North Adams Insurance Trust Fund Recap
About a year and a half ago, the North Adams Teacher's Association became suspicious that the city was underpaying its share of the premiums for health insurance. Yesterday it was independently confirmed that their accusations were 100% true. The city did not pay its share, and in doing so, grossly underfunded the Health Insurance Trust Fund to the tune of $1.1 million over just the past two years. When other years, including the current one are examined, it is expected that the number will grow dramatically.
Based upon those findings. the auditor recomends:
We recommend that City management review MGL chapter 32B, section 3 a, (Municipal Trust fund statute). It is interpreted, under this law, requiring that the City to contribute a specific percentage of a previously determined premium or rate by the end of each fiscal year. As noted above, the City did not contribute its percentage of the working rate/premium based on enrollment for fiscal years 2009 and 2008.
To be in compliance with state statute, we recommend that the City start contributing their applicable share of the established working rate/premium based on enrollment.
We also recommend that the City perform a reconciliation of internally prepared head counts to the head counts noted on Blue Cross Blue Shield invoices.
We further recommend that the City review the year-end cutoff procedures to insure that health insurance withholdings for the subsequent fiscal year claims are accounted for in a liability account rather than in the year-end fund balance.
So, where are we now? And what does this all mean?The current budget and correcting the problem.
What is clear is that the city will have to immediately increase its contributions to the Trust Fund just to be in compliance with the law. This means that several hundreds of thousands of dollars will have to come out the current budget and be put towards insurance.
In subsequent years, the city's share of the premiums will have to be totally budgeted for, which is a departure from the past method. Until now, the mayor's office transferred money into the fund as needed. This was and is clearly illegal.What is owed and to whom?
The $1.1 million that should be in the trust fund, but appears to have been spent on other areas of the city government, plus the amounts due from previous years, by law needs to be spent on covered health care costs or returned to the premium payers (city employees) in the form of reduced premiums or premium "holidays" (i.e. the employees share gets paid out of the trust fund until excess balances are lowered.).
Obviously the city does not have that kind of cash floating around. I fully expect that all the city unions are going to work with the city to find a way to cushion the shock of such a big debt.
It is likely that some new revenue sources will be required. Can anyone say "sewer fee?" It is also likely that the underfunding of several city departments will continue.
I don't envy any of the sides who will have to figure this mess out.The political side of all of this.
It is very clear who is to blame for this situation. The former mayor, John Barrett, thought he had found a loophole to squeeze a few hundred thousand dollars a year out of the budget when insurance claims were low. While he might have had the best interests of the city in mind, he was wrong and was violating Massachusetts law.
What really bugs me, it that when the problem was made public, he went into battle-stations mode and denounced the motives of anybody who questioned his methods. He belittled union members who presented the issue to the City Council. He accused then-Councilor Alcombright of being political when an audit was called for, even though Alcombright sat on the City's Finance Committee which had oversight on this issue.
To make matters worse, once the charges were credibly made, four City Councillors (plus Bloom who was absent) were complicit in the delay of examining and fixing the problem. Councilors Marden, Cariddi, Harpin and Blackmer all voted against Alcombright's motion to send the trust fund issue to an independent auditor. This action probably would have caused the city to change its funding of the Trust last fall, and possibly saved us whatever deficits the fund is currently running for this fiscal year.
This all smacks of severe, but unintentional, negligence. I hope that the resolution proceeds smoothly, because should this ever go before judge and jury, it's pretty darn clear who would win.