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City to transfer reserve funds

Millions are needed to help balance the liability insurance fund.

June 16, 2010|By Melanie Hicken

CITY HALL — The City Council on Tuesday unanimously approved transferring $2.7 million from the city's reserve to help cover major deficits in the fund that covers lawsuit payouts.

The move came in a special meeting after council members had initially postponed the decision, saying they first wanted to have a more in-depth discussion on dipping into the reserve, which is typically seen as a last resort.

But on Tuesday council members said they were convinced of the need for the $2.7-million transfer to the city's liability insurance fund — one of several internal city funds that currently have "accounting deficits."


The liability insurance fund, which is $10 million in the red, was hit hard by multimillion-dollar judgments against the city stemming from damage during the 2005 winter storms, leaving just $1.8 million in available cash for potential payouts, officials said.

"Unfortunate and not foreseeable, but we have to adjust our budget to make it up," Mayor Ara Najarian said.

Of the city's 18 internal service funds, four — which cover city expenses for lawsuit payouts, workers' compensation, employee absences and retiree health-benefits subsidies — have deficits totaling about $35 million.

The accounts, which are separate from the General Fund, are used to finance services that various city departments provide to one another.

While a minor deficit is seen as normal — officials have to account for the high end of potential expenses — external auditors have cited the deficits as an area of concern.

Still, officials stressed that the four accounts were behind only because of potential, not actual, payouts. All but the liability insurance fund had enough cash to support operations, officials said.

"The $35 million is not a budget shortfall," said Finance Director Bob Elliot. "It is truly an accounting deficit."

The city has sued American International Group, or AIG, to recover $12 million in payouts. City officials contend AIG failed to adequately investigate claims filed by the homeowners after the mudslide, forcing nine financial settlements.

"We were never anticipating the outcome of those trials on the 2005 storms," said City Manager Jim Starbird.

In addition to the General Fund transfer, the City Council approved the transfer of $5 million in city funds currently invested to repay the city's debt on construction of the new police building.

About half of the funds will go to the liability insurance fund, with the other half to be disbursed to a variety of internal service funds.

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