Call to Order and Roll Call
The 4th meeting of the Interim Joint Committee on Local Government was held on Wednesday, November 28, 2012, at 10:00 AM, in Room 171 of the Capitol Annex. Senator Damon Thayer, Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Senator Damon Thayer, Co-Chair; Representative Steve Riggs, Co-Chair; Senators Walter Blevins Jr., R.J. Palmer II, John Schickel, Dan "Malano" Seum, Robert Stivers II, and Johnny Ray Turner; Representatives Julie Raque Adams, Ron Crimm, Mike Denham, Adam Koenig, Stan Lee, Tom McKee, Michael Meredith, Jody Richards, Arnold Simpson, Kevin Sinnette, and Rita Smart.
Guests: Tommy Turner, LaRue County Judge/Executive, KACo President-Elect; Tom Bozarth, Mayor of Midway, KLC First Vice President; Jim Gray, Mayor of Lexington; and Adam Edelen, State Auditor of Public Accounts.
LRC Staff: Mark Mitchell, John Ryan, Jessica Causey, Joe Pinczewski-Lee, and Ashlee McDonald.
Approval of Minutes
Upon the motion of Senator Palmer and a second by Representative Sinnette, the minutes of the October 24, 2012 meeting were approved.
Kentucky Association of Counties Legislative Platform for the 2013 Session of the General Assembly
Mr. Tommy Turner, LaRue County Judge/Executive, KACo President-Elect, testified about issues facing county officials. Special districts were the focus of parallel studies in the interim. Counties support strengthening compliance with reporting requirements, consolidation in statutes and types where realistic, and providing for maintenance of the registry established by the Auditor’s Office.
Critical funding for E-911 is needed. Wireless devices account for over 75 percent of calls made to dispatch centers, but only account for 25 percent of the funding according to CMRS board data. Local governments bear the brunt of funding for this critical service through decreasing landline fees and general fund dollars. This cannot be sustained without an increase in revenues, namely the 70-cent monthly wireless fee. 114 out of 120 counties collect landline fees. The wireless fee of 70 cents on monthly bills provides about 15 percent of the funding. This has not changed since 1998.
Jails continue to be the largest drain on most county budgets. Counties support refunding the Local Corrections Assistance Fund that was used to shore up the Catastrophic Inmate Medical Fund, and the restoration of the 12-hours booking rule for pretrial officers to submit information to a judge for pretrial release options.
Mr. Turner added that counties support comprehensive tax reform on both the state and local levels. There are intertwined and should have been considered in tandem. All efforts should be made to reach a fair and equitable system for all tax payers while modernizing our tax code for the 21st century. There are still several proposals under consideration that include increase funding for PVA offices and amending the Constitution to allow a local general sales tax.
Regarding constables, Mr. Turner said that the working group established by Justice and Public Safety Cabinet Secretary J. Michael Brown has produced a comprehensive analysis of this office. They concluded the office should be abolished and there are counties supporting the abolishment of the office of constable.
Mr. Turner stated that counties support reform with the following parameters:
· The Commonwealth must honor promises made to current retirees and active employees.
· Address the unfunded liabilities including consideration of a bond issue. Statutorily recognize adequate funding at 80 percent, working toward 100 percent.
· Consider a separate governing board for CERS, and
· Exhaust all remedies for reform before considering benefit changes for new employees.
Mr. Turner explained that it is not about reducing cost in the system, but about designing the state’s needs while being fiscally responsible and sustainable.
Responding to a question from Senator Schickel, Mr. Turner said that the unfunded liability to CERS is approximately $6 billion. The unfunded amount for the entire retirement system is $19 billion, excluding Teachers Retirement.
In response to Representative Riggs regarding the Juvenile Code Task Force, Mr. Turner stated that he does not have the information regarding the report on the efficiency of the Juvenile Code.
Responding to Representative Simpson regarding the Pension Reform Task Force, Mr. Turner stated that he thinks the task force is more unified now than previously. Much of the discussion last year was regarding the switch from the current plan to the 401K type plan. In regards to the new hire situation, the task force is focusing on CERS. One of the reasons KACo feels that CERS should be separated as a whole that the plan to fix the Kentucky Retirement System is based on the weakest link. Mr. Turner feels that KERS is the weakest link, and new hires of CERS will suffer the greatest. Separating CERS would allow benefits to be adjusted to mirror the stability of the fund versus mirroring KERS.
Mr. Turner stated that if it were not possible to separate CERS, he is not sure if there is enough fairness to hold CERS at the same level as the KERS.
Representative Simpson added that having pension systems that are drastically unfunded drastically creates issues for the Commonwealth. In regards to double-dippers and triple-dippers, Mr. Turner explained that contrary to some people beliefs, retirees who come back actually help the retirement system not hurt it. The retiree has to pay into the retirement system without receiving any benefits in return.
Chairman Thayer responded by saying that he would have to respectfully disagree with Mr. Turner, and he suggested that KACo look into the benefits more closely. He explained that the Pension Reform Task Force has suggested that a two year re-employment time be implemented or that if a retiree decides to go back to work, the pension be suspended until retiring again.
Representative Richards said the pension has done too much in stocks and not diversified in bonds and property. Mr. Turner stated that one of the problems that KERS has is that it had to pull out some funds to pay benefits each month.
In response to Representative Smart, Mr. Turner clarified that if a returning retiree comes back, if employed after 2008, the person does not start a new retirement fund. If employed prior to 2008, the person will earn a second retirement. Earning two retirements (double-dipping) was eliminated in 2008. However, re-entry/re-employment is still allowable if the person is not employed for 3 months.
State Auditor’s Final Recommendations for Special Districts
Adam Edelen, State Auditor of Public Accounts, explained that before his investigation, the department had no idea how many special districts existed. The department identified districts that spend $2.7 billion a year collectively. They collect fees and taxes of $1.5 billion annually and hold $1.4 billion in capital bonds.
In 117 out of 120 counties, citizens pay more in taxes and fees collectively to special districts than in property taxes to county governments. The special districts have $1.4 billion in reserves, which is twice the amount that all 174 school districts have in rainy day funds. Until this investigation, there was no ability to determine which districts were in compliance and which ones are not. Every entity in Kentucky that has a budget of $750,000 or more is required to have an annual audit. The investigation found that only 55 percent of them do. The amount of money that is going unaudited by the remaining 45 percent that is not being audited is $461 million dollars.
Mr. Edelen recommends a centralized registry that includes tracking to ensure yearly reporting and the public should have access to view. He recommends a uniformed ethics code. Any business or entity that has the ability to fee or tax in Kentucky is governed by the ethics code in the county they operate in.
Responding to a question from Senator Schickel, Mr. Edelen said that he would respectfully disagree with the statement about “ghost government.” Mr. Edelen explained that the investigation proved that there has been a lack of accountability and transparency.
Senator Schickel responded that the area he feels that is most strongly disagreed upon is taxes.
Senator Thayer added he agreed with Senator Schickel. When there are tax dollars at play, he feels like there should be accountability for those elected officials.
Responding to Representative Lee, Mr. Edelen explained that taking away the ability of the districts to raise the revenue to meet a federal mandate may mean a loss of agreement with the federal government. Mr. Edelen said that the need is accountability and transparency, with a clear level of expectancy.
Representative Lee inquired about the penalty for those not in compliance. Mr. Edelen explained a centralized registry would allow people to know who is in compliance.
Senator Thayer noted that two years ago, in a bipartisan effort, the legislature passed legislation that requires MSD and SD1 (or any other sanitation department) to report any increase above 5 percent, which must be approved by a majority of the fiscal court.
Responding to Representative Sinnette, Mr. Edelen said that the citizens need to have awareness of who is taxing them before they change the structure. Representative Sinnette added that he understands there is transparency but he is not sure where the accountability is issued. Mr. Edelen added that identifying this layer of ghost government and making the businesses report annually is an effective accountability tool.
Lexington-Fayette Urban County Government’s Pension Task Force Findings
Jim Gray, Mayor of Lexington, explained that the police and fire pension is the most significant financial issue for Lexington. This is the only pension that exists outside the state pension. There is a $258 million dollar unfunded liability that does not include medical or health care costs. The approximate general fund is $290 million dollars.
The Lexington Police and Fire Pension Task Force’s approach is to have reliable and independent ideas and data-driven analysis. The retiree benefit plans must be sustainable, affordable, competitive, and sufficient to offer career employees the opportunity for a dignified retirement.
Pension funding issues are best addressed using a multi-disciplinary approach that combines an understanding of public sector finance and workforce issues with rigorous actuarial and quantitative analysis.
Mr. Gray said that assembling a team of professionals experienced with the public sector, which has helped government agencies of all sizes, is required for the engagement.
Mr. D.J. Kapor, Public Financial Management, explained that Mr. Gray and the city hired his company to help find a consensus. This began with understanding the needs of all the stakeholders and getting all to agree on the projections. The task force should be clear about what benefits employees and retirees can expect and rely upon.
Mr. Kapor reviewed the phases of how this pension will be delivered. Phase 1 is the Review and Analysis. There is preliminary benchmarking, development of baseline cost projections and evaluation of current pension system investment policies and guidelines. The target date of this is early December.
Phase 2 is the Options and Draft Recommendations phase. This consists of developing a scope of work the Pension Task Force to narrow plan design options. The target date for this is also early December.
The last phase is the Final Recommendations and Report. The task force will be given the developed draft and final reports. There will be an opportunity to discuss report and recommendations with interested stakeholders as well as those tasked with drafting the legislation. The target date for this is end of December/early January.
Detective Santonio, Fraternal Order of Police, explained that there have not been any agreements but that there are negotiations with the city of Lexington.
Lt. Chris Bartley, City of Lexington Fire Department, explained that the department has been committed to this work for the past year to come to a solution that is fair to employees and the taxpayers.
Mr. Gray commented that if an agreement could not be met, then he would urge local control.
Kentucky League of Cities’ Legislative Platform for the Upcoming 2013 Session of the General Assembly
Tom Bozarth, Mayor of Midway, KLC First Vice President, testified about KLC before introducing J.D. Chaney, Chief Governmental Affairs Officer.
Mr. Chaney explained that the main KLC legislative issues are allowing local governments the chance at governing the retirement systems and having a balanced approach at addressing the pension issues.
Another priority for cities is to continue to urge state policy makers to allow cities to have greater revenue flexibility. The stagnant economy, declining revenues and increasing expenses are making it harder for cities. Many cities are unable to fairly recoup the revenue required to maintain city infrastructure, essential services, and amenities that contribute to high quality of life.
Mr. Chaney explained that the KLC board has supported the expansion of the restaurant tax. The tax would be used in lieu of the collection of net profits or gross receipts taxes on restaurants. KLC will support an amendment to the Kentucky Constitution to permit cities to approve a local options sales tax for particular projects or programs.
Mr. Bozarth said that the General Assembly divides cities into one of six classes based on population size. Cities can change classes only after approval by the General Assembly. KLC will seek legislation to reduce and largely eliminate the number of city classes. When possible, the legislation should eliminate mandates and extend maximum flexibility to cities for self-governance.
Mr. Bozarth explained that local governments have the ability to assess fees for 911 services on land-based telephone lines. The decline in the popularity of landline telephones has left many local governments with decreasing revenues to support the ever-more expensive 911 services. To address this issue, the KCL will continue to oppose any measure that removes the ability of local governments to impose local fees for 911 operations, and oppose any proposal that would reduce the total amount of state-generated revenue from wireless fees.
Responding to Representative Koenig, Mr. Chaney said that several city officials are trying to eliminate the wireless fee and keep the landline fee.
Adjournment
With no further business, the meeting adjourned at 12:45 p.m.