ADMINISTRATIVE RULES REVIEW COMMITTEE Rules Digest -- September 1997 October 14th & 15th , 1997, Room #116 For further information, please contact Joe Royce, Legal Counsel, Administrative Rules Review Committee

HIGHLIGHTS IN THIS ISSUE:

AGRICULTURAL DRAINAGE WELLS, Environmental Protection Commission

CHILD SUPPORT COLLECTION, Department of Human Services

INTERNET SECURITIES SALES, Insurance Division

DEFERRED COMPENSATION, Personnel Department

DISTRIBUTION OF GAMBLING RECEIPTS, Racing & Gaming Commission

UNIVERSAL SERVICE, Utilities Division

PIPELINE REGULATION, Utilities Division

The department proposes another program to help communities attract business development. The maximum award under this program is $1,000,000, but that amount can be waived by the director for projects that exceed the eligibility criteria. Awards come in the form of a loan or forgivable loan. This program assists with major development projects that involve the physical infrastructure of the community. Eligible projects include transportation improvements, public works and utilities, environmental clean-ups, and similar activities. The project itself must show:

• that it will attract or retain high-wage, full-time jobs;
• that a substantial amount of private capital is invested in the project;
• the project will not relocate a business from elsewhere within the state;
• no other funding is available.

House File 191 was enacted in response to federal legislation; it creates a special revolving fund to help local communities finance drinking water systems. This assistance comes as a loan. Public water systems, community water supplies and non-profit water supplies are eligible applicants. The program will be administered by the EPC and the Iowa Finance Authority. Each year the federal government will provide a varying amount of money each year as a set-aside for smaller communities. Two percent of the entire available funds can be used to provide technical assistance to communities with a population of less that 10000. 15 percent of the total can be used for water source and wellhead protection. 10 percent can be set-aside for supervision and management programs.

A point system will be used to rank eligible projects. The system will consider such factors as water quality and risk to public health, nature of the intended improvements, affordability, wellhead or source improvements and the size of the community.

This new program was authorized by House File 655 to provide state assistance to local government in developing improvements to service delivery on the local level. Virtually any unit of local government is eligible for assistance. Assistance can be in the form of technical aid or cash, with cash grants being limited to $50,000. Eligible projects include such things as improving public access to public services or the quality of those services; developing joint projects between public and private agencies to provide service and assessing the existing services and how they meet business and residential needs.

Senate File 473 mandated a number of changes regarding agricultural drainage wells. It mandates some well closures and creates new standards for existing wells; these include removing surface intakes and sealing cisterns. Under this filing all wells must be permitted by the department; both new and existing wells are subject to this mandate. Permits are based on three criteria:

• The application has been submitted on behalf of all persons having an ownership or use interest in all lands being drained by the well;
• úContamination potential can be minimized by closing surface intakes, fertilizer and pesticide control and other management practices;
• The are no economically and physically viable alternatives.

These rules also mandate the closing of some existing drainage wells. No diversion permit will be granted if it is within a designated drainage well area. All existing wells within such an area must be closed by December 31, 1999. The closure must follow the same procedures established for the closure of water wells, set out in 567 IAC Chapter 39.

The division completes action on rules relating to the disposal of waste tires. This filing creates a fund to clean up waste tire stockpiles that have become a public nuisance. This particular program is authorized by Iowa Code section 455D.11C. This section creates a waste tire management fund financed by a $5.00 surcharge on certificates of title. Unlike the other tire programs, which fund innovative pilot projects to dispose of tires, this is a regulatory program to abate nuisance tire stockpiles.

The rules prioritize stockpiles on the basis of size: over 50,000 is the highest priority, followed by over 10,000 followed by over 500. Within each of these three levels, stockpiles are also rated by the level of nuisance; taking into account the danger of fire, the threat to the public health, safety, welfare or environment and other special conditions that may vary site-to-site.

If a site qualifies as a nuisance and is high in priority the division will give notice to the owner or operator of the division's intent to abate the site, specifying a proposed abatement plan. The parties may negotiate a settlement agreement and thus modify the terms of the abatement plan; any such agreement will include a provision stating the site will no longer be used as a tire dump. If no agreement is reached the division may issue an abatement order to compel compliance with the plan.

Financial assistance is available for the abatement plan; it can range from full funding to a no interest loan. The division can institute legal action to recover some or all of these costs based on a number of factors:

• The cost of the abatement and the financial resources of the owner;
• Whether the owner was paid for the collection, transportation or storage of the tires;
• Whether the owner is currently paying for a portion of the costs;
• Whether the owner is responsible for the nuisance;
• Whether the owner knowingly violated any rules or statutes.

House File 612 has authorized numerous changes in child support collection procedures. These changes have largely been mandated by federal law. Important changes appear in several areas:

• Tax refund offsets will be applied to current support obligations, not delinquent ones. This helps former FIP recipients because the money will first go to the family, not to reimburse the state.
• A federal offset collection is established for non-tax payments , such as vendor charges, legal settlements, etc.;
• The child support recovery unit may request or even subpoena information from employers or other sources;
• Collection costs for cases turned over to professional collectors will be surcharged to the parent, not deducted from the amount;
• The state may use private attorneys for payment collection.

The department proposes a series of revisions to its regulations concerning child care centers. These centers are separate from the regulation of day care providers. The most important change relates to education requirements for personnel. Instead of an absolute standard, a chart is set out for each position, containing various educational, experience, and child development training levels, with a point value assigned to each item. For example, the director must be 21 years old, be a high school graduate, and have 100 points; an on-site supervisor must have 75 points and a teacher must have 50 points.

The rules also change staff ratios; the ratios will be based on the age of the majority of children in that group, except for under three groups, where the table ratio must be met.

The rules set out standards for the facility itself. A separate area must be provided for infants-not accessible to older children. The program room must be at least 80 square feet, with 35 square feet of floor space per child. 75 square feet of outdoor space must be provided per child, with shade and playground equipment. A toilet and sink must be provided for each 15 children.

Facilities must also be inspected for environmental hazards. Older facilities must be examined for lead hazards and all facilities using a basement must have a radon test. All fuel burning appliances must have an annual carbon monoxide test.

Facilities must provide an activities program planned according to the developmental level of the children. The rules require a balance of indoor and outdoor activities, physical and educational activities which complement the school curriculum. Both indoor and outdoor play equipment must be provided.

The division proposes restrictions on stock brokers who advertise via the internet. The issue is to determine at what point a "cyber-broker" is actually transacting business in Iowa, thus requiring the broker to be registered in this state. This is a nation-wide problem with many states proposing similar regulations. For example, the following add was downloaded from the World Wide Web:

(Graphic not available.)

Under the proposed rules such an advertisement would remain lawful if the ad contains a disclaimer noting that the broker-dealer can transact business in Iowa only when properly registered or exempted; and, the internet advertisement has a "firewall" or other procedure to ensure that an un-registered person cannot complete a transaction; and the ad itself simply provides information on products and services.

This provision should not be particularly troublesome. Many larger brokerage firms currently have similar procedures already in place; and many brokers, dealing only in securities listed with a market {Dow Jones, Nasdaq, etc.} are exempted from registration. Enforcement will be largely through complaint, but it is possible that department representatives may periodically scan the internet for compliance.

Senate File 59 establishes the EMS provider fund, financed by the fees imposed on these services; the department now proposes rules relating to the disbursement of those funds. Grants will be made from the fund to regional, county and local EMS service providers; funds are available on a 1:1 match. Funds can be used to reimburse tuition expenses for persons taking an EMT course or continuing education, medical or communications equipment or improvement of services for children. Ineligible fees include on-going expenses such as certification costs, building costs or utility expenses.

PERSONNEL DEPARTMENT Wednesday-10:00, Deferred compensation, IAB Vol. XX, No. 5, ARC 7425A, emergency, held over from September.

For about twenty years, Iowa Code section 509A.12 has provided that state and local governments offer deferred compensation to their employees. Prior to July 1st, 1997 that section contemplated that the employing governmental entity would acquire individual contracts for individual employees through an Iowa-licensed company or through an Iowa-licensed salesperson selected by the employee. Under this plan about 5,300 state employees have deferred compensation contracts with some 35 providers.{In total there are actually some total 9000 contracts, with over 80 providers; many of the contracts are inactive.} The contracts were annuity or insurance contracts.

House File 540 has changed and expanded the choices available to state employees in the area of deferred compensation. It requires the Department of Personnel to make available to state employees, by September 1, 1997, the option of utilizing mutual funds as an investment alternative to the currently used annuity contracts. This provision appears in section six of the Act and states in part: "The department shall make available to eligible employees by September 1, 1997 the option of utilizing mutual funds as an investment alternative to the state's deferred compensation plan established under section 509A.12". Some existing plans did provide for mutual fund investment, but they came wrapped in an annuity product.

Even more significantly, House File 540 changed the structure of the deferred compensation program itself. Section ten of the Act states:

"At the request of an employee, the governing body or the county board of supervisors shall by contractual agreement acquire an individual or group life insurance contract, annuity contract, interest in a mutual fund, security, or any other deferred payment contract for the purpose of funding a deferred compensation program. A governing body, county board of supervisors or other public entity, to the extent allowed by law, may establish a deferred compensation program under this section. The contributions made on behalf of an employee who chooses to participate in the program shall be invested at the direction of the employee in a life insurance contract, annuity contract, mutual fund, security, or any other deferred payment contract offered as an investment option under the program. The contract acquired for an employee shall be accordance with the plan document and shall be acquired from any a company, or a salesperson for that company, that is authorized to do business in this state, or through an Iowa-licensed salesperson that the employee selects on a group or individual basis. When the state of Iowa acquires an investment product pursuant to the plan document the state does not become a shareholder, stockholder, or owner corporation in violation of Article VIII, section 3, of the Constitution of the State of Iowa or any other provision law".

Under the earlier language the state's role in deferred compensation was passive, simply implementing the arrangement made between the employee and the annuity provider. Section 10 of the Act now authorizes the governing body to establish a deferred compensation program, and this program would offer the employee various options. Clearly, the Act contemplates a more active management role for the government entity.

With the enactment of House File 540, the process followed this timeline:

This new program is controversial because it contains not only the mandate that mutual funds be offered, but also contains a major revision of the deferred compensation program. Under the new system individual providers will no longer be able to market annuity products to state employees. A single company has been chosen, using the RFP and a competitive bid process mentioned above, to administer the deferred compensation investment offerings. A process is underway to select one or two annuity products to be offered by January 1st, 1998 in addition to the mutual funds and fixed income funds offer since September 1st, 1997. Informational meetings are currently being held with state employees, detailing the new program. Great-West administers and provides information on the program; it does not market its own products.

Great West's profit comes from a .60 percent charge imposed annually against the balance of each account. This has raised some controversy, especially as it relates to mutual funds. Mutual funds impose an management fee of their own, which is in addition to the fee imposed by Great-West. Several people contend the state should itself maintain the accounts for state employees, letting employees buy whatever fund they choose. The department responds that such a system would be an expensive burden on the state; noting that the department is not staffed to handle mutual funds, department representatives contend such a plan would require significant additional personnel to administer the program.

Under the new program the 35 companies and their supporting agents that marketed plans prior to September 1st, may retain their current clientele; but they can no longer market to new clients. The existing providers will be unable to expand to new clients; however existing membership may still add to their accounts.

The ultimate issue is whether this change is best for state employees and whether it unfairly impacts those companies and agents who currently provide deferred compensation services. The immediate issue, however, is whether it was lawful to make that change on an emergency basis_without public notice or an opportunity for discussion. Opponents raise two issues on this point. Opponents note that the discussion of House File 540 centered around the need to make mutual funds available, and that no one anticipated the Act would lead to a wholesale revamping of the deferred compensation program. Also, opponents note the rules have been filed on an emergency basis with no notice or opportunity for public debate. They state that a change of this magnitude should only have been done following a full opportunity for public scrutiny and comment.

The department responds to the first point by stating that information was provided, during the legislative process, indicating that the whole program would be revised. Department representatives state that for a number of years there have been discussions concerning the need to revamp the deferred compensation system. On the second issue, the department points to the timeline on the previous page to show that inadequate time was available for a "regular" rulemaking. Department representatives contend that the RFP process itself provided detailed notice concerning the new program, and was mailed to insurance companies on the provider list on May 1st. The department emphasizes that the mutual fund portion House File 540 was required to be implemented by September 1st. The department states that the only way the legislative mandate could be met was by re-vamping the deferred compensation structure. This contention is based on an earlier unsuccessful attempt to attract mutual fund providers into the program, without fundamental program changes. At that time providers told the department they were unwilling to compete against the array of plans already offered; in short, they felt they could not make a profit.

For this reason the department felt the only way it could attract administrative service providers, and thus offer mutual funds, was to combine that change with a general revision of deferred compensation; and to meet the September 1st deadline that change had to be filed on an emergency basis. In addition, the department states it could not promulgate rules until it appeared likely that the request for proposals {RFP} under the new system would in fact attract responsive bids--in essence the department felt it could not draft rules until it was sure the program could be implemented. The department lastly contends that the RFP itself provided a form of notice, since it was widely distributed {specifically to the 35 providers}, and set out the new program in detail. That notice was sent to the current annuity providers on May 1st, 1997.

Based on these considerations, I do not believe the department has abused the emergency rule-making process. The September 1st deadline itself precluded a full rulemaking, which normally takes 108 days. At the same time the department, in good faith, believed it impossible to attract administrative service providers without re-vamping the deferred compensation program. In its filing, the department finds that notice and public participation would be "impracticable"; in essence this term means that notice and public participation would prevent the agency from functioning in a given area. It is conceivable that the department could have simply declared it impossible to meet the statutory deadline under these circumstances; however, such a decision can have grave and unforeseen consequences for the agency. Given the statutory mandate that mutual funds be offered by September 1st and the departments' belief that mutual funds could not be successfully offered unless the deferred compensation program was modified at the same time, I feel the use of the emergency process was reasonable and that it was used to ensure compliance with the statutorily set deadline.

It should be noted this emergency filing does not preclude any changes to the program. The notice of intended action submitted along with the emergency filing provides a real opportunity to impact the structure of the program. The administrative service provider contract has a 90 day termination clause, with no cause required. This means that the entire public participation and rules review process is still effective because the contract itself is not absolutely binding and unchangeable over the next three years. The fact that it can be terminated means also that portions may be renegotiated, in order to avoid a termination.

Proposed item three of this filing requires the qualified sponsoring organization for both riverboats and racetrack gaming facilities to certify how all receipts are distributed. The current provision, implementing Iowa Code section 99F.6(4), simply states the organization must certify how all receipts are distributed. The proposal greatly expands this requirement. All charitable distributions must be made using criteria established by the organization. These criteria must include provisions preventing conflicts-of-interest. {Note that the recipients themselves are carefully defined, bona fide charitable or civic institutions}. Then, the recipient of the distribution must certify the intended use of the proceeds and must be willing any information requested by the organization or the commission needed to ensure the recipient meets the stated criteria. The organization must then maintain records for the previous year identifying the recipients and the distribution, the criteria used to evaluate the distributions, and a statement {notarized, no less!} that all the distributions were within the criteria, rules and statutes.

It should be noted that Iowa Code section 99F.6(4) currently dictates how distributions are to be made, requiring the track to: "_distribute the receipts for educational, civic, public, charitable, patriotic, or religious uses as defined in section 99B.7, subsection 3, paragraph "b". That section in turn provides an exhaustive list of the purposes for which the funds may be used--that statutory listing essence already establishes the criteria for making awards.

The federal

Telecommunications Act of 1996

• Quality and rates.--Quality services should be available at just, reasonable, and affordable rates.
• Access to advanced services.--Access to advanced telecommunications and information services should be provided.
• Access in rural and high cost areas.--Consumers in all regions, including low-income consumers and those in rural, insular, and high cost areas, should have access to telecommunications and information services, including interexchange services and advanced telecommunications and information services, that are reasonably comparable to those services provided in urban areas and that are available at rates that are reasonably comparable to rates charged for similar services in urban areas.
• Equitable and nondiscriminatory contributions. -- All providers of telecommunications services should make an equitable and nondiscriminatory contribution to the and advancement of universal service.
• Specific and predictable support mechanisms.--There should be specific, predictable and sufficient Federal and State mechanisms to preserve and advance universal service.
• Access to advanced telecommunications services for schools, health care, and libraries.--Elementary and secondary schools and classrooms, health care providers, and libraries should have access to advanced telecommunications services.

As a result of federal litigation, the legislature has granted the division authority to permit hazardous liquid pipelines; these are the LP and other fuel lines that are common throughout Iowa. Permits must show at least the general direction of the line though each section of land. Deviations of one half mile are allowed, but amounts over that would require an amendment to the permit. A surety bond of $250,000 is also required.

The applicant must hold a public meeting in each county crossed by the line, prior to filing for the permit. Notice must be sent to each landowner over which the applicant will seek easements and additional notice must be published in local newspapers.

Once the application has been filed the commission will hold a trial-type hearing on the application. Any person or government entity affected by the application may file an objection with the board. The applicant is to be represented by counsel; with the application being considered either by an administrative law judge or one or more board members. Once granted, a permit cannot be sold or transferred without approval of the board.

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