Thethird meeting of the Interim Joint Committee on Local Government was held on Wednesday, September 27, 2006, at 11:00 AM, in Room 154 of the Capitol Annex. Senator Damon Thayer, Chair, called the meeting to order, and the secretary called the roll.
Members:Senator Damon Thayer, Co-Chair; Representative Steve Riggs, Co-Chair; Senators Walter Blevins, Jr., Julian M. Carroll, Carroll Gibson, Ernie Harris, Tom Jensen, Elizabeth Tori, and Johnny Ray Turner; Representatives Adrian K. Arnold, Scott W. Brinkman, Ron Crimm, Mike Denham, Ted "Teddy" Edmonds, Jimmy Higdon, Charlie Hoffman, Dennis Keene, Stan Lee, Thomas M. McKee, Reginald K. Meeks, Brad Montell, David Osborne, Terry Shelton, Arnold Simpson, Ancel Smith, Ken Upchurch, and Jim Wayne.
Guests: John Rogers, Sarah Jackson, Rhonda Farmer-Gray, and Connie Verrill – Registry of Election Finance; Brian Crall and Christine Wilcoxson, Personnel Cabinet; Chris Corbin, Cabinet for Health and Family Services; Bert May, Kentucky League of Cities.
LRC Staff: Jamie Franklin, Donna Gaines, Mark Mitchell, Joe Pinczewski-Lee, Joyce Crofts, Stewart Willis, Alisha Miller, Karen Powell, Pam Thomas, Jay Hartz, Peggy Sciantarelli, and Cheryl Walters.
The Committee met in conjunction with the Interim Joint Committee on State Government. The minutes of the July 13 meeting of the Local Government Committee were approved without objection, upon motion by Representative Smith. The minutes of the June 28 and July 26 minutes of the State Government Committee were approved later in the meeting, upon motion by Representative Owens.
Pursuant to House Bill 272, enacted in the 2005 Regular Session, the Kentucky General Assembly established the Task Force on Local Taxation to review the current structure of local taxation in Kentucky. Pam Thomas, committee staff administrator for the Task Force, presented the final report (Research Memorandum No. 500, dated June 27, 2006). Senator Thayer noted that he and Representative Hoffman co-chaired the 20-member Task Force and that Local Government Committee members Representative Steve Riggs, Representative Arnold Simpson and Senator Ernie Harris also served on the Task Force.
Ms. Thomas noted that since 1996, two other task forces had looked at local taxation but that there has been little movement on their recommendations. She then reviewed the Task Force recommendations. A list of the recommendations and a summary of Ms. Thomas' comments follows.
#1 - Propose a constitutional amendment to Section 181 of the Kentucky Constitution to allow the General Assembly in the future to establish a more flexible and efficient local government tax structure. – Ms. Thomas said this was the primary recommendation of the Task Force. The Constitution does not permit revenue sharing programs and does not permit local governments to levy excise taxes, which would include a sales and use tax. The Task Force believed that constitutional change is necessary in order to provide the necessary flexibility for the General Assembly to change the tax structure. The Task Force also recommended that if a constitutional amendment were to be adopted, any revenue sharing programs implemented should require a certain level of local effort.
#2 - Amend the statutes to allow fiscal courts to eliminate special districts in a more streamlined and efficient manner.
#3 - Require all existing and newly created special districts to register with the Governor's Office for Local Development (GOLD) within a specified time frame. Ms. Thomas said GOLD is trying to determine the exact number of special districts in Kentucky and estimates that there are about 1,400, of which 760 have authority to levy taxes. She also noted that there are currently 43 different types of special taxing districts. These special districts are currently required to register and file paperwork with county clerks, but there is no centralized registry for tracking the districts and no substantial enforcement efforts for noncompliance.
#4 and #5 - Require special taxing districts created by fiscal courts, other than those regulated by the Public Service Commission, to have all rates and fees approved by the fiscal court. Require special taxing districts to submit budgets and tax rates to fiscal courts in a timely manner to comply with the county budgeting process. Ms. Thomas said the Task Force felt that these recommendations provide for more accountability for special taxing districts. It was also pointed out that members of special taxing district boards are often appointed. They make decisions about how public monies are raised and spent, sometimes with little public oversight.
#6 – Local governments are encouraged to focus on matching revenues to the provision of services and to implement efficient tax collection procedures and standardization when possible. The Task Force encourages jurisdictions with overlapping taxes that are not uniform and that have local ordinances with differing requirements to develop interlocal agreements to reduce compliance burdens, including the filing of multiple tax forms by businesses.
#7 – Create and maintain a credible local government financial database including counties, cities, and special districts, to provide relevant information about local government finances to decision makers. It is recognized that this recommendation will require an expansion of services and resources at GOLD. The database should use the ConnectKY initiative to the extent possible. – Ms. Thomas said that one charge of the Task Force was to analyze local tax burdens and revenues raised, according to type of taxes at the local level. She noted that the Task Force was unable to do this because there is no reliable database. It was also stated that GOLD and the Kentucky League of Cities collect some financial information, but there is no oversight of the type of reporting by local governments. GOLD is trying to make data collection from local governments web-based. However, until there are enough staff to ensure compliance and reliability of the data, there will not be confidence in the data. GOLD would like to implement this recommendation but at present does not have the resources.
#8 – Propose legislation to require insurance agents and insurance companies to place on every application for insurance the name and tax identification number of the jurisdiction where the risk is located. – Ms. Thomas told the committees that the insurance premium tax probably has the least structure of all local taxes. There is no maximum rate and no defined base. It is difficult for insurance companies to determine where the tax revenue should be allocated. Some insurance companies have invested a lot of money in attempting to comply, but they are still having problems. Currently, a local government which questions payment of the tax must request an audit by the Department of Insurance. Because the local government has to pay for the audit, many of them do not pursue this avenue.
#9 - The Task Force encourages the General Assembly to study the road aid formula, which has not been significantly amended since 1948.
#10 – Expand the method for funding 911 services to allow alternative funding sources due to the declining base caused by a reduction in the number of land lines as people switch to cellular telephones. – Ms. Thomas stated that legislation passed in 2006 allows funds administered by the CMRS (Commercial Mobile Radio Service) Board to be used to support the 911 systems. She said the Task Force members believed there should be more flexibility and additional resources for funding 911 services.
#11 – The General Assembly should establish a dedicated funding source for property valuation administrator (PVA) offices by devoting 2.11 cents of the state real property tax rate to fund PVA personnel. – Ms. Thomas noted that this recommendation was proposed by the PVAs to enable them to fully staff their offices so that they can do a more thorough job in assessing property in a timely manner.
Minority recommendation – Allow all cities and counties to impose a restaurant tax. – Ms. Thomas said that although there was not a consensus on this recommendation, there was strong enough support among the members to include it in the report. She noted that only fourth and fifth-class cities are currently allowed to impose this tax, and the proceeds must be used for tourism development.
Regarding additional issues relating to the Task Force, Ms. Thomas said that when trying to get information for the Task Force, staff learned that no one keeps track of economic development at the local level. Tax increment financing (TIF) by local governments is permitted by statute but does not have to be reported to the state. Therefore, it was difficult for the Task Force to address this issue, and the report does not include any recommendations in this area.
Ms. Thomas said the Task Force also wanted to know how many local governments levy the ad valorem property tax up to the limit imposed by House Bill 44 (1979), which generally limits the overall growth of the tax to four percent within any taxing district without the possibility of a voter recall. She went on to say that it was found that most local governments do not tax at the four percent limit each year. A survey by the Kentucky County Judge Executives Association in 2005 showed that only 41 of 112 responding counties levied at the House Bill 44 limit that fiscal year. The Task Force also asked how many local governments levy an occupational license tax. The most recent information at hand indicated that 130 cities and 57 counties levy that tax. The process can be confusing, because there are limitations on the occupational tax for counties with populations over 30,000, whereas there generally are not limitations for counties under 30,000 or for cities. This concluded Ms. Thomas' presentation, and the floor was opened for discussion.
Senator Thayer said the report represents a monumental effort. Both he and Representative Hoffman commended Ms. Thomas and all the staff who worked on the report. Representative Hoffman said that implementing the proposed constitutional amendment and local government financial database will be integral to addressing local taxation issues. He said he presented the report recently at a forum sponsored by the Farm Bureau in Louisville, and he believes the report was well received. However, some questions were raised relating to PVAs.
Representative Stan Lee asked about the limitations on the occupational tax in counties with a population over 30,000 and whether the limitations would apply to urban/county governments such as Lexington. Ms. Thomas, referring to pages 32-33 of the report, said that the rate cannot exceed one percent of salaries, wages, or other compensation earned within the county for work or services performed within the county, and cannot exceed one percent of the net profits of businesses, trades professions, or occupations. She said the one percent limit does not apply to urban/county governments. Also, there is no limitation on how the tax revenues can be used, although the tax must be used for the purpose stated at the time the tax is levied. Representative Lee asked whether there is an upper limit on the occupational tax rate charged by the Lexington/Fayette Urban County Government. Ms. Thomas said she did not know but would find out.
Representative Harmon asked whether the recommendation relating to elimination of special taxing districts would place that power with fiscal court in the case of merged governments. Ms. Thomas said the legislation has not been drafted but that it could be done either way; however, the body that has authority to create should probably have the authority to take away.
Representative Harmon asked whether there are established criteria that PVAs must use when assessing property. Ms. Thomas said that the statutes do not specify how to assess property and that this question should probably be directed to the Kentucky PVA Association. She added that the Constitution requires assessment at fair market value and that the Revenue Cabinet provides guidance and training for PVAs.
Representative Wayne asked whether the Task Force membership included anyone from economically depressed counties. Senator Thayer and Ms. Thomas noted that the method for choosing the members was established in House Bill 272. Representative Wayne said there needs to be awareness of the economic divisions within the state and the potential impact of local taxation changes. He said the concept of revenue sharing is important—if there is provision for sharing share with the counties that have greater need, the legislature and state government will have greater flexibility to ensure a more just situation. He said his concern is that counties and towns that are very poor do not slip deeper into poverty.
Representative Ballard spoke about a problem in his county relating to the insurance premium tax. He asked whether, if the county rescinds the tax, would the cities have to vote individually to have an insurance premium tax. Ms. Thomas said that individual cities are now authorized by law to impose such a tax. Bert May, Legislative Liaison for the Kentucky League of Cities (KLC), explained that what happened in Representative Ballard's case is that the city of Madisonville had a five percent insurance premium tax. He said that the county needed money to finance a new jail and instituted a 10 percent insurance premium tax. The city had a serious need for money also and raised its insurance premium tax to 8½ percent, which in effect took 3½ percent of the money the county was getting that was paid for all the risks inside the city limits of Madisonville. Mr. May said this is one reason why KLC has long supported tax-sharing between cities and counties, to identify responsibilities, and eliminate duplication of services and taxation.
Representative Riggs commented that the report is substantive, complex, and far-reaching. He asked what approach the General Assembly should use to study the Road Aid Formula. Ms. Thomas said that there could be an LRC study, LRC could assign the issue to a committee, or a task force could be created. Representative Riggs asked whether any other states have a formula similar to Kentucky's which does not consider population or the number of cars on the road. Ms. Thomas said she did not have any information about that.
Representative Stein asked about 1990 constitutional amendment legislation. The amendment would have repealed Section 181 of the Constitution, but it was defeated when submitted to the voters. Ms. Thomas said she would research this and report back to Representative Stein.
Representative Shelton asked whether the Task Force had looked at interlocal agreements between larger and smaller counties relating to occupational taxes and whether such agreements are addressed statutorily. Ms. Thomas said that interlocal agreements are allowed by law, and testimony from local governments said they need to happen more often, perhaps through creation of incentives for those who use them. Mr. May said that in 2002 Representative Hoffman introduced House Bill 314, which was a city/county tax-sharing bill that included incentives for both sides to encourage cooperation, eliminate duplication of services, and share revenues. Those provisions were not in the final enacted version, however. He added that interlocal agreements can be done across county lines as well as within county lines.
Representative McKee complimented the report and commended the task force members and staff. He said the report recommendations appear to be based only upon taxes that already exist. He asked whether new ideas were discussed that were not included in the recommendations and whether the report addressed issues that the affected groups wanted to be addressed. Ms. Thomas said that testimony included some ideas and suggestions for different taxes and taxing methods that were not adopted by the Task Force. She said that one group, for instance, recommended increasing the real estate transfer tax. There was also discussion about local sales taxes and user fees. Mr. May pointed out that the recommended constitutional amendment, which would permit revenue sharing, could provide for a different source of money for local governments. When Representative McKee asked, Mr. May said that KLC supports the Task Force report. Representative McKee also expressed his opinion that dedicated funding for PVA offices needs to be addressed.
Regarding the ad valorem tax, Representative Owens asked whether there is a list of communities that do not reach the compensating rate or the maximum rate permitted. Ms. Thomas said she thinks she can get that information. Representative Owens asked whether there would be any benefit from creating an incentive mechanism by which local communities would be encouraged to meet the standards set by House Bill 44, so that the legislature would not be blamed when communities are unable to fund their own needs. Ms. Thomas said the Task Force discussed that, although they did not make any recommendations on that issue. She said there was testimony about possibly allowing a one or two-year grace period to allow cities and counties that have not been levying above the compensating rate to "catch up," as well as suggestions for other mechanisms to encourage levying a higher rate. Mr. May said that because of local governments' failure to tax at the four percent limit in the years since enactment of House Bill 44, property tax is not a major player in the revenue stream. He said there was discussion about ensuring that communities use all available resources before seeking funding elsewhere. Ms. Thomas noted that the Task Force, in its recommendation to amend the Constitution, stressed the concept that local governments should help themselves—that revenue sharing programs should require local effort before a local government may participate in revenue sharing initiatives. She went on to say that because Kentucky allows the levy of occupational taxes, local governments' reliance on property taxes is small, compared to local governments in most other states. Mr. May added that only five states do not have direct revenue sharing from the state or have local option sales taxes.
Senator Tori commended the Task Force and LRC staff for the report. She asked whether the Task Force had discussed consolidation of counties, which could be a possible source of budget relief. Ms. Thomas said that topic had not come up for discussion.
Senator Thayer noted that GOLD is currently working on a proposal for the 2007 session to update and improve the Uniform Financial Information Report (UFIR), as a result of recommendation #7. He said that he will be drafting legislation relating to reporting requirements for special taxing districts and is seeking House members to work with him on that legislation. He pointed out that any legislation to implement Task Force recommendations will likely have to start in the House. He added that KLC will be working on a draft for the proposed constitutional amendment and is seeking support and sponsors for the legislation. Mr. May said KLC's position is that, if the constitutional amendment is approved and enabling legislation passed, any new taxes created should require a local referendum in the affected cities/counties.
Senator Thayer thanked Ms. Thomas and Mr. May. The Committees recessed for lunch and reconvened at 1:15 p.m.
The next item on the agenda was the third in a series of presentations on campaign finance in Kentucky that began at the State Government Committee's June 28 meeting. Guest speakers from the Registry of Election Finance were John Rogers, Chair; Sarah Jackson, Executive Director; Rhonda Farmer-Gray, Assistant Executive Director; and Connie Verrill, General Counsel. The Registry provided the following handout: Vol. 1, Final Report of the Advisory Task Force (ATF) for Development of the Registry's Legislative Package (Adopted as Amended by the Registry of Election Finance, September 19, 2005). Today's presentation focused on the ATF recommendations which call for legislative action.
Mr. Rogers said the legislative proposals seek to simplify the campaign finance laws, by regrouping and reorganizing them, bring the laws more in line with federal laws, encourage the use of technology advances, and make the laws less punitive. He noted that it has been more than 10 years since campaign finance laws were studied for an omnibus revision.
Mr. Rogers gave the following summary of key changes recommended by the ATF.
■ "Safe harbour provision" – Provide a 30-day period during which contributions taken and deposited into a campaign account in error could be returned with no resulting violation. Under current law, a violation occurs when the deposit is made, despite subsequent discovery, refund and correction by the campaign.
■ Permit use of electronic banking and debit cards for contributions and campaign expenditures. This would include permitting contributions to be made by electronic means and via the Internet, provided that such contributions otherwise comply with Kentucky law. It would also include expanding the acceptable method of making expenditures to allow for more than just checks, provided that any electronic expenditure is properly itemized to disclose the true beneficiary of the expenditure.
■ Codify language in 32 KAR 2:130 that requires credit card transactions to clearly identify both the payor and the payee. This should be a statutory mandate, as it is essential to proper disclosure.
■ Establish a single raising/spending threshold of $5,000 for determining if financial reports are due. If over that amount, all reports would be due; if under that amount, no reports would be due. Currently, there are three levels of filers. No reports are due if raising/spending is $1,000 or less. One 60-day report is due 30 days post-election if raising/spending is $1,000-$3,000. All reports are due if raising/spending is over $3,000. This is confusing to candidates and to the public.
■ Permit general election receipts during the primary so long as they are designated accordingly and are maintained in a separate bank account. This is permitted at the federal level.
■ Increase contribution limits (from $1,000 to $2,100) and provide for indexing for inflation. This mirrors federal contribution limits to federal candidates.
■ Identify the types of records to be retained by treasurers. There is not sufficient clarity at the present time. Treasurers need more direction, and the Registry needs access to specific retained records to discharge its statutory duties.
■ Eliminate inconsistency in record retention statutes by requiring all records to be retained six years from the date of the election to which the records pertain, but not to exceed six years from the date the record was filed.
■ Change the definition of "campaign committee" to "candidate campaign committee," consisting of at least a campaign treasurer and a campaign chairperson who receive contributions and make expenditures to support a specific candidate or slate of candidates.
■ Eliminate the certified mail requirement for notifying the Registry of a treasurer's resignation.
■ Establish additional exceptions to the definition of "contribution," including the following: (a) news stories, commentaries, or editorials by media sources; (b) transfers between affiliated party entities that are not corporations; and (c) membership communications (communications to a restricted class). The Registry does not currently consider such activities to be "contributions" but may occasionally receive a complaint—for example, that an editorial constitutes a "contribution." This proposed change would clarify the definition.
■ Require any two or more persons who form a "referenda committee" for the purpose of placing a question on an election ballot, and raise or expend a threshold amount, to register and report all their contributions and expenditures. Current law does not require registration until an "issues committee" is formed. By definition, no "issues committee" is formed until the issue is formally placed on the ballot. This change is proposed in response to the money that is being spent in an effort to get an issue on the ballot. It will increase disclosure of pre-ballot initiatives.
■ Require write-in candidates, if they so elect, to rescind their request for exemption no later than five days prior to an election.
■ Require electronic filing for candidates who raise more than $25,000 in an election. E-filing may be done over the Internet or by compact disc delivered to the Registry offices. E-filing reduces agency workload and simplifies filing for the candidates.
■ Permit the Registry's general counsel to issue advisory opinions after consultation with members of the Registry. This is currently being done, but the ATF felt that the process should be written into statute.
■ Shorten the deadline for issuance of agency advisory opinions from 30 days to 20 days from receipt.
■ "60-30-15 pre-election schedule" - Change the existing 32-day pre-election report to a 30-day pre-election report, while retaining the 15-day pre-election report; and add a 60-day pre-election report to candidates' election year reporting requirements. This will increase disclosure and will lessen confusion on the part of campaigns and the public as to the reporting cycle.
■ Reorganize the statutes to contain laws pertaining only to one type of regulated entity.
■ Reorganize existing statutes so that penalties attaching to violations of various statutes in KRS Chapter 121 are set forth in the substantive statute. This would promote greater clarity and easier access to the laws.
Mr. Rogers' presentation concluded, and the floor was opened for questions.
Representative Baugh asked whether the recommendation to require separate campaign accounts for each election would necessitate canceling an account after the primary election and reopening it for the general election. Mr. Rogers and Ms. Jackson explained that two separate accounts are needed in order to enjoy the advantage of having contributions count toward both elections.
Senator Thayer commented that a candidate who raises money and has a separate account for the primary but is unopposed in the primary would then have to write checks on two accounts in order to use the money for the general election. Mr. Rogers said that is correct. Senator Thayer asked whether, for instance, a candidate could deposit a single $2,000 contribution into his account and then report that $1,000 of the contribution was received for the primary and $1,000 for the general election. Mr. Rogers said that would not be a problem, if recordkeeping reflects the differentiation. Senator Thayer added that an appropriate form would have to be completed by a candidate who "maxes out" primary/general with one check, as is done for federal elections. Mr. Rogers agreed.
Representative Baugh said it would seem to be an undue burden to have to cancel an account and reopen it. Mr. Rogers said that the Registry is amenable to revisiting this recommendation. Senator Thayer said he is working on a bill draft pertaining to this recommendation and that the separate account issue will need to be examined further.
Representative Wayne questioned the rationale for the recommendation to raise the current level of PAC or individual contributions 110 percent—from $1,000 to $2,100 per election. Mr. Rogers said there was feeling that it would lessen confusion if the contribution limit conformed with federal law. Ms. Jackson added that not only had the limit not been looked at in recent years, but candidates' expenses have significantly increased—for example, for items such as printing, paper, and yard signs. Representative Wayne noted that the cost of living has not increased 110 percent in the past 10 years. He went on to say he is concerned that increasing the campaign contribution limit will be a tremendous burden on donors, PACs, and candidates. However, he is not saying the idea is good or bad but that he has reservations about it at this time. Senator Thayer said he believes that conformity with the federal limit was a prime reason for this recommendation. He added that his draft legislation might allow the increase to $2,100 only in campaigns for statewide constitutional offices.
Representative Harmon said he had been advised by the Registry that receipt of a nonallowable electronic contribution would only require the money to be returned. Mr. Rogers explained that the ATF believed electronic contributions should be addressed statutorily for purposes of clarity, even though they are already allowed. Ms. Jackson said that, in addition, written regulations or guidelines may be necessary. She went on to say that she believes web sites which accept electronic contributions should probably include a disclaimer stating that contributions are not permitted over a specified amount. Regulation or enabling legislation could also clarify the point at which an electronic contribution is considered accepted.
Representative Harmon suggested that Senator Thayer's bill draft include a provision that candidates who file electronically not be required to also submit paper filings with the county clerk or the Registry. Senator Thayer said he appreciates the input.
Representative Nunn commented that he has concerns about the proposed requirement for separate campaign accounts. He then asked how voter hauling might be regulated. Mr. Rogers said the ATF looked at that issue but did not address it in the recommendations. Representative Nunn asked whether there is a set payment amount for vote hauling. Mr. Rogers and Ms. Jackson said a "reasonable expense" is allowed, with review done on a case-by-case basis.
Representative Nunn said he likes the recommendation that would authorize candidates for governor to name their running mate after completion of the primary. He asked whether the Attorney General had issued an opinion that this may not be constitutional. Mr. Rogers said he did not believe there was an official opinion but that the Attorney General's office had submitted a dissenting opinion to the ATF in which they opposed this recommendation on constitutional grounds. He said that the proposal, which would follow the federal model, came from Secretary of State Trey Grayson. Mr. Rogers added that several states with statutory language similar to Kentucky's do allow the running mate to be named after the primary. Representative Nunn said he would support this recommendation if there was definitive opinion that it is constitutional.
Representative Arnold urged the members to support the 2007 campaign finance legislation, which will contain many of the proposals found in the bill he sponsored in 2006 (HB 670). He stressed the importance especially of provisions relating to reorganizing the statutes. He noted that HB 670 did not address campaign limits, voter hauling, or the lieutenant governor issue. He also expressed approval of the ATF recommendation for a 180-day cap on the time period during which post-election contributions may be accepted.
Representative Marcotte brought up the ATF recommendation that the Registry should determine whether confidentiality of complaints should be maintained until a response is filed. He spoke of two incidents in the past, not involving him personally, in which someone filed a complaint against a candidate and then publicized it. He said the candidates were eventually cleared in both instances, but their reputations had been smeared. He questioned how to deal with a situation like this to protect the candidate's reputation. Mr. Rogers noted that this recommendation does not require legislative action but that it could be put into statute. Ms. Jackson said this recommendation calls for administrative/regulatory action by the Registry. She went on to say that currently there is no provision for penalizing a complainant who releases information to the press. If the Board so directs, the Registry will need to look at ways to try to prevent such abuse. Ms. Verrill said that when they receive inquiries from the press they will not acknowledge or provide copies of a complaint until 15 days have elapsed or a response has been filed. Representative Marcotte also commented on the lack of accountability for persons who spread false or malicious information through "blogs."
Representative Jimmie Lee commended the Registry for providing software for electronic filing and reporting. He concurred in Representative Harmon's suggestion to not require hard copies when filing has been done electronically. He said there should also be a way to send electronic reports to county clerks. Ms. Jackson said that the Registry would be very supportive of dispensing with the paper copies but that it would require statutory change. Representative Lee also commented that he does not see the need for separate account campaign accounts and that they would cause unnecessary extra expense for candidates.
Representative Thayer said he, too, supports electronic filing. He pointed out that it also provides for more accountability and transparency.
Representative Cherry said that he is working with Senator Thayer on development of campaign finance legislation. He said the issue is being approached in a bipartisan manner and hopefully will lead to a successful conclusion. Senator Thayer said he appreciates Representative Cherry's support. He said he has been working on the legislation for some time with Representative Arnold and the Registry. He emphasized that campaign finance is a complex issue that affects every legislator.
Representative Riner asked about a situation in which a candidate's opponent files a frivolous complaint four days before an election and publicizes it in a press conference for political reasons. Ms. Jackson said she does not know what recourse the Registry has other than to provide ample response time and to handle the complaint according to accepted procedure. She went on to say that the Registry's policy of not commenting on a complaint would serve to protect the candidate somewhat. The Registry whenever possible does what it can to discourage frivolous complaints. They do not pass judgment but sometimes can prevent such complaints simply by taking the time to dispense information to callers and answering their questions. Representative Harmon asked whether, under circumstances like those posed by Representative Riner, would there be any way to provide for automatic dismissal of the complaint. Ms. Jackson said that is an interesting option to consider. Representative Harmon suggested, too, that when a candidate announces he has filed a complaint on a particular issue, perhaps all the candidates in that race might also have to be investigated with regard to that issue. Mr. Rogers said that type of action, as well as automatic dismissal, would have to be addressed statutorily. Ms. Jackson said there would be legal implications under either scenario. Senator Thayer said that this could be looked at for possible inclusion in the omnibus bill or as separate legislation.
Senator Thayer thanked the speakers. The next item on the agenda was discussion of the 2007 Public Employee Health Insurance Plan. Present from the Personnel Cabinet were Secretary Brian Crall and Christine Wilcoxson, Commissioner of the Department for Employee Insurance. Chris Corbin, Executive Director of the Office of Health Policy, represented the Cabinet for Health & Family Services. The following handouts were distributed: PowerPoint document, "Kentucky Employees Health Plan"; September 27, 2006, article from the Louisville Courier-Journal, "Health Insurance Premiums up 7.7%"; and "Employer Health Benefits - 2006 Summary of Findings," from the annual national survey conducted by the Kaiser Family Foundation and the Health Research and Educational Trust.
Secretary Crall said that the Governor's charge relating to the 2007 health insurance plan was threefold: keep the benefits as consistent as funds would allow, keep "anxiety points" at a minimum; and enhance communication. He said he believes these goals have been met.
Secretary Crall said that the 2006 existing plans—Commonwealth Essential, Commonwealth Enhanced, and Commonwealth Premier—will be offered again in 2007, with no benefit changes. There will also be a new consumer-driven option, Commonwealth Select, which is expected to be a significant benefit to many employees. Passive open enrollment will be available for those who keep the same coverage. However, active open enrollment will be necessary for those who waive coverage. Ms. Wilcoxson pointed out that anyone wanting to enroll in an FSA must also go through active enrollment.
Secretary Crall said that there were a few employees in 2006 who unsuccessfully attempted to waive coverage. He went on to say that, in order to minimize errors in the waiver process, the Cabinet is making an extra effort to disseminate information about the waiver procedure. The 2007 waiver amount contributed by the Commonwealth will be $175, consistent with the parameters in 2006 House Bill 380 (budget bill). Historically, the waiver amount has been deposited in a flexible spending account (FSA), and any monies left over at the end of the year were lost. In 2007, the $175 waiver contribution will be deposited instead into a health reimbursement account (HRA), and any portion that is unused at the end of the year may roll forward into the next calendar year. This is good news because only a small percentage of state employees utilized the full $2,800 waiver contribution in 2006.
Representative Nunn asked what happens to the unused portion of an HRA when the employee retires. Secretary Crall said that whenever there is a change in employment status or the employee chooses other coverage, funds remaining in the HRA would lapse to the health insurance trust fund.
Ms. Wilcoxson reviewed details of the new high-deductible Commonwealth Select plan option, which includes an employer-funded HRA.
Representative Harmon said he appreciates development of the HRA product, which he has pushed for in the past. He said he assumes that the HRA can be used to fund certain expenses that will not apply to the deductible—e.g., eyeglasses or dental work. Ms. Wilcoxson said that is correct. Secretary Crall said that, in its application, the HRA is like an FSA; however, HRA funds may roll over, whereas FSA funds cannot. He noted that the HRA may also be used to purchase over-the-counter drugs.
Discussion followed on the use of debit cards to pay for medical and pharmacy expenses. Ms. Wilcoxson said that they are working to resolve some of the problems that have occurred with use of the debit cards. She noted that plan participants will also be issued the customary insurance ID cards. Secretary Crall and Ms. Wilcoxson also answered questions about the out-of-pocket maximums under the new plan option.
Representative Lee thanked Secretary Crall and those involved for their assistance in the budget conference committee that resulted in bringing to fruition many of the health insurance benefits proposed originally in House Bill 401 (2006). He said that the benefits being offered to Kentucky public employees match or exceed those offered by any other state. Secretary Crall said that Mr. Corbin and Secretary Mark Birdwhistell also deserve much of the credit.
Secretary Crall said that Kentucky Retirement Systems (KRS) and the Kentucky Teachers Retirement System (KTRS) had concerns whether their statutory authority would permit them to offer the HRA/high-deductible plan to retirees. Therefore, it was decided to offer the plan only to active employees in 2007. During that time, if the two retirement systems deemed the plan to be in the best interest of retirees, they could then seek appropriate statutory remedies.
Secretary Crall said that the 2007 premium increase of 5.93 percent is 30 percent less than earlier projections; it is also 50 percent lower than national health trends. He said that this is a tribute to the current performance of self-insurance. He went on to say that the Commonwealth's health insurance plan premium rates are very competitive and, in fact, a little ahead of the private and public market. KRS's self-funded plan for Medicare-eligible retirees had a premium increase of six percent this year, and the premium increase for KTRS was somewhat higher. Secretary Crall said he will not make projections about the future success of self-insurance, but he is hopeful.
In reviewing highlights of the Health Plan document, Secretary Crall pointed out that in 1999, the Commonwealth contributed 41 percent of the total monthly premium cost for family coverage. In 2006, the Commonwealth contributed 63 percent—an increase of 22 percent. He said this reflects a significant benefit to employees and demonstrates efforts of the legislature and the administration to relieve the health insurance burden.
Senator Harris inquired about the status of a Request for Proposals (RFP) for vision and dental coverage. Ms. Wilcoxson said they are anticipating that the RFP will be released about mid October. She said it will include an option for vendors to bid on either or both vision and dental coverages, and vendors must bid on both comprehensive and discount plans. Senator Harris said one of his constituents is interested in bidding and he would like to know whom to contact. Ms. Wilcoxson said that if Senator Harris will give her his information, she will see that the person is contacted.
Representative Arnold asked whether health care costs are expected to continue increasing. Secretary Crall said that cost trends are not decreasing. He went on to say that one way to flatten the trend of increase is to assert more control over the plan, which the Commonwealth has done by self-insuring. The trend in the state employee health plan is approximately 13 percent for 2006, and he does not foresee any flattening of the trend unless external forces are applied—for example, through wellness and disease management programs or benefit and premium adjustments.
Representative Thompson inquired about total enrollment and the aggregated premium for all plan participants. Secretary Crall said that the aggregated premium for 2006 is $1.215 billion. The number of employees enrolled in the plan is 153,000, and the total number of plan participants is 235,000. He said he would doublecheck those figures and transmit the information to the committee members.
Representative Thompson spoke of a constituent who unknowingly made an error when attempting to waive coverage for 2006 via the Personnel Cabinet web site in order to take advantage of the monthly FSA contribution. As a result, she forfeited all the 2006 FSA monies she had expected to receive. He went on to say that another constituent who was enrolled in an FSA had filed a claim for about $1,500 in August but was advised in September—11 months after enrolling—that she was not eligible for an FSA because her husband was receiving hazardous duty retirement. Both constituents had a history of using flexible spending accounts. He suggested that perhaps there could be some type of "safety net" in situations like these that might prevent persons from losing their benefits through an honest mistake. For example, perhaps an employee who changes his customary coverage could be contacted to verify the change. Ms. Wilcoxson said that the Cabinet plans to run special reports during the days following the upcoming open enrollment in hopes of identifying possible errors. Representative Thompson said he realizes it would not be feasible to audit every account; however, anything that can be done to prevent some people from "falling through the cracks" would be much appreciated. Secretary Crall said they have had several conversations regarding this concern. He said that 33 benefit fairs will be held statewide. The Cabinet is communicating with insurance coordinators about these types of issues, and they are doing everything they can to communicate correct procedures to employees.
Senator Thayer thanked the speakers. Representative Arnold then gave a subcommittee report for the Task Force on Elections, Constitutional Amendments, and Intergovernmental Affairs, which met on September 26. The report was accepted without objection. Business concluded, and the meeting was adjourned at 2:45 p.m.