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CC 2013-04-23_08.e. Payment to the CJPIAMEMORANDUM TO: CITY COUNCIL FROM: STEVEN ADAMS, CITY MANAGER f Ii SUBJECT: CONSIDERATION OF APPROPRIATION AND PAYMENT TO THE CALIFORNIA JOINT POWERS INSURANCE AUTHORITY FOR LIABILITY COVERAGE DATE: APRIL 23, 2013 RECOMMENDATION: It is recommended the City Council appropriate and approve a payment of $202,903 to the California Joint Powers Insurance Authority (CJPIA) to pay the balance of the City's liability coverage retrospective adjustment. IMPACT ON FINANCIAL AND PERSONNEL RESOURCES: It is recommended the payment be appropriated from the General Fund unappropriated fund balance. Staff projects there will be sufficient budget savings in this fiscal year to address this cost. Therefore, it is not expected to reduce the year- end General Fund fund balance from the current projection, but would reduce the potential increase in the fund balance that might otherwise occur. There is no impact on personnel resources. BACKGROUND: The City obtains its liability and workers' compensation programs through the CJPIA, which is a risk sharing pool. The program includes a relatively small self-insured retention. The majority of risk is shared among participating members and risk is transferred to excess insurance or reinsurance for the category of claims with the highest costs. The members make a primary deposit at the beginning of the coverage period. Retrospective adjustments used to be made annually to reflect actual losses and claims. However, cost sharing formulas were recently amended to avoid the need for year-end adjustments and to stabilize ongoing rates. However, as a result of these changes, most members received a one-time retrospective balance debt. The City of Arroyo Grande retrospective balance was further increased due to recent claims over the past year. As a result, the balance was $775,013 for both workers' compensation and liability coverage. This is an increase of $336,083 over what was originally projected. There was $75,000 budgeted this fiscal year to pay towards this debt. At the mid-year budget review, the City Council appropriated an additional $193,243 in one-time Item 8.e. - Page 1 CITY COUNCIL CONSIDERATION OF APPROPRIATION AND PAYMENT TO THE CALIFORNIA JOINT POWERS INSURANCE AUTHORITY FOR LIABILITY COVERAGE APRIL 23, 2013 PAGE2 funds that were received from a settlement from San Luis Obispo County and $300,000 in one-time excess reserve funds from claims remaining when the City participated in the Central Coast Cities Self Insurance Fund. This reduced the balance to $202,903 after a discount was applied for paying off the full worker's compensation amount during the allotted timeframe. ANALYSIS OF ISSUES: Staff is currently preparing the Biennial Budget for FY 2013-14 and FY 2014-15 and a significant budget shortfall is projected again for next year. The plan approved in the last budget was to fund $75,000 annually until the debt was repaid. However, given that the City has had one-time funds available this fiscal year, staff is recommending it be used to complete payment of this expenditure in order to reduce annual costs and the future projected budget shortfall. ALTERNATIVES: The following alternatives are presented for Council consideration: • Approve staff's recommendations; • Council may direct staff to continue to pay off the debt through a payment plan with interest, which would likely result in annual cost of approximately $70,000 over three years or $50,000 over four years; • Delay action until the recommended budget is considered; or • Provide staff other direction. ADVANTAGES: The primary advantage and purpose of the recommended Council action is to utilize one-time funds to reduce ongoing annual costs in the upcoming proposed budget. It will also result in an overall reduction in costs by eliminating interest that would be charged on the repayment if it is done over a period of several years. DISADVANTAGES: The primary disadvantage is that the action will result excess reserves that could be used for other purposes. ENVIRONMENTAL REVIEW: No environmental review is necessary for this item. PUBLIC NOTIFICATION AND COMMENTS: The agenda was posted in front of City Hall on Thursday, April 18, 2013 and on the City's website on Friday, April 19, 2013. Item 8.e. - Page 2