Kansas ordered to repay $3 million from 2009 fee fund sweeps

? A Shawnee County judge has ordered the state of Kansas to repay just over $3 million out of its general fund to make up for money that was illegally swept out of fee funds in order to balance the state’s budget during the height of the Great Recession in 2009.

Judge Franklin Theis issued that order in late September after the Kansas Supreme Court ruled in 2015 that the state has only limited authority to use fee funds for any purpose other than the original reason for levying the fees.

The case involved a budget bill passed in the waning days of then-Gov. Kathleen Sebelius’ administration. It called for sweeping $22 million out of various funds, including $2.355 million out of the state’s workers’ compensation fund, into the general fund in order to make up for revenue shortfalls brought on by the recession.

The state also swept $534,517 out of the Bank Commissioner Fee Fund that year, as well as $195,671 from the Real Estate Fee Fund.

Theis’ order directs the state to repay all of those funds. And out of those funds, it also directs that $105,000 be paid to Mike O’Neal for attorney fees.

O’Neal, a Hutchinson attorney who was then Speaker of the Kansas House, opposed the bill. But when it passed anyway, he filed a lawsuit on behalf of a number of group-funded workers’ compensation pools.

The Kansas Bankers Association and the Kansas Association of Realtors joined the lawsuit, challenging sweeps out of funds that bankers, lenders and Realtors pay into as a part of their licensing fees.

In a news release Wednesday announcing the settlement, O’Neal said providers of workers’ compensation coverage pay an annual fee into the Workers’ Compensation Fee Fund. As a result of the sweeps, however, he said those insurers had to pay a second assessment into that fund to restore funds needed for the Insurance Department to pay claims that year.

As part of the order approving the settlement, Theis called the fund sweeps “wrongful transfers to the State General Fund of Kansas and an improper use of the Kansas Legislature’s authority to transfer monies held in state agency fee funds to the State General Fund.”

The lawsuit was controversial because it was the first time in anyone’s memory that a sitting Speaker of the House had acted as an attorney to sue the state over passage of a bill that he opposed politically. But O’Neal defended his actions.

“Although it has taken the parties (seven and a half) years to obtain justice, the final approval of this significant settlement, plus acknowledgment of wrongdoing with respect to the 2009 sweeps, is very gratifying,” he said in the news release.

During the 2017 session, lawmakers passed a bill prohibiting the transfer of licensing or regulatory fees into the general fund for any use other than the original statutory purpose of levying the fee.