Ketchikan High School. (KRBD file photo by Leila Kheiry)

The Ketchikan Gateway Borough’s plan to bill the local school district directly for health expenses would force a dramatic reduction in school programming if it takes effect Jan. 1 as planned, according to Ketchikan’s school district.

Officials told Ketchikan’s school board last week that athletics, tutoring and administration could all face cuts if the district is forced to find tens or hundreds of thousands of dollars in its budget each month to pay for the medical care of teachers and staff. 

The school board is calling on Ketchikan’s Borough Assembly to push back the date for the district to take over health payments until the next fiscal year in July. The assembly is scheduled to vote next month on whether to grant that request.

Board members and school officials say tough times are ahead as the district plans to dedicate nearly a quarter of its budget in the next fiscal year to repay the debt.

Ketchikan Gateway Borough Mayor Rodney Dial told the board at a recent meeting that he was taken aback by the scale of the problem. As of the end of November, the borough says the school district owes it approximately $4.4 million for unpaid health care expenses.

“When the manager first brought this issue to light on November 1, it was shocking. Repeatedly and consistently, the assembly was told that the district realized they had a health care budget problem, and were taking steps to address it, for years,” Dial said at the school board’s Dec. 14 meeting.

That debt has exploded over the past several months, growing by more than $400,000 in November alone.

Ketchikan’s borough and school district are self-insured through a program administered by the borough. Instead of using a traditional insurance provider, the borough takes in premiums and pays for doctor’s appointments, hospital stays and other medical care. 

The mayor said the reason for the problem was relatively simple: The school district isn’t putting enough money into its health insurance program to cover employees’ medical bills. He said that while the district has run smaller deficits for years, the bulk of the problem stems from a 2018 contract with school district workers that reduced their health insurance premiums.

Now, officials say the ballooning debt is threatening the borough’s financial health. 

“Since the beginning of FY23 to present, due to the ongoing underpayment of currently accruing claims, the amount owed to the Borough by the District’s health insurance fund (and therefore the District) has increased nearly $900,000. This ongoing deficit has nearly halved the Borough’s unrestricted cash reserves,” borough administration said in a statement attached to the Borough Assembly’s Dec. 19 agenda.

But School Board President Stephen Bradford said before crafting a plan to repay the debt and eliminate the deficit, the district needs to know just how far in the red it truly is. He said the school district bases its health insurance budget on reports from a third-party administrator — and those show a debt $2.7 million lower than the borough’s figures.

“I think we need to know what the real numbers are, what the accurate numbers are, and certainly as we work on a repayment plan, we need to know what those numbers are,” he said.

At Bradford’s suggestion, the board unanimously directed school district administrators to contract an outside firm to conduct an independent audit. 

The board also unanimously asked the borough to delay sending bills to the district until the start of the next fiscal year in July. At a Dec. 20 meeting between school board and Borough Assembly representatives, Bradford said the district doesn’t have the staff or the funding to take on direct billing.

“My personal judgment is that we do not have the ability to cover all of the remaining expenses that will come through the health plan between now and year end based on the experience of the first six months of the fiscal year,” Bradford said.

That’s in part because of declining enrollment, which he said decreased the state’s funding to the district by about $830,000 this year. But with much of the district’s staff on contracts, he says it would be difficult to shed enough expenses to cover health claims. 

School board member Paul Robbins Jr. said the few items that could be cut include programs that help keep kids in school.

“We could cut after-school tutoring for some of our students that are in most need of help. We could cut sports programs and their travel, which we all know is extremely important,” he said.

Bradford says the district budgeted more than $6 million for health insurance this year. But that was far too little.

“We’ve had a very high-claim summer and fall that far exceeded the anticipated projections. The claims and costs for November alone were around 900,000. So our cost this year could be, easily, 8 million or more, and that’s why I’m saying we do not have an extra $2 million laying around,” he said.

Ketchikan’s borough and school district have a kind of backup insurance, called stop-loss coverage, that limits their expenses to $150,000 per claim. The policy also insures against claims across the district that come in sharply higher than projections.

But until that policy kicks in, it’s up to the borough to pay and wait for reimbursement. And those payments can take a very long time to come in — up to a year, according to the borough’s finance director.

If the district is forced to pay the claims itself and wait for reimbursement, it could quickly eat through its $1.2 million in reserves. And Superintendent Michael Robbins said that could leave the district unable to respond to unexpected expenses, like higher-than-expected fuel prices or building repairs.

“If you have a boiler that goes or if … something catastrophic happens in your district — which could certainly happen, right? — you really don’t want to get to that. That’s a very tenuous situation,” the superintendent said. Michael Robbins is not related to school board member Paul Robbins Jr.

Whether the Borough Assembly will approve the district’s request to push back the deadline is unclear. The assembly is scheduled to vote on that Jan. 3. At the most recent meeting between school board and assembly members, the assembly’s Austin Otos indicated he’d support the move. But Jeremy Bynum did not, saying he wanted more details about the district’s plan to address the insurance issue. 

But even if the request is approved, school board members say tough times are ahead. Bradford said the school district planned to approximately double the share of its budget devoted to health insurance in the next fiscal year.

“It could be as much as 22%, 23% of our operating budget next year,” he said. “That’s a huge amount of money to be devoting just to health insurance.”

Meanwhile, the school district is eyeing other insurance options. School board member Paul Robbins Jr. said a task force is looking into whether to switch to a traditional insurance provider. That would insulate the district from wild swings in health expenses.

“We went into this health insurance program we currently have … years ago with the idea that it would have cost savings. That didn’t work out,” he said. “So obviously, we need to explore all options.”

And he said with contract negotiations with labor unions set to begin soon, it’s the right time to consider changes.