Budget turmoil, limited oversight, employee turnover, soaring costs and bad decisions converged to drain the Johnson County employee health-care fund in the late 1990s.

No county employee lost benefits, but taxpayers had to pick up more of the tab to keep the fund solvent. And questions remain about how the fund could take such a nosedive.

Interviews with county staffers and commissioners, as well as internal reports, point to fiscal mismanagement that had staff members using last-minute fund transfers to balance the budget and help county commissioners keep their pledge to roll back taxes for four consecutive years.

Staffers say the hefty surplus in the health-care fund made it a ripe target when financial managers came looking for cash to plug gaps elsewhere in the county budget.

And the health-care fund problems, County Administrator Mike Press said, may be just the beginning.

"All things are worthy of review," he said. "I'm looking at everything county government has done."

In the red

The troubles came to light this month with the release of an internal audit of the fund that covers medical bills for 2,355 Johnson County employees.

By 1997, the fund had built up a surplus of $10.5 million. But then came three years of deficits, totaling $11.4 million.

This year, claims paid are expected to outstrip the fund's revenue by $2.3 million, and without changes, next year's deficit will be $2.7 million.

Not only was the fund operating at a net loss, according to the audit, but in 1998 the county's Office of Financial Management diverted $2 million in health-care premiums to other accounts without authorization.

Because of "large cash balances," the premiums should go to the general fund, according to a Sept. 4, 1998, memo to the County Commission.

But the recent audit found the health-care fund had a net loss of $4.04 million in 1998, and an even larger loss, $5.3 million, in 1999. And the loss for 2000 was an estimated $2.05 million.

The audit also found the county did not follow generally accepted accounting practices.

Other deficiencies noted in the audit report include:

The county violated state regulations when the Office of Financial Management transferred to the general fund $311,685 from its risk management, airport, nursing center, public works and developmental supports funds.

Several of the fund transfers were made by county budget team leader Doug Robinson, and at least one was signed by Chief Financial Officer Susie Rowland, who reported to former County Administrator Gene Denton.

Interest revenue of $733,160 earned on health-care cash investments during 1998 was not deposited in the health-care fund.

The current county budget does not account for $190,000 of annual health-care interest revenue.

The county budget does not include a line item detailing how much is spent on the health-care fund, an amount now approaching $18 million a year.

Sinking into a deficit

The troubles with the health-care fund have their roots in the budget climate of the mid- to late-1990s, a Feb. 9 staff report prepared for Press said.

In 1994, county commissioners asked voters for a sales tax increase to fund and operate a new jail. In return, commissioners promised to roll back county property taxes for 1996 to 1998 to offset appraisal increases. The intention was to keep property tax revenue flat.

The rollback pledge was then extended to the 1999 budget, just about the time Y2K worries began to hit. Worst-case projections in 1998 had the county spending $17.5 million on computer fixes. In fact, the eventual cost was much less -- $5.4 million.

Still, administrators were scrambling to pay for new computers and software while giving commissioners a budget that would allow the promised tax rollback.

Something had to give.

"Did commissioners come out specifically and say, `All right, Susie and Doug, we want you to transfer X number of dollars from here to here'?" said Rowland. "No, they didn't do that."

But the message was clear, she said. Make the transfers.

"It was the same as they do every year. They approve a budget that is based on various factors and assumptions and parameters. But they will not go back and look at each item," she said.

Adding tension was pressure to reduce the health-care fund.

"If you're sitting on a lot of money, the perception becomes that money could be used to provide relief for taxpayers," he said. "People zoomed in and said that's too much money to have there."

So they gave employees "premium holidays" -- months when they did not have to pay scheduled health insurance premiums.

That was in 1998, when it already should have been clear, officials say, that health-care costs were rising steeply. In fact, county expenses grew 87 percent, about $6.1 million, from 1997 to 1999.

Still, the county persisted in using the health-care fund as a source of cash to balance the budget.

In addition, planning for the 1999 budget included a $1,500 employee health-care premium, the same as the year before. And as the recent staff report states, the 1998 figure already had been set at "an artificially low level in order to decrease the balance of the (health-care) fund and to roll back the mill levy."

Robinson, the budget team leader, said, "To do it in a way it should have been done, we would have had to go into everyone's budget that year and reduce their budgets and say you can't spend this and here's why."

But that was a problem, Robinson said, because Denton had just announced his retirement. The person needed "to lead the charge," Robinson said, was a lame duck.

Then, in 1998, Human Resources Director Paris Pate left just as things were going from good to bad.

Pate had directed the health-care fund from its beginning in 1991. "You cannot believe the expertise that walked out the door," Rowland said.

The Feb. 9 report drew the same conclusion: "With expertise concentrated in one department that has experienced high turnover, it has been extremely difficult to develop any stability in the administration of the county's health-insurance program."

`Sloppy' accounting

Some county commissioners acknowledge the audit reveals poor fiscal management.

"In essence, what (county staff) was doing was just grabbing money wherever they could get it to offset the roll back," said County Commissioner George Gross.

He said Denton kept the board in the dark, adding, "There was nothing illegal or any missing money. But in the past there was some sloppy handling of accounts."

With the county's internal auditor position vacant, it was difficult to get a grasp on how big the deficits had become, Commission Chairman Doug Wood said.

A new business financial system being installed will allow commissioners to exert more control, he said.

In the end, Wood said, the county staff failed the commission, and the commission failed the taxpayers of Johnson County.

Press raises another question.

"The auditor cannot find any written document that authorized the $2 million transfer. Does that mean any other county transfers were done without written authorization? I don't know," Press said. "I don't think so."

But he said several other internal county audits were under way.

"These things are going to come up," Press said. "But hopefully we've passed the most serious one."

Press has made several changes and recommendations, including a bid process to ensure county costs and benefits are competitive.

He also has said formal financial policies were needed to spell out the allocation of investment income and desired minimum cash balances.

Transfers will also now be tracked with a document signed by the chairman of the County Commission.

Robinson, the budget team leader, now says he regrets the decisions that led the health-care fund into deficits.

"It shouldn't have happened," he said.

"As an organization, we took a short-term view, and we needed to take a long-term view -- so in the good years you plan for the bad years."

Kansas City Star

-- Anonymous, April 19, 2001