Serving Northern St. Louis County, Minnesota

Projection: drop in TAAS margins to strain future budgets

Need for ambulance replacement could push five-year cumulative deficit to over $600,000

Marshall Helmberger
Posted 9/12/19

TOWER— The Tower Area Ambulance Service’s (TAAS) shift to a paid on-call staffing model has drastically reduced the service’s operating margins and is raising questions about how the city will …

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Projection: drop in TAAS margins to strain future budgets

Need for ambulance replacement could push five-year cumulative deficit to over $600,000

Posted

TOWER— The Tower Area Ambulance Service’s (TAAS) shift to a paid on-call staffing model has drastically reduced the service’s operating margins and is raising questions about how the city will finance the purchase of ambulances in the future.
For years, the TAAS has been able to finance ambulances through cash surpluses generated through its operations, as well as a modest annual subsidy from area townships to help pay for ambulances and other costly equipment.
Prior to the shift to paid on-call in April 2018, the TAAS routinely posted annual operating margins of over $100,000. Combined with the township subsidies, those margins not only ensured that the service had sufficient cash to purchase ambulances but allowed the service to build a substantial fund balance. On paper, that fund balance exceeds $800,000, although most of that revenue was transferred by former clerk-treasurer Linda Keith to cover other city spending and it’s not clear that the city will have the means to restore those funds any time soon.
For the ambulance service, hefty margins now appear unlikely given the significant additional cost of maintaining paid on-duty staff for 120 hours per week— at least without a change in the ambulance service’s business model.
Numbers so far in 2019 suggest the ambulance service has operated at roughly break even through the end of July. Through the first seven months, TAAS expenditures totaled $274,710. That includes a $30,000 partial payment for a new ambulance, leaving operating expenditures recorded to date of $244,710. The recording of TAAS expenses tends to lag as well, so it’s virtually certain that total operating costs through July 31 exceed $250,000. At the current pace, the service’s operating expenses for 2019 are likely to come in close to last year’s expenditures of $449,000.
Meanwhile, TAAS revenues have posted at a slower pace, although the first half of the year tends to reflect payments from the previous fall and winter, when run volume and billings are typically lower. As of the end of July, the TAAS reported total revenues of $183,050 year-to-date. That number may be misleading, however, since, according to Altenburg, it does not include approximately $79,000 in revenues booked in the early part of 2019 that the city’s auditors credited to 2018. Altenburg told the city council earlier this year that the city’s auditor won’t be making a similar transfer when the books are finalized next spring.
Altenburg cited that transfer earlier this year to tout an “improvement” in the service’s operating margins, from the auditor’s original calculation of $4,000 in 2018 profits, to about $80,000.
That transfer, however, is making the service’s 2019 books look significantly worse, and that’s without considering the $250,000 cost of purchasing a new ambulance.
At the pace through July 31, the TAAS would book only about $370,550 in revenue for 2019, leaving a substantial operating deficit. The pace of receipts is likely to increase in the second half of the year, however, as revenues from the busier summer season, and a record month of July, start to arrive. That should put 2019 revenues somewhere over $400,000.
Assuming $450,000 in operating expenditures, plus the cost of a new ambulance, the TAAS could spend as much as $700,000 this year. The township subsidy account, which currently contains about $120,000, would be able to cover a portion of the shortfall for the ambulance purchase. Even so, the deficit spending could well swamp the service’s remaining reserve funds.
Part of the ambulance service’s deteriorating budget picture stems from the high cost of maintaining staff on-duty five days a week, 24 hours a day. While the TAAS has long paid its members for time spent on emergency calls or non-emergency patient transfers, the decision to hire full-time staff to respond to calls has added at least $100,000 annually to the payroll, and brought additional expenses as well, for things like training, rental of living quarters, and extra travel. The TAAS spent $240,000 on operations in 2017, the last full year without full-time staff. By contrast, the service spent $449,000 last year, although approximately $50,000 of that was for additional repairs and some major equipment purchases.
Those higher costs were supposed to be covered by increased revenues resulting from a sharp increase in the number of transfers the TAAS would accept under the new staffing model. Back in 2017, Altenburg had projected that the new paid staff could undertake as many as three or four transfers per week, which he argued would boost the service’s profitability.
While the TAAS has conducted more transfers than in the past, they’ve fallen well short of the average of three per week, which is the number that Altenburg projected would be needed to pay for the additional staffing. Since beginning paid staffing in April 2018, the TAAS has undertaken an average of 2.37 transfers per week.
While the cost of the full-time staff has been high, the actual cost to the city could be even higher depending on the conclusion of an ongoing examination by city officials into whether the paid on-call staff qualify for overtime pay of time-and-a-half. Under federal law, public employees who work more than 40 hours in a week are entitled to overtime. Virtually every other area ambulance service limits the hours of paid staff to 40 hours in order to avoid overtime. But Altenburg continues to insist that TAAS staff, some of whom may work as many as 60 hours a week, don’t qualify for overtime.
The issue arose at the Aug. 26 Tower City Council meeting when Altenburg criticized interim clerk-treasurer Ann Lamppa for suggesting that the department’s failure to pay overtime is a violation of federal law. Lamppa said the issue isn’t settled, and Mayor Orlyn Kringstad said the information the city has received in recent days suggests that Altenburg’s interpretation of the law has been in error. “It’s something that we need to follow up on as a city council because your interpretation of when the ambulance staff is on-call is not in line with what we believe it actually is,” Kringstad said.
If the city determines that overtime is required, it would not only impact the costs of paid on-call staffing moving forward— It could also require the city to make back-payments to paid on-call staff for previous overtime hours worked.
Additional ambulance purchases ahead
Paying for the ambulance that the prior city council ordered last December is proving challenging enough for the TAAS given that the prior city council drained most of the service’s reserves. But paying for two additional ambulances over the next four-to-five years is going to be all but impossible without city bonding or some other form of borrowing, something the city has not had to do in the past to make ambulances purchases possible. That conclusion is based on a cash-flow projection developed by the Timberjay (see chart on page 3). The cash flow analysis suggests the TAAS could face a five-year deficit of over $600,000 once the cost of ambulance purchases is calculated.
The new ambulance is supposed to replace the service’s 2011 rig, although the other two rigs— a 2005 unit and a 2013— are expected to need replacement by the end of 2023.
Kringstad has, for months, urged Altenburg to develop a cash flow projection to determine whether the TAAS can afford the cost of the paid, full-time staffing and still afford to replace ambulances, but Altenburg has resisted, calling that effort “too complicated.” In fact, the ambulance service’s revenues and expenditures are quite consistent year-to-year, which makes cash flow projecting relatively easy.
Altenburg never provided the city council with any forward-looking financial projections at the time the council approved his plan to switch to paid staffing back in 2017. Altenburg sold the switch to paid staffing as a change that would actually increase TAAS profits, but his claim assumed the service would be able to conduct at least three transfers per week, a target that the service has not been able to achieve.
One wild card in the financial calculation is whether area townships will agree to an Altenburg plan to phase-in a doubling of their ambulance subsidy over the next few years. That could improve the financial picture for the service, but would not come close to covering the entire projected deficit. Altenburg has made presentations to several area townships in recent months, but to date has found little willingness from township officials or residents to provide additional subsidies to TAAS.

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