Howard County government and the school system will wait until early next year to take drastic steps to lower the school district’s health care deficit.
After discussing the $39.2 million health fund deficit Monday, both in a joint meeting between the County Council and Board of Education and then the council’s monthly meeting, it was decided the school system will present a multi-year plan in January, outlining how the deficit will be eliminated.
In November, the Board of Education unanimously approved a request to use $15.2 million from the system’s unassigned general fund, which has no set use, to pay down the deficit. However, the County Council grants final approval.
While the council has the final OK, Howard County Executive Calvin Ball appears to be “reluctant” about the approval, according to one of the council members.
“I got the impression that the [county] executive is reluctant to do anything about the transfer of the $15.2 million until the plan is in place, or a plan is agreed upon or there is a plan he has seen,” council Chairwoman Deb Jung said Monday afternoon.
In a statement, Ball said Tuesday, “I can certainly appreciate the sense of urgency the superintendent is demonstrating regarding its ongoing health fund deficit. With that said, I believe a sustainable, multi-year plan should be a prerequisite to any increase in spending to the already approved [Howard County Public School System fiscal 2020] budget, and we look forward to working with HCPSS to develop that plan.”
As a result of not paying down the deficit, the school system received an adverse opinion in a yearly report from CohnReznick, a public accounting firm headquartered in New York, on Oct. 31.
A primary reason for receiving the adverse opinion was not that the deficit grew, but that the school system had been unable to reduce it, said Jahantab Siddiqui, chief administrative officer for the school system.
An adverse opinion in the report has the potential to affect the county’s AAA bond rating, according to CohnReznick.
Ball, referencing the concerns raised about the bond rating, said in his statement, “It should be clarified that the county continues to receive a ‘clean’ opinion from its independent auditor despite the ongoing HCPSS health fund deficit.”
Using the general fund money, the $39.2 million deficit would drop to $24 million and wipe out the general fund balance. The deficit is rooted in an imbalance in the school system’s employee health and dental fund, resulting from funds being taken across seven years to pay for expenses, including salary increases and the elementary school model program.
The health and dental fund began to shrink in 2011 and in 2016 began showing a deficit.
In the 2020 fiscal budget for schools, Superintendent Michael Martirano proposed using $10 million of one-time funds from the school system’s general fund balance to reduce the deficit. However, in the County Council-approved budget, the $10 million was moved to pay for other recurring expenses.
Martirano stressed Monday paying for recurring costs with one-time funds should never be a standard practice.
“The philosophy is that you never, ever use one-time monies to cover recurring costs,” he said. “That is not an acceptable process, not a healthy process.”
With the approved budget moving the funds, the school board could not use them to pay down the deficit. The school board cannot move monies from one category to another, only within categories.
Holly Sun, the county’s budget administrator, said Monday the administration has been asking for the plan to how the deficit would be paid down.
“The school system needs to take ownership of the deficit and come up with a multi-year plan, not just put year-end savings to the deficit,” Sun said.
“I thought the plan was using our fund balances and our savings and we were unable to do that last year,” school board member Vicky Cutroneo said.
The original intent of the fund balance last year was to use monies toward the deficit, she added.
When Council Vice Chairwoman Liz Walsh asked if the $15.2 million request is essentially the same ask as the $10 million from last year, she received a round of affirmative answers.
“OK, so you guys are trying a different tact this time around to make sure you keep the money” to be able to use it toward the deficit, Walsh asked.
For fiscal 2019, health care claims were $14.2 million over the school system’s budgeted amount of $130.6 million, according to a school system memo. The school system offset all but $2.2 million of the $14.2 million through additional revenue, surplus amounts, rebates and adjustments, according to the memo. The remaining $2.2 million was tacked onto the deficit.
In 2018, then-County Executive Allan Kittleman recommended a one-time payment of $11 million to start reducing the health fund’s red ink. The funds were used to pay the yearly health fund obligations, but not to reduce the overall deficit.
“County Executive Kittleman’s last budget got them $11 million to pay down the deficit and last year the funding just wasn’t provided,” Councilman David Yungmann said.
There was a “refusal of the administration to allow using the savings last year,” Yungmann said.
It is likely the deficit will be discussed during the Jan. 13 quarterly meeting between the County Council and school board.
Latest Howard County
On Jan. 9, Martirano is expected to present his recommended fiscal 2021 operating budget before the school board.