Record-breaking Floyd settlement is bigger than the city’s already-anemic insurance fund

Civil rights attorney Ben Crump announces $27 million settlement with the city of Minneapolis for the police killing of George Floyd. He was joined on stage by members of Floyd's family and city leaders including Mayor Jacob Frey (left) and Council President Lisa Bender (left).

The $27 million settlement of a civil lawsuit by the city of Minneapolis is one of the biggest police brutality payouts of its kind, eclipsing the balance of the city’s self-insurance fund and requiring the city to tap general fund reserves.

The city does not have outside insurance for these types of cases but rather is self-insured, which means city departments pay premiums into a city fund to cover such lawsuits and workers’ compensation claims. 

In other words, Minneapolis residents cover the costs of these lawsuits through taxes and fees.

The self-insurance fund has an estimated $23.4 million for tort liabilities like police brutality cases, but that doesn’t take into account estimated payouts for other pending lawsuits. The final, audited balance won’t be known until mid-summer, according to city spokeswoman Sarah McKenzie.

According to the last year-end financial report available, 2019, the self-insurance fund was more than $20 million underwater, and that was before George Floyd died under the knee of a Minneapolis police officer. And the resulting protests and riots that led to numerous additional lawsuits by people maimed and injured by police who struggled to contain the fallout.

The city’s self-insurance problems are just one of a plethora of financial issues arising from the police killing of Floyd, as well the pandemic during the past year. Businesses were burned down and may not return. Other large employers like Target have announced they are reducing their downtown Minneapolis footprint.

During the March 12 press conference to announce the settlement, City Coordinator Mark Ruff acknowledged that “The city’s self-insurance fund is under pressure not just from tort liabilities but also from the workers’ compensation associated with many of our first responders separating during this time.”

About 200 police officers have applied for disability leave, many claiming post-traumatic stress disorder from the unrest following Floyd’s death. 

But Ruff said city officials anticipated some of the liabilities, even as it struggled through a pandemic-induced recession that reduced sales tax revenue $40 million and parking revenue by $30 million, among other revenue sources.

“The city has prioritized making sure that we have enough in reserves, so while our self-insurance fund doesn’t have adequate money right now, we do have other reserves that we have set aside for these types of liabilities,” Ruff said.

He said city officials don’t think the settlement alone will require a property tax increase because the city saved about $24 million in extra 2019 revenue from investment income, licenses and permits to cover the expected liabilities. City officials retained more of a cushion in its general fund reserve than required — a minimum of 17% of unrestricted fund balances to absorb unforeseen shortfalls — knowing they were going to have to cover lawsuits, workers’ compensation cases and expenses associated with security for the trial of the four former police officers charged with Floyd’s killing. 

The city has about 185 pending claims and lawsuits dating back six years.

Before the Floyd family settlement, the previous state record was a $20 million wrongful death settlement with the family of Justine Ruszczyk Damond. The Australian woman was shot and killed in 2017 by former Minneapolis police officer Mohamed Noor after she called 911 to report a possible assault in her neighborhood.

The Floyd settlement eclipses the total payouts for 274 police misconduct cases from 2003 to 2019, according to an MPR analysis. Police misconduct payouts and use of force cases had been dropping in recent years, before the Damond case.

Because of the continued high volume of cases, however, the amount the police department pays in premiums to the self-insurance fund have increased in recent years, although city officials did not provide exact amounts.

The self-insurance fund was routinely underfunded in the 1990s, until former Mayor R.T. Rybak increased property taxes to shore it up in the early 2000s.

A now-defunct citizens’ group pushed a petition drive in 2016 that would have required police officers to buy liability insurance, but it conflicted with state law requiring cities to insure officers. The Minneapolis City Council voted against putting the proposal on the ballot.

After Floyd’s death, a group called Communities United Against Police Brutality again proposed requiring the city’s police officers to carry liability insurance to discourage them from using unnecessary force. The city would pay a base rate, and officers would have to cover the cost of any additional coverage based on their history.

While some activists have called on ratings agencies to downgrade cities’ credit ratings if they have a history of police brutality or potential for riots, McKenzie said it’s too early to determine how the settlement might affect the ratings. The credit rating affects the interest rate the city pays when it borrows money. A Moody’s credit analysis released Tuesday gave the city a stable outlook, saying the city is well positioned for growth after the pandemic subsides. It didn’t mention the Floyd lawsuit.