Nearly two decades removed from participation in a failed workers’ compensation program, the Harlan County Board of Education has agreed to pay over $275,000 to settle old debts.
During Tuesday’s regular session, the board opted to spread the payments out over the next seven years. Board members deeply regretted the fact they had little choice in the matter.
“We’ve got to do it,” said Board chairman Gary Farmer. “They’ve got you over a barrel.”
The issue stems from the collapse nearly two years ago of the Kentucky School Boards Insurance Trust (KSBIT). For many years, the trust provided low-cost insurance to most of the state’s school districts for workers’ compensation and property liability.
Apparently, the deal was too good and costs were too low because when it was discovered that KSBIT had run up a deficit of approximately $60 million, the trust’s board and the Kentucky League of Cities, which operated the trust, chose to dissolve.
The debt was then to be collected from the school districts, most of which would be financed by bonds. By the time the formulas were presented to schools, the Kentucky Department of Insurance sued KSBIT’s board and the League of Cities over the method of debt calculation.
The court’s decision on that suit has now been reached and Harlan County’s total debt from old workers’ compensation claims accumulated between the years 1991-97 (when they were members of the trust) is $278,838.
The district will pay $69,710 this year, and an additional $34,854 for the next six years to settle the debt.
“That’s stretching it out as much as we can without having to pay any interest,” said Superintendent Mike Howard.
Choosing the option of paying the debt by issuing bonds would accrue significant interest charges, Howard noted.
Despite this agreement, Johnnie Turner, the board’s attorney, reported there could be an additional assessment of approximately the same amount of money if $5 million in existing bonds purchased through KSBIT and the League of Cities are not made available to help settle this debt.
The court case on that issue has not yet been resolved, Turner said.
Board member Wallace Napier asked what would happen if the district simply refused to pay it and Howard said the state would simply collect the total amount from their SEEK funds, so they are better off paying it this way.
Farmer was embittered by the whole situation when he learned the same individuals who were in charge of KSBIT and the League of Cities at the time were now overseeing the collection of debts they created.
In other financial matters, the board approved the 2013-14 financial report which has not yet been audited. Howard told the board auditors were currently at work in the district and should have their work completed fairly soon.
Howard informed the board the district finished the prior year with a $299,000 surplus, which was just below the target but still a good performance considering the financial challenges local schools are facing.
The superintendent expects the current year’s budget of around $29 million to finish with around $873,000 in surplus, of which $500,000 will be put into reserve for workers’ compensation costs. Local sources of revenue (property and other taxes) were down $125,000 this past year, but the collection of delinquent amounts had increased some from the prior year, he noted.
“All of this is just an indication of how much the economy is down and how much people are struggling around here right now,” Howard said.