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Presentation of 2025 Other Fund Results and Fund Balance Policy and consideration of issuance of an employee health insurance dividend
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Submitted by:
John Ruggini
Department:
Finance Department
A. Issue
The Finance Department has finished closing the 2025 fiscal year and the preliminary and unaudited results are available for discussion.
B. Background/Options
At the close of each fiscal year, the Finance Department presents the preliminary financial results. At this time, those results have not been audited. The final audited financial statements are expected in June.
Other Funds
The ending balance, net change and performance against the fund balance policy where applicable for each fund is included as an attachment. The draft fund balance policy is also attached. A few significant changes are described below.
Health Insurance Fund
The Health Insurance program ran at 90.0% of the premium equivalent as claims were 4.4% lower than the prior year and $487,000 under budget (6%). Also notably, high cost claimants were down 6 from the prior year representing a $1.5 million decrease in claims costs from the prior year. In total, year-to-date plan costs decreased 0.2% with a 1.8% decrease in enrollment.
This resulted in a $955,973 surplus prior to a $410,180 prior year dividend shared with employees and transferring $750,000 to the Workers Compensation Fund to offset deficits.
The fund is at 133% of the policy benchmark (30% of 3-year claims expense average plus the accrued sick leave liability) which equates to $1.8M over the target balance. Given that the year-end surplus (prior to the Worker Comp transfer) was a direct result of employees making healthy choices, participating in wellness programing and continuing to utilize Tier 1 providers, I recommend a $205,973 dividend be issued to employees which equates to approximately $500 per employee on the health plan.
General Liability
The City had another low-claim year for general liability and even though claims increased from 2024, the amount of total claims cost paid by our insurer remained less than $10,000
The City did see the highest year for auto physical claims driven laregly by the increased number of police pursuits, which represented a trend within our insurance pool and nationwide. We are likely to see premium increases because of this changing risk profile.
The $79,350 in claims paid by our insurer were related to damaged police vehicles and as shown below, all related to collisions with other moving vehicles.
Workers Compensation
The number of claims increased 7% in 2025 from the prior year but the severity of those claims (total $ incurred/number of claims) decreased 51%. In fact, the $11,398 cost per claim was the third lowest since 2018. Despite this decrease in severity, this was a challenging fiscal year for the Worker Compensation Fund due largely to worsening claims incurred in prior years (and thus the cost is reported in that year). In fact, reserves for prior year claims increased $1,147,338. The fund would have deficited by $828,249 were it not for a transfer of surplus from the Health Life fund but this still was insufficient to prevent the fund from falling to 74% of its fund balance policy benchmark.
Community Devleopment Authority
While not under the authority of the Common Counci, the Community Development Authoirty deficit of $3,762,710 deserves an explaination. This was caused by the planned exchange of the Boston Store at no cost for the elimination of the real estate agreements at Mayfair Mall that prohibited residential development and for the recruitment of the Scheels retail store. As a result, the CDA had to write down the purchased cost of the Boston Store. This did not have a cash impact on the CDA as TIF 10 - Mayfair Reserve had financed the debt necessary for the acquisition. The CDA maintains a $1.4 million fund balance reserved for different purposes as shown above.
Utilities
Approximately half of the Water Utility’s $5.2 million increase was driven by asset growth while the remainder was driven by net income. $3.1 million of this asset growth was related to the on-going construction of the west-side pumping station which was recorded as a revenue as it was financed by Federal COVID response American Rescue Plan grants and considered “contributed capital”. While the water utility has 244 days of operating expenditures in reserve, which exceeds it’s 90-day benchmark by 272%, the utility also keeps in reserve sufficient funds to cash finance water tank paintings that will occur over the subsequent ten years.
Similarly, while the Sanitary and Storm Utilities also exceed their 90-day benchmark, funds are being set aside to cash finance a portion of the East Tosa Sewershed Flood Mitigation project, whose cost is estimated between $50-$100 million depending on which option is ultimately chosen.
C. Fiscal Impact
The only action recommended is to issue an employee health insurance dividend of $205,973. This would result in a reduction of fund balance in the Health/Life fund performance benchmark from 133% to 129% leaving a fund balance of $6.93 million.
E. Recommendation
I recommend a level three fund transfer to increase expenditure authority within the Health Life fund by $205,973 for the purposes of issuing an employee health insurance dividend.