Kentucky Court Curbs Use of Agency Funds

In a case involving two workers’ compensation funds, the Kentucky Supreme Court has ruled that the state cannot replenish its general fund using monies from accounts with commingled public and private monies.

However, the state can suspend the payment of funds to other accounts so that they never become commingled with private funds.

The ruling in Commonwealth v. Haydon Bridge Co., et al, involved the Kentucky Workers’ Compensation Funding Commission and the Workers’ Compensation Benefit Reserve Fund. KWCFC – a second injury fund- is supported by a $19 million a year tax paid by coal mining firms and by an assessment on workers’ compensation premiums. It also receives money from BRF, which invests its funds.

In the mid-1990s, governors took credit in the state general fund for the $19 million from the coal tax but did not turn the tax monies over to the funds. In the 2002-2004 budget, the state also transferred $1.7 million from the BRF to the state Mines and Minerals budget and took an additional $5 million from BRF for the general fund. In a previous budget, the state had also shifted $1.6 million from BRF to the Mines and Minerals budget.

In 2002, KWCFC hiked the premium assessment to 11.5 percent.

The businesses that sued said these emergency budget moves violated state law and the state Constitution because they took, or diverted, private funds. They also protested the 11.5 percent levy.

The court sided with the state on the suspension of the $19 million payments and the assessment but it struck down the transfers from the workers’ compensation accounts to the general treasury.

The court said state law prohibits funds in “in the possession of the KWCFC (or the BRF) from being transferred or loaned to the Commonwealth, or expended for other purposes. It does not prohibit the diversion of such funds prior to their receipt by the KWCFC or BRF.”