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DATE: March 2, 2026
TO: Mayor and Members of the City Council
President and Members of the Estero Municipal Improvement District (EMID) Board of Directors
VIA: Stefan Chatwin, City Manager
FROM: Diane Pitman, Administrative Services Director
DEPARTMENT: Administrative Services, Finance
SUBJECT: APPROPRIATION OF FUNDING IN THE AMOUNT OF $675,000 FROM THE WORKERS COMPENSATON FUND (FUND 510) TO
ACCOUNT NO. 510-1230-415-42-62 TO PAY FOR CLAIM
SETTLEMENTS AND INVOICES; APPROVE TRANSFER OF
$100,000 FROM THE GENERAL FUND (FUND 001) TO FUND
510
RECOMMENDATION
It is recommended that the City Council adopt the attached resolutions authorizing:
a) the appropriation of funding in the amount of $675,000 from Fund 510 to Account No. 510-1230-415-42-62 to pay for claim settlements and invoices; and b) the transfer of $100,000 from Fund 001 to Fund 510.
EXECUTIVE SUMMARY
On August 1, 2025, workers compensation claim administration was transferred from Cities Group Joint Powers Authority (Cities Group) to the City as a self-insured employer. After 6 months of claims administration, staff has analyzed regular and ongoing costs and determined additional appropriation and funding is required to continue claims administration until the end of the Fiscal Year 2025-2026.
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BACKGROUND/ANALYSIS
On June 16, 2025, the City Council approved a resolution assuming any and all workers’ compensation liabilities as a Self-Insured employer. As a part of that transition, during the FY 2025-2026 budget process, a Workers Compensation fund (Fund 510) was created to pay for claims costs, excess workers’ compensation insurance, third-party administration services from LWP Solutions (LWP) and any potential claim settlements.
Since the transition of claims administration to LWP was not finalized until after the budget was approved, estimates for third-party administration services, claims costs and excess workers’ compensation insurance were set at a total of $1,180,000. The City has been administering workers’ compensation claims for a little over 6 months.
Working closely with LWP, and outside attorneys on those claims that are litigated, there is a better understanding of regular claims costs based on new and existing claims. It is estimated that the annual cost of administering workers’ compensation claims is $1,215,000, pending any insurance increases or potential claim settlements.
As part of the transition process and review of litigated claims, the City Council has authorized several worker’s compensation settlements that require additional appropriation. In addition, the City has received notice of unpaid benefits and medical costs that were not processed by Cities Group prior to the transition to LWP. To ensure all estimated costs can be paid, including settlements, invoices and potential future settlements, staff is requesting an additional $675,000 be appropriated to the Workers Compensation Fund for FY 2025-2026. Unless an unexpected claim or expense arises, this should be sufficient funding for the remainder of the fiscal year. Any future settlements over the City Manager’s authority will be discussed with City Council in future closed session meetings.
The initial funding goal of the Workers Compensation fund was set using the previous amount paid to Cities Group on an annual basis, which was $1,500,000. This amount was applied to all Department budgets as an expense to help fund the Workers Compensation fund. The expense is calculated as a percentage of payroll which means the actual funding will vary depending on vacancies within the City and the various Departments. With the expenses described above, and the number of vacancies within the City, the Workers Compensation Fund needs $100,000 transferred into the fund to be able to pay the anticipated expenses. This fund is structured to grow over time, and have funds in reserve, as Departments provide funding and expenses decrease based on settling workers’ compensation claims. Finally, the City’s previous reserve balance, estimated at $790,257 effective March 31, 2025, is currently held by Cities Group and is anticipated to be transferred to the City according to the termination agreement with Cities Group around December 2026.
California Environmental Quality Act
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Not Applicable
FISCAL IMPACT
An appropriation of funding in the amount of $675,000 from Fund 510 to Account No. 510-1230-415-42-62 is necessary to pay for claim settlements and invoices. To have sufficient reserve balance in Fund 510 at the end of the current fiscal year 2025-2026, staff is also requesting to transfer $100,000 from Fund 001 to Fund 510. Currently, Fund 001 has a fund balance of approximately $40 million and can easily absorb this transfer.
CITY COUNCIL VISION, MISSION, AND VALUE/PRIORITY AREA
Staff Empowerment and Operational Excellence
ATTACHMENTS:
Attachment 1 – City Resolution
Attachment 2 – EMID Resolution