After years of focusing successfully on reducing a giant debt load in its parking fund, Oak Park's village government is now faced with another tough financial decision regarding its long-time policy of self-insuring village operations rather than being part of a larger insurance pool.
Those were some of the issues covered this week as Sikich, LLP, the village government's independent auditor, reported out first to the board's finance committee and then to the full village board on Monday night.
Having peaked at a $10.57 million deficit in 2007, Dan Berg, a partner at Sikich, reported that the village is down to a $722,000 debt in the parking fund. And Craig Lesner, Oak Park's chief financial officer, said in a later interview that the debt will be erased this year. "For a number of years that was a significant drag on the general fund," Berg told members of the village Finance Committee last week.
The ballooning parking fund deficit was fueled by a combination of major debt service on newly built parking garages, high operating costs and inadequate revenues from parking fees. In recent years the village has moved aggressively to cut costs, add technology and hike parking fees.
Now though, says the auditor, the village must turn to other financial challenges including obligations and potential obligations in the self insurance fund.
Lesner told the finance committee that among the major issues with the village's general fund is the "major weaknesses of the other funds" primarily dealing with business activities.
"We have to continue to make sure they stand on their own two feet," he said in an interview.
Weakness with the village's self-insurance retention fund is top on the list of concerns, according to Lesner. He said the village currently employs a self-insurance program, rather than covering insurance claims through a larger, shared insurance pool. Last year the village transferred a combined $1.5 million from the general fund, the water and sewer fund and the parking fund to pay various claims, Lesner said.
"We're our own insurance company," he said.
He noted that the self-insurance retention fund currently holds $1.3 million, but projected payable claims for unresolved claims on general insurance, auto liability and worker's compensation are an estimated $3.6 million. That number is estimated because the village could choose to challenge some claims. Others could result in settlements that are lower than the estimated payout.
The $2.3 million shortfall in the fund is cause for concern by the credit rating agency Moody's, which downgraded the village's credit rating slightly from Aa2 to Aa3 earlier this year, citing the shortfall among the reasons.
The rating downgrade is not a major shift, and the village's standing is still considered a high-quality rating. Lesner told finance committee members last week that the insurance problem could become the next major drag on the general fund.
"It's something we have to deal with," he said.
Committee member and trustee Adam Salzman said the village's Reinventing Government Committee is looking into the issue of self-insurance versus joining a pool. Salzman said joining a pool could help the village in long-term financial planning "because the outflow is predictable and regular."
"I just don't see us being able to manage [self-insurance] on an ongoing basis and making a meaningful dent in [the shortfall] because every time a claim disappears, a new one pops up," Salzman said.
Berg noted in the finance meeting that joining a pool would be more predictable, "but you have less control over the actual claims."
"When you're self-insured, you're telling the attorneys what to do," he said. "You might lose some of that control with a pool situation."
Hire Local for FREE!
Sign-up to get the latest news updates for Oak Park and River Forest.
|Submit Letter To The Editor|
|Place a Classified Ad|