Rising legal liabilities another culprit for schools’ deficit

Administrative pay raises and lower-than-expected state revenues aren’t the only reasons for the Clark County School District’s deficit.

Potential lawsuit payouts also contribute.

The district’s potential liability for certain legal claims rose from approximately $24.8 million to about $28.6 million after an annual actuary’s assessment, according to a district representative. That actuary determines how much money the district should set aside for potential settlements, based in part on the current number of lawsuits, legal trends and payouts in other districts.

“We do this at the end of every fiscal year because they need to see the full year’s worth of payouts,” district spokeswoman Kirsten Searer said. “This year, they told us that we had to set aside an additional $3.8 million into an account to cover potential losses in the future.”

The money sits in a risk management account reserved for three types of claim payouts: worker’s compensation, property damage and lawsuits exceeding $1.5 million in liability.

The district insures itself in those three areas, Searer said. That means that the district pays any settlements in those cases and banks the excess if the payouts come in short of the forecast.

Big-pocket perception

“Unfortunately, our experience is that people will tend to see the district as having big pockets, and so they sue us for anything that happens on district property or involving district vehicles,” Searer said. “Sometimes under (Nevada Revised Statutes) we’re not even liable for incidents, but it still takes time to prove that. And that means money.”

As the risk management account has increased in recent years, the district’s legal budget for its general counsel has also been exceeded.

In 2016, the department spent nearly $5.4 million, more than its budgeted amount by about $1.8 million, district budget documents show. That’s even more than the $4.2 million spent in fiscal 2015, when the department also spent $635,478 more than the budgeted amount.

General Counsel Carlos McDade said that’s partly because of the cost of outside counsel.

Outside lawyers hired

The district’s 10 in-house lawyers manage day-to-day legal duties, including writing contracts for schools and providing legal guidance for principals. But some complex cases require outside lawyers to litigate them, McDade said.

“Some cases required hundreds of hours and multiple people and two to three months worth of time,” McDade said. “For me to do the equivalent of that with my in-house staff, I’d pretty much have to take half the office and dedicate them to one case. Doing that directs them away from their job, which is providing direct supports to schools.”

Outside counsel fees have risen since 2014, when the district paid $1.2 million to 12 different firms. In 2015, that number rose to $3.3 million, and in 2016 it was nearly $2.9 million.

The district notes that litigation costs are an estimate, since the office can’t control the number of lawsuits filed against the district or the outcome of those cases.

“Attorneys often advise their clients to sue the district, and there’s a financial impact to that,” Searer said. “Unfortunately, that $3.8 million could’ve gone to schools, and now it’s going to sit in an account.”

Contact Amelia Pak-Harvey at apak-harvey@reviewjournal.com or 702-383-4630. Follow @AmeliaPakHarvey on Twitter. Review-Journal staff writer Meghin Delaney contributed to this story.