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Health Fund Deficit

Understanding the deficit, the actions taken to date, and outlining the action plan

Howard County Public Schools to Eliminate Health Fund Deficit Two Years Ahead of Schedule

Howard County Public School System Superintendent Dr. Michael J. Martirano, joined by Board of Education Chair Dr. Chao Wu, County Executive Calvin Ball, County Council Chair Liz Walsh, and system and county leaders, on July 12, 2021, announced the school system’s health fund deficit will be eliminated two years ahead of schedule.

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Elimination Plan

  • 04/15/21 Howard County Executive Contributes $10 Million to HCPSS Health and Dental Fund Deficit
  • 01/07/2020 Memo from Superintendent Martirano to BOE, Health Fund Deficit Elimination Plan
  • 02/03/2020 Memo from County Executive, Health Fund Deficit Elimination Plan
  • 02/06/2020 Memo from Superintendent Martirano to BOE, County Executive’s Response to Health Fund Deficit Elimination Plan
  • 02/20/2020 County Executive Ball Pre-Files Legislation to Address Schools Health Fund Balance

  • Elimination Plan from Superintendent Michael Martirano

    Plan Background

    As of June 30, 2019, the Health Fund has a deficit of $39.2 million. As was discussed during the December 9, 2019 meeting with the County Council, HCPSS does not have the ability to eliminate the deficit on its own. However, over a reasonable amount of time and with some level of County support, the deficit can be eliminated. This memo will be shared with staff from the County Budget Office and Auditor to begin discussions so that an agreement can be reached. It is my recommendation that once agreement is reached on a plan, that the Board of Education and County Government document this agreement.

    The proposed plan is consistent with direction from the County Council that our plan demonstrate collaboration and considers how other districts have eliminated deficits within their Health Fund. The plan details provided in this memo also assume the use of one-time funds from Howard County government, similar to how the Anne Arundel County Public Schools utilized one-time support from Anne Arundel County Government.

    Stabilizing the Fund vs. Eliminating the Deficit

    It is important to emphasize again that over the last two years, HCPSS has fully funded our actuarial based health care cost projections, and my proposed FY 2021 Operating Budget will continue this commitment. We have stabilized the Health Fund and must now work to eliminate the accrued deficit. This deficit accumulated due to leadership decisions to use the Health Fund balance to support other operating budget priorities, while underfunding the account for projected health care costs. As such, we must look to use one-time funds to eliminate the deficit and not look at permanent spending reductions that would impact our staff and students.

    Proposed Deficit Elimination Timeline and Contributions

    The proposed Plan eliminates the deficit through a combination of actions requiring one-time funds from the County and HCPSS. I have emphasized the importance that one-time funds not be used for recurring expenses. The deficit is a non-recurring expense. Therefore, utilizing one-time funds to cure the deficit fits squarely with this direction and is a prudent budget practice. That said, eliminating the deficit will not be done without difficult decisions and sacrifices.

    The plan proposes to use one-time funds from HCPSS and to request one-time funds from Howard County to eliminate the deficit. The first of these one-time requests was approved by the Board in November by authorizing the use of the $15.2 million in unassigned General Fund balance. This action is pending approval by the County Council. If approved, the deficit would be lowered to $24 million. The deficit is proposed to be eliminated based on the following:

    FY 2020 use of unassigned fund balance (HCPSS) $15.2 million
    FY 2020 year-end savings (HCPSS) $2.5 million
    FY 2021 one-time request from (Howard County) $9.0 million
    FY 2021 year-end savings (HCPSS) $5.0 million
    FY 2022 year-end savings (HCPSS) $4.0 million
    FY 2022 one-time request (Howard County) $4.0 million
    Total $39.7 million

    Frequently Asked Questions

    There have been several misconceptions about the deficit and in order to clearly communicate this plan, I have provided some FAQ style information below that will also be posted to our website along with my proposed FY 2021 Operating Budget on January 9, 2020.

    What is the goal of the Deficit Elimination Plan?

    The goal is to eliminate the Health Fund deficit by fiscal year-end 2022.

    Will the Plan require employees to pay more for their health insurance to eliminate the deficit?

    No. The deficit was not caused by actions of employees. Therefore, my plan does not ask employees to pay more to eliminate the deficit.

    Does the plan propose to change employee health benefits to eliminate the deficit?

    Employee health benefits are subject to collective bargaining. Negotiated contracts are in place for fiscal year 2020 and 2021. The Deficit Elimination Plan does not propose to reopen contracts in order to extract plan design savings to eliminate deficit. Plan design changes to solve the deficit would have the same effect of asking employees to pay more or receive less to eliminate the deficit. That would not be a fair resolution to a problem that is not of the employees’ making.

    How were these amounts determined?

    Frequent questions have been asked by County staff about how the Anne Arundel County School System worked in partnership with Anne Arundel County to solve its health fund deficit. That partnership shared the burden with two-thirds coming from the school and one-third coming from the county. The Deficit Elimination Plan proposes that HCPSS contributes $26.7 million in one-time funds and Howard County contributes $13.0 million. This is a cost share of 67 percent and 33 percent.

    Does Howard County have $13 million to contribute?

    The intention is to work in collaboration with the County on this proposal. Rectifying this deficit is in everyone’s interest and will require difficult decisions by the County and HCPSS. It would be premature to answer whether and how much the County will share in the burden. Staff did review the County’s fiscal year-end 2019 CAFR. The County’s General Fund has an unassigned fund balance of $18.4 million. In addition, the County has been able to fully fund its Rainy Day fund to the County Charter amount. The fund has $73.9 million. Making presumptions about the use of either source of these funds would be inappropriate. The County has a large budget to balance and faces many of the fiscal challenges faced by HCPSS. The intent is to work collaboratively to find a win-win path to eliminating this deficit as quickly as possible.

    Why should the County contribute to solving the Health Fund deficit?

    The County has direct interest in seeing this deficit eliminated. The first interest goes to sound fiscal stewardship. It is against Maryland Code for a school system to have a deficit in its General Fund (Maryland Annotated Code §5–114). The Health Fund is an internal service fund, which is not technically a General Fund. However, the law provides reasonable instruction that a deficit is not good fiscal management and should not exist even in the Health Fund. It should be further noted that the Health Fund provides health care coverage for all staff, which are almost entirely in the General Fund. In other words, the Health Fund deficit is a General Fund cost; and the deficit resulted from underfunding the cost of health care from FY 2015 to FY 2018. So long as the deficit remains, the total cost of providing educational services is not being funded and fiscal stewardship is at risk.

    Second, HCPSS is not accurately stating its financial position. The adverse opinion by the independent auditors calls out the egregiousness of this situation and implores action to be taken to adopt a plan. Although, the County received a flawless opinion for its independent audit in FY 2019, it would be imprudent and fiscally parochial to view HCPSS adverse opinion as an isolated problem when HCPSS exists to serve the same public service ends as the County. The calling for sound fiscal management and stewardship is a shared calling.

    The last point of shared interest with the County should be to maintain the excellent education system that is the foundation of Howard County’s quality of life. The County provides approximately 70 percent of funding to the district. HCPSS does not have taxing authority to increase funds. The budget tools HCPSS controls to address the deficit are to propose a fiscally responsible budget that does not make the deficit worse, manage the budget to achieve savings to be applied to the deficit, and request additional funding to eliminate the deficit. This proposed plan utilizes all of these budget tools.

    Would the County have to increase the MOE to eliminate the deficit?

    No, the deficit should be resolved with one-time funds from the County and HCPSS. The Maryland State Department of Education (MSDE) has previously approved the one-time designation for funds used to reduce the deficit. It would be treated similar to the FY 2019 one-time contribution the County made, where HCPSS submitted the one-time funding as a non-recurring expense to be excluded from the base. Therefore, the MOE would not be impacted by the proposed Deficit Elimination Plan.

    Why are future HCPSS contributions significantly lower than the $15.2 million HCPSS is requesting to use from the FY2019 General Fund balance?

    The FY 2019 savings were achieved through hiring and spending freezes, underspending in certain programs, and salary lapse due to turnover. Moving forward, HCPSS, through the proposed FY 2021 has aligned salary lapse and spending in programs to be consistent with actual expenditures, both increasing and decreasing appropriation for certain programs. This alignment with actual spending right-sizes the budget and will reduce potential end of year savings as a result. Details will be included in the FY 2021 Superintendent’s Proposed Operating Budget.

    Where will HCPSS get the $26.7 million for its share?

    The greatest portion of this amount would come from the use of the unassigned fund balance, $15.2 million. The remainder would have to be achieved through budgetary savings over the next three fiscal years: $2.5 million in FY 2020, $5.0 million in FY 2021, and $4.0 million in FY 2022.

    How will HCPSS achieve these budgetary savings?

    Nearly 85 percent of the total HCPSS General Fund budget is for the salaries and benefits of employees. The targeted area to generate funds are salary savings from turnover and strategic position freezes in central office and other non-teaching positions. In FY 2018 and FY 2019, HCPSS transferred nearly $7.0 million and $4.5 million respectively in year-end savings to help fully fund health benefits. It will take strategic budget management to achieve these types of savings going forward. However, the significance of the deficit requires the savings be generated.

    Does the Deficit Elimination Plan address the cost growth pressure of health care?

    Health care costs are volatile and grow at an irregular pace. In some years, cost growth is higher than projected, requiring mid-year budget actions to manage the fund. A major assumption of the Deficit Elimination Plan is that current year health care costs will be fully funded. This is a principled assumption to prevent the deficit from growing further. For the last two fiscal years, HCPSS has followed this principle and made budget cuts to achieve full funding of health care costs. In addition, the County contributed $11 million in one-time funding to cover health care costs in FY 2019.

    Cost growth projections are based on the three-year average cumulative growth rate for claims paid. The amount is about six percent annually. This growth rate is applied to the cost of claims and the premiums going forward. A six percent annual growth rate strains long-term sustainability. State and County funding formulas generally do not grow at an annual rate of six percent making this type of growth unsustainable. Therefore, HCPSS must request additional funding above MOE and/or cut from other parts of the budget to pay for the increasing costs of health care, as mentioned above. The Deficit Elimination Plan does not tackle this issue. The cost pressure of health care would need to be addressed through plan design and collective bargaining.

    If the Deficit Elimination Plan is approved and funded would it eliminate the deficit?

    Yes, the Deficit Elimination Plan would eliminate the deficit by fiscal year-end 2022. The enclosed projections and chart provides the details.


    Prior to fiscal year 2015, HCPSS maintained a healthy fund balance in the Employee Health and Dental Fund to account for year-to-year changes in the total amount of health claims. However, from FY 2015 through FY 2018, the employee Health and Dental Fund was underfunded to meet operating budget priorities, contributing to an accumulated deficit of $39.2 million. This deficit is not the fault of hardworking employees, but a consequence of past budget decisions, which the Superintendent first raised in May 2017 during his first month as Interim Superintendent.

    The Comprehensive Annual Financial Report (CAFR) for Fiscal Year End June 30, 2019, contains a modified adverse opinion for the General Fund and the Health and Dental Fund. The independent auditors issued this opinion for the following reasons:

    • The Health and Dental Fund owes the General Fund $20.7 million (because of the underfunding) and HCPSS has not demonstrated its ability to repay the amount in a reasonable amount of time. This $20.7 million makes up about one-half of the $39.2 million deficit in the fund. In FY 2018, the auditors did not issue an adverse opinion because HCPSS staff indicated there will be a plan to pay down the deficit by $10 million per year. However, to date, plans have been discussed but a plan has not been formally adopted or approved;
    • To avoid the adverse opinion, HCPSS needed to demonstrate the intent and ability to address the repayment and deficit prior to the end of the fiscal year end June 30, 2019.

    The Board demonstrated intent when it took specific actions in FY 2019 and FY 2020 to contain the deficit by reducing spending in other areas so that actuarially estimated health care costs were fully funded in the adopted budgets. These actions have had positive effects and enabled us to begin providing stability to the fund. In addition, HCPSS has committed to continuing to use savings from turnover and spending freezes as well as any other savings to begin reducing the deficit. However, HCPSS does not have sufficient financial ability through these type of ad-hoc actions alone to completely pay back the Health and Dental Fund and eliminate the deficit. Demonstrating the financial ability to solve the deficit will require a comprehensive and collaborative plan.

    Understanding the Deficit

    A fund develops a deficit when the expenditures exceed the total revenues plus the available fund balance. There are two ways of looking at a deficit: 1) a current year deficit (operating loss), and 2) an ending fund balance deficit. The easiest way to understand the difference is when a fund has “savings in the bank,” i.e., an opening fund balance that can be used to pay expenses when expenditures are higher than revenues. This is a current year deficit. However, when the fund runs out of “savings in the bank” (fund balance) and expenditures exceed revenues this creates an ending fund balance deficit. The example in Table 1 illustrates the difference. Column 1 shows a deficit that is result of current year expenditures being greater than current year revenues. Fortunately, there is sufficient fund balance to offset the difference. Column 2, also shows a current year deficit. Unfortunately, there is no fund balance available to cover the difference. As result, the fund ends up with a negative fund balance (deficit).

    Table 1: Examples of Deficit Types

      Column 1 Column 2
      Example of Current Year Deficit Example of Fund Balance Deficit
    Beginning Fund Balance $20
    Revenues $100 $100
    Expenditures $110 $110
    Current Deficit ($10) ($10)
    Ending Fund Balance $10 ($10)

    It is important to layout both kinds of deficits because the Health and Dental Fund has experienced both kinds. Periodic current year deficits are not uncommon. Persistent current year deficits (structural operating deficits) are less common, and when left unattended cause a negative ending fund balance (deficit). This is what has happened in the Health and Dental Fund. What started out as periodic became persistent, and as of June 30, 2019, the Fund has a negative ending fund balance of $39.2 million. This deficit along with the lack of progress to reduce the deficit in FY 2019 or FY 2020 and the absence of an approved plan to resolve it are the reasons the auditors issued an adverse opinion. Table 2 shows the finances of the Health and Dental Fund and how the deficit has grown over the fiscal years.

    Table 2: Financial Actuals for the Health and Dental Fund Fiscal Years 2014 to 2019

      FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019
    Operating Revenues
    Charges for services – internal $92,088,243 $90,014,257 $92,049,713 $101,881,998 $95,391,580 $110,487,771
    Miscellaneous revenue $35,997 $163,457 $137,715 $309,580 $11,125,530
    Contributions fom employees and retirees $21,276,122 $22,065,013 $23,303,756 $23,892,346 $25,264,743 $27,431,050
    Total operating revenues $113,400,362 $112,242,727 $115,491,184 $126,083,924 $120,656,323 $149,044,351
    Operating Expenses
    Administrative expenses $8,643,701 $11,674,253 $11,662,752 $9,056,807 $6,383,928 $4,605,701
    Claims and related expenses $104,270,127 $112,008,923 $121,941,600 $122,740,727 $129,142,522 $146,642,110
    Total operating expenses $112,913,828 $123,683,176 $133,604,352 $131,797,534 $135,526,450 $151,247,811
    Operating income (loss) $486,534 $(11,440,449) $(18,113,168) $(5,713,610) $(14,870,127) $(2,203,460)
    Non-Operating Revenues
    Interest income $17,131 $14,167 $38,925 $18,089 $15,214 $26,221
    Non-operating income $17,131 $14,167 $38,925 $18,089 $15,214 $26,221
    Changes in Net Position $503,665 A $(11,426,282) A $(18,074,243) $(5,695,521) $(14,854,913) $(2,177,239) B
    Total Net Position, Beginning of Year $12,527,992 $13,031,657 $1,605,375 $(16,468,868) $(22,164,389) $(37,019,302)
    Total Net Position, End of Year $13,031,657 A $1,605,375 $(16,468,868) B $(22,164,389) $(37,019,302) $(39,196,541) B

    A In FY14, there was no deficit and there was a fund balance of $13M. Current year deficits began in FY15. In that year, however, there was sufficient fund balance available to absorb it.

    B Deficits continued to grow measurably from FY16-FY18. Fund balance was exhausted and by FY19, the fund deficit grew to $39.2M, although the current year deficit slowed to $2.2M.

    Causes of Deficits in the Health and Dental Fund

    The Health and Dental Fund is an internal service fund. An internal service fund is used to budget and account for activities that are being delivered back to government. In this case, the Health and Dental Fund is used to budget and account for the cost to provide health insurance to the employees and retirees of HCPSS.

    The primary sources of revenue to pay for the health insurance cost are the premiums paid by the employees/retirees and the amount paid by HCPSS. Premium costs are shared between the two. For the majority of staff, HCPSS pays for 85% of the premium and the employee/retiree pays 15%. Most of the revenue to pay the HCPSS share comes from the General Fund.

    The largest expenditures of the Health and Dental Fund are the claims paid to maintain the health and wellness of our staff. Each year, HCPSS uses a certified actuary to estimate insurance claim costs for the coming year. This amount is used to develop the budget and fund the costs. The costs to administer the health insurance program are also included.

    Current year deficits in a health insurance fund are not uncommon. It is very difficult to estimate health care costs. The amount and type of health care needed from employee to employee is highly variable within a year and from year to year. Some years, claims experience is positive (better than projected). Other years, claims experience can be much higher than projected due to events such as a bad flu season or employees who need catastrophic health care. Managing this variation is the biggest financial challenge of operating a health insurance fund. Often, management uses mid-year budget actions such as directing budget savings from other areas to cover unbudgeted costs occurring the Health and Dental Fund. HCPSS has deployed these approaches recently with increased frequency to stem the growth of the deficit.

    The annual adopted budget for the Health and Dental Fund should be balanced. This means the adopted budget should include sufficient revenues to be received from the General Fund and from employees/retirees to pay for the projected costs of the health insurance program. However, the most significant reason the Health and Dental Fund deficit has grown and persisted since it began in FY 2015 is that the adopted budget did not provide enough funding until FY 2019

    This underfunding took two forms. First, when the fund went into deficit in FY 2016, no budget action was taken to channel additional funding to eliminate the deficit. That is, an appropriation of one-time funding to remove the negative fund balance was not made. Second, the adopted budgets did not always contain enough funding from the General Fund to pay for the actuarially estimated insurance claims for the coming year. In particular, the adopted budgets for fiscal years 2015 to 2018 overestimated[1] the amount of beginning fund balance available to pay for these costs, which in effect created an artificially balanced budget. A consequence of this over estimation was that the amount of revenue needed from the General Fund was under-estimated and the Health and Dental Fund did not receive enough revenue from the General Fund. These budget decisions compounded the deficit problem. It is important to note that our teachers and staff have paid their insurance premiums and their negotiated share of the actuarially projected costs.

    Beginning with the FY 2019 Budget, HCPSS made difficult budget decisions to stop growing the budgeted deficit and the County provided a one-time $11.1 million appropriation to help close the gap between expenses and appropriation. The adopted budgets for FY 2019 and FY 2020 fully funded the actuarially estimated costs for health insurance. This was a positive start but, as mentioned previously, budget to actual can vary greatly with health insurance costs. In FY19, claims were higher than budgeted and the fund ran a modest current year deficit of $2.2 million. Were there not an existing $37 million fund deficit, a current year deficit of this amount is usually manageable through the budget process. Table 3 provides the adopted budgets for the Health and Dental Fund since FY 2014.

    Table 3: Health and Dental Fund Adopted Budgets Fiscal Years 2014 to 2020

    Approved FY 2014 Approved FY 2015 Approved FY 2016 Approved FY 2017 Approved FY 2018 Approved FY 2019 Approvod FY 2020
    Sources of Funds
    Use of Fund Balance $15,511,760 $12,408,780 $5,347,445 $35,728,021 $19,456,502
    Employee withholdings $17,162,260 $16,507,140 $17,868,440 $18,404,493 $17,800,000 $18,227,200 $21,808,465
    Retiree payments $4,200,000 $4,538,000 $5,700,000 $5,700,000 $6,544,915 $6,872,161 $7,291,363
    COBRA, leave, refunds, etc. $200,000 $280,000 $300,000.00 $360,500 $286,439 $300,761 $350,000
    Payment from Food Services $2,007,000 $2,007,000 $2,020,000 $2,080,600 $2,060,000 $2,101,000 $2,185,040
    Payment from Transportation $600,000 $670,000 $691,000
    Payment from General Fund-Budgeted $75,877,910 $76,000,000 $82,500,000 $68,321,679 $74,007,346 $101,875,203 $112,975,623
    Additional General Fund Contributions $2,000,000
    Year End Transfer $1,000,000 $1,500,000
    Rebates $500,000 $2,300,000 $3,800,000 $3,914,000 $11,393,595 $7,088,451 $8,352,000
    Miscellaneous Revenue $140,000 $1,001,597 $100,000 $110,700 $246,045 $258,347 $275,000
    Payment from Grants $1,200,000 $1,500,000 $1,700,000 $1,751,000 $1,030,000 $1,710,942 $1,800,000
    Subtotal user Charges $101,887,170 $107,803,737 $116,179,440 $100,642,972 $113,368,340 $138,434,065 $155,037,491
    Total Sources of Funds $117,398,930 $120,212,517 $121,526,885 $136,370,993 $132,824,842 $138,434,065 $155,037,491
    Uses of Funds
    Non-Election Benefits $3,888,930 $3,920,000 $3,920,000 $3,800,000 $7,994 $2,916,060
    Recovery of fund balance $500,000
    Administrative Fees $6,006,100 $6,140,150 $7,356,550 $7,021,918 $5,692,235 $5,874,738 $6,234,705
    Increase/Decrease to fund reserve $186,412 $186,412 $122,247
    Payment of claims $105,133,850 $106,053,957 $106,281,060 $121,982,511 $124,891,506 $130,575,368 $144,381,097
    PPACA Fees $929,370 $647,830 $226,058 $43,000
    Wellness Program $1,848,000 $2,026,500 $1,991,110 $2,006,000 $617,000
    Other Expenses $338,320 $963,010 $1,066,177 $1,334,506 $1,429,695 $1,297,547 $1,340,382
    Payment to Tech Fund $182,890 $178,090 $262,194
    Payment to Printing Fund $840 $1,440 $1,964
    Total Uses of Funds $117,398,930 $120,212,517 $121,526,885 $136,370,993 $132,824,842 $138,434,065 $155,037,491
    Fund Balance
    Annual Summary
    Beginning Fund Balance $5,876,234 $11,239,052 $232,862 $(16,468,865) $(20,493,202) $(37,019,302) $(37,019,302)
    Excess (Deficit) Revenue Over Expenditures $(15,511,760) $(12,408,780) $(5,347,445) $(35,728,021) $(19,456,502)
    Ending Fund Balance $(9,635,526) $(1,169,728) $(5,114,583) $(52,196,886) $(39,949,704) $(37,019,302) $(37,019,302)
    Ending Fund Balance Summary
    Unrestricted $(9,635,526) $(1,169,728) $(5,114,583) $(52,196,886) $(39,949,704) $(37,019,302) $(37,019,302)
    Total Ending Fund Balance $(9,635,526) $(1,169,728) $(5,114,583) $(52,196,886) $(39,949,704) $(37,019,302) $(37,019,302)

    Actions Taken to Date

    The Superintendent was first made aware of the situation in the Health and Dental Fund in May 2017, right after beginning his tenure. By that time, the FY 2018 Budget was nearly finalized. Therefore, immediate focus was placed on beginning to correct the situation during the fiscal year.

    In FY 2018, the following steps were taken to help pay down the deficit:

    • Staff worked with vendors to realize $2 million in increased rebates;
    • A savings strategy was enacted in the General Fund allowing a categorical budget transfer from the General Fund of $1.9 million; and
    • Savings of $450,000 were achieved by eliminating the Wellness Program

    In FY 2019, additional actions were taken with the goal to make sure that health care costs estimated by the actuary were fully budgeted. These actions included:

    • The County approved a one-time amount of $11 million toward current health care costs; and
    • The Board cutting the FY 2019 Proposed Budget by $19.2 million in operating areas so that health care costs could be funded.

    However, in FY 2018 and FY 2019, negotiated health credits of $420 per enrolled employee were not budgeted but were given, which cost about $7.2 million over the course of both years. This was not a direct oversight. As a cost savings measure, HCPSS planned to reduce the credit to a minimal amount. The decision was subsequently made not to make this change and the funds were not put back into the budget. The FY 2020 Budget includes the funding for benefit credits.

    In the FY 2020 Budget, the Board once again made difficult reductions to the operating budget in order to fully fund the actuarially projected health care costs. During FY 2020, HCPSS reduced the Health Fund deficit by more than one half: from $39.2 million to $18.7 million, a $20.5 million decrease, marking a tremendous step forward in reducing the accumulated deficit. Health insurance costs for employees and retirees were fully funded based on actuarial projections for the second consecutive year during FY 2020.

    Outline of the Action Plan

    Our action plan aims to first stabilize the Health and Dental Fund and then make it sustainable. Stabilizing the plan consists of eliminating the deficit and ensuring the actuarially projected health care costs are fully funded in the budget. Making the fund sustainable requires building a fund balance and establishing a reserve policy. Sustainability also requires addressing the embedded cost pressures of health insurance, which grow annually at a higher rate than revenues. This is not unique to HCPSS. Governmental jurisdictions throughout the country face this challenge.

    Create Stability Create Sustainability
    Continue cost reduction measures to generate savings Establish Fund Reserve Policy
    Apply budget savings to help pay down deficit Align cost growth pressure with revenue growth
    Continue to fully fund actuarial health care cost projections Build fund balance through strategic budget plans
    Work with County for additional funding to help pay down deficit  
    Eliminate the deficit  

    To avoid impacting the core mission of HCPSS by suddenly redirecting resources, this action plan will need to be executed incrementally over multiple fiscal years. Staff will be working on specific targets for the plan. These targets will be factored in the FY 2021 Proposed Budget development and presented to the Board when complete. Preliminarily, while we cannot project the dollar amounts, the following tentative schedule outlines a potential timeline to use current year savings and fund balance amounts to demonstrate reductions to the deficit:

    • December 2019: Use of FY 2019 Fund Balance to reduce deficit by $15,168,948*
    • June 2020: Transfer of savings within FY 2020 current year budget to reduce deficit. Amount undetermined and subject to cost to complete estimates which will be completed in May 2019. *
    • November 2020: Use of FY 2020 Fund Balance to reduce deficit, subject to audited amounts*

    *Subject to Board and County Council Approval