Methuen's Health Deficit Borrowing Bill

I have filed, and Methuen City Council has passed, a bill allowing borrowing for a deficit in our health care account for the last fiscal year. The Tribune wrote an editorial on it yesterday. There are some important points to be made, both generally and specifically in response to the Tribune editorial. Lets review the facts and then allow me to give you my perspective.

The request is to allow Methuen to borrow $1.9 million dollars to cover a deficit in the account that provides health care insurance for municipal employees. Methuen is “self insured”, meaning that we pay for employee health care from a pool of money derived from employee and taxpayer contributions. In Methuen the split is 62% taxpayer, 38% employee. Each year we estimate total usage and base our employee premiums and taxpayer contribution on that estimate.

So what happened? Employee plan utilization was higher than our original estimates, and based on that we closed the year with a deficit. Were there steps that could have been taken before year end to prevent the deficit? The answer to that is NO. And it is an important distinction that needs to be made here. An operating deficit generally means that there may have been some management culpability i.e the numbers were seen but no adjustments were made to correct the problem. With municipal health care no adjustments can be made under state law, even as we see the deficit coming. Let me cite an example: The State GIC, (I believe in the last fiscal cycle) saw a problem with their plan that was similar to Methuen’s problem. What they did was to make a mid-year plan adjustment to reflect the higher employee usage. This adjustment required a higher level of employee contribution and solved the fiscal issue faced by the GIC. The adjustments were made unilaterally, without any bargaining. Municipalities have no such rights, although we have been clamoring for them for some time. If we wanted to make such a plan adjustment it would have to be bargained. It was not possible to get the unions to agree to any mid year increase.

So what are the alternatives? The actual operating deficit is substantially higher than what we are seeking borrowing authority for. It is actually about $3.3 million. The City used taxpayer money to reduce that deficit by about $1.4 million. (A large portion of our percentage (62%) of the deficit) We have sought to borrow only the balance in order to avoid one of two things.

1) Putting the balance on the city tax levy, assigning the full brunt of the deficit to City taxpayers.

2) Putting the balance on the city tax levy and surcharging the employees for their share of the deficit, cutting the deficit but putting a big one year burden on our employees.

Our solution, to deficit borrow that balance, allows the deficit to be spread over three years, avoids a one year hit to taxpayers and employees, and becomes an obligation of the health care trust fund. It is the optimum solution in difficult circumstances.

With regards to the Tribune editorial I do believe that it is not without some merit, despite the criticism. Is deficit borrowing the best solution from a business perspective. The answer, in my opinion, is no. So I understand the angst expressed in the editorial. But they are not entirely correct either.

Is the message from the Statehouse now to be that poor fiscal planning and management will be rewarded by a state-sponsored cushion.

In this case there is not “poor fiscal planning” or “poor management”. The rules of the road need to be changed to allow managers to manage. And what has become of our recommendations for changes to the “health care rules of the road”? At the State level the requests for health care plan design authority for municipalities has been repeatedly ignored at the behest of municipal unions. At the local level I filed a Home Rule Petition, similar to one that passed in Lowell, that would give Methuen “plan design authority”. That Home Rule Petition, for the second time, has languished at City Council in the face of union opposition.

Finally it is important to note that regardless of estimates of usage we are obligated under Massachusetts law to pay as a City our percentage. If we made a higher estimate of utilization at the beginning of the fiscal cycle we would have been obligated to pay that amount and build it into the budget. We have proposed, and the City employees have accepted, a health care plan that dramatically increases employee costs in this fiscal cycle. Methuen employees are paying GIC style co-pays and deductibles while shouldering one of the largest overall percentage of health care costs in Massachusetts at 62-38. We are looking at overall system costs that are well below this years estimates in health care, and while it is too early to say if this will hold up for the entire year we are guardedly optimistic.

As a last note taxpayers should be aware that the health care fund has run in surplus in prior years, with a surplus of one million dollars a couple of years back that was disbursed to both employee and taxpayer. We have taken the strong management steps that are allowed by law to right the health care system in a way that is fair to both taxpayers and employees. Based on the facts I would say that any attempt to compare this request for a health care borrowing cannot be fairly made to a request to borrow for general government purposes, which the Tribune appears to want to do. It is also, as I point out above, not due to management or fiscal deficiencies in Methuen. Our fiscal condition, if this borrowing is allowed, will be amongst the very best in the Merrimack Valley, with money in reserve as well as a big amount of levy capacity under Prop 2.5. And that position is a direct result of strong management and extreme budgetary discipline.

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1 Response to Methuen's Health Deficit Borrowing Bill

  1. Jules Gordon says:

    Your Honor,

    Where does it end?



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