9.c) 2012 Draft Budget Meeting Date: 11/15/2011
Agenda Item: � �„ "�
City Councii Agenda Repor#
City of Scandia
14727 209�' St. North
Scandia, MN 55073 (651) 433-2274
Action Requested: Discuss the draft 2012 Budget, and consider any changes to be made
prior to the December 13, 2011 Truth in Taxation public meeting.
Deadline/ Timeline: This is the last Council meeting scheduled prior to the December 13
meeting.
Background: • On September 13, 2011 the Council certified a preliminary 2012
property tax of$2,055,174. The draft budget, as it stood at that
meeting,required taxes of$2,077,662 to balance.
• Additional discussion of the budget was scheduled for the October
25 special meeting. At that time, the Council deferred further
discussion to the November 15 meeting.
• Staff has reviewed the draft revenue budget and found that it did
not account for the expected gravel tax revenue ($10,700) in the
projection of the property tax levy required to meet the budget.
This lowers the property tax levy required to balance the budget to
$2,065,874.
• Since the resignation of Steve Thorp, there is no longer a need to
budget for unemployment compensation in the Planning and
Building expense budget ($15,000.) That budget assumed a part-
time (.5 FTE Building Inspector position for the full year.) It
should be revised to show contractual services for part of the year.
Half of the pay and benefits for the part-time position(about
$20,100) can be moved to a contractual services line item to cover
the agreement with Forest Lake. We will need to monitor this
budget and possibly amend it if the city hires an employee
sometime in 2012.
• The Planning Services line item should be increased, as there will
be a greater need to rely on the planner for zoning matters with the
loss of the Building Inspector staff position. After the other
changes described above, the certified tax levy would exceed the
budget need by$3,200, which could be added to the Planning
Services line item to help cover the added expenses.
Recommendation: The Council should discuss what changes if any should be made to the
draft budget prior to the December 13 meeting. If the changes
described above are accepted, the draft revenue and expense budgets
Page 1 of 2
11/09/11
will be in balance with the tax levy certified in September.
After the December 13 meeting, changes can still be made prior to the
final adoption of the budget and tax levy on December 20.
Attachments/ None.
Materials provided:
Contact(s):
Prepared by: Anne Hurlburt, Administrator
(draft 2012 budget)
Page 2 of 2
11/09/11
If the Statute Limits our Liability, Why Purchase Higher Coverage Limits?
There are several different reasons why cities should strongly consider carrying higher limits of
liability coverage.
The Statutory Tort Limits Either po Not or May Not Apply to Several Types of Claims
Some examples include:
• Claims under federal civil rights laws. These include Section 1983,the Americans with
Disabilities Act, etc.
• Claims for tort liabiliry that the city has assumed by contract. 'This occurs when a city agrees in a
contract to defend and indemnify a private party.
� Claims for actions in another state. This might occur in border cities that have mutual aid
agreements with adjoining states, or when a city official attends a national conference or goes to
Washington to lobby, etc.
• Claims based on liquor sales. This mostly affects cities with municipal liquor stores,but it could
also arise in connection with beer sales at a fire relief association fund-raiser, for example.
• Claims based on a "taking" theory. Suits challenging land use regulations frequently include an
"inverse condemnation"claim, alleging that the regulation amounts to a"taking"of the property.
LMCIT's Primary Liability Coverage has Annual Limits on Coverage for a few Specific Risks
The table on page one lists the liability risks to which aggregate coverage limits apply. If the city has
a loss or claim in one of these areas, there might not be enough limits remaining to cover the city's
full exposure if there is a second loss of the same sort during the year. Excess liability coverage gives
the city additional protection against this risk as well.
However, there are a couple important restrictions on how the excess coverage applies to risks that
are subject to aggregate limits:
• The excess coverage does not apply to three risks: failure to supply utilities; mold,• and "limited
pollution" claims if either the pollutant release or the damage is below ground or in a body of
water; and
• The excess coverage does not automatically apply to liguor liabiliry unless the city specifically
requests it.
The City may be Required by Contract to Carry Higher Coverage Limits
Occasionally, a contract might include a requirement the city carry more than $1,500,000 of coverage
limits. Carrying excess coverage is a way to meet these requirements. (There's also another option
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for cities in this situation. LMCIT can issue an endorsement to increase the city's coverage limit only
for claims relating to that particular contract. There's a small charge for these "laser"endorsements.)
There may be more than One Political Subdivision Covered Under the City's Coverage
An HRA, EDA, or port authority is itself a separate political subdivision. If the city EDA, for
example, is named as a covered party on the city's coverage and a claim were made that involved
both the city and the EDA, theoretically the claimant might be able to recover up to $1,500,000 from
both the city and the EDA, since there are two political subdivisions involved. Excess coverage is
one way to provide enough coverage limits to address this situation. Another solution is for the HRA,
EDA, or port authority to carry separate liability coverage in its own name.
This issue of multiple covered parties can also arise is if the city has agreed by contract to name
another entity as a covered party, or to defend and indemnify another entity.
Cities Sometimes Carry Higher Coverage Limits Because of a Concern the Courts Might Overturn the
Statutory Liability Limits
However, those limits have now been tested and upheld several times in Minnesota. While it's
always possible that a future court might decide to throw out the statutory limits, this is now less of a
concern.
Available Excess Liability Coverage Limits
Excess coverage is available in $1 million increments, up to a maximum of$5 million.
Does the Optional Excess Coverage Apply to All Types of Claims?
No. The excess liability coverage does not apply to the following types of claims: certain limited
pollution claims; mold claims; claims for failure to supply utilities; auto no-fault claims; uninsured/
underinsured motorist claims; workers' compensation, disability, or unemployment claims; or claims
under the medical payments coverage.
Who Needs Excess Liability Coverage?
If anything, excess liability coverage is even more important to a small city rather than to a large city.
If a city ends up with more liability than it has coverage, the city will have to either draw on existing
funds or go to its taxpayers to pay that judgment. A large city faced with, say, a million dollars of
liability over and above what its LMCIT coverage pays might be able to spread that$1 million cost
over several thousand taxpayers. The small city by contrast might be dividing that same $1 million
cost among only a couple hundred taxpayers. $1 million divided among 5,000 taxpayers is $200
apiece—annoying but probably at least manageable for most taxpayers. $1 million divided among
200 taxpayers is $5,000 apiece—enough to be a real problem for many.
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What's the Effect of Waiving the Per Claimant Statutory Liability Limit?
If the city chooses the "waiver" option, the city and LMCIT no longer can use the statutory limit of
$500,000 per claimant as a defense. Because the waiver increases the exposure, the premium is
roughly 3%higher for coverage under the waiver option.
If the city waives the statutory limit, an individual claimant could therefore recover up to $1,500,000
in damages on a claim. Of course, the individual would still have to prove to the court or jury that
s/he really does have that amount of damages. Also,the statutory limit of$1,500,000 per occurrence
would still apply; that would limit the individual's recovery to a lesser amount if there were multiple
claimants.
Why Would the City Choose to Pay More to Get Waiver-0ption Coverage?
The statutory liability limit only comes into play in a case where
• The city is in fact liable. Hi hli ht
• The injured party's actual proven damages are The waiver option coverage does not
greater than the statutory limit. give the city better protection. The
Very literally, applying the statutory liability limit means benefit is to the injured party.
an injured party won't be fully compensated for his/her
actual, proven damages that were caused by city negligence. Some cities as a matter of public policy
may want to have more assets available to compensate their citizens for injuries caused by the city's
negligence. Waiving the statutory liability limits is a way to do that.
Other cities may feel that the appropriate policy is to minimize the expenditure of the taxpayers'
funds by taking full advantage of every protection the legislature has decided to provide. There's no
right or wrong answer on this point. It's a discretionary question of city policy that each city council
needs to decide for itself.
For claims the statutory tort liability limits don't apply to, it doesn't affect how the city's coverage or
risk on those claims. Waiving the statutory tort limits has no effect on claims the statutory limits
don't apply to.
Effects of Waiving the Statutory Limits if there is Excess Coverage
If the city has $1 million of excess coverage and chooses to waive the statutory tort limits,the
claimants (whether it's one claimant or several) could then potentially recover up to $2.5 million in
damages in a single occurrence. If the city carries higher excess coverage limits, the potential
maximum recovery per occurrence is conespondingly higher.
Carrying excess coverage under the waiver option is a way to address an issue that some cities find
troubling: the case where many people are injured in a single occurrence caused by city negligence.
Suppose, for example, that a city vehicle negligently runs into a school bus full of kids, causing
multiple serious injuries. $1,500,000 divided 50 ways may not go far toward compensating for those
4
injuries. Excess coverage under the waiver option makes more funds available to compensate the
victims in that kind of situation.
The cost of the excess liability coverage is about 25% greater if the city waives the statutory tort
limits. The cost difference is proportionally greater than the cost difference at the primary level
because for a city that cames excess coverage,waiving the statutory tort limits increases both the per-
claimant exposure and the per-occurrence exposure.
Waiving Statutory Tort Liability Limits: Increase in Risk?
There is no increase in risk for the city to end up with liability if LMCIT doesn't cover it. The waiver
form specifically says the city is waiving the statutory tort liability limits only to the extent of the
city's coverage.
Of course, that's not to say there is no risk the city's liability could exceed its coverage limits. We
listed earlier a number of ways that could happen to any city. But the waiver doesn't increase that
risk.
Can we Waive the Statutory Tort Limits for the Primary Coverage but not for the
Excess Coverage?
No. If the city decides to waive the statutory tort limits, that waiver applies to the full extent of the
coverage limits the city has. The city cannot partially waive the statutory limits.
Is there a Simple way to Summarize the Options? Your League Resource
It's not necessarily simple, but the table on the following
page is a shorthand summary of what the effect would be of Feel free to call the Underwriting
the various coverage structure options in different Department at 651-281-1200 or
circumstances. 800-925-1122 with any
questions.
Pete Tritz 12/10
5
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LEAGUEoF CONNECTING & INNOVATING
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CITI ES
LMCIT Liability Coverage Options
On a liability claim to which On a liability claim to which
the statutory limits apply the statutory limits do not apply
Coverage structure
This is the maximum This is the maximum total This is the maximum amount of damages which LMCIT would
If the city: amount a single claimant amount that all claimants could pay on the city's behalf for a single occurrence, regardless of
could recover on an recover on a single occurrence. the number of claimants.
occurrence.
Does not have excess coverage&
Does not waive the statutory limits $500,000 $1,500,000 $1,500,000
Does not have excess coverage&
Waives the statutory limits $1,500,000 $1,500,000 $1,500,000
Has $1,000,000 of excess coverage&
Does not waive the statutory limits $500,000 $1,500,000 $2,500,000
Has$1,000,000 of excess coverage&
Waives the statutory limits $2,500,000 $2,500,000 $2,500,000
LEAGUE OF MINNESOTA CITIES i:�si�Nirth�ii� ��E ���rsr rii��nt ic�i1� 2A1-1�00 inx (6�ll281-1298
INSURANCE TRUST ;i r:�ui_ n�� �;iu.: �oia r�ni.rkit �400)9�5-1122 wrr. ��������i�icc�E:�,
LMCIT Property/Casualty Program
SKANDIA
Premium and Dividend Histo
$40,000
$35,000
$30,000
$25,000
$20,000
$15,000
$10,000
$5,000 �: �'F �
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$� '01 '02 �� '03 04��� 05� 'OB 07` 'OB 09 10"
■WriCen Premiums 518,567 518,598 $18,956 525,699 527,221 527.862 532,142 $33,905 $34,143 332,952 �
�Dividonds $4,964 55,567 $5,579 $5,619 $7,268 $2,454 $4,250 $2,468 $4,900 $5,864
SKANDIA
Premiums and Dividends Since 1987
$soo,000
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Written Premiums Dividends
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� LMCIT History & Overview Page 1 of 2
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Ci�t�s
LMCIT History & Overview
Minnesota cities have relied upon the League of Minnesota Cities Insurance Trust(LMCIT) for their
property, liability, workers' compensation, and employee benefits needs. We are a member-driven
organization that exists solely to meet the risk management and insurance needs of Minnesota cities.
LMCIT is a cooperative joint-powers organization formed by Minnesota cities in 1980—one of the first
municipal self-insurance pools in the country. Cities contribute premiums into a jointly-owned fund
rather than paying premiums to buy insurance from an insurance company. The money in the fund is
then used to pay members' claims, losses, and expenses.
Property/Casualty and Workers' Compensation programs
LMCIT's property/casualty program has more than 1,100 members, and the workers' compensation
program has more than 900 members.
Each year, LMCIT collects more than $50 million in premiums in our property/casualty and workers'
compensation programs combined.
LMCIT also sponsors life, disability and long-term care programs for members.
Stable, reasonable rates
The private insurance market runs in cycles. Sometimes insurance is relatively cheap and easy to get. At
other times, as in the late 1970s and again in the mid- and late-1980s, insurance became very expensive
and hard to obtain.
In a "hard"cycle, if insurance companies view cities as undesirable or unpredictable risks, cities may not
be able to find insurance at all. This happened during the late 1980s to cities throughout the country.
Because LMCIT exists, Minnesota cities know they have a stable source of insurance coverage,
regardless of private insurance industry cycles.
Coverages address unique city needs
Cities have some unique needs that private industry's insurance doesn't address very well.
LMCIT's coverages are specifically designed for cities. As new needs or problems develop, LMCIT
modifies coverage or develops new programs to meet those needs, such as workers' compensation
coverage for benefits mandated by the state for peace officers suffering from post-traumatic stress
syndrome.
LMCIT owned, controlled by members
In some ways, LMCIT functions much like an insurance company. Cities pay a premium to LMCIT and
LMCIT pays claims and losses on the city's behalf. However, there are very important differences
between LMCIT and an insurance company.
LMCIT's purpose is to meet cities' coverage and risk management needs, not to make a profit by selling
insurance. And in the property/casualty and workers' compensation programs, if LMCIT's income from
http://www.lmc.org/page/1/lmcit-history-and-overview.j sp 11/08/2010
LMCIT History & Overview Page 2 of 2
premiums and investments is more than what is needed for losses and expenses, the extra funds go back
to the member cities. From 1987 to 2007, LMCIT has returned$191 million in dividends to cities.
LMCIT safe, secure
To ensure that LMCIT is able to meet its responsibility to pay cities' claims, LMCIT's Trustees work to
ensure the organization is strong and financially stable. A conservative approach to rates and reserves, a
solid reinsurance program with some of the strongest reinsurers in the world, and regular actuarial
reviews all help ensure that LMCIT will remain sound. In fact, by conventional insurance indushy
measures, LMCIT is stronger financially than most insurance companies.
Your LMC Resource
Staff is available to discuss unique loss control programs meant to help your city mitigate risks,
including on land use, OSHA mandates, sewer management, and more.
COIlI1CCt Wlt�l I.OSS COI1tT01 StAff(Linkto:http.•//www.lmc.org/page/1/league-staJJ"jsp)
(choose "Loss Control"under "Department')
Risk Management Informatio�
The Resource Library offers a wide range of information on issues related Risk Management. Visit the
Resource Library to do key word searches, or use the "Browse by Resource Type" and "Hot Topic"
searches to view broad categories of information. The Resource Library is home to Risk Management
memos and more. Use the link below to easily browse all Risk Management memos.
View a list of Risk Management Memos in the Resource Library�L�nk ro:hap:in,�,v.rm�.o.gipag��i.eso„r�e-
/ibrary jsp?keywords=Risk%20Management&IMRisk=on&alpha=true)
Copyright�2010 League of Minnesota Cities, 145 University Ave.W,Saint Paul,MN 55103-2044�Phone:(651)281-1200�Toll-Free:(800)925-1122
http://www.lmc.org/page/1/lmcit-history-and-overview.jsp 11/08/201�