Lets only hope Stephon Gilmore makes as big a come back this Thursday as the City Auditor did for this Tuesday City Council Meeting.  Check out this report.     Before we get into his report, let us first review how self-insurance works in  very simplified terms:

  1. City of Worcester puts premiums into a trust fund that is funded by the  City of Worcester and Employee deductions.
  2. Claims are paid out of the trust fund
  3. There is typically a cap (stop-loss insurance), for example, $200,000,on a claim to prevent the fund from being wiped out by one $10,000,000 claim

The trick is how much should you put into the fund?    At first that can be very difficult ,but after a few years of experience the claims can be be predicted within a certain range.   If you look at the Auditor’s report on page 6, we average $7,318,895 of claims per month.

At the same imps it is an inexact science so you should have extra money in the Self-Insurance Trust in case your claims spike.  We do this!!!   Again look at page 6 at the Internal Service Fund Numbers as of 6/30/2017:

  • Total Reserve Fund Balance = 31,764,127
  • Incurred claims but not reported (IBNR) = 5,832,940
  • Net Reserve Fund Balance after paying claims (IBNR)= $25,931,817
  • 3.54 months of expenses in Reserves

Earlier in the year Councilor Gaffney had questioned have that much in reserves.   In this report the City Auditor agrees  Councilor Gaffney, when he says “I opined that a reserve of two months of expenses plus IBNR is adequate to cover contingencies and cash flow fluctuations”.    

  • Two months of funds expenses = 14,637,790  (7,318,895 times 2)
  • IBNR= 5,832,940
  • City Auditor number = 20,470,730
  • Total Reserve Fund Balance = 31,764,127

As a result the City Auditor concludes an excess of 10,000,000 as of 6/30/2017.    Actually we thing the excess is $11,293,397, but you get the point.  

Now the question is if we have 3.54 months of expenses in Reserves, what do other Gateway Cities maintain in the Trust Fund Reserves:

  • Everett   4.78  (2017 numbers not available, this was from 2016)
  • Revere    3.83
  • Boston     1.70
  • Springfield     .90
  • Waltham   .17

Bottom line is that the City Auditor feels that we can drop the monthly reserves from 3.54 months of expenses down to 2.00, return over $10,000,000 to the City of Worcester and the taxpayers and still have more in reserves then most Gateway Cities without any effect on our ratings, click here for post earlier in the year on this.    Lastly the Auditor explains again how we can return these monies legally.   

You can not come out any clearer then this!!!   It will be interesting to see how the City Councilors oppose this $10,000,000 return of money in this over-funded account??