An insurance refund windfall will allow Baltimore to close a gaping budget deficit without laying off city workers and making deep cuts in the public schools, city officials announced yesterday.
Just as the city was bracing for top-to-bottom cuts to cope with a $31 million shortfall, Blue Cross and Blue Shield of Maryland unexpectedly returned $25.2 million.
The one-time refund comes from $125 million the city put aside to pay for employee health care costs last year. About $100 million was needed.
It permits Mayor Kurt L. Schmoke to deal fairly painlessly with the worst financial squeeze in years, although some education cuts still are needed to balance the $2.3 billion budget.
"It looks pretty good now," the mayor said at his weekly news conference yesterday.
Mr. Schmoke's budget-balancing plan hinges partly on the release of $5.9 million in education funds that the state legislature has withheld because of a lack of management reforms.
While Mr. Schmoke called the prospects for those funds realistic, state Del. Howard P. Rawlings was less optimistic.
"Unless something extraordinary happens between now and the end of the session, I do not think it's likely," said Mr. Rawlings, a Baltimore Democrat who chairs the House Appropriations Committee.
Most of the city's $31 million deficit will be covered with about $20 million from the insurance refund. An additional $5.4 million in savings will come equally from cuts in the budgets of the city's 182 schools and a spending freeze in the education department.
The other $5.2 million from the insurance refund could not be used to cover the deficit because it was meant to cover health costs of employees whose positions are funded by federal grants or noneducation state grants, officials said. That money will be returned to various agencies.
Mr. Schmoke's announcement that there would be no layoffs -- feared by many since the budget gap became known -- was met with relief by union leaders.
"That's great," said Chester D. Wilton, president of the City Union of Baltimore, representing 6,500 clerical and blue-collar workers.
In an attempt to avoid a replay of the budget troubles, the city has developed incentives to encourage employees to retire early.
The plan, to be financed by a retirement system surplus, is designed to trim as many as 1,000 workers by the year 2000 without layoffs, officials said.
It covers 11,500 employees, about 45 percent of the city's workers. Police officers and firefighters have their own pension system; teachers are part of the state system.
The plan requires City Council approval, and Mr. Schmoke said he would introduce a bill in two weeks.
In December, the school system laid off 65 teachers, administrators and clerical workers as part of a plan to reduce its deficit, then at $32 million. It has since been whittled to $18 million.
When Mr. Schmoke disclosed in early January that the city also had a $9.2 million shortfall because of declining property and income tax revenues, there was widespread fear of layoffs.
But this week, the city got word that it would receive $25.2 million back from Blue Cross and Blue Shield because it had overpaid employee health care costs.
Last year, Baltimore decided to become "fully self-insured," said city Finance Director William R. Brown Jr. That means Blue Cross administers the insurance program, but the city covers all the claims, making monthly payments of anticipated costs.
The city paid a little more than $10 million a month, or $125 million for the year. But the insurance claims turned out to be 20 percent less than anticipated, he said, a trend officials noticed last fall but did not confirm until this week.
This year, the city is paying $9.5 million a month, or $114 million for the year, officials said.
Officials said the insurance windfall will cover the largely one-time expenses that make up the deficit, including:
* $3.1 million in police and public works overtime related to last month's blizzard;
* $4.5 million for computers to track special education students, as ordered by a federal judge; and
* $5.9 million for other education costs, principally raises in excess of those budgeted.
While the insurance windfall helps solve the budget deficit for the fiscal year that ends June 30, the retirement incentive program is geared toward heading off potential future problems.
Unlike many private industry early retirement programs, the city's will offer no cash payments for participants. Instead, it will credit employees for unused leave time with additional incentives for those who sign up by June 30.
School board lashes out at restructuring proposal
The Baltimore school board condemned last night those who would "destroy the school system through the withholding of funds, disguised partnership proposals, takeover attempts and court actions."
The sharply worded resolution was the first official response to -- reports that Mayor Schmoke and state officials are planning a restructuring of the system in a city-state "partnership."
People in "state government" are attempting a thinly disguised takeover of city schools, the resolution said. If they aren't stopped, "Baltimore City Public Schools will cease to exist and will become the Maryland State Public School System in Baltimore City."
The board, which is appointed by the mayor, also lashed out at the General Assembly's withholding of the $5.9 million in state aid to punish the system for failing to carry out management improvements.
"We've been silent long enough," said Phillip H. Farfel, the board president. "People have forgotten that this board has the legal responsibility to set policy for Baltimore schools, not the General Assembly and not the state Education Department."