Wave of workers’ comp claims, settlements worsen Minneapolis budget outlook
Minneapolis Mayor Jacob Frey outlines the city’s safety plan on Feb. 17, 2021 for the trial of former police officer Derek Chauvin for killing George Floyd. Photo by Max Nesterak/Minnesota Reformer.
The wave of Minneapolis cops filing workers’ compensation claims and police brutality lawsuits are contributing to the city’s grim 2022 budget outlook, prompting the mayor to shift millions of dollars to shore up the city’s self-insurance fund.
The city is self-insured, which means its departments pay premiums into a fund to cover things such as lawsuits and workers’ comp payments. Minneapolis taxpayers ultimately foot the bill.
The self-insurance fund’s net position decreased from $21 million at the end of 2016 to negative $98 million by the end of 2020. The fund’s net position is expected to be negative $94 million next year.
Mayor Jacob Frey’s $1.6 billion budget proposal includes a one-time $24 million transfer of general funds to the self-insurance fund to cover the increase in workers’ compensation claims and general liability settlements.
To address a $34 million budget shortfall, Frey has proposed increasing property taxes 5.45%, tapping into $17 million in fund balances and using $47 million in federal dollars under the American Rescue Plan Act of 2021. The property tax hike would mean the owner of a $297,000 house would pay $111 more in taxes.
Minneapolis Budget Director Amelia Cruver recently said during a budget briefing that the city’s general fund expenses are growing faster going into 2022 than in previous years, driven primarily by fringe benefits that are higher this year and projected to remain higher.
Cruver said the key drivers of higher fringe benefits costs are increased workers’ compensation payments; a $2 million projected cost increase for first responders retiring due to disabilities including post-traumatic stress disorder, or PTSD; the $24 million general fund transfer to the self-insurance fund; and shifting expenses onto the general fund. She said police and firefighters are driving the higher workers comp payments and settlements.
The number of workers’ compensation claims by city employees jumped from 439 in 2019 to 740 in 2020, largely due to police officer claims of PTSD, most coming after the May 2020 police murder of George Floyd and aftermath.
Because of the increase in payouts, the police department is paying more into the self-insurance fund: Workers’ comp premiums have gone up more than 66% since 2016.
As of Sept. 8, the city was down to 647 sworn officers, with 41 on some kind of continuous leave, leaving 606 available to work, according to city spokeswoman Sarah McKenzie. The city is authorized to have up to 888 sworn officers, which means the police department is operating at about 68% of what’s authorized.
The self-insurance fund racked up $11 million in workers’ compensation payouts last year, the budget indicates.
In addition to the workers’ comp claims, the city has been socked with litigation. Among the large payouts were the city’s $20 million wrongful death settlement with the family of Justine Ruszczyk Damond, an Australian woman shot and killed in 2017 by former Minneapolis police officer Mohamed Noor after she called 911 to report a possible assault in her neighborhood.
Last year, the city projected it would pay out $73.5 million in tort settlements. The city has about 185 pending claims and lawsuits dating back six years.
Last year, the self-insurance fund’s unpaid claims liability was $173 million — $121 million more than in 2016.
The self-insurance fund is projected to spend $136 million this year — $26 million more than what was budgeted, primarily due to the $27 million settlement with George Floyd’s family and $12.5 million for PTSD workers’ comp claims, the budget says.
The self-insurance fund’s targeted cash reserve next year is $203 million, but expected to miss that by $91 million, according to budget figures.
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