HomeMy WebLinkAboutApprove FY 2016/17 Year-End Budget Adjustments for the WorkeDept. ID FN18-003 Page 1 of 2
Meeting Date: 3/19/2018
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CITY OF HUNTINGTON BEACH
REQUEST FOR. CITY COUNCIL ACTION
MEETING DATE: 3/19/2018
SUBMITTED TO: Honorable Mayor and City Council Members
SUBMITTED BY: Fred A. Wilson, City Manager
PREPARED BY: Chuck Adams, Interim Chief Financial Officer
SUBJECT: Approve FY 2016/17 Year -End Budget Adjustments for the Workers'
Compensation Internal Service Fund
Statement of Issue: The Finance Department is currently undergoing the year-end closing
process for Fiscal Year 2016/17, which began on October 1, 2016, and ended on September 30,
2017. Certain technical adjustments need to be made to reconcile the budget with actual
expenditures and liabilities incurred and to comply with auditing, actuarial, accounting and/or legal
requirements. City Council authorization is requested to appropriate and transfer $422,723 from the
General Fund to the Workers' Compensation Internal Service Fund to cover actual expenses
incurred. Authorization is also requested to appropriate $6.4 million in the separate Workers'
Compensation Internal Service Fund to record a $6.0 million increase in the total year-end liability
of the Fund based on the most recent actuarial valuation, and the $422,723 in additional expenses.
Financial Impact: This action will result in the transfer of $422,723 from the General Fund to the
Workers' Compensation Internal Service Fund (Fund 551) pursuant to Generally Accepted
Accounting Principles (GAAP) to fund actual costs incurred in excess of budgeted amounts related
to the Workers' Compensation program and benefits. There are sufficient revenues in the General
Fund to cover this request. In addition, a $6.0 million increase in the total liability of this Fund must
be recorded based on the results of the most recent actuarial valuation conducted by the
independent actuary firm of Aon Consulting. The total liability of the Fund will increase from $23.2
million to $29.2 million. With total assets of only $11.9 million, the Total Net Position of the Fund
will be a negative $17.1 million, reflecting a 41 percent funded status.
Recommended Action:
A) Approve the appropriation of $422,723 in the Fiscal Year 2016/17 Revised Budget in the
General Fund (100) and transfer to the Self Insurance Workers' Compensation Internal Service
Fund (551); and,
B) Approve an appropriation increase to record the increased liability and actual expenses incurred
in the Self Insurance Workers' Compensation Internal Service Fund (551) of $6.4 million.
Alternative Action(s): Do not approve the recommended action and direct staff accordingly.
HB -67- Item 6. - 1.
Dept. ID FN18-003 Page 2 of 2
Meeting Date 3/19/2018
Analysis: California Workers' Compensation Law provides state mandated benefits to employees
for work -related illness or injury. Benefits may include payments for medical treatment, salary
continuation, Total Temporary Disability (TTD) benefits, and permanent disability benefits. The City
is self -insured for its Workers' Compensation program and is liable for all costs up to $1 million
dollars per claim. The costs related to claims are paid for by the City as the Employer.
FY 2016/17 Actual Expenses and Liabilities (Preliminary Unaudited)
Workers' compensation expenses total approximately $6.2 million annually and have grown by 55
percent since FY 2004/05. The growth in expenditures is due primarily to health care industry
trends related to the increased cost of medical care, statutorily enhanced benefits for public
employees, and increased labor costs. In FY 2016/17, the City incurred claims costs in excess of
budgeted amounts that will require an additional transfer of appropriations from the General Fund
totaling $422,723 to cover.
To facilitate improved accounting and full financial disclosure of the City's current and future
Workers' Compensation program costs, the Workers' Compensation Internal Service Fund was
created in FY 2012/13 to better account for the program's expenses and long-term liabilities. The
components of these expenses include, but are not limited to, annual claims administration
expense, direct and indirect claims costs (e.g. professional, medical, hospital, pharmacy and legal
costs), salary continuation, and medical utilization review costs. This new Fund has allowed for
greater tracking, planning and transparency of workers' compensation expenses and liabilities.
Greater transparency has been achieved as all costs are distinctly accounted for within a
segregated fund in the City's annual adopted budget and financial statements.
Unfunded Liabilities and Net Fund Position
As of the most recent actuarial valuation for the period ending September 30, 2017, the City's total
workers' compensation liability is now $29.2 million, or $6.0 million higher than the previous year.
The increase is primarily due to a reconciliation performed by the City's independent actuaries, Aon
Consulting, to true -up the Fund's liabilities to reflect the City's greater than expected outstanding
claims burden. This increased liability will need to be booked in FY 2016/17 as an additional
expense in the Workers' Compensation Fund to comply with GAAP. The higher liability of $29.2
million, when coupled with total assets in the Fund of $11.9 million, results in an unfunded liability of
$17.1 million, and a funded status of 41 percent.
Environmental Status:
Not Applicable.
Strategic Plan Goal:
Strengthen Economic and Financial Sustainability
Attachment(s):
1. City of Huntington Beach Workers' Compensation Analysis Fiscal Year End 9/30/2017 Unaudited.
Item 6e m 2 HB -68-
City of Huntington Beach
Worker's Comp Analysis
FYE: 9/30/2017
FY 12113
FY 13114
FY 14115
FY 15116
FY 16/17
Increase
WC Liability per Actuary Report*
15,488,638.00
15,894,603.00
20,631,067.00
20,631,067.00
26,184,026.00
5,552,959.00
(Unallocated loss adjustment expense)"
693,753,66
794,730.15
1,031,553,35
1,031,553.35
1,309,201.30
277,647.95
_ULAE
WC Liability w1ULAE
16,182,391.66
16,689,333.15
21,662,620.35
21,662,620.35
27,493,227.30
5,830,606.95
Other Liabilities (AP, Comp Absences, Pension etc)
0.00
454,768.83
501,731.33
1,575,715,56
1,753,122.51
177,406.95
Total Liabilities
16,182,391.66
17,144,101.98
22,164,351.68
23,238,335.91
29,246,349.81
6,008,013.90
ULAE Percentage —
Workers' Comp Liability per Detail Report
Increase by IBNR Factor
Estimated Worker's Comp Liability
Worker's Comp Calculation Due and Payable
Medical
Indemnity
4.5% 5.0% 5.0% 5.0% 5.0%
FY12113 FY13114 FY14115 FY15/16 FY16117
9.473, 703 10.725,174 12, 007.917 15, 660, 368 14,498.037
1.71 1.56 1.80 1.38 1.90
16,182,392 16,689,333 21,662,620 21,662,620 27,493,227
Actual
3 Yr Avg*
FY 14115
FY 15l16
FY 16117
FY 16117
2,030,524
2,803,120
3,203,458
2,679,034
4,173,344
3,138,208
3,224,193
3,511,915
6,203,868
5,941,328
6,427,651
6,190,949
" WC Liability per Actuary Report - Actuary report performed biennially. No actuary report performed for FYI 6/17,
-* ULAE (Unallocated loss adjustment expense)
The implementation guide for GASB Statement No. 10 specifies that a liability for
outstanding unallocated loss adjustment expense (l1LAE) needs to be established for
self -insured governmental entities. ULAE are primarily composed of future claims
administration for open claims, which are typically 5% to 10% of the estimated
outstanding losses.
*** Average worker's comp medical & Indemnity claims paid over the last 3 years
W