Liability Self-Insurance Fund
2022-2027 Financial Plan
Introduction
The City of Minneapolis (the City) is self-insured for its general liability programs. The City Attorneys’ Office manages litigated liability claims over $25,000; all other claims and non-litigated liability claims under $25,000 are managed by Risk Management. An activity-based cost allocation model determines the charge allocated to City departments to provide for self-insurance related to liability claims. The annual charges are calculated using past and future estimated claims data provided by the City which is included in an actuarial study which determines the fund's future revenue requirements based on each City department’s responsibility for liability expense.
Historical financial performance
Over the last five years, the Liability Self-Insurance Fund had a decrease in net position from $7.9 million at the end of 2016 to a negative amount of $100.8 million at the end of 2020. The decrease was primarily due to a significant adjustment for estimated unpaid claims. The 2020 estimated unpaid claims are $119.0 million, representing an increase of $93.8 million from the 2016 unpaid claims of $25.2 million.
For the year ending 2020, the cash balance was $23.4 million, a decrease of $6.3 million from the 2016 cash balance of $29.7 million. The 2020 target cash reserve was $119.7 million, an increase of $80.0 million from $39.7 million in 2016. The fund was below the target, by a negative $96.3 million in 2020. This is an increase of $86.2 million from the 2016 target of a negative $10.1 million.
Revenues
The 2021 revenues for the Liability Self-Insurance Fund are projected to be $36.4 million, or $27.2 million more than the budgeted revenue of $9.2 million. The primary reason for the increase is due to a transfer of $27.0 million from the General Fund to support the Floyd settlement payment.
Expense
The projected expenses for 2021 are $30.0 million or $20.8 million more than the budgeted amount of $9.2 million. The primary reason is due to the $27.0 Floyd settlement payment.
Net position and cash balance
The net position in 2021 is projected to be negative $94.4 million, an increase of $6.4 million from a budgeted negative amount of $100.8 million at year end 2021. The increase in net position is primarily due to the result of transfer in from the General Fund as described above.
For the year ending 2021, the cash balance is projected to be $29.7 million, an increase of $6.3 million from the budgeted amount of $23.4 million. The 2021 target cash reserve is projected to be $37.5 million and the fund is projected to be below its target by a negative $7.8 million.
2022 Budget
The 2022 Liability Self-Insurance Fund budget includes $12.0 million transfer from the General Fund. This transfer will help the Self-Insurance Fund to cover the increase in general liability settlements claims. Liability expenses are increased $6.1 million per an actuarial study.
Revenues
The 2022 budgeted revenue is $27.4 million, a decrease of $9.0 million from the 2021 projected amount of $36.4 million. The decrease in the 2022 budget amount is primarily due to a $15.0 million decrease in transfer in from the General Fund. This decrease is partially offset by an increase of $6.1 million in revenue received for liability premium.
The 2022 revenue budget reflects an increase of $18.1 million from the 2021 budgeted revenue of $9.2 million. The primary reason for the increase is due to a $6.1 million increase in liability premium and a $12.0 million transfer in from the General Fund as described above.
Expenses
The expense budget for 2022 is $15.4 million, a decrease of $14.6 million from the projected 2021 expenses of $30.0 million and an increase of $6.1 million from the budgeted 2021 expenses of $9.2 million. The decrease in the 2022 budget amount compared to the 2021 projected expenses is primarily due to a $13.6 million decrease in settlement paid out and a $1.0 million decrease in contractual services and materials. The primary reason for the increase from the 2021 budgeted amount is due to a $6.1 million increase in settlement claims.
Transfers
The 2022 revenue budget includes a $12.0 million transfer in from the General Fund to cover the increase in liability settlement claims.
Debt Service
This fund does not have any long-term debt.
Net position and cash balance
The financial reserve policy relating to the internal service funds states that the net position for the Self-Insurance Funds should not fall below zero. The Liability Self-Insurance Fund net position at year-end 2022 is projected to be negative $82.4 million, representing an increase of $12.0 million from the 2021 projected negative net position of $94.4 million. The increase in net position is primarily due to a $12.0 million transfer from the General Fund as described above.
The financial reserve policy states that the Liability Self-Insurance Fund cash reserve should be equal to the projected losses by year from Table III-3A actuarial report for liability settlement claims. For year ending 2022, the Liability Self-Insurance Fund cash balance is projected to be $41.7 million, an increase of 40.4%, or $12.0 million from the 2021 projected amount of $29.7 million. The 2022 target cash reserve is projected to be $57.2 million, an increase of 52.6%, or $19.7 million from the 2021 projected amount of $37.5 million. The fund is projected to fall below its target by a negative $7.8 million in 2021 and fall below its target by a negative $15.5 million in 2022.