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Howard County school system announces additional $13.3 million decrease to health fund deficit

The Howard County Public School System announced Friday another large decrease in the district’s health fund deficit.

Five months after a $7.2 million payment was made toward the health and dental fund, the school system announced in a news release the total reduction of the deficit in fiscal 2020 will be $20.5 million — decreasing the overall deficit from $39.2 million to $18.7 million.

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“Since my first day leading the Howard County Public School System, I have been shining the light on this major financial issue, and we have made fully funding our health care obligations for our employees and eliminating this deficit a top priority,” schools Superintendent Michael Martirano said in the release.

The health and dental fund deficit, which has beset the school system for the last five years, was $39.2 million after fiscal 2019. The $7.2 million payment, which was approved by the County Council in May, came from the school system’s unassigned fund balance.

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Jahantab Siddiqui, the school system’s chief administrative officer, said in May it was the first “significant reduction" of the deficit.

The announcement of an additional $13.3 million reduction will lower the deficit to $18.7 million — a 52.3% decrease. Siddiqui said Friday the $13.3 million put toward the deficit came from several different areas, including “lower-than-expected” health care claims and adjustments to hiring and spending practices amid the coronavirus pandemic.

The former $39.2 million deficit stemmed 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%.

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The school system also announced Friday that it received an unmodified opinion in a yearly report from New York-based accounting firm CohnReznick. The unmodified opinion reflects that the school system’s financial statements follow generally accepted accounting principles.

Last year, however, CohnReznick gave the school system an adverse opinion due to the district not having a plan to pay down the deficit. The opinion from the auditor last year threatened the county’s AAA bond rating, Siddiqui said.

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

“The reversal of the adverse audit opinion is a significant step forward and an affirmation of our work during [fiscal] 2020 to implement the plan and incrementally reduce the deficit,” Board of Education Chairperson Mavis Ellis said in the release.

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 increase was initially $14.2 million, but the school system offset $12 million by primarily finding money from rebates.

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.

Howard County Executive Calvin Ball then modified Martirano’s plan into a 10-step proposal, which was approved by the Board of Education in February, to pay down the deficit by 2024. Ball’s approved plan also included an exception that the county would only provide the funds if the school system produces the corresponding year-end savings and cut the first payment down to $7.2 million. The plan included 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.

Both Ball and Maritrano’s proposals ended with one-third of the deficit paid by the county and two-thirds by the school system.

The 10-step plan, though, was altered in the spring 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 was not paid.

Siddiqui said Friday night that the school system and county will start talking soon about how to pay down the remainder of the health fund deficit.

“We’re really pleased we were able to put such a significant dent into the deficit in one year,” Siddiqui said. “When we proposed the plan, we didn’t know a pandemic would impact us in many different ways. It has been our plan to come back to the county in the fall and to update the plan after our [Comprehensive Annual Financial Reports] were done. We will reconvene and restart those conversations soon to come up with a plan to eliminate the rest of the deficit.”

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