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Howard Board of Education approves county-modified plan to eliminate health fund deficit by 2024

Howard County Executive Calvin Ball is recommending the school system’s health and dental fund deficit be paid off in full by the end of fiscal 2024, two budget years later than what was proposed in the school system’s elimination plan.

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On Thursday afternoon during a budget work session, the school board unanimously approved the modified plan.

The deficit is rooted in an imbalance in the school system’s employee health and dental fund, resulting from money being taken across seven years to pay for various expenses.

The health and dental fund began to shrink in 2011 and in 2016 began showing a deficit.

Martirano’s initial proposal looked to receive a total of $13 million from the county, proposing to receive $9 million in fiscal 2021 and $4 million in fiscal 2022.

“I also want to commend [and] thank County Executive Calvin Ball for his response. Although my plan was a little bit more aggressive to the [school] board, I fully understand the response,” Martirano said during Thursday’s work session.

The county’s modified plan is an “incremental approach so there’s not an impact on the county budget,” Sameer Sidh, Ball’s chief of staff, said in an interview.

While Ball’s proposal still looks to have the county provide $13 million to the school system in increments over the next four budget years, the yearly allotments are “contingent upon [the Howard County Public School System] meeting established year-end savings targets,” the memo states. The school system’s year-end savings would go toward eliminating the deficit, as also proposed in Martirano’s plan.

However, Ball’s proposal looks to place guardrails on the school system’s request to receive the series of one-time funds from the county to eliminate the deficit.

Ball’s justification for having the school system hit yearly savings is it “provides a measure of accountability to ensure that HCPSS takes ownership and remains committed to the elimination of its deficit throughout the duration of the modified plan,” the memo states.

In an interview, Martirano said the school system’s year-end savings figures were put in to be “flexible.”

“We can’t guarantee anything,” Martirano said, adding the school system would hope to negotiate with the county if the specific year-end savings aren’t met.

“There could be things out of our control that may cause us to not meet that one particular year,” Martirano said during Thursday’s work session.

Another difference between the two plans is utilizing the $15.2 million from the school system’s unassigned general fund, which has no set use, to pay down the deficit.

Martirano wanted to use the entire general fund immediately to pay down the deficit. Ball’s plan says otherwise.

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The county executive recommends only utilizing $7.2 million of the $15.2 million, leaving the remaining $8 million in the fund.

The county is looking to leave money in the school system’s general fund for emergency purposes, Sidh said.

The school system did not pay down the deficit in fiscal 2019; instead, it grew slightly from $37 million to $39.2 million, according to the school system.

As a result of not reducing the deficit, the school system received an adverse opinion in a yearly report from CohnReznick, a public accounting firm headquartered in New York.

An adverse opinion in the report has the potential to affect the county’s AAA bond rating, according to CohnReznick.

County officials are “confident that [Howard County] will maintain its AAA bond rating, based on the unmodified opinion received from its external auditor and our strong strong record of fiscal discipline and financial management,” Ball’s memo states.

Next steps include the County Council approving a resolution to move the $7.2 million from the school system’s general fund to pay down the deficit and for county officials to meet with the state education department to ensure the one-time funds will not factor into maintenance of effort, according to Sidh.

Maintenance of effort is a value that demonstrates the level of local and state funding that remains relatively constant from year to year for the school system.

“My goal is to never have this happen again in the Howard County Public School System,” Martirano said in an interview.

Ball’s approved plan

  • Fiscal 2020 use of school system’s unassigned fund balance: $7.2 million
  • Fiscal 2020 school system year-end savings: $2.5 million
  • Fiscal 2021 county one-time request: $6 million*
  • Fiscal 2021 school system year-end savings: $5 million
  • Fiscal 2022 county one-time request: $3 million*
  • Fiscal 2022 school system year-end savings: $4 million
  • Fiscal 2023 county one-time request: $2 million*
  • Fiscal 2023 school system year-end savings: $4 million
  • Fiscal 2024 county one-time request: $2 million*
  • Fiscal 2024 school system year-end savings: $4 million

*The county will only provide the funds if the school system produces the corresponding year-end savings.

Martirano’s initial proposal

  • Fiscal 2020 use of school system’s unassigned fund balance: $15.2 million
  • Fiscal 2020 school system year-end savings: $2.5 million
  • Fiscal 2021 county one-time request: $9 million
  • Fiscal 2021 school system year-end savings: $5 million
  • Fiscal 2022 school system year-end savings: $4 million
  • Fiscal 2022 county one-time request: $4 million
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