Long Island schools may turn to reserves, borrowing to cover cost of sex abuse lawsuits
The cost for Bay Shore schools to resolve Child Victims Act claims has kept on climbing, to more than $45 million.
The Act, which allowed alleged victims of childhood sexual abuse a temporary window to sue for damages, has so far cost nearly three dozen Long Island school districts more than $150 million. But no Island district has been more affected than Bay Shore, where 45 former students filed suits, alleging they were sexually abused by an elementary schoolteacher decades ago.
As school districts impacted by the claims, such as Bay Shore, try to figure out how to pay for them, educators across the Island have raised alarms over the financial burden. They said the costs could lead to cuts in school programs and end up hurting the educational opportunities of children in school today.
“It's a shame that the actions of a few are going to impact a generation of kids,” said Bob Vecchio, executive director of the Nassau-Suffolk School Boards Association.
How such cases are resolved can vary greatly in cost.
Of the 45 cases Bay Shore has faced, eight have been settled: three through insurance and five through $20 million in settlements. The ninth, however, went to trial and resulted in a jury verdict Nov. 1 that awarded $25 million to the plaintiff. The claim that led to the trial was uninsured, and the district said it's reviewing its options. A 10th case is scheduled to begin trial Dec. 2, barring a settlement.
All 45 cases involve the same teacher, Thomas Bernagozzi, who was arrested on child sex abuse charges last December. During the recent trial, he denied molesting a student.
For Bay Shore, legal bills alone ballooned to $1.7 million through September, not including the trial cost or remaining work on the pending cases, according to a tally of invoices Newsday obtained through public records requests.
As the remaining 36 cases work through the court system, total costs will continue to climb.
Bay Shore is not alone in grappling with fiscal fallout. Last week, Port Jefferson approved borrowing up to $11.4 million and using $5.1 million in reserves to pay $16.5 million for seven settlements.
Herricks paid nearly $50 million in board-approved settlements to 27 former students. After voter approval, Cold Spring Harbor liquidated a $7.7 million capital reserve fund to apply toward the claims cost.
Without insurance coverage, districts including Port Jefferson have resorted to tapping into reserves, borrowing money, or both, to finance these obligatory payments.
Many are left asking the same question: “How do we meet the obligations without penalizing the current and future students of the school community for the actions of individuals from the past?” Vecchio said.
The $25 million judgment Bay Shore faces is the largest amount to date on Long Island resulting from Child Victims Act claims.
The verdict against the South Shore district could affect negotiations of pending claims, school attorneys said.
“A verdict like this certainly gets the defense side nervous,” said Howard Miller, an attorney with Bond, Schoeneck & King, which has offices in Garden City and Melville. “If you lose, you lose huge. That's a big risk.”
The Garden City office Miller works out of handles Child Victims Act cases from Suffolk County up through Orange County, he said.
“We look at verdicts from all over the state, and they do inform how we advise a school district,” Miller said.
Facts in claims vary, but the Bay Shore verdict could influence the calculation officials make when they consider each case, he said. Would they rather settle it for a seven-figure number or less, or risk going to trial that could end up costing many millions?
“It's almost like you're buying insurance with the settlement,” Miller said.
On the Island, only one other claim has gone through trial: A jury in March found the Herricks district, in Nassau County, not negligent.
Both cases could cast ripple effects.
“If you're a board member of a district that has some cases pending, after the Herricks case came out, I'm sure you felt one way, and after the Bay Shore case, you probably feel a different way,” Vecchio said.
“The amount of the [Bay Shore] verdict, I think, was eye-opening for a lot of folks,” he said.
Since 2021, when the window to file suits under the new law closed, districts and school boards at large have wrestled with means to finance the costs associated with the claims.
In the past, proposed legislation to create a $200 million state fund to provide grants to school districts facing large payouts stalled in the legislature and now may face even more questions in light of the Bay Shore verdict.
“With judgments of this magnitude, the state could say: ‘Hey, what are we supposed to put in this fund?’ ” said Jay Worona, deputy executive director of the New York State School Boards Association. “What would be a satisfying number for such a fund?”
Bay Shore did not say whether it would file an appeal, but Superintendent Steven Maloney said the district is “reviewing our options regarding the jury's liability and damages verdicts.” The district’s budget is about $197 million.
Districts are often left with two options to pay: to borrow or look into reserves. To borrow through bonds spreads liabilities over time but adds costs overall. When it comes to reserves, officials run into the difficulty of access.
Typically, reserves are set up for designated purposes and under the law can only be used for that purpose, barring some exceptions, school attorneys and officials said.
“Each of the reserves has very specific language about how it's established, how it is funded, what purposes you can use the reserve fund for, and then how, if at all, you can take the money out of it,” said Mary Anne Sadowski, managing partner at Ingerman Smith based in Hauppauge.
For example, districts could seek voter approval to liquidate their capital reserve funds to help cover such costs, as Cold Spring Harbor and Harborfields districts did.
“Every district has a different set of reserves,” Sadowski said. “It's going to depend on each individual district.”
The only funds that districts are permitted to have without dedicating them for a specific purpose are unallocated fund balance, which cannot exceed 4% of the school budget.
But districts typically are reluctant to tap into the fund balance, or use all of it, to pay for judgments because it is set aside to deal with unforeseeable issues that arise in a fiscal year, officials said.
In Port Jefferson, the district used $3 million from its undesignated reserve and found the other $2.1 million from “bits and pieces” it cobbled together from other reserves, said Deputy Superintendent Sean Leister at a board meeting Tuesday.
Depending on the timing of the payouts, a district could build some of the cost into its budget for the next fiscal year but then risk piercing the 2% tax cap. Attempts to override the cap require 60% majorities in a budget vote.
“It's a very risky gamble trying to attempt to pierce a cap,” Vecchio said.
Some educators, including Port Jefferson schools Superintendent Jessica Schmettan, said they will ask the State Legislature for changes in law to allow districts to access restricted reserves and exempt debt financing costs from tax cap calculations.
As more cases are resolved through settlements or trials, school attorneys and districts officials are counting on them to build momentum for state relief.
“We're also hopeful, because of that recent jury decision ... that [it] may spark some additional interest in terms of a legislative solution,” said Neil Block, an Ingerman Smith attorney representing Port Jefferson, at the board meeting.
With Jim Baumbach
The cost for Bay Shore schools to resolve Child Victims Act claims has kept on climbing, to more than $45 million.
The Act, which allowed alleged victims of childhood sexual abuse a temporary window to sue for damages, has so far cost nearly three dozen Long Island school districts more than $150 million. But no Island district has been more affected than Bay Shore, where 45 former students filed suits, alleging they were sexually abused by an elementary schoolteacher decades ago.
As school districts impacted by the claims, such as Bay Shore, try to figure out how to pay for them, educators across the Island have raised alarms over the financial burden. They said the costs could lead to cuts in school programs and end up hurting the educational opportunities of children in school today.
“It's a shame that the actions of a few are going to impact a generation of kids,” said Bob Vecchio, executive director of the Nassau-Suffolk School Boards Association.
WHAT NEWSDAY FOUND
- The Child Victims Act, which allowed alleged victims of childhood sexual abuse a temporary window to sue for damages, has so far cost nearly three dozen Long Island school districts more than $150 million.
- A jury recently found the Bay Shore district liable and awarded the plaintiff $25 million, a judgment that educators and school attorneys said would cast ripple effects across the Island.
- Districts have resorted to dipping into reserves and borrowing through bonds to pay for the claims. Educators have raised alarms over the financial obligations’ impact on educational programs for students today.
How such cases are resolved can vary greatly in cost.
Of the 45 cases Bay Shore has faced, eight have been settled: three through insurance and five through $20 million in settlements. The ninth, however, went to trial and resulted in a jury verdict Nov. 1 that awarded $25 million to the plaintiff. The claim that led to the trial was uninsured, and the district said it's reviewing its options. A 10th case is scheduled to begin trial Dec. 2, barring a settlement.
All 45 cases involve the same teacher, Thomas Bernagozzi, who was arrested on child sex abuse charges last December. During the recent trial, he denied molesting a student.
For Bay Shore, legal bills alone ballooned to $1.7 million through September, not including the trial cost or remaining work on the pending cases, according to a tally of invoices Newsday obtained through public records requests.
As the remaining 36 cases work through the court system, total costs will continue to climb.
Bay Shore is not alone in grappling with fiscal fallout. Last week, Port Jefferson approved borrowing up to $11.4 million and using $5.1 million in reserves to pay $16.5 million for seven settlements.
Herricks paid nearly $50 million in board-approved settlements to 27 former students. After voter approval, Cold Spring Harbor liquidated a $7.7 million capital reserve fund to apply toward the claims cost.
Without insurance coverage, districts including Port Jefferson have resorted to tapping into reserves, borrowing money, or both, to finance these obligatory payments.
Many are left asking the same question: “How do we meet the obligations without penalizing the current and future students of the school community for the actions of individuals from the past?” Vecchio said.
A crowded Bay Shore school board meeting Oct. 23. The cost for Bay Shore schools to resolve Child Victims Act claims has kept climbing, but other districts also are grappling with fiscal fallout. Credit: Newsday/Steve Pfost
Ripple effects
The $25 million judgment Bay Shore faces is the largest amount to date on Long Island resulting from Child Victims Act claims.
The verdict against the South Shore district could affect negotiations of pending claims, school attorneys said.
“A verdict like this certainly gets the defense side nervous,” said Howard Miller, an attorney with Bond, Schoeneck & King, which has offices in Garden City and Melville. “If you lose, you lose huge. That's a big risk.”
The Garden City office Miller works out of handles Child Victims Act cases from Suffolk County up through Orange County, he said.
“We look at verdicts from all over the state, and they do inform how we advise a school district,” Miller said.
Facts in claims vary, but the Bay Shore verdict could influence the calculation officials make when they consider each case, he said. Would they rather settle it for a seven-figure number or less, or risk going to trial that could end up costing many millions?
“It's almost like you're buying insurance with the settlement,” Miller said.
On the Island, only one other claim has gone through trial: A jury in March found the Herricks district, in Nassau County, not negligent.
Both cases could cast ripple effects.
“If you're a board member of a district that has some cases pending, after the Herricks case came out, I'm sure you felt one way, and after the Bay Shore case, you probably feel a different way,” Vecchio said.
“The amount of the [Bay Shore] verdict, I think, was eye-opening for a lot of folks,” he said.
Limited ways to pay
Since 2021, when the window to file suits under the new law closed, districts and school boards at large have wrestled with means to finance the costs associated with the claims.
In the past, proposed legislation to create a $200 million state fund to provide grants to school districts facing large payouts stalled in the legislature and now may face even more questions in light of the Bay Shore verdict.
“With judgments of this magnitude, the state could say: ‘Hey, what are we supposed to put in this fund?’ ” said Jay Worona, deputy executive director of the New York State School Boards Association. “What would be a satisfying number for such a fund?”
Bay Shore did not say whether it would file an appeal, but Superintendent Steven Maloney said the district is “reviewing our options regarding the jury's liability and damages verdicts.” The district’s budget is about $197 million.
Districts are often left with two options to pay: to borrow or look into reserves. To borrow through bonds spreads liabilities over time but adds costs overall. When it comes to reserves, officials run into the difficulty of access.
Typically, reserves are set up for designated purposes and under the law can only be used for that purpose, barring some exceptions, school attorneys and officials said.
“Each of the reserves has very specific language about how it's established, how it is funded, what purposes you can use the reserve fund for, and then how, if at all, you can take the money out of it,” said Mary Anne Sadowski, managing partner at Ingerman Smith based in Hauppauge.
For example, districts could seek voter approval to liquidate their capital reserve funds to help cover such costs, as Cold Spring Harbor and Harborfields districts did.
“Every district has a different set of reserves,” Sadowski said. “It's going to depend on each individual district.”
The only funds that districts are permitted to have without dedicating them for a specific purpose are unallocated fund balance, which cannot exceed 4% of the school budget.
But districts typically are reluctant to tap into the fund balance, or use all of it, to pay for judgments because it is set aside to deal with unforeseeable issues that arise in a fiscal year, officials said.
In Port Jefferson, the district used $3 million from its undesignated reserve and found the other $2.1 million from “bits and pieces” it cobbled together from other reserves, said Deputy Superintendent Sean Leister at a board meeting Tuesday.
Port Jefferson Superintendent Jessica Schmettan at Tuesday's school board meeting. Credit: Newsday/Steve Pfost
Hope for state relief
Depending on the timing of the payouts, a district could build some of the cost into its budget for the next fiscal year but then risk piercing the 2% tax cap. Attempts to override the cap require 60% majorities in a budget vote.
“It's a very risky gamble trying to attempt to pierce a cap,” Vecchio said.
Some educators, including Port Jefferson schools Superintendent Jessica Schmettan, said they will ask the State Legislature for changes in law to allow districts to access restricted reserves and exempt debt financing costs from tax cap calculations.
As more cases are resolved through settlements or trials, school attorneys and districts officials are counting on them to build momentum for state relief.
“We're also hopeful, because of that recent jury decision ... that [it] may spark some additional interest in terms of a legislative solution,” said Neil Block, an Ingerman Smith attorney representing Port Jefferson, at the board meeting.
With Jim Baumbach
Dandan Zou covers education for Newsday. Previously, she worked for a community newspaper in Maryland and a personal finance magazine in Washington, D.C.
