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Texas Municipal League Intergovernmental Risk Pool Adopted Budget 2019-20

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Texas Municipal League Intergovernmental Risk Pool Adopted Budget 2019-20 Texas Municipal League Intergovernmental Risk Pool Adopted Budget 2019-20 Texas Municipal League Intergovernmental Risk Pool Fiscal Year 2019-20 Budget Table of Contents Budget Letter .......................................................................................................... 1 Budget Summaries ................................................................................................ 15 Combined Fund Narrative ...................................................................................... 18 Fund Budgets ........................................................................................................ 23 Workers’ Compensation Fund Narrative ................................................................ 25 Liability Fund Narrative ........................................................................................ 29 Property Fund Narrative ........................................................................................ 33 Coastal Storm Fund Narrative ............................................................................... 38 Reinsurance Fund Narrative .................................................................................. 41 Stability Fund Narrative ........................................................................................ 44 Revenue Summary ................................................................................................ 47 Administrative Fund .............................................................................................. 49 Combined Budget Summary by Expense Classification .......................................... 56 Combined Budget Summary by Department .......................................................... 59 Staffing Summary ................................................................................................. 61 Departmental Budgets .......................................................................................... 67 Executive ................................................................................................... 67 Member Services ......................................................................................... 72 Office of Project Management & Analytics ................................................... 77 Legal ........................................................................................................... 82 Subrogation ................................................................................................ 87 Underwriting ............................................................................................... 92 Loss Prevention ........................................................................................... 97 Finance ..................................................................................................... 102 Human Resources ..................................................................................... 107 Information Technology ............................................................................ 112 Workers’ Compensation ............................................................................ 117 Liability & Property ................................................................................... 122 Building Maintenance ................................................................................ 131 Capital Outlay and Depreciation .......................................................................... 135 Goals and Policies ............................................................................................... 139 Organization Profile ............................................................................................ 141 Financial and Fund Structure............................................................................... 143 Overview of Budgeting Process ........................................................................... 144 Salary Schedule ................................................................................................... 145 Project Budgets ................................................................................................... 147 June 17, 2019 To: Board of Trustees Subject: Proposed 2019-20 Budget The Pool enters the 2019-20 fiscal year with a projected combined fund members’ equity balance of $372.1 million. This is a $15.3 million increase from the current fiscal year. This proposed budget was developed to address the Pool’s operational needs (as detailed throughout this letter) while continuing to build equity in the Funds and address the key long-term strategic initiatives developed over the last couple of years, most recently at the January 2019 Planning Session. While introducing several new initiatives and realizing positive returns from the Pool’s investments in new business applications, this budget only increased by 1.5%. This small increase is primarily a result of the Pool reducing a portion of the overall personnel costs by removing the costs of certain employees (capitalizing) who are working on business application projects and then spreading those capitalized costs over the depreciated life of the software application. This action has had the effect of lowering personnel costs for the 2019-20 fiscal year. For comparison purposes, this budget also shows that the budget would increase by 3.8% if these personnel expenses were not capitalized (total personnel costs not reduced). Revenues, including investment income, are projected to be $229.8 million. This is $3.9 million more than the current 2018-19 estimated revenue. Losses on a combined basis are estimated to be $148.5 million, which is $2.3 million less than the estimated amount in 2018-19. As a result of rate increases, increased purchase within reinsurance layers and an increase in property exposures, external reinsurance expenses are projected to be $12.7 million, an increase of $2.2 million. The 2019- 20 proposed Budget projects that the Pool will generate $16.4 million in revenues over expenses, thus producing an anticipated ending members’ equity balance of $388.4 million at the end of the budget year. 1 2018-19 Update and Highlights of Proposed 2019-20 Initiatives Throughout its 46 years of partnering with local governments, the Pool has been successful in expanding the number of members covered to include 98% of municipalities and other eligible entities. Member retention also remains exceptionally high at over 98%. While the Pool looks to gain new members where appropriate, in recent years the Pool’s focus has been on providing appropriate coverages tailored to its existing members, building on extensive software and program improvements to provide multiple channels for members to interact with the Pool, and enhancing many of the services provided to the membership. Over the past two years, the Pool has finished replacing its major business applications. The new finance/payroll systems went online October 1, 2018. Three underwriting systems were replaced with one new policy rating and distribution application, and a 27-year old billing system was replaced with a new integrated system. These applications went online in April 2019. The Pool’s website was completely renovated so that it is easier for the Pool’s members to navigate, locate important information, make coverage changes, and file claims. Finally, the process for reviewing medical bills was replaced with a new streamlined system. That said, in the 2019-20 fiscal year, and consistent with the January 2019 planning session with the Board, the Pool needs to continue its technology initiatives by upgrading its claims system, begin phase two of the policy and billing systems, significantly enhancing the member portal on its website; in short, continue to build on its recent improvements so that it remains current with industry norms and member expectations. Two of the largest expenses in this budget are depreciated expenses and software maintenance costs on the new systems. Several years ago, the Board approved a multi-year plan (Business Application Roadmap) for the replacement of the Pool’s major business applications. At that time, and each subsequent year, the board has been informed that depreciated costs and the associated maintenance expenses will increase as the capitalized project costs are expensed over seven-year periods. This strategy of depreciating costs over time is not only consistent with standard recognized accounting practices, it also helps the Pool to plan and stabilize the costs of these investments over time, which in turn, leads to rate stability for the membership. There is a section within this budget that specifically addresses the deprecation expense schedule and maintenance expenses. The deprecation expenses are expected to be the highest to date in the 2019-20 and 2020-21 fiscal years, as was noted in the 2018-19 Budget correspondence. 2 Though the maintenance fees will remain constant into the future, based on projects approved in the Business Application Roadmap, depreciated expenses are projected to level off or decrease depending on which new projects are added in the future. As in any organization, information technology operations must continually make infrastructure and system improvements. In the future, the Pool will need to aggressively maintain and develop other critical systems, so there will continue to be a need for new investments in information technology systems. Some of these costs will be offset with either slowing the rate of growth in
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