AGENDA #6a

BUDGET WORKING PAPER

TO:                  W. Calvin Horton, Town Manager

FROM:            Jim Baker, Finance Director

SUBJECT:       Workers’ Compensation Costs for 2002-2003

DATE:             April 3, 2002

This memorandum provides information about the preliminary costs estimates for workers’ compensation insurance coverage from the N. C. League of Municipalities Workers’ Compensation insurance pool.

Attached is a copy of notification received on Monday, March 25, 2002 from the League’s Risk Management Services on estimated worker’s compensation costs for 2002-2003 for participants in the League’s workers’ compensation insurance pool.  As noted in the memorandum, the Board of Trustees has authorized an overall 13% rate increase for the 2002-2003 fiscal year, reflecting medical inflation costs and an increase in the worker’s compensation pool’s reinsurance cost of approximately 100%.  The cost for individual participants is also affected by experience modifier ratios, a loss ratio credit or debit, and package credits for participation in the League’s workers’ compensation and property and liability pools.

Attached are copies of the estimated annual contribution reports for the current fiscal year and for next year, indicating an increase in estimated premiums for next year, net of credits and debits, of about $153,000 for the Town’s total workforce, including the General, Transportation, Housing and Parking Funds.    Premium costs are determined by the amount of payroll in each worker category times the rate for each worker category as shown on the attached contribution reports. The highest rates are for firefighters, sanitation and police workers and the lowest rates are for clerical and administrative workers.

As noted above, the rates for each category of payroll for 2002-2003 is being increased by 13%.  In addition to the across the board increase in rates, the Town’s estimated payroll increased due to compensation adjustments in payroll of about 5% last year, and the increase in payrolls related to the annexation of the Southern Village and Notting Hill areas.  The increase in total estimated payroll and the across the board increase in rates result in an estimated increase in total premium costs for next year of about $153,000 for all funds (from $552,000 in 2001-2002 to $706,000 in 2002-2003).  The allocation of the total premium cost is about 73% for the General Fund, 27% for the Transportation Fund, and 10% for the Housing and Parking Funds.

Other factors which affect the total premium and result in a final net premium include:

· The experience modifier of .99 which reduces the gross premium by about $10,000 (about the same as in the current year).

· Employer’s liability of 3.3% for excess liability protection of $l million which increases gross premium by $32,166 (the same percentage as in the current year).

· Deductible system credit for participation which reduces the gross premium by $299,000 (a reduction $63,000 greater than in the current year).

· Schedule debit surcharge based on a claims experience rating above 100% which increases the premium by $35,000 (about the same as in the current year).

· A package credit of 5% for participation in the League property and liability insurance pool which reduces the premium by $37,000 (a reduction $8,000 greater than in the current year).

After adjustments for the above factors, the calculated gross premium of $984,580 is reduced to an estimated net premium of $706,082 for 2002-2003.