Budget déjà vu, all over again Rising health insurance costs could mean $1.64M overspent by city
by : Tom Jennemann Reporter staff writer
May 24, 2004 | 1042 views | 0 0 comments | 3 3 recommendations | email to a friend | print
Can an emergency still be considered an emergency if the same condition happens three years in a row?

That's what critics of the administration are asking after it was revealed that for the 2004 fiscal year, which runs from July 1, 2003 to June 30, 2004, the city has underbudgeted group health insurance by approximately $1.64 million.

According to city audits, this will be the third year in a row that the city under-budgeted the amount that is needed to pay its employee health insurance. In 2002 and 2003, the city overspent the budgeted amount for health insurance by $995,000 and $627,000 respectively.

These "unforeseeable" increases, said city officials at the time, were because of unexpected rate increases of up to 20 percent.Now, with only two months left in the 2004 fiscal year, the administration is anticipating that it will have to spend $1.64 million more than what was budgeted to pay the bills for the rest of the year.

This money will have to be made up in next year's budget.

It's the administration's position that even with overspending in group health insurance, the city will be able to create a 2005 budget without any increase in the municipal portion of the tax bill, because of new revenues that have been or will soon be realized.

Appropriation removed from agenda

Last November, the City Council approved an approximately $60 million budget for July, 2004 through June, 2004. In theory, it should not be a common practice to spend above and beyond the set budget, because by doing so, the administration could usurp the City Council's responsibilities, which could lead to a breakdown of governmental checks and balances.
Sometimes there are unforeseen circumstances that might cause the city to have to overspend its budget. When that happens, the City Council must approve an emergency appropriation for what is needed.
Emergency appropriations are permitted under the New Jersey Local Budget Law after the budget has been adopted, to provide for emergencies that were not foreseen at the time of the budget adoption. If an emergency appropriation is approved, a short-term bond, which is to be paid back by the end of the next fiscal year, is obtained.

On Friday, May 14, when the agenda for Wednesday's City Council meeting was written, there was a resolution for an emergency appropriation in the amount of $1.69 million to cover the $1.64 million overage in group health insurance and $50,000 to pay for lawyers to defend the city against a suit filed by former CFO Michael Lenz (see sidebar), whose job, ironically, used to be to help the city with budgeting.

According to the proposed resolution, the reason for the increase in group health insurance was that there was a "significant increase in client experience."

"Our employees have had a very unhealthy year," said city Business Administrator Robert Drasheff Thursday afternoon.

Last year, the city passed $1.9 million in emergency appropriations, of which group health was the largest portion. This year, many members of the City Council were not at all in favor of passing another large emergency appropriation, especially for the same line item that was overspent last year.

In fact, support for the emergency appropriation was so cold that none of the nine City Council members were willing to be an official sponsor for the controversial resolution. By Wednesday morning, when it was clear that the votes weren't there, it was removed from the council's agenda.

Foreseeable or not

Some say the increase could have been predicted.

In fact, over the past decade, the city has overspent budgets by a total of nearly $15 million.

Critics say that the city may have underbudgeted to give the appearance that the city is spending less than it really is, allowing it to strike a stable tax rate. "They are clearly and deliberately underbudgeting to make the budget look smaller than it really is," said Councilwoman Carol Marsh Thursday morning. She questioned how it could be an emergency if the same budget line item has been overspent each of the past three years. "It's not an emergency," she added. "It's a habit."

Last year's budget for group health insurance was $8.51 million. This year, the number was only approximately $40,000 higher, even though last year's amount got overspent by over $600,000 in the end.

There are two obvious drawbacks with underbudgeting. The first is that the City Council loses some of its authority when the administration overspends. And secondly, all the money that is overspent has to be made up in future years, thus creating future deficits. Next year, before the first line of the budget is even written, it will have to make up $757,000 in overspending from fiscal year 2003 and at least $1.69 million from this year.

In September of 2002, the city suspended then-CFO George DeStefano, who is the brother-in-law of former Mayor Anthony Russo, for allegedly failing "to adequately monitor the city budget," which allegedly led to over-expenditures of $5.4 million in 1999, $1.1 million in 2000, and $2.1 million in 2001, for a total of over $8 million in a three-year period, according to a state report.

Now what

With little or no support on the council for emergency appropriations, what options does the administration have?

"We are re-evaluating at this time," said Drasheff at Wednesday's City Council meeting.

Another option is to find an extra $1.69 million. This could be done by transferring funds from accounts with extra funds or by making cuts. But since the city is already 10 months into the fiscal year, layoffs would not be an effective option because there is not enough time to reap enough savings this year.

The third option is that the overages on group health could become a deficit that could carry over into next year. While the state frowns upon municipalities running deficits and would rather that it approve an emergency appropriation, Roberts said the city's entire fiscal health must be looked at.

"Let's look at the entire budget picture," said Roberts Thursday. He and Drasheff pointed to several sources of anticipated revenue which he believes will more than cover the overspending on insurance.

According to Drasheff, Hoboken has refinanced around $5 million in negative arbitrage which will result in an additional $1.8 million in next year's budget. Other anticipated sources of new revenue include over $600,000 from selling taxi medallions this year, a $100,000 lawsuit settlement, increased intake in the municipal courts of around $1 million, and an increase in revenue from a "more efficient" Hoboken Parking Utility.

"The deficit from [the group health insurance] will be manageable number," said Drasheff. He said that when all of the additional sources of revenue that aren't currently included in the 2004 budget are calculated by year's end, there could even be a surplus. He added that "without a doubt" the city will be able to produce a budget for 2005 that will not include a tax increase and "will continue to provide the highest levels of services."
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