Minneapolis goes on installment plan to pay workers comp settlements
Minneapolis Police officer William Martin stands outside burning buildings near Lake Street in Minneapolis, Minnesota, following protests and property damage surrounding the police killing of George Floyd. Photo by Tony Webster/Minnesota Reformer.
The city of Minneapolis has had so many workers’ compensation settlements with cops in the past year-and-a-half that it has begun spreading out the payments over three or four years, instead of paying workers in one lump sum.
Emily Colby, the city’s director of risk management and claims who helps negotiate the settlements, recently told the Minneapolis City Council that spreading out the settlement payments helps the city “take care of cash-flow issues.”
The city has about $5 million in deferred payments in Mayor Jacob Frey’s 2022 budget, and will likely have about the same amount in 2023. The amount is expected to be significantly less in 2024, she said.
“We obviously want cash to pay the bills so that is why we’re structuring these to be longer and claims are paid over time so we have that luxury of time, and the ability to plan,” said Lori Johnson, the city’s deputy chief finance officer, during a presentation to the Policy & Government Oversight Committee.
The city is self-insured, which means its departments pay premiums into a fund to cover things such as workers’ comp payments. Minneapolis taxpayers ultimately foot the bill.
Post-traumatic stress disorder claims are making up a much larger portion of the claims than in previous years, Colby said. The first year PTSD was deemed by the state to be a qualifying injury was 2014, but the city had just a handful of claims annually until 2019.
In 2019, the city had 10 PTSD claims, according to the city’s Finance and Property Services Department. The number shot up after George Floyd was murdered in May 2020, with about 200 PTSD claims filed since.
The numbers have begun to go down this year, but claims are still coming in.
Once a claim is filed, city employees decide whether to accept, deny or mediate the claim.
“The goal of settlement is always to save money for the city in the long run,” Colby said. “So even if we’re paying more money upfront, the hope is that we won’t be paying out more over time.”
About half the PTSD claims since Floyd died to Sept. 2 of this year were filed by employees with 20 to 30 years of service. Nearly half were by workers over the age of 45.
The city’s self-insurance fund — which is made up of six funds for things such as medical and dental insurance — had a cash balance of nearly $142 million at the end of August. The workers’ comp portion of that was $29.3 million.
But the self-insurance fund’s net position — which is akin to your savings account, minus your mortgage and car balances, if you had to pay them off today — is less stable. At the end of August, the workers’ comp fund had a net position of negative $20 million, the general liability fund — payouts for when a snow plow hits something, for example — was negative $69 million, and the total for all six funds was negative $62 million, according to the city’s finance department.
Frey’s budget proposal says the self-insurance fund’s net position was $21 million at the end of 2016 and plummeted to negative $98 million by the end of last year. Frey’s budget projects it will be negative $94 million next year.
Johnson said that’s based on an actuarial study that is a snapshot in time that city employees are constantly evaluating.
Frey’s proposed budget includes a one-time $24 million transfer of general funds to shore up the self-insurance fund due to the workers’ compensation claims and general liability settlements.
His budget also shifts the cost of city attorneys who defend liability claims from the self-insurance fund to the general fund.
Because of the increase in workers’ comp payouts, the police department will pay more into the self-insurance fund next year. Since 2018, it has been charged about $3 million per year; next year MPD would pay $10 million under Frey’s budget.
Council President Lisa Bender said it’s worth understanding the financial risk the city is carrying related to lawsuits, combined with uncertain sales tax revenue and pandemic expenses.
“It’s more financial risk than I think most people who are in office today are used to having,” she said.
Council Member Andrea Jenkins said the information is “challenging” and points to “very real structural issues that we have.”
Minneapolis Budget Director Amelia Cruver recently said during a separate budget briefing that the city’s general fund expenses are growing faster going into 2022 than in previous years, driven primarily by increased police workers’ compensation payments; a $2 million projected cost increase for first responders retiring due to disabilities such as PTSD; the $24 million general fund transfer to the self-insurance fund; and shifting city attorney expenses onto the general fund.
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