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City officials have discovered a shortfall of $1 million in the 2012 municipal budget under the line item for employee health care, they announced at last night’s council meeting.

City manager Terence Reidy, auditor Dave Kaplan and acting chief financial officer [CFO] Christine Paulin informed the city council and the public of the discrepancy.

In the 2011 budget, the estimated health insurance expenditure was $5.1 million. For this year, former CFO Juan Uribe — who resigned in August following an unfavorable audit report — recommended an estimated expenditure of $5.6 million.

Now, an additional $1,070,000 is needed.

The city’s insurance provider is Horizon Blue Cross Blue Shield of New Jersey. The company offers a Lag Agreement for municipalities to spread costs over several years. In 2011, the city decided to spread payments over 2012 and 2013, paying $500,000 for each of those years and reducing the 2011 expenditure by $1 million, Reidy said after the meeting.

“For whatever reason, the amount that was deferred … was not included in the figures that were given to us for the introduced budget,” Paulin said.

Also, the city saw “a variety of changes” in health insurance legislation at the state level when putting together this year’s spending plan, Reidy said, including larger employee contributions to health care, which should have decreased some of the city’s costs.

“The number presented [in this year’s budget] was half a million dollars higher than the number we spent last year,” Reidy said. “That number was an estimate. We knew it was an estimate going in.”

THE CITY’S NEXT STEP

Failure to pay the $1 million in this budget cycle would result in an over-expenditure — which could constitute a fourth-degree crime because officials are aware of the discrepancy, city attorney Frederick Raffetto said.

The city can ask the state’s local finance board for permission to borrow $1,050,000 over the next five years to pay the difference, Reidy said. This requires the passage of a resolution declaring an emergency, as well as a resolution making application to the local finance board and a bond ordinance.

The city council attempted unsuccessfully to approve the two resolutions. The council did introduce the required ordinance at last night’s meeting. Councilman James Bruno abstained from all three votes while the other council members present — Deputy Mayor John Loffredo, Councilwoman Sue Henderson and Councilman Kevin Sanders — voted yes.  Mayor Ed Johnson was absent.

The resolutions require a two-thirds majority, or at least four votes, so neither resolution passed last night. Introducing the bond ordinance only requires a majority vote, but final passage will require a two-thirds majority after a public hearing scheduled for the Oct. 17 council meeting.

Bruno said he would not vote in favor of the resolutions or ordinance unless the city froze spending and hiring. If Bruno continues to abstain, Johnson’s vote will be required to pass the required resolutions and bond ordinance.

“If this is an emergency, I think we should put a freeze on all spending and hiring,” Bruno said. “If someone retires, don’t re-hire.”

THE SEARCH FOR A CFO

Since Uribe’s resignation, Paulin has acted as the city’s CFO on an interim basis.

“The answer is we need to hire a new finance director — someone who’s got the right kind of experience,” Reidy said.

Bruno suggested the city seek help from the state. Reidy has already made that request, he said, to no avail, although the state is assisting with the search for a new CFO.

This is the fourth time the city has been without a CFO in a decade, Reidy said.

“We’ve had CFOs with great technical experience who just couldn’t handle the day-to-day pressure of the job,” Kaplan said. “It takes a unique individual.”

Reidy has also looked into sharing CFO services with Neptune, but said this is not possible either.

 

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