Seven Counties Services Files for Bankruptcy
Louisville, KY 04-05-2013 - Seven Counties Services, Inc., the Louisville region's leading provider of behavioral health and developmental services, is seeking relief from the burden of unsustainable mandatory employer contribution rates imposed by the Kentucky Employees Retirement System (KERS). The not-for-profit organization, which employs 1,400 health care, support and administrative staff who serve more than 32,000 individuals and families each year, filed Thursday, April 4 for Chapter 11 protection in the United States Bankruptcy Court, Western District of Kentucky. Seven Counties is seeking the court's assistance in protecting the organization's vital services and the interests of its consumers by relieving them of the wholly unrealistic financial burden imposed by the KERS contribution requirements.
Senate Bill 2 and House Bill 440, the General Assembly's attempts to address the actuarial deficits of the Kentucky Retirement Systems, did nothing to address the financial burden placed on non-governmental entities like Seven Counties that participate in KERS.
"Seven Counties, a not-for-profit entity, has operated with small, but positive margins for most of its 35 years of life. However, the enormous financial burden brought on by escalating retirement benefit costs brings this concern to a financial position that justifies the request we are making today," says David Cantor, attorney with Seiller/Waterman LLC, the firm representing Seven Counties in this action.
Seven Counties projects an operating loss of more than $2 million for the fiscal year ending July 1, 2013. With another increase in contribution rates coming July 1, the projected loss for fiscal year 2014 jumps to $8.5 million. Seven Counties projects that, without relief, all cash reserves for operations will be wiped out in 12 to 18 months.
"We take this action with a solemn understanding of our responsibility to our community and to the thousands of families in our community who deal with mental illness, addictions and developmental and intellectual disabilities," says David Holton II, Chair of the Seven Counties Board of Directors. "For them, we need a resolution so we can get about building on what we do best - creating health solutions that help people."
Seven Counties intends to continue the operation of all services and all service locations.
Kentucky's community mental health centers, like Seven Counties, were created in 1966 as not-for-profit entities, rather than government agencies, to open more options to secure funding and encourage service development based on regional needs and wishes. Although community mental health centers are not public agencies and their workers are not public employees, an offer to join the Kentucky Employees Retirement System (KERS) occurred as an effort to make the difficult and low-wage positions of the community mental health care workers more attractive to qualified candidates.
Eligible employees of thirteen of the fourteen regional community mental health centers (CMHCs) have been participants in the KERS plan for decades, including Seven Counties, which joined under Executive Order in 1979. Two other centers - Bluegrass.org and Kentucky River Community Care - are in litigation with KERS in state courts on related issues.
KERS benefits derive from a combination of employee and employer contributions, both set as a percentage of employee wages, and investment earnings on those pooled contributions. Six years ago, a combination of factors propelled the system towards insolvency. In response, legislative and executive branch officials approved a schedule of huge increases in the employer contribution rate in an attempt to stop or at least slow the bleeding. Employer contribution rates climbed from 5.89% of wages in 2006 to an astonishing 23.61% of wages in the current state fiscal year. They will rise again to 26.79% on July 1, 2013. Senate Bill 2 and House Bill 440 assume an increase to 40% on top of every payroll dollar, effective July 1, 2014.
In FY 2007, the corporate contribution for KERS was $3.49 million - 4.3% of the overall budget. In FY 2013, $13.8 million or 13% of the entire budget will be for a retirement benefit for employees. At a 40% rate, the KERS-required contribution consumes approximately 20% of the entire enterprise budget.
"It is an impossible business model," says Seven Counties President and CEO Tony Zipple. "Beyond that, it represents massive lost opportunity to serve the needs in our community. We cannot, with good conscience, continue to send over $360,000 every two weeks to KERS, when those dollars are desperately needed to maintain and expand the services our 32,000 clients need to live to their fullest potentials. This burden, combined with the downward revenue pressures brought on by the introduction of Medicaid Managed Care in our region, threatens our ability to continue serving citizens of this region who have immense and complicated needs."
"$360,000 could provide a road to recovery for 514 more children and adults living with serious and persistent mental illness. $360,000 would give 100 more individuals with developmental disabilities the support they need to gain and hold a job for a year. $360,000 could get 89 women with a substance abuse problem into evidence-based, proven therapies that would lead to addiction recovery, family reunification and sustained employment," says Zipple, "and that's what we are required to send to KERS every 2 weeks to help prop up a broken system. These are our most important priorities and we must take this action to protect them."
"We care about our employees. We are a service company. Our doctors, nurses, therapists and support staff are our most valuable resources. We value them greatly," says Lisa Patrick Leet, Seven Counties' Vice President for Human Resources. "It is their work that produces the great services that we deliver to 32,000 persons with mental illnesses, addictions, and developmental disabilities. We want them to continue to perform their vital work. Like other caring employers, we want to provide a good and reliable retirement benefit. And we must be able to afford that benefit. Paying over six times the industry average for such a benefit, with plans on the table to increase that to over ten times the industry average, is not sustainable."
"The unfortunate circumstances in which we find ourselves are not of our doing," says Abby Drane, Seven Counties' Chief Financial Officer. "For the past 35 years, Seven Counties made every required employer contribution to KERS. We have kept our end of the bargain to our employees and to the system. We have cut services, reduced other employee benefits, including significant cuts to health benefits, frozen employees' pay rates, delayed much needed infrastructure investments and microscopically examined every area of spending in our attempt to make the books balance under the tremendous weight of a pension contribution that is more than six times the industry norm. We simply can't continue to operate for the benefit of those we serve under such an enormous and unsustainable debt."