The second meeting of the Budget Review Subcommittee on General Government, Finance, and Public Protection of the Interim Joint Committee on Appropriations and Revenue was held on Thursday, October 22, 2009, at 10:00 AM, in Room 129 of the Capitol Annex. Representative Royce W. Adams, Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Senator Jack Westwood, Co-Chair; Representative Royce W. Adams, Co-Chair; Senators Julian M. Carroll, and Joey Pendleton; Representatives Dwight D. Butler, Leslie Combs, Mike Denham, Charlie Hoffman, Adam Koenig, Tom McKee, Brad Montell, Tanya Pullin, Steve Riggs, and Charles Siler.
Guests: Brian Bishop, Executive Director, Kentucky Board of Dentistry; Tamara McDaniel, Chair, Kentucky Board of Respiratory Care; Mike Burleson, Executive Director, Kentucky Board of Pharmacy; Sue Derouen, Operations Manager, Kentucky Board of Nursing; and Rob Jones, Executive Director, Office of Policy and Audit, Finance and Administration Cabinet.
LRC Staff: L. Bart Hardin, Tom Willis, Randy Smith, Katherine Halloran, Melissa Hagan, and Spring Emerson.
Chairman Adams began by welcoming the members and guests to the meeting. He then requested a motion to approve the minutes of the June 4, 2009 meeting. A motion was made by Representative Combs, seconded by Representative Butler, and the minutes were approved by voice vote.
Mr. Brian Bishop, Executive Director, Kentucky Board of Dentistry introduced Tamara McDaniel, Chair, Kentucky Board of Respiratory Care; Mike Burleson, Executive Director, Kentucky Board of Pharmacy; and, Sue Derouen, Operations Manager, Kentucky Board of Nursing. Mr. Bishop provided an update of budgetary issues relating to the Kentucky Board of Dentistry. He also provided a brief overview of budgetary issues for the Kentucky Board of Physical Therapy, in the absence of Becky Klusch, Executive Director.
Senator Carroll asked if the Boards were aware of pending litigation challenging the sweeping of funds from restricted accounts, and if any of the Boards were participating in that litigation. They all responded they were aware of the litigation but were not participants in it.
Senator Carroll inquired about services provided by state government for the Boards, specifically payroll services. Mr. Bishop replied that their payrolls are paid from the agency funds, but are paid through the State Treasury. Senator Carroll asked if their funding was provided by the Office of State Budget Director (OSBD). Mr. Bishop replied in the affirmative. Senator Carroll asked if state government is paid for those services. Mr. Bishop replied that they do not pay for the services provided by the OSBD and the Treasury.
Representative McKee inquired about the fact that the Boards generate their own funds, and asked where those funds come from. Mr. Bishop replied that all licenses for the Board of Dentistry are on a two-year renewal cycle, with dentists’ license fees of $230 being due on odd-numbered years and hygienists’ license fees of $150 being due on even-numbered years. He said money is also generated from disciplinary cases and fines. He added those are the only means of generating revenue, as no General Fund money is used. Representative McKee asked if the fees can be raised independently. Mr. Bishop replied that the fees are set by statute and legislation would be necessary to increase the Board’s fees. Mr. Burleson said the Kentucky Board of Pharmacy could only increase fees to a limited point and when that point is reached, the regulatory process would require legislation.
Mr. Bishop explained that fees are paid to the state for internet, email, and phone services through the Commonwealth Office of Technology. He also said the Kentucky Board of Dentistry and a few of the other Boards utilize the Attorney General’s office for their legal services. Ms. Derouen added they also pay for training expenses.
Representative Pullin expressed her appreciation of the Boards and Commissions and the services they provide. She asked for a comparison of fees, fines, and other sources of income. Ms. McDaniel replied that the Kentucky Board of Respiratory Care had very few fines. Most of them are for non-renewal of licenses, and are very few. She said the majority of the funds generated come from new licensing and renewals. Ms. Derouen replied that most of the funds generated by the Kentucky Board of Nursing come from fees as well. She indicated that fines do not cover expenses for investigations and hearings that are necessary to collect them. Mr. Burleson said the Kentucky Board of Pharmacy receives only 6% to 7% of its funds through disciplinary actions. He said it is hard to predict how that would affect the budget. Mr. Bishop stated the Kentucky Board of Dentistry is very similar to the other Boards in that it generates most of its funds from licensing fees.
Representative Riggs expressed his concern regarding the sweeping of agency accounts and the tracking of those funds. He asked how many of the Board of Dentistry’s 108 disciplinary cases resulted in forfeiture of licenses. Mr. Bishop replied that the philosophy of the Board is to rehabilitate as many practitioners as possible in order to help them keep their licenses and stay in practice. He stated that there have been no licenses revoked in the year he has been with the Board.
Representative Montell asked if Board employees participate in Kentucky Retirement Systems and if the employee portion of health insurance is paid with Board funds. Mr. Bishop replied in the affirmative. Ms. Derouen added that retirees’ health insurance is also paid from their agency funds. Representative Montell asked if the Actuarial Required Contribution (ARC) for retirement is paid with agency funds as well. Ms. Derouen replied in the affirmative.
Senator Westwood asked how state budget cuts would affect the Boards if they do not receive General Funds. Mr. Bishop replied that any time there is a state-mandated cut, the Boards must scale back their budgets also. Senator Carroll explained that the Boards’ budgets are state-appropriated funds, whether they come from agency funds or the General Fund, and any state appropriations would be affected by budget cuts.
Senator Westwood asked if the percentage of budget cuts was taken before or after the agency funds were swept. Senator Carroll replied the sweeping occurs before the budget is passed, and cuts are applied after the budget is passed.
Mr. Bishop stated that the Board of Dentistry’s budget has been flat lined, while costs continue to increase, which results in a bigger cut than what appears on paper. He then asked to recognize analyst Carla Wright, Office of State Budget Director, who had been very helpful to Boards and Commissions.
Chairman Adams suggested to the Boards that they encourage their membership to contact their Senators and Representatives to discuss this matter, especially those on the Conference Committee that makes the final budgetary decisions. He thanked them for the information they provided. He then welcomed Rob Jones, Executive Director, Office of Policy and Audit, Finance and Administration Cabinet (FAC).
Mr. Jones gave a brief overview of audit functions in the Finance and Administration Cabinet as they relate to the American Recovery and Reinvestment Act of 2009 (ARRA).
Representative Denham asked if the federal government performs random audits on ARRA funds and if the FAC has an external auditor for ARRA funds as well. Mr. Jones replied that his office coordinates compliance, and works to ensure agency reporting matches what is in the FAC accounting systems, as well as occasional spot-checks on individual expenditures. He added that each federal grant is subject to multiple types of federal audits, depending on the grant and its individual audit provisions and responsibilities.
Representative Denham expressed his concern regarding the bonding issues of local governments. He inquired about the responsibility of oversight of debt, bonds, and debt capacity of local governments. He asked if there was oversight to the counties to make sure their bonding capacity was not overextended. Mr. Jones replied that the FAC looks at responsibilities in reporting and oversight of actual program funds, rather than bonding issues. Senator Carroll commented that local governments control the budgets of individual counties and provide continuing oversight of each, with auditing being performed by the Auditor of Public Accounts (APA).
Senator Carroll inquired about amounts of grant funds going into the General Fund for the current year as well as the next budget biennium. He also asked about the amount of agency funds FAC oversees for the current year as well as agency funds anticipated for the next biennium. Mr. Jones replied that the figures he had are State Fiscal Stabilization Funds (SFSF) reported by the agencies as of September 2009. At the close of the quarter, SFSF awards in the amount of $356,974,000 went to the Kentucky Department of Education (KDE) and the universities. Senator Carroll asked if other agencies had been awarded grants. Mr. Jones replied that SFSF awards in the amount of approximately $118,500,000 went to the Justice and Public Safety Cabinet. Senator Carroll asked if there were other agencies. Mr. Jones explained there are many agencies receiving stimulus funds, but those figures mentioned were for SFSF funds specifically. Senator Carroll asked for totals of all the grants awarded to the various agencies, for the current year as well as what may be anticipated in the future. Mr. Jones will provide that information at a later date.
Senator Carroll asked about the awards being overseen by the FAC’s Office of Policy and Audit. Mr. Jones replied total awards were $1,137,000,000, and of that amount only a fraction has been spent. He added that Medicaid and Unemployment Insurance funds are awarded directly to those agencies. Senator Carroll asked for those amounts to be provided as well, even though they do not have the same reporting responsibilities.
Senator Carroll asked for more information regarding grants that go to the State Budget Office that are used in General Fund appropriations for the current budget year, as well as the amount anticipated for the upcoming budget year. He asked that the same information related to the Office of Unemployment Insurance and Medicaid be provided.
Representative Montell inquired about agencies applying for available grants and the oversight of those grants. Mr. Jones replied that the OSBD keeps track of all the stimulus funds and the agencies receiving them. Representative Montell asked where a person would go to see where the money was distributed. Mr. Jones replied that the first reporting period ended on October 21, 2009, and those reports should be available on both state and federal transparency websites by the end of the month.
Chairman Adams expressed his appreciation for the information provided, and asked Mr. Jones to provide requested reports to Budget Review staff.
Chairman Adams welcomed analyst Randy Smith, who returned from serving the armed forces in Iraq for the past two years. He also welcomed new member Representative Adam Koenig to the committee.
There being no further business, the meeting was adjourned at approximately 11:16 AM.