Brief⁽¹⁾

H.B. 2558, as amended, concerns tobacco settlement payments and would establish the framework by which payments would be invested and spent. The bill would provide for a trust fund overseen by a board of trustees and would create the Kansas Children's Cabinet. The Kansas Children's Cabinet would make recommendations to the Governor and the Legislature concerning the expenditure of tobacco money for children's programs and services and would replace the existing Advisory Committee on Children and Families with regard to approving expenditures from the Family and Children Trust Account in the Family and Children Investment Fund. Major components of the bill are as follows:

Kansas Endowment for Youth Fund Established. The Kansas Endowment for Youth (KEY) Fund would be established and would be invested, managed, and administered by the Kansas Endowment for Youth Board of Trustees, which would be created by the bill. (The existing Kansas Endowment for Youth Trust Fund would be renamed the "Kansas Juvenile Delinquency Prevention Trust Fund.") All money received by the state as the result of the Master Settlement Agreement entered into by the Attorney General on November 20, 1998, would be credited to the KEY Fund. The money would remain in the Fund, except for transfers authorized by the bill.

Money in the Fund would be invested to provide an ongoing source of earnings available for periodic transfers to the Children's Initiatives Fund, which would be created by the bill. On the effective date of the act (publication in the statute book), all money in the Children's Health Care Programs Fund (the existing fund into which half of the tobacco payments must be credited) would be transferred to the KEY Fund. The Children's Health Care Programs Fund would be abolished.

Kansas Endowment for Youth Board of Trustees Created. The Kansas Endowment for Youth Board of Trustees would be created to oversee the KEY Fund and would be attached to the Office of the State Treasurer for administrative purposes. The Board would be composed of the State Treasurer, who would serve as chair, and eight additional members (four appointed by the Governor and one each appointed by the House Speaker, Senate President, House Minority Leader, and Senate Minority Leader) who have at least five years of demonstrated experience in finance or investments, in working for a foundation in an investment management or analysis capacity, or as a trust officer. No member of the Board could be a member of the Legislature. The appointed members would serve four-year staggered terms and the members appointed by the Governor would be subject to Senate confirmation. No more than three of the Governor's appointees could be from the same political party. A conflict of interest provision would prevent a person from being a member of the Board if the person or that person's spouse had a substantial interest in any nonpublicly traded investment made with moneys of the KEY Fund. A member of the Board also would be prohibited from being employed for two years following the date the person no longer served on the Board by any organization in which money from the KEY Fund were invested unless the organization's stock or other evidences of ownership were traded on the public stock or bond exchanges.

Duties of the Kansas Endowment for Youth Board of Trustees. The Kansas Endowment for Youth Board of Trustees would be responsible for managing and investing the KEY Fund in order to provide benefits to the beneficiaries of the Fund and to make the money as productive as possible. The Board of Trustees also would become the manager of the Family and Children Endowment Account in the Family and Children Investment Fund, a currently-existing fund that is managed by the Pooled Money Investment Board. The Trustees would have authority to contract for the services of professional investment advisors or other consultants and could, by agreement with the Board of Trustees of the Kansas Public Employees Retirement System (KPERS), contract with KPERS to assist by advising, consulting, or investing the assets of the KEY Fund. Any advisor or consultant, other than KPERS, would be required to obtain commercial errors and omissions insurance coverage in an amount specified by the Board of Trustees, within limits set forth in the bill, and also would be required to give a fidelity bond.

The Board of Trustees would be required annually to adopt a written statement of its policies and objectives that would include specific asset allocation standards and objectives, criteria for evaluating the risk versus the potential return on a particular investment, and a requirement that all investment advisors or managers immediately report all instances of default on investments to the KEY Fund Board of Trustees, along with recommended options to cure the default or withdrawal from the investment. Money in the KEY Fund and in the Family and Children Endowment Account in the Family and Children Investment Fund would be in the custody of the State Treasurer or in banks or trust companies that are members of the federal reserve system or with Kansas banks. Principal and interest or other income from investments would be collected into the state treasury and credited to the KEY Fund and to the Family and Children Endowment Account, as appropriate. Management fees for the respective funds would be paid for from the funds.

The KEY Board of Trustees would be required to make a report at least quarterly, or monthly upon the request of the Governor, the Senate President, or the House Speaker, on the investment earnings on moneys in the KEY Fund. In addition, the Board of Trustees would have to submit a report on or before October 1 each year to the Director of the Budget, the Director of the Legislative Research Department, and the chairs of the Senate Committee on Ways and Means and the House Committee on Appropriations on the Board's estimates as to the amount of money that would be available in the KEY Fund to transfer to the Children's Initiatives Fund, which would be created by the bill.

Children's Initiatives Fund Created. The Children's Initiatives Fund would be created and would be the fund from which expenditures for children's programs would be made. The revenue source of the Fund would be transfers from the KEY Fund. Expenditures from the Children's Initiatives Fund would be to provide additional funding for programs, projects, improvements, services, and other purposes directly or indirectly beneficial to the physical and mental health, welfare, safety, and overall well-being of children in Kansas. Programs funded would have to demonstrate that the program's design is supported by credible research, that the program as implemented will constitute best practices in the field, that data are available to measure the program's desired outcomes, and that there is an evaluation and assessment component of the program. Community-based programs would have to demonstrate the availability of sufficient community leadership and capacity to appropriately implement and administer the program. Money spent from the Children's Initiatives Fund could not be used to replace or substitute for money appropriated from the State General Fund or from other special revenue funds. Expenditures from the Children's Initiatives Fund would be by appropriation act of the Legislature.

Kansas Children's Cabinet Created. The Kansas Children's Cabinet would be created to make recommendations to the Governor and to the Legislature concerning expenditures from the Children's Initiatives Fund and to approve expenditures from the Family and Children Trust Account in the Family and Children Investment Fund. In the latter capacity, it would replace the Advisory Committee on Children and Families, which would be abolished by the bill. The Kansas Children's Cabinet would be attached to the Department of Social and Rehabilitation Services for administrative purposes. The 15-member Cabinet would be comprised of six nonvoting ex officio members or their designees; five public members appointed by the Governor, including one member designated by the Governor as chair; and four appointees of the Legislature (one each appointed by the Senate President, the House Speaker, the Senate Minority Leader, and the House Minority Leader). Ex officio members would be the Secretary of Health and Environment, the Secretary of Social and Rehabilitation Services, a member of the Board of Regents, the Commissioner of Education, the Commissioner of Juvenile Justice, and a justice of the Supreme Court. Appointed members would serve four-year staggered terms. No more than three of the Governor's appointees could be from the same political party. A conflict of interest provision would prohibit appointed members from having a substantial interest in any organization that received funding for a program or project from the Children's Initiatives Fund.

Duties of the Cabinet with regard to expenditures from the Children's Initiatives Fund include making recommendations to the Governor and the Legislature on which programs, projects, improvements, and services should be funded in order to benefit children. Recommendations of the Cabinet would be submitted to the Governor by October 1 of each year so that the Governor could consider the recommendation in preparation of the Governor's budget recommendations to the Legislature. The recommendations of the Cabinet also would have to be submitted to the Legislature by the beginning of each session. With regard to expenditures from the Family and Children Trust Account in the Family and Children Investment Fund, the Cabinet would approve programs and projects to be funded from the Fund. Purposes for which expenditures from the Fund could be made include matching federal money to purchase services relating to community-based programs for child abuse and neglect prevention activities and providing grants for community-based prevention projects for child abuse and neglect prevention activities. Duties involving the Family and Children Trust Account would be the same as those presently performed by the Advisory Committee on Children and Families.

Performance Audits and Research Activities Provided For. In order to review, assess, and evaluate uses of the money in the Children's Initiatives Fund, the Kansas Children's Cabinet would be required to conduct studies, assessments, and evaluations by contract or other arrangement with institutions of higher education and other appropriate research entities in order to identify best practices and to measure program outcomes. The cost of these reviews and evaluations would be paid for from the Children's Initiatives Accountability Fund, which would be established by the bill. Revenues to the Fund would be transfers from the Children's Initiatives Fund. In addition, the Legislative Division of Post Audit, or an outside firm under contract to the Post Auditor, would be required to do a performance audit upon the request of the Cabinet in order to identify best practices and generally to evaluate the efficiency and efficacy of programs funded from the Children's Initiatives Fund. The audits would be paid for from the Children's Initiatives Accountability Fund.

Transfers Would Be Made. On July 1, 1999, or as soon as money is available, the Director of Accounts and Reports would transfer $5.0 million from the KEY Fund to the Family and Children Endowment Account in the Family and Children Investment Fund. The Family and Children Endowment Account currently is administered by the Secretary of Social and Rehabilitation Services and is managed by the Pooled Money Investment Board. It serves primarily to match federal funds and is an endowment fund whose interest earnings help fund programs approved by the Advisory Committee on Children and Families. Under H.B. 2558, it would be administered by the KEY Board of Trustees and would continue to provide interest earnings in support of programs funded from the Family and Children Trust Account in the Family and Children Investment Fund. Also on July 1, 1999, a transfer would be made from the State General Fund to the KEY Fund in the amount of $20,740,000 so that expenditures could be made for children's programs and projects before tobacco payments are received by the state. As soon after July 1, 1999, as tobacco money is available in the KEY Fund, the Director of Accounts and Reports would transfer $20,740,000 back to the State General Fund to repay the loan. (The loan most likely would not be paid back until FY 2001.) In addition, on July 1, 1999, or as soon as money is available, the Director of Accounts and Reports would transfer $30.0 million from the KEY Fund to the Children's Initiatives Fund. This transfer, which would be revenues from tobacco payments, would take place in FY 2001. In FY 2002, the amount of the transfer would increase to $40.0 million. In FY 2003, the transfer would be $45.0 million. Except for provisions in the bill that address the possibility that tobacco payments may be less than anticipated, a similar transfer would be made each year in an amount that is an increase of 2.5 percent over the prior year.

Background

H.B. 2558 is the product of the House Select Committee on Tobacco Settlement Funds and is the Select Committee's plan for investing tobacco settlement payments so that programs and services for children can be funded with interest earnings in perpetuity. Money from the tobacco settlement for FY 1999 currently is in escrow and probably will not be received by the state until the first week in FY 2001. That money would be put into the trust fund that would be created by H.B. 2558 (the KEY Fund), from which transfers would be made to the Children's Initiatives Fund for children's programs.

The recommendation to make the Kansas Children's Cabinet responsible for duties currently performed by the Advisory Committee on Children and Families would consolidate similar activities related to programs and services for children under one umbrella.

The amendments made by the House Committee of the Whole were technical.

1. *Supplemental notes are prepared by the Legislative Research Department and do not express legislative intent. The supplemental note and fiscal note for this bill may be accessed on the Internet at http://www.ink.org/public/legislative/bill_search.html