Interim Joint Committee on State Government


Minutes of the<MeetNo1> 3rd Meeting

of the 2001 Interim


<MeetMDY1> October 24, 2001


The<MeetNo2> third meeting of the Interim Joint Committee on State Government was held on<Day> Wednesday,<MeetMDY2> October 24, 2001, at<MeetTime> 1:00 PM, in<Room> Room 149 of the Capitol Annex. Senator Albert Robinson and Representative Charles Geveden, Co-Chairs, jointly presided. Senator Robinson called the meeting to order, and the secretary called the roll.


Present were:


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


Guests: Aldona Valicenti, Doug Robinson, and James "Cam" Cantrill - Governor's Office for Technology; and Carol Palmore, Personnel Cabinet.


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


The minutes of the September 26 meeting were approved without objection, upon motion by Representative Lee.


Senator Robinson asked staff to distribute two documents: October 17, 2001, "Statement of Acting Census Bureau Director William Barron Regarding the Adjustment Decision," which stated that unadjusted Census 2000 data would be used for nonredistricting purposes and that the Census Bureau will release the remaining Census 2000 data products, postcensal estimates, and survey controls using unadjusted data; and a letter dated October 24, 2001, from Senate President David Williams to the Governor requesting that a special session of the Kentucky General Assembly be called for the purpose of redistricting.


Representative Geveden introduced Tom Troth, an attorney on LRC staff, who addressed the Committee regarding Kentucky redistricting case law from the last decade. He discussed Section 33 of the Kentucky Constitution and gave an overview of the following cases from the 1990's: Fischer v. State Board of Elections, 847 S.W.2d 718 (Ky. 1993), referred to as "Fischer I"; Fischer v. State Board of Elections, 879 S.W.2d 475 (Ky. 1994), referred to as "Fischer II"; State Board of Elections v. Fischer, 910 S.W.2d 245 (Ky. 1995), referred to as "Fischer III"; and Jensen v. State Board of Elections, 959 S.W.2d 771 (Ky. 1997). Highlights of Mr. Troth's presentation follow.


Section 33 of the Constitution states, in part, "The…General Assembly…shall divide the State into thirty-eight Senatorial Districts, and one hundred Representative Districts, as nearly equal in population as may be without dividing any county…" Kentucky Supreme Court cases of the 1990's showed that Section 33 is still viable and an important consideration in redistricting, especially as it relates to county integrity. The Fischer I, II, and III cases and the Jensen decision interpret Section 33, although Fischer I deals primarily with the issue of venue.


In Fischer I, filed in Campbell Circuit Court, the Supreme Court said that when redistricting legislation is being challenged, absent some statute to the contrary, venue would be appropriate in the place where the injury occurred. Subsequently, the legislature enacted legislation (KRS 5.005) that says action challenging the constitutionality of any legislative district shall be brought in the Franklin Circuit Court. That is the current law.


Fischer II challenged the General Assembly's legislative redistricting plan enacted in 1991 that divided 48 of the state's 120 counties in the House and 19 counties in the Senate. In that case, decided in June, 1994, the Court held that population equality must be balanced against preserving county integrity. The Court concluded that "the mandate of Section 33 is to make full use of the maximum constitutional population variation—[i.e, plus or minus five percent]—and divide the fewest number of counties." The "plus or minus five percent" maximum deviation from the ideal population of a legislative district is also consistent with the requirements of the Equal Protection Clause of the Fourteenth Amendment to the U. S. Constitution.


In Fischer III, the Supreme Court declined to permit a special election for a Jefferson County House district that became vacant in August 1995. A request had been made to circuit court to allow the special election in spite of the fact that the Supreme Court in Fischer II enjoined the conduct of any election under the 1991 redistricting plan. Both the circuit court, and the Supreme Court in Fischer III, opined that a special election could not be held based on the constitutionally infirm redistricting plan. (Note: In August 1995, the General Assembly enacted Senate and House redistricting plans, but the House bill was vetoed by the Governor after the House adjourned sine die.)


In 1996, the General Assembly enacted redistricting legislation (effective January 11, 1996) which the Supreme Court ultimately affirmed as constitutional in Jensen v. State Board of Elections, which was decided in April 1997 and then modified in September 1997. Representative Tom Jensen had challenged the 1996 House redistricting plan on the basis that it did not create a whole district within either Pulaski or Laurel Counties, even though both counties contained population large enough to accommodate a whole district. The Court determined that the plan satisfied the requirements of Section 33 and the mandate of Fischer II.


Concluding his remarks, Mr. Troth commented on state judicial (Supreme Court) redistricting, which, he explained, is required under Section 110 of the Kentucky Constitution and has usually been done at the same time as legislative redistricting. He said that Supreme Court district lines may not divide counties. Also, Supreme Court districts are not required to adhere to the population standard of "plus or minus five percent" maximum deviation. This is affirmed in Kentucky Bar Association v. Taylor, which also affirms that splitting counties is forbidden in judicial redistricting.


Senator Robinson asked how often judicial district boundaries must be redrawn. Mr. Troth said it is characteristically done at the time of legislative redistricting, although this is not specifically stated in the Constitution. Senator Robinson asked how judicial redistricting is handled if the districts already have equal population. Mr. Troth said this is not addressed in the Constitution, but as a matter of practice the General Assembly has enacted new judicial redistricting legislation every 10 years. He said the new districts could conceivably conform to the previous boundaries.


Representative Feeley asked whether state law governs timing of and guidelines for congressional redistricting. Mr. Troth said this is primarily a federal law issue. He said there is a body of federal law that governs congressional redistricting, although there are cases that say it is a matter to be handled by the state legislature. Representative Feeley asked whether federal law is clear about when congressional districts must be redrawn. Mr. Troth said federal law is not 100 percent definitive on that issue.


Representative Wayne asked whether there is any precedent in federal law to specify that a community should try to maintain its identity, so to speak, within a congressional district and not cross county lines. Mr. Troth said he is not personally aware of any specific case law on that issue.


Representative Geveden thanked Mr. Troth for his presentation. He then introduced officials from the Governor's Office for Technology (GOT), who were invited to speak to the Committee regarding security and privacy issues relating to Kentucky's information technology systems and data. Aldona Valicenti, Chief Information Officer for the Commonwealth, was assisted in her presentation by Cam Cantrill, General Counsel; and Doug Robinson, Executive Director, Office of Policy and Customer Relations. They provided the Committee with copies of their slide presentation, plus a brochure describing the mission and organization of the Governor's Office for Technology.


Major topics included in Ms. Valicenti's presentation were: information technology guiding principles; profile of the Commonwealth and GOT; GOT's changing customers; security trends; ongoing threats to security; GOT investments in security; security software, applications, and infrastructure protection; security applications, awareness, and outlook; disaster recovery; security at the state and federal levels; consumer and citizen perspectives on privacy; key elements of privacy policy, best practices, and future directions for privacy. Following are key points made in the GOT presentation.


The following information technology guiding principles were adopted in 1997: to view technology from a statewide perspective; to support the business of the Commonwealth; to conduct Commonwealth business electronically; to treat information as a strategic resource; and to ensure electronic access to information services while maintaining security and privacy. The Commonwealth has more than 28,000 desktop computers, more than 135,000 e-mail addresses (including K-12 schools), 3,500 network locations, 200 video conference locations, and approximately 2,000 servers.


GOT has an annual budget of $61 million; has 442 staff positions, in addition to 178 personal service contracts; delivers approximately 40 million e-mail messages per month; and manages about 40,000 hosted accounts. The office supports 2,100 network locations, administers 160 video locations, manages 200 servers, and supports about 98 million mainframe transactions each month. GOT's customers include not only the executive branch of state government but also public libraries, health departments, city and county governments, private colleges, area development districts, state universities, KCTCS (50 locations), the Kentucky Virtual University and the Virtual Library, "911" centers, the telehealth network, and private citizens accessing web services.


Research from the security firm TruSecure, Inc., found that 50 percent of U. S. companies surveyed in 2001 have suffered attacks on their web servers, up from 24 percent in 2000. Among the ongoing threats to security are cyberterrorism and the hackers who target state, federal, and local governments for a challenge.


GOT's Security Services Branch has been elevated to the "division" level, and security staff has been increased from four to 11. GOT employees are housed in six buildings that must be kept physically secure. In the area of software, the enterprise license with McAfee for virus protection has been paramount in providing security for the Commonwealth. GOT is also investing in intrusion detection devices and password-cracking tools. Infrastructure protection includes firewalls, virtual private networks (VPN's), and intrusion detection systems. Security applications include access restriction, password policies for both mainframe and server processing, and the PKI (Public Key Infrastructure) product that is currently being piloted to enable GOT and its customers to encrypt e-mail. PKI has also been invested in heavily by the federal government and other states. Physical security measures include identification badges, and electronic access to buildings and specific areas within them.


Planning for the year 2000 recognized the need to have disaster recovery and business resumption plans in place. This year GOT identified and tested critical systems. An RFP has been issued for development of new plans across all platforms. So far, most of the plans have been developed for the mainframe. There has been focus on increasing security awareness in all agencies, and a security contact has been established in every cabinet. GOT is currently working with the Auditor's Office in conducting seminars to enhance security in the agencies. Since the tragic events of September 11, it has become evident that security is as major a concern as privacy in the information technology arena. GOT is working on security at both the state and national levels. States are awaiting the outcome of pending federal legislation relating to security—the Patriot and USA Act. Cooperation of the states is being sought for the federal CIP (Critical Infrastructure Protection) initiative, with a meeting of all state CIO's scheduled for November in the nation's capital. GOT is participating in Homeland Security meetings led by Adjutant General Allen Youngman.


Regarding the privacy issue, the public records laws of many states protect individuals from "unwarranted invasion of personal privacy." Consumers and citizens across the country are very concerned about privacy breaches relating to doing business on the Internet and about the treatment of personal information. Customers of state government expect the same privacy protection that they receive in the private sector. Privacy is important, as state government pushes to develop and deliver services online in order to achieve greater efficiency and cost savings. There are five key policy elements of online privacy: notice (how a site collects and uses personal information), choice of how personal information will be used, access (for viewing information entered and choices made), how a site ensures security of information, and provision of a contact for communicating and requesting additional information. These elements form the basis for every "best practices" privacy policy on the Internet and serve as a framework for many states' privacy policies. They were the foundation of the 1974 Federal Privacy Act, the "grandfather" of all federal privacy legislation.


GOT was mandated by statute in the 2000 Regular Session to develop, implement, and manage strategic information technology directions, standards, and architecture related to the privacy and confidentiality of data collected and stored by state agencies. GOT has posted a model privacy statement on the web for all state agencies to use, and some form of it is used by more than half of state agencies that maintain web sites. GOT has briefed agencies' general counsels on privacy issues. A Privacy Committee has been formed under the office of the Chief Information Officer to help GOT shape future privacy policy. GOT has conducted a comprehensive survey of every agency, board, and commission in state government to ask how they collect and treat personal identifiable information—whether they share it or sell it, and how it is kept secure. Also with implications for the future, the federal Health Insurance Portability and Accountability Act (HIPPA) establishes wide-ranging standards for privacy and security of individually identifiable health information. The security regulations under the Act have not yet been published. Concluding the presentation, Ms. Valicenti pointed out that E-government and web enabled services will continue to drive questions relating to privacy and security.


Senator Boswell asked whether any of the bomb threats to state government offices had come via the Internet. Ms. Valicenti said that, to the best of her knowledge, they were telephoned in. Senator Boswell asked whether there are adequate penalties for cyberterrorism. Ms. Valicenti said she does not believe the penalties are serious enough or publicized enough. She said that such attacks result in lost productivity and effort that could be better directed elsewhere. There are staff who do nothing but monitor the network for intrusion. She agreed with Senator Boswell that the penalties need to be examined for change at the legislative level.


Representative Pullin asked how GOT interfaces with the LRC information technology system and whether LRC is subject to the same security measures. Ms. Valicenti said that LRC has a separate system but that there is good cooperation across state government in maintaining security. She noted that the state is only as secure, however, as the least secure area, so it is very important for all agencies to work together.


Representative Geveden asked whether there is a need to revise the penal code in relation to cyber crimes. Mr. Cantrill said he believes there is a need but that he would defer to the Attorney General's Office on that issue. He noted that the Department of Treasury had just issued a new report on the rapid increase in identity theft crimes. Mr. Robinson said he believes the greatest challenge is cyberterrorism from outside the United States. He said it is very difficult to track down and penalize these criminals. Some are of the opinion that attacking the cyberterrorists in the same manner will merely cause them to increase their efforts to invade United States networks and that it is best to use a defensive posture against these intrusions. Representative Geveden pointed out that some private sector systems are less secure and would be devastated by such attacks. He suggested that they should also be considered in any legislation that may be drafted by the Attorney General.


Representative Geveden asked whether it would be possible for a hacker to access the state government database to obtain state employees' personal information. Ms. Valicenti said that would be very difficult because much of the employee data is housed in mainframe systems that are not easily accessible. Representative Geveden asked whether there have been attempts that failed. Ms. Valicenti said that it would be hard to determine. She said the personnel data systems are very old and complicated and that they have a certain amount of protection due to their age and complexity. She confirmed to Representative Geveden that the systems have been tested.


Representative Larry Clark suggested to Ms. Valicenti that GOT may want to bring their legislative proposals back before the Committee for additional input before the session begins in January.


Representative Geveden asked about the upcoming privacy seminar being sponsored by GOT. Ms. Valicenti said it would be held on Friday, October 26, at 1:30 in the History Center. She said the seminar is free and invited anyone who is interested to register. Representative Geveden thanked Ms. Valicenti, Mr. Cantrill, and Mr. Robinson.


Senator Robinson announced that he and Representative Geveden are recommending that the Interim Joint Committee meet in November. Representative Geveden said that the meeting is being requested for November 28, which is the usual fourth Wednesday meeting date.


Senator Kerr, Co-Chair of the Task Force on Elections, Constitutional Amendments, and Intergovernmental Affairs, reported on the Task Force meeting of October 16. She said that a staff member of the National Conference of State Legislatures briefed the Task Force on the activities of NCSL's Election Reform Task Force. They also voted to recommend to the full committee that BR 989 be prefiled for the 2002 Regular Session.


Carol Palmore, Personnel Cabinet Secretary, addressed the Committee regarding the Kentucky Group Health Insurance Board's first annual report on the Public Employee Health Insurance Program, dated October 1, 2001. Copies of the report were distributed to the Committee.


Ms. Palmore explained that SB 288, enacted in the 2000 Regular Session, established the Board and directed it to prepare a comprehensive report to the Governor, the General Assembly, and the Chief Justice of the Supreme Court. (The Board consists of the Secretaries of the Personnel Cabinet and the Finance and Administration Cabinet, the State Budget Director, the State Auditor, the Commissioners of the Department of Insurance and the Department of Education, and the Chair of the Kentucky Drug Task Force.) The report includes a summary of the experience of the Commonwealth's Public Employee Health Insurance Program (CPEHIP) through December 2000, a comparison of the state's health insurance program with other states' employee health insurance programs, an analysis of dependent coverage, a discussion of options researched by the Board to provide funding to assist the state in providing dependent care subsidies, a discussion of adverse selection, an evaluation of self-funding, the pros and cons of self-funding for the Commonwealth, and a description of strategies for evaluating health care third-party administrators (TPAs) and vendors.


Ms. Palmore spoke about major issues covered in the report. She said that the Board sought feedback from employees, through the Public Employee Health Insurance Advisory Council, regarding dependent coverage and whether the state should contribute toward its cost. She said that a comprehensive survey of other states found that almost always when a state or private employer offers dependent coverage there is a "tradeoff," in that employees contribute 8-15 percent toward the cost of their individual coverage. This saves money for the employer that in turn is used to help subsidize the cost of dependent coverage. Ms. Palmore said the Board had thought employees would favor this approach, but that was not the case. The Advisory Council unanimously said their number one goal is to ensure that the state continues paying the full cost of single coverage for every employee. Therefore, the Board has recommended that the state continue to pay the full cost of individual health care coverage and only consider subsidizing dependent coverage if it would not jeopardize the ability to fully pay for single coverage.


Ms. Palmore said the survey found that Kentucky's flexible spending account (FSA) benefit is unique. Only one other state in the survey came close (less than half) to what Kentucky provides. The Board looked at eliminating FSAs for employees who waive health insurance coverage; however, after seeking input from actuaries and from employee groups, the Board recommended to continue providing the benefit but to keep it at its current level. The Board also recommended that the practice of "double dipping" be stopped. They recommended that only one health insurance contribution be provided for all individuals who are eligible to participate in the Commonwealth group, including eligible retirees who are also eligible active employees, irrespective of former or current employer. Individuals who would otherwise qualify for more than one Commonwealth contribution would be allowed to decide which contribution he or she wishes to receive. She said this is a very emotional issue for those who could formerly take advantage of double coverage and that there will likely be a movement to roll back the 2000 law—KRS 18A.227(4)—that prohibits this practice for Chapters 16, 18A and 151B employees. The Board feels that public employees should not receive two health care coverages when many taxpaying Kentuckians cannot afford any health insurance. Representative Comer asked how many members of the state group have been "double dipping" with respect to health insurance coverage. Ms. Palmore said this would be difficult to determine because they do not have data from the local boards of education, but it is less than 500 among Chapter 18A employees (Chapter 18A), State Police, and Chapter 151B employees. Representative Comer asked whether elimination of "double dipping" for all members of the Commonwealth group would be retroactive. Ms. Palmore said that would depend on how the General Assembly would want the legislation to be drafted.


Ms. Palmore said that self-funding for the Commonwealth group was another major issue looked at closely by the Board. She said the Board recommended that the state only consider self-insurance if it is highly likely that it will save money, after taking into account all additional expenses—e.g., reinsurance, administrative costs, etc. Another factor to be considered is the negative impact self-funding would have on small regional insurance companies that depend largely on the state employee group. Another consideration is that employees in the central Kentucky area, who currently have many coverage options from which to choose, would have fewer choices under a self-funded plan.


Representative Marcotte asked how many states have self-funded plans. Ms. Palmore noted that 34 of 50 states responded to the survey. She said most states do not have a comprehensive self-insured program. Some states self-insure only portions of their program—e.g., for a region with an inadequate provider network.


Representative Lee said it seems to him that all providers would elect to participate in a self-insured plan. Ms. Palmore said that hopefully would happen, but experience of health insurance companies indicates that this might not be the case. She said some providers will not negotiate with health insurance companies because the reimbursement rates are not high enough and that the Commonwealth would probably not be able to negotiate any more successfully. Representative Lee said that insurance companies have a profit margin built into their plans. He said that with a third party administrator, the cost is based on whatever the administrator costs the state, and not on the bottom line showing a profit. Therefore, the state would have to weigh whether or not self-insurance would affect the competition for private insurance. The state would then have to make a policy decision about the impact on competition versus being self-insured and saving the amount the state is spending in order for a company to bid the insurance. Ms. Palmore said that is true and that is why it would be necessary to make sure that all the additional expenses that self-funding would incur would not exceed the amount of profit expected by the insurance companies.


Representative Lee asked whether the Board has any statistical data from states that self-insure, based on their actuarial experience, that might show how the "bottom line" compares under self-funding. Ms. Palmore said she does not know of any states that totally self-insure. However, they do have data for all companies participating in the Commonwealth's group health insurance program, showing the amount of premium dollars allocated to providers and the amount that goes toward profit and administrative fees.


Representative Lee asked whether self-funding for certain areas of Kentucky would be a viable option. Ms. Palmore said they have looked at this. She said that Anthem has the best provider network and the highest reimbursement rates, and it is difficult in some areas to get providers to participate at rates lower than Anthem's. For self-funding to save money, she said it would be necessary to first determine whether lower rates could be negotiated. Representative Lee said he has been told by TPAs that it is not a problem to negotiate with providers for a cost savings when the providers know that the money is there and that reimbursement and paperwork will be hassle-free. He said he knows of TPAs that administer large groups that save substantial money by being able to negotiate within a given area with a given number of people. He said he hopes that at some time in the future there will be enough statistical data available to allow self-funding to be considered in Kentucky. Ms. Palmore said that when the health insurance RFP for the 2003 plan year is issued in mid-April of 2002, for the first time it will also ask TPAs to bid on providing self-insurance, on a regional basis. Representative Lee asked Ms. Palmore to share the results of the RFP with the State Government Committee, and she said she would.


Representative Geveden said that since the insurance companies are making a profit, would it not be possible for a self-insured plan to achieve a positive bottom line or at least a reduction in the state's cost to cover its employees. Ms. Palmore said it would depend on the amount of any profit being sufficient to cover reinsurance, administrative costs, and other expenses associated with self-insurance. She said that the initial contracting cost for the state would probably be higher than for insurance companies. There would be a good deal of initial startup costs. She said that if the indications are that self-insuring would be financially feasible, she believes it should be seriously considered. Representative Geveden said he believes there are numerous large private corporations, both within and outside Kentucky, that self-insure. He asked whether these private-sector companies buy reinsurance. Ms. Palmore said that most of them do. She said that for groups of 50,000 or more, reinsurance is not supposed to be necessary from an actuarial standpoint. However, she does not know of any self-insured corporation that has not purchased reinsurance, and she does not think state government should self-insure without purchasing reinsurance.


Representative Geveden asked whether it would not be possible to negotiate substantial reasonable contracts with providers, considering the size of the Commonwealth group. Ms. Palmore said yes—if the group was centralized and involved the same set of providers—as in Lexington or Louisville, for example. She said that rural areas that have few providers and fewer public employees would not have as much negotiating "clout."


Representative Lee said he believes that self-insurance would undoubtedly save money in some areas of Kentucky and that it would work just as well or better in regions that have numerous providers, so long as each region would have its own TPA. He acknowledged that self-insurance might not work in some parts of the state. Those areas would be covered by the private insurance market and should not affect the overall actuarials of a self-funded program. Ms. Palmore agreed that if self-insurance becomes an option, it should be on a regional basis and that each region would need its own TPA.


Ms. Palmore called the Committee's attention to Appendix B in the report, which lists all the entities that have only their retirees participating in the Commonwealth group, while their active employees—approximately 58,000—are being insured outside the Commonwealth group. She said this is a huge issue. Public employees are, in effect, subsidizing these retirees. The situation is unfair to state employees because it drives up their premium rates. She said that these entities should be required to either bring their active employees into the group or to pay the actuarial difference in the cost to insure their retirees. When Representative Geveden asked, she said she did not know the cost but that the Board is trying to get an analysis from Mercer in order to determine how premiums would be affected if these entities' active employees were required to participate in the Commonwealth group. She said it might not decrease the premiums, but it should at least slow the rate of premium increases. She said it is a tough political issue, and that this recommended change would be opposed by county officials.


The Co-Chairs thanked Ms. Palmore, and the meeting was adjourned at 2:50 p.m.