Call to Order and Roll Call
The 1st meeting of the Interim Joint Committee on Appropriations and Revenue was held on Thursday, June 28, 2012, at 1:00 PM, in Room 154 of the Capitol Annex. Representative Rick Rand, Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Senator Bob Leeper, Co-Chair; Representative Rick Rand, Co-Chair; Senators Walter Blevins Jr., Tom Buford, Jared Carpenter, Denise Harper Angel, Ernie Harris, Paul Hornback, Ray S. Jones II, Alice Forgy Kerr, Vernie McGaha, R.J. Palmer II, Joey Pendleton, Brandon Smith, and Mike Wilson; Representatives Dwight D. Butler, John "Bam" Carney, Jesse Crenshaw, Ron Crimm, Mike Denham, Bob M. DeWeese, Danny Ford, Derrick Graham, Richard Henderson, Jimmie Lee, Reginald Meeks, Lonnie Napier, Sannie Overly, Marie Rader, Jody Richards, Sal Santoro, Arnold Simpson, Tommy Turner, Jim Wayne, Susan Westrom, and Brent Yonts.
Guests: Mr. Sean Riley, Chief Deputy Attorney General, Office of the Attorney General; Mr. Eric Friedlander, Deputy Secretary, Cabinet for Health and Family Services.
LRC Staff: Pam Thomas, John Scott, Charlotte Quarles, and Sheri Mahan.
National Mortgage Settlement
Mr. Sean Riley, Chief Deputy Attorney General, discussed the details of the national mortgage settlement. He provided an overview of the settlement, stating that it is the second largest civil settlement ever obtained by state attorneys general, totaling $25 billion. The settlement provides for Federal court oversight and independent monitors to oversee banks’ compliance. Mortgage company practices prompting the investigation included the widespread falsifying of affidavits submitted to courts in foreclosure proceedings, pervasive misconduct detrimental to homeowners, and irrational economic conduct by lending institutions.
Mr. Riley discussed statistics regarding foreclosures and homeowner equity in Kentucky. Foreclosure proceedings reached a peak in 2010, with 18,737 being initiated in that year. Since 2008, there have been 5,395 foreclosures initiated by the five settling banks in the state. There are currently 717,816 mortgages in the state, and it is estimated that about 8 percent of these currently have negative equity.
Mr. Riley discussed the provisions of the joint federal-state foreclosure settlement. There are five lending institutions involved in the settlement: Bank of America, J.P. Morgan Chase, Wells Fargo, Citibank, and Ally. Kentucky will receive $58.7 million in the settlement. $12 million will be set aside for foreclosure initiatives, providing direct relief to borrowers through principal reductions, short sales, anti-blight measures, and borrower transition efforts. $15.9 million will help provide refinancing opportunities for borrowers with negative equity. $19.2 million will provide state payments, and $10.8 million will provide payments to borrowers for mortgage servicing abuses. Additional servicers may be included in the settlement. The settlement does not release servicers from criminal liability, including liability for possible securitization misconduct.
Mr. Riley discussed the desired results for the agreement, which should create wholesale change in mortgage servicing practices. Consumers will be treated more fairly and with more transparency. Some of the changes to be implemented are the disallowment of robosigning, restrictions on fees, and provision of a single point of contact and enhanced safeguards for consumers.
In response to a question from Representative Lee, Mr. Riley stated that the money that Kentucky was allocated--$19.2 million--from the settlement was based on a proposal submitted by the Attorney General. In the proposal as approved by the Federal District Court in Washington, D.C., $5 million will be retained by the office to finance ongoing efforts similar in scope to the mortgage settlement investigation. The remaining $15 million is subject to the Attorney General’s discretion, to be distributed throughout the Commonwealth. All funds are directed by the court to be distributed towards mortgage and financial issues. Mr. Riley said that there will be an accounting to the committee of how the funds are spent during the biennium.
In response to questions from several legislators, Mr. Riley stated that information and press release details would be provided to the committee members. Information distribution has been one of the largest obstacles to assisting Kentuckians facing the mortgage crisis. He said that the best housing data, including foreclosures in individual districts, can be found at the Kentucky Housing Authority.
Program Additions and Expansions in Cabinet for Heath and Family Services
Mr. Eric Friedlander, Deputy Secretary of the Cabinet for Health and Family Services, provided the committee with an update regarding program additions and expansions resulting from actions by the 2012 General Assembly. He discussed each of the Cabinet’s budgetary units affected by the enacted budget.
Mr. Friedlander discussed pain management facilities, stating that the Office of the Inspector General (OIG) is responsible for enforcement of licensure standards for existing facilities that qualify for the physician ownership exemption in HB 1. Administrative regulations will be filed as an emergency, along with general regulations, by July 20, 2012. OIG will begin inspecting pain management facilities for compliance on July 23. He said that the paperless account registration for the Kentucky All Schedule Prescription Electronic Reporting (KASPER) system has begun, and daily reporting will begin July 1, 2013. Additional staff is being hired to help implement HB 1. Interstate data sharing has begun and will be expanded over the biennium.
Mr. Friedlander discussed various programs in the Department of Behavioral Health. He discussed various proposed amendments to the state Medicaid Plan. The preliminary draft of the Medicaid state plan amendment regarding the substance abuse program has been completed. Contingent upon approval, the program will begin in January, 2013. Input is being gathered from stakeholders regarding community services for the severely mentally ill. This information will be used in drafting a proposed amendment to the Medicaid state plan. If approved, the program would begin in the fall of 2012. An additional 300 new slots each year of the biennium have been approved in Community Supported Living. The regulation to implement this plan will be completed during this summer.
Mr. Friedlander discussed construction projects in the Department of Behavioral Health. There will be a request for proposal issued in July regarding electrical upgrades to Western State Hospital. The construction on the Glasgow State Nursing facility is 70 percent completed with an anticipated completion date of December 3, 2012. The project is on track to receive Leadership in Energy and Environmental Design (LEED) certification. Construction is 70 percent completed at the new Eastern State Hospital facility, with an anticipated completion date of February, 2013. The facility is expected to receive a LEED silver certification, and transition into the new facility is expected to begin in March, 2013. The cabinet has requested a proposal from the Bluegrass Mental Health/Mental Retardation Board for operation of the new facility.
Mr. Friedlander discussed various other departments within the cabinet, stating that the Department for Community Based Services will be hiring 258 new front line field staff. The Department for Aging and Independent Living will use half of the $5 million received each year in the budget to maintain funding at FY 12 levels. Assuming no reductions in federal funds due to the Budget Control Act, the department will use $1.2 million to provide meals and case management to 300 additional seniors. $700,000 will allow for approximately 45 new personal care attendant clients, and $500,000 will be used to hire staff in the Guardianship program.
Mr. Friedlander finally discussed the colon cancer screening program within the Department for Public Health. With assistance from the Colon Cancer Advisory Committee, the department has developed a request for proposal to send to local health departments. The application deadline is in September, with successful applicants being notified in October 2012. The Kentucky Cancer Foundation is contributing $500,000 each year in matching funds for this program.
In response to a question from Representative Crimm, Mr. Friedlander stated that Central State Hospital received no additional funds.
In response to a question from Representative Westrom, Mr. Friedlander said that the social worker classification has not been changed, and the cabinet is currently hiring under the present requirements. The most important qualifications for social workers are competency and concern for Kentucky’s citizens. The best applicants do not always have social work degrees.
In response to a question from Senator Wilson, Mr. Friedlander stated the cabinet is not ready to outline how the U.S. Supreme Court ruling concerning the Affordable Care Act will affect the cabinet.
In response to a question from Representative Lee, Mr. Friedlander replied that the various programs will be phased in as the space becomes ready for use at the new Eastern State facility. The facility is on track to be completed in March, 2013.
In response to a question from Representative Overly, Mr. Friedlander replied that improving the training and licensing of social workers is an ongoing process involving cabinet work over the long term.
In response to questions from Senator Leeper, Mr. Friedlander stated that Medicaid eligible numbers have remained relatively flat. The cabinet budgeted for a 1,000 per month increase, but the increase in eligibles is less than the budgeted amount. Savings realized from utilizing managed care has been calculated by taking the projected total amounts for services outside of managed care and comparing that to the same services now provided within managed care. The difference represents the savings provided by the managed care system.
There being no further business, the meeting was adjourned at 3:10 p.m. A tape of this meeting is available in the Legislative Research Commission library.