Transcript Prepared by the Clerk of the Legislature

Transcriber's Office

Committee on Revenue

February 19, 1997

Page 22

LB 306

GEORGE KILPATRICK: Thank you, Chairman Warner, members of the Committee. My name is George Kilpatrick, introducing LB 306 for Senator Warner. LB 306 is a bill in process. The first ... this bill last year was numbered 1084. it called for the creation of an Efficiency Commission. Last year's bill indicated that it was to be formed of the Governor, the State Treasurer and the State Auditor, I and that it was to review capital construction projects of a certain size. And in an effort to determine or grant, if you will, approval of those which are ... contribute to goals of efficiency in the use of capital facilities, and the alternative that ... the other side then being true, disapprove those that presumably could be done more efficiently if joined... if done with other governmental organizations, others of similar size, of another nature or whatever. This bill is designed or is intended to deal with a potential problem, not a direct problem currently, but a potential problem that may arise when tax levies do fall next year by 15 percent, 20 percent on average, and maybe higher in some areas, and there is a certain amount of pent-up demand for capital facilities by governments and the need, or at least a perceived need on the part of some, to suggest that in servicing that pent-up demand, we need to make sure that the facilities that are constructed are done so in a way that encourages multiple use, and in a way that also contributes to goals ... to state goals for efficiency that LB 1114 and the other bills do on the operational side. As you know, bond issues and so forth are exempted altogether from the levy limits provided in LB 1114, and this is, hopefully, a way of approaching the capital facilities issue that may occur as levies fall in the next year. The fiscal note is, I thought, very informative. it mentions that there is no ... that there is no agency in which

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for the Commission to exist, and that there ought to be one. Clearly, that's an amendment that needs to be made to this bill. It also describes the potential costs, at least if done by DAS, of somewhere in the neighborhood of $240,000, in order to fully staff a reviewing body for purposes of reviewing capital construction projects. And it also mentions the possibility that some government entities may do construction projects a little bit at a time in order to maintain a level of project just under the limits, over a period of time, and that perhaps that's something that this bill ought to deal with. And certainly all of those are constructive suggestions. Are there any questions?

SENATOR WARNER: Any questions? Apparently not. Thank you, George. Is there anyone in support of LB 306?

JOHN BONAIUTO: Senator Warner, members of the Committee...

SENATOR WARNER: Support?

JOHN BONAIUTO: Support. John Bonaiuto. I know it does... it is amazing. But we ... John Bonaiuto, Executive Director of the School Boards Association. We're supporting LB 306 because we have also supported what we think is a companion piece of legislation which is LB 333, which would exempt the Building Fund and ADA from under the lids, and one of the concerns, we felt, was buildings and how buildings may be used to stop some reorganizations or some efficiency measures that may be taken by schools, so we see that LB 306 has a place but we also believe that it needs the companion piece of legislation that would allow the Building Fund and ADA to have some... a place outside the lid for schools to do upkeep and maintenance. My only other comment would be that we would hope that a school board member would have a role on this Government Efficiency Commission. And with that,- I will conclude.

SENATOR WARNER: Any questions? Senator Coordsen.

SENATOR COORDSEN: I don't know, John, if this is exactly a question because this has been a pet idea of mine for some period of time, and Senator Warner, as always, is ahead of me and had it drafted for introduction this year. But I've noticed one of the downsides of levy reduction in the event ... for an example, a number of years ago, we changed

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how we valued agricultural land. Then not too many years ago, there was some significant valuation increases that related to changing residential valuations and that sort of thing. And in those years, from time to time, I've ran across boards, not necessary schools, but other ones. Now our taxes have went down, we can afford the building program that we've always wanted. And there's no question in that for you, but I'm still convinced that that same thing will happen today, human nature being what it is, after July I., 1998, all of a sudden, we can now afford, ford, because our levy is down, we can afford the bond issue. That's the opportunity, then, to do something, not... and we will have not accomplished with the taxpayer, rural or urban, anything unless we address this particular issue.

JOHN BONAIUTO: No. And I wholeheartedly agree. And that's where the efficiencies need to be found, in multiple use of facilities and helping people review construction and so I ... as I say, I think that there is a place for that and still allowing people to do the maintenance. and work on the existing facilities they have, within the context of what we face with the property tax legislation.

SENATOR COORDSEN: Thank you.

JOHN BONAIUTO: Thank you.

SENATOR WARNER: Anyone else? I think you indicated in your comments... I'm breaking all my rules today. I normally don't do this when I introduce a bill. Did I hear you correctly? I think one of the things Senator Coordsen has talked about in the past is that you can get the idea of doing a bunch of capital construction, to stop some reorganization that would be far more efficient and economical, and if the building's being constructed for the wrong reason.

JOHN BONAIUTO: Yes.

SENATOR WARNER: That's probably many times that was to get at, and I thought you made that comment...

JOHN BONAIUTO: Absolutely, we...

SENATOR WARNER: ... which would tend to work with LB 333.

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would agree with that, too.

JOHN BONAIUTO: And that's why we feel so strongly that LB306 does have ... helps LB 333 because one of the things that people are worried about when you exempt the Building Fund from under the lids, will this construction hamper the efficiency efforts, and so we would hope not. And that's... I think these two go together, LB 333 and LB 306.

SENATOR WARNER: Thank you, John.

JOHN BONAIUTO: Thank you, Senator.

SENATOR WARNER: Anyone else in support?

ROGER KEETLE: Chairperson Warner and members of the Revenue Committee, for the record, my name is Roger Keetle. I'm a registered lobbyist for the Nebraska Association of Hospitals and Health Systems. Nebraska's hospitals can support LB 306, if it is amended to exclude certain projects of political subdivisions that are currently subject to review under the Certificate of Need Act. The concept of state review of capital expenditures by political subdivisions is not new. Since 1979, it's been required that all entities, including political subdivisions that operate hospitals or nursing homes, undertake projects related to health care facilities and services that they seek approval from the Nebraska Department of Health and Human Services, now Regulation and License Division, under the Nebraska Certificate of Need Act. The provisions of this act are specific to health care facility issues, and the purposes are similar to those found in LB 306, which are as follows. One, conserve limited health care resources of personnel and health care facilities; provide quality health care to all citizens of the state; minimize unnecessary duplication of facilities and services; encourage development of appropriate alternative methods of delivery of health care; promote a more competitive health -care system; and encourage the provision of high quality health care which is available and accessible; and finally, maximize the effectiveness of expenditures made for health care. Projects that require Certificate of Need review fall into five major categories. Construction, acquisition, lease or establishment of a health care facility. There is no dollar threshold. It's the building of 'a new facility

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that causes this review. Two, new institutional health services that require either an annual operating expense of over the minimum of $660,000 or capital expenditure for a new service in excess of a threshold of $900,000. Another category is changes in the category of use of beds. For example, hospital beds to nursing home beds, that king of thing, again no dollar threshold applies. There is a capital expenditure threshold for the purchase of residential care facilities, domiciliary facilities and physician clinics not located on a hospital campus. That's a $3 million threshold. And then finally, any other capital expenditure in excess of the threshold of $1,441,372. And finally, the purchase of a single piece of clinical equipment costing in excess of the threshold of $1,081,029. The following types of facilities owned by political subdivisions fall into this review, and they're ambulatory surgery centers, hospitals, skilled nursing facilities, disease treatment centers, intermediate care facilities, nursing facilities and rehab facilities. Because this review is more comprehensive than those, the review outlined under LB 306, which is a $5 million expenditure, we would respectfully request that the Committee amend the bill to exclude projects which are covered and reviewed under the Nebraska Certificate of Need Act. And I have attached to our testimony an amendment that would do that. (Exhibit 2) So that would conclude my testimony, if you have any questions.

SENATOR WARNER: Senator Hartnett.

SENATOR HARTNETT: Roger, has the Certificate of Need turned down any projects?

ROGER KEETLE: Yes. And, well, I can go through that in some detail. For example, there was going to be a psychiatric hospital built in Lincoln about three or four years ago. That application was disapproved. The other thing in Lincoln was there was a group of doctors that were going to build their own surgery center. That has been disapproved and, you know, this is ... I may be back here next year saying we're ready to repeal the Certificate of Need Act and say we should be back under this act because what stimulated Certificate of Need review primarily was the hospitals, for Medicare and Medicaid,' got cost reimbursement, and that stimulated hospital development

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which then caused the federal government to say there had to be a state review of the expenditures, and cost-based reimbursement, except for the nursing home industry, is basically a thing of the past. So it's in a period of transition.

SENATOR HARTNETT: The reason I asked is I've had... I don't have any hospitals in my district, but we've had a lot of clinics built, you know, and maybe they're under the, you know, the $3 million threshold and so forth. And I've had some, oh, comments from people, you know, for one is a nonprofit hospital, if it's built, where it's competing against profitable hospitals in the same area.

ROGER KEETLE: Well, the $3 million threshold just went into effect this year and, again, on any clinic that's built, it's the ownership and use test so that clinic is going to be on the tax rolls, and any income that's going to be generated from that clinic, my guess is that it's probably in a for-profit corporation. Now that's generally how those are structured.

SENATOR HARTNETT: Even if it's owned by the medical center?

ROGER KEETLE: Yeah. Well, the University of Nebraska may be different, but most of those operations, clinic operations, just don't fit into the tax-exempt category, unless they've got a sliding fee schedule and take every ... you know, I mean, and go through the charitable test.

SENATOR WARNER: Anyone else? Is your association... I thought you generally supported repeal of Certificate of Need.

ROGER KEETLE: Our position this year, Senator, on the two bills that are in are to oppose the repeal of that act at this time. We've ... as I mentioned to Senator Hartnett, however, as soon as the reimbursement system changes for ambulatory surgery centers, as soon as the reimbursement system changes to something else besides cost-based reimbursement for nursing facilities, I have a feeling that. position is going to change. But at this point, we are not supporting the repeal of Certificate of Need.

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SENATOR WARNER: I take it, though, that under your ... as you submitted an amendment, should Certificate of Need be repealed, you would come under this act as this is drafted.

ROGER KEETLE: Right. And if that's ... when and if Certificate of Need is every repealed, I'm ... that, to be consistent with what I'm testifying today, we would need to come under this act.

SENATOR WARNER: Thank you.

ROGER KEETLE: Thank you.

SENATOR WARNER: Anyone else in support? Anyone in opposition? Anyone in opposition? I see hands flying. There must be somebody missed their cue here.

TOM RICHARDS: Chairman Warner, members of the Revenue Committee, I'm Tom Richards. I'm a registered lobbyist for the Omaha Public Power District. I'm here today representing OPPD and the Nebraska Power Association in opposition, as currently drafted, to LB 306. LB 306 would establish a Government Efficiency Commission to review construction projects undertaken by any political subdivision, with funds from a bond issue, sinking fund, appropriation or long-term lease. By its terms, this bill would apply to OPPD and other public power districts, although its context suggests that it is more directed towards tax-supported political subdivisions. We would ask that the Committee clarify this portion of the bill and exempt public power districts from the bill because existing public power statutes prohibit duplication of facilities. Thank you for the opportunity to testify and I'll try to .answer any questions that you might have.

SENATOR WARNER: Any questions? Apparently not, thank you.

TOM RICHARDS: Thank you.

SENATOR WARNER: Anyone else in opposition? Neutral ... oops, opposition.

LYNN REX: Senator Warner, members of the Committee,. my name is Lynn Rex, representing the League of Nebraska Municipalities, and we oppose LB 306 in its present form.

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One of the reasons...and it's an improvement over the bill last year, but one of the reasons why, of our concern, is that, and it's happened before in a situation where a certain part of the state may feel they are getting, for example, more ... better treatment by a statewide commission or group than another part of the state. And I think that that's the kind of pressure we would not want to see. However, in concept, one of the issues we'd ask you to at least explore is that if you had some type of this kind of a commission, let's say on a regional basis, or a countywide basis so that it's people that are actually there. In other words, you've got a mayor from, you know, it's someone from a county, someone from a city in that county, someone from a school, you take the same sort of structure and at least, then, you don't get the kind of debate over whether or not Omaha, Nebraska needs a civic center because Gering, Nebraska just got one. And I just think it would help tremendously to, if the purpose of this is to say, look, we're looking at collaboration. We're looking to make sure that ... and this I have seen and I could tell you from...in the event the constitutional amendment passes to allow cities and schools to work together, there are. great opportunities there in terms of sharing of facilities and any new facilities in the event that they are needed, so that they could be designed so that it could be more multiuse than they are now. So it could be more of a regional type center than it is now, just for one specific purpose or a swimming pool in a school or a city swimming pool that's only used for one specific purpose, only one time of the year, those sorts of things. And I guess what we'd encourage you to do is to look at making this ... you know, maybe have 93 of these, but to have the local people that actually have to live and die by the consequences of that decision, actually be involved in that decisionmaking, so that we don't get the sort of situation where we have certain parts of the state thinking that a statewide commission is granting another part of the state some kind of a benefit that they don't think they'll ever get to see. I'd be happy to respond to any questions. And, obviously, we prefer the local control issue, but I do think that this bill could be improved.

SENATOR WARNER: Senator Will.

SENATOR WILL: Yeah, Ms. Rex, isn't the whole. idea behind

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the bill, though, in part, and I don't want to put words in senator Warner's mouth and, obviously, he can feel free to correct me. But isn't part of the idea behind the bill to have an impartial body evaluating these types of projects that, in fact, would necessitate having individuals evaluating these that are not involved directly in the local community and that, in fact, are dispassionate. Isn't that part of the idea and, Senator Warner, like I said, jump in if I'm misconstruing this at all, but isn't ... you know, if you simply don't get it to local entities, I think we're just back to where we are right now.

LYNN REX: No, I don't. I don't, Senator Will. First of all, I don't know what Senator Warner's if that was his... I see some value in that argument. But what I'm suggesting is that there... I mean, and we sense it right now in going across the state, and Senator Coordsen and some of the rest of you from smaller communities may see this as well, that there is some innovative projects that some of these smaller communities in other parts of the state may want to do and that, from a regional standpoint, it's very important for them from an economic development standpoint, also to help support their kids and their senior citizens and other sorts of folks, it's very important to them. They live there, they're going to pay for it, and my sense of it was that the primary motive, but I don't know, I don't want to attribute it to anyone ... the primary motive of LB 306 was to make sure that you didn't have a ... for example, a school building or a city building going up someplace without any context of whether or not it could be used in a collaborative way, whether or not, number one, is it needed, but also can it be used in a way so that it has multiuse. And can it be used in a way so that it takes into consideration the growth and also what other political subdivisions in that area are doing. In fact, you probably want to have representation, I would think from every political subdivision to find out, is someone else planning a building? And without mentioning specific instances, and I'm sure you can all think 'of some, I have heard criticisms from Senator Schellpeper and some other folks about certain political subdivisions that, out of the blue, built this wonderful building, lots of bricks going up all over the place and, in fact, it was done without collaboration with anybody. Well, if you did this on a localized basis, I think that you're then ... you're addressing, what I thought at least, was a major concern, at

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least should be, and that is that the people that are going to be served by this facility are the ones that also are aware of what the needs are, and how they can best do that. I, frankly, will tell you I think it's very difficult. There are lots of statewide boards. I know the Legislature itself has gone back and forth as to whether or not have the Legislature set the tax rates, do you have another body set the tax rates, I mean, what ... what becomes neutral, what becomes objective. I also think when you have local people doing it, you have the local people being held accountable. I just think that it is real important to make sure that you have local folks involved because they're the ones that'll pay for it. They're the ones that'll deal with it.

SENATOR WILL: If we accept that argument, though, I think that completely, and obviously you're testifying in opposition, correct?

LYNN REX: That's correct.

SENATOR WILL: That ... the need for LB 306 altogether, because we're just taking it back to where the decisionmaking is right now which is, as you correctly point out, at the local level, and obviously there needs to be local input but, again, I think that, you know, the point behind the bill, at least from my reading of it, is that there should be some oversight that determines whether these projects, from a broader perspective, are necessary or indeed needed at all.

LYNN REX: Well, Senator, I guess we would disagree with the premise that there has to be a statewide board do it. We think that ... first of all, we think that the local elected leaders ought to be able to make the decision. But in the event your Committee does what it has done in the past, which is to advance a bill that doesn't deal with that aspect, I think that it's important to take people together... just in talking to Senator Schellpeper and other senators over the last couple of years that have talked about specific instances, and every instance where there has been ... and I'll call it alleged abuse of a political subdivision, building a building or putting something together, that perhaps did not take into consideration what other people in the area needed, I just think it makes good sense to... if you're going to do this, to at least do it and

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do it locally so that you do have people looking at this, making sure that there's collaboration. In other words, if the NRD ... maybe the NRD doesn't... I don't mean to pick on them, it could be a city, too. Maybe they don't need to build that building, maybe there's other office space that they're not even aware of that's available someplace else. For example, one of the best uses that I don't know would pass the kind of test that you have here or not, deals with the Gering City Hall. The way they structured it, it was privately financed and then the city purchases it and leases it for $1.00. They're doing structures right now where it is part of that building is a retail use. Part of that building is connected in such a way that it can also be used in conjunction with the Gering Civic Center. I mean, there's some really neat things going on out there. That's real important to Gering, real important to Scottsbluff. It may not matter a hill of beans to somebody that is ... that doesn't have to live out there. So all I'm suggesting, Senator Will, is that, no, if you would put some kind of an amendments in to do what I'm suggesting, it's not just the way it is, because the way it is now is that each individual governing body makes that determination on its own.

SENATOR WILL: Thank you.

SENATOR WARNER: Senator Coordsen.

SENATOR COORDSEN: What we're talking about, of course, in the context of LB 306, is who makes the ultimate decisions for capital construction projects for local government because that's what we're talking about. What would happen, and this is simply hypothetical, if bond issues only apply to residential property; i.e., private homes, apartment buildings, condominiums, the space over the Gamble's Store downtown that somebody lives in, a homestead exempted home that are otherwise paying no tax, so that when people voted on a construction project, they would not have ... they would not be able to vote a tax on someone else. You know, cities have a significant percentage of the valuation is typically in commercial, industrial and everyone has some centrally assessed, depending on where you're at. Much of the state in some government entities has a significant percentage in agricultural property, but all of us have a house, or an apartment, or a car that we sleep in on the street at night, or something. What would happen if local control was

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identified or defined as that, that when you voted for a bond issue that you were, in fact, going to pay some, whether you were an elderly person that in other circumstances paid no property tax because of income, and things like that?

LYNN REX: It's an interesting concept. We have not discussed it with our board, but I'll certainly take it to them. It's an interesting concept.

SENATOR COORDSEN: I wonder what would happen. I don't know.

LYNN REX: But I do think LB 306, as written, clearly undermines local control completely, and representative government completely, in terms of making those determinations. The analogy would be whether or not you want to have a federal commission make a determination as to whether or not the state of Nebraska is going to be able to build any ... build or work on any public projects. And I think you'd be just not too gleeful about having some group in Washington, D.C. make determinations in terms of whether or not the state of Nebraska ought to build certain capital facilities.

SENATOR COORDSEN: They would probably be more lenient than the 309 Task Force that we have, chaired by Senator Lynch not here present. (laughter)

LYNN REX: Well, he does a great job. There's no question about that, he does.

SENATOR COORDSEN: But all of that being aside, you speak to local control. And I keep hearing local control and local control, and yet ... okay. And yet, it is ... we're addressing a ... what appears to be some sort of a property tax catastrophe brought upon us by local control. Now why is that?

LYNN REX: Senator, I would suggest to you it's a ... the reason for it, our property tax situation is multifaceted, and if you want a full explanation, I'm prepared to give you a full explanation, but it's not just a five-minute one. I think...

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SENATOR COORDSEN: Well, I would be also prepared to share with you my full explanation...

LYNN REX: Okay, and I think we have both shared that.

SENATOR COORDSEN: ... so we'll let that go now, Lynn.

LYNN REX: Well, I think we have shared that with each other. I would submit to you it is... local spending is part of it. It's not all of it. And as I believe Senator Warner is aware because we were doing a joint session with a leadership group a week or so, John Jordison's group has done a study and I think the state of Nebraska on a ... and John's here, maybe still be here, but the state of Nebraska, I mean, on a per capita basis for municipalities, gives less money in aid to municipalities than other states do. There are all kinds of issues that come into play in property taxes, so he's got an interesting concept and I will be happy to take that to my board.

SENATOR WARNER: Anyone else? If not, thank you, Lynn.

LYNN REX: Thank you.

SENATOR WARNER: Anyone else in opposition? Neutral?

LARRY BARE: Senator Warner, members of the Revenue Committee, for the purpose of the record, my name is Larry Bare, B-a-r-e. I'm the Finance Director for the City of Lincoln. Just a couple of quick points on LB 306 that may or may not need clarification. In the definition of political subdivision, I'm not sure if you're picking up public building commissions which is the vehicle which the city of Lincoln and Lancaster County would likely use, were we to build any of the governmental facilities of the type that I think you're trying to address, like the one we just built jointly. Hopefully, we're not going to be building any more real soon, but it's not clear to me that it picks up public building commissions. Secondly, it doesn't address acquisition where there could be simply purchasing an existing building. We bought the Health Department Building and you really don't address a straight acquisition which could be another method of constructing or occupying a facility, and one that I'm not sure what the answer to it may be. I know you're attempting or intending to exempt

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enterprise-type functions. I just point out a potential difficulty in that our parking garages are primarily paid from user fees, but there may be tax increment financing associated with that, and would that throw them in or out, if we were to build a new parking facility, or are you intending to pick up those types of facilities or are they mainly ones out of which governmental operations are occurring? I simply bring those as issues or questions that we might have and you may wish to address.

SENATOR WARNER: Thanks, Larry. Questions? Thank you. It's important to look at.

LARRY BARE: Thank you.

SENATOR WARNER: Anyone else neutral? If not, that'll complete the hearing on LB 306, and we will next go to Senator Lynch's LB 625.