A state lawmaker is suggesting the state has legal authority to take control of Seven Counties Services, the mental health/mental retardation agency that has filed for bankruptcy with the goal of withdrawing from Kentucky’s troubled employee retirement system.
Rep. Brent Yonts, D-Greenville, said Wednesday he has suggested to Gov. Steve Beshear in a written letter that KRS 210.440 allows the Cabinet for Health and Family Services to appoint a caretaker administrator to direct the operation and administration of the agency.
Seven Counties is seeking to withdraw from the Kentucky Retirement System because of increased employer assessments ordered by lawmakers as part of a plan to shore up the system which faces up to a $17 billion unfunded liability.
Seven Counties is one of 13 such mental health “quasi-government” agencies participating in the state retirement system. It has revenues of about $100 million and a payroll of about $54 million. With the new retirement contribution rates, the agency would have to spend about $70 million on payroll and benefits.
A federal bankruptcy judge ruled last month that the agency isn’t a state agency and can seek to discharge its obligations to the pension system through Chapter 11 bankruptcy. KRS will appeal the decision and seek direct review by the Sixth Circuit Court of Appeals, according to KRS Executive Director Bill Thielen.
Thielen told the Interim Joint Committee on State Government, co-chaired by Yonts, that if Seven Counties is allowed to leave the system without paying off its $90 million share of the total unfunded liability it will increase required contributions from other agencies by 2.5 percent over 10 years.
Should all the mental health/mental retardation boards follow Seven Counties, it would amount to a 6.5 percent increase to remaining state agencies or about $2.4 billion in added contributions.
The bankruptcy judge ruled that because the agency board isn’t appointed by the state and isn’t directly governed by the state it is not a state agency but receives funding through state contracts. But Yonts said the law he cited in the letter to Beshear shows such agencies are in reality state agencies because the Secretary of the Cabinet for Health and Family Services is authorized by law to take over its operation.
Yonts speculated the law might allow CHFS to take over the agency’s operation, appoint a new board and re-assume its obligation to KRS. Failing that, Yonts said, the state could use the law to argue on appeal that Seven Counties is in fact a state agency.
Seven Counties isn’t the only problem for KRS. The Bluegrass Mental Health/Mental Retardation Board created a separate entity, Bluegrass Oakwood , to employ staff at Oakwood Communities in Somerset without participating in the KRS.
KRS also sued Kentucky River Community Care, a KRS participating agency, which created a separate hiring board, terminated its staff enrolled in KRS and then rehired them through the new entity without enrolling them in KRS. That litigation is pending.
Last spring, Republican state Sen. Chris McDaniel, who is a member of the State Government Committee, sponsored a bill which would allow such agencies to withdraw from the pension system on the condition they take with them their portion of the liability. The bill passed the Senate but the House didn’t take it up in the waning days of the session.
Rep. Brad Montell, R-Shelbyville, said Wednesday that Yonts and co-chair Sen. Joe Bowen, R-Owensboro, should appoint a working group to come up with a new bill modeled on McDaniel’s on which both chambers can agree to pass in the first days of the 2015 General Assembly.
KRS faces yet another lawsuit filed by the city of Ft. Wright, which claims its contributions have been invested in “illegal and imprudent” ventures. That suit seeks an order prohibiting the city’s contributions from going to such in funds and an account of its contributions to the system.
Thielen said KRS has so far expended around $1.5 million in legal fees in the Seven Counties case alone.
RONNIE ELLIS writes for CNHI News Service and is based in Frankfort. Reach him at email@example.com. Follow CNHI News Service stories on Twitter at www.twitter.com/cnhifrankfort.