FRANKFORT — 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.