FRANKFORT — Unspent surplus from the state health-insurance program for school employees is being held by some Kentucky school districts and the companies that administer their benefits despite Gov. Paul Patton's plan to use the money to balance the state budget.

        Mr. Patton wants to use the money — at least $14 million — to help cover the revenue shortfall for last year.

        State budget director Jim Ramsey said last week the surplus insurance money is needed to help cover the $156 million shortfall for fiscal 2002, which ended June 30. But so far, the state has received only about $600,000.

        “We haven't gotten any of the big money yet,” Mr. Ramsey said.

        Fifteen school districts in northern Kentucky have received $1.4 million of the total, and the benefits administrators for other school districts are holding other funds.

        The Kentucky Department of Education puts the total at $18.6 million; the Patton administration had estimated $14 million.

        If the state doesn't recoup more, Mr. Ramsey said, it may have to ask some agencies to stop spending amounts that would be applied to fiscal 2002.

        “If we don't have all this money in, we'll have to take other action, but we will be in balance,” Mr. Ramsey said.

        The state constitution requires a balanced budget by the end of each fiscal year, but state officials have until July 18 to finalize expenditures, fund transfers and other accounting measures to balance the budget, state comptroller Ed Ross said.

        Mr. Ramsey wouldn't say whether the state would sue to get the money. He referred questions to Mr. Patton's legal counsel, Denis Fleming, and the lawyer for the state Finance Cabinet, Hollie Hopkins.

        Mr. Fleming did not return phone calls. Ms. Hopkins said through a spokeswoman that the state is reviewing its legal options.

        Last month, the Council for Better Education, which represents 141 of Kentucky's 176 school districts, said it would sue the state to make sure the surplus is returned to the districts.

        But Tim Crawford, a lawyer for the council, said the council is now urging its members to ask their account administrators to transfer the money to school district bank accounts and force the state to sue for it.

        “We got looking at it, and (the state) hadn't threatened us with anything,” Mr. Crawford said. “Without any threats or sanctions, what reason did we have to sue for?”

        Mr. Crawford and state officials said this week they know of no benefits administrator, other than the one in northern Kentucky, that has returned the money to school districts.

        Mr. Patton last week depleted the state's $120 million Rainy Day fund and ordered some spending cuts, in addition to seeking a return of the excess insurance funds, to cover the fiscal 2002 shortfall. Mr. Patton already had made cuts of $533 million to cover earlier shortfalls.

        The insurance funds under dispute come from “flexible spending accounts” within the state health-insurance program for school employees.

        The state pays a health-insurance premium of $234 each month for every school employee. When workers choose not to be covered by the program, the state pays the same amount into the flexible spending accounts, and the employees can use it for health-related expenses.

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