Interim Joint Committee on State Government


Elections, Constitutional Amendments, and Intergovernmental Affairs Task Force


Minutes of the<MeetNo1> 2nd Meeting

of the 2002 Interim


<MeetMDY1> October 15, 2002


The<MeetNo2> 2nd meeting of the Elections, Constitutional Amendments, and Intergovernmental Affairs Task Force of the Interim Joint Committee on State Government was held on<Day> Thursday,<MeetMDY2> October 17, 2002, at<MeetTime> 1:00 PM, in<Room> Room 131 of the Capitol Annex. Representative Adrian Arnold, Chair, called the meeting to order, and the secretary called the roll.


Present were:


Members:<Members> Senator Alice Kerr, Co-Chair; Representative Adrian Arnold, Co-Chair; Senators Ernie Harris, Ed Miller, Albert Robinson, and Elizabeth Tori; Representatives  Joe Barrows, James Bruce, Perry Clark, James Comer, Joseph Fischer, Charlie Hoffman, Gross Lindsay, and Mary Lou Marzian.


Guests:  Chris Sanders, Kentucky AFL-CIO; Carl Breeding, Associated Industries of Kentucky; Paul Sanford, Center for Responsive Politics,  Washington, D.C.; Sarah Jackson and Stephen Smith, Kentucky Registry of Election Finance. 



LRC Staff:  Laura Hendrix, Jim Roberts and Terisa Roland.


Representative Arnold asked for approval of the September 17, 2002 minutes, and they were approved. The first speaker was Chris Sanders, of the Kentucky AFL-CIO. He  said that on August 7, 2002, in an executive board meeting, the Kentucky AFL-CIO voted to oppose Constitutional Amendment No 2. He stated that 10 sections of Kentucky's constitution that restrain corporate abuse were at stake, and these sections have remained undisturbed for over 100 years. Mr. Sanders said SB 120, which  passed in the 2002 session, had only one sponsor, Senator Borders. He stated that there was no effort to build support and that organized labor did not know about this bill until the session was over. He also stated that Kentucky's antitrust provision would be repealed by the amendment. He said that the amendment would mean that a business could have its corporate filing here in Kentucky but run its business in another state, thereby robbing Kentuckians of  jobs. Also, he stated that under this amendment shareholders could not cumulate their votes in order to effectively manage the decisions of the corporation, and the decisions would be made by the chief operating officer.


Senator Robinson stated that he was in favor of the constitutional amendment and that he was chairman of the Senate State and Local Government Committee, which considered the bill. Senator Robinson said that his committee had the bill for 40 days prior to holding a hearing and no opposition was voiced against it during that time. Mr. Sanders replied that usually when something was good for Kentucky's economic development, management, labor and community organizations would come together in a broadbased coalition to say it was necessary. He said it appeared that no one knew about this bill until after the session and he requested the committee to do what they could to oppose it now.


Mr. Sanders made comparisons between this amendment and the corporate governance in Delaware. Representative Fischer asked how Delaware residents had been adversely affected by the types of corporate laws in existence there. Mr. Sanders replied that Delaware had become a home for incorporation over the past couple hundred years, which does not provide jobs for residents, rather the businesses just have their corporate papers located there. Representative Fischer disagreed by stating that if Delaware's employment statistics were studied, it would be found that they have a very low unemployment rate.  Mr. Sanders stated that he wanted to see businesses expand and relocate to Kentucky and wanted to make sure they do not engage in "activities" that can cost Kentuckians thousand of jobs.


Representative Marzian stated that there was nothing that could be done by the committee, the decision would go to the voters.


Carl Breeding, General Counsel, Associated Industries of Kentucky stated his support of the amendment. He then introduced Tom Rutledge, an attorney with Ogden, Newell and Welch, who practices corporate law and is familiar with Kentucky and Delaware's corporate laws. Mr. Breeding went on to state that the Senate passed the bill with a 38-0 vote, and the House passed it 94-0. The proposed amendment simply states that corporations should be regulated by the General Assembly rather than by the constitution.


Senator Kerr asked Mr. Breeding to explain how a limited liability corporation (LLC) fits into the picture, the differences in LLCs and corporations, and if LLCs had increased. Mr. Breeding deferred to Mr. Rutledge. Mr. Rutledge responded that the LLC Act was passed in 1994. He stated that the number of corporations organized in Kentucky has remained generally flat. However, the number of new businesses being organized as LLCs has increased because LLCs have additional flexibility in their governance.


The next topic of discussion was campaign finance. Representative Arnold stated that this year Congress had enacted a new campaign finance law which may have an impact on states.


Paul Sanford, the Director of FEC Watch, Center for Responsive Politics Washington, D.C. stated that his organization does research into how campaigns are paid for, primarily on the federal level, and how annual fees are used on the state level. He stated that his organization analyzes disclosure information provided by campaigns and makes it available to the public. Mr. Sanford discussed campaign funds, and explained hard and soft money. Hard money is money from sources and in amounts permitted under the federal law. Soft money is non-federal funds which either come from sources prohibited under federal law or come in amounts which are prohibited under federal law.  One of the big focuses in the new federal law is on party building activity; voter registration, voter identification, and voter drive activity  and it requires federal party committees to use federal funds to pay for these federal activities. He stated that the new federal campaign finance law, the Bipartisan Campaign Reform Act (BCRA), will re-route the non-federal funds entering the campaign finance system. Non-Federal funds that were previously directed to the national parties will now be directed to other entities such as state and local party committees, outside groups such as Section 527 organizations, and nonfederal accounts of federal political action committees. He stated that, since many of these groups do not disclose their activities, this makes it important for states to track how funds are being raised and spent. The national parties may shift their efforts to state and local party efforts, and direct fundraising there. BCRA also ties some non-federal funds to state law, by providing that donations to a state or local party committee is limited to $10,000 per donor, per committee, per year or to any lower limit set by the state. Kentucky's limit is $2,500 on contributions to a state or local executive committee.


He stated that the law will make persons interested in campaign finance disclosure more reliant on state disclosure because more soft money will be flowing through state components of the system.


Sarah Jackson, Executive Director of the Kentucky Registry of Election Finance gave an overview of the public financing law. She stated that the basic premise behind the public financing system in Kentucky is that it provides matching public funds to slates that demonstrate a sufficient level of support from the public by meeting a minimum threshold. In return for public funds, the slates abide by strictly enforced expenditure limits. Contribution limits apply to all slates. Full disclosure by the slates of how and where funds are spent are key features of the program. Ms. Jackson also stated that once a candidate files a notification and declaration and is registered with the Registry, the state is required to file a statement of intent indicating whether the slate intends to accept or reject transfers from the campaign election fund. This intent can be changed within ten days of the filing of nomination papers. KRS Chapter 121A also requires a continuing audit of all slates. She stated that there is also a provision in the law which states that if a nonparticipating slate exceeds the cap of the participating slates, then the participating slates are released from spending limits. Slates released from the cap may resume fund raising, and any funds they raise after release are eligible for the state's 2 for 1 match.


Senator Tori asked how much money was in the public financing account currently. Ms. Jackson responded that there was approximately an $800,000 balance in 2002. Senator Tori asked what would happen if there was not enough money in the account for the 2 to 1 match. Ms. Jackson responded that there is a provision in KRS Chapter 121A that allows the registry to make a determination upon public hearing to change the matching ratio after public hearing.


Senator Kerr wanted to know when funds were expected to start trickling into the account. Ms. Jackson responded that since the funds were collected through various sources they come in on a continual basis, and that $7 million has already been allotted for this year in the Governor's spending plan.


Stephen Smith, Kentucky Registry of Election Finance, gave an update on the electronic filing project. Mr. Smith reported that 00 RS HB 939 outlined two major components: electronic filing and disclosure. All filers that requested the software to enable them to file electronically were provided the software free of charge as directed by HB 939. The vendor of the software was providing excellent hotline support, and the registry also supplies hotline support. Mr. Smith reported that currently the biggest challenge was getting the word out about the program and that the Registry is in the final stages of testing for the slate software for the gubernatorial election. Mr. Smith invited all present to look at the software and database.


Representative Barrows asked if there were any federal laws that affected the filing of the report electronically, as there is if you mail in the campaign finance report. Jennifer Hans, staff attorney with Kentucky Registry of Election Finance, said that there were cases that gave federal criminal jurisdiction over electronic filing of false information.


Senator Kerr announced the next meeting would be November 19th at which time there would be the Secretary of State's report on the general election and a presentation by the LRC program review staff. There being no further business, the meeting adjourned at 4:00 P.M.