Middletown budget plight could spurlayoffs, city manager says

MikeRutledge

Staff Writer

11:38a.m. Friday, Dec. 23, 2016  Middletown

MIDDLETOWN

The city of Middletown isexperiencing financial problems because it is self-insured for its employeehealth care and expenses have been significantly above expectations, CityManager Doug Adkins told City Council.

Adkins announcedbelt-tightening moves, including leaving vacant positions open until at leastJune. If things don’t improve, layoffs are possible, he told the city’s electedofficials this week.

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Because of the higherhealth-care costs, the council approved transfer of $1.25 million from thecity’s general fund — essentially, its checking account that is used for mostpurposes — to the city’s employee benefits fund, a month after City Councilapproved the 2017 general-fund spending plan of $30.3 million. That $1.25million will serve as a loan to that fund. It follows a $750,000 transfer lastyear to the same fund.

During the GreatRecession, as a way to avoid layoffs, the city decided to self-insure forhealth care, and that worked out well, Adkins said.

“With the exception of2013, we kept our spending flat on health care,” he said, “which means eventhough health-care costs were going up 6-, 8-, 10 percent, we did not increasethe amount of money we were spending on health care.”

“This worked fine when wehad low-claims years, and at the end of ‘14, we had a positive balance of $1.2million in that fund,” Adkins said. “It worked for a while.”

In 2015, “We saw dramaticincreases in health-care claims from our covered employees,” he said. “Becausewe are a smaller group, we have volatility — we have up years, we have downyears.”

Adkins said cityadministrators assumed 2015’s high-cost level “was a blip in the radar,” whenthe general fund last year loaned the $750,000. The city adjusted health-careplans and premiums in an effort to stabilize the fund, so that loan could berepaid.

Then, Adkins said, “2016comes, and claims have substantially increased over 2015 levels. We have seenmultiple cancer claims, premature babies, and new serious chronic conditions in2016 that we simply have not seen in the last 10-15 years.”

“The good news is that ouremployees and their families were covered during catastrophic times,” he said.“The bad news, however, is not only have we not been able to pay back the$750,000 that we borrowed in 2015, you now need another $1.25 million to endthe year at $0 in the health-care fund, which means we are $2 million in thehole.”

The 2017 budget, whichcouncil approved in 2017, assumes 2016 expenses are “the new normal,” he said.A city health-care committee has cut coverage and increased premiums to saveand generate about $150,000 toward repaying the general fund. Salary andbenefits that Public Safety Director David VanArsdale’s salary would have earned — he’s retiring Jan.6 — plus some other expenses will be trimmed to cut costs.

“I am putting a hold onall of the new positions we had budgeted for 2017, until at least June 30,”Adkins said, saying that can save $120,000. In all, Adkins has found $613,000in cost savings to help with the $2 million gap.

“In 2017 — I’ve alreadytalked to the department heads — our policy will be any turned-over positionwill remain vacant for 90 days,” Adkins said. “I reserve the right,respectfully, to not do that if there’s something that’s critical.”

Plus, there was a $400,000claim that was paid that the city is appealing, with hopes of being reimbursedfor that amount, Adkins said.

He hopes to be able torepay $1 million of the $2 million in loans, and promised to report quarterlyon the situation to his bosses on council “so we don’t let this get far away in2017.”

If the situation worsens,premiums can be changed, and, “there are things that we can do, all the way upto laying people off,” he said. “This is the best plan that we could put togetherfor you tonight.”

Over the next few years,the city will have to carefully manage the health-care program, he said.

“We can always get moreaggressive,” he added. “It means probably laying people off, if you want to getit done faster than that.”