By Ronnie Ellis / CNHI News Service
Already facing stagnant state funding amid growing enrollment and costs, Kentucky’s school districts learned Monday they are now looking at another $50 to $60 million to pay off a long-term deficit in the Kentucky School Boards Insurance Trust.
KSBIT operated a risk pool, low-cost insurance program to cover workmen’s compensation, property and liability insurance and other services to member districts. In 2010, the Kentucky League of Cities took over administration of the fund and put in $8 million to cover the deficits accrued to that time.
But that apparently wasn’t enough.
Kentucky League of Cities Executive Director Jonathan Steiner said the liabilities and deficits go back to 1990. KLC tried to cut costs, reduced fees to agents and charged higher premiums. But actuaries for KLC determined what was thought to be a $6 million deficit in 2010 was actually $16 million. That has now grown to $28 million, Steiner said.
On Monday KSBIT sent an unsigned memo to school districts announcing its board’s decision to assess member districts — both current and past — between $50 million and $60 million to fund the deficit and costs of reinsuring its liabilities with a private firm, subject to approval by the Kentucky Department of Insurance.
KSBIT will no longer accept new or renewal business but current participants will be covered through June 2013. After that, school districts will have to purchase coverage on the private market.
Assessments will vary between districts. A formula to be approved by the Kentucky Department of Insurance will consider what a district has paid in premiums, what claims a district has made on the funds and the number of years the district participated.
There are 174 districts in Kentucky, but not all of them participate in the two risk pools and others have participated for a time but then withdrew. Claims vary between districts as well. For instance, one might owe a lifetime of workman’s compensation to a disabled 30-year-old employee while another owes the same claim but for a 60-year-old employee.
At $50 million, the average assessment calculated on 174 districts would be $287,356. Individual assessments haven’t yet been calculated.
Bill Scott, executive director of the Kentucky School Boards Association, said assessments will range from “probably well under $10,000 at the bottom end, but at the top end there are certainly going to be districts that will exceed $1 million.”
Scott said he’s hoping individual assessments can be shared with districts “within a few weeks.” Part of the delay, he said, is waiting for four companies, which are bidding to take over the troubled program to submit bids.
KSBIT will offer districts three ways to pay assessments once they are determined. A district can pay the assessment in a lump sum; it can pay it over five years; or KSBIT will offer bond sales to cover the remaining liabilities of remaining districts and those districts can then pay off those bonds over 20 years.
Bo Matthews, Superintendent of Barren County Schools, said Monday he doesn’t think his district will face a large assessment because it hasn’t relied on KSBIT as much as some others for workmen’s comp and liability and property insurance.
But whatever the size of the assessment, Matthews said, it comes at a time when the board’s contingency fund has decreased as the district tried to compensate for rising costs during a period of flat state funding and potential federal cuts.
Kentucky Education Commissioner Terry Holliday expressed concern about the impact on school districts.
After saying the Kentucky Department of Education has no involvement with the operation of KSBIT, its deficit “does have the potential to affect Kentucky’s 174 school districts, and we are monitoring it closely.”
Wilson Sears, executive director of Kentucky School Superintendents, said superintendents Monday were “trying to get over the initial shock.”
“I don’t think anybody’s happy, but I’m sure KSBIT pulled out all of the stops trying to avoid this,” he said.
“But it’s going to be a terrible hit for school districts who already feel they have to deal with unfunded mandates and are facing a potential 9 percent cut in federal funds,” said Sears, referring to possible federal cuts in education if the president and Congress are unable to reach a deficit deal to head off automatic cuts contained in the so-called sequester.
Steiner, the KLC director, said the $50 million to $60 million assessment will cover the current $28 million deficit, repay the $8 million loan from KLC and a state premium tax of $4 million. The remainder will cover costs of administration and payment of to a new company to run the program, including covering any remaining liabilities, Steiner explained. Until that final cost is determined, KSBIT can’t determine total or individual district assessments.
The end of KSBIT might mean higher costs for districts even after they’ve paid their assessments to cover the KSBIT deficit. KSBA’s Scott fears private companies will raise premiums without the competition KSBIT provided.
Dennis Chambers, finance director for the Russell Independent School District, said his office has already received calls from private insurers.
Chambers said the district has had a couple of claims through KSBIT but none that were “drastic.” Like other districts, Chambers said the Russell district is waiting to learn what its assessment might be.
Fairview Schools Superintendent Bill Musick said his finance director told him that school’s assessment would be $180,000 — and he said they had no claims through KSBIT to his knowledge.
Mike James of The Independent contributed to this story.
Ronnie Ellis writes for CNHI News Service and is based in Frankfort. Reach him at firstname.lastname@example.org. Follow CNHI News Service stories on Twitter at www.twitter.com/cnhifrankfort.