Published: March 23, 2008 10:48 pm            

Relief from refunds

Bill expected to alleviate some burden on local governments

ASHLAND — Some relief may be coming for Kentucky cities and counties forced to pay insurance companies refunds years after the money has already been spent.

A bill pending in the General Assembly will alleviate some of the burden by improving tax billing systems and shrinking the time period companies can ask for a refund.

House Bill 524 passed through the House on Thursday and will next be taken up by a Senate committee.

JD Chaney, an attorney for the Kentucky League of Cities who helped to draft the bill, said it has tremendous potential to save tax payers thousands of dollars.

The most important component of the bill, according to Chaney, is it will require insurance companies with more than 2,000 policies in the state to have a risk location system. A risk location system will determine what jurisdiction risks being insured are in — often the root cause for refunds.

“That is going to correct a lot of these refund issues cities are facing,” Chaney said.

If companies can be prevented from charging customers insurance premium taxes for municipalities they are not in, they won’t have to ask for refunds, he explained.

Another benefit of the bill is it sets up an administrative process to attempt to resolve disputes outside the courtroom. If a dispute cannot be resolved between the parties, it will then go to the Kentucky Office of Insurance for an administrative hearing before it is litigated in court, Chaney said.

“We want to get these issues resolved outside the courtroom to keep our governments from digging into the public purse to spend funds they could otherwise spend to enhance the lives of their citizens,” he said.

If passed, the bill would also limit the amount of time insurance companies have to seek a refund from city and county governments to two years down from five.

“It’s a terrible burden upon them to have to go back for five years and come up with money they have already spent on a fire engine or the police officer they hired,” Chaney said.

Catlettsburg City Attorney Jeremy Clark said that portion of the bill will definitely help Catlettsburg.

Last week, the city agreed to settle with the Cotton Life Insurance Company over a disputed refund. The city agreed to pay the company a refund of $6,364.14 for taxes paid from 2002 and 2005. The company had been requesting a refund of $8,553.75 but agreed to settle for less.

Paying so much money at one time, Clark said, is really a burden for the city, which has a small operating budget and depends on those tax dollars.

Larger cities with higher revenue streams aren’t as effected by the refunds as smaller ones but still welcome the change.

Michelle Veech, assistant finance director for Ashland, said insurance refunds are not really a problem for the city.

“It would be nice to just go back for two years, but it’s never really been an issue,” she said.

Ashland gave 15 refunds last year to insurance companies totaling $20,260, ranging from $4 to $3,000, Veech said. This year, the city has given three, she said.

The city keeps detailed records on each insurance companies’ accounts, which helps whenever there is a dispute, she said.

Chaney said the Senate could take up the bill this week. If passed before the end of the session, it would go into effect Jan. 1, 2009.

“This is really historic legislation; this issue has been debated among insurance agencies and county and city governments for the last twenty years,” Chaney said.

The bill also creates a penalty system for late payers and prohibits companies from taking an automatic credit.

CARRIE KIRSCHNER can be reached at ckirschner@dailyindependent.com or (606) 326-2653.

        

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