School Officials, Flatto Clash Again Over Medical Reserve Fund

It took all night, but a reserve fund shared by the town and Board of Education once again provided the most sparks during the Board of Finance's review of spending plans for the 2011-12 fiscal year.

The school board's decision to use $1.9 million from its medical reserve account - part of a bigger reserve fund shared with the town - to balance its proposed $148.5 million budget for 2011-12 led to a brief clash at the end of the meeting.

Moody's, a bond rating agency, had raised a red flag about the town's internal service fund, saying its excessive deficit wasn't consistent with a AAA-rated community, and Tim Kery, a school board member, said, "I just want to make sure we don't lose focus on what the root of this problem was."

Kery gave a chart to the public that showed the Board of Education had run a surplus in its medical reserve account that ranged from $520,647 on June 30, 2006 to a projected $3.6 million on June 30, 2011, while the town had run a deficit in its medical reserve account that ranged from $602,734 on June 30, 2006 to an estimated $682,903 on June 30, 2011.

The June 30, 2011 projections have since been updated: They show the town with an estimated deficit of $821,016, and the Board of Education with an estimated surplus of $4.1 million.

Kery said one of the two parties "had not acted in good faith" and, while he didn't want to "point fingers," he believed "we have to look at where the root of this problem is."

Selectman Sherri Steeneck began to respond to Kery's comment, and First Selectman Ken Flatto said, "Can I ask that we not have a back-and-forth?"

Flatto said it was "a shame to suggest someone was not acting in good faith" and that "every single dollar was voted on publicly."

"Enough. Thank you," Flatto said.

Board of Finance Chairman Tom Flynn had another concern with the medical reserve account. He said the school board had chosen a higher "stop loss" for its insurance plan, resulting in an estimated savings of $550,000, and had planned to use $1.9 million of the surplus in 2011-12 - $300,000 more than the board earmarked for use this fiscal year to offset a $3 million cut to its budget.

But the school board's proposed operating budget was showing a 10.59 percent increase in costs for medical benefits, which was nearly the same increase as the townside budget. "How did it go up by 10.59 percent if you've got all those savings built in?" Flynn asked. "There's 800-some-odd thousand in savings I can't find."

Supt. of Schools David G. Title couldn't provide a definitive answer Tuesday night, saying only that the percentage would be higher than 10.59 percent without the $850,000 in savings.

Flynn said, "That would indicate your experience is worse than the townside."

"It's possible the town is not fully funding its health insurance," Title said, adding that the school board built its health insurance funding off a consultant's recommendation and he didn't know if the town did that.

"We may just want to try to do this off-line with some number crunchers in the room," Title said.

Flynn let it go for the evening, saying, "We have another night" to review the Board of Education's proposed budget.

The school board's proposed $148.5 million budget for 2011-12 rises 4.9 percent, or $6.9 million, from its current $141.6 million budget. Flatto has recommended that the proposed budget be cut to $146.9 million, which would be an increase of 3.75 percent.

The medical reserve account became the controversy of the Board of Education's proposed budget last week because the school board wants to spend $1.9 million from the account after Moody's warned the town about the overall internal service fund's deficit. The overall fund, which includes workers' compensation, was projected to have a surplus of $3.26 million on June 30, 2011 - but a deficit of $7.9 million when the fund is viewed on an accrual, or 10-year runout, basis. The biggest contributor to the accrual deficit is the risk management fund, which includes workers' compensation and which is projected to have an accrual deficit of $8.4 million.

Title said last week that the Board of Education would be more willing to maintain a surplus in its medical reserve account if it weren't for an agreement between Flatto and former Supt. of Schools Ann Clark that gave Flatto the right to "snatch up" savings in the school board's medical reserve account. Kery said Flatto transferred $400,000 out of the school board's account a couple of years ago.

Under the agreement, the town assumed liability if the Board of Education's medical reserve account ran into deficit and had the right to assume reward if it had a surplus.

The agreement could be broken by either the first selectman or superintendent of schools, but that would result in all but a one-month runout of the surplus going to the town, according to Title's interpretation of the agreement.

Title disagreed with the characterization that the Board of Education had taken money out of the reserve account this year and planned to next year. "This is about putting less in. It's not like money was withdrawn. Only the first selectman can do that," he said.

Flatto acknowledged that he was allowed to transfer money out of the Board of Education's medical reserve account under his October 2007 agreement with Clark. "The process really was meant to be collegial. It wasn't meant to be contentious. The only reason it became that way is because of the surprise," Flatto said, referring to his learning the school board planned to underfund its health insurance expenses by $1.9 million next fiscal year.

Steeneck said the school board's decision had adversely affected the town. "I don't enjoy the semantics of 'We didn't take the money,' because retaining it is the same thing," she said.

Title said it might be better to put the account under the town's control but maintain separate books between the town and Board of Education. "Maybe it is better to have it as one pot. Then the money really does become all the town's money," he said.

Flatto said, "We're all in the same boat on this. I don't think there's a problem with revamping it."