Chapter 254

SENATE BILL No. 476 (Amends Chapter 91)

An Act relating to public funds; amending K.S.A. 12-3724, 40-3406, 44-712, 68-2321, 68- 2324, 75-622, 75-4204, 75-4210a, 75-4253, 75-4254 and 76-818 and K.S.A. 1995 Supp. 12-1677a, 12-1677b, 40-3403, 40-3403, as amended by section 7 of 1996 Senate Bill No. 476, 75-4201, 75-4202, 75-4209, 75-4210, 75-4212a, 75-4218, 75-4220, 75-4221a, 75- 4222, 75-4228, 75-4232, 75-4262, 75-4263 and 79-4804 and repealing the existing sec- tions; also repealing K.S.A. 1995 Supp. 12-1677c, 12-1677e, 40-3403, as amended by section 1 of 1996 House Bill No. 2867 and 75-4213.

Be it enacted by the Legislature of the State of Kansas:

New Section 1. (a) Except as provided in subsection (d), all moneys in the state treasury shall be invested as a single portfolio which is hereby designated as the pooled money investment portfolio. The portfolio shall be invested in accordance with article 42 of chapter 75 of the Kansas Statutes Annotated, and amendments thereto. The director of invest- ments shall compute daily the earnings of the portfolio, including realized gains and losses. The pooled money investment board by written policy may provide for allocation of unrealized gains or losses. The director of investments shall calculate on a daily basis and shall deduct from earnings an administrative fee which shall be set by the board and applied as a fixed percentage of moneys in the pooled money investment portfolio. The administrative fee shall not exceed .25% annually on moneys depos- ited in the municipal investment pool and .10% annually on other moneys in the pooled money investment portfolio. The director of investments shall deposit the administrative fee in accordance with section 2. The gross earnings, after deduction of the administrative fee, shall be desig- nated as the net earnings of the pooled money investment portfolio.

(b) A comparative investment performance review of the pooled money investment portfolio shall be contracted for periodically by the pooled money investment board. The costs of such review shall be paid from moneys appropriated to the state treasurer for operations of the pooled money investment board.

(c) The pooled money investment board shall contract for the services of an external investment advisor to provide advisory services concerning the investment policies and practices of the pooled money investment portfolio. Such investment advisor shall not be the person or firm con- tracted with under subsection (b).

(d) Moneys in the employment security fund established by K.S.A. 44-712, and amendments thereto, shall not be invested in the pooled money investment portfolio except as may be authorized by the secretary of human resources pursuant to subsection (e) of K.S.A. 44-712, and amendments thereto.

(e) For moneys in funds designated in this subsection that are in the pooled money investment portfolio and which are not invested in the municipal investment pool, interest is to be paid on such moneys based on the average daily balance in the fund for each month and the net earnings rate of the pooled money investment portfolio for such month. This subsection shall apply to the state highway fund and funds for bonds and other debt instruments of state agencies and authorities.

(f) Moneys in funds designated in this subsection shall not be invested in investment options of the municipal investment pool fund for which the minimum term of such investment is less than 21 days. This subsec- tion shall apply to state moneys, other than moneys of municipalities as described in subsection (a) of K.S.A. 12-1675 and amendments thereto.

New Sec. 2. (a) The administrative fee authorized by section 1 shall be credited to the pooled money investment portfolio fee fund, which is hereby created.

(b) The director of investments may deduct from the pooled money investment portfolio fee fund amounts to pay expenses incurred in the administration of the pooled money investment portfolio. All expendi- tures from such fee fund for reimbursement of administrative expenses shall be made in accordance with appropriation acts pursuant to vouchers of the director of investments. The director of investments shall certify, periodically, the amount in the pooled money investment portfolio fee fund not necessary for reimbursement of administrative expenses and the director of accounts and reports shall transfer and credit the amount certified in accordance with the provisions of subsection (c).

(c) The total amount transferred pursuant to subsection (b) shall be credited to the municipal investment pool fund until an amount equal to the net losses in such fund as of July 1, 1996, have been credited to such fund, thereafter, the total amount transferred pursuant to subsection (b), shall be credited to the state general fund.

New Sec. 3. On and after the effective date of this act, whenever in the law it is provided that the pooled money investment board may or shall invest or invest and reinvest moneys of the state or any state agency or municipality, or words of like effect, the same shall mean that the director of investments may or shall invest or invest and reinvest moneys of the state or such state agency or municipality in accordance with in- vestment policies established by the pooled money investment board un- der K.S.A. 75-4232, and amendments thereto.

Sec. 4. K.S.A. 1995 Supp. 12-1677a is hereby amended to read as follows: 12-1677a. (a) Moneys deposited by any municipality with the state treasurer for investment authorized in paragraph (6) of subsection (b) of K.S.A. 12-1675, and amendments thereto, shall be deposited in the municipal investment pool fund which is hereby created in the state treas- ury. The state treasurer shall provide the board a monthly record of the deposits and withdrawals of municipalities. Such record may include the amount of the deposit, the date of the deposit and such other information as the pooled money investment board may require.

(b) The ~~pooled money investment board~~ director of investments may invest and reinvest moneys in the municipal investment pool fund in ~~the following investments:~~

(1) Direct obligations of, or obligations that are insured as to principal and interest by, the United States of America or any agency thereof and obligations and securities of United States sponsored enterprises which under federal law may be accepted as security for public funds, except that: (A) Not more than 10% of the moneys available for investment under this subsection may be invested in mortgage-backed securities of such enterprises and of the government national mortgage association; and (B) investments in other than direct obligations under this paragraph shall be rated at the time of investment, in the highest rating category by Moody's investors service or Standard and Poor's corporation;

(2) interest-bearing time deposits in any of the following, which is doing business within the state of Kansas, any state or national bank, state or federally chartered savings and loan association, or federally chartered savings bank; or

(3) repurchase agreements with a Kansas bank, Kansas savings and loan association, a federally chartered savings bank having an office or offices in the state of Kansas or with a primary government securities dealer which reports to the market reports division of the federal reserve bank of New York for direct obligations of, or obligations that are insured as to principal and interest by, the United States government or any agency thereof and obligations and securities of United States govern- ment sponsored enterprises which under federal law may be accepted as security for public funds accordance with investment policies established by the pooled money investment board under K.S.A. 75-4232, and amend- ments thereto, and in accordance with section 1 of this act and K.S.A. 75- 4209, and amendments thereto.

(c) All interest earnings received from investments of money in the municipal investment pool fund shall be credited to the municipal in- vestment pool fund. Interest earnings experienced by the fund on in- vestments attributable to each participating municipality shall be prorated and applied to the individual accounts of the municipalities, maintained by the state treasurer. Deferred earnings transferred from the municipal investment pool reserve fund to the municipal investment pool fund shall be prorated and applied to the individual accounts of the municipalities, maintained by the state treasurer The director of investments shall ap- portion earnings and losses among the accounts of the depositors in the various investment options of the municipal investment pool in accor- dance with policies approved and published by the board. A statement for each municipality participating unit account showing deposits, with- drawals, earnings and losses distributions shall be provided monthly to the municipality. The ~~state treasurer~~ director of investments shall make comprehensive reports monthly to those municipalities participating in the municipal investment pool fund and to other interested parties re- questing such reports. Such reports shall include a summary of transac- tions for the month, the current market value of the ~~pool~~ pooled money investment portfolio investments, the weighted average maturity ~~ratio~~ of the ~~fund~~ portfolio, the original costs of the investments in the ~~fund~~ port- folio, including any fees associated with such investments and such other relevant information the ~~state treasurer~~ director of investments may wish to include in such report.

(d) The state treasurer may assess reasonable charges not to exceed 1% of the interest earned against the fund for reimbursement of expenses incurred in administering the fund. The state treasurer shall certify, pe- riodically, the amount of the assessment and the director of accounts and reports shall transfer the amount certified from the municipal investment pool fund to the municipal investment pool fund fee fund, which is hereby created. All expenditures from the municipal investment pool fund fee fund shall be made in accordance with appropriation acts upon warrants of the director of accounts and reports issued pursuant to vouchers ap- proved by the state treasurer or a person or persons designated by the state treasurer. Amounts of gains realized on disposition of investments of the municipal investment pool fund shall be periodically certified by the state treasurer, and the director of accounts and reports shall transfer the amount certified from the municipal investment pool fund to the municipal investment pool reserve fund which is hereby created in the state treasury. The state treasurer shall make a determination of the amount needed for a reserve for possible losses to the municipal invest- ment pool fund and shall certify periodically such amount, and the direc- tor of accounts and reports shall transfer the amount so certified from the municipal investment pool fund fee fund to the municipal investment pool reserve fund. If the state treasurer makes a determination that sig- nificant losses or gains have occurred to the municipal investment pool fund, the state treasurer shall certify the amount thereof to the director of accounts and reports, and the director of accounts and reports shall transfer the amount so certified from the municipal investment pool re- serve fund to the municipal investment pool fund. The municipal invest- ment pool reserve fund is abolished effective July 1, 1996, and any unen- cumbered balance remaining therein shall be applied to net losses in the municipal investment pool fund. The municipal investment pool fund fee fund is abolished on July 1, 1997, and any unencumbered balance re- maining therein shall be transferred to the pooled money investment port- folio fee fund and such amounts shall be applied to net losses, as of July 1, 1996, in the municipal investment pool fund.

(e) The ~~state treasurer~~ pooled money investment board may adopt rules and regulations necessary for the administration and operation of the municipal investment pool fund and may enter into agreements with any municipality as to methods of deposits, withdrawals and investments.

~~(f) Investments under subsection (b) shall be for a period of not to exceed four years, except for mortgage-backed securities.~~

(g) A comparative investment performance review shall be contracted for periodically by the pooled money investment board. The cost of such review shall be paid by the municipal investment pool fund from moneys in the municipal investment pool fund fee fund.

~~(h)~~ (f) Deposits in the municipal investment pool fund: (1) May only be made for the same maturity as the maturity which is offered under paragraphs (2) and (3) of subsection (b) of K.S.A. 12-1675 and amend- ments thereto; and (2) upon the maturity of such deposits, such moneys shall be offered for investment under paragraphs (2) or (3) of subsection (b) of K.S.A. 12-1675, and amendments thereto, and may be reinvested in such fund only if the conditions contained in subsection (c) of K.S.A. 12-1675, and amendments thereto, have been satisfied.

~~(i)~~(g) Moneys and investments in the municipal investment pool fund ~~and any separate portfolio within such fund~~ shall be managed by the pooled money investment board in accordance with investment policies developed, approved, published and updated on an annual basis by such board. Such investment policies shall include at a minimum guidelines which identify credit standards, eligible instruments, allowable maturity ranges, methods for valuing the portfolio, calculating earnings and yields and limits on portfolio concentration for each type of investment. Any changes in such investment policies shall be approved by the pooled money investment board provided for in K.S.A. 75-4209, and amend- ments thereto. A copy of such published policies shall be distributed to all municipalities participating in the municipal investment pool fund and to other interested persons requesting a copy of such policies. The pooled money investment board shall not contract for management of invest- ments by a money manager. The pooled money investment board shall contract for the services of an external investment advisor to provide advisory services concerning the investment policies and practices for the municipal investment pool fund. Such investment advisor shall be differ- ent from the person or firm contracted with under subsection (g).

(j) Investments in securities under paragraph (1) of subsection (b) shall be limited to securities which do not have any more interest rate risk than do direct United States government obligations of similar ma- turities, except for the 10% limitation on mortgage-backed securities. For purposes of this subsection, ``interest rate risk'' means market value changes due to changes in current interest rates.

~~(k) On and after July 1, 1996:~~

(1) Except as provided in paragraph (2), the weighted average ma- turity of all investments in the municipal investment pool fund shall not exceed the weighted average maturity of all deposits in the municipal investment pool fund by more than 100%, except that the weighted av- erage maturity of investments in such fund shall not exceed the weighted average maturity of deposits in such fund by more than 90 days.

(2) The pooled money investment board, for the purposes of insuring and maintaining the soundness of and the liquidity of the municipal in- vestment pool fund, may increase the ninety-day limitation contained in paragraph (1), except that such increase shall not exceed 180 days. The increased limitations established by the board under this paragraph shall be effective for periods not exceeding 120 days. Upon the expiration of the limitations established pursuant to this paragraph (2), the limitations contained in paragraph (1) shall be applicable, unless the board estab- lishes new limitations under the provisions of this paragraph (2).

(3) For the purpose of determining the weighted average maturity under this subsection, all deposits in the municipal investment pool fund without a stated maturity shall be assumed to have a maturity of one day.

(4) The pooled money investment board shall not be required to sell any investments at a loss held by the municipal investment pool fund on the effective date of this act in order to meet the requirements of para- graphs (1) or (2) of this subsection.

(l) The pooled money investment board shall not: (A) Invest moneys in the municipal investment pool fund in derivatives, except in direct obligations of the United States of America; (B) enter into reverse re- purchase agreements, except for the purposes authorized under subsec- tion (b) of K.S.A. 1995 Supp. 12-1677c, and amendments thereto.

(m) On and after January 1, 1996, investments made under paragraph (2) of subsection (a) of K.S.A. 75-4209, and amendments thereto, shall not be exchanged with investments of the municipal investment pool fund without prior approval of the pooled money investment board and the prior approval of the state finance council acting on this matter which is hereby characterized as a matter of legislative delegation and subject to the guidelines prescribed in subsection (c) of K.S.A. 75-3711c, and amendments thereto. All such exchanges shall be made in accordance with generally accepted accounting principles.

~~(n) The pooled money investment board may adopt such rules and regulations for the management of such moneys and investments in the municipal investment pool fund as the board deems necessary.~~

~~(o)~~ (h) For the purpose of this section~~: (1)~~, ``municipality'' means those entities specified in subsection (a) of K.S.A. 12-1675, and amend- ments thereto;, and K.S.A. 1995 Supp. 75-4263, and amendments thereto.

~~(2) ``derivatives'' means a financial contract whose value depends on the value of an underlying asset or index of asset values; and~~

(3) ``weighted average maturity'' means: (A) For investments, the sum of the total number of days to maturity for each individual security mul- tiplied by the par value of each individual security divided by the sum of the par values of all securities; and (B) for deposits, the sum of the total number of days for each individual deposit multiplied by the dollar value of each individual deposit divided by the sum of the dollar values of all deposits.

Sec. 5. K.S.A. 1995 Supp. 12-1677b is hereby amended to read as follows: 12-1677b. (a) The governing body of any city or county which has a written investment policy approved by the governing body of such city or county and approved by the pooled money investment board may invest and reinvest pursuant to the approved investment policy in the following investments, as authorized under paragraph (7) of subsection (b) of K.S.A. 12-1675, and amendments thereto:

(1) Direct obligations of, or obligations that are insured as to principal and interest by, the United States of America or any agency thereof and obligations and securities of United States sponsored enterprises which under federal law may be accepted as security for public funds, except that not more than 10% of the moneys available for investment under this subsection may be invested in mortgage backed securities of such enterprises and of the government national mortgage association, except that such investments shall not be in mortgage-backed securities;

(3) repurchase agreements with a Kansas bank, savings and loan as- sociation, a federally chartered savings bank or with a primary government securities dealer which reports to the market reports division of the fed- eral reserve bank of New York for direct obligations of, or obligations that are insured as to principal and interest by, the United States government or any agency thereof and obligations and securities of United States government sponsored enterprises which under federal law may be ac- cepted as security for public funds.

(b) The investment policy of any city or county approved by the pooled money investment board under this section shall be reviewed and approved at least annually by such board or when such city or county makes changes in such investment policy.

(c) City and county investment policies shall address liquidity, diver- sification, safety of principal, yield, maturity and quality, and capability of investment management staff.

(d) (1) All security purchases shall occur on a delivery versus pay- ment basis.

(2) All securities shall be perfected in the name of the city or county and shall be delivered to the purchaser or a third party custodian which may be the state treasurer.

(3) Investment transactions shall only be conducted with the follow- ing, which is doing business within the state of Kansas, any state or na- tional bank, state or federally chartered savings and loan association, or federally chartered savings bank; or with primary government securities dealers which report to the market report division of the federal reserve bank of New York; or any broker-dealer which is registered in compliance with the requirements of section 15C of the securities exchange act of 1934 and registered pursuant to K.S.A. 17-1254, and amendments thereto.

(4) The maximum maturity for investments under subsection (a) shall be four years ~~except for mortgage backed securities which shall have a maximum maturity of seven years and three months~~.

(e) Investments in securities under paragraph (1) of subsection (a) shall be limited to securities which do not have any more interest rate risk than do direct United States government obligations of similar ma- turities~~, except for the 10% limitation on mortgage-backed securities~~. For purposes of this subsection, ``interest rate risk'' means market value changes due to changes in current interest rates.

(f) A city or county which violates subsection (c) or (d) of K.S.A. 12- 1675 and amendments thereto or the rules and regulations of the pooled money investment board shall forfeit its rights under this section for a two year period and shall be reinstated only after a complete review of its investment policy as provided for in subsection (b). Such forfeiture shall be determined by the pooled money investment board after notice and opportunity to be heard in accordance with the Kansas administrative procedure act.

Sec. 6. K.S.A. 12-3724 is hereby amended to read as follows: 12- 3724. (a) The ~~pooled money investment board~~ director of investments may invest and reinvest moneys in the self-insurance reserve fund in accordance with investment policies established by the pooled money in- vestment board under K.S.A. 75-4232, and amendments thereto, in obli- gations of the United States of America or obligations the principal and interest of which are guaranteed by the United States of America or in interest-bearing time deposits in any commercial bank located in Kansas, or, if the ~~board~~ director of investments determines that it is impossible to deposit such moneys in such time deposits, in repurchase agreements of less than 30 days' duration with a Kansas bank or with a primary govern- ment securities dealer which reports to the market reports division of the federal reserve bank of New York for direct obligations of, or obligations that are insured as to principal and interest by, the United States govern- ment or any agency thereof.

(b) For the purposes of this act the ~~board~~ director of investments may accept funds, public or private, from any person, firm, corporation or from any state agency or other public instrumentality, or from the federal gov- ernment or any department or agency thereof.

(c) All moneys in the self-insurance reserve fund, or payable to such fund, are hereby specifically exempt from any and all taxes authorized by law to be levied or collected, whether sales, income, ad valorem, premium or by whatever name described.

Sec. 7. K.S.A. 1995 Supp. 40-3403 is hereby amended to read as follows: 40-3403. (a) For the purpose of paying damages for personal injury or death arising out of the rendering of or the failure to render professional services by a health care provider, self-insurer or inactive health care provider subsequent to the time that such health care provider or self-insurer has qualified for coverage under the provisions of this act, there is hereby established the health care stabilization fund. The fund shall be held in trust ~~in a segregated fund~~ in the state treasury and ac- counted for separately from other state funds. The board of governors shall administer the fund or contract for the administration of the fund with an insurance company authorized to do business in this state.

(b) (1) On the effective date of this act, the board of governors in existence on the day preceding such effective date is hereby abolished. On the effective date of this act, there is hereby created a board of gov- ernors which shall be composed of such members and shall have such powers, duties and functions as are prescribed by this act. The board of governors shall:

(A) Administer the fund and exercise and perform other powers, du- ties and functions required of the board under the health care provider insurance availability act;

(B) provide advice, information and testimony to the appropriate li- censing or disciplinary authority regarding the qualifications of a health care provider;

(C) prepare and publish, on or before October 1 of each year, a sum- mary of the fund's activity during the preceding fiscal year, including but not limited to the amount collected from surcharges, the highest and lowest surcharges assessed, the amount paid from the fund, the number of judgments paid from the fund, the number of settlements paid from the fund and the amount in the fund at the end of the fiscal year; and

(D) have the authority to grant exemptions from the provisions of subsection (m) of this section when a health care provider temporarily leaves the state for the purpose of obtaining additional education or train- ing or to participate in religious, humanitarian or government service programs. Whenever a health care provider has previously left the state for one of the reasons specified in this paragraph and returns to the state and recommences practice, the board of governors may refund any amount paid by the health care provider pursuant to subsection (m) of this section if no claims have been filed against such health care provider during the provider's temporary absence from the state.

(2) The board shall consist of 10 persons appointed by the commis- sioner of insurance, as provided by this subsection (b) and as follows:

(A) Three members who are licensed to practice medicine and sur- gery in Kansas who are doctors of medicine and who are on a list of nominees submitted to the commissioner by the Kansas medical society;

(B) three members who are representatives of Kansas hospitals and who are on a list of nominees submitted to the commissioner by the Kansas hospital association;

(C) two members who are licensed to practice medicine and surgery in Kansas who are doctors of osteopathic medicine and who are on a list of nominees submitted to the commissioner by the Kansas association of osteopathic medicine;

(D) one member who is licensed to practice chiropractic in Kansas and who is on a list of nominees submitted to the commissioner by the Kansas chiropractic association;

(E) one member who is a licensed professional nurse authorized to practice as a registered nurse anesthetist who is on a list of nominees submitted to the commissioner by the Kansas association of nurse anes- thetists.

(3) On and after the effective date of this act, whenever a vacancy occurs in the membership of the board of governors created by this act, the commissioner shall appoint a successor of like qualifications from a list of three nominees submitted to the commissioner by the professional society or association prescribed by this section for the category of health care provider required for the vacant position on the board of governors. Except as otherwise provided by this section, all appointments made shall be for a term of office of four years, but no member shall be appointed for more than two successive four-year terms. Each member shall serve until a successor is appointed and qualified. Whenever a vacancy occurs in the membership of the board of governors created by this act for any reason other than the expiration of a member's term of office, the com- missioner shall appoint a successor of like qualifications to fill the unex- pired term. In each case of a vacancy occurring in the membership of the board of governors, the commissioner shall notify the professional society or association which represents the category of health care provider re- quired for the vacant position and request a list of three nominations of health care providers from which to make the appointment.

(4) (A) The persons serving as members of the board of governors on the day preceding the effective date of this act, except the commis- sioner of insurance and the persons appointed from the public at large or to represent the unspecified category of health care providers under the provisions of this section as it existed on the day preceding the effec- tive date of this act, shall be the initial members of the board of governors created by this act and shall hold such office in accordance with and subject to the provisions of this section. The commissioner shall designate the terms of office of such initial members of the board of governors created by this act as follows:

(i) One member who is licensed to practice medicine and surgery in Kansas who is a doctor of medicine shall be designated for a term expiring on July 1, 1995;

(ii) one member who is licensed to practice medicine and surgery in Kansas who is a doctor of medicine shall be designated for a term expiring on July 1, 1996;

(iii) one member who is licensed to practice medicine and surgery in Kansas who is a doctor of medicine shall be designated for a term expiring on July 1, 1997;

(iv) one member who is a representative of a Kansas hospital shall be designated for a term expiring on July 1, 1995;

(v) one member who is a representative of a Kansas hospital shall be designated for a term expiring on July 1, 1996;

(vi) one member who is a representative of a Kansas hospital shall be designated for a term expiring on July 1, 1997;

(vii) one member who is licensed to practice medicine and surgery in Kansas who is a doctor of osteopathic medicine shall be designated for a term expiring on July 1, 1995;

(viii) one member who is licensed to practice medicine and surgery in Kansas who is a doctor of osteopathic medicine shall be designated for a term expiring on July 1, 1996;

(ix) the member who is licensed to practice chiropractic in Kansas shall be designated for a term expiring on July 1, 1995; and

(x) the member who is a licensed professional nurse authorized to practice as a registered nurse anesthetist in Kansas shall be designated for a term expiring on July 1, 1996.

(B) If there was a vacancy in the membership of the board of gov- ernors abolished by this act on the day preceding the effective date of this act, the commissioner shall appoint a person of like qualifications in accordance with this subsection (b) and shall designate the term of such member in accordance with this subsection (b) as though such member had been a member on the day preceding the effective date of this act. In any such case, the commissioner shall notify the professional society or association representing the category of health care provider required for the vacant position and request a list of nominations of health care providers from which to make the appointment.

(5) The board of governors shall organize at its first meeting in Jan- uary of 1995, and at its first meeting subsequent to July 1, 1995, and July 1 of each year thereafter and shall elect a chairperson and vice-chairper- son from among its membership. Meetings shall be called by the chair- person or by a written notice signed by three members of the board.

(6) The board of governors, in addition to other duties imposed by this act, shall study and evaluate the operation of the fund and make such recommendations to the legislature as may be appropriate to ensure the viability of the fund.

(7) On and after January 1, 1995, and prior to July 1, 1995, the board of governors shall be attached to the insurance department in accordance with this section and all staff, other than the executive director, budgeting, personnel, purchasing and related management functions of the board shall be provided by the commissioner of insurance. The commissioner shall include the budget estimates of the board of governors, as approved by the board, with the budget estimates for the insurance department which are submitted to the division of the budget under K.S.A. 75-3717 and amendments thereto. All vouchers for expenditures of the board shall be approved by the chairperson of the board or a person designated by the chairperson and, upon such approval, shall be paid from the fund. On and after January 1, 1995, the board shall appoint an executive director who shall be in the unclassified service of the Kansas civil service act. On and after July 1, 1995, the board may appoint such additional employees, and provide all office space, services, equipment, materials and supplies, and all budgeting, personnel, purchasing and related management func- tions required by the board in the exercise of the powers, duties and functions imposed or authorized by the health care provider insurance availability act or may enter into a contract with the commissioner of insurance for the provision, by the commissioner, of all or any part thereof.

(8) The commissioner shall:

(A) Provide technical and administrative assistance to the board of governors with respect to administration of the fund upon request of the board;

(B) provide such expertise as the board may reasonably request with respect to evaluation of claims or potential claims; and

(C) On and after January 1, 1995, and prior to July 1, 1995, provide such staff, other than the executive director, office space, services, equip- ment, materials and supplies and all budgeting, personnel, purchasing and related management functions as may be required by the board in the exercise of its powers, duties and functions imposed or authorized by the health care provider insurance availability act; and on and after July 1, 1995, provide all or any part thereof required by any contract entered into between the board and the commissioner therefor.

(9) On the effective date of this act, all of the powers, duties, func- tions, records and property of the board of governors that is abolished by this section, which are prescribed for the board of governors by this act are hereby transferred to and conferred and imposed upon the board of governors that is created by this section, except as is otherwise specifically provided by this act. On the dates prescribed for the transfer of the pow- ers, duties and functions by this act, all of the powers, duties, functions, records and property of the commissioner of insurance or the insurance department, which relate to or are required for the performance of pow- ers, duties or functions which are prescribed for the board of governors by this act, including the power to expend funds now or hereafter made available in accordance with appropriation acts, are hereby transferred to and conferred and imposed upon the board of governors that is created by this section, except as is otherwise specifically provided by this act.

(10) The board of governors created by this act shall be the successor in every way to the powers, duties and functions of the board of governors and the commissioner of insurance in which such powers, duties and functions were vested prior to the dates prescribed for the transfer of such powers, duties and functions to the board in accordance with this act, except as otherwise specifically provided by this act. Every act per- formed under the authority of the board of governors created by this act shall be deemed to have the same force and effect as if performed by the board of governors and the commissioner of insurance in which such powers, duties and functions were vested prior to the transfer of such powers, duties and functions.

(11) Subject to the provisions of this act, whenever the board of gov- ernors that is abolished by this act or the commissioner of insurance, or words of like effect, is referred to or designated by a statute, contract, or other document, and such reference or designation relates to a power, duty or function which is transferred to and conferred and imposed upon the board of governors that is created by this act, such reference or des- ignation shall be deemed to apply to the board of governors created by this act.

(12) All rules and regulations and all orders or directives of the board of governors that is abolished by this act and all rules and regulations of the commissioner of insurance, which are in existence on the date pre- scribed for the transfer of powers, duties and functions to such board under this act and which relate to powers, duties and functions that were vested in such board of governors or the commissioner of insurance prior to such date, shall continue to be effective and shall be deemed to be the rules and regulations and orders or directives of the board of governors created by this act, until revised, amended or revoked or nullified pur- suant to law. The board of governors created by this act shall be deemed to be a continuation of the board of governors abolished by this act.

(13) On July 1, 1995, all employees who were engaged prior to such date in the performance of duties and functions under the health care provider insurance availability act, and who, in the opinion of the board, are necessary to perform the duties and functions required under such act by the board shall become employees of the board, and shall retain all retirement benefits and rights of civil service which such employee had prior to July 1, 1995, and their services shall be deemed to have been continuous.

(c) Subject to subsections (d), (e), (f), (i), (k), (m), (n), (o) and (p), the fund shall be liable to pay: (1) Any amount due from a judgment or settlement which is in excess of the basic coverage liability of all liable resident health care providers or resident self-insurers for any personal injury or death arising out of the rendering of or the failure to render professional services within or without this state;

(2) subject to the provisions of subsection (m), any amount due from a judgment or settlement which is in excess of the basic coverage liability of all liable nonresident health care providers or nonresident self-insurers for any such injury or death arising out of the rendering or the failure to render professional services within this state but in no event shall the fund be obligated for claims against nonresident health care providers or nonresident self-insurers who have not complied with this act or for claims against nonresident health care providers or nonresident self-in- surers that arose outside of this state;

(3) subject to the provisions of subsection (m), any amount due from a judgment or settlement against a resident inactive health care provider, an optometrist or pharmacist who purchased coverage pursuant to sub- section (n) or a physical therapist who purchased coverage pursuant to subsection (o), for any such injury or death arising out of the rendering of or failure to render professional services;

(4) subject to the provisions of subsection (m), any amount due from a judgment or settlement against a nonresident inactive health care pro- vider, an optometrist or pharmacist who purchased coverage pursuant to subsection (n) or a physical therapist who purchased coverage pursuant to subsection (o), for any injury or death arising out of the rendering or failure to render professional services within this state, but in no event shall the fund be obligated for claims against: (A) Nonresident inactive health care providers who have not complied with this act; or (B) non- resident inactive health care providers for claims that arose outside of this state, unless such health care provider was a resident health care provider or resident self-insurer at the time such act occurred;

(5) subject to subsection (b) of K.S.A. 40-3411, and amendments thereto, reasonable and necessary expenses for attorney fees incurred in defending the fund against claims;

(6) any amounts expended for reinsurance obtained to protect the best interests of the fund purchased by the board of governors, which purchase shall be subject to the provisions of K.S.A. 75-3738 through 75- 3744, and amendments thereto, but shall not be subject to the provisions of K.S.A. 75-4101 and amendments thereto;

(7) reasonable and necessary actuarial expenses incurred in admin- istering the act, including expenses for any actuarial studies contracted for by the legislative coordinating council, which expenditures shall not be subject to the provisions of K.S.A. 75-3738 through 75-3744, and amendments thereto;

(8) periodically to the plan or plans, any amount due pursuant to subsection (a)(3) of K.S.A. 40-3413 and amendments thereto;

(9) reasonable and necessary expenses incurred by the board of gov- ernors in the administration of the fund or in the performance of other powers, duties or functions of the board under the health care provider insurance availability act;

(10) return of any unearned surcharge;

(11) subject to subsection (b) of K.S.A. 40-3411, and amendments thereto, reasonable and necessary expenses for attorney fees and other costs incurred in defending a person engaged or who was engaged in residency training or the private practice corporations or foundations and their full-time physician faculty employed by the university of Kansas medical center from claims for personal injury or death arising out of the rendering of or the failure to render professional services by such health care provider;

(12) notwithstanding the provisions of subsection (m), any amount due from a judgment or settlement for an injury or death arising out of the rendering of or failure to render professional services by a person engaged or who was engaged in residency training or the private practice corporations or foundations and their full-time physician faculty em- ployed by the university of Kansas medical center;

(13) reasonable and necessary expenses for the development and pro- motion of risk management education programs;

(14) notwithstanding the provisions of subsection (m), any amount, but not less than the required basic coverage limits, owed pursuant to a judgment or settlement for any injury or death arising out of the rendering of or failure to render professional services by a person, other than a person described in clause (12) of this subsection (c), who was engaged in a postgraduate program of residency training approved by the state board of healing arts but who, at the time the claim was made, was no longer engaged in such residency program;

(15) subject to subsection (b) of K.S.A. 40-3411, and amendments thereto, reasonable and necessary expenses for attorney fees and other costs incurred in defending a person described in clause (14) of this sub- section (c);

(16) expenses incurred by the commissioner in the performance of duties and functions imposed upon the commissioner by the health care provider insurance availability act, and expenses incurred by the com- missioner in the performance of duties and functions under contracts entered into between the board and the commissioner as authorized by this section; and

(17) periodically to the state general fund reimbursements of amounts paid to members of the health care stabilization fund oversight committee for compensation, travel expenses and subsistence expenses pursuant to subsection (e) of K.S.A. 40-3403b, and amendments thereto.

(d) All amounts for which the fund is liable pursuant to subsection (c) shall be paid promptly and in full except that, if the amount for which the fund is liable is $300,000 or more, it shall be paid, by installment payments of $300,000 or 10% of the amount of the judgment including interest thereon, whichever is greater, per fiscal year, the first installment to be paid within 60 days after the fund becomes liable and each subse- quent installment to be paid annually on the same date of the year the first installment was paid, until the claim has been paid in full. Any at- torney fees payable from such installment shall be similarly prorated.

(e) In no event shall the fund be liable to pay in excess of $3,000,000 pursuant to any one judgment or settlement against any one health care provider relating to any injury or death arising out of the rendering of or the failure to render professional services on and after July 1, 1984, and before July 1, 1989, subject to an aggregate limitation for all judgments or settlements arising from all claims made in any one fiscal year in the amount of $6,000,000 for each health care provider.

(f) The fund shall not be liable to pay in excess of the amounts spec- ified in the option selected by the health care provider pursuant to sub- section (l) for judgments or settlements relating to injury or death arising out of the rendering of or failure to render professional services by such health care provider on or after July 1, 1989.

(g) A health care provider shall be deemed to have qualified for cov- erage under the fund:

(1) On and after July 1, 1976, if basic coverage is then in effect;

(2) subsequent to July 1, 1976, at such time as basic coverage be- comes effective; or

(3) upon qualifying as a self-insurer pursuant to K.S.A. 40-3414 and amendments thereto.

(h) A health care provider who is qualified for coverage under the fund shall have no vicarious liability or responsibility for any injury or death arising out of the rendering of or the failure to render professional services inside or outside this state by any other health care provider who is also qualified for coverage under the fund. The provisions of this sub- section shall apply to all claims filed on or after July 1, 1986.

(i) Notwithstanding the provisions of K.S.A. 40-3402 and amend- ments thereto, if the board of governors determines due to the number of claims filed against a health care provider or the outcome of those claims that an individual health care provider presents a material risk of significant future liability to the fund, the board of governors is authorized by a vote of a majority of the members thereof, after notice and an op- portunity for hearing in accordance with the provisions of the Kansas administrative procedure act, to terminate the liability of the fund for all claims against the health care provider for damages for death or personal injury arising out of the rendering of or the failure to render professional services after the date of termination. The date of termination shall be 30 days after the date of the determination by the board of governors. The board of governors, upon termination of the liability of the fund under this subsection, shall notify the licensing or other disciplinary board having jurisdiction over the health care provider involved of the name of the health care provider and the reasons for the termination.

(j) (1) Upon the payment of moneys from the health care stabiliza- tion fund pursuant to subsection (c)(11), the board of governors shall certify to the director of accounts and reports the amount of such pay- ment, and the director of accounts and reports shall transfer an amount equal to the amount certified, reduced by any amount transferred pur- suant to paragraph (3) of this subsection (j), from the state general fund to the health care stabilization fund.

(2) Upon the payment of moneys from the health care stabilization fund pursuant to subsection (c)(12), the board of governors shall certify to the director of accounts and reports the amount of such payment which is equal to the basic coverage liability of self-insurers, and the director of accounts and reports shall transfer an amount equal to the amount cer- tified, reduced by any amount transferred pursuant to paragraph (3) of this subsection (j), from the state general fund to the health care stabili- zation fund.

(3) The university of Kansas medical center private practice foun- dation reserve fund is hereby established in the state treasury. If the balance in such reserve fund is less than $500,000 on July 1 of any year, the private practice corporations or foundations referred to in subsection (c) of K.S.A. 40-3402, and amendments thereto, shall remit the amount necessary to increase such balance to $500,000 to the state treasurer for credit to such reserve fund as soon after such July 1 date as is practicable. Upon receipt of each such remittance, the state treasurer shall credit the same to such reserve fund. When compliance with the foregoing provi- sions of this paragraph have been achieved on or after July 1 of any year in which the same are applicable, the state treasurer shall certify to the board of governors that such reserve fund has been funded for the year in the manner required by law. Moneys in such reserve fund may be invested or reinvested in accordance with the provisions of K.S.A. 40- 3406, and amendments thereto, and any income or interest earned by such investments shall be credited to such reserve fund. Upon payment of moneys from the health care stabilization fund pursuant to subsection (c)(11) or (c)(12) with respect to any private practice corporation or foun- dation or any of its full-time physician faculty employed by the university of Kansas, the director of accounts and reports shall transfer an amount equal to the amount paid from the university of Kansas medical center private practice foundation reserve fund to the health care stabilization fund or, if the balance in such reserve fund is less than the amount so paid, an amount equal to the balance in such reserve fund.

(4) Upon payment of moneys from the health care stabilization fund pursuant to subsection (c)(14) or (c)(15), the board of governors shall certify to the director of accounts and reports the amount of such pay- ment, and the director of accounts and reports shall transfer an amount equal to the amount certified from the state general fund to the health care stabilization fund.

(k) Notwithstanding any other provision of the health care provider insurance availability act, no psychiatric hospital licensed under K.S.A. 75-3307b and amendments thereto shall be assessed a premium sur- charge or be entitled to coverage under the fund if such hospital has not paid any premium surcharge pursuant to K.S.A. 40-3404 and amend- ments thereto prior to January 1, 1988.

(l) On or after July 1, 1989, every health care provider shall make an election to be covered by one of the following options provided in this subsection (l) which shall limit the liability of the fund with respect to judgments or settlements relating to injury or death arising out of the rendering of or failure to render professional services on or after July 1, 1989. Such election shall be made at the time the health care provider renews the basic coverage in effect on July 1, 1989, or, if basic coverage is not in effect, such election shall be made at the time such coverage is acquired pursuant to K.S.A. 40-3402, and amendments thereto. Notice of the election shall be provided by the insurer providing the basic cov- erage in the manner and form prescribed by the board of governors and shall continue to be effective from year to year unless modified by a subsequent election made prior to the anniversary date of the policy. The health care provider may at any subsequent election reduce the dollar amount of the coverage for the next and subsequent fiscal years, but may not increase the same, unless specifically authorized by the board of gov- ernors. Such election shall be made for persons engaged in residency training and persons engaged in other postgraduate training programs approved by the state board of healing arts at medical care facilities or mental health centers in this state by the agency or institution paying the surcharge levied under K.S.A. 40-3404, and amendments thereto, for such persons. Such options shall be as follows:

(1) OPTION 1. The fund shall not be liable to pay in excess of $100,000 pursuant to any one judgment or settlement for any party against such health care provider, subject to an aggregate limitation for all judgments or settlements arising from all claims made in the fiscal year in an amount of $300,000 for such provider.

(2) OPTION 2. The fund shall not be liable to pay in excess of $300,000 pursuant to any one judgment or settlement for any party against such health care provider, subject to an aggregate limitation for all judgments or settlements arising from all claims made in the fiscal year in an amount of $900,000 for such provider.

(3) OPTION 3. The fund shall not be liable to pay in excess of $800,000 pursuant to any one judgment or settlement for any party against such health care provider, subject to an aggregate limitation for all judgments or settlements arising from all claims made in the fiscal year in an amount of $2,400,000 for such health care provider.

(m) The fund shall not be liable for any amounts due from a judgment or settlement against resident or nonresident inactive health care provid- ers who first qualify as an inactive health care provider on or after July 1, 1989, unless such health care provider has been in compliance with K.S.A. 40-3402, and amendments thereto, for a period of not less than five years. If a health care provider has not been in compliance for five years, such health care provider may make application and payment for the coverage for the period while they are nonresident health care providers, nonres- ident self-insurers or resident or nonresident inactive health care provid- ers to the fund. Such payment shall be made within 30 days after the health care provider ceases being an active health care provider and shall be made in an amount determined by the board of governors to be suf- ficient to fund anticipated claims based upon reasonably prudent actuarial principles. The provisions of this subsection shall not be applicable to any health care provider which becomes inactive through death or retirement, or through disability or circumstances beyond such health care provider's control, if such health care provider notifies the board of governors and receives approval for an exemption from the provisions of this subsection. Any period spent in a postgraduate program of residency training ap- proved by the state board of healing arts shall not be included in com- putation of time spent in compliance with the provisions of K.S.A. 40- 3402, and amendments thereto.

(n) Notwithstanding the provisions of subsection (m) or any other provision in article 34 of chapter 40 of the Kansas Statutes Annotated to the contrary, the fund shall not be liable for any claim made on or after July 1, 1991, against a licensed optometrist or pharmacist relating to any injury or death arising out of the rendering of or failure to render pro- fessional services by such optometrist or pharmacist prior to July 1, 1991, unless such optometrist or pharmacist qualified as an inactive health care provider prior to July 1, 1991, and obtained coverage pursuant to sub- section (m). Optometrists and pharmacists not qualified as inactive health care providers prior to July 1, 1991, may purchase coverage from the fund for periods of prior compliance by making application prior to August 1, 1991, and payment within 30 days from notice of the calculated amount as determined by the board of governors to be sufficient to fund antici- pated claims based on reasonably prudent actuarial principles.

(o) Notwithstanding the provisions of subsection (m) or any other provision in article 34 of chapter 40 of the Kansas Statutes Annotated to the contrary, the fund shall not be liable for any claim made on or after July 1, 1995, against a physical therapist registered by the state board of healing arts relating to any injury or death arising out of the rendering of or failure to render professional services by such physical therapist prior to July 1, 1995, unless such physical therapist qualified as an inactive health care provider prior to July 1, 1995, and obtained coverage pursuant to subsection (m). Physical therapists not qualified as inactive health care providers prior to July 1, 1995, may purchase coverage from the fund for periods of prior compliance by making application prior to August 1, 1995, and payment within 30 days from notice of the calculated amount as determined by the board of governors to be sufficient to fund anticipated claims based on reasonably prudent actuarial principles.

(p) Notwithstanding anything in article 34 of chapter 40 of the Kansas Statutes Annotated to the contrary, the fund shall in no event be liable for any claims against any health care provider based upon or relating to the health care provider's sexual acts or activity, but in such cases the fund may pay reasonable and necessary expenses for attorney fees in- curred in defending the fund against such claim. The fund may recover all or a portion of such expenses for attorney fees if an adverse judgment is returned against the health care provider for damages resulting from the health care provider's sexual acts or activity.

Sec. 8. On and after July 1, 1996, K.S.A. 1995 Supp. 40-3403, as amended by section 7 of 1996 Senate Bill No. 476, is hereby amended to read as follows: 40-3403. (a) For the purpose of paying damages for personal injury or death arising out of the rendering of or the failure to render professional services by a health care provider, self-insurer or in- active health care provider subsequent to the time that such health care provider or self-insurer has qualified for coverage under the provisions of this act, there is hereby established the health care stabilization fund. The fund shall be held in trust in the state treasury and accounted for separately from other state funds. The board of governors shall administer the fund or contract for the administration of the fund with an insurance company authorized to do business in this state.