Rep. DuPlessis explains HB 171. (LRC Public Information photo)
By Melissa Patrick
Kentucky Health News
Two bills that were presented as part of a “three-phase approach” to create a sustainable solution to local health departments’ pension crisis passed the state House Feb. 13. The third part of the plan involves the state budget.
The budget committee chair, Republican Rep. Steven Rudy of Paducah, cautioned House members that passage of the bills and the House’s version of the budget, which will include funding for the bills, didn’t mean the pension woes were over, because all of it must also be approved in the Senate.
“Our friends down the hallway will have a bite of this apple,” he said. “So to put everybody’s mind at ease, it’s still a serious issue. We still don’t have the permanent fix. But without Phase 1 and Phase 2, we can’t get to phase three.”
The first bill that passed would completely change the way health departments, regional universities and quasi-governmental agencies pay for their pension liabilities. It passed without dissent.
House Bill 171, sponsored by Rep. Jim DuPlessis, R-Elizabethtown, would move these entities away from the current “percentage of pay” formula, to a model that requires them to pay only what they owe the pension system, divided evenly over the next 27 years. This is often called “level dollar funding.”
“This bill assigns their actual liability where they pay no more and no less that what they already owe,” DuPlessis told Kentucky Health News in an interview.
The plan is also designed to keep employees in the system; many health departments have shifted to contract labor to reduce their pension payments. It would require all new employees to have a pension obligation of 10.35%, which is dubbed the “normal cost.” So, in essence, the departments would get two pension bills to cover their pension costs, one for the unfunded liability for current and past employees and the other for new employees.
DuPlessis said these structural changes to the program will stabilize it. “If we don’t take the bull by the horns and fix this, it’s going to get to a point where nobody can make their payments,” he said.
This proposal stems from a law that was passed during a special legislative session last summer, giving health departments, regional universities and quasi-governmental agencies the choice of staying in the Kentucky Retirement System and paying the full obligations or leaving the system, either by paying a lump sum or buying their way out over time. Those that choose to leave would need to move employees to a 401(k)-type plan.
The departments have said none of these choices are viable, and none have left KRS. The state Department for Public Health has said that without some relief from their pension obligations, dozens of health departments are at risk of closing.
Action is needed. The legislature has frozen health departments’ pension contributions at 49.47 percent for the past two years, but on July 1, the day the next two-year budget starts, this is set to jump to 93%, a level many say would force them to close. Gov. Andy Beshear has proposed funding to make the effective rate 67%.
Rep. Joe Graviss, D-Versailles, one of the legislation’s three sponsors, told House members that he was “extremely grateful” for the funding, “and I hope that we can keep and add to the money that the governor has allocated to help these organizations — because they are going to need it. Let’s not mince words, it is true, they will need some support.”
An actuarial report shows that 14 of the 60 district and county health departments in KRS will owe more money under the 27-year schedule; the rest will owe less.
Randy Gooch, director of the Jessamine County Public Health Department, told Kentucky Health News Feb. 9 that about six departments would need state assistance to help pay pension obligations. He cautioned that this analysis has many moving parts.
DuPlessis told House members that while the original bill had language in it for a subsidy pool to help the entities that needed it, that language has been removed and that help will now be managed in the budget. “There will be a line item for every one of those entities and how much money they will receive,” he said.
DuPlessis confirmed that the current plan is to help health departments that aren’t able to meet their pension obligations, but in order for them to get that help, their counties must have a health tax of at least 8 cents per $100 assessed property value.
“So if you are below the 8 cents, you’re going to have to raise your local taxes if you can’t make your payments,” he said. “That’s fair because the local taxes will pay for the local service — health departments are a local service.”
The state has established a minimum health tax of 1.8 cents per $100 worth of property, with a cap of 10 cents per $100. Several public-health directors have said they have been told that only one county in a district health department would need to levy the 8-cent tax to qualify the district for state help.
A floor amendment was added to the bill that says any health department leaving its district would be responsible for its portion of the pension liability.
A spreadsheet of health departments and taxes that support each of them is at www.uky.edu/comminfostudies/irjci/Kylocalhealthtaxes.xlsx.
The second bill would overhaul the state’s public-health system, including how health departments are funded and how they would prioritize their resources.
|Rep. Moser presents HB 129.
(Photo by LRC Public Information)
House Bill 129, sponsored by Rep. Kim Moser, R-Taylor Mill, passed with a committee substitute on an 88-1 vote, with Rep. Chad McCoy, R-Bardstown, voting against the measure. It is meant to work concurrently with HB 171 and is called the Public Health Transformation Plan.
“Primarily, this creates sustainability of our health departments,” Moser said. “It controls the cost and it relieves the instability that we are seeing now in the current system.”
The current system funds each health department with the same formula, regardless of its ability to generate local funds. The new formula would take that into account, making it more equitable. In other words, departments that have more resources would get less state funding under this model.
The bill also identifies “core public health” services, which every health department would be required to provide and requires departments to perform community health assessments, which many of them already do, to determine their local public health priorities beyond the core requirements. These local priorities would have to meet certain criteria for the department to address them, and would need to be funded separately.
“This public health transformation initiative will result in a more simplified and a very focused public health model,” Moser said. “It will prevent duplication of services. It encourages shared resources and it creates an expertise to really create that economy of scale or that fair and equitable system that we need across the state. This proposal will also increase accountability and transparency at both the state and the local levels within the system.”
The bill codifies the existing 1.8 cents per $100 property tax as the floor, with a cap of 10 cents per $100. It also gives health departments one year to increase their environmental fees by up to 25% before the current 5% yearly cap is put back in place. This would allow health departments to bring those fees in line with what the service actually costs.
A spreadsheet prepared by the Kentucky Health Department Association estimates that 14 of the 61 health departments would get less state funding, and the rest would get more, using a formula based on a county’s population, its ability to support its health department with its current taxing authority, how many employees the county would need to provide only the health services required by law, and an estimated increase in environmental fees.
Moser said it is estimated that health departments’ pension-liability contribution deficit could be as high as $38.5 million, and that “18 of our local health departments, which represent 41 counties, will face fiscal insolvency during the fiscal year 2020 without significant financial and operational changes.”