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HomeMy WebLinkAbout101-Budget Amendment for ABAG PLAN Invoices.pdf Page 1 of 3 SARATOGA CITY COUNCIL MEETING DATE: April 20, 2011 AGENDA ITEM: DEPARTMENT: Recreation & Facilities CITY MANAGER: Dave Anderson PREPARED BY: Michael Taylor DIRECTOR: Michael Taylor SUBJECT: Budget Amendment for ABAG PLAN Invoices RECOMMENDED ACTION: Staff recommends the Council approve the Budget Resolution. REPORT SUMMARY: The City is a member of the Association of Bay Area Government (ABAG) Pooled Liability Assurance Network (PLAN), a self-insurance program established in 1986 which provides general liability, auto, property insurance, and risk management services to thirty-one (31) cities within the Bay Area. Each member chooses a self-insured retention ranging from $25,000 to $250,000, which is reflected in premium rates. The insurance pool pays claims up to a limit of $5 million. To provide further protection, the association purchases another $15 million of excess insurance coverage, for a total of $20 million per occurrence limit. Coverage provides protection for Bodily Injury, Property Damage, Personal Injury, and Public Officials Errors and Omissions claims, and minimizes the City’s exposure to losses as a result of City policy or actions. The City’s annual premium allows for a self coverage retention level of $25,000 per occurrence for General Liability, and $5,000 for Property Damage. . The City submits claim information to the ABAG agency, and ABAG staff follows up with other parties and insurance firms, acting as the City’s insurance agent. In addition, ABAG provides risk management policy guidelines to effectively identify and analyze risks, implement best practices to minimize risks, training, and grant incentives for safety programs. The Risk Management/Liability Fund is an Internal Service Fund program which provides for the cost of the program to be offset with service charge-backs to the departments. The charge-backs allow for the cost of the program to be allocated to the departments under an assigned risk assessment distribution in order to more fully recognize operational costs. Expenditures consist of insurance premiums and staff time to manage this function. A second pass-through liability program solely for reimbursable claim expenses and is included as a second program within this fund. As a small fund balance had built up in this program over the last several years, $25,000 of the Risk Management Fund Balance was transferred back to the General Fund to assist with the FY Page 2 of 3 2010/11 General Funds budget funding shortfall. DISCUSSION: Over the last couple of years, staff turnover and a new financial system at ABAG had resulted in administrative disruption, and as a result, their billing functions had gone astray. It came to light recently that ABAG had failed to submit invoices to the City for expenses paid on its behalf over the last two years. As noted earlier, the City is responsible for the first $25,000 of expenses for General Liability and up to $5,000 for Property Damage of each claim. As the City’s management of the ABAG Risk program had lacked continuity from year to year (until this last year), ABAG’s lack of billing the City had gone unnoticed. After clearing up their financial problems, ABAG submitted $53,591.72 of claims to the City for claim expenses through December 2010. The City will be billed an additional amount for claims through June 2011. Staff estimates the new claim expenses will not exceed $25,000 through the end of the fiscal year. As claim expense history was lacking, adequate funding for claims expense was not included in the budget. Fortunately sufficient fund balance exists in the Liability/Risk Management Fund to pay the claims; however, Council will need to approve a Budget Adjustment to appropriate the funding. Additionally, staff is requesting Council rescind this year’s $25,000 transfer from the Liability/Risk Management Fund to the General Fund as a large claim expense line item will now be included in the ongoing budget each year and additional fund balance is needed to ensure the Liability Fund remains solvent. FISCAL IMPACTS: The ABAG invoices exceed appropriated budget in the Liability/Risk Management Fund and require Council to approve a Budget Adjustment in order to pay them. This appropriation will reduce the year end fund balance to less than $50,000. A budget adjustment is requested to both appropriate $75,000 for claim reimbursement costs and to rescind the $25,000 transfer to the General Fund. This adjustment will fund the current year’s claim expenses and retain funds in the Liability/Risk Management Fund for next year so that a small buffer is available to mitigate the increase in internal service charge-back next year. Future budgets will include a $50,000 line item for claim expenses to recognize this ongoing expense, which in turn will force increases in service charge-backs. CONSEQUENCES OF NOT FOLLOWING RECOMMENDED ACTION: Not transferring the recommended funds would create a deficit expense and the ABAG PLAN invoices could not be paid. FOLLOW UP ACTION: As directed by Council. ADVERTISING, NOTICING AND PUBLIC CONTACT: Page 3 of 3 Pursuant to Government Code 54954.2, this item was properly posted as a City Council agenda item and was included in the packet made available on the City’s website in advance of the meeting. A copy of the agenda packet is also made available at the Saratoga Branch Library each Monday in advance of the Council meeting. ATTACHMENTS: Attachment A – Budget Resolution