The $72 million bill that Kentucky's school districts faced to close out the defunct Kentucky School Boards Insurance Trust could drop by about $21 million, state insurance officials announced Thursday.
The state Department of Insurance filed petitions in Franklin Circuit Court to take over the trust's two funds, which had provided many school districts with workers' compensation insurance and coverage for property and liability claims.
If approved by the court, the trust's workers' compensation fund would be operated by Kentucky Employers Mutual Insurance, or KEMI, at cost, which would produce most of the savings, said Sharon Clark, commissioner of the Department of Insurance.
The Kentucky School Board Insurance Trust provided low-cost insurance to most of the state's districts, but it started running a deficit in 1997 that had reached about $50 million by January.
Under a plan devised this year by the trust's board and the Kentucky League of Cities, which has been operating the trust since 2010, school districts would pay off what they owed over 20 years, and the funds would be closed.
When the Department of Insurance first received that plan in July, the deficit had reached $72.3 million. Clark and her staff determined they could make a better deal.
"We were trying to make the softest landing possible for the school systems," she said Thursday. "That was a promise we had made to them."
That soft landing doesn't apply to Fayette County. Its estimated bill went from about $2 million under the previous plan to $3.4 million.
"I'm surprised," said Fayette Superintendent Tom Shelton. "I haven't had time to review their methodology."
The majority of districts, however, will see a reduction, Clark said. On the workers' comp fund, Madison County's assessment fell from $1.04 million to $968,300. Jessamine now owes $23,246.
Clark said new assessments were done after the deficit had swelled to $72.3 million, and they calculated the assessments based on the number of claims and the number of members since 1997.
Clark said she made a personal appeal to the KEMI board to help close out the workers' compensation fund, which could take years because of how long some claims can last.
"Without that partnership, the school districts would have been paying considerably more," Clark said.
KEMI president and CEO Jon Stewart said in a news release Thursday afternoon that "KEMI is pleased to be part of a solution we believe is in the best financial interest of schools across Kentucky."
Under the plan proposed in court documents, companies will be able to bid to become the claims administrator for the property/liability fund. Clark said most of those claims should be closed in about five years.
The court case won't be without conflict.
The Kentucky League of Cities intends to argue against the Department of Insurance's plan, which would nullify an $8 million loan the league's insurance trust made to the school board trust in 2010.
Clark said the loan was supposed to be paid back with surplus funds, which never materialized.
"Our position is that it was always a loan," said Jon Steiner, executive director of the league. "There is no way the KLC board would have taken $8 million to put into a failing school program unless it knew it would get it back. We'll have to let the courts figure that one out."
Whatever the court rules, the payments required to close out the defunct insurance trust still will be an added stress for school districts, now facing the culmination of five years of stagnant state funding and new federal spending cuts.
Still, any savings will help, said Wayne Young, director of the Kentucky Association of School Administrators.
"It sounds like someone came up with a better arrangement than had been discussed," he said. "The goal here ought to be as little burden on the school districts as possible. You'll hear a little sigh of relief, because it's not as bad as it could have been. It's still bad."
Kentucky Education Commissioner Terry Holliday said he was pleased with the plan.
The insurance department's "hard work has resulted in a plan that is much better than previously discussed options and that addresses liabilities while also providing savings to school districts," Holliday said.