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.
"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."
"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.
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.
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Barrett balanced bugets? He forgot a $1.1 million item. Easy to keep taxes down when you don't pay all your bills. Now we will pay for it dearly. Thanks john.
"if there's no movement [in negotiations]" with the union ... well, folks, I think it's time we insist that there be movement and change. We as taxpayers can't just sit here and keep paying others' bills just because they strong-arm the city.
Sure, I can say, "tax increase", but I cannot say, "blame the tax increase on Alcombright". Barret backers should be completely embarrassed by and ashamed of their man. They should also be willing to step up to the plate and help the new mayor clean up the mess that Barrett left us in.
The problem with this report is that it doesn't take into consideration the financial context in which North Adams operates its health insurance program. The program is self-funded. The city historically captures any lag in premium payments by assuming all cost overruns at the end of the financial year.
It's little more than an accounting trick to even talk about fixed premiums in the context of these types of plans. You can pretty much say the premiums can be any number you want them to be. In this vein, please note that the report also indicates that the union contributions were underfunded.
The financial context in this report may be cloudy, but the political context is obvious.
First, Mayor Alcombright was heavily supported by the city's municipal unions during the election. This report and his reaction to it are clearly his quid pro quo for that support. The union's leaders and members don't seem to be sharp enough to figure out, however, that a little political back-slapping is as far as they'll get. The cupboards are bare.
Which leads to what may be the more important reason for Mayor Alcombright's immediate acceptance of the most negative implications of this report. He obviously wants some political cover for the inevitable raising of taxes and fees he'll have to attempt, especially without the aggressive, pro-taxpayer policies of Mayor Barrett still in place. Many of North Adams' citizens simply didn't understand how much of an impact Mayor Barrett had in terms of holding the line on property taxes.
Plus, let's be honest. Do any of us really care if the unions have to pay a little more for their health insurance if it means our property taxes don't skyrocket up? At least they still have jobs.
Let's see if Mayor Alcombright can do as well as Mayor Barrett did and keep them all employed without a Proposition 2 and 1/2 property tax override.
Editor: You bring up an interesting point on the accounting issue. We noted in the article in November that the city provided documents showing it had paid out more using numbers that appeared to be on total costs; the union based it on enrollment. We aren't accountants here, but maybe someone out there is?
"The financial context in this report may be cloudy, but the political context is obvious. "
The financial context is crystal clear. You have not read the report. The problem WAS that Barrett and the city were using the premium estimates to base their funding as opposed to using the actual numbers.
This is where the problem lays.
How can this be political? The city hired an independent auditor based on the State Auditor AND the DOR. That firm came back with the results. The numbers are there, in black and white: crystal clear.
Sir, I ask you this: If I hired you to paint my house for a $1000 and, after you completed your work, I gave you $800... would you thank me for allowing you to "have a job"?
I don't think so.
The city stole money from ALL of their employees (not just the unions) and we need to pay it back. And I know its going to come out of my pocket but it needs to be done.
The city's obligations are spelled out in MGL chapter 32B, section 3a.
There is no wiggle room. The law says the city should fund the trust based on premiums.
John based the city's costs on actual costs to try and keep money in other parts of the budget. In fact, the budgets don't even include a realistic amount to cover their share. Barrett would just transfer money from other accounts.
Whether the unions were ripped off or not, the Mayor and the union heads better find that settlement, because taxpayers are not going to approve a 2 1/2 override, especially in this economy. When we in the dreaded private sector work for companies that lose money, we lose our jobs. Time for the city to act like a business, which is what Alcombright promised. You don't have the money, you cut. Hope Ms. Chilson is happy when several of her fellow teachers are collecting unemployment instead of working next year.
I just looked at the PDF of the report, and there is an interesting statement on page 6:
"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."
Does that suggest to anyone else that there are people carrying city insurance that do not have the right to be covered?
But even with that settlement, how can there not end up being a prop 2.5 override?
The city is ALREADY short for the budget, and here is $1.1M more ($1.6 if you count this year).
Maybe you don't care about how many teachers are in those schools, but I sure do. Do you have any idea how many teachers will get cut to deal with the $1.6M we owe? And that doesn't take into account that The former administration had been using that money (about $500k/yr) in the budget. THAT needs to be made up to.
PLUS, the economy is in the tank, so that all tax revenues are down.
PLUS, the last I looked, the city basically has nothing in its free cash account.
The police and fire departments are already nearly half the size they were 10 years ago.
The schools have an average at best student to faculty ratio.
I AM NOT willing to destroy the schools and the education of the 2,000 students in the NA school system.
I don't have any extra money to spare, but i'm gonna have to find it for this city to get out of this mess.
I am totally disgusted with The Transcript and The Berkshire Eagle reporting on this. The Transcript writes this off is a simple management error and we move on. The Berkshire Eagle has published nothing two days after the press release.
For those who believe it as an "error", what happen to Barrett's smart management reputation. This isn't a $10 miscalculation. This "error" will dramatically effect the future of community projects, departments, and taxes.
Thank you iberkshires for keeping us informed.
Editor: A section of this comment was removed because it contained potentially libelous comments. Commenters should be careful about stating what they think may have happened as facts.
The previous poster claims that The Transcript is pooh-poohing this story as a "management error". While that may be so, The Transcript has actually been more than generous and fair in its reporting of this issue.
The truth is that this audit doesn't prove anything except what was known all along, that there really isn't any story here beyond the story of contract negotiating disagreements.
Mayor Barrett didn't break any laws. He didn't even commit "management errors". He simply managed city health insurance premium payments in a way that was different than the way which unionized city employees hoped he would. That's all this audit demonstrates.
The challenge now before Mayor Alcombright is not to right semi-imagined wrongs, but to simply do even half as well as did his predecessor in keeping North Adams' financial belt tightened.
No Harm- You are VERY mistaken, as is the transcript. The accounting method used by Barrett was not the one spelled out in the law. It was illegal (in the civil sense).
The law also makes clear that self insured municipalities MUST take surpluses in the trust fund (which there should have been) and either spend them on covered costs or return them to insured via premium holidays or reductions.
Because there SHOULD have been surpluses, that money is now owed to fund to do what the law says.
As for the 70 30 split, the law is clear again, that the municipality MUST pay their share based upon the same premiums as the insured - NOT on a cost basis.
So, it is not a misunderstanding. It is violation of MGL 32.
It is not a contract dispute. It is violation of MGL 32.
It was negligence that has, and is still, causing great financial harm to the city. Perhaps when the bill comes due you will understand that.
So...where did all of that money go? I hope that is being investigated as well.
Editor: I don't think there was extra money to go anywhere; the Scanlon report just says the city's method of accounting wasn't putting enough into the fund.
Of course - if you didn't fully fund the city's share of the insurance trust - there was "extra money". Extra money that went to balance the rest of the budget. John Barrett has repeatedly said that no one could do what he did to keep taxes low and he's right. If you wanted to stay within the law you could not have done what he did. But, that wasn't one of John's concerns. Getting re-elected was. Too bad.
As the poster said below, and I want to make EXTREMELY clear is this:
The former administration BROKE THE LAW.
And in breaking the law they stole hundreds upon hundreds of thousands of dollars from city employees.
Not just the union employees that some of you are so quick to jump on, but ALL of them. Everyone covered by the city health insurance had money stolen from them.
Whether John Barrett or Glenn Drohan want you to understand that is obviously in question... but I do: They broke the law.
Tammy, it appears that you are the only journalist left in Berkshire County that knows how to write. Thank you. The article is easy to follow, accurate and it links the reader to what has transpired over the past year.
Oh and by the way "no harm no foul" your boyfriend broke the law.
