By EMMA BARTLETT

On May 23, Cranston’s finance department and administration came before the City Council for a discussion on Cranston’s $5.5 million deficit of FY 2021 for hospitalization and medical claims; a number of unexpected circumstances were noted as the cause.

Councilwoman Jessica Marino said she placed the topic on the agenda because it was an identifiable deficit that was a cause of concern. The $5.5 million is part of the Internal Service Fund, which Acting Finance Director Mike Igoe explained is a fund that includes hospitalizations and claims. He said first, the city assigns a value to each insurance policy (either Blue Cross Blue Shield or United) that each employee signs up for, and in each payroll, the city deposits money into the Internal Service Fund. At the end of the month, the two insurance companies send invoices and the funds within this account are used to pay the companies.

Igoe said as of July 1, 2018, the city had a positive $18,000 balance in the Internal Service Fund, and the problem began in FY 2019. In that year, the city had $1.4 million more in expenditures than in revenues – noting that there was a chemical fire on Elmwood Avenue where a couple dozen firemen were injured.

“That [chemical fire] was a driver in that fiscal year that caused the deficit,” said Igoe.

The audit for FY 2019 showed the Internal Service Fund’s deficit at $1.8 million – which came from hospitalizations and claims. Igoe said claims were a separate fund but also part of the Internal Service Fund where money is deposited each quarter.

In FY 2020, the city had a $2.2 million loss, bringing the fund’s total deficit to $3.6 million at the end of the fiscal year; Igoe noted that during this time there were additional expenses due to covid.

“We had several employees here that were in the hospital for months on end,” Igoe said.

In 2021, the city had another $1.5 million deficit that year, ending the fiscal year with a balance of $5.1 million in hospitalizations and 500,000 in claims – coming to a $5.6 million deficit.

To date in FY 2022, the city is at a $900,000 loss in the Internal Service Fund, coming to a total of $5.9 million. Mayor Ken Hopkins’ FY 2023 budget will address this deficit by putting $7 million of American Rescue Plan Act (ARPA) funds to rectify the losses within hospitalization and claims.

“If we hadn't been fortunate enough to have that money – the only other place that money could have come from was the taxpayers,” Igoe said.

Marino challenged Igoe’s comment saying that the funds could come from other places other than taxpayers – such as collecting premiums from the workforce so the payments don't fall on the burden of the taxpayer.

“I went all the way back to 2013 and that's what gives me grave concern is that this number has been ballooning over the years,” said Marino.

In the city’s audit report from FY 2016, there was an approximate $205,000 deficit in claims within the Internal Service Fund. In FY 2017, the claims deficit came to $412,000. In FY 2018, the city had an approximate $510,000 deficit in the City Internal Service Fund.

Igoe said there may have been losses in the fund prior to 2015, but the fund was still solvent as of June 30, 2018. Additionally, the city increased premiums in the budget by 10 percent and will wipe out the deficit through the funds set aside in the FY 2023 budget. Igoe said the 10 percent value was chosen based on this year’s current trends.

Marino inquired about joining a collaborative like Cranston Public Schools did to deal with hospitalizations and medical claims to reduce a deficit which was an issue for them. Chief of Staff Anthony Moretti said the city is looking at ways to streamline government and one of the discussion points is to look into some form of insurance.

Councilwoman Nicole Renzulli said last year she spoke to former Finance Director Robert Strom about the health insurance portion of the budget and asked Igoe if a West Bay Collaborative would be a good idea. She said Strom said the League of Cities and Towns liked how Cranston was doing.

Igoe said that to join a collaborative, money has to be put up front. In the case of the schools, the district had to put $6 million up front to fund claims and future claims. Then after four or five years after experience, that number could be drawn down to $1 or $2 million. He said one downside to the collaborative would be putting money up front which would come from taxpayers.

“Again, it [deficit] has been growing since 2015, and it has at times been doubling in size,” Marino said.

Marino said the school system pursued the collaborative at the Auditor General’s request because the district’s fund was growing; she said the State Auditor General communicated with the city that they are concerned about this fund like they were with the school department several years ago.

Igoe said Cranston engaged in a contract several months ago with Gallagher Insurance Company who are acting as the city’s consultants. He said they met with the city last week and have another meeting this week and the company will review Cranston’s claims and give recommendations on how the city can rope in any costs they can. Overall, the city will be eliminating the Internal Service Fund’s deficit and is looking into ways to streamline government.