CITY OF SALINAS
FINANCE COMMITTEE STAFF REPORT
______________________________________________________________________________ Date: June 6, 2023
Department: Finance
From: Mark Roberts, Director of Finance
Title: FINANCIAL POLICIES AMENDMENTS
RECOMMENDATION:
Staff requests the Finance Committee recommend the City Council adopt a resolution authorizing the amendment of City of Salinas Financial Policies introductory section and Section II, Reserve Policies.
BACKGROUND:
At its regular meeting of April 26, 2022, the Council approved several amendments to the Financial Policies, including formalization of the Workers’ Compensation Self-Insurance Reserve and establishment of a General Liability Self-Insurance Reserve. Since the policies were amended, the information upon which the minimum target level of the Workers’ Compensation Self-Insurance Reserve is based has improved. Therefore, staff recommends updating the minimum target level standard to be reflective of the improved information.
EXECUTIVE SUMMARY:
The minimum target levels of the self-insurance reserves correspond to the net liability for the outstanding claims estimated by the City’s actuary for the respective liability programs/funds. When the reserve policy amendments were approved, the Workers’ Compensation report prepared by the actuary reflected the estimated liability only at the “expected” level, the actuary’s best estimate given current information. However, the actuarial reports now also provide estimates reflecting the uncertainty inherent in the claims settlement process, which is quantified by “confidence levels,” to assist the City in determining the proper funding level necessary to meet the cost of these claims should it be greater than the expected level. For example, an eighty percent (80%) confidence level equates to the actuary’s belief that future payments have an eighty percent chance of being less than the liabilities at the eighty percent confidence level and only a twenty percent (20%) chance of exceeding the eighty percent confidence level estimate.
Staff recommends increasing the Workers’ Compensation Self-Insurance Reserve’s minimum target level of assets from estimated value of estimated outstanding Workers’ Compensation Program claim losses to the eighty percent (80%) confidence level.
Staff also recommends amending the introductory section of the Financial Policies to require annual review and updating as necessary. This amendment is intended to ensure staff remains vigilant in keeping its policies relevant and effective. Addition of a statement of purpose to the introductory section is also recommended.
CEQA CONSIDERATION:
Not a Project. The City of Salinas has determined the proposed action is not a project as defined by the California Environmental Quality Act (CEQA) (CEQA Guidelines Section 15378).
STRATEGIC PLAN INITIATIVE:
Authorization of the recommended Financial Policies amendments and achieves the Council 2022-2025 Strategic Goals of Effective Government.
FISCAL AND SUSTAINABILITY IMPACT:
Approval of the recommended amendments will help to ensure the Financial Policies are reviewed and updated as frequently as necessary and to strengthen its reserve target levels.
ATTACHMENTS:
Exhibit A – City of Salinas Financial Policies (Original) Exhibit B – City of Salinas Financial Policies (Draft)
Exhibit C – City of Salinas Financial Policies (Final)