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Howard County Council passes $7.2M reduction of school system’s health fund deficit

The Howard County Council passed a resolution on Monday to help pay down the school system’s $39.2 million health and dental fund deficit.

The council voted unanimously to appropriate $7.2 million from the school system’s unassigned fund balance to reduce the health fund deficit. The payment, which cuts the deficit by 18.4 percent down to $32 million, is the first-ever “significant reduction” of the school system’s health fund deficit, according to Jahantab Siddiqui, the school system’s chief administrative officer.

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“It is absolutely a big deal, and I communicated with all of our council members last night appreciating their support for this,” Siddiqui said Tuesday. “This has been several months of work with the county executive and the County Council to develop a plan and tackle this deficit.”

The transfer of funds is the first step in County Executive Calvin Ball’s 10-step plan, which was approved by the Board of Education in February, to pay down the deficit by 2024. Ball’s plan was a revision of one he received from Howard County school system Superintendent Michael Martirano in January, which proposed to clear the deficit by 2022. Both proposals ended with one-third of the deficit paid by the county and two-thirds by the school system.

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The 10-step plan, however, has been altered in recent months due to the coronavirus pandemic. In late April, the school system and the county agreed to a delay in funding from the county, meaning the $6 million one-time request for the 2021 budget is not expected to be paid. The school system has stated it expects to pay the $2.5 million from year-end savings at the end of the 2020 fiscal year.

On May 13, Ball’s chief of staff Sameer Sidh said during a virtual town hall that the county has spent more than $6 million on technological equipment and personal protective equipment amid the coronavirus pandemic. Sidh said he expects a $35 million loss because of a drop in tax revenue.

Martirano has been adamant about paying down the health fund deficit in the past, stating in February that his goal “is to never have this happen again.”

“By fully funding the actuarial estimate for health care costs, we have stemmed this deficit from growing, and now we begin real progress to eliminate a deficit that resulted from historic underfunding,” Martirano wrote in an email.

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The $32 million deficit stems from an imbalance in the school system’s employee health and dental fund, which has been depleted since 2011 as money was used to pay for other uses. For seven years, the school system pulled funds from its health care budget to pay for other expenses, including salary increases and a countywide pre-kindergarten program.

Howard schools pay for 85% of each employee’s health care claims, while the employees cover the remaining 15%.

Last year, the health deficit rose from $37 million to $39.2 million, according to the school system’s 2019 Comprehensive Annual Financial Report. The rise initially was $14.2 million, but the school system offset $12 million primarily by finding money from rebates.

Also last year, the school system received an adverse opinion in a yearly report from New York-based accounting firm CohnReznick, which threatened the county’s AAA bond rating, according to Siddiqui.

“An adverse opinion is very troubling, and we had to show movement in the next fiscal year,” Siddiqui said. “We want to make sure we get a clean audit every year, and that’s why this was such a big priority.”

In January, Martirano released a memo with a plan to eliminate the deficit by 2022. That proposal included putting all $15.2 million from the unassigned fund balance for fiscal 2019 toward paying down the deficit. Ball’s approved plan, which included an exception that the county would only provide the funds if the school system produces the corresponding year-end savings, pushed back the elimination date to 2024 and cut the first payment down to $7.2 million.

The plan includes money from year-end savings from the school system of $2.5 million in 2020, $5 million in 2021 and $4 million in each year from 2022 to 2024 and four annual one-time requests totaling $13 million from the county. The monetary commitments from the county in that plan, however, are now on hold due to the coronavirus pandemic.

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