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House | May 28, 2014 | Committee Room | Finance committee on personnel

Full MP3 Audio File

Thank you Mr. Chairman and members of the committee. Let me start out by saying this is a rather lengthy bill and a lengthy summary. There were four reports that were completed by the Program Evaluation Division and I see that there’s at least one member in here that is on Program Evaluation, maybe more than one. We heard the very lengthy reports in the Program Evaluation Committee and then the bill moved up to finance, because it does have some finance pieces, but the summary that you will see before you is parts of those four separate reports. I realize that I’m the only thing standing between you all and lunch under the tent, so I will be as brief as you want me to be, but I want you to be sure that you understand every part of it. Mr. Chairman, it might be easier if we ask our staff to go through the Dr. McGorty. [SPEAKER CHANGES] That would be fine. [SPEAKER CHANGES] Ryan is our drafter and then I’ll answer any questions. [SPEAKER CHANGES] Ryan, just state your name and what you do with us, if you would. Thanks. [SPEAKER CHANGES] Mr. Chair, members of the committee, my name is Ryan Blackledge. I’m with Bill Drafting, also counsel to the Program Evaluation Oversight Committee. Now, unfortunately, I’m the only thing standing between you and lunch under the big tent so I will try to go quickly. As Representative Howard said, this was the culmination of four different reports. Just looking at the title of the PCS itself you’ll see the one, two, three and four. Those were the four different topics of all of those. What I’m going to do is sort of give you just an overview of what each one of those various funds does, for each of those sections, and then I’ll go through the changes. Section one of the bill deals with local Firefighters’ Relief Funds, a statewide Firefighters’ Relief Fund and there’s also a Rescue Squad Workers’ Relief Fund, which is a statewide fund. What those funds do is there’s some tax revenue that’s collected and then it’s sent to the statewide fund and also to the local funds. There’s some formulas for how that money is allocated and then there are certain things for which the local departments can spend that money on. Some things they can just spend it on outright; some things they have to get permission from the State Firemen’s Association to make those expenditures. At this point, I’m going to point out just a couple of things in section one. If you’ll turn to page two of the PCS I want to point out line 7-8: there is an administrative amount that the department of insurance is allowed to retain from the fund. It used to be 2% just a year or so ago. It was changed to 1%. This puts it back up to 2% because there are some additional responsibilities that are put on the Department of Insurance within this bill, one of them being the creation and maintenance of a database. One of the points made in the PED report was that there wasn’t adequate information being tracked on these, so there are some additional requirements and you’ll see those as we go through. Some additional requirements that the Department of Insurance is going to be in charge of tracking. Moving to page three, I’d like to point out lines 27-29: there’s a requirement that the local boards of trustees of the local relief funds act as prudent trustees of the funds themselves. There’s also a requirement to behave this way placed on the Firemen’s Association and also on the Rescue Workers Association. Turning to page four, I just want to point out there are some clarifications on lines 3-7. You can see some new text there. Existing language says that the local relief funds can be used for supplemental retirement, workers’ comp, just some language to clarify that that does include the North Carolina Rescue Squad Workers’ Pension Fund and also the Workers’ Comp Fund. On lines 13-15 there’s an additional item that’s added to that: local funds may be used on annual physicals. Additionally, on page four, there’s a new block of text, lines 27-32, which gives better definition of what financially unsound means. Prior to this it said actuarially unsound, and there’s some concern that some of the local boards didn’t know exactly what that is, so what that text does is it sets a minimum balance for those funds. I mentioned that the Department of Insurance is required to maintain a database of additional information. You can see that additional information required

Bottom of page four, line 47, all the way through the top of page five, line 7. Those are some of the new requirements and then you can see, also on page five, in the middle, lines 21-23, there’s this new requirement for the database to be maintained. One other thing, with respect to local funds—well, actually not one other thing, I have a few more—let’s turn to page six please. I’d just like to point out, at the top, there are some benefits that are currently available to members of departments who are members of the statewide Firemen’s Association. Those departments that are not members, their local relief funds are sent instead to the statewide relief fund. What the provision there, lines 3-7 on page six, would say there’s some benefits available to individual firefighters with respect to line of duty coverage. It would use that extra bit of money that goes to the statewide fund and use that to pay that type of coverage for the individual firefighters, whose members aren’t members of the statewide association. In the middle of page six you’ll see a block of new text, lines 24-36, that deals with some local laws. There are a lot of old local laws on these matters, a lot of them will mention a local relief fund as part of a larger bill, and what this section does is it just repeals some provisions of those local laws that are inconsistent with some of the general laws, including some of the approval requirements by the state association. Turning over to page seven, you’ll see some new text on lines 7-15 and then also on lines 19-36. This works together. There’s a new requirement that there’s a maximum fund balance that would be allowed. It’s $2,500 per member of the local fire department and, if the local fire department has above that it’s not taken away; they don’t lose it. What happens is, when there’s the annual redistribution, instead of them getting their portion, that will then be redistributed to all of the departments who do not exceed the maximum fund allowance. [SPEAKER CHANGES] ?? [SPEAKER CHANGES] Yes, and then one thing to note: If you look at, still on page seven, line 16, this becomes July 1, 2015 so the departments do have a good year to actually spend down before the maximum fund amount triggers. I do want to point out something that is new in this PCS. We’re still on page seven, lines 30-36. There was a concern that the $2,500 per member would not be sufficient to allow departments to build up some of the supplemental pension money that they’re allowed to pay, so what those lines 30-36 do is, if the department gets the permission from the statewide association and follows the guidelines provided by the statewide association, they can take a portion of their money and designate it to go to the supplemental pension and that amount of money then is not counted as part of the $2,500 per member. If you’d turn to page nine, please. Page nine, 41-46 there’s just a change being made to allow the eligible entities to participate under the workers’ compensation. Workers’ compensation was the subject of the second report. I’m sure you’re all familiar with workers’ compensation, but when you have a volunteer they’re not really a worker and so they don’t fit into the existing workers’ comp scheme, so there’s a special scheme that says, if you’re a volunteer and you get injured on your volunteer job, for the firefighters and rescue workers, you can then collect workers’ compensation until you’re able to go back. That’s your volunteer position. It has been the case that the statewide associations have been participating in that. What the language does, on 41-46, is actually codify what the practice has been to officially allow them to participate in those funds. Overall, it’s a positive financial benefit to have them involved. Turning to page 10, I just want to point out that there is some additional funding study requirements that have to be done to ensure that the Workers’ Compensation Fund remains solvent. Turning to page 12, there’s also section 2D. Page 12, 2D starts on line 33 and then goes on for a couple of pages, those are some additional requirements for the third party administrator contract, the folks who are actually administrating.

Train the workers comp. Just some additional requirements placed on them to ensure that better information is collected for the state on the use of the fund, and to ensure that it remains solvent. Section three of the PCS is on page 14, that deals with supplemental pensions. Right now, the, if you are a volunteer for 20 years you pay $10 per month. When you retire you can collect a pension benefit, a supplemental benefit, of $170 per month. It's if you've paid it for 20 years that's, that's sort of your cut off. You don't continue to pay after that. Right now there's, there's an issue whereby there's a required departure for the people who are paid. There's that you have to not be employed as a firefighter for a month before you can then go back to work again as a firefighter. What, what this provision would do is remove that requirement. In other words if you have paid for your 20 years, and if you've reached the age 55, you could go ahead and receive your supplemental retirement payments. This does have a cost however. The cost is funded by making an adjustment. If you'll turn to page 15, you'll see on line 39 there's a change deleting 25%, changing it to 20%. What that does is it reduces the amount of a tax that is going to the volunteer firefighter department fund. It's a grant fund that we'll talk about in section 4. But it reduces that, that then creates general fund availability. And you'll see at the bottom of page 15, there's $1.4 million that is appropriated to that pension fund to be able to pay for the earlier eligibility of some of those folks. If you'll turn now to page 16, we'll talk about section four briefly, grant funds. Right now there's a special grant to get equipment and supplies. It's something the Department of Insurance runs. There's some tweaks in here, if you look at lines 18 through 20, you can see there's some additional language that's being added there. Right now, there's some small departments that don't receive much funding, and because they don't have much cash on hand, they find it difficult to make the 50-50 match. So, this provision says that if a department gets less than $50,000 per year in municipal and county funding then they would be able to do a 25-75 match. Also, you'll see as we look through these sections there are additional reporting requirements. There are then, section 4C, there's some general technical requirements. The language here in 4C, most of it is new to this PCS, and as I said, their technical and clarifying of what current practice is. Finally turning to the last page, page 18, there are a couple new things with respect to how those grant funds are handled if the, if the equipment is taken out of service or is disposed, really disposed of, within five years. Then the department that disposes of it has to pay back the value of it, the depreciated value, has to pay that back to the fund so that that money can then be given to other fire departments. There's also on line 24, transfer of purchased equipment. If a department gets equipment, for some reason they dissolve, then that equipment should be transferred to either the department that's taking over that area, or a department that can handle the equipment. Sometimes with walkie talkies, for example, there can be different standards, so the Department of Insurance is going to be making sure that that equipment can then go on and be used by an appropriate department. That is a quick run through. I'm available for any detailed questions. SPEAKER CHANGES: Questions from the committee? Representative Brawley? SPEAKER CHANGES: If I might, on the, I noticed you skipped the bottom of page six, distribution to fire districts. SPEAKER CHANGES: Yes sir, at the bottom of page six that, that allows electronic funds transfers to be, to be made, and it also clarifies, right now the Department of Insurance has been giving, basically giving the paper checks to the counties to then have them distribute them on. What this would be, what this would do is it would have the money go directly through electronic funds transfer to a local department. If for some reason they can't do electronic funds transfer, there's a provisions whereby they can get a check. SPEAKER CHANGES: You have a follow-up? SPEAKER CHANGES: Follow up, and I'm, I'll be ready to make a motion whenever you're ready. But just follow-up. I'm not sure they've been giving the counties, that's a very good policy to take those checks around between August and October, right before the election.

...election in November, when you're running for insurance commissioner? But I think it's a good provision. Mr. Chairman, I'll be glad to make the motion whenever you're ready. [SPEAKER CHANGES] Alright, Representative Stevens. [SPEAKER CHANGES] Thank you, Mr. Chair. I just have one question, and I guess it's really not necessarily relavant to the field, but if you're allowing worker's comp. to a volunteer employee, what's the wage basis for your average weekly wage? Is there a set formula for how they get worker's comp.? [SPEAKER CHANGES] There is a set formula, it's covered in detail in the report. Mr. Chair, I think Karen McGordy might be or Meg might be in a better position to answer that with a copy of the report in front of them. [SPEAKER CHANGES] If you will you just state your name and position for us and give us the answer, thank you. [SPEAKER CHANGES] Hi, my name is Meg Kundy, program evaluation division. Currently, it would be 66 percent of what somebody is making in their job. However, if somebody is making under the minimum weekly compensation rate established by the ?? Statute and the Industrial Commission, they would get, I think, in 2013 it would be a minimum of 589 per week and a maximum of 884. [SPEAKER CHANGES] Any further questions? [SPEAKER CHANGES] So as I understand, it's based on their real job, as opposed to their volunteer job? [SPEAKER CHANGES] Representative Moffat? Representative Waddell? Did you have a question? [SPEAKER CHANGES] Thank you Mr. Chair. I know I'm holding up lunch, but I just want to ask one question. Is there anything in the address, and I have a fire chief at home, for example, that works as a volunteer, for years, and they ?? their volunteer pension. But now they are paid firefighters working for a small town. And a question came up about whether or not they were eligible or could receive their pension. If you could address that for me. [SPEAKER CHANGES] Go ahead, Representative ???. [SPEAKER CHANGES] To give you a quick answer, yes they can. They can work and receive that pension. That's one of the fixes that we have in the spiel. And Mr. Chairman, if I might just add this, this has taken about 19 years to get this put together. We've worked on pieces of it for many, many years, but I'm really proud to say that we have the full support from the Firemen's Association. Tim Bradley is in the back of the room. And we have the full support from the Treasurer's office, and the Department of Insurance, and the Chief's Association, and the Rescue Squad Association. So, as far as I know, everybody is content and everybody had input and it's a good bill that addresses many, many of the concerns. [SPEAKER CHANGES] Thank you. Before I take any further questions from the committee, I just was curious, I haven't been approached by anybody directly. Was there anybody from the public that wanted to speak out either pro or con on this deal, may I see some of your hands? Are you planning on speaking out in favor or opposition? In opposition, is there anybody else that was going to speak out in opposition of the bill? Is there anybody here that would like to speak out in favor of the bill? So I'll give each one of you gentlemen three minutes when we're through with questions here you can be preparing your comments. Representative Wendell. [SPEAKER CHANGES] That is exactly what I wanted to say, I wanted to know if anyone wanted to speak. [SPEAKER CHANGES] Any other questions from the committee? Representative Michaux? [SPEAKER CHANGES] Yes, I understand in the worker's compensation portion there are some entities being added in there, what's the cost on that? Do you have it? [SPEAKER CHANGES] Within the worker's comp., and that was on page 9 of the bill, down lines 40-45, those entities, the State Fireman's Association, the Association of Fire Chiefs, and the Association of Rescue and Emergency Medical Services are actually already participating within the system. And worker's compensation system, my understanding is because primarily office workers, their injury rate is much lower, but they pay in approximately the same amount in terms of per person so overall they have a net financial benefit to the fund. [SPEAKER CHANGES] Do we have any other questions for the committee? I see no hands, would you sir please approach the will there and press the push button until you see the green light come on and tell us your name and who you represent, thank you. [SPEAKER CHANGES] My name is Chris ??. I represent, I don't know that I really represent...

… a group of people other than the volunteer firefighters, and I come on behalf of those people today because I’ve been a volunteer firefighter for 35 years. I’ve administered the pension fund in our department for over 21 years, since 1993. The legislation that we’re trying to pass today is being touted as it will not cost anyone anything. I do believe that it will. The law as written and has been written for several years, did not allow paid firefighters or compensated firefighters to collect their pension funds while they were actively engaged in being compensated. This was also addressed in 1988 – ‘87, ‘88 – and what was happening was we were losing volunteer firefighters. Volunteer firefighters could not collect their pension fund and actively be engaged in the act of their professional or duties as firemen. The legislature addressed that law at that time, allowing volunteers to remain on and collect their pension fund but still engage in their volunteer firefighter duties. They do this for no compensation. They do it for a love of their community. This is not about volunteer firefighters fighting paid firefighters, not at all, but what I do say is that the law was very clear that when people began to pay into this, the law was clear in the fact that if you were compensated and remained as a compensated firefighter, you could not collect your pension fund, or you would not be involved in that until you actually retired. I‘m just asking that the legislature use a little bit of common sense here because it has to cost. There’s always a cost associated with anything. If our fund is solid, then my questions would be why haven’t we looked at giving raises across the board to everyone who participates in this fund and be fair to everyone? That’s all I have to say. [SPEAKER CHANGES] Thank you, Mr. McCain. You Sir, if you would, please come and do us the same honor. Speak into the microphone and give us your name and who you represent. [SPEAKER CHANGES] Thank you, Mister Chairman. I’m Tim Bradley. I’m Executive Director of North Carolina State Firemen’s Association and also a volunteer firefighter for 40 years. I would just like to say that our association, as well as the North Carolina Association of Fire Chiefs, endorse this proposed committee substitute. We’ve been working with Representative Howard, the program evaluation division, the JLPOC since last January on these bills. We think what you have today is a fair compromise. It impacts, effects, benefits the volunteer firefighter and the career equally. We don’t see the retirement issue as a career versus volunteer issue; in fact, if you started down that path, you’d see that the majority of that is funded by career personnel, so we support the bill. Representative Howard, we appreciate your allowing us to participate throughout the process, and that’s all I have, Mr. Chairman, unless you have questions. [SPEAKER CHANGES] Might I thank both of you gentlemen for not even forcing me to give you a one minute warning? I appreciate that very much – probably the first time I’ve seen that in a committee meeting that I’ve been part of. Representative Howard, did you have anything else you’d like to say in summary? Any other committee member? If not, Representative Brawley, I believe you said you have a motion. [SPEAKER CHANGES] Mr. Chairman, I would move that we give the post-committee substitute a favorable report, unfavorable to the original bill, and commend the Representative Howard for fine work. [SPEAKER CHANGES] You’ve heard the motion. All in favor, let it be known with saying “Aye”. [SPEAKER CHANGES] Aye. [SPEAKER CHANGES] All opposed, “No”. Motion carries. Thank you very much. Next bill we have is House Bill 1079, Positions for State Treasurer Compliance Unit. Representative Ross, I believe, is going to present this bill. Representative Ross, the floor is yours. [SPEAKER CHANGES] Sorry about the lunch. I think they forgot there was another bill. This is a bill that has come about from a culmination of several efforts. As you’re aware, there was a Legislative Research Commission Committee on Treasure Investment Targets, and also the State Employment Retirement Options LRC. This particular issue is also one that came out of the research that was done by ?? consultants that determined that we were having issues with being…

… able to maintain the integrity of the pension plan due to several issues that I’ll mention, and recommended that we create a compliance team to handle fraud, waste and other abuses that take place in the plan. To give you some examples of what happens, the pension plan on a given year, there are overpayments that are made to employees in the plan each year. In fact, there are roughly about a million dollars that hang in the collections process each year. The Treasurer’s Office does not have the personnel to be able to recover those overpayments to the full extent, so they’re bleeding out about 50 percent of them or approximately 50 percent of them in a year. By adding these two compliance positions in the Treasurer’s Office, they believe that they can double that return back into the plan, so this would be a direct benefit back into the plan, and it would be in the neighborhood of several hundred thousand dollars. In addition to that, there are times when employing agencies incur penalties for either lack of reporting or not reporting on time. Typically in a year, that’s roughly a million dollars also. With adding these two positions to the plan, they feel like that they can collect in that area also. Basically to simplify this, because it is a little bit complex when you get into all the different issues and all the different places where you can bleed money out of the plan, what we’re looking at is two positions, and these positions would be receipt-supported compliance positions. In other words, they’re going to be supported by the plan itself. The cost of the two positions would run on a recurring basis around 216 thousand a year. It’s estimated that the savings back to the plan by adding these two positions would be somewhere in the neighborhood of about 3 million dollars, so that’s better than a 5 to 1 ratio back into the plan. It’s something that we felt in our committee that was needed. Any time you can create an opportunity to bring or save money back into an agency or system such as the pension plan it’s a good thing, and especially when it is this amount of money. So with that, I’ll just kind of stop and take questions, and I have staff here also if anyone has questions for staff. [SPEAKER CHANGES] Before we take any questions, again, is there anybody from the public who wanted to speak on this bill, either pro or con? Alright, let’s take questions then. Questions from the committee. Representative Blust. [SPEAKER CHANGES] My question is why these two positions should be in the Treasurer’s Office rather than the Auditor’s. It just seems to me you’d want more independence there when you’re looking for something that might be fraud or abuse or waste. That might be something that could be minimized or kept under wraps if you discovered certain things if it could reflect on higher management within your own department. It just seems some independence there might be of some value. [SPEAKER CHANGES] Thank you for that comment. If you look at what these two positions are trying to accomplish, this is not uncommon for any large pension plan, whether it’s a corporate plan or private plan – or private plan or public plan rather. Typically pension plans will have compliance units within the pension plan itself. Actually in looking at our plan, I was a little surprised that we were as understaffed as we were, because there are processes that go on within a plan such as the payment of benefits, and then when you get into the overpayment of benefits, these are things that can happen very easily, but to go back and correct that problem on an annual basis gets difficult without the staff, so it’s not as much an audit situation as it is just trying to go back and correct imbalances such as penalties and overpayments. [SPEAKER CHANGES] Other questions of the committee?

Or it’s not. Representative Waddell. [SPEAKER CHANGES] Famous Chairman, I move that we give federal report to 1079 with a referral to appropriations. [SPEAKER CHANGES] You’ve heard the motion. All in favor say aye. [SPEAKER CHANGES] Aye. [SPEAKER CHANGES] All opposed no. And that one passes, as well. And to those of you who, unlike me, are fortunate enough not to be in insurance committee, enjoy your lunch and our meeting’s adjourned.