Call to Order and Roll Call
The Program Review and Investigations Committee met on Thursday, December 13, 2012, at 10:00 AM, in Room 131 of the Capitol Annex. Representative Fitz Steele, Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Representative Fitz Steele, Co-Chair; Senators Tom Buford, Perry B. Clark, Vernie McGaha, and Brandon Smith; Representatives Dwight D. Butler, Leslie Combs, Jim DeCesare, Terry Mills, Ruth Ann Palumbo, Rick Rand, and Arnold Simpson.
Guests: Eric Friedlander, Deputy Secretary, Cabinet for Health and Family Services. John Steffen, Executive Director, Executive Branch Ethics Commission. T.J. Carlson, Chief Investment Officer, Kentucky Retirement Systems. Robert Barnes, Deputy Executive Secretary of Operations and General Counsel, Kentucky Teachers’ Retirement System. Geoffrey Dunn, Executive Director; Kelly Childers, Administrative Assistant; Governor’s Office of Boards and Commissions. Hollie Hopkins, General Counsel, Office of the Governor.
LRC Staff: Greg Hager, Committee Staff Administrator; Chris Hall; Colleen Kennedy; Katie Kirkland; Van Knowles; Lora Littleton; Jean Ann Myatt; William Spears; Joel Thomas; Leonard Evans, Graduate Fellow; Jenna Skop, Graduate Fellow; Stella Mountain, Committee Assistant.
Response to recommendation in report Governance, Funding, and Investments of the Kentucky Retirement Systems and the Kentucky Teachers’ Retirement System (adopted at September 13 meeting)
Mr. Steffen said that changes had been made to the executive branch code of ethics to ensure that placement agents registered as lobbyists. After conferring with officials from the Kentucky Retirement Systems (KRS) and the Kentucky Teachers’ Retirement System (KTRS), he is recommending two changes to KRS 11A.201(17) because the existing language is confusing. “Third party” is added to describe the individuals hired or compensated. The entity doing the hiring would be an “investment manager,” which would replace “employer or other real party in interest” in the statute.
Mr. Carlson said that part of the confusion is due to the use of different terms in the investment statutes and the statutes related to the executive branch code of ethics. Currently, it can be unclear who is to register as a placement agent and how many people from an organization have to register. Mr. Barnes agreed. He said the statute was not intended to cover internal business staff.
Representative Steele asked whether the sponsor of the placement agent legislation had been contacted, whether there was a suggestion for changing the statute, and whether a bill had been prefiled. Mr. Steffen said that language has been suggested, but no bill has been prefiled.
Mr. Carlson described what KRS has been doing to comply with the statute on placement agents, which includes posting its placement agency policy and requiring completion of a questionnaire that has items related to placement agents. KRS staff have written a white paper on placement agents that can be provided to the committee.
In response to a question from Representative DeCesare, Mr. Carlson said that before KRS has meaningful discussions with anyone, they are required to be registered as lobbyists.
Mr. Barnes said that KTRS adheres to the executive branch code of ethics. KTRS does not use money managers who use placement agents.
Approve Minutes for November 8, 2012
Upon motion made by Representative Simpson and a second by Representative DeCesare, the minutes of the November 8, 2012 meeting were approved by voice vote, without objection.
Selection of Study Topics for 2013
Upon motion by Representative Simpson and second by Senator McGaha, six topics were selected by roll call vote for study by staff:
1) Department of Fish and Wildlife Resources: independence from state government based on behavior and funding, needed structural changes, review of organizational structure as a commission
2) Kentucky Vehicle Enforcement: accountability, duties, possible duplication of effort with State Police
3) Breakdown of all agencies to which coal severance money goes
4) Number and cost of nonmerit employees
5) Personal service contracts
6) Special taxing districts: qualifications, staffing, salaries
Consideration of Staff Report: Personal Care Homes in Kentucky (presented at November 8 meeting)
Upon motion by Representative Simpson and second by Representative Mills, the report was adopted by roll call vote.
Staff Report: Kentucky’s Boards, Commissions, and Similar Entities
Lora Littleton, Jean Ann Myatt, and Colleen Kennedy presented the report. Ms. Littleton thanked staff of the Governor’s Office of Boards and Commissions (GOBC), which is responsible for coordinating gubernatorial appointments to boards, commissions, and similar entities. The office maintains a database with active and inactive entities; it posts active entities on the website. The office is not required to collect particular information from boards, commissions, and similar entities, nor are these entities required to supply the office with specific information. There is no central repository of information for all entities.
The exact number of boards, commissions, and similar entities is unknown. Staff identified 571 entities through communication with GOBC and review of Kentucky Revised Statutes and Kentucky Administrative Regulations. Additional information was gathered by reviewing other enabling authorities and through responses to a questionnaire sent to nearly 400 entities.
Staff categorized entities into 18 types, based on the primary subject matter each addresses. More than 40 percent of the total is made up of three types: judicial (84 entities), health and welfare (82), and professional and occupational (74).
Some entities have their own budget; others operate within another entity’s budget. Approximately 85 percent of entities reporting funding sources indicated state funds as a source. Other reported sources were federal (15 percent), private (9 percent), and other (8 percent).
Members of entities may be compensated and reimbursed. Eighty entities reported paying members a per diem amount, 15 reported paying a salary, and eight reported other forms of compensation. There were 251 entities that reported paying some form of reimbursement to members. Of those, 94 percent responded that travel expenditures were reimbursed and nearly 60 percent indicated lodging and food reimbursements. In total for fiscal year 2011, respondents reported paying members of entities nearly $6.6 million in compensation and reimbursement. Salaried compensation was reported by 15 entities for a total of over $4 million. Reimbursement amounts were reported by 251 entities for a total of nearly $1.5 million.
Entities have varying staffing arrangements. Of the 290 entities reporting use of staff, 87 reported use of exclusive staff who worked only for the entity, which ranged from 1 to 275 per entity. Of those 87 entities, 75 reported having an executive director or equivalent position. Among entities reporting use of exclusive staff, a total of 1,863 staff were reported. The 201 entities that reported using staff who did not work solely for the entity had 738 shared staff. Based on the reported number of hours worked per month, this represents a full-time equivalency of approximately 104 staff.
Members of entities are unlikely to work enough hours monthly to gain service credit in the retirement system. Retirement systems staff could not definitively determine whether a particular board or commission member participated in the retirement system due to the board membership position or due to state government employment. KRS could definitively report only two entities that had members participating by virtue of their board membership.
Of the 87 surveyed entities that reported having exclusive staff, nearly 72 percent of employees participate in the retirement system. Of shared staff, 163 entities reported having 602 shared staff participating. Based on the reported hours worked per month, this was equivalent to 90 full-time employees. For comparison, the retirement system has nearly 325,000 members and beneficiaries.
As most members of boards, commissions, and similar entities are part-time, they are unlikely to meet eligibility requirements for health insurance benefits by virtue of their board membership position. Kentucky Employees’ Health Plan staff reported that 36 full-time board members were eligible for health insurance. For comparison, there are 156,045 state health insurance plan holders. Approximately 72 percent of exclusive staff were reported as participating in the Kentucky Employee’s Health Plan. Of the shared staff, the equivalent of 88 full-time employees participate.
Entities may be audited because the enabling legal authority requires it or for Kentucky’s Comprehensive Annual Financial Report (CAFR). Some entities are audited even though it is not required. Nearly 30 percent of the entities responding to the questionnaire reported conducting an annual audit. Additionally, 11 percent reported an audit that is done periodically. Of the entities not reporting an annual audit, approximately 17 percent appear in the CAFR. Approximately 50 percent of entities did not report an annual audit, did not provide a date of a periodic audit, or were not identified in the CAFR. Some may be in the CAFR as part of a larger entity.
Membership numbers vary and include a mix of appointed and ex officio members. The most common size of entities is 6 to 10 members with more than 40 percent of entities falling into this category. One-fourth of the entities have 11 to 15 members. Most entities have gubernatorial appointments, ranging from 1 to 32 per entity.
Sixty-nine entities reported vacancies. Less than 1 percent of seats were vacant for more than 1 year. Nearly 3 percent of seats were vacant for less than 6 months.
Among entities for which the frequency of meetings was noted in an entity’s enabling authority, nearly 80 percent appeared to meet or exceed requirements for holding meetings. During one or both years for which meeting dates were requested, 15 entities did not appear to meet requirements for the necessary number of meetings. In some cases, entities noted there is not a need to meet as frequently as is required in the entity’s enabling authority.
Some entities’ enabling authorities have language that is unclear regarding meeting requirements. An example is when a statute indicates that an entity shall meet quarterly or upon the call of the chair or other party. Other statutes do not mention a requirement for number of meetings.
Recommendation 1.1 is that “Boards, commissions, and similar entities should comply with statutory requirements for frequency of meetings. If an entity perceives that requirements are unduly burdensome or an impediment to fulfilling its duties, it should request that the General Assembly modify the statute.”
Recommendation 1.2 is that “The General Assembly, when enacting an entity’s enabling statute, may wish to consider specifying how often the entity must meet or including language to the effect that meetings are to be held at the discretion of the entity’s governing body.”
Ms. Myatt said that Program Review staff identified 82 inactive entities through communication with GOBC and administrative bodies associated with the entities. In addition, from questionnaire responses, Program Review staff identified 11 entities that had not met since 2009 or before. GOBC includes inactive entities in its database. The office’s examples of why an entity would be considered inactive include that no appointments were ever made, no meetings were ever held, or the entity accomplished its function.
There does not appear to be a formal process in place whereby staff of that office inform the General Assembly of entities listed in its database as inactive yet have an active statute.
Recommendation 2.1 is that “Staff of the Governor’s Office of Boards and Commissions should implement a formal process for notifying members of the General Assembly before each legislative session, of boards, commissions, and similar entities listed in the office’s database as being inactive but with an active Kentucky statute.”
There are no objective standards for determining the appropriate number and responsibilities of boards, commissions, and similar entities. As with the decisions to create them, deciding which ones to either eliminate, consolidate, revise, or continue are policy decisions for the General Assembly.
Ms. Kennedy said it took staff months to identify the 571 entities within Kentucky; the same could not be done for other states. Twenty other states had directories on their governors’ web sites, which contained a list of entities similar in comprehensiveness to that of GOBC. The listing from that office was used in comparison to the 20 states identified. New Jersey has the greatest number of entities, with Kentucky second highest with 398. The median state has just over 200 entities, approximately half the Kentucky total.
Program Review staff assigned the entities listed in the 20 comparison states to the same 18 subject types used to describe Kentucky’s entities. Kentucky’s relatively high number of entities is reflected across most types, with significantly higher numbers of entities within some types. Kentucky has a higher number of entities than the median for other states in all but four of 18 types of entities.
Some states have made a special effort to abolish and consolidate entities. The reported fiscal impacts are usually small. Some states have abolished entities directly through legislative or executive action with discontinuance of funding. Some of these abolished entities are similar to ones that Kentucky has. For example, Rhode Island discontinued funding for the Commission on Women. Some entities are merged, or consolidated, into other entities. In New York, the Consumer Protection Board was merged into the Department of State.
According to a National Conference of State Legislatures review, 19 states eliminated or consolidated state entities between 2009 and 2011. Savings from these actions were not significant. Some states eliminated entities regardless of any perceived savings, such as New Jersey, which eliminated numerous inactive entities.
When entities share related functions, such as licensing or regulating professions and occupations, greater efficiency may be achieved by having one umbrella agency handle administrative tasks for entities. Kentucky’s Office of Occupations and Professions does this for some professional entities. Illinois and Indiana have similar agencies.
Sunset review sets an end date for entities and follows a review process by which an entity is either abolished or continued. A fixed review cycle, along with the types of entities to be reviewed, is specified in the state’s sunset law.
Kentucky has no general sunset review process for its entities. Staff identified nine boards, commissions, and similar entities with sunset provisions in their enabling statutes.
Of the eight states examined that have sunset review bodies, four review a specified list of entities, one reviews all entities created by its General Assembly, one reviews only licensing boards, and two review all boards, commissions, and similar entities. The states have varying frequencies of review. For Missouri, the first sunset date is not more than 6 years after the entity is established, with up to 12-year reauthorizations. Ohio has established a review committee for calendar years 2015 and 2016 to evaluate each state agency in existence on January 1, 2015. In West Virginia, all entities except licensing and occupation boards are reviewed every 6 years, while licensing and occupation boards are reviewed every 12 years.
Texas has abolished 78 entities since 1977. Its review commission reports savings of $945.4 million since 1982; the commission's total expenditures for this period were $32.8 million.
Recommendation 3.1 is that “The General Assembly may wish to consider implementing a periodic review of all or selected boards, commissions, and similar entities to determine whether each entity should be continued, consolidated, or abolished.”
Sunrise review is conducted when an entity that proposes to be licensed must prove that regulation is needed for the health, safety, and welfare of the public. Kentucky does not have sunrise review. Most states that have sunrise review use the term only in reference to professional or occupational licensing boards. Oregon and Washington use sunrise review for all entities.
Recommendation 3.2 is that “For bills creating new boards, commissions, or similar entities, the General Assembly may wish to implement a process to determine potential overlap with existing entities and potential impact to the retirement systems and health plan.”
In response to a question from Representative Simpson, Ms. Littleton said that not all boards have staff.
Representative Simpson asked if any boards have been abolished in the past 20 years. Ms. Littleton said that some have been repealed. For example, the Dental Laboratory Advisory Commission was repealed in 2010.
Mr. Dunn said that the Governor’s Office of Boards and Commissions has three full-time staff. Among other duties, the office handles all administrative aspects of gubernatorial appointments to 398 boards and commissions and to other vacancies, including judgeships. The office maintains a database that holds information relevant to each board or commission with gubernatorial appointments. Mr. Dunn responded to Recommendation 2.1 that the office formally notify the General Assembly of inactive entities in the office’s database. He said that the office regularly communicates with LRC on issues related to boards and commissions. When new appointments are made, a revised membership listing is sent to two staff in the LRC front office. Senate confirmation information is sent to two Senate majority staff. The office would be happy to provide information on inactive boards but suggests that a definition of inactive should be agreed upon. The recommendation is that the office communicate with “members of the General Assembly.” The office requests to communicate as it currently does.
In response to questions from Representative Steele, Mr. Dunn said that 25 boards require Senate approval for appointments. The turnaround time if the Senate rejects an appointment depends on the situation. The office’s goal is to not leave any vacancies.
Representative Simpson asked if it is within the purview of GOBC to provide information on boards that are inactive. He said that he is a member of an entity for which his only contact is receiving a certificate. Mr. Dunn said that the office would be glad to work with staff to provide any information needed. However, GOBC is the appointing authority; it does not always find out about inactive entities.
In response to a question from Representative Simpson, Mr. Dunn said that GOBC does get information on activity of entities as appointments are made. Representative Simpson asked if GOBC consults with cabinets on appointments and whether cabinets make recommendations. Mr. Dunn responded that if a cabinet makes a recommendation, this is taken as indication that the board is needed.
Representative Steele requested that any information provided by GOBC go to all Program Review and Investigations Committee members.
Representative Palumbo said that based on her service on the Licensing and Occupations Committee, there are boards that could be combined. She would like to work with GOBC on this.
Representative Mills said he will review legislation that he is working on to make sure that a board does not already do what is in the bill. He asked how difficult it would be to put more information on the GOBC website, specifically links to lists of board members. Mr. Dunn said that this would not be a problem in terms of technology. Ms. Hopkins said that such information is a matter of public record, so there would not be a legal impediment to doing this. Representative Mills said that he would like the posted information to include board members and vacancies. He concluded by saying that he is impressed with how few vacancies there are.
Upon motion by Representative Simpson and second by Representative Palumbo, the report was adopted by roll call vote.
Representative Steele said that he and the committee appreciate the service of Senator McGaha and Senator Pendleton, committee members who are leaving the Senate this year.
The meeting adjourned at 11 a.m.