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Howard County Executive Calvin Ball announces $10 million proposed payment toward schools’ health fund deficit

Howard County Executive Calvin Ball announced Thursday another proposed large payment toward the public school system’s health fund deficit.

Ball said during a joint news conference with schools Superintendent Michael Martirano, Board of Education Chair Chao Wu and Howard County Education Association President Colleen Morris that his proposed fiscal 2022 operating budget includes $10 million for the district’s health and dental fund deficit. The announcement comes five months after the Howard County Public School System reported a total reduction of $20.5 million to the deficit in fiscal 2020.

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The additional $10 million would reduce the deficit, which has beset the school system for the past six years, to $8.7 million — 78% less than the $39.2 million deficit the district faced after fiscal 2019.

“[This] is a big next step to meet this financial challenge head on, continuing to reverse the course of a near-$40 million deficit generated ... and making progress toward eliminating this deficit once and for all,” Ball said. “We are optimistic that with additional year-end savings from the school system that this deficit may be eliminated completely in the near future.”

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Ball’s budget, including the $10 million payment, will be released to the public Monday and awaits approval from the County Council in May.

The original $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 prekindergarten program.

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

When Martirano started as superintendent in 2017, the deficit was projected to grow to more than $50 million. In recent years, the district has started to fully fund employees’ health insurance costs in the annual fiscal budgets, something Martirano said Thursday is “nonnegotiable.”

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“The deficit is a result of many years of underfunding the health care expenses, and it has long undermined the school system’s sound fiscal condition,” Martirano said. “When I became superintendent four years ago, I quickly became aware of the accumulated deficit and realized its dire significance. Eliminating it and fully funding our health care obligations have been among our highest priorities ever since.”

In 2019, the district received its most negative feedback regarding the health fund deficit when New York-based accounting firm CohnReznick gave the system an adverse opinion due to it not having a plan to pay down the deficit. The opinion from the auditor threatened the county’s AAA bond rating that year, according to district Chief Administrative Officer Jahantab Siddiqui, though the county has been able to consistently maintain its top rating.

“Our fiscal challenge was significant enough that our external auditors took notice, issuing a modified adverse opinion for our school system,” Ball said Thursday. “Based upon those indicators, it was clear our current path wasn’t sustainable and that decisive action was needed to meet those fiscal challenges head on.”

The outlook regarding the deficit started to improve last year when the county and the district were able to put $20.5 million toward reducing the deficit from $39.2 million to $18.7 million.

The first payment, approved by the County Council in May 2020, was for $7.2 million and came from the school system’s unassigned fund balance. Siddiqui said at the time that it was the first “significant reduction” of the deficit.

Then, in October, the district announced an additional $13.3 million reduction. Siddiqui said the available money came from several different areas, including “lower-than-expected” health care claims and adjustments to hiring and spending practices amid the coronavirus pandemic.

Also in October, the system reported it received an unmodified opinion from CohnReznick, which reflected the district’s financial statements follow generally accepted accounting principles.

“The county’s contribution ... will greatly help our system to get closer to removing this financial burden, which has strained our budget and limited the funding available to apply to our priorities,” Wu said. “I commend Dr. Martirano for his leadership and his unwavering commitment by raising the alarm about this deficit four years ago and working tirelessly to stabilize the budget and reduce the deficit on an aggressive timeline.”

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