The fifth meeting of the Interim Joint Committee on State Government was held on Wednesday, November 16, 2005, at 1:00 PM, in Room 149 of the Capitol Annex. Representative Mike Cherry, Co-Chair, called the meeting to order, and the secretary called the roll. Representative Cherry and Senator Damon Thayer, Co-Chair, jointly chaired the meeting.
Present were:
Members: Senator Damon Thayer, Co-Chair; Representative Mike Cherry, Co-Chair; Senators Julian Carroll, Carroll Gibson, Elizabeth Tori, and Johnny Ray Turner; Representatives Adrian Arnold, Eddie Ballard, Joe Barrows, Carolyn Belcher, James Bruce, Dwight Butler, Tim Couch, Joseph Fischer, David Floyd, Derrick Graham, J. R. Gray, Mike Harmon, Melvin Henley, Charlie Hoffman, Jimmie Lee, Gerry Lynn, Paul Marcotte, Stephen Nunn, Tanya Pullin, Jon David Reinhardt, Tom Riner, John Will Stacy, Tommy Thompson, and Jim Wayne.
Guests: Erwin Roberts, Personnel Cabinet; Bob Gray, Office of Auditor of Public Accounts; Dan Abner and Fran Pinkston, Finance and Administration Cabinet.
LRC Staff: Joyce Crofts, Betsy Johnson, Alisha Miller, Stewart Willis, and Peggy Sciantarelli.
The minutes of the October 11 meeting were approved without objection, upon motion by Representative Gray. Representative Graham recognized a group of students from his government class who were in attendance.
Senator Thayer assumed the chair. Discussion of the recommendations of the Governor's Blue Ribbon Task Force on the Merit System was first on the agenda. Erwin Roberts, Secretary of the Personnel Cabinet and Chair of the Task Force, gave a synopsis of the makeup and activity of the Task Force. He then reviewed the recommendations that the Task Force adopted at its final meeting earlier in the day. He was assisted by Representative Cherry, a member of the Task Force and Chair of its Employee Relations Subcommittee.
Following is a list of the recommendations proposed to the Task Force by its subcommittees, along with key elements of the discussion. They are listed in the order in which they were reviewed. (The recommendations, as proposed, are in italics. The final adopted version of the recommendations may be accessed on the Personnel Cabinet web site.)
Recommendations #1 and #7:
recommendation #1: Maintain civil service protections against political influence in the selection of qualified state classified employees; redefine mission statement in KRS 18A.010(1) to include strong and clear directive; clarify prohibitions against political discrimination within KRS 18A.140(1). – The Task Force unanimously adopted this recommendation, with an amendment proposed by Representative Cherry to include existing state employees in the protections against political influence.
recommendation #7: KRS 18A.190, the penalty section of the civil service law, should be amended to apply to the traditionally criminal acts set out in KRS 18A.145. As currently written, the broad application of penalties to all acts within KRS 18A.005-18A.200 criminalizes such actions as the failure to maintain accurate records, failure to document employee misconduct, or the failure of the Secretary to attend all meetings. Furthermore, it is recommended that acts of discrimination outlined in KRS 18A.140 be subject to civil penalties, including fines and prohibition of future civil service when the board determines circumstances warrant referral to the Attorney General for enforcement of these civil penalties. – The Task Force adopted this recommendation—referred to as the decriminalization recommendation—by a vote of 14-3, with an amendment proposed by John Y. Brown III. Mr. Brown's amendment deleted the last sentence, beginning with the word "Furthermore." The recommendation, as amended, would decriminalize purely administrative acts within KRS 18A.005 through 18A.200, but not include KRS 18A.140 as part of the decriminalization. The Task Force did not vote on the amendment proposed by Representative Cherry.
A period of discussion followed, during which Representative Stacy questioned whether the failure to maintain accurate records should be decriminalized in Chapter 18A.
Recommendation #2
The Selection Subcommittee recommends adoption of the proposals contained within the "Proposed Future Hiring Processes" from the Personnel Cabinet dated September 2005, with the exception of the need for a clarification of the proposal under "C-Register" concerning "eliminating registers for career path promotions and promotions." The Subcommittee recommends maintaining an employee promotion system that provides career path opportunities through families of job classes based on merit, experience, excellent performance and evaluation. A need exists for promulgation of a comprehensive Personnel Board regulation that defines process, procedure, and implementation. "Seniority" as defined in KRS 18A.005(35) for an internal promotion shall not be a controlling factor. – The Task Force adopted this recommendation by a vote of 13-3.
Representative Pullin asked Secretary Roberts whether there are any recommendations relating to veterans. He noted that veterans' issues are included in Recommendation #3. Representative Cherry pointed out that the Task Force supports "veterans' preference" legislation that has been prefiled for the 2006 regular session.
Recommendations #3, #8, #20, #21, and #22
recommendation #3: Increase efforts for recruiting and hiring qualified veterans, minorities, women, and disabled. – The Task Force adopted this recommendation unanimously.
recommendation #8: As presently enacted, KRS 18A.040 requires, "...rules, regulations and practices meeting merit system standards shall, where such standards apply as a prerequisite for federal grants-in-aid, be in effect continuously, notwithstanding any other provision of KRS 18A.005 to 18A.200." The federal guidelines are set forth in 41 CFR 60 at pages 121-148. As stated, the purpose of the guidelines is to "incorporate a single set of principles which are designed to assist employers, labor organizations, employment agencies, and licensing and certification boards to comply with requirements of Federal law prohibiting employment practices which discriminate on grounds of race, color, religion, sex, and national origin." This statutory attempt to ensure compliance with federal regulation creates potential conflicts with regard to selection and affirmative action. Changes to selection procedures of employees must be in compliance with federal guidelines set forth in 41 CFR 60. While it is not mandated, federal regulations allow for the establishment of voluntary affirmative action programs. It is apparent that if the Commonwealth utilizes a person's race, religion, sex or national origin as a factor in selecting an employee, it would be in violation of state law as currently written. Therefore, the current statutes should be amended to clearly permit an affirmative action program. – This recommendation was adopted by the Task Force, with one dissenting vote, and was combined with Recommendation #21.
recommendation #20: Conduct a disparity study of Executive Branch employees to determine if there is a disparity between the qualified workforce of Kentucky citizens in protected classes and Executive Branch employees in protected classes. The study should break down the numbers for each job category. Implementation would require the Personnel Cabinet to request appropriate funding through the budgetary process. – The Task Force adopted this recommendation unanimously.
recommendation #21: Update the state affirmative action plan consistent with federal requirements and industry best practices. – This recommendation, which was combined with Recommendation #8, was adopted unanimously by the Task Force.
recommendation #22: Require mandatory training regarding diversity and the updated affirmative action plan to managers and other individuals making hiring decisions. The training should include emphasis on ways to reach affirmative action goals and established accountability provisions. – The Task Force adopted this recommendation unanimously.
Recommendation #4
Request the Personnel Cabinet to study the feasibility of establishing a comprehensive regulation for implementing procedures regarding background checks, including but not limited to NCIC checks, and employment references for all executive branch applicants. – This recommendation was adopted unanimously by the Task Force, with a note added that the Task Force supports legislation to appropriate funds which would allow the Personnel Cabinet to conduct background checks on future employees.
Representative Cherry pointed out that the recommendation would apply only to persons selected for hiring and not to all applicants for employment. Representative Graham asked who would have access to the background check information. Secretary Roberts said this could vary but that access to the information should be limited to whoever is making the hiring decision. Representative Floyd asked whether consideration was given to having employees pay for the background check. Secretary Roberts said that this was not discussed.
Recommendation #5
Establish a process of ongoing review of the merit system and make recommendations regarding the merit system, including a comprehensive review and update of KRS 18A and KAR 101. The review and update should be focused on providing definitions for terms used throughout KRS 18A and KAR 101. The review and update should also clarify any inconsistencies in the law, including vague language subject to differing interpretation. The update should make the law governing the merit system user-friendly and understandable and should include a review of previous recommendations that have not been implemented. After the initial review and update, there should be an annual review and report. – The Task Force adopted this recommendation unanimously.
Recommendation #6
It is recommended that "burrowing," the act of switching from a nonmerit position to a merit position late in an administration to get special merit protections, be limited by statute for those without reversion rights under 18A.005 by increasing the probation period to one year. – This recommendation was adopted unanimously, with an amendment proposed by Representative Cherry. The amendment included language to more specifically address the intent of the recommendation. Representative Cherry noted that the language in the amendment had passed the House in 2004 by a nonpartisan vote of 95-1.
There was a period of discussion in the Committee, during which Representative Lee questioned whether this recommendation is constitutional.
Recommendation # 9
Since both the Personnel Cabinet and the Personnel Board have the authority to promulgate regulations with regard to personnel matters, topic areas that are under the purview of each should be clarified and distinguished. – This recommendation was adopted unanimously by the Task Force.
Recommendations #10 and #14
The Task Force approved Representative Cherry's proposal to combine recommendations #10 and #14. Both recommendations were adopted unanimously.
recommendation #10: Adopt procedures to encourage resolution of personnel issues at the agency level prior to going before the Personnel Board.
recommendation #14: Make a progression of options available for merit employees to address work-related complaints or disciplinary actions. At the beginning of the process, the employee may choose between filing a grievance, or requesting mediation where the agency is required to participate. If mediation is unsuccessful, or the grievance procedures fail to address the employee's concerns to his satisfaction, the employee may have his concern heard by a peer review committee (to be established according to Personnel Cabinet guidelines). If the peer review committee action fails to address the employee's concerns to his satisfaction, the employee may appeal the decision of the peer review committee to the Personnel Board. Require the Personnel Board to monitor all grievances and mediations filed. The Personnel Board should be properly funded to perform all of its duties.
Recommendation #11
The reporting requirements in KRS 18A.030 should be reviewed for relevance and usefulness in providing meaningful oversight. - This recommendation was adopted unanimously by the Task Force.
Recommendations #12 and #15
The Task Force approved Representative Cherry's proposal to combine recommendations #12 and #15. Both recommendations were adopted unanimously by the Task Force.
recommendation #12: Final written decisions of the Personnel Board should be made available for review electronically, organized by the statutory basis for appeal.
recommendation #15: Require the Personnel Board members to be subject to the Executive Branch Ethics Code, and require the Board to report annually to the State Government Committee. In their annual report, the Board should address the following: (a) the number of merit state employees at the beginning and end of the reporting period; (b) the number of grievances filed and mediation requests made by merit employees during the reporting period; (c) a tabulation of the types of grievances filed during the reporting period; (d) a tabulation of the types of mediation requests filed during the reporting period; (e) a comparison of the number of grievances and mediations filed by merit employees in previous reporting periods; (f) a tabulation of the stages in which employee complaints were resolved during the reporting period; (g) the average amount of time taken to resolve employee complaints during the reparation period, by stage; (h) a comparison of the amount of time taken to resolve employee complaints during the reporting period, by stage, and the amount of time taken during the previous reporting periods.
Recommendation #13
The following technical changes to KRS 18A should be made. Change "commissioner" to "secretary" in 18A.037 and 18A.040. Update the citation in 18A.043 for the Federal drug free workplace to read "41 USCA §707 et seq." – This recommendation was adopted unanimously by the Task Force.
Recommendation #16
Allow agencies to place employees on paid leave during the interim between issuance of an intent to dismiss letter and the date whereby the cabinet head, agency head or his designee determines whether to dismiss, alter, modify or rescind the intent to dismiss. The Task Force adopted this recommendation unanimously, with an amendment proposed by Representative Cherry. The amended recommendation reads: "Allow agencies to place employees on paid leave during the interim between issuance of an intent to dismiss letter and the effective date of the agency's final action."
Recommendation #17
Implement a drug testing program for executive branch employees, to include post offer/preemployment drug testing, reasonable suspicion drug/alcohol testing, and random drug/alcohol testing. – This recommendation was adopted unanimously, with an amendment to substitute the following language for the word "Implement": "Explore the feasibility of implementing." Representative Cherry noted that the vote on the amendment was 8-7.
Representative Wayne asked about the current policy on drug testing and whether the Task Force had discussed drug treatment through the Employee Assistance Program. Secretary Roberts said that there is no statewide drug testing policy but that some agencies, such as the Department of Corrections and law enforcement agencies, already use drug testing. He said there was discussion on the topic of drug treatment, with the consensus of task force members leaning toward rehabilitation for a first offense. He added that the Cabinet will be looking at study data that is available from a previous pilot project. Representative Cherry said he believes it was the intent of the Task Force that the study would be conducted by the Personnel Cabinet or the Office of Drug Control Policy.
Recommendation #18
Amend KRS 61.394 to enhance state employee paid military leave benefit to a maximum of 21 calendar days from the current maximum of 15 calendar days. Allow any unused days in a federal fiscal year to be carried over to the following year. – The Task Force adopted this recommendation unanimously.
Recommendation #19
Adopt one state leave request form for KRS 18A employees that would cover all types of leave: annual, sick, family and medical leave, compensatory, military, voting, special, adverse weather, and blood donation. – The Task Force adopted this recommendation unanimously.
Recommendation #23
Seek a reduction in the number of classifications of between 40 and 60 percent. – This recommendation was adopted unanimously by the Task Force. Secretary Roberts stated that implementing this recommendation would be a major undertaking and would have a significant fiscal impact of probably $500,000-$600,000.
Recommendation #24
Maintain an annual increment in conjunction with the establishment of a minimum, mid and maximum pay grade for each salary. Pursue a current market survey and anticipate annual adjustments to the minimum, mid and maximum pay grades. When maximum salary conflicts with annual increment, consider alternate methods to award annual increments, for example, lump sum payments. Further evaluate use of ACE and ERA awards. Consider the impact of the establishment of maximum salary on long-term, senior employees to ensure that they are not inadvertently hurt as they approach retirement. – The Task Force adopted this recommendation unanimously, as amended to exempt current state employees from maximum salaries. The amendment reads: "Employees who are employed prior to the effective date of this legislation shall be exempt from maximum salaries."
Recommendation #25
Train supervisors for employee evaluation. Use the evaluation process as a compensation for performance standard. Possibly use outside consultant for selection of best practice methods. – The Task Force adopted this recommendation unanimously, with an amendment proposed by Representative Cherry. The amendment would add the words "Study, and as appropriate," before "Use the evaluation process."
Recommendation #26
Facilitate implementation of an optional 40-hour work week. Compensate employees for additional time. – The Task Force adopted this recommendation unanimously, as amended to substitute "Encourage agencies to explore" for the word "Facilitate."
Recommendation #27
This recommendation, proposed by Representative Cherry, was adopted unanimously by the Task Force. It would allow state merit employees to run for, and be elected to, nonpartisan public office. It is written in the form of an amendment to KRS 18A.140(1)-(4). Representative Cherry explained that the Task Force also added language to the recommendation to provide that the duties of the elective office do not create any conflicts of interest with the duties of the employee, and to require the employee to give notice to his employer of intent to run for elective office.
Secretary Roberts and Representative Cherry concluded their review of the recommendations. Senator Thayer thanked them for their presentation and urged Secretary Roberts to ensure that every member of the legislature receives a copy of the Task Force's final report.
Next on the agenda was discussion of the Auditor of Public Accounts' performance audit report, "State Contracts: Kentucky's Administration and Management of Contracting for Service Workers," released in September 2005. Bob Gray, Director of the Division of Performance Audit, represented the Auditor's Office. The Finance and Administration Cabinet was represented by Dan Abner, Executive Director of Material and Procurement Services, and Fran Pinkston, Assistant Director, Division of Engineering and Contract Administration.
Mr. Gray gave an overview of the audit and its major findings. He provided a two-page handout to the Committee, outlining highlights of the audit. In summary, Mr. Gray said that this performance audit reviews contracting for both professional and nonprofessional services. It is the second of a three-part series of performance audits on state contracting. The audit also reviews contracting in other states. In 2004, Kentucky spent over $655 million on contracts for services. Of this amount, approximately $547 million was spent on approximately 2,100 contracts for professional services—e.g., for engineers, architects, medical services, consulting, and attorneys. The remaining $108 million was for approximately 500 contracts for nonprofessional services, such as janitorial services, window washing, and food services. The data comes from the Commonwealth's MARS accounting system.
Mr. Gray briefly summarized four major findings of the audit. (1) The number of workers represented in contracts and the actual number of hours worked could not be identified because this information is not collected by the accounting system. As a result, it is not possible to accurately determine the number of people who are working for state government either directly or indirectly, or to calculate the number of jobs represented by the contracts. (2) Expenditures on contracts for nonprofessional services were not accurately identified by MARS, and in some case services were "bundled" with commodities in contracts. For example, janitorial contracts included commodities such as towels and cleaning supplies, and labor expenditures were not clearly identified. (3) Contract data is not regularly reported in a useful and reliable manner. User-friendly reports should be made available to the public. (4) Contracts are not adequately justified. Agency responses on the "proof of necessity" form that are intended to provide the justification for contracts were inadequate. No cost-benefit analysis is performed on the front end of the contracting process to determine if it would be more cost efficient to perform a service with state employees than to contract outside of state government.
Concluding his remarks, Mr. Gray noted that the audit recommends best practices from other states to address the issues that were identified. He added that the Finance and Administration Cabinet has been very helpful and cooperative in the audit.
Senator Carroll said that, upon inquiry, he had recently learned from the Legislative Research Commission (LRC) that there has been "zero" compliance with the statute that requires agencies to justify personal service contracts by showing proof of necessity [KRS 45A.695(2)]—that is, that the contract will financially benefit Kentucky state government. He said that state agencies are violating Kentucky law and that the violations have also occurred during past administrations. Mr. Gray said that the audit finding that contracts are not adequately justified is consistent with a 2002 report by LRC. He said that agencies, when filling out the proof of necessity form, give incomplete answers, although some agencies provide greater detail. He agreed with Senator Carroll that, generally, there is not a determination that the contract will financially benefit the Commonwealth. Senator Carroll requested that staff send a copy of the statute to every member of the State Government Committee. He said this is an issue that greatly disturbs him. He said that for years state government functions have been contracted out to private enterprise and that private enterprise is not responsive in providing information to members of the General Assembly.
Representative Marcotte asked how Kentucky compares with other states in the area of contracting and whether any potential fraud problems were found. Mr. Gray said that the audit did not focus on individual contracts but looked at overall processes. He said that, in comparison to other states, Kentucky's process is fairly effective and unique, in that the Government Contract Review Committee has the ability to request agencies to defend contracts before the Committee. He went on to say that Virginia has an elaborate process which requires a state agency to demonstrate whether it can perform the service at less cost than through a contract. Massachusetts has provisions relating to whether a contractor can be considered a state employee for tax and social security purposes.
Representative Gray said that contracting for the housing of state prisoners has been subject to abuse, is an unwise expenditure of tax dollars, and also puts a strain on many county budgets. He said that the cost of housing prisoners in private facilities is much higher than housing them in county jails. He noted that a few years ago there was a conscious effort to encourage counties to build larger jail facilities in order to house state prisoners. He asked whether the audit had looked at these contracts. Mr. Gray said that the next series of performance audits will look specifically at some of these private contracts. He said that the County Audit Division is also currently doing a comprehensive survey of Kentucky jails and that when those findings are reported next year, they will include much information relating to Representative Gray's concerns.
Representative Barrows said it appears that it cannot be concluded in any particular instance whether contracting has saved money or provided better services. Mr. Gray said that the audit, using the information available in the system, found that that type of determination cannot be made without closer analysis of individual contracts. He also said that that type of data is not being collected as part of the process. He noted, too, that the statute enacted in 1998 permits a large number of exemptions. Representative Barrows said that there should be a methodology for determining whether contracting or outsourcing of state services is beneficial to the state and the taxpayers. He speculated whether the current law, if strictly followed, is adequate or whether the law needs to be refined. Mr. Gray said that the audit recommends that agencies be encouraged to more thoroughly complete the proof of necessity form. He said that close adherence to the guidelines in the contracting statute would actually provide a cost-benefit analysis. Representative Barrows said that follow-up review after a contract has been in place for a period of time would seem to be the crux of the policy question. He asked whether there is any provision for follow-up in the current process. Mr. Gray said that it is not routinely generated in the process and that the Auditor's Office intends, in the next audit in the series, to look at specific contracts in order to determine how the cost would compare if the state had performed the same service.
Senator Carroll noted that the definition of "privatization contract" (KRS 45A.550) exempts personal service contracts from the procedures for state agency privatization contracts. He declared that the Finance and Administration Cabinet over the years has been classifying outsourcing of contracts as personal service contracts for the sole purpose of violating the statute. He said, too, that the Cabinet needs to require that contract data be kept in the same technological/informational style as other information in state government, in order to permit cross-referencing and availability of needed information.
Senator Tori said that the discussion today has pointed out the need to strengthen the authority of the Government Contract Review Committee. She said that contracts are not adequately justified and that she believes it is vital that agencies provide a cost-benefit analysis when a contract warrants such analysis. Senator Carroll said that Senator Tori's point is well taken but that the Government Contract Review Committee is limited in what it can do because of the separation of powers doctrine. Additional discussion followed regarding that Committee's procedures.
Ms. Pinkston explained that the Cabinet is in the process of migrating to the same procurement methods and software used by the states of Massachusetts and Virginia—with the same reporting capability. She said the Cabinet has worked closely with the Government Contract Review Committee staff to ensure that there is the capability to capture all the information but that it is up to the user agency to provide the information. They have also encouraged LRC staff to return contracts to agencies for resubmission if the information is lacking in quality or completeness.
Senator Carroll asked why the auditors could not obtain all the information they wanted in this audit. Mr. Gray said that there is no requirement for a cost-benefit analysis in the proof of necessity form and that the responses varied by agency. He agreed that the system is not designed to collect all the information.
Senator Thayer thanked the guest speakers. Concluding the agenda, Representative Arnold gave the subcommittee report for the Task Force on Elections, Constitutional Amendments, and Intergovernmental Affairs. The report was adopted by the Committee, without objection.
Senator Thayer noted that this was the Committee's final meeting of the 2005 Interim. Business concluded, and the meeting was adjourned at 2:50 p.m.