The president of the Arkansas Professional Firefighters Association says he has a big problem with the Arkansas Municipal League basing the annual pay for its executive director entirely on the size of the league's multimillion-dollar reserve fund.
The larger the fund grows, the more money league Executive Director Don Zimmerman can pocket, association President Ed Jaros noted. That gives Zimmerman a financial incentive to keep the fund growing and to deny assistance to those covered by the league's various self-funded insurance programs that range from health care coverage to workers' compensation, Jaros said.
"The less money they pay out in claims, the more money he makes," said Jaros, a Little Rock firefighter.
Zimmerman says Jaros' logic is "a real stretch."
"The league saves cities millions of dollars, while boosting the state's economy," he said.
The Arkansas Municipal League is a voluntary organization whose members are the state's 500 cities. The league, formed in 1934, represents the cities in state and federal government matters. It also operates programs that provide services to cities, such as the self-insured health coverage for employees, and insurance coverage on property and vehicles. Other services include a legal defense program.
The league's executive committee authorized Zimmerman to be paid up to 0.85 percent of the reserve fund, or $579,999 this year, he said. The amount is based on the reserve fund's market value of about $68.2 million at the end of last year. The fund's audited value after adjustments was $67.3 million, said Zimmerman, who has been the league's executive director since 1974. But Zimmerman said he takes a lesser salary than what is authorized -- just under $250,000 so far this year. He also draws state retirement benefits of about $90,000 after taxes.
The reserve fund was established in 1984 to provide "aggregate supplemental reserves" to support and pay claims filed on the benefit programs "in the event that resources are not sufficient to cover outstanding claims," and the fund "may be used for this purpose at the discretion of the executive committee," according to the 2014 audit of the league by the Little Rock-based Thomas & Thomas accounting firm.
The league is able to keep its insurance rates low because it provides training and other services to cities to reduce their claims, while paying those that should be paid, Zimmerman said. If claims soared, rates also would climb and payments to the reserve fund would increase.
That's because 10 percent of the premiums paid by cities into most of the league's programs are earmarked for the reserve fund, he said. (According to Thomas & Thomas, reserve fund contributions are different for the health benefit and dependent life benefit funds. The health benefit fund's reserve fee is $4 per covered employee per month, and the dependent life benefit fund's reserve fee is 10 percent of the investment income from the life benefit account, the firm said.)
Jaros, president of the firefighters' association for five years, said the league collects enough in premiums for its programs and has accumulated enough money in its reserve fund to cover the programs' expenses well into the future.
"They have years and years and years of reserve to pay their claims," he said.
Zimmerman said he thinks the reserve fund level is "about right."
The reserve fund serves as "a disaster fund" for the league's seven self-funded programs, which also have their own cash reserves, as well as separate revenue and expenses, Zimmerman said.
According to the league, its reserve fund included:
• $31.6 million from the workers' compensation trust program.
Four hundred and eighty-nine of the state's 500 cities participate in the program, which was established in 1985.
• $11.3 million from the vehicle insurance program. Four hundred and seven cities participate in this program, which provides liability and comprehensive insurance protection on city vehicles.
• $9.5 million from the health benefit program.
The program provides medical, dental and vision benefits to employees and officials for more than 300 governmental entities, including more than 200 cities and more than 100 other local government entities, including counties.
• $8.3 million from the legal defense program that covers 446 cities.
• $6.1 million from the property insurance program that serves 305 cities.
• $294,448 from the $5,000-per-dependent life benefit program; 213 cities participate.
• $194,905 from the firefighters supplemental income protection plan program in which 222 cities participate. The firefighter program helps volunteer firefighters who are injured on the job and lose their incomes from their regular jobs.
Last year, the revenue for the seven programs totaled $93.6 million and their expenses totaled $80.9 million, according to league records.
In addition to the reserve fund, the seven programs' own cash reserves totaled $70.3 million at the end of 2014, Zimmerman said. However, that total would be reduced once payments were made on pending claims not reported to the league at that time, he said.
Without the reserves, the league would have to buy coverage from companies outside of Arkansas to shield it against unforeseen disasters or seek a bailout from state government if it ran into financial trouble, but he doubted the state would provide such assistance, said Zimmerman.
He said the league has plans to tap its reserve fund later this year for several million dollars because of higher-than-expected costs for defending cities in more than 170 lawsuits and workers' compensation claims. Because there is reserve cash, those costs could be paid without raising insurance rates for these programs, he said.
Zimmerman and Jaros frequently have been at odds over firefighter-related legislation during recent sessions of the Arkansas Legislature.
Jaros, whose association represents 28 local firefighter unions, said he provided information to lawmakers -- including Sen. Bill Sample, R-Hot Springs -- during this year's legislative session about the league's reserve fund and raised questions about how much Zimmerman is paid because he didn't have "any concrete information" on Zimmerman's salary.
But Jaros said he didn't suggest that Sample seek a special audit of the league by the Arkansas Division of Legislative Audit.
Sample said he's been contacted by many municipal firefighters, besides Jaros, who want to know why the league is simultaneously stockpiling cash reserves while opposing bills to increase retirement benefits for firefighters.
That is mostly why he is seeking the special audit of the league, Sample said.
Zimmerman said there is no link between the size of the reserve fund and the league's opposition to retirement benefit increases for firefighters. The league's programs help cities save money, which can be spent paying higher salaries to their employees, he said.
He said the Municipal League has "a lot of exposure" defending cities in lawsuits and paying judgments of up to $1 million per case, and unlimited exposure in paying health insurance claims under the federal Patient Protection and Affordable Care Act, as well as workers' compensation medical bills.
Three months ago, Sample received the Legislative Joint Auditing Committee's approval for a special audit of the league after suggesting that Zimmerman is paid about $500,000 a year.
At the time, Zimmerman said he was authorized to receive $579,800, but that he probably would voluntarily take between $350,000 and $400,000.
Through the first half of this year, Zimmerman collected $241,231. Effective June 29, Zimmerman said, he would stop accepting pay and work "pro bono" until auditors complete their work and the league's executive committee reviews his compensation.
He noted that in previous years he also had not collected all of the money he was authorized to receive. Last year, Zimmerman was paid $369,000 by the league out of a total authorized salary of $579,800, according to league records. Zimmerman has received annual pay exceeding $300,000 for 10 of the past 11 years.
Over those 11 years, the total he could have collected but didn't amounts to about $750,000, league records show. That pay has ranged from $267,652 in 2013 -- the only year in those 11 when it was less than $300,000 -- to $466,900 in 2012, according to league records.
In addition to his salary, Zimmerman has collected retirement benefits through the Arkansas Public Employees Retirement System since 2002. He said the money goes into his wife's bank account and amounts to about $90,000 per year after taxes are withheld.
He is one of the system's more than 900 "rehired retirees." He "retired" for a required one month, and then returned to work full time.
As a result, Zimmerman is entitled to receive his regular pay, plus his state pension -- a practice critics call "double dipping." Supporters of the practice say it allows state and local governments to benefit by keeping longtime employees.
Zimmerman, a former member of the retirement system's board of trustees, said he tried to "unretire" several years ago to avoid "double dipping," but system officials told him that state laws didn't allow him to do that. System Executive Director Gail Stone confirmed that.
Zimmerman said the executive committee decided to base his pay on 0.85 percent of the size of the league's reserve fund as a guideline, and "if they want to fix it to a flat amount, it is strictly up to them."
League President Rick Elumbaugh, who is Batesville's mayor, said the executive committee will decide in December on Zimmerman's salary for 2016.
"The majority of the entities feel like his salary is very justifiable" based on his management and leadership of the league since 1974, performance of its investments and the millions of dollars that cities save through the league's programs, Elumbaugh said.
Barbara Webb, chief executive officer for the Arkansas Workers' Compensation Commission, said commission officials determined, during the last annual review of the league's workers' compensation programs, that the Municipal League's reserves are adequate to meet league obligations for claims.
"It really would be a [league] board decision whether they are maintaining too large a surplus or reserve," she said.
The state Insurance Department doesn't regulate the Municipal League's health benefit fund because the league isn't an insurance company, said department spokesman Ryan James.
"As it is a self-insured program, we would not have looked into the reserve," or whether it's too small, too large or adequate, he said.
SundayMonday on 09/06/2015