City Council
Staff Report
From: City Manager
Report Type: CONSENT CALENDAR
Lead Department: Administrative Services
Meeting Date: January 20, 2026
Report #:2510-5352
TITLE
Approve Recommended Changes that will Align Increased General Liability Insurance Costs in the General Liability Fund to be Included in the Mid-Year Budget Report as Recommended by the Finance Committee. CEQA Status—Not a project.
RECOMMENDATION
The Finance Committee and Staff recommend that the City Council approve including amendments to the Fiscal Year 2026 Budget Appropriation for the General Liability Fund to recognize increased insurance costs as part of the Mid-Year Budget Report (scheduled to be considered by City Council in February 2026).
BACKGROUND
At its October 21, 2025 meeting, the Finance Committee reviewed the City’s approach to Risk Management 1. The City’s current practice combines self-insurance for liability up to $1 million with layered excess insurance coverage purchased annually through the City‘s risk pool, ACCEL2.
The Finance Committee evaluated the current practice and concurred with Staff and the City’s broker, Alliant Insurance Services, that the approach continues to provide the City with key benefits, including lower long-term costs, collective purchasing power in the insurance market, protection against significant losses, and shared cost responsibility across risk pool members.
The staff report also informed the Finance Committee that the actual cost of Excess Liability insurance in Fiscal Year 2026 was $6.6M - an increase of $1.5M or 30% compared to the prior fiscal year. The report further noted that Excess Liability insurance costs are projected to increase by 15% to 25% in the coming fiscal years, which influenced the City’s Long-Range Financial Forecast discussed by the Finance Committee in December 2025. These cost increases 1 Finance Committee Meeting, October 21 2025, Staff Report 2507-4955 https://cityofpaloalto.primegov.com/Public/CompiledDocument?meetingTemplateId=16278&compileOutputType =1
2 ACCEL: Authority for California Cities Excess Liability
are driven primarily by payroll growth, recent claims history, the City’s experience modification rate (Ex-Mod), recent large jury verdicts against public entities, and reserve requirements.
ANALYSIS
Staff recommended to the Finance Committee to utilize $0.9 million of available fund balance to rebalance the fund and cover claims costs expected to be paid out in FY 2026 from the General Liability Insurance Fund.
The Finance Committee unanimously approved the recommendation: The Finance Committee and Staff recommend that the City Council approve amending the Fiscal Year 2026 Budget Appropriation for the General Liability Fund within the FY 2026 Mid-Year Report, with the following referrals to staff:
1. Evaluate increased liability insurance for cybersecurity and earthquake,
2. Add tort reform to the proposed 2026 legislative guidelines,
3. Request that staff conduct systematic claims analysis and mitigation strategy,
4. Request that staff update the City Council on risk management and safety policies, and
5. Evaluate the adequacy of senior safety positions throughout the organization.
Staff were able to conduct the follow-up to the Finance Committee questions as part of this item as outlined below, alleviating the need to make formal referrals from Council.
1. Evaluate increased liability insurance for cybersecurity and earthquake Staff and the City’s broker review liability coverage as part of its risk oversight and are exploring options for the City’s Cyber Liability Insurance Program and earthquake insurance, in alignment with annual budget development. Follow-up on additional options and costs will be brought forward for discussion with the Committee in May 2026.
2. Add tort reform to the proposed 2026 legislative guidelines Staff coordinated internally and included this item in the draft citywide Legislative Guidelines that the Policy & Services Committee reviewed and recommended for City Council approval on November 19, 2025. The draft Legislative Guidelines, including the reference to the desire for tort reform, are agendized for consideration on the January 20, 2026 City Council agenda.
3. Request that staff conduct systematic claims analysis and mitigation strategy The City Attorney’s Office routinely reviews liability claims, potential recovery of costs from third parties, and litigation trends, with staff and the City Manager’s Office, and provides periodic reports to the Council. Departments diligently report injuries and accidents, using this information as a foundation for developing effective risk mitigation strategies. When issues extend beyond the affected department, the City Manager‘s Office directs post- incident reviews, root cause analysis, documentation of lessons learned, and support for implementing corrective actions to ensure departments learn and consistently work to improve operations. This work is facilitated by the Office of Emergency Services. Additional risk mitigation strategies include safety inspections, permitting and oversight of field activities, scheduled maintenance of City vehicles, and review of contractual insurance requirements.
4. Request that staff update the City Council on risk management and safety policies The City focuses on establishing and maintaining safe workplaces, equipment, materials, practices, and procedures. Risk Management is embedded across departmental policies and procedures to ensure a coordinated and holistic approach to the City’s diverse and multifaceted exposures. These policies collectively address risk prevention, mitigation, transfer, and retention. A list of key risk management and safety policies is provided in Attachment A, with each policy referenced by topic area and a general description of what it aims to address.
The foundation of staff responsibilities is, above all, to ensure the safety of employees and the public, while actively implementing training procedures, fulfilling safety committee duties, and administering the remedial action process. Each department implements safe work practices to support the City's Injury Incident Prevention Plan (IIPP), to train staff, and to provide guidance to contractors on workplace safety and expectations, proper use of equipment and materials, hazard identification, and record keeping. Human Resources coordinates mandated safety training annually for various City operations as required to meet key CalOSHA program areas. IIPP updates are completed periodically as regulations or City processes are revised. For example, an update to the Workplace Violence policy is currently under revision and will be followed by training for all employees prior to the end of this fiscal year.
Always seeking to improve, policies reflect both proactive and responsive measures to ensure we learn from incidents, trends, and emerging areas of concern. In addition, the City auditor does a risk assessment to develop the annual workplan for Council review and approval. Many have included a more in-depth assessment of risk in specific areas, such as cybersecurity, providing an independent lens and industry-specific feedback to ensure the City considers best practices.
5. Evaluate the adequacy of senior safety positions throughout the organization Senior safety positions are established within specific operational departments, such as Utilities and Public Works. Department supervisors and managers actively support senior safety staff with reporting, compliance, and training needs, as appropriate. Overall, the structure of senior safety responsibilities aligns with departmental operations and their areas of risk. Further evaluation of senior safety positions would be part of the annual budget development. Centrally, there is a Risk Management position in Administrative Services and a Workers Compensation team in Human Resources that are coordinating efforts Citywide to ensure that transactional work is completed and that a citywide lens is applied to identify trends, concerns, and consistency in safety culture.
Discussion of referrals can be found in the October 21, 2025 Finance Committee Action Minutes5.
FISCAL/RESOURCE IMPACT
If $0.9 million of available fund balance within the General Liability Insurance Fund is approved by City Council to be used to cover Excess Liability insurance expenses incurred in Fiscal Year 2026 and to increase funding for Liability Claims expenses, the impact on the remaining fund balance will decrease the balance from $2.1million to $1.2 million.
STAKEHOLDER ENGAGEMENT
This review involved input from Human Resources, Office of Management and Budget, Administrative Services, City Attorney and Alliant Insurance Services, the City’s broker.
ENVIRONMENTAL REVIEW
Council action on this item is not a project as defined by the California Environmental Quality Act (CEQA) because funding for the City’s insurance program is a continuing administrative or maintenance activity. CEQA Guidelines section 15378(b)(2).
ATTACHMENTS
Attachment A: Risk Management and Safety policies
APPROVED BY:
Lauren Lai, Administrative Services Director
5 Finance Committee Meeting, October 21, 2025, Action Minutes 2507-4955 https://cityofpaloalto.primegov.com/Public/CompiledDocument?meetingTemplateId=16277&compileOutputType =1