Program Review and Investigations Committee



2016 Interim


<MeetMDY1> December 13, 2016


Call to Order and Roll Call

The<MeetNo2> Program Review and Investigations Committee met on<Day> Tuesday,<MeetMDY2> December 13, 2016, at<MeetTime> 10:00 AM, in<Room> Room 131 of the Capitol Annex. Representative Terry Mills, Chair, called the meeting to order, and the secretary called the roll.


Present were:


Members:<Members> Representative Terry Mills, Co-Chair; Senators Tom Buford, Dan "Malano" Seum, Stephen West, and Whitney Westerfield; Representatives Tim Couch, David Meade, Ruth Ann Palumbo, Rick Rand, Arnold Simpson, and Jeff Taylor.


Guests:  Judge Roger Crittenden, Chairman, Child Fatality and Near Fatality External Review Panel; David Gordon, Executive Director, Tom Crawford, Director of Local Valuation Support, Office of Property Valuation, Richard Bertelson, Staff Attorney, Office of Legal Services for Revenue, Department of Revenue; William “Mack” Bushart, Executive Director, Kentucky Property Valuation Administrators Association, Clay Wells, Union County Property Valuation Administrator, Chairman of the Farm Committee for Property Valuation Administrators; Terry “Catfish” Rakes, Marion County Property Valuation Administrator; Thomas Wheatley, Alice Wheatley, and Madeline Wheatley.


LRC Staff:  Greg Hager, Committee Staff Administrator; Colleen Kennedy; Van Knowles; Chris Riley; William Spears; Shane Stevens; Joel Thomas; and Kate Talley, Committee Assistant.


Representative Mills asked for a moment of silence for Senator Clark’s father, who recently passed away.


Representative Mills welcomed guests and said the committee will meet sometime in January to choose study topics for 2017.


Minutes for November 10, 2016

Upon motion by Representative Simpson and second by Senator Seum, the minutes of the November 10, 2016, meeting were approved by voice vote, without objection.


Staff Report: 2016 Update On The Child Fatality And Near Fatality External Review Panel

Colleen Kennedy said that the General Assembly created the panel in 2014 to conduct comprehensive reviews of child fatalities and near fatalities suspected to be a result of abuse or neglect. Program Review and Investigations is required by statute to evaluate the panel’s operations, procedures, and recommendations annually.


The panel is attached to the Justice and Public Safety Cabinet for staff and administrative purposes. A 2014 memorandum of understanding affirms the panel’s independence.


The panel is in compliance with six of the seven statutory requirements reviewed. The exception is that the panel’s annual report is to be published by December 1. The 2016 report was published on December 12.


The panel has implemented the recommendation from the Program Review evaluation in 2015 that the panel adopt a formal policy for destroying old online case files.


For fiscal years 2015 and 2016, the cabinet’s general fund included allocations of  $420,000 per year for panel staff and operating costs. Beginning with FY 2017, panel funding comes from the cabinet’s baseline funding. Recent information from a cabinet official is that $382,000 was set aside for the panel for FY 2017.  However, the panel’s understanding from the cabinet has been that no specified amount was set aside for FY 2017.


Current panel staff are

·        a full-time staff attorney whose salary is funded in full by the panel;

·        an executive staff advisor, who handles other cabinet duties and whose salary is 50 percent funded by the panel;

·        a cabinet administrator who acts as a liaison between the panel and the cabinet;

·        an intern during spring semesters; and

·        part-time, contracted case analysts.


The panel’s preferred staffing would be 

·        a full-time director,

·        a full-time program coordinator,

·        a full-time data analyst, 

·        an intern, and

·        contractors as needed.

A formal request for these positions has not been made based on the understanding that no funding was available.


The panel’s 2015 annual report had 10 recommendations. One of the two recommendations requiring action by the General Assembly was enacted in 2016. The panel’s 2016 annual report has two recommendations requiring action by the General Assembly

·        to create easily affordable and low-cost access to background checks for parents considering using unregulated child care providers and

·        to enhance penalties when a driver is convicted of a DUI with a minor in the vehicle.


In response to questions from Senator Westerfield, Ms. Kennedy said that electronic records are to be destroyed after 5 years. Judge Crittenden said paper files are destroyed immediately after review.  He clarified that “online” documents are documents available on SharePoint that are available only with restricted access within state government.


In response to a question from Representative Mills, Ms. Kennedy said that funding is determined by the Justice and Public Safety Cabinet. Judge Crittenden said $382,000 has been set aside for the panel’s use this fiscal year. He expects another $382,000 for the next fiscal year.


Judge Crittenden explained that the panel’s annual report was submitted 11 days late so that it would include information from all the panel’s meetings. The panel reviewed 142 cases this year.


In response to a question from Senator Seum, Judge Crittenden said an unregulated childcare provider is what is generally considered a babysitter. Such providers are not required to have background checks.


Representative Mills commented that drug abuse is the main problem according to the panel’s report. Although the pension crisis is a major concern facing our state, services for children should not suffer at its expense.


Upon motion by Representative Simpson and second by Representative Palumbo, the report 2016 Update On The Child Fatality And Near Fatality External Review Panel was adopted by roll call vote.


Staff Report: Assessment Of Farmland For Property Taxation In Kentucky

Perry Nutt said that a 1969 amendment to the Kentucky Constitution provided that farmland would be assessed differently for property taxation. A commercial or residential tract is assessed based on its fair cash value–the estimated price it would bring at a fair voluntary sale. Farm property must be assessed based on its agricultural use value, which is the estimated price the property would bring if the use of the land was limited to agriculture. This typically results in a lower assessed value and lower property taxes for the owners. The 1969 amendment allowed the General Assembly to levy an additional tax on farmland if the use of the land changed, commonly referred to as the rollback provision.


HB 442, the enabling legislation for the amendment, was enacted in 1970. Under the law, for a tract of land to quality for assessment as farmland, it had to meet a minimum acreage requirement and be used for agricultural or horticultural purposes. Property owners had to file an application that documented a minimum amount of income was generated from the use of the land. A rollback provision specified that if the use of the land changed, an additional tax would be applied for the current year and the previous 2 years.


HB 585, enacted in 1992, removed the income requirement and the rollback provision. Under current statutes, two types of land qualify for the preferential assessment: agricultural and horticultural. Agricultural land is defined as any tract with at least 10 acres that is used for the production of livestock, poultry, and growing of tobacco and/or other crops, including timber. A 5 acre tract can qualify if the land is being used for aquaculture. Any size tract can qualify if it meets the requirements of a state or federal agricultural program. To qualify as horticultural land, the tract must have at least 5 acres and must be used for the cultivation of a garden, orchard, or the raising of fruits, nuts, vegetables, flowers, or ornamental plants. When determining whether the land meets the minimum 5 or 10 acre requirements, land under farm buildings and similar structures is included. Land under the owner’s residence, lawns, and drives, is excluded.


Three statutory provisions address when the preferential assessment is no longer applied. If a qualifying tract has been zoned for another use besides agriculture, it qualifies for the preferential assessment until the use of the land changes. If part of a tract has changed from agriculture to another use, the remainder of the tract can receive the preferential assessment if it meets the minimum acreage requirement and is used for agricultural or horticultural purposes. If the owner has met the provisions for agricultural land for 5 consecutive years but has ceased to farm the land and the use has not changed, then the property would still receive the preferential assessment (retired farmer provision).


Under current statutes, the value of the land is based on its income-producing capability, assuming its use is limited to agricultural or horticultural purposes. In determining income-producing capability, the assessment must take into account characteristics of each tract such as the type of land, the soil productivity, and any improvements.


Staff found some ambiguities in statutes. First, the term “used for production” is not defined. Since the removal of the income provision in 1992, statutes do include any criteria that could be used to determine if a tract is being used for agricultural or horticultural purposes. Second, statutes do not specify what portion of the tract or how much agricultural activity must take place before a tract qualifies. Third, statutes list certain types of agricultural use, so it is unclear whether strict interpretation would allow other types of animal or agricultural enterprises to qualify.  Fourth, a provision permits any tract to qualify if it meets the requirements for a state or federal agricultural program. It is unclear whether a tract qualifies if the owner was approved for such a program but did not receive any payments. A strict interpretation may exclude a property owner who participates in a local agricultural program.


The Kentucky Supreme Court has ruled that farmland assessments must be based on income producing capability and property valuation administrators (PVAs) must consider the characteristics of each tract. Only one court decision mentioned directly the income and acreage requirements that were in place at that time. The court ruled the income and acreage requirements were not unreasonable, but did not identify the factors it considered in reaching this conclusion. Cases before the Kentucky Board of Tax Appeals have focused on valuation issues and determination of when the use of a tract changes. Language in these board rulings suggests that after the income requirement was removed, the sole requirement is that the land have income-producing capability. Overall, these cases provide little guidance because what constitutes “used for production,” the types of agriculture allowed, and the amount of agricultural activities needed for a tract to qualify have not been brought before the court or the board.


Staff interviewed the executive director and the Farm Committee of the Kentucky PVA Association, participated in a group discussion of PVAs at their fall conference, and interviewed officials in the Department of Revenue’s Office of Property Valuation. PVAs and department officials said that after the removal of the income provision in 1992, the adopted policy was to grant the preferential assessment if the tract met the minimum acreage requirement and had income-producing capability. This practice does not consider three provisions in the statutes. First, it does not consider whether land is being “used for” agricultural production. Only a few PVAs monitor agricultural use. Second, current practice does not consider the acreage adjustment provision. Third, common practice does not consider whether a tract may qualify because it meets the requirements under a state or federal agricultural program.


PVAs and department officials recognize that under the common practice there are misclassified farms—tracts without agricultural use that receive the preferential assessment. They noted that misclassification is a concern, but that misclassified farms may be concentrated in certain areas and the effect on assessments and property tax revenue will vary by county. The effect on property tax revenue may be small. PVAs indicated that determining agricultural use is not difficult for most tracts. For certain tracts, PVAs had questions regarding how to apply the “used for” provision. Overall, PVAs indicated that legal considerations and statutory limitations have hampered their ability to diligently enforce the provision that farmland be used for agricultural purposes.


In February 2016, the Herald Leader published a series of articles examining the determination and valuation of farmland in Fayette County. The articles suggested that lower property taxes due to the preferential assessment decrease property tax revenue, are inequitable, and do not promote the preservation of farmland. A number of Fayette County parcels received the preferential assessment, even though the parcel was about to be developed, development was underway, or the land was idle. More than 800 residential tracts of 10 to 11 acres did not have agricultural use, but received the preferential assessment.


Fayette County may not be representative of other counties though. It has a relatively high number of 10 acre properties because Fayette County required a 10 acre minimum lot size for residential tracts outside the urban services area prior to 1999. The price of farmland in Fayette County is relatively high, which means that the deferred per acre is much higher than in other counties.


In response to the Herald Leader series, the Fayette County PVA requested guidance from the Department of Revenue. In its response, the department said that a tract must be actively used for agricultural, aquaculture, or horticultural purposes and contain the minimum acreage after the acreage adjustments have been applied unless the tract would qualify under the retired farmer provision. For tracts that are transitioning to another use, in most cases the preferential assessment should be removed once the new use has begun. If the tract was idle, a PVA could remove the agricultural assessment unless the retired farmer provision applied. A partial tract could qualify for the preferential assessment if it met the minimum acreage requirement and had active use.


The Fayette County PVA has indicated he will remove agricultural exemptions for all tracts except those that qualify under the retired farmer provision and will require an application demonstrating the land has active agricultural use. For land that is likely to be developed, tracts must have active agriculture use or they must qualify under the retired farmer provision. Partial tracts may qualify if they meet the minimum acreage requirements and are being used for agriculture, or qualify under the retired farmer provision.


HB 576, introduced in the 2016 Regular Session, would require that PVAs obtain documentation regarding tract size and use of the land and that the land be currently used for agricultural, aquaculture, or horticultural purposes. The bill clarified that the land tied to the owner’s permanent residence must be excluded when determining whether the minimum acreage requirement is met. Any size tract would qualify if the owner had a current enforceable agreement under a state or federal agricultural program.


In 2015, there were more than 300,000 tracts in Kentucky that were assessed as farmland. Their fair cash value was $56.1 billion. Their estimated agricultural use value was $19.5 billion. The deferred assessment amount—the difference in these two values—was $36.6 billion. The reduction in state property tax revenue attributable to the deferred assessment was $44.7 million. The 15 counties with the highest deferred assessments in 2015 accounted for 36 percent of total deferred assessments in Kentucky. Fayette County topped the list at $1.6 billion in deferred assessments. Logan, Christian, and Bourbon Counties had deferred assessment of more than $1 billion each.


The number of misclassified farms and the deferred assessments from them could not be determined, which precluded staff from estimating the fiscal impact. It can be said that if assessments increase due to a reduction in the number of misclassified farms, state, local, and school property tax revenue will increase. For school districts, the increase in property assessments will lead to an increase in local property tax revenue but will reduce the amount of state Support Education Excellence in Kentucky (SEEK) funds a district receives. Overall, the additional local property tax revenue will exceed the reduction in state SEEK funds, however.


Representative Palumbo thanked Mr. Nutt for his diligence on this issue.


In response to questions from Senator Buford, Mr. Nutt said the Supreme Court and the Board of Tax Appeals have not been asked directly what constitutes agricultural land.

In response to a question from Senator West, Mr. Nutt said current statutory requirements are minimum acreage and land usage; there is no minimum level of usage required. Development potential of properties was not covered in this study.


Mr. Gordon said the goal of the Department of Revenue is to eliminate misclassified farms. In the coming year, emphasis will be placed on the acreage requirement and land usage.  The department is developing a form for PVAs to use in their determinations.


In response to a question from Senator Buford, Mr. Gordon said deducting the land under a residence, lawns, and driveways is required in KRS 132.450. Questions regarding this requirement are anticipated.


In response to a question from Representative Simpson, Mr. Gordon said a quadrennial review is required. Mr. Crawford said some PVAs assess lands in different ways.  Some assess geographically; assess categorically. Owners can appeal PVA assessments.


In response to a question from Senator West, Mr. Bertelson said the land under a residence is taxed at fair cash value.


In response to a question from Representative Mills, Mr. Bertelson said the agricultural value of a property is determined under KRS 132.010(11).


Mr. Bushart agreed that there is not much guidance in statutes about what agricultural use means. The association has requested a list of relevant federal and state programs from the Agriculture Commissioner.


Senator West commented that the provision in HB 442 concerning agricultural purpose is vague and gives PVAs too much discretion. It is likely that taxing some tracts of land at residential rates rather than agricultural rates will push these tracts into development.


In response to questions from Representative Simpson, Mr. Bushart said the association would like statutory requirements to be more concrete and uniform. Mr. Nutt said 30 states have a minimum acreage requirement, 26 states have an income requirement, and 20 states require both.


Representative Rand commented that PVA offices are understaffed. These assessments affect schools and the SEEK formula, and therefore need to be dealt with cautiously.


In response to a question from Representative Meade, Mr. Wells said timberland is classified according to US Department of Agriculture land classes. These assessments are not an issue in his area.


Representative Palumbo said the intent of HB 576 was not to harm farmers. PVAs are understaffed and underfunded.


Senator Buford commented that consistency is needed across the state. PVAs should not go beyond the scope of the statutes.


Upon motion by Senator Seum and second by Representative Simpson, the report Assessment Of Farmland For Property Taxation In Kentucky was adopted by roll call vote.


Staff Update On The Foster Care System Study

Chris Riley said the study will focus on children who have been removed from their homes by a court and remanded into the custody of the Cabinet for Health and Family Services.


The circumstances under which a child might enter foster care begins when a report alleging dependency, neglect, or abuse is filed and a Department for Community Based Services social service worker (SSW) investigates the allegations. The three basic scenarios are the following.

·        It is found that the child is not in imminent danger, but that the family needs help. The SSW may arrange for services to help the family improve its living conditions.

·        If the family refuses help, the SSW can file a non-removal petition with the courts to force the family to accept help in the best interest of the child.

·        If the SSW substantiates the allegations and believes the child is in imminent danger, the SSW will file a petition with a court for the immediate removal of the child.


Mr. Riley explained steps in the foster care court process: petition, temporary removal hearing, adjudication hearing, disposition hearing, and annual permanency review. Each step has specific requirements, which include time limits and deadlines for actions. Within 5 working days of signing of the temporary custody order, the SSW schedules a meeting to develop a family case plan detailing steps that need to occur to correct the problems that resulted in the child being removed. The SSW and the family work on and revise this plan continuously during the process.


Reunification was the goal in approximately 70 percent of the permanency plans from FY 2010 to FY 2015. Adoption was the permanency goal in roughly one-quarter of the cases.  


On average, nearly 4,100 children per year exited from out-of-home care from FY 2010 to FY 2015. The four primary reasons were reunification (nearly 40 percent of exits on average), placement with relatives (more than 26 percent), adoption (19 percent), and ageing out (nearly 13 percent).


According to the annual reports submitted by the Kentucky Citizen Foster Care Review Boards, the number of children whose cases were reviewed by the board has grown by more than 13 percent in recent years, from nearly 9,800 children in FY 2010 to nearly 11,000 in FY 2015. These are children who were in foster care whose cases were reviewed throughout the fiscal year. The population as reported by the Department for Community Based Services (DCBS) fluctuates daily. As of November 6, 2016, the cabinet had 8,083 children under its custody and care.


According to the annual population counts, children 5 and younger represented the largest age grouping of children in out-of-home care, accounting for nearly one-third of children over this period. Children aged 16 to 20 years consistently accounted for approximately one-quarter of the children. Approximately 1 percent of children were age 21 and over. 


Over this period, boys were approximately 51 percent of the children in out-of-home care. Seventy-six percent of the children were Caucasian, nearly 16 percent were African American, and 8 percent were classified as “other” or “unable to determine”. The average age for children in out-of-home care was 10 years.


As the study moves forward, staff plan to utilize data from the Administrative Office of the Courts that will provide times per case for the steps in the court process. Staff are also currently looking into the DCBS workforce and financing of the foster care system.


In response to a question from Representative Taylor, Mr. Riley said the upward trend of children being placed with relatives or adopted is because of an increasing number of unsafe home environments.


Representative Mills said the committee adopted seven reports this year and heard testimony on many other subjects. Reports are being presented in a timely manner. He thanked Representative Taylor for his service.


Representative Simpson and Senator West thanked Representative Mills for his leadership.


The meeting adjourned at 11:45 AM.