| STRS Ohio Legislative Update
April 2008
 Print a copy of the March newsletter.
Print a copy of the April newsletter.
Showdown at the Broad Street Corral
A very interesting scenario is playing out on Capitol Square. The somewhat unlikely team comprised of the Legislature and the administration is squaring off against the Ohio Tobacco Prevention Foundation (OTPF) and its backers. OTPF was formed following the cash infusion to the state almost a decade ago from a multistate legal settlement. The big tobacco companies paid the states for legal costs incurred from health care-related expenses paid via the state’s Medicaid program. OTPF was one of a handful of entities to which the state appropriated monies from the settlement. In the ensuing years, it was not uncommon to read where the Legislature was borrowing money from the OTPF for various purposes. However, the most recent move must have been the proverbial straw that broke Joe Camel’s back.
In early April the Legislature, along with the administration, announced the creation of a jobs stimulus plan for the state tagged at $1.57 billion. An estimated $230 million of this amount is slated to come from the OTPF, which would leave the foundation with approximately $30 million. Following the announcement made by legislative leaders and the governor to include the tobacco money as part of the stimulus package, the OTPF put in motion efforts to transfer the funds to a third party. However, state Treasurer Richard Cordray, whose office has custodial powers over the money, denied the transfer request. On April 8 the House and Senate amended an unrelated piece of legislation to transfer the money from the OTPF to the jobs fund. The passage of the legislation, with the emergency clause attached, was signed by the governor at 3 p.m. that afternoon and would have gone into effect immediately had OTPF not gone to court to block the transfer. As of this writing, the judge put a two-week hold on proceedings and ordered that the funds remain in the possession of the state treasurer’s office, but prohibited any movement of the $230 million in question. The judge set a hearing date of April 24.
ORSC Presented With Semiannual Investment Review
At its most recent meeting on April 9, the Ohio Retirement Study Council (ORSC) was presented with the semiannual investment review of the state’s five public pension funds. A representative of Evaluation Associates, the firm hired by ORSC to perform such reviews, said investors should be prepared for returns that are lower than the double-digit returns recorded by a number of the systems in recent years.
Notwithstanding the tough market in which the systems are invested, including events in the subprime mortgage sector, it was reported that for the six-month reporting period, all five systems were still able to garner positive results. The top return for the second half of 2007 was recorded by the Ohio Public Employees Retirement System health care fund at 2.06%, followed by STRS Ohio’s 1.99% return. Only STRS Ohio, with a 0.46% difference, and Ohio Police & Fire Pension Fund, with a 0.06% difference, outperformed their policy benchmarks. Over the longer term — three, five and 10 years — STRS Ohio outperformed the other systems.
Statewide Board Studying Ways to Share Health Information
As reported last month, Gov. Strickland established the Health Information Partnership Advisory Board in 2007 to determine ways that information sharing among health care providers can assist in early detection and disease prevention efforts. The group, consisting of insurers, medical providers, hospitals and state officials, met for the first time in mid-March. Its efforts are aimed at improving the free flow of medical records and other health care information among the different groups that sometimes find themselves at odds. During the inaugural meeting, board members formed subcommittees and discussed their charge. According to staff for the board, the key aspect of this is to bring in the private sector to articulate what it sees as needed to foster the use of technology.
In Washington, STRS Ohio has been involved through its participation in the Public Sector HeathCare Roundtable in advocating for increased use of information technology among providers to save both lives and money. To date, those efforts have not generated any results. Although the legislation is generally well received on Capitol Hill, there are groups who argue these bills have not done enough to protect patient privacy.
Bills at the Ohio Statehouse
House Bill 315
Rep. Scott Oelslager (R-North Canton), the sponsor of H.B. 315, has scheduled a meeting with key stakeholders interested in the legislation. H.B. 315 is the bill creating a dedicated revenue stream for the STRS Ohio Health Care Program. The proposal would increase contributions from active STRS Ohio members and their employers by a total of 5%, with the increases phased in over a five-year period. STRS Ohio and other advocate groups anticipate a series of meetings with interested parties over the course of the spring and summer. The bill was introduced in September 2007.
House Bill 270
Legislation designed to prevent active members from returning to their former positions immediately following retirement is likely to be on the agenda of the House Financial Institutions, Real Estate and Securities Committee this spring, according to the sponsor of H.B. 270, Rep. Michelle Schneider (R-Madiera). STRS Ohio has not taken a position on the primary purpose of the legislation. However, the system is seeking several amendments to the bill, mostly technical in nature, that have been outlined in past newsletters. The Ohio School Boards Association and the Ohio Association of School Business Officials have testified in opposition to the bill. H.B. 270 has been reviewed by the Ohio Retirement Study Council, which recommended its passage to the Legislature.
House Bill 433
A bill to reduce the tax liability of individuals collecting a benefit from any of the state’s retirement systems was heard before the House Ways and Means Committee on April 9. H.B. 433, sponsored by Rep. Jim Zehringer (R-Ft. Recovery) allows benefit recipients to deduct up to $10,000 in retirement benefits from their Ohio taxes to the extent they are included in the taxpayer’s federal adjusted gross income. The bill calls for the gradual phase-in of a $10,000 limit by starting at $2,000 and adding to the amount in $2,000 increments in each of the following years. The bill also delays the effective date of the bill until 2010. Finally, the bill stipulates that if the retirement benefits were deducted in deriving the taxpayer’s federal adjusted gross income, beneficiaries would be ineligible for deduction on the state return. In a letter of support from the Ohio Retired Teachers Association, the group noted that the proposed tax exemption would provide an “appropriate and most appreciated adjustment” as retirees must rely primarily on their public pensions due to Social Security offset provisions.
Senate Bill 168
S.B. 168, sponsored by Sen. Dale Miller (D-Cleveland), establishes the Ohio Health Care Plan to provide universal health care coverage to all Ohio residents. The bill establishes the Ohio Health Care Board and Ohio Health Care Agency to develop and administer all aspects of the program. Funding for the program would come from general revenue of the state; other federal, state and local government sources; taxes levied on employer payrolls at 3.8%; and additional income taxes. The bill will receive its first hearing in the Senate Health, Human Services and Aging Committee during the week of April 14.
Events on Capitol Hill
U.S. House and Senate Pass Budget Resolutions
Before going on spring break, both houses of Congress passed their respective budget resolutions. The Senate’s vehicle is Senate Concurrent Resolution 70 and the House measure is House Concurrent Resolution 312. According to national press reports, there are only minor differences between the two, but those differences still need to be worked out in conference committee.
The resolutions are essentially a blueprint for future appropriations made via the 12 annual spending bills. Given the political climate on Capitol Hill, it is projected that Democrats will either delay action on the appropriations bills until after the November elections or perhaps even as late as the inauguration in January. The wait seems assured, as the president has indicated he will veto appropriations beyond his $3 trillion mark. Both the House and Senate resolutions exceed that standard — the House by $25.4 billion and the Senate by $21.8 billion.
As the Senate and House prepared to vote on their respective resolutions last month, all three major presidential candidates were on hand to cast their votes. All three voted for an amendment to adopt a one-year moratorium on earmarks. Though the amendment, which was offered in both the House and Senate, was hotly debated, it was ultimately defeated.
To date, the conference committee has not finalized a compromise measure.
House Panel Passes Bill Authorizing Tobacco Regulation
While anti-tobacco advocates were fending off the Ohio Legislature as it attempted to reappropriate money from the Ohio Tobacco Prevention Foundation, they were scoring a victory of sorts in Washington as the House Energy and Commerce Committee voted to require the Food and Drug Administration (FDA) to regulate tobacco products. H.R. 1108, sponsored by Rep. Henry Waxman (D-CA), would require the FDA to regulate tobacco companies’ marketing practices, evaluate product claims, control the amount of nicotine in products and dictate warning labels. It prohibits the FDA from banning tobacco.
According to Congressional Quarterly, the bill is the result of negotiations between lawmakers seeking regulation and Philip Morris, USA. Smaller tobacco companies oppose the legislation, arguing that it creates a monopoly for the largest cigarette-maker in the country, who can easily afford the costs associated with regulation. The bill was passed in full committee by a vote of 38-12. The bill has among its co-sponsors five members of the Ohio delegation: Reps. Dennis Kucinich (D-Cleveland), Deborah Pryce (R-Upper Arlington), Patrick Tiberi (R-Galena), Stephanie Tubbs Jones (D-Cleveland) and Betty Sutton (D-Copley).
Cuts in Medicare Payments Looming
Unless Congress acts in the next few weeks, a 10.6% payment cut will take effect in June for Medicare payments to doctors. Deeper cuts will follow in 2009 and beyond.
Senate Finance Chair Max Baucus (D-Mt) is proposing to block the scheduled rate cuts for 18 months. He may try to go beyond that and provide a 1.1% boost in physician payments if lawmakers can agree on a way to offset the cost.
Legislation in California Gives Private Sector Access to CalPERS
A bill has been introduced in the California Legislature to allow private sector workers who have no access to retirement vehicles through their employer to invest earnings in the California Public Employees’ Retirement System (CalPERS), one of the largest pension funds in the world. The bill would also permit small employers to offer pension fund participation to their employees. Assembly Bill 2940, sponsored by Assemblyman Kevin De Leon (D-Los Angeles), calls for CalPERS to offer IRA accounts to workers in need of a retirement plan. In recent action on the bill, the Committee on Public Employees, Retirement and Social Security passed the bill by a 4-1 vote. (The committee has six members).
Though the bill has the backing of Gov. Arnold Schwarzenegger, there are members of the Assembly who are concerned about its impact on private companies that offer retirement products and about the state’s potential liability. Supporters indicate the concept has been in discussion for almost a decade. It is being offered now because the private sector hasn’t shown any interest in working with small employers to bring products to their workers. CalPERS has not yet said where it stands on the bill and the CalPERS board is not expected to discuss it until May at the earliest.
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