The Howard County Board of Education has approved a funds transfer to significantly reduce the cumulative deficit in the Howard County Public School System (HCPSS) employee Health and Dental Fund. Subject to County Council approval, the decision will immediately transfer $15.2 million of the unassigned General Fund balance to reduce the current $39.2 million deficit to $24 million.
In the board report presented on Nov. 7, HCPSS staff provided a timeline for when HCPSS may be able to use additional savings or fund balances in the future to further reduce the deficit. Due to the uncertainty of these savings, HCPSS will next seek to collaborate with Howard County government to adopt a comprehensive plan to gradually reduce the remaining deficit balance during the next several years and re-establish sustainability for the fund.
Prior to fiscal 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 fiscal 2015 through fiscal 2018, the employee Health and Dental Fund was underfunded to meet operating budget priorities, contributing to an accumulated deficit of $39.2 million. A detailed description of the history and factors contributing to the deficit is provided at www.hcpss.org/about-us/budgets/health-fund
When Superintendent Michael Martirano took the helm of the school system near the close of the fiscal 2018 budget planning cycle, he immediately worked to address the deficit, and HCPSS has since taken steps to contain and pay down the deficit by reducing spending in other areas, negotiating increased rebates and applying savings from turnover.
However, HCPSS does not have sufficient financial ability or the appropriation authority to fully eliminate the deficit while meeting its other funding obligations in the operating budget. The most recent independent auditor’s report for HCPSS included an adverse opinion, noting that while the actions taken to date have begun to establish stability for the Health Fund, no plan for fully reducing and eliminating the deficit has yet been formally adopted or approved.
A comprehensive stability plan will require a collaborative and incremental solution jointly developed and supported between HCPSS and the county. The transfer of $15.2 million from the unassigned General Fund balance to substantially reduce the deficit to $24 million represents a major first step, demonstrating a commitment to begin resolving the deficit immediately, and the Board will request that the County Council treat this budget action as an emergency item to be voted on at the Council’s meeting in December.
Unassigned fund balance occurs when actual expenses are lower and/or revenues are higher than the budgeted amounts. These savings add to fund balance and do not have a designated use. The budget savings in fiscal 2019 occurred across most budget categories and are primarily attributable to savings resulting from a spending and hiring freeze and position turnovers. Revenues came in higher than budgeted for e-rates, which are cash rebates for certain technology purchases. Moving forward, the HCPSS will propose an action plan for working with the county to stabilize the Health and Dental Fund and create ongoing sustainability.
The complete board report providing details of the causes of the deficit, the fund balance transfer, actions taken to date and action plan are provided at https://go.boarddocs.com/mabe/hcpssmd/Board.nsf/files/BHNSWE6B0BAC/$file/11%2007%202019%20FY%202020%20General%20Fund%20Supplemental%20Budget%20Augmentation%20and%20Categorical%20Budget%20Transfer%20BR.pdf