Interim Joint Committee on Local Government


Minutes of the<MeetNo1> 4th Meeting

of the 2011 Interim


<MeetMDY1> October 26, 2011


Call to Order and Roll Call

The<MeetNo2> fourth meeting of the Interim Joint Committee on Local Government was held on<Day> Wednesday,<MeetMDY2> October 26, 2011, at<MeetTime> 10:00 AM, in<Room> Room 171 of the Capitol Annex. Representative Steve Riggs, Chair, called the meeting to order, and the secretary called the roll.


Present were:


Members:<Members> Senator Damon Thayer, Co-Chair; Representative Steve Riggs, Co-Chair; Senators Jimmy Higdon, Gerald A. Neal, R.J. Palmer II, Dan "Malano" Seum, and Johnny Ray Turner; Representatives Julie Raque Adams, Ron Crimm, Ted Edmonds, Richard Henderson, Brent Housman, Adam Koenig, Stan Lee, Tom McKee, Michael Meredith, David Osborne, Jody Richards, and Jim Wayne.


Guests: Mayor Susan Barto, Mayor Tom Bozarth, J.D. Chaney, Bert May, and Tony Goetz, Kentucky League of Cities; Denis Oudard, Solar Energy Solutions; Andy McDonald, Kentucky Solar Partnership; Ron Wolf, Associated General Contractors of America; Dawn Bellis, Department of Housing, Buildings and Construction; Bryan Alvey, Kentucky Farm Bureau; and Dan Walton, Labor Cabinet.


LRC Staff: Mark Mitchell, Joe Pinczewski-Lee, John Ryan, Jessica Causey, Tom Dorman, Bryanna Carroll, and Cheryl Walters.


Approval of Minutes

Upon the motion of Representative Henderson, seconded by Senator Jimmy Higdon, the minutes of the September 28, 2011 meeting approved.


Discussion of Solar Energy Issues relating to Local Governments

Denis Oudard, Project Manager of Kentucky Solar Partnership, told the committee that active solar systems can be distinguished into two large categories: thermal and electric. They work similar in that they both capture energy and that is done with collectors in the case of thermal. After the energy is captured it must be stored, and most of the time it is stored in the form of hot water in a storage tank.


The use of thermal solar energy is very simple. Domestic hot water is the typical use of solar hot water systems, but it can be used for heating and to warm or cool green houses. The heat can also be used to dry or dehumidify locations.


After solar electricity is captured, it can be stored or sent directly onto the grid. Batteries are the typical storage devices for electricity, but there are many ways to store electricity.


There are new uses for electricity that are currently being developed such as the electric car.


Regarding solar economics, the return on investment of a solar system is going to depend on many aspects. The cost of the alternative source of electricity is a major aspect of return on the investment since you have to compare the costs of the solar electricity with the cost of the electricity that is already being produced in the environment. Maintenance costs are very low, and taxes and incentives are crucial. Arizona only gets 44 percent more sun than Kentucky.


The cost of solar electricity is decreasing, while most other sources’ costs are increasing. One day, the cost of solar power will equal market costs for the energy sources. After that it will be cheaper than other sources.


As of August, 2011, an estimated 100,237 people across the U.S. were classified as “solar workers,” a 6.8 percent increase since August, 2010.


Examples of local government and solar energy are street lights, schools, affordable housing, municipal utilities, prisons, and transportation.


Recommendations to amend the net-metering statutes and a Clean Energy Opportunity Act will be made to the General Assembly.


Andy McDonald, Director of Kentucky Solar Partnership told the committee that Richardsville Elementary School in Bowling Green, Kentucky is America’s first net-zero energy school. The school opened in August of 2010, and has 72,285 square feet. It was designed to use 75 percent less energy than the average Kentucky school, and will meet its annual electricity needs with solar photovoltaics. The project cost per square foot was lower than the state limit for new school construction including the cost of solar photovoltaics (PV). The school will not have utility bills so that money saved can be used for teaching and learning.


Solar photovoltaic power costs have fallen below 20 cents per kilowatt hour (kWh). When factored over 25 years, the lifecycle cost for solar PV power, without any incentives, is approaching the cost for conventional power. This is the fixed cost for the power for the next 25-plus years. Solar water heating delivers energy in the range of 6 to 11 cents/kWh, when factored over the 25-year life of the equipment. This is the fixed cost for the power for the next 25 years. Solar energy systems are proven to provide effective security against rising energy costs.


Twenty-nine states have Renewable Portfolio Standards driving the development of their renewable energy industries. Kentucky has no such state policies.


Referring to Richardsville Elementary School, Representative Richards commented that Warren County Schools were able to do this because they received a grant from the state and federal government. The school was able this summer to sell electricity back to TVA because it was generating power when the school was not in session.


Representative McKee commented that solar fence panels are being used in agriculture.


In response to a question from Representative Wayne, Mr. Oudard replied that the reason the net metering law has not been expanded is because there was fear about four or five years ago that solar, because of its intermittencies--being on during the day and off at night. That fear has been proven unfounded.


Mr. McDonald commented that utilities should be talked to prior to the 2012 session.


In response to another question from Representative Wayne, Mr. McDonald said the utilities should take advantage of solar energy.


In response to a question from Senator Seum, Mr. Oudard said it is economically beneficial for an individual or government entity to install solar energy without a grant. Solar energy should be installed as an investment.


In response to another question from Senator Seum, Mr. Oudard said it was cheaper to install solar energy on new structures.


Senator Thayer announced that the next meeting of the committee would be November 30th and that KACo has been invited to present their legislative agenda for the 2012 session.


Presentation of Kentucky League of Cities’ (KLC) Legislative Platform for the Upcoming 2012 Session of the General Assembly

Mayor Susan Barto, City of Lyndon and KLC First Vice President, told the committee that the League’s number one issue on its legislative agenda was County Employees Retirement System (CERS) reform. On November 17, the Kentucky Retirement System’s (KRS) Board of Trustees will set the employer contribution rates for cities, counties and other members of the CERS. Unfortunately, projections indicate that the rates are likely to increase dramatically again. Unlike the state, cities have no choice but to pay the full amount, leaving many officials to decide between raising taxes, cutting basic services and/or personnel to pay for the mandated increase.


Cities contribute a rate of 18.96 percent for non-hazardous and 35.76 percent for hazardous to the retirement system. These rates have doubled since 2004. If the rates increase as projected by KRS actuaries, KLC estimates that the new CERS rates will cost cities around $17.5 million in FY 2013. This is in addition to the $17 million increase endured last fiscal year. Without reform, the rates are projected increase each year by similar amounts at least through FY 2030.


Lawmakers must balance the need for long-term financial stability in the retirement system and short-term affordability for cities that pay the bills for these benefits. KLC will seek retirement reform legislation that will: (1) adopt a defined contribution or hybrid plan for all new employees, while leaving existing employees in a defined benefit plan; (2) establish an 80-85 percent full funding standard, which is considered fiscally sound by actuarial standards; (3) make adjustments to automatic cost of living increases to retirees; and (4) implement reasonable changes to the health insurance benefit structure, which will address some of the ongoing increases in costs to the retirement system. Cities, counties and other employers, including state government, need reform passed this session that will provide both long-term stability for the system and immediate relief to the employers who must pay the required contribution rates.


The second issue of importance on KLC’s legislative agenda is drug abuse. Almost every city official in Kentucky has first-hand knowledge of how drugs have harmed his or her community. Citizens ask officials for help finding treatment programs for loved ones. City police officers must focus tremendous resources to pursue drug crimes. City officials have also seen how drug abuse affects the local economy through absenteeism, lost productivity and increased use of medical and insurance benefits. Many city officials have also been told by local businesses that they struggle to find employees who can pass a drug test.


The negative impact on the quality of life in Kentucky cities is far reaching and it is certainly not just an issue for the abuser alone. City governments serve as a front line defense for citizens, and because of this role, cities absorb the trickle-down social, criminal and fiscal consequences of drug abuse.


To address this top priority, KLC seeks legislation that will: (1) require strict state oversight of pain management facilities; (2) require any medical provider who prescribes narcotics to participate in the Kentucky All Schedule Prescription Electronic Reporting (KASPER system). In addition, KLC supports federal and state legislation to create an interstate compact for prescription drug monitoring; and (3) require a prescription for the purchase of pseudoephedrine.


Mayor Tom Bozarth, City of Midway and KLC Second Vice President, told the committee that the League’s third legislative agenda item was revenue issues and city classification. Cities continue to struggle with restrictions based on a century-old classification system, which includes over 400 laws that affect public safety, alcohol beverage control, and revenue options.


In 1994, Section 156 of the Constitution was repealed and replaced by Section 156a to authorize the General Assembly to create classifications of cities as it deems necessary based on population, tax base, form of government, geography, or another reasonable basis. The General Assembly has not yet acted to change the population-based classification system.


Mayor Bozarth stated that he has chaired a task force of city officials dedicated to studying classification issues. The classification task force is composed of city officials representing all classes of cities, forms of government, and from all regions of the state. The task force examined the classification schemes in other states, and in the end, recommended the development of a new classification system that would provide all cities with the same options and powers currently limited to some, and it would largely eliminate many of the mandates that currently apply to only select cities. A change in classification should not harm any city by placing any mandates not currently applicable to the city or by removing any flexibility or options that are currently available to any individual city.


KLC will seek legislation that would comprehensively reform Kentucky’s city classification laws as permitted by Section 156a of the Kentucky Constitution. KLC proposes the creation of two classes of cities based upon whether the city is part of a merged government.


The task force concluded that home rule for cities have largely removed the need for a complex system. The change would be a monumental undertaking and it would not be without controversy. The task force also recognized that specific issues will likely have to be dealt with on an individual basis.


As a part of this reform, KLC supports expanding the option of implementing a restaurant tax to all cities as a way to enhance local revenue flexibility. The restaurant tax legislation should permit all cities to consider using the restaurant tax in lieu of the collection of net profits or gross receipts taxes on restaurants. Cities could retain a maximum of 75 percent of the revenues generated from the restaurant tax (to be used for quality of life expenditures) with a minimum of 25 percent going to local tourism commissions.


The fourth issue of importance on KLC legislative agenda is the 911 funding shortfall. Local governments have the ability to assess fees for 911 service on land based telephone lines while the state sets, collects and distributes the 911 fee for cellular phones. The decline in popularity of landline telephones has left many local governments with decreasing revenues to support ever more expensive 911 services. To further complicate the issue, anecdotal evidence shows that as cell phone usage increases and these cell phones are more accessible to more people in emergencies, the demand on 911 services has increased.


The 911 funding shortfall has forced several cities and counties to sharply increase the fee on the remaining landlines or supplement 911 services with general fund appropriations. To address this issue, KLC will: continue to oppose any measure that removes the ability of local governments to impose local fees for the option of 911 services; oppose any proposal that would reduce the total amount of state-generated revenue from the wireless fees as it would result in less funds coming back to local government and their public safety answering points; and support an increase in the current statewide wireless fee of $0.70 per month to obtain additional revenue from wireless phones.


In response to a question from Senator Neal regarding home rule, Mayor Bozarth replied that KLC feels that city classification is antiquated and specifically with the issue of the restaurant tax, all cities should have the ability to impose a restaurant tax or be able to do things that other cities do.


Representative Riggs commented that Kentucky is one of a few states that have a classification system.


In response to a question from Representative Adams regarding the affect of the new classification system on Jefferson County in particular, and how it relates to Louisville Metro and the suburban cities, J.D. Chaney, Chief Governmental Affairs Officer for KLC, stated that there is no bill draft at this time and that is something that would have to be flushed out as the issue developed.


Representative Koenig encouraged the League and members of the committee to move forward with the classification issue. He stated that compromises were going to have to be made.


In response to a question from Representative Lee regarding contribution rates for hazardous employees, Mayor Barto stated that the city has to contribute 35.76 percent of the employee’s salary to the retirement system.


In response to a question from Representative Richards, Mr. Chaney said his main tenants of a good classification system would be (1) minimizing the complexity by taking the classifications down from six to two; (2) extend flexibility to all cities alike; and (3) eliminate the mandates where possible.


Senator Higdon commented that the underfunding of retirement systems is an often-heard subject during campaign season. Last year teachers agreed to concessions regarding their retirement system. The changes became about, and he saw a report recently that the teachers went from three billion to one billion in their unfunded liabilities in just that short period of time. He did not know if that model would work for CERS, but it would be good if KLC and people in the system would help with a solution instead of the legislature mandating it.


Senator Higdon noted that he has filed the pill mill legislation again and hopefully it will get passed early in the session.


Senator Thayer stated that there is no doubt that the reclassification system is broken and does not work. It makes sense to simplify it but the four big issues that are going to have to be dealt with before a bill can move forward is the collective bargaining aspect, the alcohol and liquor issue, the restaurant tax, and the public safety requirements.


Senator Thayer commented that he appreciated the fact that the League has stepped up to the plate and made pension reform its primary issue. It is his primary issue, and he will be filing SB 2 again.


In response to a question from Representative Wayne, Mr. Chaney said he believed the CERS return percentage for a ten year return was 18 or 19 but that figure would have to be verified with a representative from the retirement system. Representative Wayne commented that there are two issues that need to be addressed: one is the way that investments are managed, and the other is the moral, civic, and communal responsibilities that municipalities have to their workers.


Representative McKee thanked the League for making drug abuse its number 2 priority and asked that KLC help the legislature in getting legislation passed.


Senator Thayer commented that the employees in the private sector need to be considered as well.


There being no further business, the meeting was adjourned at 12:00 p.m.