Kent city leaders have moved $4.4 million from the city’s general fund to the liability insurance fund to cover a negative fund balance caused by claims paid and higher rates across the nation.
“Is that because of the huge lawsuit we had?” Councilmember Les Thomas asked Finance director Paula Painter during a June 15 mid-biennium budget adjustment discussion.
The amount is the same as the $4.4 million the city paid in April to settle a civil rights lawsuit filed by the family of Giovonn Joseph-McDade, the 20-year-old who died in June 2017 from shots fired by a Kent Police officer. The officer claimed Joseph-McDade tried to run him over with his vehicle after a short pursuit.
“It’s multiple factors not only in house but with the market,” Painter said. “The market’s a big impact because a lot of liability insurance is going up in the entire market. Our claims also impact those.”
Councilmember Bill Boyce then asked if it would be accurate to say the claim had a significant impact.
“It’d be accurate, but I do not want to diminish the market itself,” Painter said. “That played a big factor as well.”
Attorney fees to an outside firm kicked the city’s expenses on the civil rights lawsuit to more than $5 million, according to city officials.
“I’m glad we are putting more money into that fund,” Councilmember Brenda Fincher said.
Painter said during a May budget discussion that liability insurance premiums are expected to jump by 40% to 50%.
“Claims and unknown claims impact what we set aside,” Painter said.
Chris Hills, the city risk manager, told the council in January that there are numerous factors for the higher rates across the nation, including increased litigation and larger jury awards.
Hills said there has been a 100% increase in the largest jury awards across the nation in the last five years. In Seattle, a jury awarded $123 million in 2019 in the Ride the Ducks crash case that killed five people and injured more than 60.
Another large payout in Seattle in 2019 was a $65 million settlement the city of Seattle paid to the family of a lawyer who suffered a severe brain injury when a Seattle Fire Department ambulance collided with her car in 2016.
“There were even larger cases in other states,” Hills said.
The city of Kent’s premium increased 40% to $947,963 from $677,117 in 2021, with similar jumps across the board to other cities.
Kent raised its self-insured retention to $750,000 from $500,000 in 2021, meaning the city covers that amount before insurance kicks in.
“We take on more risk, but we see a decrease in premium,” Hills said.
Boyce asked Hills whether it might be wise to raise what the city pays to $1 million in an effort to reduce the premium even more.
“We could take on $1 million, but we are having to increase our reserves and every loss we must pay an additional $250,000,” Hills said. “But we may be looking at $1 million next year.”
The city’s rates will jump in 2022 because of the $4.5 million settlement with the Joseph-McDade family, but negotiations for next year’s rates with St. Louis-based Safety National Casualty do not begin until September.
The $4.4 million moved to the city liability fund comes from the city general fund reserves, which sit at about $39 million in 2021 or 36% of the general fund budget. The council’s goal is to keep at least 18% of general fund monies in the reserve fund.
Police hires in 2022?
The council has started discussion about budget adjustments for 2022, known as the mid-biennium adjustment because the council adopted a two-year budget (2021-2022) in 2020.
One decision the mayor and council must decide is whether to unfreeze seven positions with the police department.
City leaders froze hiring of five officers, a police record specialist and a corrections officer due to cutbacks in spring 2020 from the COVID-19 budget impacts. That saved the city about $880,000.
“We will be reviewing the city’s ability to unfreeze those positions as part of the mid-biennium budget adjustment,” Painter said in a June 22 email.
A couple of council members indicated they want to hire a police data analyst to help determine whether the department’s policies and practices result in discriminatory enforcement.
Painter told the council that overall tax revenue is coming in better than expected so far in 2021, especially sales taxes and that the 2022 budget might be adjusted to reflect the higher sales tax revenue. She said revenues from city services and permits are way down due to COVID-19, but those numbers should start going up with restrictions being lifted.
“What that looks like, we are not exactly sure,” Painter said.
The city also received $14 million on June 14 in federal relief from the American Rescue Plan Act. In a year, the city will receive another $14 million from the fund.
City leaders are deciding how to spend the federal funds as they work on the 2022 budget adjustment.
Mayor Dana Ralph plans to release her proposed 2022 budget to the council on Sept. 21. The council is scheduled to adopt the budget on Nov. 16.
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