Covering Kentucky

Feb 20, 2013 1:44 PM

School Insurer Paid Millions In Royalties

(AP) - A published report says the Kentucky School Board Insurance Trust paid millions in royalties to the Kentucky School Boards Association over several years before announcing last month that it would disband due to financial woes.

School districts around the state are now trying to come up with some $60 million to pay off the trust's deficit.

For decades, the Kentucky School Boards Association administered the trust and profits were used to subsidize programs offered to districts.

The Lexington Herald-Leader reports the insurance trust has paid nearly $7.5 million to KSBA in royalties and management fees since 1997.

KSBA began decreasing royalty payments in 2005 when the insurance trust began to lose money, but the financial deficit kept rising along with the cost of medical care.

"My biggest challenge since 2005 has been to reduce the dependency on insurance revenue and also protect the core services of KSBA," said executive director Bill Scott, who joined the organization that year. "We weren't as self-sufficient as we should have been because it was subsidized to a certain degree by these royalties."

According to a 2012 survey by the National School Boards Association, the association's reliance on insurance royalties was a common arrangement.

Kentucky Association of School Administrators Director Wayne Young said several districts have expressed a reluctance to pay their part of the deficit.

"I can't help but think this news will make them more reluctant," Young said. "They are concerned they don't have enough details and don't know how it was calculated. They're adopting a wait-and-see attitude."

Knott County Superintendent Kimberly King said "it's very scary to think of what's going to happen" as officials determine where to get the estimated $1.1 million it will take to pay its portion.

She said the district, which has fewer than 3,000 students, decided four years ago to drop the insurance trust because it could get cheap rates from another insurer. However, because it had a high number of claims, it is one of eight districts projected to owe more than $1 million.

Fayette County Schools owes the largest amount at an estimated $2.8 million.

Madison County Superintendent Tommy Floyd said his attitude about the district estimated $1 million bill is wait and see.

"If it's any amount, it's another example of the daunting challenges we all face," Floyd said, citing cuts in state funding and possible cuts in federal funds. "These kinds of sweeps always hurt the children who need it most."

(Copyright 2013 The Associated Press. All rights reserved.)

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