By New Times Staff
By Stephen Lemons
By Stephen Lemons
By Monica Alonzo
By Ray Stern
By New Times Staff
By Stephen Lemons
By Chris Parker
Seated at the conference table in his windowless office last week, Ted Williams looked like a man with a $40 million headache.
For almost a year, Williams has been in charge of Maricopa County's Health Care Agency, which runs the county hospital, neighborhood clinics and various other programs that tend to the ill and needy.
During most of that time, Williams has heard over and over again that the county's health-care system is a black hole. When the county closes the books on its fiscal year at the end of this month, the Health Care Agency is expected to be $40 million in debt.
"I've heard it all," Williams says. "That the agency is uncontrolled, has bad management, is a bottomless pit."
News reports have repeatedly characterized the Health Care Agency--and particularly the county hospital--as a major cause of the county's current financial crisis. As supervisors grapple with a deficit estimated to be anywhere from $50 million to $100 million, the public has been led to believe that runaway health-care costs are a major cause of the county's grim financial picture.
That is not true.
In fact, county budget documents show, for the past three years, the Health Care Agency has been used as a dumping ground for debt. Through accounting maneuvers and bookkeeping sleight of hand, the county's top officials have used the agency to hide a dangerous reality: They were running up tens of millions in deficits.
"It appears that debt was shifted to keep the general fund from running a negative," says Williams, in the government-speak he is accustomed to using.
In translation, Williams is saying that as the county kept running out of cash during the past three years, it effectively raided the Health Care Agency for money to pay its other bills.
Under the leadership of former Board of Supervisors Chairman Jim Bruner and former county manager Roy Pederson, Williams' agency became a pawn in a financial shell game apparently intended to mask the need for a tax increase until Bruner could step down to run for Congress.
As reported earlier in New Times, during Bruner's tenure on the board, the county engaged in a pattern of short-term borrowing and Band-Aid fixes to obscure the fact that its finances were sinking deeply into the red (Dangerous Games, Your Money" April 27.)
During 1993 alone, the county borrowed a total of about $200 million, shuffling debt from one place to another instead of facing up to its rapidly failing financial health.
It is clear that the Board of Supervisors used the shell game to evade legal restrictions on deficit spending. And some county officials now are wondering whether the game played with health-care funds may have crossed the line between cleverness and illegality.
Bruner, now running for Congress in the East Valley, declined through a spokesman to discuss the burgeoning financial crisis. "He doesn't want to spend the rest of the campaign talking about the county," spokesman Paul Walker says.
But for Maricopa County, the bills are coming due. Officials have already been forced to lay off hundreds of employees, and have seen the county's bond ratings downgraded twice because of continuing financial problems.
Supervisors are looking for ways to slash the county's budget for the next fiscal year by 15 percent, and bloody battles loom on the horizon as the board tries to get the books in order.
One of the greatest challenges, officials and onlookers agree, will be cleaning up the mess that was made at the Health Care Agency.
@body:Health care represents a huge part of what Maricopa County does for its citizens. While running the county hospital, providing care for the poor and elderly and running neighborhood clinics, the county spends about $440 million a year--more than a third of its $1.2 billion budget--on health-care delivery.
Until 1990, budget documents show, the county had no trouble paying for its health-care system and fulfilling its legal obligation to care for the indigent.
In fact, when the fiscal year's books closed in the summer of 1991, the county hospital had more than $3 million in surplus money, county records show.
But that year, the county's overall finances began to deteriorate. Although tax revenue continued to go up at a steady pace, the county began running out of money to fund all of the services it was providing. But supervisors--particularly Bruner--adamantly refused to increase taxes.
As the financial maelstrom worsened over time, the Health Care Agency became an easy target for county leaders in search of quick fixes.
The reason the agency was chosen lies in the nature of health-care budgets. The county hospital and other health-care departments run on budgets--called "enterprise funds"--that are kept completely separate from the county's general fund.
By law, the general fund must be balanced every year and cannot run a deficit. The enterprise funds, however, can carry debt from one year to the next under certain, very specific circumstances.
Beginning in 1991, records show, the county began taking advantage of that limited flexibility to engage in what would become a pattern of piling up debt that was not easily discernible to taxpayers.
First, the supervisors began slashing the amount of general fund money that it gave to the health-care agencies to provide care for Maricopa County's citizens. Between 1990 and 1993, the amount of tax money given to the Health Care Agency to run the county hospital was cut from just over $40 million to just over $27 million, freeing up money to pay other bills but driving the hospital into debt.
During the same time period, the county's leaders moved more than $32 million of debt onto the hospital's books, budget documents show.
For the most part, the debt shuffle involved millions of dollars that the county pays each year to private hospitals that provide care to the indigent. The county has a legal responsibility to pay for such care.
Until 1990, the county would pay these outside hospital costs from its general fund. But beginning in 1991, records show, the charges were put on the county hospital's books. Again, the move freed up more cash in the general fund that the county could use to pay other bills, but saddled the Health Care Agency with debt.
Finally, the county skimmed off at least $9 million in federal tax money that was designated for health care, instead putting it in the general fund to pay other bills.
That money came from a federal program that is supposed to help out hospitals that have an unusually high number of patients who cannot pay their own bills. In fiscal year 1992-93, county budget records show, the county actually made $9.1 million from the program, but did not post the money on the hospital's books.
As a result of the various budget machinations, the financial condition of the county hospital budget has plummeted.
The hospital enterprise fund had started the fiscal year in the summer of 1990 with a $23 million surplus. By the summer of 1993, the hospital was more than $30 million in debt, and that figure has now grown to about $40 million.
If the county had simply continued doing business the way it had done before, the county hospital would now be $24 million in the black, according to estimates prepared by Jim Medis, now director of finances for the Health Care Agency.
The county's audited financial statements show that the hospital actually made money from its operations in 1993, and would have stayed in the black if it had not been saddled with debt not of its own making.
"There appears to have been a little manipulation so they could ride that puppy," Hogan says.
The bookkeeping changes, in and of themselves, were not necessarily suspect, Hogan says.
There are valid accounting reasons that certain costs--particularly the cost of paying private hospitals for care--might be placed on the Health Care Agency's books.
But the end result of the county's machinations, Hogan and others say, was to obscure real financial problems at the county.
"If the county had been cruising along with a surplus and decided to make some of these accounting changes, nobody would have noticed," he says. "But it was out of convenience that these changes were made to increase the health-care deficit and mask the general fund deficits.
"It is not coincidental that some of these accounting techniques were employed when they were."
@body:Although the Health Care Agency was used to shift debt off the county's general fund books, the agency is not blameless for the dire financial condition of county health services.
Even agency head Williams acknowledges that the county's health-care system has problems of its own making. In the past year, Williams says, he has found more than $22 million in cuts that could be made to the agency's budget without affecting the quality or quantity of health care provided.
The agency has a bad track record when it comes to collecting money it is owed. At the end of the past fiscal year, the hospital alone had more than $50 million in bills that had not been paid.
The agency also garnered a host of bad publicity last year when it scrapped a brand-new, $12 million computer system because it supposedly did not have enough money to finish the installation. That system was expected to speed billing practices, and therefore bring additional revenue into the Health Care Agency.
The agency is also facing a dilemma common to public hospitals across the country: how to pay for health care it provides to people who make too much money to qualify for state or federal medical aid, but do not have their own private health insurance. Williams estimates that care provided to this type of patient is costing the county about $20 million a year.
Outside consultants have been called in to find a way to make the hospital and other health-care programs more efficient, speed the collection of outstanding bills and trim the agency's deficit.
But the agency's greatest problem, officials and onlookers agree, has been the havoc wreaked by three years of budgetary game-playing.
The costs of running the hospital and other programs have always been fairly easy to predict, officials say. It is no great secret, financial expert Medis points out, that the hospital needs about $40 million a year in tax money to do its job.
But the hospital got caught in a whirlwind of financial maneuvers launched by Bruner, Pederson and the Board of Supervisors, County Treasurer Doug Todd points out.
"They used very convenient maneuvers to move debt off the [general fund] budget," Todd says. "It was political expedience."
As the county's budget problems grew during the past three years, county records show, political expedience was quite the fashion.
At one point, in February of 1993, the county reached the point where it was almost literally broke, records show.
County leaders, including then-Board chairman Bruner, were on their way to a conference of government officials in Washington, D.C., when they received startling news--the county was out of cash and was on the verge of bouncing checks.
Before leaving town, Bruner had to rush to Governor Fife Symington and ask him to release more than $60 million in state health-care funds on an emergency basis, so the county could pay its bills.
The series of accounting tricks has now come to an end, Supervisor Tom Rawles says, but the piper must be paid.
Debt is debt, Rawles points out, no matter what set of books it is posted to, and the pool of red ink that has been allowed to grow at the Health Care Agency must be paid off.
"We understand that this is not a Health Care Agency problem," Rawles says. "It's a general fund problem. We are not going to make them pay for the general fund obligations that have been shifted on them."
@body:Sitting in his office, Williams, the head of the Health Care Agency, makes an astonishing statement. On the table before him lie documents, including a financial report prepared by the Health Care Agency, outlining the financial games that have been played with the department over the past three years.
The very fact that the county is now admitting what happened, Williams says, is indicative of a "metamorphosis" in county government.
In effect, Williams says, the county has decided to stop lying to the public about the gravity of its budget problems.
"That you even see this is indicative of openness and the desire to deal with the facts instead of trying to hide things," Williams says.
Still remaining, though, are questions about whether hiding debt in the Health Care Agency was legal, Williams says.
In less than a year on the job, Williams says, he has found no law that allows the health-care funds to carry debt from year to year the way they have been carrying it.
An opinion from Maricopa County Attorney Rick Romley's office in 1993 concluded that the health-care funds could legally carry over debt, but only if there was a specific plan in place to pay it off. The opinion laid down narrow guidelines allowing debt only for short periods of time.
The county's officials, Williams says, appear to have taken that narrow authorization and used it for a carte blanche debt spree that may have gone well beyond the legal guidelines set by Romley's office.
But for now, Williams says he is more interested in fixing what's broke than worrying about the past. "My role is not to assess blame," he says. "My role is to fix the problem."
Among many possibilities, the county is now considering solutions ranging from the simple--like cutting waste in the Health Care Agency--to measures as drastic as selling the county hospital or contracting with a nonprofit group to operate it.
The agency is awaiting suggestions from various consultants, and in the meantime trying to find ways to consistently slice away at its overhead, Williams says.
With budgets totaling more than $440 million, he says, there is room to carve. But the legacy of debt will not go away easily.
"The agency is not a black hole. It is not wildly out of control," Williams says, before slipping back into government-speak.
"Certainly, the agency faces numerous challenges.
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