For a massive state agency like the Hawaii Department of Education, the obligation to pay a $75,000 settlement from its $2 billion operating budget may come as no major loss.

But for a charter school, which is an independently run public school, such a financial obligation could exert a heavy toll.

That’s the fear in the charter school community lately in the wake of the case of Waimea Middle School, a conversion charter school on the Big Island that counts 256 students in grades 6 to 8.

In 2016, Pamela Miller-Potter was attending an evening meeting at the school when she tripped over a dark-colored bench in an unlit part of a school hallway on her way to the bathroom. She fell, injuring her face, teeth and knee. Her lawsuit against the state resulted in a $75,000 settlement, reached late last year in mediation.

Historically, claims against the state have been paid with annual legislative appropriations from the general fund. But over the last several years, the Legislature has been shifting the financial burden to the responsible state agency, in order to deter future activity or behavior that led to the lawsuit.

“The policy is, the department that generates the wrongdoing behavior, should pay. Otherwise, how will they ever change their ways?” said Rep. Sylvia Luke, chair of the Finance Committee.

While the idea behind the policy shift was to hold state agencies more accountable and ultimately save taxpayers money, it has set off fears in the charter school community that such potential legal obligations could financially cripple schools already running on lean budgets.

“We’re setting a precedent here,” said Joe Uno, chair of the Waimea school’s governing board, the nonprofit Ho’okako’o Corp. “I think it’s important for all the charter schools to understand how important this is to us as a group.”

“One settlement could bankrupt a school.” — Sione Thompson, Charter School Commission

Charter schools, an alternative to regular public schools, receive $7,500 per pupil, about half of what DOE schools get. Those funds must cover charter schools’ personnel costs, supplies, rent and maintenance for facilities, transportation and meal services.

As with regular DOE schools, charters have been the subject of lawsuits. But the Waimea settlement is the first instance where the payment of claims has fallen to the school directly under the new legislative directive.

The 2019 state claims bill that eventually became Act 99 specified that the $75,000 settlement “shall be expended from the fiscal year 2018-19 budget … by the Hawaii state public charter school for the purposes of this Act.”

The Hawaii State Public Charter School Commission, which authorizes the state’s charter schools, withheld $75,000 in per pupil funds from Waimea in early December. That amount could potentially take away one teacher, Uno said during a Nov. 14 meeting.

Reached by phone, Waimea school principal Janice English declined to comment for this story.

Sione Thompson, the commission’s executive director, said reinstating the money to Waimea is a priority and that he has been working with the governor’s office, Board of Education, DOE and legislators to address the issue.

“One settlement could bankrupt a school and possibly put them in a financial situation where they don’t make payroll,” he said. “We need to clearly understand what the insurance policy is for charter schools and what we’re not covered for. We need to ensure that we have some kind of methodology to not bankrupt schools.”

There is a lack of clarity over the insurance matter.

Every state agency, including Waimea Middle, is covered by the risk management program, insurance which protects departments against catastrophic losses. But the deductible for that coverage is $5 million — it actually rose by $1 million in December, according to the state Attorney General’s Office — too high to cover more basic liability.

According to Uno, the school was informed by the AG’s office it cannot purchase commercial general liability coverage.

Waimea Middle has cash reserves on hand, Uno said, but the school is barred from utilizing those funds to cover the cost of the settlement.

That means it is forced to expend its basic operating budget on this matter.

“Our interests are not being represented,” he said. “The per pupil money allocation from DOE is mandated to go to educating children, not to pay liability settlements.”

In the commission’s most recent annual report, most of the state’s 39 charter schools were marked as “low-risk” when it came to the state of their financial budgets.

But the instant a charter school cannot make payroll, it must surrender its charter, according to Thompson.

He approached the governor’s office with a request for an emergency appropriation so the commission can reinstate the $75,000 to Waimea, but was told the DOE should be involved in those discussions.

While charter schools are not part of the DOE, their per pupil funding comes out of the total DOE budget. In Waimea Middle’s case, the DOE also serves as its landlord, since it is a conversion charter school.

What further complicates the issue is the question of whether the school was involved in settlement discussions or knew it would be liable for payment. Because the school was not actually named in the lawsuit, the governing board contends the school is not a party to the settlement and therefore should not be responsible for payment.

Potter-Miller’s lawsuit was filed against the state of Hawaii.

The commission is expected to take up the issue once again at its meeting Thursday. In a response to a “notice of concern” by the commission, Waimea’s governing board said it is “prepared to seek all administrative, legal, legislative, and social remedies available to us on behalf of Waimea Middle School and for the protection of all charter schools statewide.”

Luke, the House finance chair, said the purpose of making state agencies cover their own legal liabilities is to ensure they’re addressing the wrongful behavior but that some situations are case by case.

“It’s not something new, because the departments have known this,” she said of the change. “They should know what the practice has been and if they think there’s an issue, they should raise it.”