Daily Independent (Ashland, KY)

November 15, 2012

Audit says insurance costs a problem

Mike James
The Independent

ASHLAND — Health-care costs are consuming an increasing share of city funds, auditors told the Ashland Board of City Commissioners on Thursday.

Employee health insurance “is the single most negative culprit in city operations,” said Phillip Layne, managing director of the Kelley, Galloway & Co. accounting firm. “It’s a raging animal out of control.”

The total health insurance cost for the fiscal year that ended in June was $7.1 million, which was $1.8 million more than in 2010, Layne said.

That is the equivalent of almost all the city’s yearly tax revenue in its general fund, he said.

Changes made in July appear to be reining in costs for the past four months, City Manager Steven Corbitt said earlier in the day. The changes, which include increased premiums, deductibles and copays, are aimed at saving about $1 million, and based on the four months since they took effect, appear to be meeting the target, he said.

Ashland also saw some unexpected expenses, largely because of the spring storm that toppled trees and flooded streets, causing heavy damage and increasing overtime costs, according to the report. The city also had to pay back a $242,000 federal grant for the rehabilitation of the former Nobil Shoes building because of apparent failure to follow Housing and Urban Development department regulations in managing the grant.

However, once the money is paid back the city will be able to sell the building and recoup at least some of the money.

Pension funds are shrinking, but pension benefits are not in any danger of not being paid, Layne said. The city would need more than $6 million to fully fund utility, police and fire pension fund assets. However, he said, there is no risk currently of retirees not being paid.

The fire department exceeded its budget by $448,000, mainly because of labor cost and general operation expenses, according to Layne.

Repairs and retirement costs also rose, Corbett said.

Tax revenues were down about $500,000 and license fees also were down about $250,000.

Budgeting for the upcoming fiscal year will include examination of city staffing levels and another look at health insurance, according to a memo from Finance Director Tony Grubb.

MIKEā€ˆJAMES can be reached at mjames@dailyindependent.com or (606) 326-2652.