Interim Joint Committee on State Government


Minutes of the<MeetNo1> 1st Meeting

of the 2001 Interim


<MeetMDY1> August 22, 2001


The<MeetNo2> first meeting of the Interim Joint Committee on State Government was held on<Day> Wednesday,<MeetMDY2> August 22, 2001, at<MeetTime> 1:00 PM, in<Room> Room 149 of the Capitol Annex. Senator Albert Robinson and Representative Charles Geveden, Co-Chairs, both presided. Senator Robinson called the meeting to order, and the secretary called the roll. Representative Geveden recognized Representative Charlie Hoffman, a new member of the Committee.


Present were:


Members:<Members> Senator Albert Robinson, Co-Chair; Representative Charles Geveden, Co-Chair; Senators Walter Blevins, Charlie Borders, David Boswell, Ernie Harris, Alice Kerr, Ed Miller, Ernesto Scorsone, Elizabeth Tori, Johnny Turner, and David Williams; Representatives John Adams, Woody Allen, Adrian Arnold, Eddie Ballard, Joe Barrows, Carolyn Belcher, John Bowling, James Bruce, Buddy Buckingham, Dwight Butler, Jim Callahan, Larry Clark, Perry Clark, James Comer, Joseph Fischer, Charlie Hoffman, Jimmie Lee, Paul Marcotte, Lonnie Napier, Tanya Pullin, Jon David Reinhardt, Arnold Simpson, Tommy Turner, and Jim Wayne.


Guests: Carol Palmore, Carl Felix, and Singer Buchanan - Personnel Cabinet; Bill Hanes, Bob Leggett, Geraldine Miller, and Lauren Stewart, - Kentucky Retirement Systems; Denis Fleming, Governor's Office; and Kembra Taylor, Labor Cabinet.


LRC Staff: Joyce Honaker, Joyce Crofts, Barri Christian, Tom Troth, Stewart Willis, Laura Hendrix, Melissa Bybee, and Peggy Sciantarelli.


Representative Geveden presided. First on the agenda was a briefing on state employee health insurance by Personnel Cabinet Secretary Carol Palmore. She was accompanied by Carl Felix, Executive Director of the Office of Employee Health Insurance. They furnished three handouts to the Committee: (1) "Public Employee Health Insurance Handbook for Plan Year 2002"; (2) "Public Employee Health Insurance Information" booklet for 2002; and (3) a document containing various charts relating to the RFP selection process.


Ms. Palmore reviewed the contents of the 2002 Health Insurance Handbook. She explained that the state's monthly contribution toward single coverage for 2002 will be $234. However, if the lowest-cost single Option-A plan is more than $234 in a particular county, the state will contribute the full amount of that plan. Ms. Palmore said that the "Public Employee Health Insurance Information" booklet contains information about the carriers. It will be mailed to all 171,000 members of the state group, as an alternative to holding benefit fairs across the state. She said that the benefit fairs have been attracting only 15-20 percent of employees and involve considerable administrative cost to the Cabinet and the carriers. However, employees in some areas of the state—for example, the Jefferson County Teachers' Association—are not pleased with that decision. Therefore, the Cabinet has advised the insurance companies that they may meet with employee groups upon request, but the Cabinet hopes such visits will not cause an increase in administrative costs.


Representative Bruce, citing the $75 difference in rates between Anthem and Humana for PPO single Option-A coverage, asked why there is such a big difference in rates charged by the carriers. Ms. Palmore said that Anthem's rates are generally higher, because the Company offers higher reimbursement rates to providers, has been willing to offer coverage in "higher cost" areas of the state, and has higher utilization rates than some of the other companies. Anthem also has the most extensive provider network, which tends to drive up costs. She added that Anthem is closer to having sufficient networks in all 120 counties than any other carrier; however, that does not mean Anthem offers coverage through the public employees health insurance program in all counties.


Representative Bruce asked why some companies reimburse providers at higher rates. Ms. Palmore suggested that Anthem and Humana would be better able to answer that question. Representative Bruce said the Commissioner of Insurance should also be asked. Ms. Palmore said that the October 2001 report to the legislature that is required by Senate Bill 288 (enacted in the 2000 Regular Session) will provide information on utilization and carriers' loss ratios.


Senator Boswell noted that in five of the seven counties in the Green River Area Development District Anthem is the only available carrier. However, in Ohio and Webster Counties, there are additional choices. He said he is very concerned that there is only one carrier in his area. He said Anthem is a great company, but competition in the marketplace usually brings more affordable rates. He said he has been told in the past that availability of medical services is a factor in availability of carriers. Yet Owensboro's hospital is "state of the art" and is one of the largest hospitals in western Kentucky. Ms. Palmore said their goal is to have at least three carriers in each county, but in some counties bids are received from only one or two carriers. She said that in Senator Boswell's area, unfortunately, it is difficult for carriers to enter into contracts because of the reimbursement rates demanded by the providers. In the RFP for 2002, in an effort to attract more carriers, additional points were offered in the scoring process for any carrier that would come into a county that had only one or two carriers in 2001. As a result, the number of counties with only one carrier decreased, and there was an increase in the number of counties with three carriers. She said this issue could also be more fully addressed by the insurance companies and the Commissioner of Insurance. Senator Boswell suggested that the State Government Committee or the Banking and Insurance Committee—or both—invite the Commissioner of Insurance and the carriers to a meeting to discuss these issues. Representative Geveden said Senator Boswell's point is well taken and that the Committee would look into this.


Representative Pullin expressed concern about the high cost of family plan coverage for state employees and schoolteachers in counties in which Anthem is the only carrier—e.g., her area of the state and Senator Boswell's area. She said she is most concerned about families who make a little too much to qualify for KCHIP. Some may have to pay as much as one-fourth of their salaries for health insurance or may not be able to insure their children at all. She said several counties are affected and that it is a very serious matter that needs to be looked at.


Senator Borders concurred with Representative Pullin. He said it is just now becoming obvious that the decision to increase the state's contribution to cover the lowest cost single Option-A plan in each county has resulted in a significant increase in family plan premiums. He asked Ms. Palmore if she has any suggestions to address this problem. Ms. Palmore said that SB 288 directed the Health Insurance Board to research dependent coverage. She said a survey of other states' found that the trend is for "singles" to pay a percentage of the cost of their insurance to subsidize the public employer's contribution toward dependent coverage. In most states singles are paying an average of 15-20 percent of single coverage cost. She said it is a very difficult issue--a tradeoff that is necessary in order to keep within a reasonable budget. Some state employee groups have indicated that they want subsidized dependent coverage but do not want singles to have to pay for it. Ms. Palmore said all of the information gathered on this issue will be included in the Board's October 2001 report to LRC. Senator Borders said that in order to treat state employees fairly, the discrepancy between the cost of single and family coverage needs to be addressed. He said he would appreciate it if the Committee would examine this issue prior to the 2002 regular session.


Representative Bowling asked whether the state has ever considered a self-insurance program for public employee health insurance. Ms. Palmore said that the state did self-insure when Kentucky Kare was established in the late 1980's. She said this worked well initially, but when the decision was made to allow managed care to compete against Kentucky Kare, this, in her opinion, drove Kentucky Kare out of business. She said that an indemnity company cannot successfully compete with managed care. Representative Bowling said he hopes the Committee will look at the possibility of self-insurance. He said he believes this would get the attention of the insurance companies and that perhaps the problems experienced by Kentucky Kare could be rectified.


Representative Geveden pointed out that self-insurance has been studied by legislative committees in the past. He asked Ms. Palmore to comment on what steps the Cabinet is taking in that direction. Ms. Palmore said that the Health Insurance Board was also charged with studying this issue. She said the October report to LRC will include the results of a comprehensive survey in which useful information was received from 37 of the 50 states. She added that the Cabinet now has the capability to obtain the type of data needed in order to intelligently consider self-insurance. Since the 2000 Regular Session ended, they have contracted with Medstat, a company that provides the Cabinet access to the same type of information that the insurance companies have for the state group. In the past, Kentucky has had a problem "getting a handle" on the needed information.


Ms. Palmore went on to say that the changing demographics of the state group is part of the cost problem. She said that enrollment trends from 1999 to 2000 (Handout #3) reflect a decrease in the percentage of active public employees, employees of local boards of education, and health department employees, but an increase in the number of retirees in the state group. As the state group population ages, the cost of insurance is dramatically impacted. She explained that active employees of counties, cities, and regional universities were allowed to "opt out" of the Health Purchasing Alliance, but their retirees were allowed to remain. She said she hopes this issue will be addressed in the 2002 Session.


Representative Larry Clark asked whether the Cabinet has looked at how costs for the state group parallel costs in the private sector. Ms. Palmore said that a person's health is not a consideration in obtaining group health insurance, but this is not so in the private market. She said that access to private insurance coverage may not be an issue, but the cost is often so prohibitive that access may be meaningless.


Representative Wayne said he thinks the health fairs can be beneficial, and he encouraged their continuation in Jefferson County. Ms. Palmore said that, with the exception of Jefferson County, it was the consensus of "focus" groups of public employees that more people would have access to better information through mailings. She said she is sorry that the Jefferson County teachers are upset and said that the Cabinet will try to work with them.


Representative Lee expressed concern about how private insurance companies would be affected if the state should decide to self-insure. Ms. Palmore said that two of the regional companies would probably be put out of business, because they heavily depend on state employee enrollment. At the very least, it would lessen the choices available from those companies. Representative Lee said he had been told at one time that self-insurance would not significantly impact the private insurance market but said he does not agree. He asked that the Cabinet consider this issue in its examination of self-insurance. Ms. Palmore agreed to do so.


Senator Williams asked whether reinsurance would be available in the marketplace if the state decided to self-insure. Ms. Palmore said yes but that Mercer's consultants have advised that reinsurance is not that significant a factor with a group as large as the state group because the risk would be spread over a large pool. She said her feeling would be that, regardless, the state would need to purchase reinsurance. Senator Williams said that without reinsurance, he does not see how the state could possibly accept the responsibility of the potential unfunded liability, considering the inflationary rate of medical costs.


Senator Williams said that Kentucky is only now attracting health insurance companies back into the state. He said he wonders what kind of message Kentucky's continued interest in self-insurance is sending to companies that are thinking about doing business in Kentucky—companies that might provide coverage in areas of the state where most employers do not provide health insurance in their compensation package. He asked Ms. Palmore if she is concerned about that. She said that SB 288 directed the Health Insurance Board to look specifically at the issue of self-insurance and report the results in the October 2001 report. Senator Williams asked her if it would be fair to say that Kentucky, as a matter of public policy, is not anywhere near a recommendation from the current administration to self-insure. She said that the Health Insurance Board meets next Tuesday (August 28) and then will have one more meeting to finalize its report. She said it would be presumptuous of her to speak for the whole Board at this time. Senator Williams asked whether it would require legislative action for the state to self-insure, or could it be done by executive order without consultation with the legislature. Ms. Palmore said she would probably need to talk with Finance & Administration Cabinet Secretary Kevin Flanery and Commissioner Don Speer about that, but she said she doubts seriously that it could be done without legislative consultation. Senator Williams said that in a state as small as Kentucky—and with as few workers who have employer-provided health insurance—the overall impact that self-insuring would have on the underserved areas of the state would have to be considered. He said he would encourage the administration not to issue an executive order.


Representative Geveden said that legislators owe it to the taxpayers of Kentucky to provide health insurance for state employees at the lowest possible cost. He said that if self-insurance can provide the coverage at lower cost, it will help both the taxpayers and the employees of the state of Kentucky, and the exorbitant family plan rates that committee members have expressed concern about might in turn become more affordable. He said that before any decision could be made about self-insurance, the legislature would, of course, need to first have the information and data that will be forthcoming from the Health Insurance Board and the Personnel Cabinet. In closing, Secretary Palmore said that the best thing the General Assembly could do to address the cost of health insurance would be to bring active components into the state health plan if their retirees are covered. She stressed that membership in the plan is needed at both ends of the age spectrum to offset the higher cost of insuring the retirees.


Senator Robinson presided over the next part of the agenda, which was a briefing on retirement issues by staff of Kentucky Retirement Systems (KRS). Guests from the agency were Bill Hanes, General Manager; Bob Leggett, Deputy Commissioner for Investments; Geraldine Miller, Deputy Commissioner for Benefit Services; and Lauren Stewart, Deputy Commissioner for Operations.


The first issue discussed was retiree health insurance. Mr. Hanes began by reviewing the booklet entitled "Kentucky Retirement Systems Medical Insurance Benefit Information, August 22, 2001" (copies provided to the Committee). He said that the data in the booklet is based on the June 30, 2000, actuarial report and that when the 2001 report is completed, the information in the booklet can be updated.


Mr. Hanes said it is intended that retiree medical insurance will be 100-percent prefunded by the year 2016. He said that, currently, the unfunded medical insurance liability exceeds $2.8 billion for the Kentucky Employees Retirement System (KERS), County Employees Retirement System (CERS), and the State Police Retirement System (SPRS).


The tables on pages 2-4 of the booklet indicated actuarial accrued liability, unfunded actuarial accrued liability, percent unfunded, and growth of invested assets relative to medical premium benefits since 1990, for the insurance funds of each of the three systems. Mr. Hanes noted that KERS was 95.5 percent underfunded in 1990; in 2000, KERS is funded at about 30 percent. He said the funding level for CERS was about 24 percent in the year 2000. In contrast, pensions are funded at approximately 129 percent. If the actuary could determine a contribution level that would fully fund the medical insurance, it would probably double the current contributions of the employers in each system. In reality, the actuary cannot use the same actuarial funding methods for the health insurance that are used for the pension fund because the resulting contribution rates would not be realistic. Mr. Hanes noted that SPRS insurance fund had the highest funding level for 2000—almost 50 percent.


Charts on page 5 of the booklet reflect the current and projected monthly costs for hazardous and nonhazardous health insurance, for nonMedicare eligibles. Charts on pages 6-9 present the cost information in greater detail, breaking down the number of plans according to their percentage funding level (based on years of service) within particular regions, and including the monthly premium contribution for each funding level. Mr. Hanes noted that there are currently 14,236 plans (including both hazardous and nonhazardous), with a monthly total payroll cost of about $3.7 million. He said the monthly total projected cost for 2002 is approximately $3.9 million, based on rates set by the Board last week.


Senator Boswell asked why Ohio County and Webster County are listed in a different group/region of counties for the 2002 projections than they were for the previous plan year. Mr. Hanes said those groupings are determined by the Personnel Cabinet without any input from KRS. Repeating his concern expressed earlier, Senator Boswell said he wants to know why some counties are in a higher rate category than others and why some counties do not have a choice of provider. Senator Robinson said that this issue has been noted for future attention by the Committee.


Page 10 of the booklet indicates the 2001 monthly cost for the 20,828 Medicare-eligible insurance plans in KERS, CERS, and SPRS. Mr. Hanes said that KRS does not yet have the data needed to determine the 2002 insurance contribution rates for Medicare eligibles.


Mr. Hanes said that the Co-Chairs asked him to discuss today the projected savings that would be realized within the next 10 years if the retiree medical insurance benefit was changed pursuant to legislation proposed by Representative Geveden in the 2000 regular session. The legislation would have set a level employer contribution rate, based on years of service, for retiree health insurance for persons hired after July 1, 2001, with a maximum monthly rate of $200 for single coverage. The charts on pages 11-18 show estimated 10-year savings to each system under the proposal. Mr. Hanes noted that the figures can be updated after the new actuarial report is released in November 2001. He added that Representative Geveden is considering modifying the proposal to include a COLA, capped at five percent, based on the Consumer Price Index.


Senator Williams questioned the value of a $200 monthly contribution rate 20 years from now, considering that the CPI doesn't reflect medical cost increases and corresponding premium increases. Mr. Hanes said that is a valid point and acknowledged the disparity between the CPI and rising medical costs. Senator Williams asked whether it is realistic to believe that the proposed level funding could be sustained, and what impact it would have on the financial condition of the health insurance fund. Mr. Hanes said system funding under the proposal would be much better than it is today, because the current contract requires the full cost of medical insurance to be covered. Senator Williams said it might be better for the System "on paper" but that $200 will not be a significant monthly contribution for an employee 20 years into the future. He said that the proposal actually would remove retiree health insurance from KRS' inviolable contract with its members. Mr. Hanes agreed. He went on to say that the Teachers Retirement System does not include medical insurance as part of the inviolable contract. He said the KRS Board is not an advocate of the proposal, but he believes it is a sound way to go. Estimated 10-year savings for KERS, KERS-hazardous, CERS, CERS-hazardous, and SPRS amounts to $310,625,000. When asked by Representative Geveden, Mr. Hanes noted that the savings would be closer to $2-3 billion after 30 years. He pointed out that the data in the charts does not include a COLA.


Mr. Hanes next discussed current trends in public sector retirement systems and how Kentucky compares. He referred to a paper he wrote, entitled "A Compendium of Significant Current Trends in Defined Benefit Retirement Plan Design." He added that much of the data he would present would be based on a survey by the state of Wisconsin. He said the number of retirees in the states that were surveyed is growing at a faster rate than the number of active workers. According to Kentucky Retirement Systems' June 30, 2001, actuarial report, it appears that SPRS has almost as many retirees as active employees; there is a similar trend in KERS and CERS.


Mr. Hanes said that most public retirement plans have an age and service requirement for unreduced benefits. He said "normal" retirement for most plans is age 65. Seventy-five percent of plans allow for unreduced retirement at age 62 with 10 or less years of service. In Kentucky, the normal retirement age for nonhazardous is 65; for "hazardous" it is 55. Seventy-five percent of plans provide for retirement after "x" number of years without an age requirement, which is consistent with Kentucky. The most common number of years is 30, compared with 27 in Kentucky. Members of KRS (nonhazardous) can retire, though, after 25 years with a 10 percent penalty. "Hazardous" members can retire with unreduced benefits after 20 years, with no restriction on age.


Mr. Hanes said many systems have a "rule of 80" (total of age and years of service) for purposes of retiring with an unreduced benefit. Ninety percent of plans allow for early retirement with a discount—normally between ages 55 and 65. Kentucky's nonhazardous system works similarly, while members of the hazardous system can retire at age 50 with 15 years of service, with a reduced benefit. He said that since 1996, 30 percent of the plans surveyed have reduced their normal retirement provisions by reducing the minimum age or the number of years of service required, or both. Five years is the most common vesting requirement (same as Kentucky), and the trend is for five years or less. Many systems are moving toward "defined contribution" plans, rather than "defined benefit" plans like Kentucky's. A few systems have noncontributory defined benefit plans—i.e., the employee does not contribute.


Mr. Hanes said that Kentucky is unique, in that its public employees not only have a defined benefit plan to which they contribute (five percent for nonhazardous; eight percent for hazardous), but they may also choose to invest in 401k and 457 retirement plans through the state's Deferred Compensation System. He said Kentucky is one of a very few states that still offer these typically private sector retirement plans.


Mr. Hanes said the retirement formula for non-Social Security plans is higher than the formula for Social Security plans. Non-Social Security plans have benefit factors that range from 2.0-2.5 for each year of service credit, while the average for 30 years is 2.31. For Social Security plans the range is from 1.5-2.1. The Social Security benefit factor for CERS nonhazardous is 2.2; for KERS nonhazardous it is 2.2 for those who retire by 2009. Forty percent of the plans surveyed increased their formula multiplier between 1996 and 2000, narrowing the difference between non-Social Security and Social Security plans.


Mr. Hanes said Kentucky's "high three" years final average salary compares with the norm in other public sector systems. He said that 65-75 percent of the plans surveyed also use "high three" and about 20 percent use the "high five" years. He said KRS has no cap on final compensation for purposes of determining retirement benefits. The survey indicated that 12-13 percent of other public systems cap total compensation; 43 percent of plans limit benefits by setting a percentage limit on final average salary or maximum years of service credit. Fifty percent of plans provide for a COLA; 25 percent provide for an automatic annual increase. He pointed out that Kentucky in 1996 enacted a law that provides for a COLA up to five percent for its public retirees, based on the CPI.


Mr. Hanes said that Wisconsin did a very good analysis of the funding ratio of all the systems. It showed that 40 percent of the plans have a funding level of 100 percent or better for their pension funds. He said it is interesting to note Delaware had the only plan with a higher funding level than Kentucky Retirement Systems, which is at 125 percent funding. He pointed out, however, that that funding level is not expected to be sustained, due to the slowdown in the economy, benefit increases from the COLA's, and liabilities that will be incurred due to implementation of "high three."


Mr. Hanes said there is a trend in most defined benefit systems to allow public employees to purchase service credit. He said Kentucky offers 31 different purchasing options, which is almost unheard of in public sector systems. Since 1999, Kentucky has been allowing for "trustee to trustee" transfers and 401k rollovers. He said he knows of only eight to ten systems that provide for the 401k. This has had a major impact of KRS' workload. An average of $70 million has been rolled over each year since 1999. Mr. Hanes noted that President Bush's 2001 tax relief package included major pension reform that will also result in significant additional workload for Kentucky Retirement Systems staff.


Mr. Hanes said that Kentucky's disability program provides for both duty and nonduty-related benefits, which is similar to most other systems. Concluding, he said that Kentucky's public retirement system is very generous, compared to the states in the Wisconsin survey.


Representative Buckingham asked how KRS investments are managed. Mr. Leggett said the Board of Trustees is charged with oversight of assets in both the pension and insurance funds.


Representative Larry Clark asked how many money managers there are for the two funds and whether it would be worthwhile or legal to combine the two funds to save administrative costs by limiting the number of managers. Mr. Leggett said that there are eight external managers. For a similar size pension fund, the average number of managers is about 20. He said that, based on a national survey which KRS conducts each year, Kentucky has one of the most efficiently run systems. Total cost for the administrative component is less than seven basis points. The fact that 50 percent of the funds are managed internally also helps reduce cost. Based on the asset/liability management study that is done every five years, the management structure is established to help achieve the highest rate of return.


Representative Comer asked how many people purchased service credit before the changes enacted in HB 278 became effective. Mr. Hanes said he didn't have the figures with him, but staff was inundated with purchase requests.


Representative Bowling asked about oversight of Kentucky Retirement Systems and its investments, and whether the agency reports to the General Assembly on a regular basis. Mr. Hanes said there are both external and internal auditing systems. Mr. Stewart pointed out that KRS contracts with an outside firm to do an annual audit, since the Auditor of Public Accounts does not have sufficient staff to do it. Mr. Hanes said also that the Indianapolis legal firm Ice Miller has been conducting a comprehensive review of Kentucky Retirement Systems and recently issued a report on the investment operation. He said that when Ice Miller's review is complete, a full report will be submitted to the General Assembly. He said that KRS is also required by statute to produce annual audit and actuarial reports, which are also submitted to LRC.


Mr. Leggett said that on a daily basis staff monitors the investments—not only the portfolio but also transaction costs. He said the oversight process, over the past few years, has resulted in a reduction in half the cost of the administrative component for the investment management firms. Transaction costs have also been reduced by more than 75 percent. KRS has an internal compliance officer who reports directly to the Board of Trustees. The investment committee meets quarterly, and the investment consultant reports to the investment committee formally on a semi-annual basis. KRS reports to the full Board, the membership, and to the legislature annually in regard to assets and investment performance.


Senator Blevins asked how investments in the stock market have been performing. Mr. Leggett said that exposure to the equity market has been reduced this year. Returns for the past year were reduced somewhat, but over the 10-year period for the portfolio they are averaging 11.8 percent return on an annualized basis. He said the portfolio, for the short term, may be volatile, but over the long term it is constructed to bring returns that will ensure that the benefits are there at the time of retirement.


Representative Marcotte asked how KRS investment returns compare with other state systems. Mr. Leggett said that over the past 10 years, KRS has ranked in the top 25 percent in the nation.


Mr. Hanes addressed the issue of retirement system workload. He said the workload problem is significant and a permanent solution is not on the horizon. Calls to the System have averaged more than 70,000 per month. Based on conversations he has had with his colleagues, Kentucky has more administrative problems than any other statewide system. Kentucky, with its rollover provisions and numerous service purchase options, has a more diversified system than most, with separate systems for "hazardous" employees, and with school board employees, in effect, comprising a system of their own. He said staff does an excellent job and put in a lot of overtime. A minimum of six to eight months training is required to become a counselor. The staff turnover rate is about 16 percent. He said he doesn't want to complain too much, but there will be a time that KRS may ask the General Assembly for relief. He added that the Secretary of Personnel is also helping them address their workload problems. Senator Robinson said he believes Kentucky state employees have a good retirement system and that KRS is doing an outstanding job. He said that, however, two or three months is a long time to process information requests, even though that may be the best that can be done. He said it is not the fault of the system, in view of the many mandates enacted by the legislature, but that perhaps some revision needs to be done to enable faster service.


The next topic covered by Mr. Hanes was a status report on retirements, as summarized in his August 16, 2001, memorandum to the Co-chairs. He noted that since 1998, there has been an upward trend in the number of retirements. He commented that people who are getting ready to retire are confronting one of their most important life decisions. The services provided to them by KRS staff are extremely important, and it is essential that they have the necessary flexibility and resources.


Next on the agenda was an update on the Governor's Employee Advisory Council. Representative Geveden presided. The presenters were Denis Fleming, General Counsel, Office of the Governor; Kembra Taylor, General Counsel, Labor Cabinet; and Singer Buchanan, Deputy Secretary, Personnel Cabinet. Mr. Fleming gave an overview of Executive Order 2001-623, which Governor Patton signed May 18, 2001, to establish the Council. He explained that the Executive Order basically establishes a process whereby classified merit employees can voluntarily select an employee organization to represent them on the Council and meet periodically with the Governor to discuss issues relating to their employment. He said the Council is advisory in nature and can only make recommendations and provide advice to the Governor. Employees are not required to join an organization, and if they do, there is no mandate to pay dues. The results of discussions of the Council with the Governor shall not be construed or interpreted to diminish any rights and responsibilities of employees in the classified service. Strikes are prohibited under the order. At least 30 percent of employees in each of the nine employee categories specified in the order must show interest before an election may be held to select an organization to represent them. The process established by the Order is not collective bargaining in the traditional sense, although 36 states do provide for collective bargaining for state employees. Mr. Fleming said the Governor's prime reason in establishing the Council is that he felt there was not any formal mechanism for state employees to communicate with him regarding the terms and conditions of their employment.


Ms. Taylor said the Secretary of Labor's responsibility under the executive order is simply to certify the initial members of the Advisory Council. To that end, Secretary Norsworthy has established a method for employee organizations to apply for certification and for the Labor Cabinet to conduct the elections. She said the Order divides nonsupervisory classified employees in the executive branch into nine categories. The various employee organizations have been given access to employees in nonwork areas and on nonwork time. Representatives of the organizations have been required to speak to agency representatives in advance to arrange times and locations for their visits to the workplace, in order to minimize disruption. After July 31, bona fide employee organizations seeking to represent employees as members of the Advisory Council were allowed to file requests for recognition with the Secretary of Labor. If satisfied that an organization is bona fide and that there is an adequate showing of interest by employees, the Secretary calls for an election. To date, one request has been received, in the health services employee category, and an election has been set. All elections will be conducted by secret mail ballot. The requesting employee organizations, as well as any intervening employee organization that meets the same threshold "showing of interest" within 30 days of the date the Secretary calls for the election, will be placed on the ballot. The ballot will also contain the choice, "no representation." The Labor Cabinet's Office of Labor Management Relations and Mediation will oversee the election. Employee organizations will bear the total cost of printing and mailing the ballots. Elections will not necessarily occur simultaneously. At this point it is not known how many elections there will be, or even if there will be an Advisory Council. It is totally up to the employees. If an employee organization receives the majority of the votes cast, it will be certified as the winner. There are also provisions for runoff elections and for expressing concerns about fairness of an election. Initial terms on the Council are for at least one year. Subsequent representation for any category will be determined according to bylaws adopted by the initial members.


Mr. Buchanan discussed the role of the Personnel Cabinet in implementing the executive order. He said the Cabinet's role is primarily administrative. It was determined that there were 28,138 employees eligible for representation as of June 7, 2001. The number of eligibles by category were: clerical, semi-technical and paraprofessional, 4,549; administrative, 4,677; labor and trades, 4,779; employment and social services, 5,169; health services, 1,831; State Police, 786; corrections, parole and other law enforcement, 3,295; professionals, specialists, scientific and related, 1,084; and regulatory and inspection, 786. He said that the Cabinet will print labels for the use of employee organizations, but the organizations will fund all mailing and election costs.


Senator Boswell asked whether probationary employees are eligible for representation on the Council. Ms. Taylor said that probationary employees are not technically considered classified employees and thus would not be entitled to vote for employee representation.


Senator Robinson said he would like to have this issue before the Committee again at some time in the future. He said some of his constituents are concerned that the executive order could endanger their merit system protections, and he feels that the issue needs to be looked at closely.


Representative Barrows asked whom employees should contact to voice complaints or concerns about the process. Ms. Taylor said the Labor Cabinet has been fielding all complaints and that they may be directed to her or Eddie Jacobs, Principal Assistant to Secretary Norsworthy. She said they have not received very many complaints, and the process seems to be going smoothly so far.


Discussion concluded, and Senator Robinson thanked the speakers. Representative Arnold said that he and Co-Chair Senator Kerr have requested a change in the regular meeting date for the Task Force on Elections, Constitutional Amendments, and Intergovernmental Affairs. He said that the second Monday creates a scheduling conflict for some members and that the new meeting date will be the third Tuesday of each month, if approved by LRC.


Representative Geveden noted that the full Committee is scheduled to meet again on September 26. Business concluded and the meeting was adjourned at 3:28 p.m.