10-10-2018 FIN RPT 03 - Laserfiche WebLink

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LITF Overview • Page 2 policy is renewed, the existing structure with the $3.0 million self-insured retention is re-evaluated to determine if a more beneficial (less risk exposure) option exists. This specific structure has been the best option for many years. All City departments participate in the Risk Management program and make payments to the LITF based on actuarial estimates of the amounts needed to fund prior and current year claims and incidents that have occurred but have not been reported. DISCUSSION: Financial Overview Attachment 1 provides an overview and analysis of all revenues and expenditures for the Self Insurance Trust Funds. Historically, the two largest cash outlays in the liability trust funds are claim payments and outside legal fees. Claim payments in FY 2017-18 for the Workers' Compensation Fund and the General Liability Fund were $5,239,000 and $3,932,000, respectively. While claim payments are driven by many factors, outside legal expenses are a byproduct of claims in process and initiated during the year. For FY 2017-18, outside legal fees for the Worker's Compensation and General Liability funds were approximately $424,000 and $2,707,000, respectively. Cash Position and Fund Balance Total cash currently on hand between both funds is approximately $16.3 million, an increase of $2.6 million from the prior year. The reason for the increase is primarily a result of the General Fund and Measure Z Fund each contributing $2.5 million to the General Liability Fund in FY 2017/18; however, total claim payments collectively increased by approximately $3.3 million from prior year totals. The General Fund contribution was a one-time payment. A second Measure Z contribution of $2.5 million will be provided in FY 2018/19. The fund balance is negative and reflects the long term nature of many of the claims, in other words, there is not enough cash on hand now to cover all potential claims and liability payouts expected in future years. Currently, there is sufficient cash on hand to cover 35% of the long-term liabilities. This coverage ratio is projected to increase to 48% in FY 2018-19 based on increasing charges for services to the various city departments and a second $2.5 million Measure Z contribution in FY 2018/19. On November 28, 2017, City Council approved the Self -Insurance Trust Funds Reserve Policy establishing a 40% minimum funding level of the total combined current claims liability outstanding for the Self -Insurance Trust Funds effective June 30, 2018, increasing that minimum level to 50% effective June 30, 2020. As of June 30, 2018, the unaudited cash on hand is projected to be below the 40% minimum fund level. As a result, staff will continue to monitor the fund and address this potential target shortfall during the mid-cycle update. If necessary, staff will request additional contributions from departments through the mid-cycle adjustment to ensure that the fund meets the targeted minimum funding level of 50% by June 30, 2020. Even though the cash position in the Liability Funds has improved, claims are rather volatile and unpredictable. The Finance Department will continue to address overall fund balance through increases in internal charges for services with the intent of bringing the cash position of the Funds to the required minimum funding levels. Page 189