The Board of Education last week reviewed a draft of a memorandum of understanding that would establish the amount of money the Board of Education and the town need to contribute to employees' health insurance reserve fund, according to Superintendent of Schools David Title.

"Over the years, the Board of Education has been building up a healthy surplus and the town has not, to the point where the Board of Education has an interest in not having as large a surplus because it diverts money from the direct services to children," said Title, "If we have to continue to contribute even more money out of our operating budget, that's more money we can't spend on direct services."

The school board's surplus now is roughly $4.9 million, according to Paul Hiller, the town's chief fiscal officer, while the entire amount in the fund -- town and school contributions -- is $5.9 million. The figures are preliminary, as some claims through June 30 have not yet been processed. Also, an ongoing audit will not wrap up until Thanksgiving time, he said.

The board's contribution this year, from the 2011-12 budget book, will be $16.4 million. The town expects to contribute $14.9 million, according to Hiller.

The draft memorandum also notes that if the school board gets fewer employee claims than the insurance consultant's projections between Nov. 30 and March 31, it may reduce its contribution to the next fiscal year's operating budget. That may take place if the projected balance for the school district's employees in the health insurance fund balance is twice the "incurred but not reported" rate -- the IBNR level reflects the total amount owed by the insurer to all valid claimants who have had a covered loss but have not yet reported it. The memorandum states that 125 percent of the IBNR is a target for the town to reach by the 2014-15 fiscal year. Also, it is projected both the school board and the town will be funding a balance of 125 percent of the IBNR no later than 2014-15.

"The intent of the memorandum is that in the next years the Board of Education and the town will be contributing an equal share, which isn't happening now. We're contributing more," said board Chairman John Mitola.

He said the issue of health insurance funding arose during the last budget cycle, "and moving forward, both entities want clarity and certainty on this issue."

Mitola said "the majority of the board desires to cooperate with the town on this important issue because doing so is in the best interests of the town and board employees, as well as being in the best interest of the Fairfield taxpayer."

Currently, Title said, there is no funding target for either side. However, if the proposed targets are approved and the board reaches its target, for example, that means it can make a lower contribution the following year, allowing more funding for instruction.

At the same time, "We can't let it run too low because we wouldn't be able to afford to pay the claims," Title said. The school board's surplus in the fund is more than $4 million, which has accumulated based on insurance consultants' recommendations every year and also "good claims experience."

There were fewer claims filed than had been projected and "that's happened several years in a row," said Title, who added the memorandum of understanding on funding targets is expected to be taken up soon by the Board of Selectmen on the town's side of the agreement.

"We're trying to get buy-in from the town bodies," he said.

While the health insurance reserve fund is technically one fund, school employees, according to the memorandum, will continue to be considered separate from town employees for the purpose of determining future health insurance costs.

School board member Paul Fattibene, who is a lawyer, said there is conflicting and ambiguous language in the memorandum, and as a result, the school board agreed to hold off voting so that he and Mitola, also a lawyer, could meet with Title and Board of Education lawyer Don Houston to tighten the language. The memorandum will likely come back to the board for its October meeting.

While Fattibene had concerns with some of the language, member Sue Brand was the only one who really took issue with the memorandum itself.

"We're subsidizing what the town didn't do," she said. "This doesn't feel right to me."