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Workers comp costs surprise city

Submitted by on 1, April 22, 2009 – 6:00 am21 Comments

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.

21 Comments »

  • David Howard says:

    The Berkeley Daily Planet covered this too… click my name.

    • Yeah, I saw that yesterday. To be honest, I felt it read more like an editorial than a news story. It also contained a number of fact errors, to wit:

      The unexpected budget shortage, coupled with revenue losses due to a nationwide economic downturn, put the city into a financial crisis. In addition, the city may be on the hook for $30 million in lawsuits over the sale of Alameda Power & Telecom and the 2005 death of Dr. Zehra Attari, who inadvertently drove into the estuary on a cold, rainy night because the city had not properly posted warning signage at a boat ramp at the end of Grand Street.

      The city and separately, the electric company, actually have insurance that should cover some, if not all, of these costs, depending on what if any settlement or judgment amounts there are.

      And:

      However, some in Alameda are upset that Kurita, who the city paid an $180,000 annual salary, was able to leave the city with six months worth of pay and full benefits.

      Kurita actually left with a salary of $240,264; with benefits, that’s $292,859.

      BTW, have you started an organization called the Alameda Community Group? I must have missed that.

  • David Howard says:

    Well, let’s see… the $4.6 million in Workman’s Comp claims, I.T. costs, and some other costs (“RM” whatever that is, I was out of the room when Anne Marie explained that.) when subtracted from the General Fund Cash balance leave $1.8 million. That’s pretty close to the General Fund having no cash, and without cash, you can’t pay the bills.

    Just to further confuse, the Mayor herself, in a City press release, explained that the rationale for suing the firefighters is that their initiative would bankrupt the city. (I’ll send it to you by email.)

    Whether or not they are ready to prepare a bankruptcy filing is a different issue – what I’m talking about is whether the cash flow is being managed, and if there is enough cash on hand to pay bills when they’re due. And you can tell by the reactions of City Council that they have finally woken up to take the financial problem seriously.

    As for lawsuits, I just got word this week of another one. For AP&T, can YOU please walk ME through the details of what insurance is going to cover those claims, because I walked through the AP&T annual report, and I didn’t see anything that looked to me like they had insurance that would apply.

    As for Geluardi’s errors, you’ll have to ask him.

    • Sure. I talked with Darrell Handy, who is the city’s risk manager, after the telecom was sold, and he said that AMP has $30 million in insurance and $1 million in additional funds that are set aside to cover lawsuit settlements and judgments.

      And the way I understood Ann Marie’s presentation, that dollar amount was the city’s reserve, not the actual cash they have to pay bills.

      Oh, and RM stands for risk management.

  • David Howard says:

    Yea, well, I’ve heard other reports from Darrell Handy too, which I don’t believe, particularly re: the FISC fire. I’d like to see the actual insurance policies… I might just request that.

    When I read the AP&T annual report, and the mentions of liability coverage, it looked to me that the coverage they have wouldn’t cover the lawsuits. Again, perhaps it’s time to make a records request for the policy declarations.

    As for Anne Marie’s presention, I thought it was pretty clear she was talking about the General Fund because, well, that’s the term she used. The reserves have been run down as well over the past several years. I think the phrasing was along the lines of $6.4 million in the general fund minus $4.6 million in liablities = $1.8 million.

    Attachment A from the Feb 7th meeting “Fund Balance Report” put the General Fund Balance at $8.89 million. I’ve got it right in front of me. So the balance has declined to $6.4 million since then. I don’t recognize anything on this report as a “reserve fund” so I can’t report a balance for that.

  • David Howard says:

    Oh – and the Attari lawsuit is for $6.0 million – Will Handy’s $1.0 million in set-asides cover the full $6.0 million? Or does he have an explanation for that too?

  • David Howard says:

    Fair enough. Can you kindly point me to a reference for the City’s insurance, and will it cover the Attari lawsuit? I have not yet found anything on the City’s books that tell me they have such insurance, but I may not have looked in the right place yet.

  • Anon says:

    Michelle,
    Since you are able to get David Howard to respond to your postings, can you please ask him how he does not see $2,000,000 a year in overtime costs above and beyond the overtime that is already budgeted for in the Fire Departments as a major problem. If that played out every year prior to the brownouts, how much money would the City have in reserves? At least as much as the Attari lawsuit, Right David! And while you are at it can you ask him why he has not questioned the ballot measure that the firefighters have submitted that requires 27 firefighters and a supervisor. Didn’t the firefighters association say they could get by with 27 not 28. Is that a false claim by the signature gatherers and where are David’s fliers refuting that, Thanks Michele for all you do.

  • David Howard says:

    This message is off-topic, and I’m surprised Michele allowed it in this thread. But basically, on Action Alameda News, we published an article some time ago that explained that the break-even between paying overtime versus paying a full complement of full-time firefighters is, as I recall, please don’t quote me on it without checking the article, 30 full-time firefighters. This figure evidently came from City of Alameda finance department. The 30 full-time firefighters figure is a financial break-even threshold.

    The 27 firefighters figure is a safety threshold. I believe the firefighters when they say that 27 daily firefighters is the minimum needed to provide adequate public safety, and that’s why I’m not out handing out flyers to educate the public about their petition.

    I’ll be happy to refer my info to Michele, if she wants to follow-up and post a story on her website about this to respond to your concerns. You can also write aanbletters@actionalameda.org with your concerns and I’ll publish an update on it.

  • Mindy says:

    Could David Howard please explain who is involved with Action Alameda other than himself? This seems to be a one-man group with David Howard as both the chief cook and bottle-washer. Also, why would David Howard be surprised as to what the author of this content site writes? Who, besides David Howard, has editorial control of what appears on the Action Alameda site? If Mr. Howard is unable to provide the names of others involved with Action Alameda, I am going to assume that his site, like Michele’s site, is authored by a single individual.

    Is the “we” in Action Alameda the royal “we” or are there other non-virtual humanoid authors?

    “This message is off-topic, and I’m surprised Michele allowed it in this thread. But basically, on Action Alameda News, we published an article some time ago that explained that the break-even between paying overtime versus paying a full complement of full-time firefighters is, as I recall, please don’t quote me on it without checking the article, 30 full-time firefighters. This figure evidently came from City of Alameda finance department. The 30 full-time firefighters figure is a financial break-even threshold.”

  • David Howard says:

    I’ll take it out of Michele’s forum – write me an email if you want to know the BOD for Action Alameda.

  • Another Alamedan says:

    There are a variety of contributors to the Action Alameda site because many of us care about Alameda and no individual has the wherewithal to respond to all the slanted and questionable material pumped out by developers and their friends on our city staff.

    A quality democracy requires a lot of participation and while I may not have ‘lock-step’ beliefs in everything released on the Action Alameda site, it certainly helps to balance the nonsense released in other locations.

    I am extremely grateful for Howard et al for their contributions; I wish our city exercised more fiscal conservatism.

    A question for Anon – wouldn’t it be better to have enough firefighters to not have to rely on so much overtime? Don’t you think contracts can be negotiated that better serve our community?

  • Liz Williams says:

    Wow – You must be very frightened about the seemingly endless financial mismanagement of the city to turn this into an attack on Dave Howard and Action Alameda. I certainly am.

    I’d like to get back to the point: Money, and how the city has not been keeping up it’s obligations over several years, not just during the current financial downturn. First it was not filling the several open firefighters positions and instead paying absurd amounts of overtime, then it was not paying the ambulance company and facing decertification, and now this. Taken together, it’s a bona fide trend, and a frightening one. Does anyone have any idea about why? The pattern seems really off to me. What could be behind it? I’ve got no ideas, just concern.

    The FISC fire is going to cost plenty, now that the building has burned. According to BAAQMD representative Brant Rudin, before the fire, the asbestos remediation would have included only the asbestos-containing materials in the building. After the fire, every stick of debris has to be treated as friable asbestos, all 50,000 square feet of it. I’m looking a the Renovation Agreement with FERMA right now.

    Doesn’t this all seem like a pattern of exceptionally bad decision-making in the city? It does to me. A baffling one. How can you make that many bad decisions? I’m completely confused by it and very uneasy.

    • I can speak to why I brought up the bankruptcy bit. I’ve heard this claim quite a bit and if it’s true, I feel obliged to report it, and the facts that support it. If it isn’t, I think people need to know that as well. The city has many very real financial issues that we should be focusing on, and I know I’d like to focus my efforts on getting you all the information on those as quickly and clearly as I can.

  • E T says:

    We’d all love to be reassured that the city isn’t bankrupt, but I doubt that there is anyone who can verify that.

    Still, if the city is only scraping by, then the idea that we can afford to 1. pay yet another consultant for another study, 2. bond to build West Alameda, PLUS pay the bills, pay the salaries, pay into the pensions, pick up the gigantuan amount of deferred maintenance (just how long has the maintenance been deferred to get it to that amount?!), fix the antiquated emergency call system (Geez, isn’t that a FEMA/Homeland Security thing?) and city computer system, and keep the whole ball of wax rolling seems more and more remote as the days go by.

    Add the FISCA disaster and the worker’s comp thing and it all looks pretty grim.

    What has the general fund paid for instead of the maintenance that was deferred?

    Hope it was worthwhile.

  • David Howard says:

    There you have it folks. Watch for more mysterious fires at Alameda Point, specifically in the buildings that SunCan promises to run asbestos-abatement on. If those structures burn down, the City (slash ARRA/CIC) have to pay for asbestos-abatement of the entire ruins – thereby transferring the asbestos-abatement cost from SunCal to the taxpayers. Nice trick to save money, and all it takes is a can of camp fuel, a match and a willing anonymous no-goodnik. If it worked for the FISC army-medical depot, it can work for a couple of the worst buildings on Alameda Point.

    By the way…. has the fire marshall made any progress on investigating the “suspicious” nature of the FISC fire. Hmm?

  • Jon Spangler says:

    “Whether or not they are ready to prepare a bankruptcy filing is a different issue – what I’m talking about is whether the cash flow is being managed, and if there is enough cash on hand to pay bills when they’re due.”

    Alameda’s public discourse would be much more accurate and improved without the overstatements and misstatements that David Howard and Action Alameda have become well known for. He misused the word “bankruptcy” in his latest “the sky is falling” post, and then admitted as much. That’s like yelling “Fire!” in a crowded theater when there is none, and apologizing after the fact. It’s much better, Mr. Howard, to speak truthfully–and quote sources accurately–in the first place.

  • A. NonaMouse says:

    Information regarding the city’s insurance coverage can be found on page 97, Footnote 11, of the CAFR for the year ended June 30, 2008, (pdf online at city’s website). The first $500,000 is paid by City (self insured retention or deductible) and the balance is paid from the policy.

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