Ms. Michael: We have a road map over the next 2 years. We build on new features every 4 weeks. When a request in the business community occurs, we take on the work as those agencies are ready. Chair Kieckhefer: Are the functionalities built in-house or by the vendor? Ms. Michael: It is done in-house. We have system administrators who are contractors and State employees. We also have some remote vendors to help us with the database administration and WebLogic server administration. Our infrastructure is contracted to the State’s Enterprise Information Technology Services. Mr. Anderson: Our current Business Portal Division staff is stretched to the limit with the participating agencies and jurisdictions. As we expand to the Department of Employment, Training and Rehabilitation (DETR), the City of Henderson and other agencies, we need these additional resources. This will ensure that we can provide those services to the business entities that want to participate in SilverFlume. These two positions are at the low end of what we need to fully develop SilverFlume.

Senate Committee on Finance February 3, 2015 Page 11 Senator Denis: Do you have three staff members in-house who are working on the development of this? Ms. Michael: We have four positions. One person is dedicated to business analysis and the other three are developers. Senator Denis: Do you have contractors working on other things, and not the development piece? Ms. Michael: They are doing system administration, in the form of monitoring and patching the servers. Senator Denis: Are the two new people coming on as developers also? Ms. Michael: Yes. Senator Denis: Will your need for the contractor still be there? Ms. Michael: Yes. Various skill sets are needed with these type of systems, including developers who build and maintain the systems and administrators who patch and monitor the servers. Senator Denis: Is it cheaper to contract out versus using in-house staff? Ms. Michael: It is cheaper to contract out. For the cost of one in-house person, we are able to get two skill sets when we contract it out.

Senate Committee on Finance February 3, 2015 Page 12 Senator Denis: Are we still keeping the contractors and adding two developers? Ms. Michael: Yes. Senator Denis: Will any cost savings occur if we hire a contractor? Ms. Michael: No. Chair Kieckhefer: We will now discuss the two additional positions you would like to add in the Securities Division. Explain what it means to compliance and audit investigations, and how it will impact your performance in that Division. Mr. Anderson: These two positions were made necessary due to the increase in services we have to provide. We were given authority over new securities services and our securities staff was cut significantly by the 2009 budget. Diana Foley (Securities Administrator, Securities Division, Office of the

Secretary of State): We are seeking two compliance audit investigators. In 2009, we lost several positions in this area. In 2008, we were inspecting licensees in the State on a 2- to 3-year rotation. Now we are trying to inspect our investment advisors and a few of the broker-dealers, on a 3-year rotation. Many of the branch offices we have responsibility for have not been adequately inspected since 2006. Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, the State has received primary inspection and registration responsibilities for midsized investment advisor organizations. According to North American Securities Administrators Association, we are seeing the number of midsized investors double in the Nation, which will result in an increase of our duties. Senator Goicoechea: How many compliance audit investigators do you have in place today?

Senate Committee on Finance February 3, 2015 Page 13 Ms. Foley: We have four. Senator Goicoechea: Have some of the audits not been done since 2006? Ms. Foley: A few inspections have not been done, not audits. Senator Goicoechea: What will a 30 percent increase in compliance audit investigators do to your backlog? Ms. Foley: That will give us a minimum of 25 inspections a year, per investigator. Senator Goicoechea: Will we catch up? Ms. Foley: It depends on the type of businesses we inspect. Once the broker-dealers are inspected, we will be able to push inspections out further than 3 years. Mr. Anderson: The new positions will help us diminish current backlogs, keep up with demand and reduce future increases of backlogs. Senator Lipparelli: Is this subject to both federal and State oversight? Ms. Foley: Yes. Zero redundancy has occurred when inspecting the investment advisors. The National Securities Markets Improvement Act of 1996 split the responsibility of inspecting investment advisors between the states and federal government. The Dodd-Frank Act gave the states more primary review and licensing authority. The Securities Exchange Commission will perform inspections based on cause. The Financial Industry Regulatory Authority (FINRA), a self-regulatory organization for broker-dealers, does inspections regularly. We confer with FINRA frequently to assure efforts are not duplicated.

Senate Committee on Finance February 3, 2015 Page 14 Chair Kieckhefer: We will now discuss your analysis of business licenses fees. Mr. Anderson: Our analysis was minimal. The Governor presented to us the doubling of the State business licenses tiered structure and the transferring of the business license functionality to the Department of Taxation. Approximately $70 million in revenue generated from the SOS for State business licenses would transfer to the Department of Taxation. This would have no impact on our internal budget. Even if the State business licenses go to the Department of Taxation, we still have all the same processes. The only impact will come on the revenue side. Businesses coming from out-of-state to Nevada, who take advantage of our Office and Nevada’s friendly business statutes, may go to other jurisdictions as a result of this. Chair Kieckhefer: Is any scope of work within the Technology Investment Request (TIR) related to business license fees? Mr. Anderson: There may be. It is ingrained in the current process and is not an amount that can be pulled out. It is similar to current processes. The ability to print out a business license will be a small portion of the TIR overall. Chair Kieckhefer: Explain the change of the funding source in the non-Executive Notary Public Training budget. It appears that position is moving to the General Fund, compared to the way it is currently being funding. Wayne Thorley (Deputy for Operations, Office of the Secretary of State): We have one position in the Notary Division which is funded out of our Agency’s non-Executive Notary Training budget account. At the end of the fiscal year we transfer funds from that account into B/A 101-1050 to fund that position. The position was funded that way because of the budget reductions in 2009 and 2010. At that time, budget reductions removed money from the General Fund into the Training Fund operating budget. We looked at our Training Fund account and determined it does not grow. Our projections on the Notary Training account determined there will not be sufficient funding in the

Senate Committee on Finance February 3, 2015 Page 15 account to maintain this position. We are recommending it move to the General Fund. Chair Kieckhefer: It was included as a part of Base Budget, rather than a decision unit. Why are you presenting it that way? Mr. Thorley: Because the position was originally funded by the General Fund and was moved over as a budget reduction measure, we decided to move it back over as a part of the Base Budget. Chair Kieckhefer: We will now move on to discussions on creating jobs and diversifying our economy. Steve Hill (Executive Director, Office of Economic Development, Office of the

Governor): A successful economic development effort will bring money into the State faster than it is going out, thereby growing the economy of the State. The next crucial aspect of economic development is to raise the average rate-of-pay for all Nevadans. Page 2 of my presentation “GOED Budget Hearing Fiscal Years 2106 to 2017” (Exhibit K) is an overview of the Governor’s Office of Economic Development (GOED) which administers the financial incentives for business to relocate to Nevada. We had 12 companies come before our meeting a few weeks ago. The background information and analysis of those companies presented to the Board of Economic Development includes items like the specific jobs they will create, the wages for those jobs and the total investment amounts from those companies. Following the approval process, we enter into contracts with the companies. Pages 4 and 5 of Exhibit K outline some GOED accomplishments, including six Knowledge Fund projects and three investments made through the Battle Born Venture program. Page 7 of Exhibit K shows sectors targeted in the next version of the State plan for economic development. Logistics follow manufacturing in many cases, so

Senate Committee on Finance February 3, 2015 Page 16 we are combining manufacturing and logistics. We are also creating a new natural resources technology sector. Page 10 of Exhibit K gives an overview of GOED budget accounts and their primary funding source. On page 11 we discuss the budget highlights of B/A 101-1526. We are requesting $370,000 in decision unit E-126, a contract with the Nevada System of Higher Education (NSHE) and DETR. Two years ago, these organizations partnered to purchase PureSystems, a computer system created by IBM. PureSystems is the technology backbone for the Nevada Center of Excellence. The Agency pays 37.5 percent of the contract with IBM. COMMERCE AND INDUSTRY ECONOMIC DEVELOPMENT GOED - Governor's Office of Economic Dev — Budget Page ECONOMIC DEVELOPMENT-7 (Volume II) Budget Account 101-1526 E-126 Sustainable and Growing Economy — Page ECONOMIC DEVELOPMENT-9 Chair Kieckhefer: This is a shift of funding from your Office. Is there a Knowledge Fund source of revenue for this shift to the General Fund? GOED - Nevada Knowledge Fund — Budget Page ECONOMIC DEVELOPMENT- 34 (Volume II) Budget Account 101-1533 Mr. Hill: Yes. We made some payments through allocations and grant line items. When the Knowledge Fund program was running, we moved that to the Knowledge Fund. This funding will preserve the Knowledge Fund for future years. Chair Kieckhefer: Can you elaborate on what this project is?

Senate Committee on Finance February 3, 2015 Page 17 Mr. Hill: Using PureSystems, the Nevada Center of Excellence provides outsourced research and development for small-to-medium sized companies that do not have the ability to access these kind of resources. Chair Kieckhefer: From a Knowledge Fund perspective, is the idea, moving forward, to use the General Fund for ongoing obligations for projects started with Knowledge Fund money? Mr. Hill: The idea is not to continually shift Knowledge Fund money to the General Fund. The goal of each Knowledge Fund program is to become self-sufficient over a period of time. Decision unit E-127 is a request to increase our out-of-state travel for trade missions. This will help restore money for our marketing effort. We are paying for trade missions in two ways and are hoping to add a third, through the U.S. Small Business Administration’s State Trade and Export Promotion Grant Program. This program helps defray the cost for businesses participating in trade missions. Right now, we pay for trade missions through our marketing fund monies appropriated from the IFC. We will also charge trade mission fees to help defray the costs of trade missions. E-127 Sustainable and Growing Economy — Page ECONOMIC DEVELOPMENT-9 Chair Kieckhefer: Do you have specific performance indicators where you track the success of international travel missions? Mr. Hill: We do. The international effort takes longer, but the performance metrics are very similar. We track the number of business-to-business interactions we have on those trade missions or facilitate as a result of those trade missions. We also examine the number of leads, prospects and actual companies who invest in, or come to Nevada. Finally, we track the number of times we assist companies with exporting their products or services overseas.

Senate Committee on Finance February 3, 2015 Page 18 Chair Kieckhefer: Should you get this money, please follow up with data on the countries you will be expanding to and the plan for next biennium. Mr. Hill: We will now discuss funding for the Train Employees Now program in decision unit E-128. This program helps companies coming to Nevada, or expanding, to train their workforce quickly. The company receiving the grant must match the funding by 25 percent. This program is funded through DETR. Our current year’s budget is $619,000. We are requesting General Fund appropriations for this program. The DETR will not be requesting this funding in their budget. Training and workforce programs in the State are critical to move us forward. E-128 Sustainable and Growing Economy - Page ECONOMIC DEVELOPMENT-10 Chair Kieckhefer: Please follow up with more information for this Committee on the data and results of this program over the past couple of years. Senator Denis: Is there a possibility funding will go back to DETR, or is this a permanent change? Mr. Hill: This is a permanent change. Senator Denis: Has this program been successful? Mr. Hill: Yes, it has. We are training employees for about $1,000 per worker. At the end of training, each worker is required to make 80 percent of the State’s average wage. Workers only need a short period of training. A few receive a certificate that can increase wages from $12 to $14 per hour to $16 to $18 per hour. We do this for 500 employees per year.

Senate Committee on Finance February 3, 2015 Page 19 Senator Denis: Give an example of a company that has gone through this program and was successful in increasing their employees’ hourly wages. Mr. Hill: A broad spectrum of grants have been provided to companies. It typically occurs within a manufacturing company. Ken’s Foods, Chelten House Products and Central Motors are examples of companies in northern Nevada that have been successful with increasing their employees’ wage levels. Senator Denis: Are they bringing their employees in from somewhere else, then training them to perform at a higher level to achieve higher wages? Mr. Hill: Yes. Now we will discuss decision unit E-129 which requests a new program management position to support GOED’s major project initiative. Reporting requirements that came from S.B. No. 1 of the 28th Special Session are significant. This person would also supplement the analysis effort, approval and contracting with companies. Contracting with companies is an ongoing effort because of the audit process with the Department of Taxation. The amount of work continues to grow as we contract with additional companies. This results in GOED employees having responsibility for both economic development efforts and pending administrative work. To support our fiscal management needs, we are requesting an additional fiscal management position in E-225. E-129 Sustainable and Growing Economy - Page ECONOMIC DEVELOPMENT-10 E-225 Efficient and Responsive State Government — Page ECONOMIC

DEVELOPMENT-11 Chair Kieckhefer: How did you arrive at the salary levels and titles for these two positions? Mr. Hill: These positions would be paid in the range of $65,000 a year. We have compared these positions to similar positions in other State agencies to assure the duties and responsibilities are comparable.

Senate Committee on Finance February 3, 2015 Page 20 Steve Woodbury (Administrative Services Officer, Office of Economic

Development, Office of the Governor): Our positions are nonclassified and we develop titles and job descriptions based on our needs. We have compared these positions to the management analyst and accounting technician positions and tried to find like duties and pay levels. Mr. Hill: We will now discuss E-231 on page 11 of Exhibit K, funding supplemental aviation liability insurance related to Unmanned Aircraft Systems (UAS) activities. One year ago, Nevada was selected by the Federal Aviation Administration (FAA) to be one of six test sites for unmanned aerial vehicles (UAV). To test UAVs, a public entity needs a certificate of authorization and a waiver from the FAA. If a private company performs the testing, the State of Nevada must submit information, is liable and must be insured. When signing a lease with a private company to fly a UAV, we need to be insured. That is the insurance cost associated with the effort. E-231 Efficient and Responsive State Government — Page ECONOMIC

DEVELOPMENT-11 Chair Kieckhefer: Expand on the UAV test site designation. Where are we in the development of the industry around that designation? Mr. Hill: The FAA has oversight on this process and their highest priority is the safety of flights and the public. The certificate of authorization process with the FAA takes 4 months. To speed up the process, we have requested the FAA oversee testing in remote areas of Nevada that we see as safe. Nevada is the first and only state in the Country who can certify UAVs as airworthy with FAA approval. That alone creates significant and increasing interest in Nevada. Senator Goicoechea: Will it become self-sustaining and, if so, when? Mr. Hill: During the last Session, the Legislature approved a $5 million appropriation to this effort. The $5 million we received will last until 2017. We will also be able to charge for test site usage to generate additional funding. The future of that

Senate Committee on Finance February 3, 2015 Page 21 program is still in question regarding the State versus federal role. This program could become federally controlled once unmanned flight becomes more universal. Senator Denis: When testing UAVs, have we had a situation where things did not go according to plan? Mr. Hill: Yes. The vehicle we chose to use in the first certification process had an electrical short and did not launch. Since that incident, the vehicle has been very successful. The test sites we have provided are very safe and are designed to resolve problems with UAVs. This will help make UAVs safe to operate once they become a part of the actual air space. Senator Denis: Having UAVs flying around crashing into buildings may cause trepidation for the public. So far, I have not heard of any major problems with them. Chair Kieckhefer: Will you come back to the IFC for the UAS program? Mr. Hill: There will be a budget amendment in the future to account for the remaining balance from the IFC Contingency Account as it is not currently in our budget. The amendment eliminates the need to come back to IFC and allows the Legislature to address funding while you are in Session. Chair Kieckhefer: If you want access to those funds, we will need to talk about the logistics. In both the Catalyst Fund and the Knowledge Fund, there are appropriation requests to backfill funds that will be swept for 2015. Based on the existing account balances and the projected expenditures, there appears to be sufficient funds in those accounts to cover the sweep at this point. GOED - Nevada Catalyst Fund — Budget Page ECONOMIC DEVELOPMENT-27 (Volume II) Budget Account 101-1529

Senate Committee on Finance February 3, 2015 Page 22 Mr. Hill: That is accurate, but from a functional standpoint, it would be debilitating. To commit the funds, the funds must be set aside. We are fully committed in both the Catalyst Fund and the Knowledge Fund. Both of those programs are performance based and money for those funds is allocated over time. The money will be spent in both funds. We are requesting continuance of both programs over the next year. Chair Kieckhefer: Are the funds fully committed even though they are not spent yet? Mr. Hill: Yes. Chair Kieckhefer: Describe the additional appropriation for the Catalyst Fund. How you reached that amount and how many companies you are hoping to target. Mr. Hill: Knowledge Fund commitments are shown on page 14. Over the course of the last two sessions, $11.5 million was appropriated to the Catalyst Fund, $10 million was from the 2011 Session and an additional $1.5 million was used to replenish the Fund during last Session. We are asking for $10 million this Session to replenish the Fund. If you look down the list of companies on page 14 of Exhibit K, you can see the Catalyst Fund has been exceptionally successful. The Catalyst Fund is 100-percent performance based. Until a company meets its performance threshold, it will not be granted money. We are willing to grant money to local governments that have partnered with businesses only after the jobs are in place. Agreements made with businesses are over a 3- to 5-year period. Senator Goicoechea: This can all implode if the wrong listing or resource management plan is designated. If we do not have water for mining and agriculture, we will have issues.

Senate Committee on Finance February 3, 2015 Page 23 Chair Kieckhefer: Have you projected when the film tax credits approved during the last regular and Special Sessions will begin affecting our budget? Mr. Hill: Yes. S.B. No. 1 of the 28th Special Session capped usage of those tax credits, excluding the initial $10 million granted through the Film Tax Credit Initiative. The program will receive $45 million a year starting in July 2015. We project those credits will all be used. Chair Kieckhefer: Was that for film tax credit in addition to other credits? Mr. Hill: The $45 million a year is for the credits allocated in S.B. No. 1 of the 28th Special Session. The $10 million in film tax credits have all been granted. They have 4 years to use them. The productions are underway or completed. I expect they will be used during this current fiscal year. Chair Kieckhefer: For the upcoming biennium, are were looking at $5 million in film tax credits, plus another $45 million in Special Session credits? Mr. Hill: That would be our projection, but the Economic Forum will have their own projection which carries more significance than ours. Chair Kieckhefer: We will now discuss the Knowledge Fund. Mr. Hill: Each of the three research institutions — the University of Nevada, Reno (UNR), the University of Nevada, Las Vegas (UNLV) and the Desert Research Institution (DRI) — will present their Knowledge Fund projects. Tom Piechota, Ph.D., P.E. (Vice President, Division of Research and Economic

Development, University of Nevada, Las Vegas): We were granted $3 million from the Knowledge Fund. Page 2 of my presentation, “UNLV Knowledge Fund Projects Report,” (Exhibit L), lists the

Senate Committee on Finance February 3, 2015 Page 24 two projects I will be reporting on: the Nevada Institute of Personalized Medicine (NIPM) and the International Gaming Institute Center for Gaming Innovation (CGI). The NIPM develops personalized medicine and customized drugs and was granted $2.5 million to bring in new faculty to work in research areas. Geneticists and pathologists are the types of high-paying jobs attracted by this program to help support its industry. The CGI develops new casino games and patents. The CGI also helps meet the needs of the new demographics of Nevada and in Nevada’s hospitality area. Going forward, we hope to continue our core initiatives with Knowledge Fund grant money. Chair Kieckhefer: Let us discuss UNR’s presentation of their Knowledge Fund grants. Warren Rapp (Business Development Director, Nevada Advanced Autonomous

Systems Innovation Center, University of Nevada, Reno): Page 2 of my presentation, “NAASIC Program Overview” (Exhibit M), discusses the goals and mission of the Nevada Advanced Autonomous Systems Innovation Center (NAASIC). The résumés UNR has stored in its systems are used by NAASIC to reach out to industries and companies to determine what type of skills they are looking for in UNR graduates. The NAASIC also resolves system and development problems industries experience in small- to medium-sized companies. In 3 to 4 years, we expect to be self-sustainable based on the program’s success. On page 3 of Exhibit M, we see NAASIC’s industry collaborations with companies. Fiscal accomplishments are shown on page 4. We are working with a new UAV company called Valkyrie on a proposed $2 million contract expected to close in May. In addition, we have future grant submissions from entities using UAVs in agriculture. Page 6 shows the future operations of NAASIC. In northern Nevada this fall, NAASIC will be presenting a syllabus and a few of its infrastructures to local middle and high schools to interest students in mathematics. The

Senate Committee on Finance February 3, 2015 Page 25 Jumpstart Summer Camp will be sponsored by NAASIC at UNR, where students stay in the dorms for a week and learn about our autonomous systems. On page 8 of Exhibit M are a few major institutions and universities we are working with in shared grants and projects. The UAS program at UNLV, “Collaborative Industry NSHE Unmanned Aircraft Systems” (Exhibit N), has a Knowledge Fund allocation of $500,000. This program anticipates three to four projects totaling $500,000 from the Knowledge Fund and matching dollars from industry collaborations. Proposed projects are listed on page 3 of Exhibit N. One is UNLV’s development of Baghzouz, a hybrid power source with energy harvesting capability for UAS. Another proposal is on page 4, called the Flying Orchestra, a flying, aerial robot live entertainment system at UNLV. There is also a proposal to create algorithms for a UAV computer vision-based detect-and-avoid program at UNR. The DRI’s proposed UAS project on page 5 measures darkened, carbon-filled smoke plumes in fires. The UAS would determine where the thickest parts of vegetation are before, during and after a fire, to assist firefighters in containment. The funds requested for that project are $166,997. Measurable project outcomes are shown on page 6. The industry matching funds are over $500,000. We are seeking three to four NSHE Partnerships and two federal and State agency partnerships. Chair Kieckhefer: Let us now discuss the DRI Knowledge Fund grants. Steve Wells, Ph.D. (President, Desert Research Institute, Nevada System of

Higher Education): I would like to thank you, Mr. Hill and Governor Brian Sandoval for the support of our work and for the support of the Knowledge Fund. Alan Gertler, Ph.D. (Vice President for Research, Desert Research Institute,

Nevada System of Higher Education): Page 2 of my presentation, “Applied Innovation Center for Advanced Analytics for the Desert Research Institute” (Exhibit O), discusses DRI’s vision and

Senate Committee on Finance February 3, 2015 Page 26 mission. At DRI, we hope to couple our research expertise with the State and local agencies’ applied analytics, and intensive computing, to support the development of a knowledge-based economy in Nevada. Our strategic plan is presented on page 3 of Exhibit O. We have hired key people and aggressively developed business opportunities with over 64 companies. Our future plans are discussed on page 4. We are aligning with many of GOED’s plans. Some of the areas include natural resource technology, water issues, biotechnology, clean energy and UAV work. Ken Ladd (Special Assistant to the President and Senior Advisor, Nevada Center

of Excellence in Water, Desert Research Institute, Nevada System of Higher Education):

Our vision and mission is discussed on page 2 of the “Nevada Center of Excellence Innovations and Solutions in Water Resources PowerPoint presentation” (Exhibit P). The Center intends to make Nevada a global water innovation hub. To date, we have relocated four new and innovative companies to Nevada in the water sector. Page 3 of Exhibit P describes the importance of the Knowledge Fund to the Center. Due to the support of the Knowledge Fund, we have visited various countries around the world and have contacted well over 100 companies. The next steps being taken in our organization are discussed on page 4. We are progressing to the future by moving into areas like wastewater, policy issues and the agricultural arena. Rob Hooper (Executive Director, Northern Nevada Development Authority): I would like to add my praise and admiration to GOED for all they are doing. You advertise for two reasons. One is to create a market or demand, and the other is to leverage a market. Nevada can leverage the market significantly if we keep putting dollars into economic development.

Senate Committee on Finance February 3, 2015 Page 27 Chair Kieckhefer: Seeing no further business before this Committee, this meeting is adjourned at 11:05 a.m.

RESPECTFULLY SUBMITTED:

Jason Gortari, Committee Secretary

APPROVED BY: Senator Ben Kieckhefer, Chair DATE:

Senate Committee on Finance February 3, 2015 Page 28

EXHIBIT SUMMARY

Bill Exhibit Witness or Agency Description A 2 Agenda

B 4 Attendance Roster

C 2 Mark Krmpotic Senate Committee on Finance Standing Rules 2015 Session

D 11 Mark Krmpotic

Budget Closing Recommendations To Be Developed By The Full Committee 2015 Session

E 3 Mark Krmpotic

New Budget Accounts Created By The 2013 Legislature Or Included For The First Time In The 2015 to 2017 Executive Budget

F 1 Mark Krmpotic 2015 Session Joint Subcommittee Assignments

G 1 Mark Krmpotic 2015 Session Finance Subcommittee Assignments

H 1 Mark Krmpotic Fiscal Analysis Division Agency Assignments January 1 2015

I 1 Mark Krmpotic Senate Committee On Finance Progress Report

J 22 Barbara K. Cegavske SOS Budget Presentation 2015 to 2017 Biennium BA 1050 1051

K 19 Steve Hill GOED Budget Hearing Fiscal Year 16 to 17 BA 1526 1528 1529

L 5 Tom Piechota UNLV Knowledge Fund Projects Report

M 9 Warren Rapp NAASIC Program Overview

N 6 Warren Rapp Collaborative Industry NSHE Unmanned Aircraft Systems

Senate Committee on Finance February 3, 2015 Page 29

Program

O 5 Alan Gertler Applied Innovation Center For Advanced Analytics For The Desert Research Institute

P 5 Ken Ladd Nevada Center Of Excellence Innovations And Solutions In Water Resources