Opinion
Opinion By: Jack Conway, Attorney General; Michelle D. Harrison, Assistant Attorney General; Amye L. Bensenhaver, Assistant Attorney General
Open Records Decision
At issue in this appeal is whether the Kentucky Consumer Advocate Network violated the Kentucky Open Records Act in denying Rita Brooks' February 2, 2010, request for specified contracts, employee and volunteer salary information, minutes of KYCAN Board meetings, budgetary records and other financial information. Specifically, the question presented is whether KYCAN is a "public agency" within the meaning of KRS 61.870(1). KYCAN derives "approximately 70%" of its budget from a federal block grant administered by the Cabinet for Health and Family Services, Department for Behavioral Health, Developmental and Intellectual Disabilities. Although funding derived from the grant is federally "born," it "comes of age" as state funding when it is deposited into the State Treasury and appropriated by the General Assembly to the Department per Section 230 of the Kentucky Constitution. KYCAN then receives the funding by virtue of its contract with the Department. This funding retains its state character when allocated to KYCAN under its contract with the Department, and it "matures" with continuing state oversight per KRS Chapter 45. Accordingly, this office finds that KYCAN derives at least 25% of the funds it expends in the Commonwealth from state authority funds, and is therefore a "public agency" within the meaning of KRS 61.870(1)(h). 1
By letter dated February 16, 2010, Don Meade advised Ms. Brooks that his law firm, Priddy, Cutler, Miller & Meade, represents KYCAN, and "respectfully declines your request to inspect any of its records." Noting that KYCAN "is a private non-profit corporation that derives virtually all of its funding from federal grants[,]" Mr. Meade asserted that KYCAN "is not considered a public entity under state law and is not subject to the Open Records statute." By letter dated February 19, Mr. Meade reiterated his client's position "that KYCAN is not subject" to the Open Records Act without further explanation. Upon receiving notification of Ms. Brooks' February 12 appeal, Mr. Meade supplemented his response by providing a letter from Executive Director Doreen Mills, Ph.D., "confirming that there are no state or local funds used to operate KYCAN programs." According to Mr. Meade, in the absence of "at least 25% state or local funds, this non-profit agency cannot be held subject" to the Act.
In her March 1, 2010, letter, Ms. Mills advised that "KYCAN is funded partially by a Federal Block Grant through the Kentucky Department for Behavioral Health, Developmental and Intellectual Disabilities (approximately 70% of our budget) ." Ms. Mills further advised that KYCAN was "awarded a 3 year Federal SAMHSA Grant expanding our services (approximately 25% of our budget) [, which] ends October 1, 2010." A "small portion" of KYCAN's budget "comes from other Federal Grants for KYCAN's Olmstead work (approximately 4%)," Ms. Mills continued, and it receives "specific donations" for its "conference and other peer support services (less than 1% of our budget) ." According to Ms. Mills, KYCAN "does not receive any state or local funding. " KYCAN did not include any supporting documentation with its response.
Unable to resolve the question of whether KYCAN is a "public agency" within the meaning of KRS 61.870(1)(h) based upon the limited evidence presented, this office asked Mr. Meade, pursuant to KRS 61.880(2)(c) and 40 KAR 1:030, Section 3, to provide us with additional records and information to facilitate a resolution of this matter, including a copy of the referenced federal block grant. In his March 16, 2010, response, Mr. Meade declined to comply. In his view, KYCAN "provided sufficient evidence, by way of the letter" from Ms. Mills indicating "that there is no state or local funding involved in its program." Mr. Meade argued that KRS 61.870(1)(h) is unconstitutional as it is "vague, contains no standards for measurement of such funding and has been held to be unconstitutional by at least one circuit court." 2 Mr. Meade did attach a letter from a representative of the CHFS, indicating that "contractual funds" KYCAN receives from the Department are derived from the Community Mental Health Services Block Grant, CFDA No. 93.958.
It is stipulated that the funding at issue was federal in origin. Resolution of this appeal turns on whether the block grant funds obtained from the Department, which constitute "approximately 70%" of KYCAN's budget, can properly be characterized as "state or local funds" within the meaning of KRS 61.870(1)(h) by virtue of the fact that said funds are deposited into the State Treasury upon receipt, cannot be expended until appropriated by the General Assembly per Section 230 of the Kentucky Constitution, and undergo continuing state oversight by the Legislative Research Commission per KRS Chapter 45 and by the "state administering agency [the Department]" pursuant to its contract with KYCAN. 3 If so, KYCAN satisfies the statutory threshold of 25% and is a "public agency" whose records are publicly accessible to the extent of this funding. KRS 61.870(2). 4
KRS 45.244 and 45.251(1), "indicate that there shall be no expenditure of state funds unless authorized by an appropriation of the General Assembly, and even then the expenditure shall be limited to the amounts and purposes for which the appropriations have been made." OAG 85-132, p. 2. More recently, the Attorney General analyzed Section 230 of the Kentucky Constitution, which provides that "'no money shall be drawn from the State Treasury, except in pursuance of appropriations made by law.'" This office noted that Section 230 was strictly construed by the
Kentucky Supreme Court in Fletcher v. Commonwealth of Kentucky, 163 S.W.3d 852, 868 (Ky. 2005), which held that "'absent a statutory, constitutional, or valid federal mandate, Section 230 precludes the withdrawal of funds from the state treasury except pursuant to a specific appropriation by the General Assembly.'" OAG 05-005, p. 1. Federal block grants are no exception to this rule. A review of KRS Chapter 45, entitled "Budget and Financial Administration," and KRS 45.351 to 45.359, relating to "Federal Block Grants" is essential to understanding the extent of state oversight involved with administration of such grants.
As used in KRS 45.351 to 45.359, a "Block grant" is "any federal block grant authorized by the federal Omnibus Budget Reconciliation Act of 1981 (P.L. 97-35) . . ." Pursuant to KRS 45.351(1) , " [e]very state administering agency shall submit any block grant application for the following fiscal year to the Legislative Research Commission no less than ninety (90) days prior to the date of submission, as required by federal law," of the application "to the federal administering agency or no less than ninety (90) days before the state administering agency elects to submit" the application "to the federal administering agency." (Emphasis added.) KRS 45.351(2) requires that "[e]ach state administering agency shall, upon request of the Commission, make available to the Commission all background data and supporting information related to each block grant application under review by the Commission as will enable the Commission to perform its functions in an informed and efficient manner." In addition, each application submitted by the state administering agency to the Commission, per KRS 45.351(3), "shall specify the proposed use and distribution of the block grant and other funds to be allocated by the state administering agency to programs and services," as well as the detailed information identified at subsections (a)(programmatic requirements applicable to receipt and expenditures of such funds and restrictions imposed on their use), (b)(whether the block grant funds included in the application have been " included specifically in an appropriation provision or any branch budget bill enacted by the General Assembly in anticipation of such application" ), and (c)-(n). (Emphasis added.)
In relevant part, KRS 45.3511 provides:
(2) No state administering agency shall receive or expend any block grant or other funds included in a block grant application to a federal administering agency, which has not previously been specifically approved as a block grant by the General Assembly in the biennial budget process as having complied with the criteria specified in KRS 45.353, unless the application is found to be in compliance with the standards and criteria as prescribed in KRS 45.353, as well as the applicable federal and state laws.
(Emphasis added.) KRS 45.352 requires the Commission to provide for a public hearing on each block grant application, "no later than sixty (60) days prior" to submission of the application to the federal administering agency. Those hearings and the deliberations of the Commission "pursuant to KRS 45.351 to 45.359 shall be electronically recorded" and the "recordings shall constitute a public record."
As indicated, KRS 45.353 contains the review standards and criteria; subsection (1) first requires that the "Commission shall refer each block grant application to the designated review body for review and consideration." 5 The "designated review body" must assess the criteria set forth at KRS 45.353(2)(a)-(h) when reviewing a block grant application, and "shall make an affirmative finding of fact" regarding those criteria. Significantly, except as provided in subsection (b), the body must ensure that " block grant and other funds specified in the application have been included in an appropriation provision or any branch budget bill enacted by the General Assembly in anticipation of such application[.]" KRS 45.353(2)(a) (emphasis added).
Pursuant to KRS 45.357(1) , the Commission or its designated review body "shall review the actual use and distribution of all block grant funds made available during the preceding year to any state administering agency." The state administering agency is required to submit a "Block Grant Program Status Report" to the Commission per KRS 45.357(2), identifying for the "programs and services provided under each block grant for the preceding six (6) months" the items listed at 45.357(a)-(f), including "[a]ppropriations, allotments, expenditures, encumbrances," and the available balance, the "level of services budgeted, defined in terms of objectives and beneficiaries," and the "level of services delivered during the period." KRS 45.357(4) also specifically authorizes the Commission staff to "independently investigate and audit" matters relating to "application for and expenditure of federal block grant and other funds included in any block grant program administered by any state administering agency." Likewise, the Commission or its designated review body "shall be authorized to subpoena any reports or records or documents" from a state agency "for the purposes of investigating or auditing" such programs. KRS 45.357(5).
These statutory provisions evidence a clear legislative intent for the state to retain control over the appropriated funds. To begin, a state administering agency "cannot receive or expend any block grant" which has not previously been "specifically approved as a block grant by the General Assembly." KRS 45.3511. In sum, the oversight role of the state begins with a thorough review of the application by the LRC at least 90 days prior to submission of the application by the state administering agency to the federal administering agency to ensure compliance with designated standards and criteria. It also includes a public hearing by the LRC no later than 60 days prior to submission, and continues with regular monitoring in the form of detailed status reports provided by the state administering agency to the LRC designed to ensure proper distribution and use of the funds ultimately received. By virtue of their genesis in the State Treasury, their appropriation by the General Assembly, and the ongoing legislative oversight exercised over them, 6 the funds derived from the Community Mental Health Services Block Grant KYCAN received from the Department forfeited their federal character and became state funds for the purposes of KRS 61.870(1)(h) analysis. Further support for this conclusion is found in the contract between KYCAN and the Department, a copy of which this office acquired from the CHFS.
The purpose of the contract, set forth in Section 1.00, is that KYCAN "will provide services to carry out activities associated with Consumer Advocacy services for adults with serious and persistent mental illness." Pursuant to Section 2.02, the Department "will provide oversight of all contractor [KYCAN] activities through the assignment of a contract liaison." Said liaison meets regularly with leadership staff of KYCAN to review progress and written reports, "identify actions necessary to improve contract performance, and otherwise provide monitoring of the contractor's performance and completion of contractual requirements." Section 2.03 requires KYCAN to "provide quarterly written reports on contract performance" in a prescribed format and to "allow access to any and all records relating to performance of activities associated with the contract." KYCAN must also submit "monthly billings reflecting expenditures for contractual activities." Section 9.20 provides that "CHFS shall make payment to [KYCAN] only after the Secretary of the Finance and Administration Cabinet or his designee and the Government Contract Review Committee approve the contract," and then only upon timely receipt of invoices containing a "[d]escription of the service performed," an "[i]temized statement of costs for a reimbursement contract," the "[d]ates and hours, if applicable of the services provided," and "[o]ther information as required" in the contract. These contractual provisions reflect the degree to which the state, and the CHFS in particular, maintains control over the block grant funds appropriated to it by the General Assembly and then allocated to KYCAN.
Although this office has not previously addressed federal block grant funding relative to application of KRS 61.870(1)(h), the Attorney General is not without additional guidance in resolving the question presented. In 04-ORD-111, for example, this office was asked to determine whether Kentucky Baptist Homes for Children, Inc., a private, non-profit corporation, was a "public agency" within the meaning of KRS 61.870(1)(h). Noting that relevant contractual provisions reflected that KBHC was "licensed, regulated, and closely monitored by the [CHFS] despite being described as a 'private child care organization,' this office concluded that the "nature of the parties relationship," while not determinative, lent credibility to the position that KBHC was a "public agency" when viewed in context. Id., pp. 7-8. Significantly, this office rejected the argument that KBHC was not "'state-funded in the manner contemplated by KRS 61.870(1)(h).'" Id., p. 8. In so doing, the Attorney General quoted extensively from 02-ORD-222, an earlier decision holding that Seven Counties, Inc., a private, non-profit corporation that provides mental health services to persons in Jefferson County and the surrounding area, was a public agency per KRS 61.870(1)(h).
Citing 00-ORD-01 and 93-ORD-90, Seven Counties argued that it was "settled law" that "government funds received by private healthcare corporations as direct payment for services rendered to patients are not considered 'state or local funds' when determining whether an entity receives 25% or more of its funds from the public coffers." 02-ORD-222, p. 2. Accordingly, it reasoned, a corporation is a public agency "only if it derives 25% or more of its funding from state and local authorities outside of funds received as direct payment for services rendered to patients." Id., pp. 2-3 (original emphasis). Emphasizing that Medicare and Medicaid payments comprise a significant portion of public funding to private healthcare providers as direct payment for services rendered, Seven Counties further asserted that application of 93-ORD-90 is not restricted to Medicare and Medicaid payments but instead operates to exclude "'all state or federal funds [received by private physicians] as reimbursement for their services[] from the KRS 61.870(1)(h) calculation.'" Id., p. 3. This office rejected those arguments, concluding that Seven Counties could not be equated to the private healthcare facilities or providers whose status was at issue in 93-ORD-90 (University Diagnostic Imaging Associates, P.S.C.) and 00-ORD-91 (Ephraim McDowell Regional Medical Center). Id., p. 4.
Distinguishing Seven Counties, the Attorney General engaged in the following analysis:
Chapter 210 assigns a significant role to the [CHFS] in allocating funds to Seven Counties, approving Seven Counties' programs, plan, and budget, and [e]nsuring Seven Counties' compliance with policies and regulations governing its eligibility to receive state grants and other fund allocations [as Chapter 45 and the contract between CHFS and KYCAN do here]. The same cannot be said of the private healthcare providers with which we dealt in 93-ORD-90 and 00-ORD-91. Critical to the open records analysis in the appeal before us is the fact that Seven Counties receives forty-two percent of its total funding under its contract with the [CHFS], [as compared to 70% here] and an additional seven percent of its total funding in the form of state or local grants. Resolution of this appeal turns on whether, as Seven Counties argues, those funds can be analogized to Medicaid and Medicare funds disbursed to private healthcare providers as payment for services rendered on a fee-for-service basis which this office deemed not to constitute "state or local authority funds" for purposes of determining public agency status under KRS 61.870(1)(h) in 93-ORD-90 and 00-ORD-91. We believe the analogy is flawed.
Id. Likewise, in 04-ORD-111, resolution of the appeal turned on whether the funds received by KBHC under its agreement with the CHFS constituted "state or local authority funds" within the meaning of KRS 61.870(1)(h). In arguing that it was "simply a state contractor which receives after-the-fact reimbursement from the state for services already rendered," KBHC was implicitly relying upon the "same flawed premise that the Attorney General rejected in 02-ORD-222." 04-ORD-111, p. 10.
Such is the case here. The funding mechanisms at issue in 02-ORD-222 and 04-ORD-111 are analogous to the funding mechanisms at issue in this appeal. Although KYCAN is organized as a private non-profit corporation, KYCAN "is by no means the same as a private healthcare facility, but is instead a [network] operating under a plan and budget approved by the [CHFS] and the comprehensive scheme of legislation" codified at KRS Chapter 45. 02-ORD-222, p. 6. Perhaps more importantly, these statutory provisions along with relevant contractual provisions "demonstrate that the funds in question not only satisfy the statutory threshold, but are allocated to [KYCAN] by virtue of its contractual agreement with the [CHFS] at fixed rates in accordance with terms prescribed by the [CHFS]." 04-ORD-111, p. 10. Notwithstanding the manner in which KYCAN receives the allocated funds, or its characterization of those funds, therefore, "the financial support [the federal grant funds] it derives from the [CHFS] cannot properly be analogized to Medicaid or Medicare claims submitted by private healthcare providers. " Id.
Although KYCAN did not expressly make this argument regarding the characterization of its funding, the reasoning of these decisions further validates our conclusion regarding the status of KYCAN. As previously indicated, the Community Mental Health Services Block Grant funds obtained from the Department, which constitute "approximately 70%" of the KYCAN's budget, can properly be characterized as "state or local funds" within the meaning of KRS 61.870(1)(h) by virtue of the fact that said funds are deposited into the State Treasury upon receipt, cannot be expended until appropriated by the General Assembly per Section 230 of the Kentucky Constitution, and undergo continuing state oversight by the LRC per KRS Chapter 45 and the Department pursuant to its contract with KYCAN. For these reasons, and because the funds at issue cannot properly be analogized to Medicaid or Medicare claims, the Attorney General finds that KYCAN is a "public agency" within the meaning of KRS 61.870(1)(h).
Pursuant to KRS 61.880(2)(c), "[t]he burden of proof in sustaining the action shall rest with the agency. . . ." 7 Therefore, KYCAN must provide Ms. Brooks with copies of any existing records in its custody which are responsive to her request unless it can satisfy its burden of proof by articulating, in a letter to Ms. Brooks, a basis for denying access in terms of the exceptions codified at KRS 61.878(1)(a) through (n). Pursuant to KRS 61.872(3)(b), the agency's "official custodian shall mail the copies upon receipt of all fees and the cost of mailing." 8 If KYCAN "does not have custody or control" of any records identified in Ms. Brooks' request, KYCAN "shall notify [Ms. Brooks] and shall furnish the name and location of the official custodian of the agency's public records." KRS 61.872(4). Until KYCAN performs these functions, it stands in violation of the Open Records Act.
A party aggrieved by this decision may appeal it by initiating action in the appropriate circuit court pursuant to KRS 61.880(5) and KRS 61.882. Pursuant to KRS 61.880(3), the Attorney General should be notified of any action in circuit court, but should not be named as a party in that action or in any subsequent proceeding.
Rita BrooksDoreen MillsDon Meade
Footnotes
Footnotes
1 Pursuant to KRS 61.870(1)(h), "public agency" means "[a]ny body which derives at least twenty-five percent (25%) of its funds expended by it in the Commonwealth of Kentucky from state or local authority funds[.]"
2 In William W. Chilton, III v. M.A. Mortenson Company, 09-CI-02749 (Jefferson Circuit Court - Division 13, November 24, 2009), the Court granted Mortenson's motion to dismiss, agreeing "that the lack of any time period within which the expenditure-to-public fund percentage is to be measured renders KRS 61.870(1)(h)" unconstitutional. In the absence of a published opinion by the Kentucky Supreme Court or the Kentucky Court of Appeals finding KRS 61.878(1)(h) unconstitutional, this office is not at liberty to treat it as such. See 10-ORD-062.
3 KRS 45.350(5) defines "State administering agency" as "any agency of the Commonwealth submitting an application for block grant funding to the secretary or chief public official of the federal administering agency."
4 Pursuant to KRS 61.870(2), "public record" is defined as:
. . . all books, papers, maps, photographs, cards, tapes, discs, diskettes, recordings, software, or other documentation regardless of physical form or characteristics, which are prepared, owned, used, in the possession of or retained by a public agency. "Public record" shall not include any records owned or maintained by or for a body referred to in subsection (1)(h) of this section that are not related to functions, activities, programs or operations funded by state or local authority.
5 KRS 45.350(3) defines "Designated review body" as either:
(a) Any interim joint committee, as designated by the Commission at any time when the General Assembly is not in session, whose subject jurisdiction relates to the block grant under review; or
(b) Any interim joint committee, as designated by the Commission at any time when the General Assembly is not in session, whose subject jurisdiction relates to the block grant under review plus the Interim Joint Committee on Appropriations and Revenue; or
(c) Any standing committee, as designated by the Committee on Committees during any legislative session, whose subject jurisdiction relates to the block grant under review; or
(d) Any standing committee, as designated by the Committee on Committees during any legislative session, whose subject jurisdiction relates to the block grant under review plus the Senate and House standing committees on appropriation and revenue.
6 See 1 KAR 4:005, the implementing regulation, which outlines the oversight procedures in detail.
7 A public agency must cite the applicable exception and provide a brief explanation of how that exception applies to the records, or portions thereof, withheld per KRS 61.880(1) in order to satisfy its burden of proof. 04-ORD-106, p. 6; 04-ORD-080; 01-ORD-232.
8 If no records exist which are responsive to Ms. Brooks' request, KYCAN must promptly indicate as much to Ms. Brooks in writing. On this issue, the Attorney General has consistently held:
[A]n agency's inability to produce records due to their nonexistence is tantamount to a denial and . . . it is incumbent on the agency to so state in clear and direct terms. 01-ORD-38, p. 9 [citations omitted]. While it is obvious that an agency cannot furnish that which it does not have or which does not exist, a written response that does not so state is deficient. [Citations omitted.]
02-ORD-144, p. 3; 03-ORD-207. Accordingly, KYCAN must ascertain whether records exist which are responsive to Ms. Brooks' request, promptly advise her in writing of its findings, and briefly explain the nonexistence of such records if appropriate.