Kansas Insurance Commissioner Ken Selzer lost a short-term battle.
He may very well win the long-term war.
A Shawnee County judge has denied the Insurance Department’s request to temporarily block the transfer of $8 million in fees from the agency into the general fund to help balance the state budget.
However, Judge Richard Anderson agreed to let the Insurance Department’s lawsuit against Gov. Jeff Colyer move ahead, signaling the agency has a good chance to win the case.
The judge found that the department would likely win the case but denied the request for a temporary injunction because the agency didn’t show it would suffer irreparable harm if the sweeps proceeded.
“The Court finds that plaintiff has established a substantial likelihood of eventually prevailing on the merits,” Anderson wrote in a 23-page opinion issued last week.
The agency “has demonstrated that the proposed sweeps likely violate the taxing provisions” of the state Constitution as well as the Commerce Clause and the 14th Amendment of the U.S. Constitution.
Last July, Selzer – then a Republican candidate for Kansas governor – filed a lawsuit seeking to top the state from moving $8 million in fees from the department to the general fund.
The lawsuit – brought against the governor, the budget office and the secretary of administration – essentially contends the state is illegally using fees levied to regulate business to help run state government.
The lawsuit contends that any transfer of fees beyond a “reasonable” reimbursement of administrative costs is an unconstitutional tax. A legal memorandum in the case goes into more detail.
The litigation centers on Colyer’s veto of a budget item that blocked the transfer of $8 million out of the agency’s fee fund, which collects fees paid by insurance agencies from across the state.
The department said the veto violates a 2017 law prohibiting the transfer of the fees – intended to finance Insurance Department operations – to the state general fund
The department argues that transferring the fees to the general fund is “a revenue raising measure that takes property without due process and violates the taxing provisions” of the state Constitution.
The Insurance Department, Anderson wrote, had established “a substantial likelihood” that it can show that redirecting the fees to the general fund is intended to cover state expenses rather than the cost of overseeing the insurance industry.
However, Anderson wasn’t persuaded that the Insurance Department would face dire circumstances if the money was transferred into the state general fund.
“While the court finds that the plaintiff has certainly demonstrated that, if his allegations are true, he will be harmed by the continued sweeps, he has failed to demonstrate that such harm is irreparable,” Anderson wrote in his opinion.
Anderson’s opinion suggests that agency could always borrow money from the state general fund to cover any shortfall and keep its services intact.
The agency argued that the sweeps would severely impede its ability to carry out its responsibilities, raising the prospect of cutting services or levying new fees to make up for the loss in funds.
However, Anderson noted in his opinion that agency’s operating expenses for fiscal 2018 totaled $7.6 million but the total revenue collected reached $17.9 million.
“Although the plaintiff’s affidavits demonstrate that reductions in staff or services would be seriously deleterious to the plaintiff’s mission, they do not demonstrate that the sweeps would necessitate such a reduction in services,” Anderson wrote.
The next action in the lawsuit is set for Oct. 2 when a case management conference is scheduled.
