Discussion on health insurance fund challenges is 'precursor' to difficult Cedar Falls city budget decisions [Waterloo-Cedar Falls Courier, Iowa]

Sep. 8—CEDAR FALLS — While discussing a significant loss in the health insurance fund, the city's top two employees hinted at needing to have difficult conversations in advance of developing its next municipal budget.

The city is staring at a loss in the self-insured health insurance fund of $1.3 million. On Tuesday, the City Council discussed a $900,000 transfer from the end-year general fund surplus to help offset it. Finance and Business Operations Director Jennifer Rodenbeck told the council that officials will have discussions about future employee benefits and their costs.

Those are examples of conversations that could lead to "difficult" decisions for officials this November when they establish goals for the upcoming fiscal year.

"This is kind of a precursor, we have some big budget items that are going to be in front of us this upcoming goal setting session," said City Administrator Ron Gaines. "We're going to have to look at making some very difficult decisions. I can tell you financially the city is still in a really good spot. You, as a council, can do almost any project you want, but we can't do all of them. That's going to be the challenge moving ahead."

Despite the challenges, Rodenbeck said after the meeting that the city is not at the point where it is considering abandoning the employer-established fund to cover financial risk for providing health care benefits to its employees, nor is it looking into other health insurance "plan design changes."

The city's been operating under its self-insurance fund for decades. And any change also would mean agreeing to amendments to collective bargaining contracts with the employee unions, she pointed out.

During the meeting, Rodenbeck said the city has avoided buying insurance from a vendor because of the belief that what's provided is less cost effective.

"We (the city) don't have a profit margin built in," she said. "When you're buying insurance, you're also having to pay for that company to make money, so we've always thought that it's more cost effective to be self-insured."

Additionally, Rodenbeck noted the administration is hesitant about asking employees to chip in more toward the health insurance fund because of "the market we're in right now."

"Benefits are very important to employees," she said in explaining its one tool they use to compete with other employers to hire and retain workers.

Before the council approved the transfer in a 6-1 vote, with Councilor Dave Sires dissenting, Rodenbeck said the health insurance fund was down to $1.9 million.

She noted that "$1.9 million sounds like a lot but, when you have a loss of $1.3 million in one year, that's not going to take very long for those reserves to be gone. Quite honestly, the $900,000 might not even be enough. But it should be at least for another year or two, or to get us into this next budget cycle where we're going to have to talk about what we are going to want to do about employee benefits."

The $900,000 taken out of the $2.2 million surplus realized at the end of fiscal year 2022. The last day was June 30, and the city is midst of closing out the general ledger.

After subtracting out the $900,000, that leaves about $1.3 million in the surplus, $328,333 from an Iowa fitness center relief program grant of federal COVID-19 relief funds.

The council's vote authorized those grant dollars to be transferred to the recreation fund to help pay for projects at the aquatics center or others involving recreation.

Another $595,874 is the city's annual backfill payment.

These payments make up for the revenue lost by cities, counties and schools when the state cut commercial and industrial property taxes in 2013. That money is being phased out and the council previously requested it be set aside for one-time capital projects.

Similarly, the remaining approximately $300,000 of the surplus will be transferred to the capital projects fund to "help offset any project that is seeing increased costs due to inflation, or to use for a project identified as using General Fund Savings (GFS) on the CIP," according to city documents.

Sires argued that by keeping some of the $2.2 million surplus in the general fund, it could be used to help reduce any future property tax hike, because, as was the case earlier this year, the council was looking for possible areas it could cut from its budget.

But Rodenbeck refuted his claim, that it's advantageous for the taxpayer if deciding to not transfer it.

"Whether you use the money for projects and health insurance now, and alleviate future property taxes in the CIP or your trust and agency levy, or you're saving the money in the general fund and relieving property taxes in the next year budget, it's really the same," said Rodenbeck. "It's still property tax relief."

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