At the Dec. 11 Board of Finance meeting, news of a shortfall of roughly $1.9 million shook the board. Since then, questions have revolved around who’s to blame and how to make up the deficit.
“I was shocked when I heard the amount,” Board of Finance member Mike Rea said. “It was a perfect storm,” he said, referencing insurance claims that were higher than usual and a depleted reserve of money for those claims. “We got caught in the fiscal flood.”
The $2 million is described by a number of sources as a combination of unexpected expenses and human error.
According to BOF member Tom Lasersohn, the 2013-2014 school budget was finalized with insufficent information about incoming medical claims. Claims wound up coming in about $1.1 million higher than expected from a relatively large number of high claims, including a liver and two heart transplants, RTM member Jack Klinge said. This drew down health reserves, which had already been reduced in recent years to keep budgets low. The result was a negative balance of over $500,000, which must be paid this year. Further costs include IBNR (incurred but not reported) claims, which can be paid off over time, BOF member John Pincavage said.
In addition, several officials said, former Assistant Superintendent for Business Nancy Harris, once she learned of the high claims, did not alert the town in a timely fashion.
Harris did not respond to calls or emails from Inklings.
Had the high claims been reported promptly, the 2013-2014 budget could have been increased or altered to deal with the higher costs, RTM member Allen Bomes said.
“We owe the money no matter what, but why didn’t we know about it last spring?” Klinge asked.
Rea had an answer. “The insurance consultant says he provided [claims] information in timely fashion to the business office, which would have been Nancy Harris,” Rea added.“The question is, should there be other controls on how she should have shared information with other people?”
According to Lasersohn, Harris gave the BOF information about claims that led the BOF to assume $369,000 would be left in reserves at the end of June 2014. However, Harris’s information was incorrect, Lasersohn said; claims will bring the reserves to -$500,000.
John Horrigan, president and treasurer of the teachers union, said that teachers were asked to pay more for health insurance this school year, based on higher claims from the previous year. This in turn suggests that the schools’ insurance consultant and possibly Harris were aware of the higher claims over the summer, Horrigan said.
Klinge feels that responsibility for the shortfall should be shared. “In the Navy, you would blame both the captain and the person directly involved,” Klinge said. “Both Superintendent Elliott Landon and Nancy Harris share responsibility, Harris with the execution and Landon with the management.”
Town officials said they now are most concerned with any procedural missteps that may have led to the shortfall. “The RTM is looking at it in the context of how did it happen, how can we prevent it from happening again, and how can we deal with it in the upcoming budget year,” Klinge said.
The town will investigate the procedural glitch with a $15,000 audit, Rea said.
The BOE had initially wanted to hire their own auditor, but the other town bodies authorized funding for the town’s auditor, Bomes said. This ensures that results of the review will be shared outside of the BOE.
“People are shocked and hoping that this is just the extent of it and it’s not worse,” Rea said. “The audit is a way of assuring this. The public deserves an independent assessment, not just one body reviewing its own costs.”
The board wants to wait for the audit, which BOE Chair Elaine Whitney called an “external operational review,” before making procedural changes. “We are committed to ensuring that we have strong oversight and appropriate controls. The governance of taxpayer funds is one of our highest priorities.”
The shortfall will have concrete results this year.
It will probably result in the BOE’s request for an appropriation of $700,000 from the Board of Finance, BOF members said. This money would pay claims that have come due, with a narrow cushion to spare. Rea and BOF member John Pincavage were not concerned about providing this amount, citing the BOF’s own rainy day funds. The BOE is also looking for savings in the current fiscal year, with $240,000 so far from this year’s budget to be reallocated, Whitney said.
In the 2014-2015 school budget, the shortfall will have more long-reaching results.
Roughly 2.2 percent of the proposed increase of 6.51 percent to the 2014-2015 budget stems from the shortfall: regular, anticipated claims will need to be paid, and there are no funds in reserve. Some money will also go towards rebuilding the reserve fund.
The proposed budget will continue to be examined by the BOE and will be voted on in early Feb. From there, it will be reviewed by the BOF and RTM.
