Overtaxation with No Oversight: The Internal Service Fund

Since Mayor Murphy took office, the citizens of New Milford have been overtaxed to create discrete government piggy bank. The over-taxation has led to the bloating of the Internal Service Fund (ISF) by a whopping 170%. The ISF has grown 2.5 times higher than the town’s healthcare premiums. This overtaxing of citizens has continued to take place even after Murphy’s administration publicly agreed to proper management of the fund in 2008. It’s time for this fund to undergo a proper forensic audit so citizens can be assured their tax dollars are fully accounted for – and returned to them.

On February 8, 1993, the Town Council passed a resolution establishing the Medical Reserve Fund, which is now the Internal Service Fund. It is used specifically to keep track of medical insurance premiums coming in, and payments for medical claims going out. The money coming in is paid by employees and retirees of both the Town and the Board of Education. The ISF funds health insurance for a majority of town employees: police officers, clerical staff, teachers, administrators, etc.

Here’s what important about the 1993 Town Council resolution: it specifically states, “… making deposits into the fund reserve shall be to maintain the fund reserve balance at a level which stays between twenty percent and thirty percent of the total Annual Medical Expense Estimates.” To repeat: between twenty percent and thirty percent. Not below 20%, and not above 30%. Pretty clear, right?

The minimum of 20% was set up to cover extremely high medical costs not covered by a single year’s premiums. The 30% maximum limit was set up to prevent overtaxation and to ensure timely and proper oversight. Pretty clear, right?

Prior to Mayor Murphy’s administration, the last fiscal year for former Mayor Gambino was 2003/2004. According to the town’s annual financial audit for 2003/2004, the ISF had $2,629,570 in Total Net Assets. For that same year, the actual medical premiums were $7,786,144. The amount necessary to meet the 20% of premiums is $1,557,229. At this point, the ISF was overfunded by $1,072,341, or at a level of 33.8%. This is 3.8% higher than the maximum funding allowed.

Here’s a very important point: the funding level in 2003/2004 was enough to cover the 20% of premiums in 2008/2009 (the last year of audited data). Not one additional taxpayer dollar was necessary during the entire Murphy administration.

But the overfunding and overtaxation - with no oversight - were ready to explode.

The annual percentage of funding grew far above thirty percent upper limit. 2004/2005: 35.5%; 2005/2006: 49.6%; 2006/2007: 53.4%; 2007/2008: 56.3%; 2008/2009: 54.0%.

According to the audit reports for the Murphy administration, the ISF net assets have grown to $6,327,551. That’s a whopping $3,697,981 million more than Mayor Gambino. The ISF net assets grew by the following annual amounts: 2004/2005 - $607,115; 2005/2006 - $1,864,570; 2006/2007 - $454,861; 2007/2008 - $738,532; 2008/2009 - $32,903.

You could look at the last audited year (08/09) and think the town has finally made an effort to slow down the overfunding. However, nothing could be further from the truth. That year, the Murphy administration used $1,000,000 of ISF funds to offset budget expenses. So, instead of the fund dropping by $1 million, it actually grew slightly because overbudgeting pumped $1 million back into the ISF.

If you’re going to use $1 million to offset budget expenses, why overtax citizens by $1 million? What kind of oversight is taking place? Is there any oversight – or just overbudgeting and overtaxation?

What’s also amazing is how the growth of the ISF is much higher than the rise in the town’s health care premiums. From 2004 – 2009, premiums rose by 50%. But the ISF grew by 140%, and the overfunding of the ISF grew by 271%. What kind of oversight is there when an already overfunded account nearly triples healthcare premiums? Simply stunning.

Prior to 2008, had anyone paid attention to the ISF? The Mayor and Director of Finance never said a word about it – or the overfunding. However, once members of the Board of Education started asking questions about the millions in overfunding, action was “suddenly” taken. A short term accounting review was done (only covering two years of overfunding), and the Mayor decided to take the $1 million out of the fund. In the accounting review, there was a recommendation “that the Town periodically settle the interfund receivable and payable balances.” And, at the Board of Education meeting April 14, 2008, the Director of Finance said the BOE contributions for 2008/2009 looked good. But what has happened since?

• Despite the Director of Finance claiming the numbers looked good for 2008/2009, the ISF still grew by $1 million
• The Mayor used $1 million for budget expenses in 2008/2009
• The Interfund receivable and payable balances – in excess of $2.5 million - have not been resolved as of the last audit

It appears that when taxpayers look away from the ISF, nothing changes. Overtaxing and overbudgeting with no oversight remains the status quo.

Taxpayers and town employees need to demand the following:
• A forensic audit of the ISF dating back to fiscal year 2004/2005
• Accounting of funds contributed by employees, Town, and BOE
• Reconciliation with the health insurance consultant to ensure past practices will no longer be the norm
• A transparent process of health care budgeting

It’s time to expect Mayor Murphy to follow the 1993 Town Council Resolution. Taxpayers and town employees deserve oversight – not overtaxation.