CHAPTER 164 SENATE BILL No. 664 An  Act reconciling amendments to certain statutes; amending K.S.A. 2001 Supp. 65-171d,
72-979, 74-3256, 74-3267a, 74-3298, 74-32,107, 74-32,138 and 74-4921 and repealing
the existing sections; also repealing K.S.A. 2001 Supp. 19-2881c, 65-171z, 72-979a, 74-
3256a, 74-3267b, 74-3298a, 74-32,107a, 74-32,138a and 74-4921b.
Be it enacted by the Legislature of the State of Kansas:

      Section  1. K.S.A. 2001 Supp. 65-171d is hereby amended to read as
follows: 65-171d. (a) For the purpose of preventing surface and subsur-
face water pollution and soil pollution detrimental to public health or to
the plant, animal and aquatic life of the state, and to protect designated
uses of the waters of the state and to require the treatment of sewage
predicated upon technologically based effluent limitations, the secretary
of health and environment shall make such rules and regulations, includ-
ing registration of potential sources of pollution, as may in the secretary's
judgment be necessary to: (1) Protect the soil and waters of the state from
pollution resulting from underground storage reservoirs of hydrocarbons
and liquid petroleum of liquid petroleum gas and hydrocarbons, other
than underground porosity storage of natural gas; (2) control the disposal,
discharge or escape of sewage as defined in K.S.A. 65-164 and amend-
ments thereto, by or from municipalities, corporations, companies, insti-
tutions, state agencies, federal agencies or individuals and any plants,
works or facilities owned or operated, or both, by them; and (3) establish
water quality standards for the waters of the state to protect their desig-
nated uses. In no event shall the secretary's authority be interpreted to
include authority over the beneficial use of water, water quantity alloca-
tions, protection against water use impairment of a beneficial use, or any
other function or authority under the jurisdiction of the Kansas water
appropriation act, K.S.A. 82a-701, and amendments thereto.

      (b) The secretary of health and environment may adopt by reference
any regulation relating to water quality and effluent standards promul-
gated by the federal government pursuant to the provisions of the federal
clean water act and amendments thereto, as in effect on January 1, 1989,
which the secretary is otherwise authorized by law to adopt.

      (c) For the purposes of this act, including K.S.A. 65-161 through 65-
171h and K.S.A. 2001 Supp. 65-1,178 through 65-1,198, and amendments
thereto, and rules and regulations adopted pursuant thereto:

      (1) ``Pollution'' means: (A) Such contamination or other alteration of
the physical, chemical or biological properties of any waters of the state
as will or is likely to create a nuisance or render such waters harmful,
detrimental or injurious to public health, safety or welfare, or to the plant,
animal or aquatic life of the state or to other designated uses; or (B) such
discharge as will or is likely to exceed state effluent standards predicated
upon technologically based effluent limitations.

      (2) ``Confined feeding facility'' means any lot, pen, pool or pond: (A)
Which is used for the confined feeding of animals or fowl for food, fur
or pleasure purposes; (B) which is not normally used for raising crops;
and (C) in which no vegetation intended for animal food is growing.

      (3) ``Animal unit'' means a unit of measurement calculated by adding
the following numbers: The number of beef cattle weighing more than
700 pounds multiplied by 1.0; plus the number of cattle weighing less
than 700 pounds multiplied by 0.5; plus the number of mature dairy cattle
multiplied by 1.4; plus the number of swine weighing more than 55
pounds multiplied by 0.4; plus the number of swine weighing 55 pounds
or less multiplied by 0.1; plus the number of sheep or lambs multiplied
by 0.1; plus the number of horses multiplied by 2.0; plus the number of
turkeys multiplied by 0.018; plus the number of laying hens or broilers,
if the facility has continuous overflow watering, multiplied by 0.01; plus
the number of laying hens or broilers, if the facility has a liquid manure
system, multiplied by 0.033; plus the number of ducks multiplied by 0.2.
However, each head of cattle will be counted as one full animal unit for
the purpose of determining the need for a federal permit. ``Animal unit''
also includes the number of swine weighing 55 pounds or less multiplied
by 0.1 for the purpose of determining applicable requirements for new
construction of a confined feeding facility for which a permit or registra-
tion has not been issued before January 1, 1998, and for which an appli-
cation for a permit or registration and plans have not been filed with the
secretary of health and environment before January 1, 1998, or for the
purpose of determining applicable requirements for expansion of such
facility. However, each head of swine weighing 55 pounds or less shall be
counted as 0.0 animal unit for the purpose of determining the need for
a federal permit.

      (4) ``Animal unit capacity'' means the maximum number of animal
units which a confined feeding facility is designed to accommodate at any
one time.

      (5) ``Habitable structure'' means any of the following structures which
is occupied or maintained in a condition which may be occupied and
which, in the case of a confined feeding facility for swine, is owned by a
person other than the operator of such facility: A dwelling, church, school,
adult care home, medical care facility, child care facility, library, com-
munity center, public building, office building or licensed food service or
lodging establishment.

      (6) ``Wildlife refuge'' means Cheyenne Bottoms wildlife management
area, Cheyenne Bottoms preserve and Flint Hills, Quivera, Marais des
Cygnes and Kirwin national wildlife refuges.

      (d) In adopting rules and regulations, the secretary of health and en-
vironment, taking into account the varying conditions that are probable
for each source of sewage and its possible place of disposal, discharge or
escape, may provide for varying the control measures required in each
case to those the secretary finds to be necessary to prevent pollution. If
a freshwater reservoir or farm pond is privately owned and where com-
plete ownership of land bordering the reservoir or pond is under common
private ownership, such freshwater reservoir or farm pond shall be ex-
empt from water quality standards except as it relates to water discharge
or seepage from the reservoir or pond to waters of the state, either surface
or groundwater, or as it relates to the public health of persons using the
reservoir or pond or waters therefrom.

      (e)  (1) Whenever the secretary of health and environment or the
secretary's duly authorized agents find that the soil or waters of the state
are not being protected from pollution resulting from underground stor-
age reservoirs of hydrocarbons and liquid petroleum gas or that storage
or disposal of salt water not regulated by the state corporation commission
or refuse in any surface pond not regulated by the state corporation com-
mission is causing or is likely to cause pollution of soil or waters of the
state, the secretary or the secretary's duly authorized agents shall issue
an order prohibiting such underground storage reservoir or surface pond
storage or disposal of salt water or refuse. Any person aggrieved by such
order may within 15 days of service of the order request in writing a
hearing on the order.

      (2) Upon receipt of a timely request, a hearing shall be conducted in
accordance with the provisions of the Kansas administrative procedure
act.

      (3) Any action of the secretary pursuant to this subsection is subject
to review in accordance with the act for judicial review and civil enforce-
ment of agency actions.

      (f) The secretary may adopt rules and regulations establishing fees
for the following services:

      (1) plan approval, monitoring and inspecting underground or buried
petroleum products storage tanks, for which the annual fee shall not ex-
ceed $5 for each tank in place;

      (2) permitting, monitoring and inspecting salt solution mining oper-
ators, for which the annual fee shall not exceed $1,950 per company; and

      (3) permitting, monitoring and inspecting hydrocarbon storage wells
and well systems, for which the annual fee shall not exceed $1,875 per
company.

      (g) Prior to any new construction of a confined feeding facility with
an animal unit capacity of 300 to 999, such facility shall register with the
secretary of health and environment. Facilities with a capacity of less than
300 animal units may register with the secretary. Any such registration
shall be accompanied by a $25 fee. Within 30 days of receipt of such
registration, the department of health and environment shall identify any
significant water pollution potential or separation distance violations pur-
suant to subsection (h). If there is identified a significant water pollution
potential, such facility shall be required to obtain a permit from the sec-
retary. If there is no water pollution potential posed by a facility with an
animal unit capacity of less than 300, the secretary may certify that no
permit is required. If there is no water pollution potential nor any viola-
tion of separation distances posed by a facility with an animal unit capacity
of 300 to 999, the secretary shall certify that no permit is required and
that there are no certification conditions pertaining to separation dis-
tances. If a separation distance violation is identified, the secretary may
reduce the separation distance in accordance with subsection (i) and shall
certify any such reduction of separation distances.

      (h)  (1) Any new construction or new expansion of a confined feeding
facility, other than a confined feeding facility for swine, shall meet or
exceed the following requirements in separation distances from any hab-
itable structure in existence when the application for a permit is submit-
ted:

      (A) 1,320 feet for facilities with an animal unit capacity of 300 to 999;
and

      (B) 4,000 feet for facilities with an animal unit capacity of 1,000 or
more.

      (2) A confined feeding facility for swine shall meet or exceed the
following requirements in separation distances from any habitable struc-
ture or city, county, state or federal park in existence when the application
for a permit is submitted:

      (A) 1,320 feet for facilities with an animal unit capacity of 300 to 999;

      (B) 4,000 feet for facilities with an animal unit capacity of 1,000 to
3,724;

      (C) 4,000 feet for expansion of existing facilities to an animal unit
capacity of 3,725 or more if such expansion is within the perimeter from
which separation distances are determined pursuant to subsection (k) for
the existing facility; and

      (D) 5,000 feet for: (i) Construction of new facilities with an animal
unit capacity of 3,725 or more; or (ii) expansion of existing facilities to an
animal unit capacity of 3,725 or more if such expansion extends outside
the perimeter from which separation distances are determined pursuant
to subsection (k) for the existing facility.

      (3) Any construction of new confined feeding facilities for swine shall
meet or exceed the following requirements in separation distances from
any wildlife refuge:

      (A) 10,000 feet for facilities with an animal unit capacity of 1,000 to
3,724; and

      (B) 16,000 feet for facilities with an animal unit capacity of 3,725 or
more.

      (i)  (1) The separation distance requirements of subsections (h)(1)
and (2) shall not apply if the applicant for a permit obtains a written
agreement from all owners of habitable structures which are within the
separation distance stating such owners are aware of the construction or
expansion and have no objections to such construction or expansion. The
written agreement shall be filed in the register of deeds office of the
county in which the habitable structure is located.

      (2)  (A) The secretary may reduce the separation distance require-
ments of subsection (h)(1) if: (i) No substantial objection from owners of
habitable structures within the separation distance is received in response
to public notice; or (ii) the board of county commissioners of the county
where the confined feeding facility is located submits a written request
seeking a reduction of separation distances.

      (B) The secretary may reduce the separation distance requirements
of subsection (h)(2)(A) or (B) if: (i) No substantial objection from owners
of habitable structures within the separation distance is received in re-
sponse to notice given in accordance with subsection (l); (ii) the board of
county commissioners of the county where the confined feeding facility
is located submits a written request seeking a reduction of separation
distances; or (iii) the secretary determines that technology exists that
meets or exceeds the effect of the required separation distance and the
facility will be using such technology.

      (C) The secretary may reduce the separation distance requirements
of subsection (h)(2)(C) or (D) if: (i) No substantial objection from owners
of habitable structures within the separation distance is received in re-
sponse to notice given in accordance with subsection (l); or (ii) the sec-
retary determines that technology exists that meets or exceeds the effect
of the required separation distance and the facility will be using such
technology.

      (j)  (1) The separation distances required pursuant to subsection
(h)(1) shall not apply to:

      (A) Confined feeding facilities which were permitted or certified by
the secretary on July 1, 1994;

      (B) confined feeding facilities which existed on July 1, 1994, and reg-
istered with the secretary before July 1, 1996; or

      (C) expansion of a confined feeding facility, including any expansion
for which an application was pending on July 1, 1994, if: (i) In the case
of a facility with an animal unit capacity of 1,000 or more prior to July 1,
1994, the expansion is located at a distance not less than the distance
between the facility and the nearest habitable structure prior to the ex-
pansion; or (ii) in the case of a facility with an animal unit capacity of less
than 1,000 prior to July 1, 1994, the expansion is located at a distance not
less than the distance between the facility and the nearest habitable struc-
ture prior to the expansion and the animal unit capacity of the facility
after expansion does not exceed 2,000.

      (2) The separation distances required pursuant to subsections
(h)(2)(A) and (B) shall not apply to:

      (A) Confined feeding facilities for swine which were permitted or
certified by the secretary on July 1, 1994;

      (B) confined feeding facilities for swine which existed on July 1, 1994,
and registered with the secretary before July 1, 1996; or

      (C) expansion of a confined feeding facility which existed on July 1,
1994, if: (i) In the case of a facility with an animal unit capacity of 1,000
or more prior to July 1, 1994, the expansion is located at a distance not
less than the distance between the facility and the nearest habitable struc-
ture prior to the expansion; or (ii) in the case of a facility with an animal
unit capacity of less than 1,000 prior to July 1, 1994, the expansion is
located at a distance not less than the distance between the facility and
the nearest habitable structure prior to the expansion and the animal unit
capacity of the facility after expansion does not exceed 2,000.

      (3) The separation distances required pursuant to subsections
(h)(2)(C) and (D) and (h)(3) shall not apply to the following, as deter-
mined in accordance with subsections (a), (e) and (f) of K.S.A. 2001 Supp.
65-1,178 and amendments thereto:

      (A) Expansion of an existing confined feeding facility for swine if an
application for such expansion has been received by the department be-
fore March 1, 1998; and

      (B) construction of a new confined feeding facility for swine if an
application for such facility has been received by the department before
March 1, 1998.

      (k) The separation distances required by this section for confined
feeding facilities for swine shall be determined from the exterior perim-
eter of any buildings utilized for housing swine, any lots containing swine,
any swine waste retention lagoons or ponds or other manure or waste-
water storage structures and any additional areas designated by the ap-
plicant for future expansion. Such separation distances shall not apply to
offices, dwellings and feed production facilities of a confined feeding fa-
cility for swine.

      (l) The applicant shall give the notice required by subsections
(i)(2)(B) and (C) by certified mail, return receipt requested, to all owners
of habitable structures within the separation distance. The applicant shall
submit to the department evidence, satisfactory to the department, that
such notice has been given.

      (m) All plans and specifications submitted to the department for new
construction or new expansion of confined feeding facilities may be, but
are not required to be, prepared by a professional engineer or a consult-
ant, as approved by the department. Before approval by the department,
any consultant preparing such plans and specifications shall submit to the
department evidence, satisfactory to the department, of adequate general
commercial liability insurance coverage.

      Sec.  2. K.S.A. 2001 Supp. 72-979 is hereby amended to read as fol-
lows: 72-979. (a) Payments under this act shall be made in the manner
and at such times during each school year as are determined by the state
board. All amounts received by a district under this section shall be de-
posited in the general fund of the district and transferred to its special
education fund. If any district is paid more than it is entitled to receive
under any distribution made under this act, the state board shall notify
the district of the amount of such overpayment, and such district shall
remit the same to the state board. The state board shall remit any moneys
so received to the state treasurer, and in accordance with the provisions
of K.S.A. 75-4215, and amendments thereto. Upon receipt of each such
remittance, the state treasurer shall deposit the same entire amount in
the state treasury to the credit of the state general fund. If any such
district fails so to remit, the state board shall deduct the excess amounts
so paid from future payments becoming due to such district. If any district
is paid less than the amount to which it is entitled under any distribution
made under this act, the state board shall pay the additional amount due
at any time within the school year in which the underpayment was made
or within 60 days after the end of such school year.

      (b) The state board shall prescribe all forms necessary for reporting
under this act.

      (c) Every board shall make such periodic and special reports of in-
formation to the state board as it may request in order to carry out its
responsibilities under this act.

      Sec.  3. K.S.A. 2001 Supp. 74-3256 is hereby amended to read as
follows: 74-3256. (a) The state board of regents shall:

      (1) Adopt rules and regulations for the administration of this act;

      (2) provide for the award of ROTC service scholarships to eligible
students who qualify therefor, as determined by the selection committee,
not to exceed in any academic year a total of 40 eligible students at each
ROTC institution. This provision is subject to the provisions of subsection
(c);

      (3) provide information regarding application procedures;

      (4) require any ROTC institution to promptly furnish upon request
any information which relates to the administration or effect of this act.

      (b) If the ROTC institution at which an eligible student who qualifies
for an ROTC service scholarship is enrolled is a state educational insti-
tution, the scholarship shall provide to the student an amount not to
exceed 70% of the cost of attendance at the institution for an academic
year. If the ROTC institution at which an eligible student who qualifies
for an ROTC service scholarship is enrolled is a municipal university, the
scholarship shall provide to the student an amount not to exceed 70% of
the average amount of the cost of attendance at the state educational
institutions for an academic year. Payments of ROTC service scholarships
shall be made pursuant to vouchers approved by the state board of regents
and upon warrants of the director of accounts and reports. Payments may
be made by issuance of a single warrant to each ROTC institution at which
one or more eligible students are enrolled for the total amount of schol-
arships for all eligible students enrolled at that institution. The director
of accounts and reports shall cause such warrant to be delivered to the
ROTC institution at which such eligible student or students are enrolled.
If an eligible student discontinues attendance before the end of any ac-
ademic year, after the ROTC institution has received payment under this
subsection, the institution shall pay to the state the entire amount which
such eligible student would otherwise qualify to have refunded, not to
exceed the amount of the payment made under the ROTC service schol-
arship for the academic year. All amounts paid to the state by ROTC
institutions under this subsection shall be deposited in the state treasury
and credited to remitted to the state treasurer in accordance with the
provisions of K.S.A. 75-4215, and amendments thereto. Upon receipt of
each such remittance, the state treasurer shall deposit the entire amount
in the state treasury to the credit of the ROTC service scholarship pro-
gram fund.

      (c) If all ROTC service scholarships authorized to be awarded to el-
igible students at each ROTC institution have not been awarded by a date
established by the state board of regents, the scholarships that have not
been awarded by that date may be awarded to eligible students at any
ROTC institution if such students are qualified for such scholarships as
determined by the appropriate selection committee. The determination
to award ROTC service scholarships under this subsection to eligible stu-
dents who are qualified for such scholarships shall be made by the state
board of regents after consultation with the adjutant general.

      Sec.  4. K.S.A. 2001 Supp. 74-3267a is hereby amended to read as
follows: 74-3267a. There is hereby created in the state treasury the os-
teopathic medical service scholarship repayment fund. The state board
of regents shall remit all moneys received under K.S.A. 74-3267, and
amendments thereto, to the state treasurer at least monthly in accordance
with the provisions of K.S.A. 75-4215, and amendments thereto. Upon
receipt of each such remittance, the state treasurer shall deposit the entire
amount thereof in the state treasury, and such amount shall be credited
to the credit of the osteopathic medical service scholarship repayment
fund. All expenditures from the osteopathic medical service scholarship
repayment fund shall be for osteopathic medical service scholarships and
shall be made in accordance with appropriation acts upon warrants of the
director of accounts and reports issued pursuant to vouchers approved
by the executive officer of the state board of regents or a person desig-
nated by the executive officer.

      Sec.  5. K.S.A. 2001 Supp. 74-3298 is hereby amended to read as
follows: 74-3298. (a) There is hereby created in the state treasury the
nursing service scholarship program fund. The executive officer shall re-
mit all moneys received from sponsors, which are paid under K.S.A. 74-
3294, and amendments thereto, pursuant to scholarship awards, or from
a school of nursing, which are paid because of nonattendance or discon-
tinued attendance by scholarship recipients, to the state treasurer at least
monthly in accordance with the provisions of K.S.A. 75-4215, and amend-
ments thereto. Upon receipt of each such remittance, the state treasurer
shall deposit the entire amount thereof in the state treasury and such
amount shall be credited to the credit of the nursing service scholarship
program fund. All expenditures from the nursing service scholarship pro-
gram fund shall be for scholarships awarded under the nursing service
scholarship program or refunds to sponsors and shall be made in accord-
ance with appropriation acts upon warrants of the director of accounts
and reports issued pursuant to vouchers approved by the executive officer
or by a person designated by the executive officer.

      (b) The nursing student scholarship discontinued attendance fund is
hereby abolished. On the effective date of this act, the director of ac-
counts and reports shall transfer all moneys remaining in the nursing
student scholarship discontinued attendance fund to the nursing service
scholarship program fund.

      (c) There is hereby created in the state treasury the nursing service
scholarship repayment fund. The executive officer shall remit all moneys
received for amounts paid under K.S.A. 74-3295, and amendments
thereto, to the state treasurer at least monthly in accordance with the
provisions of K.S.A. 75-4215, and amendments thereto. Upon receipt of
each such remittance the state treasurer shall deposit the entire amount
thereof in the state treasury, and such amount shall be credited to the
credit of the nursing service scholarship repayment fund. All expenditures
from the nursing service scholarship repayment fund shall be for schol-
arships awarded under the nursing service scholarship program and shall
be made in accordance with appropriation acts upon warrants of the di-
rector of accounts and reports issued pursuant to vouchers approved by
the executive officer or by a person designated by the executive officer.

      Sec.  6. K.S.A. 2001 Supp. 74-32,107 is hereby amended to read as
follows: 74-32,107. (a) There is hereby created in the state treasury the
teacher service scholarship program fund. The executive officer shall re-
mit all moneys received under the teacher service scholarship program,
which are paid because of nonattendance or discontinuance by scholar-
ship recipients, to the state treasurer at least monthly in accordance with
the provisions of K.S.A. 75-4215, and amendments thereto. Upon receipt
of each such remittance, the state treasurer shall deposit the entire
amount thereof in the state treasury, and such amount shall be credited
to the credit of the teacher service scholarship program fund. All expend-
itures from the teacher service scholarship program fund shall be for
scholarships awarded under the teacher service scholarship program and
shall be made in accordance with appropriation acts upon warrants of the
director of accounts and reports issued pursuant to vouchers approved
by the executive officer or by a person designated by the executive officer.

      (b) There is hereby created in the state treasury the teacher service
scholarship repayment fund. The executive officer shall remit all moneys
received under the teacher service scholarship program, which are for
payment of amounts pursuant to K.S.A. 74-32,104, and amendments
thereto, to the state treasurer at least monthly in accordance with the
provisions of K.S.A. 75-4215, and amendments thereto. Upon receipt of
each such remittance, the state treasurer shall deposit the entire amount
thereof in the state treasury, and such amount shall be credited to the
credit of the teacher service scholarship repayment fund. All expenditures
from the teacher service scholarship repayment fund shall be for schol-
arships awarded under the teacher service scholarship program and shall
be made in accordance with appropriation acts upon warrants of the di-
rector of accounts and reports issued pursuant to vouchers approved by
the executive officer or by a person designated by the executive officer.

      Sec.  7. K.S.A. 2001 Supp. 74-32,138 is hereby amended to read as
follows: 74-32,138. There is hereby created in the state treasury the ad-
vanced registered nurse practitioner service scholarship program fund.
The executive officer shall remit all moneys received under this act to the
state treasurer at least monthly in accordance with the provisions of K.S.A.
75-4215, and amendments thereto. Upon receipt of each such remittance
the state treasurer shall deposit the entire amount thereof in the state
treasury, and such amount shall be credited to the credit of the advanced
registered nurse practitioner service scholarship program fund. All ex-
penditures from the advanced registered nurse practitioner service schol-
arship program fund shall be for scholarships awarded under this act and
shall be made in accordance with appropriation acts upon warrants of the
director of accounts and reports issued pursuant to vouchers approved
by the executive officer or by a person designated by the executive officer.

      Sec.  8. K.S.A. 2001 Supp. 74-4921 is hereby amended to read as
follows: 74-4921. (1) There is hereby created in the state treasury the
Kansas public employees retirement fund. All employee and employer
contributions shall be deposited in the state treasury to be credited to the
Kansas public employees retirement fund. The fund is a trust fund and
shall be used solely for the exclusive purpose of providing benefits to
members and member beneficiaries and defraying reasonable expenses
of administering the fund. Investment income of the fund shall be added
or credited to the fund as provided by law. All benefits payable under the
system, refund of contributions and overpayments, purchases or invest-
ments under the law and expenses in connection with the system unless
otherwise provided by law shall be paid from the fund. The director of
accounts and reports is authorized to draw warrants on the state treasurer
and against such fund upon the filing in the director's office of proper
vouchers executed by the chairperson or the executive secretary director
of the board. As an alternative, payments from the fund may be made by
credits to the accounts of recipients of payments in banks, savings and
loan associations and credit unions. A payment shall be so made only upon
the written authorization and direction of the recipient of payment and
upon receipt of such authorization such payments shall be made in ac-
cordance therewith. Orders for payment of such claims may be contained
on (a) a letter, memorandum, telegram, computer printout or similar
writing, or (b) any form of communication, other than voice, which is
registered upon magnetic tape, disc or any other medium designed to
capture and contain in durable form conventional signals used for the
electronic communication of messages.

      (2) The board shall have the responsibility for the management of
the fund and shall discharge the board's duties with respect to the fund
solely in the interests of the members and beneficiaries of the system for
the exclusive purpose of providing benefits to members and such mem-
ber's beneficiaries and defraying reasonable expenses of administering
the fund and shall invest and reinvest moneys in the fund and acquire,
retain, manage, including the exercise of any voting rights and disposal of
investments of the fund within the limitations and according to the pow-
ers, duties and purposes as prescribed by this section.

      (3) Moneys in the fund shall be invested and reinvested to achieve
the investment objective which is preservation of the fund to provide
benefits to members and member beneficiaries, as provided by law and
accordingly providing that the moneys are as productive as possible, sub-
ject to the standards set forth in this act. No moneys in the fund shall be
invested or reinvested if the sole or primary investment objective is for
economic development or social purposes or objectives.

      (4) In investing and reinvesting moneys in the fund and in acquiring,
retaining, managing and disposing of investments of the fund, the board
shall exercise the judgment, care, skill, prudence and diligence under the
circumstances then prevailing, which persons of prudence, discretion and
intelligence acting in a like capacity and familiar with such matters would
use in the conduct of an enterprise of like character and with like aims
by diversifying the investments of the fund so as to minimize the risk of
large losses, unless under the circumstances it is clearly prudent not to
do so, and not in regard to speculation but in regard to the permanent
disposition of similar funds, considering the probable income as well as
the probable safety of their capital.

      (5) Notwithstanding subsection (4): (a) Total investments in common
stock may be made in the amount of up to 60% of the total book value
of the fund;

      (b) the board may invest or reinvest moneys of the fund in alternative
investments if the following conditions are satisfied:

      (i) The total of such alternative investments does not exceed more
than 5% of the total investment assets of the fund. If the total of such
alternative investments exceeds more than 5% of the total investment
assets of the fund on the effective date of this act, the board shall not
invest or reinvest any moneys of the fund in alternative investments until
the total of such alternative investments is less the 5% of the total in-
vestment assets of the fund subject to the 5% limitation contained in this
subsection. Nothing in this subsection requires the board to liquidate or
sell the system's holdings in any alternative investment held by the system
on the effective date of this act, unless such liquidation or sale would be
in the best interest of the members and beneficiaries of the system and
be prudent under the standards contained in this section. The 5% limi-
tation contained in this section shall not have been violated if the total of
such alternative investments exceeds 5% of the total investment assets of
the fund as a result of market forces acting to increase the value of such
alternative investments relative to the rest of the system's investments;
however, the board shall not invest or reinvest any moneys of the fund
in alternative investments until the total of such alternative investments
is less than 5% of the total investment assets of the fund subject to the
5% limitation contained in this subsection;

      (ii) if in addition to the system, there are at least two other sophisti-
cated investors, as defined by section 301 of the securities and exchange
act of 1933;

      (iii) the system's share in any individual alternative investment is lim-
ited to an investment representing not more than 20% of any such indi-
vidual alternative investment;

      (iv) the system has received a favorable and appropriate recommen-
dation from a qualified, independent expert in investment management
or analysis in that particular type of alternative investment;

      (v) the alternative investment is consistent with the system's invest-
ment policies and objectives as provided in subsection (6);

      (vi) the individual alternative investment does not exceed more than
2.5% of the total alternative investments made under this subsection. If
the alternative investment is made pursuant to participation by the system
in a multi-investor pool, the 2.5% limitation contained in this subsection
is applied to the underlying individual assets of such pool and not to
investment in the pool itself. The total of such alternative investments
made pursuant to participation by the system in any one individual multi-
investor pool shall not exceed more than 20% of the total of alternative
investments made by the system pursuant to this subsection. Nothing in
this subsection requires the board to liquidate or sell the system's holdings
in any alternative investments made pursuant to participation by the sys-
tem in any one individual multi-investor pool held by the system on the
effective date of this act, unless such liquidation or sale would be in the
best interest of the members and beneficiaries of the system and be pru-
dent under the standards contained in this section. The 20% limitation
contained in this subsection shall not have been violated if the total of
such investment in any one individual multi-investor pool exceeds 20%
of the total alternative investments of the fund as a result of market forces
acting to increase the value of such a multi-investor pool relative to the
rest of the system's alternative investments; however, the board shall not
invest or reinvest any moneys of the fund in any such individual multi-
investor pool until the value of such individual multi-investor pool is less
than 20% of the total alternative investments of the fund;

      (vii) the board has received and considered the investment manager's
due diligence findings submitted to the board as required by subsection
(6)(c); and

      (viii) prior to the time the alternative investment is made, the system
has in place procedures and systems to ensure that the investment is
properly monitored and investment performance is accurately measured.

      For purposes of this act, ``alternative investment'' means nontraditional
investments outside the established nationally recognized public stock
exchanges and government securities market. Alternative investments
shall include, but not be limited to, private placements, venture capital,
partnerships, limited partnerships and leveraged buyout partnerships; and

      (c) except as otherwise provided, the board may invest or reinvest
moneys of the fund in real estate investments if the following conditions
are satisfied:

      (i)  The system has received a favorable and appropriate recom-
mendation from a qualified, independent expert in investment manage-
ment or analysis in that particular type of real estate investment;

      (ii) the real estate investment is consistent with the system's invest-
ment policies and objectives as provided in subsection (6); and

      (iii) the board has received and considered the investment manager's
due diligence findings submitted to the board as required by subsection
(6)(c).

      (6) Subject to the objective set forth in subsection (3) and the stan-
dards set forth in subsections (4) and (5) the board shall formulate policies
and objectives for the investment and reinvestment of moneys in the fund
and the acquisition, retention, management and disposition of invest-
ments of the fund. Such policies and objectives shall include:

      (a) Specific asset allocation standards and objectives;

      (b) establishment of criteria for evaluating the risk versus the poten-
tial return on a particular investment;

      (c) a requirement that all investment managers submit such man-
ager's due diligence findings on each investment to the board or invest-
ment advisory committee for approval or rejection prior to making any
alternative investment;

      (d) a requirement that all investment managers shall immediately re-
port all instances of default on investments to the board and provide the
board with recommendations and options, including, but not limited to,
curing the default or withdrawal from the investment; and

      (e) establishment of criteria that would be used as a guideline for
determining when no additional add-on investments or reinvestments
would be made and when the investment would be liquidated.

      The board shall review such policies and objectives, make changes con-
sidered necessary or desirable and readopt such policies and objectives
on an annual basis.

      (7) The board may enter into contracts with one or more persons whom
the board determines to be qualified, whereby the persons undertake to
perform the functions specified in subsection (2) to the extent provided in
the contract. Performance of functions under contract so entered into shall
be paid pursuant to rates fixed by the board subject to provisions of appro-
priation acts and shall be based on specific contractual fee arrangements.
The system shall not pay or reimburse any expenses of persons contracted
with pursuant to this subsection, except that after approval of the board,
the system may pay approved investment related expenses subject to pro-
visions of appropriation acts. The board shall require that a person con-
tracted with to obtain commercial insurance which provides for errors and
omissions coverage for such person in an amount to be specified by the
board, provided that such coverage shall be at least the greater of $500,000
or 1% of the funds entrusted to such person up to a maximum of
$10,000,000. The board shall require a person contracted with to give a
fidelity bond in a penal sum as may be fixed by law or, if not so fixed, as
may be fixed by the board, with corporate surety authorized to do business
in this state. Such persons contracted with the board pursuant to this sub-
section and any persons contracted with such persons to perform the func-
tions specified in subsection (2) shall be deemed to be agents of the board
and the system in the performance of contractual obligations.

      (8)  (a) In the acquisition or disposition of securities, the board may
rely on the written legal opinion of a reputable bond attorney or attorneys,
the written opinion of the attorney of the investment counselor or man-
agers, or the written opinion of the attorney general certifying the legality
of the securities.

      (b) The board shall employ or retain qualified investment counsel or
counselors or may negotiate with a trust company to assist and advise in
the judicious investment of funds as herein provided.

      (9)  (a) Except as provided in subsection (7) and this subsection, the
custody of money and securities of the fund shall remain in the custody
of the state treasurer, except that the board may arrange for the custody
of such money and securities as it considers advisable with one or more
member banks or trust companies of the federal reserve system or with
one or more banks in the state of Kansas, or both, to be held in safe-
keeping by the banks or trust companies for the collection of the principal
and interest or other income or of the proceeds of sale. The services
provided by the banks or trust companies shall be paid pursuant to rates
fixed by the board subject to provisions of appropriation acts.

      (b) The state treasurer and the board shall collect the principal and
interest or other income of investments or the proceeds of sale of secu-
rities in the custody of the state treasurer and pay same when so collected
into the fund.

      (c) The principal and interest or other income or the proceeds of sale
of securities as provided in clause (a) of this subsection (9) shall be re-
ported to the state treasurer and the board and credited to the fund.

      (10) The board shall with the advice of the director of accounts and
reports establish the requirements and procedure for reporting any and
all activity relating to investment functions provided for in this act in order
to prepare a record monthly of the investment income and changes made
during the preceding month. The record will reflect a detailed summary
of investment, reinvestment, purchase, sale and exchange transactions
and such other information as the board may consider advisable to reflect
a true accounting of the investment activity of the fund.

      (11) The board shall provide for an examination of the investment
program annually. The examination shall include an evaluation of current
investment policies and practices and of specific investments of the fund
in relation to the objective set forth in subsection (3), the standard set
forth in subsection (4) and other criteria as may be appropriate, and rec-
ommendations relating to the fund investment policies and practices and
to specific investments of the fund as are considered necessary or desir-
able. The board shall include in its annual report to the governor as pro-
vided in K.S.A. 74-4907, and amendments thereto, a report or a summary
thereof covering the investments of the fund.

      (12)  (a) An annual financial-compliance audit of the system, includ-
ing any performance audit subjects which are directed to be included in
such annual audit by the legislative post audit committee, performance
audits of the system as prescribed under the Kansas governmental op-
erations law, and such other audits as are directed by the legislative post
audit committee under the Kansas legislative post audit act shall be con-
ducted. The annual financial-compliance audit shall include, but not be
limited to, a review of alternative investments of the system with any
estimates of permanent impairments to the value of such alternative in-
vestments reported by the system pursuant to K.S.A. 74-4907, and
amendments thereto.

      (b) In accordance with this subsection (12), the annual financial-com-
pliance audit may include one or more performance audit subjects as di-
rected by the legislative post audit committee. In considering performance
audit subjects to be included in any financial-compliance audit conducted
pursuant to this subsection (12), the legislative post audit committee shall
consider recommendations and requests for performance audits, relating to
the system or the management thereof, by the joint committee on pensions,
investments and benefits or by any other committee or individual member
of the legislature. Commencing with the financial-compliance audit for the
fiscal year ending June 30, 1998, the legislative post audit committee shall
specify if one or more performance audit subjects shall be included in the
financial-compliance audit conducted pursuant to this subsection (12), in
addition to such other subjects as may be directed to be included in the
financial-compliance audit by the legislative post audit committee. Except
as otherwise determined by the legislative post audit committee pursuant
to this subsection (12), commencing with the financial-compliance audit for
the fiscal year ending June 30, 1998, one or more performance audit sub-
jects specified by the legislative post audit committee shall be included at
least once every two fiscal years in a financial-compliance audit conducted
pursuant to this subsection (12). The legislative post audit committee may
direct that one or more performance audit subjects are to be included in a
financial-compliance audit conducted pursuant to this subsection (12) not
more than once during a specific period of three fiscal years, in lieu of once
every two fiscal years.

      (c) The auditor to conduct the financial-compliance audit required pur-
suant to this subsection (12) shall be specified in accordance with K.S.A.
46-1122, and amendments thereto. If the legislative post audit committee
specifies under such statute that a firm, as defined by K.S.A. 46-1112, and
amendments thereto, is to perform all or part of the audit work of such
audit, such firm shall be selected and shall perform such audit work as
provided in K.S.A. 46-1123, and amendments thereto, and K.S.A. 46-1125
through 46-1127, and amendments thereto. The audits required pursuant
to this subsection (12) shall be conducted in accordance with generally ac-
cepted governmental auditing standards. The financial-compliance audit re-
quired pursuant to this subsection (12) shall be conducted as soon after the
close of the fiscal year as practicable, but shall be completed no later than
six months after the close of the fiscal year. The post auditor shall annually
compute the reasonably anticipated cost of providing the financial-compli-
ance audit pursuant to this subsection (12), subject to review and approval
by the contract audit committee established by K.S.A. 46-1120, and amend-
ments thereto. Upon such approval, the system shall reimburse the division
of post audit for the amount approved by the contract audit committee.
The furnishing of the financial-compliance audit pursuant to this subsection
(12) shall be a transaction between the legislative post auditor and the sys-
tem and shall be settled in accordance with the provisions of K.S.A. 75-
5516, and amendments thereto.

      (d) Any internal assessment or examination of alternative investments
of the system performed by any person or entity employed or retained
by the board which evaluates or monitors the performance of alternative
investments shall be reported to the legislative post auditor so that such
report may be reviewed in accordance with the annual financial-compli-
ance audits conducted pursuant to this subsection (12). 
Sec.  9. K.S.A. 2001 Supp. 19-2881c, 65-171d, 65-171z, 72-979, 72-
979a, 74-3256, 74-3256a, 74-3267a, 74-3267b, 74-3298, 74-3298a, 74-
32,107, 74-32,107a, 74-32,138, 74-32,138a, 74-4921 and 74-4921b are
hereby repealed.
 Sec.  10. This act shall take effect and be in force from and after its
publication in the statute book.

Approved May 29, 2002.
__________