Workers comp costs surprise city
City leaders are scrambling to repay millions in unreimbursed workers compensation insurance and claims costs that have effectively drained the city’s reserve fund – at a time when revenues are plummeting and the economy is showing no immediate signs of recovery.
City departments have failed over the last decade to repay nearly $7.6 million in workers compensation costs, so the money has in essence come out of the city’s reserve fund, the city’s new interim city manager, Ann Marie Gallant, told the city council in her “financial state of the city” report Tuesday night.
The fund is listed as holding $15.2 million in cash, Gallant said. But she said it’s actually got $6.4 million. And additional workers compensation and other costs could chip away at what’s left.
Gallant said she hopes to work out a repayment plan for some of the costs, most of which fall on the city’s public works, field maintenance and public safety departments. But she warned of difficult financial times – and cuts – ahead.
It was not clear why the funds were not repaid. But Gallant said it’s unusual for such charges to go unpaid for more than a year.
“I can tell you what the history was, I can tell you what the numbers are. What was on everybody’s mind, I cannot surmise,” Gallant said.
The city posted balanced budgets for the past two fiscal years. But those numbers didn’t include workers compensation costs that were $2.7 million higher than budgeted last year and are so far estimated to be $1.7 million higher than this year.
Add in additional, unbudgeted costs for “internal service” funds like information technology and risk management, and this year’s deficit rises to $2.5 million. And Gallant said the city is facing an additional $2.1 million in charges for the coming fiscal year.
Options the council could consider include whether the city departments that owe the money will need to pay it back all at once or over the course of a few years. Either ay, Gallant said she and other city staff will work to ensure the city has a balanced budget – based on real numbers – for the next two-year budget cycle, which begins July 1.
Gallant first announced the workers compensation problem at a city budget workshop in February.
Council members, some of whom have been on the council for much of the time the workers compensation costs were not being fully repaid, struggled to understand how that happened.
“It sounds like prior councils and managers made discretionary decisions on whether to pay back this deficit, which seems to be growing from the fund balance,” Council member Lena Tam said.
A review of the city’s finances did reveal one bright spot, Gallant said: Property taxes. She said the city will see a 0.5 percent increase in its property taxes at a time when other cities in Alameda County will see drops of 15 to 19 percent.
The property transfer tax, which was increased from $5.40 per $1,000 of sale price to $12, will bring in an estimated $2.6 million instead of the originally projected $4.1 million. But Councilmember Lena Tam said the increase still helped the city raise more money that it would have at the previous tax rate.
Gallant also announced the hiring of a new interim finance manager. Glenda Jay, who has more than three decades of service as a municipal finance manager, has taken the post. Gallant said she worked with Jay in one of the cities she previously served as city manager. Jay’s salary was not immediately available.