Interim Joint Committee on State Government


Minutes of the<MeetNo1> 1st Meeting

of the 2003 Interim


<MeetMDY1> June 25, 2003


The<MeetNo2> first meeting of the Interim Joint Committee on State Government was held on<Day> Wednesday,<MeetMDY2> June 25, 2003, at<MeetTime> 1:00 PM, in<Room> Room 149 of the Capitol Annex. Senator Albert Robinson and Representative Charles Geveden, Co-chairs, jointly chaired the meeting. Representative Geveden called the meeting to order, and the secretary called the roll.


Present were:


Members:<Members> Senator Albert Robinson, Co-Chair; Representative Charles Geveden, Co-Chair; Senators Walter Blevins, Charlie Borders, Tom Buford, Julie Denton, Ernie Harris, David K. Karem, Alice Kerr, Elizabeth Tori, and Johnny Ray Turner; Representatives John Adams, Adrian Arnold, Eddie Ballard, Carolyn Belcher, Buddy Buckingham, Dwight Butler, Jim Callahan, Larry Clark, Perry Clark, Tim Couch, Brian Crall, Tim Feeley, Joseph Fischer, Derrick Graham, J. R. Gray, Mike Harmon, Charlie Hoffman, Jimmie Lee, Paul Marcotte, Mary Lou Marzian, Lonnie Napier, Stephen Nunn, Tanya Pullin, Jon David Reinhardt, John Will Stacy, and Tommy Thompson.


Guests: Carol Palmore, Personnel Cabinet; Denny Nunnelley and Tim Sturgill, Kentucky Association of Counties; Wayne Young, Kentucky Association of School Administrators; Kyna Koch, Department of Education; Frances Steenbergen, Kentucky Education Association; Joe Ewalt and Bill Thielen, Kentucky League of Cities; and Tracy Goff Herman, Kentucky School Boards Association.


LRC Staff: Joyce Crofts, Alisha Miller, Mark Roberts, Kathy Walton, Stewart Willis, Laura Hendrix, Jim Roberts, Karen Armstrong-Cummings, Clint Newman, and Peggy Sciantarelli.


Representative Geveden welcomed Representative J. R. Gray, a new member of the Committee by virtue of his appointment to the Task Force on Elections, Constitutional Amendments, & Intergovernmental Affairs during the 2003 regular session. He also introduced new State Government committee staff members, Alisha Miller and Kathy Walton.


Senator Karem led the Committee in a moment of silence for Senator Tori's husband Martin, who died recently. Later in the meeting Senator Robinson asked Senator Denton to introduce her new baby daughter, Callie Elizabeth, who was then welcomed with a round of applause.


First on the agenda was discussion of employee reductions mandated by the 2003 enacted budget (House Bill 269). Personnel Cabinet Secretary Carol Palmore commented on three provisions in Part III of the enacted budget (pp. 205 and 206) that relate to reducing the number of state employees in the Executive Branch. She said substantial progress is being made in meeting the required reductions.


(1) Provision #33b: Effective September 16, 2003, the number of principal assistants shall not exceed the number employed on December 1, 1995…. – Secretary Palmore advised that on December 1, 1995, there were 106 principal assistants employed in the executive Branch. As of December 3, 2002, there were 178, and as of June 23, 2003, there were 123.


(2) Provision #33c: Effective December 1, 2003, the number of unclassified employees shall be 250 fewer than the number employed as of the effective date of this Act…. – Secretary Palmore said that there were 941 unclassified employees, as defined in the budget bill, on December 3, 2002. As of March 25, 2003, there were 914, and there are currently 855. She said it is expected that the goal of "250 fewer" can be met through voluntary retirements and attrition.


(3) Provision #33e: The Personnel Cabinet shall monitor the number of total employees in the Executive Branch and report to the Interim Joint Committee on Appropriations and Revenue on a monthly basis regarding the targeted reduction of 1,000 employees from the state workforce by December 13, 2003, as set forth in Executive Order 2002-1334. – Secretary Palmore said that as of December 3, 2002, there were 38,725 total employees, and as of June 20, there were 39,478. She explained that the increase of 753 is due to seasonal employment. She said that the Parks Department alone has hired 1,301 seasonal employees for the summer months; after their departure, the total number of employees on December 3 (38,725) will be reduced by 548, which is more than 50 percent of the targeted reduction of 1,000.


Representative Larry Clark said his biggest concern is delivery of services by the state. He emphasized that the legislature's intent was to retain as many sworn State Police officers as possible, as well as the staff who support them. Representative Gray also expressed concern about maintaining the strength of the State Police and commissioning new officers with the funds that the budget authorized for that purpose. Secretary Palmore said that the Cabinet is paying special attention to those provisions in the budget and has advised the KSP personnel administrator that "there is no question" about the numbers which were put in the budget for State Police. Later in the meeting Senator Karem offered a motion that the Co-chairs of the Interim Joint Committee should communicate to the Secretary of the Justice Cabinet the Committee's desire that the Cabinet maintain sufficient support personnel within the Department of State Police to enable the officers to perform their essential duties. The motion was seconded and passed by unanimous voice vote.


Representative Marcotte said he has been receiving complaints from constituents about being passed over for merit system jobs when political appointees were transferred into those positions. He spoke specifically about a June 6 wire service story about Ron McCloud, who was fired by the state, subsequently given a political appointment, and recently has been transferred in a merit system position. Representative Marcotte questioned this hiring practice and said he believes it defeats the intent of the merit system and creates employee morale problems. Secretary Palmore briefly reviewed the Cabinet's employment certification procedures and explained that the decision to employ Mr. McCloud was by an individual agency rather than the Personnel Cabinet.


Senator Karem suggested that the personnel system perhaps should have a mechanism to inform state agencies of the reasons behind the firing of prospective employees. Secretary Palmore said that the hiring agency usually asks for an applicant's recent employee evaluations and also may contact the applicant's former supervisor. She said the Personnel Cabinet's role is to ensure that applicants are qualified and eligible to be certified for employment. Persons convicted of certain crimes, however, are not eligible for certification.


Senator Harris questioned what type of test would be required for someone like Mr. McCloud. Secretary Palmore said that certain positions, such as Executive Staff Adviser, require the applicant to meet qualification requirements and do not require a written test, and that possibly Mr. McCloud was placed in that type of position. Senator Harris said he shares his colleagues' concerns said it appears obvious to him that appointments to some senior merit positions are politically motivated.


Representative Geveden pointed out that since the creation of the merit system in 1961, it has been the practice of every Governor, prior to leaving office, to arrange for certain political appointees to be retained in merit positions.


Representative Butler asked how it will be determined which jobs will be lost in order to comply with the mandated reduction of 1,000 employees. Secretary Palmore said that up to this point the reductions have been accomplished through retirements, persons leaving state government for employment in the private sector, and not filling vacancies. She said the Governor intended in EO 2002-1334 that the goal be attained through normal attrition, but if that is not possible, a layoff plan will have to be considered. She said she personally believes the targeted reduction can be met through attrition. She added that in August and September each year there is usually a substantial number of retirements and that agencies are being required to combine duties as much as possible to compensate for positions that become vacant.


Senator Blevins said he has received e-mail from employees in the Department for Adult Education & Literacy (Workforce Development Cabinet) regarding positions that are being eliminated. He said this concerns him, since Kentucky is making great strides in adult education, and it does not make sense to cut those jobs and at such a critical time in the economy. Secretary Palmore said this activity is not related to the mandated reduction in the state workforce but is, rather, an organizational move. She said that either Cabinet Secretary Willie Lile or Commissioner Cheryl King could better address this. She went on to say that it is her understanding that the affected employees are being placed in other jobs and that it is hoped that no jobs will be lost.


Representative Graham asked whether the Personnel Cabinet's polling of state agencies had indicated that the number of retirements in 2003 is expected to be greater than usual. Secretary Palmore said there may be a few more than in past years but that the difference will probably not be significant. She noted the Cabinet had only looked at nonmerit retirements.


Next on the agenda was review of Executive Orders 2003-512 and 2003-572. EO 2003-512 abolished the Office of Performance Management within the Department for Personnel Administration (Personnel Cabinet) and reestablished it at the branch level within the Division of Classification and Compensation. EO 2003-572 changed the effective date of EO 2003-512 from May 16, 2003, to June 16, 2003.


Secretary Palmore explained the reorganization. She said the Office had only three employees and that the Department has felt for some time that it would be more appropriately situated at the branch level. She explained that the effective date had to be amended in order to allow for an administrative order to be issued to create the new Performance Management Branch prior to abolishing the Office. Representative Geveden pointed out that, although the reorganization brings a nonmerit employee back into the merit system, the employee in question had previously been under the merit system and has 28 years of service. There were no questions for Secretary Palmore.


Next on the agenda, invited speakers commented on HB 103 (introduced by Representative Rick Nelson in the 2003 regular session) and issues relating to "unescorted retirees." [As explained in LRC staffer Mark Roberts' summary contained in the meeting materials, employees participating in the Kentucky Employees Retirement System (KERS), the County Employees Retirement System (CERS), and the State Police Retirement System (SPRS) are included in the health insurance group with state employees when they retiree. With the exception of state government and local school boards, other government entities may choose to cover their employees outside of the state group. Because younger employees generally have lower costs than older retirees, inclusion of active employees contributes to lower premiums overall. The Kentucky Group Health Insurance Board estimated that retirees and dependents of employers not participating in the group ("unescorted retirees") added $9.9 million to the total cost of health insurance for the state group in calendar year 2000 and more than $15 million in 2001. The Board recommended that employers who do not participate in the group either be required to include their more than 57,000 active employees in the state group or be required to pay for the added cost of their retirees.


The Kentucky League of Cities (KLC) and the Kentucky Association of Counties (KACO) suggested that their membership would support payment for unescorted retirees if the subsidy of school board employees were addressed at the same time. That subsidy occurs because classified employees of school boards receive 12 months of credit for completing a school year of 180 days, but only contribute for nine months. Thus, the three months earned for which no contributions are paid become a liability of the County Employees Retirement System.


HB 103 assessed a fee on CERS employers whose retirees were “unescorted.” During the 2003 session, meetings were held with affected groups and a committee substitute was approved by the House State Government Committee that addressed many of the concerns of the various affected groups. The substitute would require separate rating of “unescorted retirees” retiring January 1, 2004 or after; require all employers participating in CERS to pay a fee to the Kentucky Retirement Systems beginning July 1, 2005, to fund the cost of unescorted retirees; and, beginning January 1, 2007, would apply separate rates to unescorted retirees. (Using escrowed fees, the retirement system would pay the difference between the rate determined for the state group and the actual rate charged for the unescorted retirees). The legislation would require all CERS employers to pay the fee, which spread the cost over both school boards and non-school boards in the same ratio as the liability for those school board employees who work nine months but gain a full year of service. The unescorted retirees would be offered the same premiums as other members of the group. The difference between the regular premium and the separately rated premium would have to be paid by the retirement system directly to the insurance carrier from the fees collected.


HFA #1 would require the Department of Education to include funds to cover the fees payable by local school boards in its biennial budget request. HFA #2 (Rep. Stumbo) would exempt community action agencies from being required to pay the fee. HB 103/HCS was reported favorably from the State Government Committee but did not come up for a vote in the full House.]


Representative Geveden said that Kip Bowmar, Executive Director of the Kentucky Association for Community Action, had been delayed at a Washington DC airport and would be given an opportunity to speak at a later date. The first speakers were Denny Nunnelley, Deputy Director, Kentucky Association of Counties (KACO) and Tim Sturgill, General Counsel. Mr. Nunnelley said that KACO supports the committee substitute. However they have reservations about the state's track record of funding KERS and would hope that the state would fund the fees payable by local school districts under the HFA #1 provision more consistently than it funds the employer contribution rate to KERS. He said cities and counties and members of CERS must pay the employer contribution set by the Kentucky Retirement Systems' actuary each year. However, in the past, state government hasn't always paid the full employer contribution rate to KERS. KACO is concerned that the state may not fund the fees it promises to pay under HFA #1. Regarding HFA #2, Mr. Nunnelley said that KACO would oppose exempting any agency of CERS. There were no questions from the Committee.


Wayne Young, Executive Director, Kentucky Association of School Administrators (KASA), said that they support HFA #1 and probably would support "something even more emphatic than that." He asked the Committee, as they consider the issue in the future, to take into account how the state might provide for the cost, in order to avoid a substantial cost having to be borne by the local school districts. There were no questions.


Kyna Koch, Associate Commissioner, Office of District Support Services, Kentucky Department of Education, said that while the Department certainly supports HFA #1, they wish to point out that the classified employees of local districts are already escorted employees. She said the Department's position has been that the adjustment fee is due to a health insurance issue, and for the purposes of health insurance, the state has been deemed the "employer" of local district classified employees. The Department is asking the General Assembly to accept the cost of the adjustment fee; otherwise, this will call into question the money currently going into the General Fund that is being recouped from local school districts' flexible spending accounts. Last year, the amount recouped was approximately $18 million. Thus, it is the Department's position that the state either is the employer or is not the employer for all health insurance issues relating to local school districts. There were no questions for Ms. Koch.


The next speaker was Frances Steenbergen, President, Kentucky Education Association (KEA). Ms. Steenbergen said that during the 2003 General Assembly, KEA and other affected agencies met and agreed on provisions that would end the detrimental impact of unescorted retirees. She said it is her understanding that the committee substitute, as amended by HFA #1, represents that agreement. KEA continues to support the agreed-upon legislation as a compromise position and urges its future passage. There were no questions. (Ms. Steenbergen also provided committee members with copies of a prepared statement from KEA.)


The next speakers were Joe Ewalt, Director of Policy Development, Kentucky League of Cities, and Bill Thielen, General Counsel. Mr. Ewalt said that KLC was one of the organizations that helped negotiate the language of HB 103 and fully supports the committee substitute. He said the substitute has the effect of eliminating a subsidy that benefits local government retirees, in terms of their health care; and it also eliminates a subsidy that hurts local governments, which they end up paying in order to enable full funding of classified school employees' retirement health insurance benefits. There were no questions from the Committee.


The final speaker was Tracy Goff Herman, Assistant Director of Governmental Relations, Kentucky School Boards Association (KSBA). Ms. Herman said that the school boards support the committee substitute, as amended by HFA #1. She said the state has adopted the legal opinion that says that the state is the employer for state health insurance benefits for local school board members. Thus, HFA #1 is needed in order to clarify the state's position and also to allow the recapturing of funds from flexible spending accounts. There were no questions.


Representative Geveden thanked the speakers for attending and for their participation in the development of HB 103.


Representative Feeley asked Secretary Palmore whether the Personnel Cabinet has any initiatives underway to look for an alternate system for procuring health insurance for the Commonwealth group. Secretary Palmore said she cannot provide detailed information at this time, since the procurement process for the 2004 calendar year has already begun, but said that the Cabinet is looking at both regional rating and self-insurance. She went on to say that, for future years, the Cabinet is also examining the idea of establishing drug purchasing alliances, as some other states have done. She added that these alliances are typically operated in conjunction with a self-insured program. Representative Feeley asked Secretary Palmore to keep the Committee informed as much as possible of developments in the state health insurance program. He said also that Kentucky should continue to look at what other states are doing.


Senator Robinson assumed the chair. He advised the members that the meeting materials contain a chart detailing 2003 enacted legislation that was considered by either the House State Government Committee or the Senate State and Local Government Committee.


Senator Robinson asked for a subcommittee report from the Task Force on Elections, Constitutional Amendments & Intergovernmental Affairs. Representative Arnold, Co-chair of the Task Force, said that their June 24 meeting included a presentation by the Secretary of State's office on the draft state plan for the implementation of the "Help America Vote Act." The Task Force also decided to recommend that the State Government Committee send a letter to the Cabinet for Health Services' Vital Statistics Branch, urging that agency to expedite the transmission of death records to the State Board of Elections. Representative Arnold said that the Board needs this information in order to update its voter registration lists and that there has consistently been a delay of 4-6 months in receiving the information. He moved for acceptance of the subcommittee report and that the State Government Committee authorize its Co-chairs to send the recommended letter to the Cabinet for Health Services. The motion was seconded and passed by unanimous voice vote.


Business concluded, and the meeting was adjourned at 2:10 p.m.