The Anne Arundel County school system is about three years away from facing a $54 million shortfall in its health care fund for workers, despite having a current balance of $18.7 million, chief operating officer Alex Szachnowicz told the board of education Wednesday.
The figures were among several Szachnowicz revealed showing that, though the system has kept costs down well enough to have millions to work with, it will probably face huge deficits once federal stimulus money runs out and state and county contributions dwindle because of predicted budget shortfalls.
Szachnowicz said that with federal health care costs rising about 9 percent annually, the board will not be able to keep up unless it receives an infusion of funds well above what it currently receives annually. He said that even though the county's health care fund has a current balance of $18.7 million, it will have used up most of that by fiscal year 2012, putting it in a $54 million hole by fiscal year 2013.
"We're self-funded for health care," said Szachnowicz, meaning the county pays all the claims for its employees. "We have flat budgets. And yet we have health care costs that are rising 9 percent a year. Go back to middle school; remember back when you have those math problems that said, 'Two trains are leaving for Cleveland and headed for Phoenix.' Well, one is going at 9 percent and the other is going at maybe 3 percent, if you're lucky.
"The gap between the cost of health care and our ability to fund health care is rapidly increasing."
His forecast overshadowed other announcements during the board meeting, including the adoption of design documents for a $3.8 million science lab modernization project at Southern High School in Harwood. The project will replace the school's original science labs.
Szachnowicz said that the $18.7 million that the school system currently has in its health care fund includes $2.3 million added this year, primarily the result of fewer medical claims in fiscal year 2010. He said that the system will use $11 million toward health care costs in the current fiscal year. The remaining $7.5 million will go toward paying costs in fiscal year 2012.
That would leave about a quarter-million dollars to use toward the fiscal year 2013 budget.
The county paid $127.5 million in school system employee health care claims in FY 2009 and $138.6 million in FY 2010. The county projects it will pay $151 million for the current fiscal year. The health care fund supplements what the school system receives for health care costs from the county and state.
"Since we're self-insured, if you have a few catastrophic illnesses … if you have someone who gets brain cancer, all of a sudden it's not a $110 visit to the eye doctor. It's a $330,000 ailment. [The county has] to pay 90 percent of it," he said.
In addition, Szachnowicz said that the school system has $15.2 million remaining from its operating budget from fiscal year 2009. It also saved $5.6 million in fiscal year 2010 and has more than $420,000 in encumbrances. He said of that $21.3 million total, the school system will use $6 million to fund items in this year's budget and $15 million toward the fiscal year 2012 budget.
"We know that we're going to be in a much tougher financial position than we were in this current year," Szachnowicz said. "The federal stimulus funds were for FY 2010 and FY 2011, but they expire, so that money is going away.
"We know that the county government has on the order of approximately $100-plus-million deficit next year. And we know that the state of Maryland has on the order of a $1.5 billion deficit."
Board member Eugene Peterson said that the numbers are a warning of for what's in store for the county. "When people look at these numbers, they need to look at them in the context of fiscal Armageddon," he said. "In a county we believe that you can have champagne tastes on a beer budget."