State Finance Board discusses options for estimated $70 million school employee insurance shortfall

The state of Arkansas is an estimated $70 million short related to public school employees’ benefits for the year 2022. During a State Board of Finance meeting on Tuesday (June 8), board members and staff discussed the shortfall predicted by insurance actuaries.

Public school employees’ rates have not seen an increase since 2017, according to Jake Bleed, who was named director of the Employee Benefits Division in mid-March. He added that rates have not kept up with the increase in costs.

“Medical costs continue to grow and on the public-school side they grow particularly fast,” he told Talk Business & Politics. “The state does not have a mechanism or means to increase revenues to the plan to keep pace with those increasing costs. Meaning, every year the costs go up 8%, which is well in excess of any economic indicator.”

For active and retired state employees, who saw a rate increase in 2021, the state contributes $450 per budget position whether it’s a filled or unfilled position. Those funds come from each state agency.

On the public-school employee side, most of the funds come from school districts.

“There’s not the same type of automatic increase that can be done each year. There is an increase – in a statute that started several years ago – of $150 per participating member. It’s not per budgeted person,” Secretary of Education Johnny Key explained to the finance board.

In 2021, the average the school district was required to pay was $164.44 per participating member. That is expected to increase to $168.52 based on the adequacy recommendations of a 2.33% increase. At least 170 districts are currently paying the minimum in contributions.

This year, $130 million of Arkansas Department of Education (ADE) appropriations went into the Employee Benefits Division fund for public school employees’ insurance. That included a one-time $20 million injection that was granted. An additional $100 million was funded by the contributions of the school districts.

Next year, ADE has appropriated $110 million for contributions to the insurance fund.

While the board did not make any recommendations on Tuesday – such as increasing the public school employees’ rates – they plan to ask the Arkansas Legislative Council (ALC) to transfer $35 million from the state’s Restricted Reserve fund to the ADE to help alleviate the $70 million projected shortfall. The ALC meets next week and three-fifths of its members must approve the request.

Currently, the Restricted Reserve fund has a $65 million balance with $30 million slated to go to the Arkansas Department of Transportation.

The chairman of the finance board and the state’s Chief Fiscal Officer, Larry Walther, explained that if the ALC doesn’t approve spending that $35 million then it will eventually be sent to the state’s Long-Term Reserve fund, which has a much higher threshold to access.

Bleed called this temporary solution a short-term fix.

The state will have to find another way to come up with the other $35 million to reduce the $70 million shortfall.

He said that could mean a rate increase or changes to plan management. Changes could include lowering the monthly $50 credit employees receive to $25 a month as part of a wellness program. Another change discussed could include penalizing employees by $25 a month for not being part of the wellness program, which could offset costs.

Bleed confirmed there have also been discussions of raising the public-school active employees’ and retirees’ rates by 10%.

No recommendations were made by the finance board on Tuesday, pending whether the ALC will approve the $35 million transfer of funds to ADE.

Bleed explained the goal is to develop a process where revenues increase proportionately with costs so dramatic shortfalls can be avoided.

The bottom line is rates will eventually have to increase every year, he said.

Last week, the board recommended raising state employees’ rates by 5% and it is asking state agencies to appropriate $500 per budgeted position, which would increase funding to EBD by $20 million.

Editor’s note: Marine Glisovic is the senior political reporter for KATV News and is a contributor to Talk Business & Politics.