Interim Joint Committee on State Government


Minutes of the<MeetNo1> 1st Meeting

of the 2004 Interim


<MeetMDY1> June 23, 2004


The<MeetNo2> first meeting of the Interim Joint Committee on State Government was held on<Day> Wednesday,<MeetMDY2> June 23, 2004, at<MeetTime> 1:00 PM, in<Room> Room 149 of the Capitol Annex. Representative Charles Geveden, Co-Chair, called the meeting to order, and the secretary called the roll.


Present were:


Members:<Members> Senator Alice Kerr, Co-Chair; Representative Charles Geveden, Co-Chair; Senators Walter Blevins, Charlie Borders, Tom Buford, Julie Denton, Ernie Harris, David K. Karem, Elizabeth Tori, Johnny Ray Turner, and Ed Worley; Representatives John Adams, Adrian Arnold, Eddie Ballard, Joe Barrows, Carolyn Belcher, Buddy Buckingham, Dwight Butler, Larry Clark, Perry Clark, Tim Couch, Tim Feeley, Joseph Fischer, Derrick Graham, J. R. Gray, Charlie Hoffman, Paul Marcotte, Mary Lou Marzian, Stephen Nunn, Jon David Reinhardt, Tom Riner, and Jim Wayne.


Guests:  Beth Jurek, Governor's Office for Policy & Management (GOPM); Tierra Turner, Governor's Office of Minority Empowerment; Beverly Watts, Commission on Human Rights; Allyson Handley, Governor's Office; Kent Whitworth, Kentucky Historical Society; Bob Ramsey and Jill Hunter, Department of Personnel; and Barbara Alvey, Mercer Human Resource Consulting.


LRC Staff:  Joyce Crofts, Alisha Miller, Mark Roberts, Kathryn Walton, Stewart Willis, Judy Fritz, Jim Roberts, Clint Newman, and Peggy Sciantarelli.


Representative Geveden announced that Senator Alice Forgy Kerr has been named as Acting Co-Chair of the Committee, due to Senator Robinson's recent resignation of his Co-Chair position. By unanimous voice vote, the Committee adopted a resolution honoring Senator Robinson (motion by Representative Belcher). Representative Geveden recognized LRC staffer Judy Fritz, who was recently appointed staff administrator of the Task Force on Elections, Constitutional Amendments & Intergovernmental Affairs. Led by Representative Geveden, the Committee also observed a moment of silence in memory of recently deceased state Senator Paul Herron, a former Co-Chair of the Interim Joint Committee on State Government.


First on the agenda was a briefing by Beth Jurek, Deputy State Budget Director, on the issue of subsidies for "unescorted" retirees and classified employees (support personnel) of school boards. Representative Geveden noted that legislation to address the issue was introduced in the 2003 (House Bill 103) and 2004 (House Bill 11) regular sessions but did not pass. [According to background information prepared by State Government Committee staff, the subsidy of "unescorted" retirees occurs because the retirees—but not the younger, healthier active employees—of the majority of local government agencies are members of the state health insurance group. The retirees of local governments increased the 2001 average monthly claims cost for the entire group by $5.17 per covered person, or $14.1 million for the year. The subsidy of school board employees, who are covered by the County Employees Retirement System (CERS) occurs because school support personnel may earn 12 months' service credit by working four hours per day for 180 days, while other local government employees must average 100 or more hours of work per month for 12 months to earn a year of service. Support personnel earn a year's retirement credit but contribute to CERS for only nine months of the year. According to a 2002 actuarial analysis, if school board and other local government employers had been assessed separate contribution rates based on their actual liabilities, the contribution rate for school boards would have increased 33 percent, and the contribution rate for local government employers would have decreased by 24 percent.]


Ms. Jurek said that the impact of "unescorted" retirees on premium cost for the state health insurance group has been of particular concern. She went on to say that HB 11 was a good faith effort by all involved to try to resolve a difficult and thorny issue. It was not a bad bill but did create some problems. HB 11 provided for an adjustment fee to cover the additional administrative and actuarial cost to the state group that was created by the inclusion of "unescorted" retirees. Each employer participating in CERS would pay the adjustment fee to the retirement system, based on total payroll. The goal of HB 11 was the inclusion of active employees as well as retirees in the state group, in order to offset the higher cost of health care for retirees. However, the adjustment fee would be assessed to all CERS employers, thus spreading the cost, with the unintended consequence of not discouraging employers from putting their retirees but not their actives in the state insurance group. The legislation may have even encouraged the practice, since counties and cities that do not have their retirees in the state group would be picking up a portion of the cost.


Ms. Jurek noted that HB 11 provided that the Department of Education would be responsible for funding the adjustment fees of local school districts. She went on to say that GOPM's review concluded that the only entity that would not benefit from the legislation was the Commonwealth of Kentucky—the school districts and CERS employers would benefit, but state government essentially would not. The legislation was a good faith effort on everyone's part to address their particular concerns, but it did not address the problem it set out to address.


Ms. Jurek said that it is becoming more and more difficult for small employers to find affordable health insurance for their employees and that she believes more local government employers eventually will choose to have their active employees included with their retirees in the state system. She said that at Representative Geveden's and Senator Kelly's request, GOPM will be working with some of the groups involved to try to find a workable solution and develop draft legislation for consideration by the General Assembly at a later date. Representative Geveden thanked Ms. Jurek. He also said he hopes the time will come when the state will be able to fully fund the requested employer contribution rate for its retirees.


Review of executive reorganization orders was next on the agenda, with Senator Kerr presiding. The first orders reviewed were EO 2004-481, which establishes the Governor's Office of Minority Empowerment within the Governor's Office, and EO 2004-561, which requires the Commission on Human Rights to report directly to the Governor's Office of Minority Empowerment rather than the Secretary of the Governor's Executive Cabinet. Representing the agencies were Tierra Turner, Director of the Governor's Office of Minority Empowerment; Beverly Watts, Executive Director of the Commission on Human Rights; and Allyson Handley, Secretary of the Executive Cabinet. Revised reorganization plans provided by the Governor's Office were distributed. [Discussion of the executive orders at today's meeting focused primarily on EO 2004-561.]


In a brief opening statement, Ms. Turner said that the role of the Office of Minority Empowerment is to assist all minorities in gaining better access to existing government programs and to assist in hopefully implementing new policies and procedures to give minorities better representation throughout the state. She said the Office also hopes to help the Commission on Human Rights [hereinafter referred to as "the Commission"] expand its recognition statewide and its efforts in serving all minorities.


Representative Wayne said it is his understanding that the primary function of the Commission is to enforce civil rights laws and to protect against discrimination, whereas the Office of Minority Empowerment [hereinafter referred to as OME] focuses more on "access" for minorities. Ms. Turner agreed. He went on to say that he foresees possible conflicts occurring in the future between the two agencies, for example, when someone would turn to the Commission because they feel discriminated against by someone that OME is protecting by helping them improve their access to government. Ms. Turner replied that even though the Commission's focus is broader, she does not foresee disagreement on issues relating to overall improvement of the situation or quality of life of minorities. Representative Wayne said the Commission has done a good job protecting minorities for decades and that he questions mixing the functions of the two agencies by placing the Commission under OME. Ms. Turner said OME has no desire to remove or change the independence of the Commission, which will remain independent and attached to the Governor's Office. She added that reporting to OME for administrative purposes will give the Commission an additional voice in the Governor's Office and insure that it receives the attention it deserves. Representative Wayne said he trusts everyone's good intentions but feels that the reorganization is a demotion for the Commission and an unwise move.


Ms. Handley said that the intention of clustering the two entities is to provide an opportunity to collaborate and coordinate, since they have similar areas of focus. She went on to say that she would be the first to object if the restructuring presented a conflict. From her perspective and the perspective of others, it seems that keeping the Commission and OME separate would not be efficient and would not maximize the opportunity for impact. She believes that the positives represented by the new structure far outweigh any anticipated difficulties. Representative Wayne said that the independent status of the Commission has been effective for decades and that he questions the wisdom of blending the organizations and their missions, despite the best of intentions. He and Senator Karem said they would like to hear how Ms. Watts feels about the reorganization.


Ms. Watts gave a historic overview of the Commission since its creation in 1960. She then went on to say that the Commission receives more than 7,500 complaint calls to its "800" hotline annually. More than half of the 36 staff are devoted to that activity; nine other staff are devoted to education and outreach. The Commission's mission is clear by statute. It is a broad mission, and the Commission has been advised that the restructuring will not hamper that mission. Ms. Watts said she has to take the word of the Governor's Office that the reorganization "does not mean much"; however, the people in the community are saying what Representative Wayne said—that the Commission is being demoted.


Senator Karem said he has a special interest in the issue, since for many years his brother chaired the Commission, before Ms. Watts became Executive Director. He said his brother treasured the Commission's independence and that he wants to make sure that this independence is not lost either in reality or perception. He noted that Ms. Watts is getting feedback from the public that there is the perception of a demotion.


Ms. Watts said people have called her to ask what the restructuring means and why it is being done. She said that the Commission at one time was the only agency working on minority issues in the state, but throughout the years other state agencies have assumed similar roles. For example, the Commission no longer conducts studies of minority teacher recruitment and hiring, because the Department of Education now has an office with that focus—and is making great strides in that area. With only 36 staff the Commission does not have enough resources. She added that a meeting was held shortly after Ms. Turner came on board to talk about what resources the Commission can make available to assist OME.


Senator Karem said he has made his position clear in the past—that the Governor should have the right to reorganize state government; however, this reorganization causes him concern, especially since there is the perception that it is diminishing the status of the Commission. He suggested that the Administration may want to take a step back and consider whether they want that perception by the public.


Ms. Handley said she has great respect for Ms. Watts' expertise and the educational work of the Commission and that she would like to see that work expanded. She said that, similarly, OME has a very specific mission. An underlying theme of the new office is that Ms. Turner will be very involved in educational activities—one of the most powerful impacting vehicles for changing people's attitudes. She said the sensitivity being expressed today is appreciated and that the Administration will proceed in what it believes to be a positive direction to enable the full scope of the two separate but overlapping entities to make great strides in Kentucky.


Senator Borders said he shares Senator Karem's view that the Administration should have leeway to reorganize. He said the stated intention of the reorganization is to enhance opportunities for minorities and that the restructuring should be given a chance and be judged by the outcome.


Senator Worley said that in general he agrees that the Administration should be able to reorganize but that he does not view the administration of human rights issues as a "trial and error sort of proposition." He asked Ms. Watts whether the restructuring is supported by the majority of the Commission members. Ms. Watts said the Commissioners met yesterday and that they, too, are voicing the same questions and concerns heard today. Senator Worley said he questions whether this reorganization is appropriate and necessary and that he supports the feelings of the Commission members.


Representative Feeley said the new Administration is focusing on jobs and economic development and that he believes the reorganization reflects that focus. He went on to say he does not feel that civil rights or the mission of the Commission is being diminished by the executive order. He supports the Administration in this move but certainly does not support any diminution of the moral authority of the Human Rights Commission.


Representative Wayne asked how much money the reorganization will save. Ms. Turner said they do not foresee any increase or decrease in budget activity. Representative Wayne noted that the majority of the committee members reviewing the reorganization today are white males and that this makes him somewhat uncomfortable. He asked whether anyone representing minorities has expressed a position on the reorganization or may be present in the audience today. Ms. Turner said her office has received calls from the NAACP, as well as the Urban Leagues of both Louisville and Lexington, and has had meetings and phone conversations to explain the purpose of the reorganization. She said they have not received any resistance, once it has been explained that the overall effect and purpose of the Commission is not diminished in any way and that the "independence of the Commission is as is." Representative Wayne said that this somewhat contradicts what the Commission members said at their meeting yesterday. He said he believes the issue needs to be aired fully. He stressed that he is not questioning the sincerity of the Administration but believes that public perception is a matter of concern. Ms. Watts said that Rev. Louis Coleman of the Justice Resource Center attended the meeting yesterday and made a public statement about his concern for the Commission's independence. Rev. Coleman said he had met with Ms. Turner, and he added that he "would be watching." Ms. Watts said she did not know whether he knew about today's State Government Committee hearing.


Representative Marcotte said he has always felt that reorganization is a governor's management prerogative. He said he understands the concerns that have been expressed but feels optimistic that the new structure can provide the opportunity of creating additional jobs for minorities and that Ms. Turner will do a great job.


Senator Worley said that the Commission has done an outstanding job insuring that all minorities have a place at the table. He noted that the Commission members and Rev. Coleman have concerns, as do some members of the State Government Committee. He said he is uncomfortable with what the reorganization does to the Human Rights Commission and said that he would like to move to table the executive order until all members of the Committee have an opportunity to reach a better comfort level. Senator Kerr explained that the Committee is exercising its prerogative to review the executive orders but will not be taking a vote on them.


Senator Denton said that because there is no one of color present on the Committee should not deter the members from supporting the reorganization. She went on to say that she thinks it "speaks volumes" that the NAACP, Rev. Coleman, and the Urban League are not here today to express concern. She thinks it is important to monitor the issue so that the legislature can take action if a problem should arise. She supports the efforts of the Administration and feels it would be presumptuous to second-guess the motives behind the reorganization.


Senator Tori stressed that it would be premature to question the wisdom of the reorganization without allowing it time to work. She said she feels sure that Ms. Watts would welcome enhancement to her job and that she believes Ms. Turner is a welcome addition to this very important program.


Representative Geveden asked about the jurisdiction and mission of the new office. Ms. Turner said that the mission is to assist minorities in gaining access throughout the state to existing government programs and possible employment opportunities, as well as to implement new initiatives to provide greater access and opportunities. Representative Geveden pointed out that Ms. Watts will be reporting to Ms. Turner and will not have direct access to the Secretary of the Executive Cabinet, as in the past. He said he is not necessarily opposed to the executive order but believes it has generated more dialogue and questions than previous orders reviewed by the Committee. He said there is the perception that the Commission is being demoted, and he requested that the Administration step back and take another look at the reorganization, in view of the comments made today. He added though that if the reorganization goes forward the Committee will be supportive and will want to be kept advised about it in the future.


Senator Karem asked Ms. Turner whether she had notified the Urban League of today's agenda. Ms. Turner said she spoke with Ben Richmond of the Urban League, Mr. Peeples in Lexington, and Mr. Cofield in Frankfort, but did not speak with Louis Coleman about today's meeting. Senator Karem said he supports the creation of OME (EO 2004-481) but has concern, as clearly many others do, about the perception that EO 2004-561 is a diminution of the Human Rights Commission.


Senator Harris said he does not see a problem, since Ms. Turner and Ms. Watts are committed to assisting minorities, regardless of how their offices are organized, just as their staffs, people in the community, and members of the legislature are likewise committed.


Senator Worley said the issue is not that simple. He said he believes the new office has a valuable purpose and that Ms. Turner will do a great job but that the bottom line is what happens to the Commission in the process. He asked whether the Commission members' function will change under the new structure. Ms. Watts said they have been told that their function will not change and that the members will continue to set policy with respect to the Commission. Ms. Watts went on to say that the Commission's job by statute is to safeguard all individuals in the state from discrimination, including minority individuals. They have always supported the notion of minority empowerment through their historic mission and roles throughout the years and will continue to do that. They will also continue to do research reports, hold hearings, and be involved in a variety of issues. In closing, she spoke of the Commission's most recent report relating to the achievement gap.


Senator Kerr thanked the speakers and called for review of EO 2004-616, which creates the Kentucky Abraham Lincoln Bicentennial Commission. Kent Whitworth, Executive Director of the Kentucky Historical Society, explained the purpose of the executive order. He said the nation will celebrate the bicentennial of Lincoln's birth in 2009 and that Kentucky wants to be ready at the state level to take full advantage of this commemorative occasion. He noted that the Kentucky Historical Society is housed in the Commerce Cabinet, which positions it well to interact with the Department of Tourism, the Heritage Council, and other groups. There were no questions from the Committee.


Representative Geveden resumed as presiding Co-chair. Next on the agenda was a briefing on the Request for Proposal (RFP) for the 2005 public employee health insurance program. Present from the Department of Personnel were Commissioner Bob Ramsey and Jill Hunter, Deputy Executive Director of the Office of Public Employee Health Insurance. Barbara Alvey of Mercer Human Resource Consulting also spoke.


Commissioner Ramsey said the Commonwealth has been paying the increased cost of health insurance for its employees over the past several years but that the time has come to implement some changes in its health insurance business. He went on to say that the goal for plan year 2005 is to bring Kentucky's health insurance program more in line with the public and private sector markets. If the Commonwealth does not change the program's structure, the cost of health insurance over the next biennium is expected to increase by $231 million—a 35 percent increase over the next two years. The state does not have the dollars to cover that cost; therefore, it is in the best interest of state government to establish an employee contribution system. He asked Ms. Hunter to review the six scenarios in the RFP, which represent what the Commonwealth is trying to do to keep health care costs affordable to employees, teachers, and retirees.


Ms. Hunter reviewed a document entitled "2005 Health Insurance RFP Scenario Comparison" (included in the meeting folders).  She explained that scenarios 1, 4, and 5 are "fully insured," which means the carrier will assume the claims risk. Scenarios 2, 3 and 6 are "self-insured," with the Commonwealth bearing the risk. Each scenario covers the same benefits and services as in the 2004 plan year. Scenarios 1, 3, 5 and 6 are "regional" and require carriers to bid on each of the eight Medicaid regions; scenarios 2 and 4 are "statewide" and require carriers to bid on coverage for the entire Commonwealth. Ms. Hunter next reviewed hospital and physician requirements for each scenario. She, Commissioner Ramsey, and Miss Alvey then answered questions from the Committee.


Responding to a question from Representative Arnold, Ms. Alvey discussed the program's progression over the years from a single vendor to multiple vendors. Representative Feeley and Representative Belcher inquired about the timeline for 2005. Ms. Hunter said the RFP was released April 29, 2004. Responses were returned to the Finance & Administration Cabinet by June 1 and are now being evaluated. Contracts will hopefully be awarded in late July/early August. The goal is to hold open enrollment in late September or early October. Answering questions from Representative Feeley, Commissioner Ramsey said that more carriers have responded to the RFP than in previous years and that, at this point, all six scenarios remain viable.


Responding to questions from Representative Larry Clark, Commissioner Ramsey said that the RFP had not taken into account wages of prospective health plan subscribers—that wages would not be a factor until after the bids are received. He said also that the three self-insured scenarios would require a third-party administrator. Representative Clark offered Commissioner Ramsey  the assistance of the legislature in what he said is a difficult task and probably the biggest challenge in state government.


Representative Geveden inquired about wellness incentives and the prescription drug benefit. Ms. Alvey said that the program will include wellness incentives, although they are not a term of the RFP. Ms. Hunter explained the prescription drug payment structure. She acknowledged that plan subscribers in 2005 may have a higher out-of-pocket cost for prescription drugs.


Representative Geveden noted that economic forecasters have estimated that the state will be receiving $305 million additional unanticipated revenue. He asked Commissioner Ramsey whether he would recommend to the Governor an increase in the COLA for state employees, so that they will realize at least some increase in salary after paying the increase in their health insurance premium. Commissioner Ramsey said he believes that decision should be left to the Governor and that he believes the Governor will ensure that the dollars are spent in the most appropriate manner.


Representative Nunn asked how the changes in the structure of the health insurance program will be implemented administratively. Commissioner Ramsey said that if a budget is not passed, he expects the changes would be incorporated into the spending plan that the Governor will present.


Senator Buford pointed out that the estimated additional $300 million revenue would be totally consumed by the Medicaid deficit. He added that the changes in the health insurance program will not save money but hopefully will hold down the size of future rate increases.


Representative Hoffman inquired about customary maximums for out-of-pocket expense, as well as the number of state employees who normally reach that maximum. Ms. Alvey said the typical annual out-of-pocket maximum for an individual ranges from $1,500-$2,000, and it usually does not include physician office visit co-payments or co-payments for pharmaceuticals. Regarding the number of employees who reach the maximum, she said the Commonwealth has looked at that but that she does not have that information with her today.


Representative Belcher said she hopes the Committee can receive another report on the health insurance program at a future meeting. Representative Geveden asked Commissioner Ramsey to update the Committee after the contracts have been awarded.


Senator Blevins noted that in the past the state has helped subsidize coverage for some counties in his region because of problems with carrier availability and exorbitant premiums. He asked whether the state would do this again if needed. Commissioner Ramsey said the Commonwealth believes that there will be carriers who will insure that area of the state. He also stated, "We will use a blended rate to make sure there are not any spikes in any one location. There will be a level playing field across the Commonwealth."


Senator Worley asked whether employees' increased health insurance cost for 2005 will be offset by their annual COLA, so that the impact on employee take-home dollars will be "revenue neutral." Commissioner Ramsey said that, based on estimates from the models that were used, the increased health insurance cost would have a neutral impact on employee salaries. He noted that each employee, based on salary, falls within a pay band and that some will be paying more for their health insurance than others.


Representative Geveden announced that the August meeting of the Committee might be held in Louisville. Business concluded, and the meeting was adjourned at 2:55 p.m.