Report: North Adams Underfunded Insurance Trust by $1.1M

By Tammy DanielsiBerkshires Staff
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Teachers Association President Susan Chilson last July when she asked the City Council to review the insurance fund. The council declined but a new report says the city wasn't following state law.
NORTH ADAMS, Mass. — An independent report has determined the city failed to pay its fair share of public employee insurance premiums to the "frightening" tune of $1.1 million over the past two years.

The impact this fiscal year could exceed $500,000, and another $700,000 next year.

The finding was a vindication for the city's unions, which called for an investigation last year after their own analysis turned up discrepancies.

"It feels really good," said Susan Chilson, president of the North Adams Teachers Association, who was presented with the report late Thursday afternoon as a member of the city Public Employees Committee organized nearly two years ago to negotiate insurance options. 

"We had a really good sense that we knew what we were talking about, we were confident we were right," she said. "It was really a validation that, yes, you aren't crazy and there is some validity in what you proposed there."

The review was authorized by Mayor Richard Alcombright, who had pledged to fully investigate the allegations about a month after he was sworn in as mayor.

"We met with the insurance group Public Employee Committee and gave them all the new information," he said Thursday. "At the next meeting, we will start talking on how we settle this ... It's quite frightening from a fiscal perspective of how this will be managed."

Scanlon & Associates LLC, a municipal auditor and certified accounting firm out of South Deerfield, found that the city did not contribute its 70 percent of contracted insurance premiums as required by state law. 

In its report, the accountants said they calculated the employer and employee contributions that should have been placed in the Health Insurance Trust based on enrollment, times the rate of each plan type per member and then by the percentage share for employee and employer. That was compared to the city general ledger.

It found in both 2008 and 2009, the city and employees had underfunded the trust according to its calculations: the city by $1.05 million and the employees by $61,000.

Scanlon recommended the city immediately begin contributing its correct share and perform a "reconciliation of internally prepared head counts noted on the Blue Cross Blue Shield cutoff." It further suggested reviewing the year-end cutoff procedures to make sure fiscal-year claims are placed in a liability account rather than noted as a year-end balance.

"[The city] paid the bills but not the working rate. Mass General Law requires that they pay the working rate," Alcombright said, adding the report only went back two years to "expedite the process." The consequences cover three years because the city has nearly completed fiscal 2010.

The former administration consistently stated that the insurance accounts were being funded appropriately. Former Mayor John Barrett III provided paperwork last fall showing the city had paid out more than its share in four of the last seven years. Alcombright disputed that, saying it was maybe one year.

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If the trust was fully funded, he said, the account could have had a $600,000 to $800,000 cushion allowing the city to pay the "runout" of claims into the next fiscal year should it decide not to self-insure, to reduce premiums or to offer a premium holiday.

"It's going to be tough," said the mayor. "If everything stays the same, if there's no movement [in union negotiations], insurance costs will be $3.45 million with a projected increase of 6 percent and then to fund to the level it's supposed to be funded, will be $3.7 million."

A draft of the report was received last Friday; Alcombright said he went over "meticulously" with Thomas Scanlon, Business Manager Nancy Ziter and the city's labor counsel Fred Dupere.

Alcombright said he was hopeful that the employees would work with the city to craft a plan as it entered contract negotiations. Chilson said the unions were appreciative of the new administration's transparency and were looking forward to further conversations.

"I can't speak for the whole [public unions] but we know what the city's been going through, what the nation is going through," she said. "We hope we can work this out creatively and have it be agreeable to everybody who's been affected by it."

Read the report below or
here.

North Adams Insurance Report
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