By RONNIE ELLIS and JANIE SLAVEN
Having already faced state and federal funding cuts in the face of growing costs, McCreary County Schools suffered another blow last week with the announcement that districts across the Commonwealth will have to help pay off a $50-60 million long-term deficit in the Kentucky School Boards Insurance Trust (KSBIT).
KSBIT operated a risk pool, low-cost insurance program to cover workers’ compensation, property and liability insurance as well as other services to member districts, including McCreary County.
Over the last couple of years, the McCreary Board of Education had voted to use KSBIT over local bidder Buddy Wilson of Crabtree-Wilson Insurance Agency primarily because KSBIT offered the low bid. Board members were aware of KSBIT’s past financial difficulties but were assured by KSBIT representative Phillip Hunt that the fund, which has never before assessed member districts, was on track to get out of the red.
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. KLC 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 — which has now grown to $28 million.
Steiner explained the $50-60 million assessment will cover the current deficit, repay the KLC loan and a state premium tax of $4 million. The remainder will cover administration costs of a new company to run the program, including any remaining liabilities. Until that cost is determined, KSBIT can’t determine total or individual district assessments.
Last Monday KSBIT sent an unsigned memo to school districts announcing its board’s decision to assess member districts — both current and past — up to $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 or renew business but current participants will be covered through June. After that, McCreary County Schools will have to purchase coverage on the private market.
At $50 million, the average assessment calculated on all 174 Kentucky school districts would be $238,356. Assessments, however, have yet to be calculated and 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 a district participated.
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 added, is waiting for four companies to submit bid proposals to take over the troubled program. He also fears private companies could raise premiums without KSBIT competition.
KSBIT will offer districts three ways to pay assessments once they are determined: in a lump sum, payments over five years, or a 20-year bond sale.
Following cuts made to cover a $1 million shortfall last May and losing out in December on federal Race To The Top grant worth nearly $8 million to the district, local contingency funds could do without the extra strain.
Kentucky Education Commissioner Terry Holliday expressed concern about the impact on school districts. Noting that his department has no involvement with KSBIT’s operation, he said that KDE is monitoring the situation closely.
Wilson Sears, executive director of Kentucky School Superintendents, said superintendents were “trying to get over the initial shock.
“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 nine percent cut in federal funds,” Sears said, referring to possible education cuts if the President and Congress are unable to reach a deficit deal.