No big deal?

Health costs create county budget gap
Wednesday, December 20, 2006
By Steve Gunn
CHRONICLE STAFF WRITER
The short, happy era of fiscal prosperity is over for Muskegon County government.

After using an unexpected $1.7 million windfall in September to balance their fiscal 2007 budget plan, county leaders have learned that the cost of providing retiree medical benefits has gone through the roof.

That means the county, almost three full months into the new fiscal year, will have to find a way to erase a sudden deficit of approximately $2.3 million, including $750,000 in the general fund and about $1.5 million in all other funds.

County commissioners started the painful process of eliminating that deficit Tuesday by voting to impose a hiring freeze on full-time employees and reducing the "benefit option" for employees that don't enroll in the medical insurance program.

County Administrator James Borushko will also ask all county departments to review their budgets in the coming weeks and recommend spending cuts and/or revenue increases equaling two percent.

An overall budget reduction plan, based on those recommended cuts, will probably come before county commissioners in February or March, according to officials.

"There's always a new challenge the next day," said Borushko, alluding to last summer's unexpected property tax revenue windfall that temporarily provided the county with enough revenue to cover its budget. "We will look for good news to come hopefully in other areas."

The latest "new challenge" is related to the cost of keeping up with future medical costs for county retirees.

Every few years the county has an "actuarial" study done of its pension and insurance programs, to determine how much it must set aside every year to meet its obligation to retirees over three decades.

Last year the county put aside 6.8 percent of its gross payroll, based on a 2000 actuarial study.

This year county officials estimated they would have to put aside 9.28 percent of gross payroll in the new fiscal year, equaling about $4.5 million.

Then a new actuarial study came in, and the results were chilling. County officials learned they would have to set aside slightly more than 14 percent of gross payroll, or about $6.8 million.

That created a $2.3 million hole in their fiscal 2007 budget plan.

The impact of the shortage could potentially be blunted in coming months. A proposed state law would allow local governments to sell bonds to lessen the impact of the additional costs.

But there's no guarantee that option will become available, and the county would be foolish to count on it, according to officials.

In a memo to commissioners, Jack Niemiec, the county's director of finance and management services, described the budgetary impact of the cost increase "huge."

"The next question, of course, is how to deal with this huge hit," Niemiec wrote in the memo. "We cannot ignore it."

Commissioners reacted Tuesday in several ways, based on Niemiec's recommendations to erase the budget shortfall.

* They voted to impose a hiring freeze for all full-time positions that are funded at least 50 percent with general fund money. The hiring freeze will not save money at the outset, but could make a difference as the months pass and positions become vacant, according to officials.

* Commissioners also voted to reduce the amount of money they give employees who opt out of the county's medical coverage. Currently employees with families of more than two people receive $5,450, families of two receive $5,115 and single employees get $2,322.

With the reduction in place, employees with families will get $2,000 per year while single employees will get $1,000. A total of 210 county employees will be affected, including 9 of the 11 county commissioners, according to officials.

The reduction will save the county an estimated $516,220.

* Niemiec said the county will also save money because wage increases for county employees were not as large as they could have been this year. The county was set to increase wages between 2.5 percent and 3.5 percent for most employees, based on the consumer price index.

The CPI ended up at 1.7 percent, meaning the county can pay the low end of the wage increase, or 2.5 percent. The county budget had assumed an increase of 3.25 percent for most employees., so the saving will be $332,037.

Savings from the reduction of the benefit option and the lower wage increase will total $848,957. That still leaves a hole of roughly $1.4 million in the budget, which the various departments will be expected to eliminate through their two percent cuts.

"We will expect everybody to show up and meet their obligation," said Borushko, who added that employee layoffs probably aren't a concern, unless the initial budget cuts fail to eliminate the deficit.