Program Review and Investigations Committee




<MeetMDY1> September 11, 2003


The<MeetNo2> September 11, 2003 meeting of the Program Review and Investigations Committee was held at<MeetTime> 1:00 PM, in<Room> Room 131 of the Capitol Annex. Representative Charlie Hoffman, Co-chair, called the meeting to order, and the secretary called the roll.


Present were:


Members:<Members> Senator Katie Stine, Co-chair; Representative Charlie Hoffman, Co-chair; Senators Charlie Borders, Brett Guthrie, Ernie Harris, Paul Herron Jr, David K. Karem, Vernie McGaha, and Dan Seum; Representatives Adrian Arnold, Sheldon Baugh, Dwight Butler, Ruth Ann Palumbo, Tanya Pullin, and Dottie Sims.


Guests:† Eric Friedlander, Executive Director, Commission for Children with Special Health Care Needs, Cabinet for Health Services; Anja Peersen, Director of Quality and Outcomes at the Commission for Children with Special Health Care Needs, Cabinet for Health Services; Commissioner Gene Wilhoit, Kentucky Department of Education, and Sarah Jackson, Kentucky Registry of Election Finance.


LRC Staff:† Greg Hager, Committee Staff Administrator, Lowell Atchley, Lynn Aubrey, Kara Daniel, Tom Hewlett, Joseph Hood, Erin McNees, Stacie Otto, Cindy Upton, and Susan Spoonamore, Committee Assistant.


A moment of silence was held in memory of September 11, 2001.


Rep. Hoffman introduced Eric Friedlander, Executive Director, Commission for Children with Special Health Care Needs, Cabinet for Health Services, to give an update on the First Steps report.†


Mr. Friedlander stated that the Commission had used the report and its recommendations as an important tool to move forward with the First Steps program. He explained that the First Steps program serves children from birth to three who have developmental delays. Once a child has been evaluated and determined eligible, he or she is eligible for services such as physical therapy, occupational therapy, speech therapy, and† developmental intervention. He stated that First Steps is Part C of the Individuals with Disabilities and Education Act, and that the program is a precursor to special education in schools. He said the mandate of the program is to try to bring children to a level that special education will be unnecessary.

He said in response to the recommendation for more efficiency and accountability, the First Steps program was moved from the Department of Mental Health and Retardation Services to the Commission for Children with Special Health Care Needs.† He explained that one of the reasons for the move was the programís growth of 20 percent per year. He stated that within the last year expenditures had been leveled off to a 3 percent† growth rate with some difficulty.†


Rep. Sims asked if anyone could refer a child to the First Steps program, and what criteria were used to determine if a child had developmental problems. Mr. Friedlander stated that a child could be referred into the First Steps system by anyone who had a concern that a child might be showing a delay. He said that after a referral was received, a service coordinator would go to the home to evaluate the level of the childís development. He stated that the Commission tried to find as many children as possible, and that Kentucky ranked 14th in the country in terms of the number of children and the percentage of children in the program.†


Rep. Arnold asked why expenditures went from $5 million a year to almost $40 million a year, and how many children were in the First Steps program. Mr. Friedlander stated that the majority of the increase was due to the increase in the number of children.† He said that the federal rules placed very few limits on the services that a child received, and the reimbursement rates were good, which had probably helped to drive some of the costs. Mr. Friedlander stated that the program served approximately 10,000 children a year, with approximately 4,500 children on any given day.


Mr. Friedlander stated that the Commission had complied with Recommendation #1 by assigning a fiscal officer, fiscal analyst, and monitoring supervisor to develop a plan for improvements in fiscal accountability. He said the Commission had tried to streamline the provider enrollment and verification requirements, and that the Commission had also engaged in a reimbursement rate study, reducing rates by 5 percent or 10 percent depending on the rate. He stated that the hourly rates for therapists were competitive with other states.

He stated that another recommendation was to maximize the Commissionís access to federal Medicaid and KCHIP matching funds. He said the Commission was being very careful with cost-shifting.


Sen. McGaha asked what criteria were used to determine the hourly fee rate for therapy and developmental intervention. Mr. Friedlander explained that the rate study reviewed the amount of time that a therapist would spend per hour of service, which included travel, paperwork, administrative burden, and the actual time of being in the home. He said the study had actually proposed lower rates than what are being charged now, but the Commission felt that implementing the rate reductions could damage the infrastructure of the system.


Sen. McGaha asked what was the amount of the proposed reductions in rates. Mr. Friedlander stated that the reduction of rates would have been $5 to $10 lower, or 15 percent† to 20 percent, which would have been a huge reduction for someone to take.

Sen. McGaha asked who was responsible for making arrangements with a therapist for services. Mr. Friedlander stated that after a child has been assessed in areas of possible delay, and after eligibility has been determined, then an Individualized Family Service Plan (IFSP) is developed for that child. He explained that the initial service coordinator† and the family review the list of providers, and the family makes a selection from the list. He said it was the responsibility of the primary service coordinator to contact the therapist(s) to initiate therapy.


Sen. McGaha asked if the primary service coordinator is from the health department. Mr. Friedlander stated that the initial service coordinator is from the health department, and the primary service coordinator is an independent practitioner associated with an agency or acting independently.


Sen. McGaha asked about the qualifications for a service coordinator, and whether the primary function is to coordinate services. Mr. Friedlander stated that per regulations, a service coordinator must have a bachelorís degree, which is usually in education or health care fields. The primary function is to coordinate services.


Sen. McGaha asked if service coordinators also scheduled the visits of the therapists. Mr. Friedlander stated that they usually work with the families to schedule the visits.†


Sen. McGaha asked what other services they provided. Mr. Friedlander said that they are responsible for putting the whole plan together: objectives, goals, outcomes and communicating with the parents and the therapist.


Sen. McGaha asked if the service coordinators were paid $81 per hour to schedule visits and coordinate an IFSP.† Mr. Friedlander stated that he thought it was $76 dollars per hour.


Sen. McGaha asked if that rate was up or down from the 2001 rate. Mr. Friedlander stated that the rate was the same.


Sen. McGaha asked if other states required their coordinators to have a bachelorís degree, and were other states operating their programs similar to Kentuckyís. Mr. Friedlander stated that many other states were operating their programs in the same fashion, and that many other states were struggling just like Kentucky to make ends meet. He stated that Illinois had been sued under Part C for not providing services in this fashion. He said Illinois lost the suit and went from being a $20 million program to a $120 million program in one year. It is fee for service with a primary service coordinator with this same kind of list of providers. Another approach is to provide services through centers.


Rep. Arnold asked if the Commission was paying an hourly rate per child in a group setting. Mr. Friedlander stated it had happened and the Commission was in the process of changing that.† For group services, it would now be around $32 per child. He stated that until last week there had been different rates for group services for different intensities of groups and those had been reduced to one rate.


Mr. Friedlander stated that in accordance with Recommendation #2 to establish a team to identify feasible means for First Steps to maximize its access to federal Medicaid and KCHIP matching funds, the Commission had used the same type of campaign it uses to enroll children in KCHIP. He said the Commission felt it had done a good job of finding every child that might be eligible for KCHIP and Medicaid.

He said that another recommendation asking the Cabinet to explore other sources of federal funds for program services had been implemented. He stated that the Commission had been looking for any and all funds available, and that improvements had been made in collecting the family share of payments.

Mr. Friedlander also stated that the Commission had given priority to the recommendation asking that immediate attention be given to the development of a workable organization of the primary service coordination efforts.

He stated that per the recommendation to increase the number of monitors, the Commission had doubled the number of monitors, and had also increased the number of monitoring visits and review of provider records.

Mr. Friedlander said that the external audit conducted by the State Auditor of the Centralized Billing and Information system (CBIS), had contained recommendations related to the organization of CBIS files, organization and pursuit of Medicaid denials, and the need for increased separation in the establishment of a vendor and payments. He stated that the first act of the Commission had been to separate the functions.

He said that the secondary recommendations contained in the report had to do with improving collaboration with other programs, identification of children, and program evaluation.† He said the Commission was working with FOCUS (Furthering Our Childrenís United Services)† in order to compare data by regions.

Mr. Friedlander stated that the Commission did a very good job with prevention efforts, but using the existing First Steps structure for prevention efforts had been more difficult because of the need for additional training of the service coordinators and providers.†

He stated that the Commission had focused on improving the operation of the transition project and improving communication with KEIS (Kentucky Early Intervention System) and the preschool program. He stated that the collaboration between the Commission and the Kentucky Department of Education had been great.

Mr. Friedlander stated that he disagreed with the recommendation stating that research funded by the State Improvement Grant should focus less on demonstrating developmental progress and more on validating best practices to guide evaluation of IFSPs. He said the Commission had not done much about this recommendation because Senate Bill 60 required annual evaluations of children. He stated the Commission had emphasized documenting outcomes, but there was insufficient consistent national data.† He explained that Senate Bill 60 also focused strongly on parental responsibility by requiring that the parent sign an agreement to participate in the childís therapy.

Mr. Friedlander stated that there was a recommendation to improve the collection, validation, and analysis of data on the characteristics of the children and families receiving services, including those determined ineligible for the program. He said the Commission had been working hard on improving the data but still had a way to go. He also stated that the Commission had not yet contracted with an independent entity to conduct regular valid surveys of family and provider satisfaction, but planned to do so. He said that the Commission had worked to take a more active role in facilitating communication between families of First Steps children. He said that the Commission employed one parent consultant and had been actively working with parent organizations.

Mr. Friedlander explained that the recommendations related to CBIS stressed its need for improvement. He stated that the Commission changed some of the forms and collection of data. He said that one of the biggest improvements had been moving the billing system inside MARS, which increased accountability. He stated that ICD-9 diagnosis codes are now being assigned after receiving a medical diagnosis from a primary care physician or hospital.

He stated that the Commission had being paying the most attention to the recommendation requesting continuous emphasis on improving the training of point-of-entry providers and primary service coordinators. He said the forms had been changed to be more family friendly.†


Sen. Harris asked if First Steps was primarily a state program. Mr. Friedlander stated that the program had about $5 million of federal funds, $15 million of Medicaid funds, and $10 million of state general funds.†


Sen. Harris asked what was the average amount of time a therapist spent with a family. Mr. Friedlander stated that it would be about one and one half years because the average age of a child coming into the program was about 18 months.†


Sen. Harris asked if he understood correctly that the program had been growing by 20 percent per year.† Mr. Friedlander stated that would be correct except for the last year.†


Sen. Harris asked if Kentucky was 14th in the nation in the number of kids served per 100,000, or 14th in the nation in raw numbers. Mr. Friedlander stated that it was percentage of children, based on the Census.


Sen. Harris asked if it would be correct to say that the First Steps program has a budget of $40 million, and that the program serves an average of 4,500 children per day, which would figure out to be $10,000 per child. Mr. Friedlander stated that over the course of a year the program would serve about 10,000 children.


Sen. Harris stated if that were the case, then that would make it around $4,500 per child.† Mr. Friedlander stated the figure of $4,500 per child would be close, but it was probably a little less than that.


Sen. Harris stated that he felt the program was very generous, and in looking at what programs were effective and at what cost, some numbers stick out, for example, $76 a hour for a coordinator. He said he was glad that the Commission had collected $140,000 in paybacks out of $45 million dollars, but there was much more money to be collected. He said that kids were benefiting, but it looked like a runaway entitlement program.


Mr. Friedlander stated that when the program first came to the Commission he had the same opinions and he agreed that the rates were generous. He said after going out in the field and watching the primary service coordinators do their job, he realized that it was not an easy job, but the program had fantastic effects on children in the system. He said the Commission felt good about what it had been able to do in a yearís time in terms of decreasing costs and increasing accountability.


Sen. Harris stated he was pleased that the Commission had been able to put the brakes on, but more brakes needed to be applied. Mr. Friedlander stated that the Commission was working to bring more accountability and responsibility to the system, but it had to be done in a way so it would not destroy the system.


Sen. Harris stated that the budget committee should compare the Medicaid reimbursement numbers that the First Steps program offered versus the Medicaid reimbursement programs for children who are 5, 8, and 10 years, because something seemed to be out of balance.


Sen. McGaha asked what was the average salary or amount paid to a service coordinator. Mr. Friedlander stated the average salary would be around $25,000.† He said he did not have the exact figures on hand, but would supply that information to staff.


Sen. McGaha asked how they were only making $25,000 per year when the hourly rate was $76 per hour. Mr. Friedlander stated it was impossible for coordinators to put in 8 hour days and bill for 8 hour days because of the time spent interacting with the families.

Sen. McGaha stated that last year during the budget process he received many calls and many visits to his office from providers asking that no cuts be made to the program.† He said that some were even willing to have their fees cut because they felt the program was good for the kids. He said he had also been told that there was overlap between what the providers were doing and what the coordinators were doing. He was also aware of the fact that there were some providers who had gone to attorneys to turn their operations into businesses to protect the money being made from this program. He stated that all this was disturbing given the fact that special education teachers in the school system are making $30,000 a year. He said that special education teachers have 8 students in their classes every period, and that each teacher is responsible for preparing an individual education plan and coordinating services for therapy. He noted that those teachers did not make close to $76 a hour. He urged the Commission to pay only what is necessary to provide services.


††††††††††† Rep. Hoffman stated that the Commission should continue with its efforts to streamline the program. He said he agreed that the children were benefiting from early intervention, but the Commission needed to be more fiscally responsible.


Mr. Friedlander stated that the Commission understood and shared the views of the Committee.† He said the Commission would work hard to continue making inroads in† the overall costs of the program.


Rep. Hoffman introduced Commissioner Gene Wilhoit, Kentucky Department for Education, for his presentation of the follow-up report on the Support Education Excellence in Kentucky (SEEK) formula.


Commissioner Wilhoit stated that the report had evaluated the data used in the system, and reviewed the procedures and budgeting of the program. Regarding Recommendation 3.1, he stated that KDE had created a position that would allow KDE to evaluate the quality of data from the school districts and to make sure that those calculations were certified. He stated that staff had been trained to better understand and interpret the quality of data and provide high quality data. Secondly, he stated that this fall, workshops had been completed for all the districts on identifying and reporting data and using the two primary systems† used to report those data to the Department of Education: the STI† system (student data) and the MUNIS system (school financial data). He also stated that KDE had reconsidered making a distinction between low-performing and high-performing schools and developed a strategy based on the two criteria contained in the report. He said in response to the report, KDE would begin auditing all schools in Fayette County and Jefferson County this year to establish baselines. He stated that KDE had set up a schedule to continue to monitor them frequently because of their greater impact on the SEEK formula. He said KDE was also in the process of looking at ways to identify a consistent cycle for all other school districts. A more frequent review process could be used if problems emerge. He stated that the actions taken by KDE in response to the recommendations were consistent with the report.†

He said the report recommended that KDE report on all procedures conducted in an audit. He said that KDE was looking at a process in which all schools would be audited in a consistent pattern and would be reported in all content areas.† He also stated that the report noted that there was a higher risk of errors in reporting high school attendance, so KDE would be auditing all the high schools in all the audits.† It said the report recommended that when there was a report of a late arrival, but no record of the arrival in the entry-exit log, that those students be counted absent for a full day. He stated KDE was attempting to move from the entry-exit log documentation process used by students when entering the building toward a system of technology-based reporting at the school level. He stated that the attendance figures at the classroom level could be fed directly into the student accountability system (STI), and that the reporting would be more accurate and it would allow KDE to use greater incremental reporting. He said the report had also recommended that KDE document the results of the audits consistently and fully report them. He stated that KDE now made sure that all the audits were fully documented and had† worked with auditors to make sure that their training and reporting was consistent. He also stated that the auditing process had been centralized to make sure that there was greater consistency among the auditorsí reports.

He explained that when an error was found in a districtís average daily attendance, the errors were adjusted and corrected. He said KDE had a district correction plan and those errors were reported to the Departmentís new unit. The unitís employees review attendance figures, check those noted as exceptions and make follow-up visits where inconsistencies are found. He stated that the recommendation to do more mandatory follow-up visits to all schools was not cost effective. He explained that it would require hiring of five or six employees.


Sen. McGaha asked if KDE was moving away from the sign-in sheets used for attendance reporting. Commissioner Wilhoit stated that the schools would probably continue to use those for their own purposes, but they would not be used for state accountability purposes.


Sen. McGaha asked if the burden of attendance reporting would be shifted to the teacher, and was it reported by class periods. Commissioner Wilhoit stated that was correct. He said that the teachers were already doing it that way, but it had not been used as a method of accountability. He said that attendance reporting by class periods was for high schools.


Sen. McGaha asked if the attendance calculation would be done at the state level. Commissioner Wilhoit stated that each school will do it and that it will be rolled up to the district and then to the state level. He also stated that no changes had been made to the criteria for tardy, partial day or full day. He stated that KDE would have the capacity to directly audit schools from the state level.†


Sen. McGaha asked if only full-day attendance and no attendance would be used in the calculation. Commissioner Wilhoit stated that a half-day would be used as well.


Sen. McGaha asked if KDE would be doing any kind of calculation if a student arrived at school at 9:00 a.m. in the morning. Commissioner Wilhoit stated that they would not be using that kind of calculation since the effort was to assure greater accuracy in the reporting of the information, not to be more precise in terms of the tardy, half-day, or full-day criteria.†


In continuing with his follow-up, Commissioner Wilhoit stated that the Department had fully implemented the recommendation that the Department appoint individuals not directly involved in the audits in an oversight function to ensure that individuals doing the audits were not also assuring the auditsí accuracy. He stated that staff had been hired and trained and were operational.

He stated that the Department was proceeding with an initiative to develop an automated integrated system to provide online, real-time updated capacity. He stated that resources had been provided for startup and staff was working on the second year of implementation. He said staff had identified the resources to buy the packages necessary to re-engineer the system, but the system would have to be tested first. He stated that it would be a valuable resource to the General Assembly and to the Departmentís leadership. He stated that the Department did not have problems in terms of resources to put the technology in place, but it was simply a matter of making sure that the system worked correctly and that staff were functioning well under that system.†


Sen. Stine asked who had been assigned to review the work of the employees performing the SEEK calculations. Kyna Koch, Associate Commissioner, Kentucky Department of Education, stated that those employees were in the new division that had been established, and Susan Goins was the Division Director. She stated that the data quality part of the formula would be handled by Georgie Burton and her staff.


Sen. Stine asked if that meant Ms. Burton was not doing the quality part yet. Ms. Koch stated that the division had been established. She said that Ms. Goins had always been involved in the SEEK calculation and when Ms. Goins was promoted to the Division Director position, it took some time to fill the branch manager position. She stated that the Department was still transitioning the actual running of the calculation from Ms. Goins to a different employee. She stated by the 2004 legislative session,† someone other than Ms. Goins would be running the calculation and Ms. Burtonís branch would be reviewing the data after the calculation had been run.


Sen. Stine stated she would be interested in receiving a report from the knowledgeable employee as to the auditing of the SEEK calculation process, but apparently it was not being done yet. Ms. Koch stated that each time the SEEK calculation was performed, each of the components within the component itself was reviewed.

Sen. Stine asked if it was not being done now because Ms. Burtonís branch was not operating yet. Ms. Koch stated that Ms. Goins was the person doing the SEEK calculation,† but Ms. Burton was already reviewing the work that Ms. Goins was continuing to do as she transitioned her responsibilities to Debbie Benassi.


Sen. Stine asked if Ms. Burton, under Recommendation 3.7, was the knowledgeable employee not involved in the SEEK calculations assigned to review the work of employees who performed the calculations. Ms. Koch stated that was correct.


Sen. Stine asked if Ms. Burton could give an analysis of any errors that had been found, and an analysis of how the calculation was being performed. Ms. Koch stated that she did not do so because when errors were found the districts were contacted immediately to correct the error.


Sen. Stine asked if Ms. Burton could report on the number of errors that had been found, when they occurred, and in what districts. Ms. Koch stated that the Department did not keep that extensive a log of the work.†


Sen. Stine asked if there would be a paper trail of who she had contacted about any errors.† Ms. Koch stated that Ms. Burton did not keep ongoing logs of the work that was being done in that area. She said that if the Department found an error that was outside of the acceptable range, then they would contact the district by phone and if they could not get it resolved, then a field staff person would be sent to the district.


Sen. Stine asked if the Department maintained records of when and where field staff persons had been assigned to a district. Ms. Koch stated that field staff turned in weekly reports of what districts they had visited.†


Sen. Stine stated that the report recommended that an unbiased third party be assigned to review the calculation process, and it would be helpful if that unbiased third party was keeping records to document the errors.


Ms. Koch stated that the Department would be happy to start keeping that kind of documentation, but did not have that documentation right now.† She explained that when the tentative and final calculations were completed, they were passed along to the LRC and the Governorís Office for Policy Management for review.†


Sen. Stine asked if it was correct then that Ms. Burton was preparing reports and passing them on to the LRC. Ms. Koch stated that the Department passes a copy of the calculation, with all of the components and all the data, to the Budget Review Office in the LRC.

Sen. Stine asked if that report was the third partyís analysis of the calculation. Ms. Koch stated that it was not. She said that the errors would have already been corrected before the calculation was actually completed.


Sen. Stine stated that she recalled reading in the report where there had been an overpayment of $20 million and an overpayment of $19 million based on errors found in the free and reduced lunch calculation and also in the ADA payments calculation. She stated that the recently presented report on† the Commonwealth Accountability Testing System stated that audits were not being done to determine if there were errors in the accuracy of the dropout rates. With that being a subset of the attendance rate, she had concerns that the Department was not taking the recommendations seriously.


Rep. Palumbo stated she would be interested in knowing if some districts were making more errors than others, and she would like to see the Department start documenting that information if it was not already doing so.


Ms. Koch stated the information was documented when the Department did the attendance audits.† She explained if an error was found, then that district was expected to review all their attendance information from the beginning of the year and make the corrections immediately. She said that a corrective action plan was developed and then field staff would go back on-site to make sure that all the corrections had been made in the prior months and that they were accurately reporting the information from that point forward. She also stated that there were no districts routinely making more errors than other districts.† She stated that she could not say that every attendance report was correct because there were people entering the data at many different levels. If the Department found that a district had made significant errors entitling them to state money, then the Department would take that money back. She said the Department had strived to work with the districts to help them understand the importance of accurate reporting at the school level, as well as the district level.† She said changes had also been made at the state level to help do a better job of reviewing the data before it was loaded into the SEEK calculation.


Rep. Palumbo asked if there were any districts who had to return money more often than other districts. Ms. Koch stated that no district had ever been asked more than once to return money.


Rep. Baugh asked if Ms. Goins was in the process of training another person to do SEEK computations, and if so, how long would it take to train someone. Ms. Koch stated that Ms. Goins was in the process of training someone, and it would take months to get them fully trained.


Rep. Baugh asked if Ms. Goins was the only person in the state who knew how to do the SEEK calculation. Ms. Koch stated that she personally could run the SEEK calculation if necessary.


Sen. Harris asked if most attendance errors were small. Ms. Koch stated that most errors were simple, such as a parent not signing the log when taking the child out or bringing the child to school.


Rep. Hoffman asked the Department to continue developing the program using the recommendations contained in the report.


Sen. Stine asked staff to do a follow-up analysis regarding whether or not the recommendations were being implemented.


Rep. Hoffman asked staff person Cindy Upton to give a follow-up analysis regarding the recommendations contained in† the SEEK report.


Sen. McGaha also asked staff to do a follow-up analysis on the recommendations contained in the First Steps report.


Rep. Hoffman asked if there were any corrections or amendments to the minutes of August 22, 2003.


Sen. Stine asked that the wording on the first page be changed to reflect that her concern was with the kind of training that local law enforcement officers were receiving, not the training provided by Adult Protective Services.

She asked that her statement regarding mandatory reporting be changed to a comment, not a question.

Sen. Stine asked that it be noted that she acknowledged and recognized that the issue of† balancing privacy with protecting elderly citizens was a challenge.

Sen. Stine also asked that her question be clarified regarding the data used to determine whether or not the quality of education was about the same or better under CATS not be combined because it gives a false impression. Her concern was the characterization of the data, not the raw data in the chart.


Amendments to the August 22, 2003 minutes were approved upon motion made by Sen. Stine and seconded by Sen. Harris.


The August 22, 2003 minutes as amended were approved upon motion made by Rep. Baugh and seconded by Sen. Stine.

Rep. Hoffman asked Perry Nutt, LRC staff economist, to present an update on The Costs, Benefits, and Monitoring of Kentuckyís Enterprise Zones report.


Rep. Hoffman stated he had been contacted by the Chamber of Commerce and other groups to see if the Committee was going to vote on the report, but he told them that no action would be taken.† He said that if they wanted to testify at a later date they would be given the opportunity to do so.†


Rep. Palumbo said she thought it would be important to have them testify since the request was a part of the August minutes.


Mr. Nutt explained that the objectives of the report were to study the costs, benefits, and monitoring activities of the enterprise zone program. He said the purpose of the enterprise zones was to help revitalize the most depressed neighborhoods by offering tax incentives to firms located in, or attracted to, the zones. He said that by offering tax and other non-tax incentives, the idea was that business costs would be lowered, which would lead to new investments. Mr. Nutt stated staff found little evidence that zone residents had experienced an improvement in their economic well-being. He stated that the enterprise zonesí firms and the zones had benefited from the tax incentives offered, but the costs associated with the program had been at least $169 million, and the incentives had not resulted in substantial increases in investment. He also stated that the structure of the program had presented a number of monitoring challenges, which could result in abuse of the program. He said the Cabinet for Economic Development and the Department for Employment Services had started a process toward the goal of improving the qualification issues, and that the Cabinet had also started to do site visits to verify that the 20 percent increase in investment had actually taken place.† (A copy of Mr. Nuttís presentation can be found in the LRC Library file.)

Rep. Hoffman asked if on-site visits were announced. Mr. Nutt stated that the visits were random.† He said the Cabinet had already made 52 site visits and had visited each of the zones.


Sen. McGaha asked if the Cabinet had any data from the on-site visits. Mr. Nutt stated that the Cabinet had not done enough on-site visits to aggregate any information, and they did not have information in any formal documents. He explained that the Cabinetís visits had been mainly to educate the firms about the program, about what was appropriate and† inappropriate.


Sen. McGaha asked if the visits were more educational than auditing. Mr. Nutt stated they were both.


Rep. Arnold asked if anyone had brought up the issue of firms having two businesses, one located in the zone and one outside the zone, and buying their tax-exempt materials through the business in the enterprise zone. Mr. Nutt stated that he had not spoken to anyone about that issue.†


Rep. Arnold asked who was responsible for authorizing the expansion of an enterprise zone.† Mr. Nutt stated that it was the responsibility of the Kentucky Enterprise Zone Authority to authorize an expansion.


Rep. Arnold asked who serves on the Kentucky Enterprise Zone Authority, and if some members are government officials. Mr. Nutt stated that there are 11 members and some are government officials.


Sen. Borders stated it could be possible that if an area had not had an enterprise zone, that area could have experienced a 50 percent decline.† He stated that in order to be fair, both sides needed to be at the table.


Rep. Hoffman stated that he hoped to have both sides in the near future.


Sen. McGaha asked if a zone had to be connected by 20 feet if they wanted to add territory. Mr. Nutt stated that a zone has to be contiguous;† there must to be a link.


Sen. McGaha asked if a road would be considered a link. Mr. Nutt stated that there was one zone connected by a railroad. The city annexed another area along the railroad track and that was how it was able to make the link contiguous.†


Rep. Arnold asked if any area had ever been taken out of† an† enterprise zone.† Mr. Nutt stated that he was not aware of any area being removed.


Rep. Arnold asked if there were conditions that would make a business ineligible. Mr. Nutt stated that there were stipulations in the statute, but none had ever been taken away.


Rep. Palumbo stated that she would be anxious to hear from businesses who would have left the state had it not been for the enterprise zone program.


Rep. Hoffman stated that the next item on agenda was the update of Public Funding of Gubernatorial Campaigns in Kentucky and Other States report.


Greg Hager, Committee Staff Administrator of Program Review and Investigations, began by stressing the major impact on campaign finance regulation of the U.S. Supreme Court case Buckley v. Valeo (1976). The Buckley decision struck down limits on total expenditures by a campaign unless the candidate accepts public fundingóand its accompanying limits on expendituresóvoluntarily. This was the basis for many statesí public funding of campaigns.† He stated that Kentuckyís program, which was enacted in 1992, provides $2 in state funds for each $1 privately raised.† He explained that after adjusting for inflation, the numbers estimated for 2003 would have been $355,000 minimum and a maximum of $710,000 that could have been received by a candidate, with a spending limit of $2.13 million.† He said that the spending limit applied to candidates, not to political parties or independent groups.† He explained that two candidates had to raise enough private funding to qualify for public funding to kick in. The law includes a trigger mechanism so that if a privately funded campaign spends more than the limit for publicly funded candidates, then publicly funded candidates may resume private fund raising and be matched by public dollars.† He stated that 1995 was the only year in which gubernatorial campaigns in Kentucky were publicly funded.† Five slates, including both major party slates in the general election, used public funding.† Funding was available for the 1999 election, but only one candidate raised enough private funding so public funding was not activated.†

He said 15 states, including Kentucky, offer some type of public funding for gubernatorial candidates. Eight states, including Kentucky, have had either one publicly funded campaign or none. He stated that there were two basic models of public funding. In Arizona, Maine, Massachusetts and Vermont, candidates must raise private money to qualify for public funding, but it is not a large amount and is raised by small contributions. Therefore, most campaign funding is provided by the state.† The other states, including Kentucky, have more of a mixed private-public model. A candidate must raise a significant amount of private money to qualify for public funding.† †He stated that only three states had a long history of publicly funded campaigns: Michigan, Minnesota and New Jersey. The report compared these three states to Ohio and Pennsylvania, two states with private funding, but which are similar to Michigan, Minnesota, and New Jersey otherwise. Based on the analysis of these five states, the report found that total spending was not significantly lower in the publicly funded states.† Staff did find that spending among candidates was more equal in the publicly funded states. He said that the three publicly funded states were not significantly more competitive in terms of having closer elections. He also said in the two privately funded states there were no incumbents who lost. In each of the three publicly funded states, an incumbent governor did lose. He said the three publicly funded states did not have a more diverse candidate base for governor, with one exception. The campaign of Governor Ventura of Minnesota was publicly funded, which was critical to his election. He said if we were interested in the amount of campaign funding we would want to know not just what the candidates spend, but what parties and independent groups spend. There are elections in which one or both of those entities spend more money than the candidates.† Information on what candidates spent was readily available, accessible data on party spending was more difficult to find, and information on independent expenditures by outside groups was even more difficult to ascertain.†

Dr. Hager explained that more recent party spending data than was included in the report was available after the 2002 election for six states: Alabama, Idaho, Illinois, New Jersey, Ohio and Oregon. Based on the data contained in the report and in this update, party spending has increased significantly in most states analyzed. The reason seems to be that in the U.S. Supreme Court case Colorado Republican Federal Campaign Committee v. Federal Election Commission, the justices said that for the purposes of campaign finance regulation, a political party is an independent entity if it is not coordinating its spending directly with the campaign.† In effect, total independent spending by political parties is given the same protection as that of independent groups.†

He stated that Kentucky was in an unusual situation in that we would have expected party spending to increase significantly in the first election after the Supreme Courtís ruling in 1996, but the 1999 election was not very competitive and campaign spending relatively low. Party spending by Democrats went up in 1995 (the publicly funded campaign). Using inflation-adjusted dollars, spending had been over $1 million in the past for Democrats, and it went up to just a little over $2 millionóa significant increase, but not on the order of what was being seen in other states.†

In conclusion, he stated that staff had been unable to obtain conclusive information about the effects of public financing because only a few states had publicly funded campaigns, which made it difficult to generalize. He stated that some specific questions for Kentucky that remain unanswered are how well public funding would work if there were a large number of candidates and how the trigger mechanism would work in practice; therefore leaving doubt as to how much the program would cost.† He stated that the biggest unknown is to what degree spending by political parties could increase in Kentucky.


Sen. Borders asked if spending would have been up considerably if public funding had been in place this year. Dr. Hager stated that would assume that every candidateís behavior would have been the same if there had been public funding.†


Sen. Borders asked if Arizona and New Jersey were both public financing states. Dr. Hager stated that was correct.


Sen. Borders stated that party spending in 2002 for Arizona was $12.6 million dollars and in New Jersey it was $32 million dollars. So if public financing was working, those numbers surely would not indicate that they are holding the numbers down. He said he felt that we needed to look no further than just the numbers in Kentucky this year assuming that the candidates would have done what they did, it would have increased our spending by millions at a time when the stateís budget woes are significant. He said the legislatureís bipartisan effort not to provide funding was right because millions of dollars would have been spent had those candidates acted the same as they did, and those dollars could be used for Medicaid,† education, and other programs.


Rep. Arnold stated that every effort should be made to restore the average personís faith in the election system.†


Rep. Palumbo stated that in looking at the spending again this year, the primary included, each primary may have had a different outcome had campaign finance been in effect and been more equitable, considering the closeness of the election.


Rep. Baugh asked if he heard correctly that staff could not obtain data regarding the third parties in the 1995 race. Dr. Hager stated that was correct.†


Rep. Baugh asked if that data would make the figures much greater. Sarah Jackson, Kentucky Registry of Election Finance, stated that it would probably not. They are required to report over a certain threshold, but unless they reach that threshold they are not reported.


Rep. Baugh asked if the reason for a lawsuit that was filed several years ago was based on groups coming from out of state into Kentucky and spending money on behalf of a candidate. Mr. Hager stated that he was not familiar with that lawsuit.


Ms. Jackson stated she thought the issues had to do with coordinated expenditures or independent expenditures.

Rep. Baugh explained that his point was the fact that that no one really knew what that election cost.† He said that it had to be a large sum because that was what initiated the lawsuit.†


Rep. Baugh stated it appeared that† party spending had been relatively similar up until 1995 and there was a great disparity in that year and has been since. Dr. Hager stated that it was similar in one year. He stated that based on reports turned into the Registry, Democrats had spent more than the Republicans. He said Republicans accounted for money somewhat differently than the Democrats in terms of to whom they report.†


Rep. Baugh asked if would be accurate to say that there was not a lot of difference in the years up until 1995. Dr. Hager stated that there was evidently a bigger disparity in 1995 than in any other year.


Rep. Palumbo asked why the two major parties did not report the same way. Dr. Hager explained that the parties have different accounts from which they spend money.† He stated it was his understanding that the Republicans spent some money used in state campaigns from what they call their non-federal account, for which they report to the Federal Election Commission.

Rep. Palumbo asked if that information was in the report. Dr. Hager stated that the discussion of accounts could be found on page 65.


Rep. Hoffman stated it was important to continue with bipartisan efforts to come up with something that would be reflected in the citizens of Kentucky turning out to the polls in larger numbers.†


Rep. Hoffman explained that the October meeting date needed to be moved because of a conflict with other meetings scheduled for that day.† He said if there were no objections, the next meeting date for the Program Review Committee would be on Friday, October 17th at 10: 00 a.m.


Rep. Hoffman also asked committee members to turn in their selection of study topics by October 10th †so he and Sen. Stine could meet and come up with a list of topics.


Rep. Arnold asked the co-chairs to consider eliminating study topics that other committees could be working on, or topics that had already been done in the past.


Rep. Hoffman stated that they would review the list.


Dr. Hager stated that staff had a record of what reports had been done and what reports had been issued already. He said it might be helpful to circulate the list of proposed study topics to committee co-chairs to see if they know about things that are upcoming.


Rep. Arnold asked that study suggestion #3 regarding the Agriculture Development Board be eliminated since a 611 oversight committee had been appointed.


Sen. Stine stated she had some amendments to make to the Improved Coordination of Adult Protective Services study proposal. Under Objective 2, she asked that the following be included:† What is the current function of the elder abuse committee that was created under KRS 209.005?† What public awareness efforts are currently in place so that ordinary citizens are aware of 209.030(2), which requires any person who has knowledge of elder abuse to† report it? What are we doing to educate the general population about that?

Sen. Stine stated that a big concern was the uncertainty and training that local law enforcement personnel were receiving regarding identification of instances of elder abuse and also knowing who to contact. Under Objective 3 she asked that the following be included: What training is provided to local law enforcement personnelóongoing and initial trainingóand what input does Adult Protective Services have in development of that curriculum? What is the curriculum and who develops it? Under Objective 5:† To what extent are we accessing charitable and faith-based volunteer organizations for funding?.† Under Objective 6: How do the agencies handle privacy considerations?


Amendments to the Improved Coordination of Adult Protection Services study proposal were approved upon motion made by Sen. Harris and seconded by Sen. Borders.


Rep. Baugh stated he would like to make an amendment to the Medicaidís Brokerage System for Nonemergency Transportation study proposal. Under Objective 3, he asked staff to look into the difference in fee structure for different regions. Does the state establish the fees or is that negotiated by the brokers, and if the state establishes the fees, why are there different structures in different regions?


Sen. Stine suggested that staff elaborate on whether or not providers are being assigned on a fair and impartial basis. She stated that there appeared to be some criticism among the providers that the brokers were not distributing the jobs fairly.†


Amendments to the Medicaidís Brokerage System for Nonemergency Transportation study proposal were approved upon motion made by Rep. Baugh and seconded by Sen. Stine.


Rep. Hoffman stated that he would like for the committee to consider adding a few short simple study topics to the list which would enable staff to do concise reporting in a short period of time.


Meeting adjourned at 4:00 p.m.