Minneapolis taxpayers will feel effect of record $20 million settlement

Minneapolis officials say they are confident the city's finances can absorb the $20 million payout to the family of police-shooting victim Justine Ruszczyk Damond, one of the largest settlements of its kind in the country.

However, the city will have to come up with a strategy to replenish the self-insurance fund where the settlement money is coming from — adding another justification for higher property taxes in the years ahead.

In an interview Thursday, Minneapolis Chief Financial Officer Mark Ruff said the city's actuaries believe additional massive payouts are unlikely in the near future.

"At least initially, conversations that I've had with our actuaries, they would treat this as an anomaly, a once-in-a-decade kind of occurrence," Ruff said. "They're not suggesting to us that we need to be concerned about it happening on a more rapid basis."

The scale of the payout to the Ruszczyk family, which was announced days after a former Minneapolis police officer was convicted of killing Damond, is influencing other pending litigation, however. Last week, the City Council rejected a payout to the family of Jamar Clark, who was shot dead by police in 2015, because they considered it too low, and now a family lawyer is demanding a "transformative" amount.

Ruff did not comment on the fiscal implications of the Clark lawsuit, saying it was pending litigation.

Minneapolis has been self-insured over the past two decades as a way to save the costs of paying outside insurance companies. Since 2018, the city has also covered its employees' health care.

Each city department pays a premium that goes into the self-insurance fund. The fund is then used to pay liability claims like the Damond settlement, attorney fees, accrued sick-leave benefits and workers' compensation claims.

The city had allocated only $4.7 million from the fund for total liabilities in this year's budget. The $20 million Damond settlement, Ruff said, will deplete the fund's projected end-of-year balance, called the net position, of $27.1 million.

"This takes not only a significant amount of our cash balance but also brings us closer to what is a single-digit net position," he said. "For us to access credit markets, we need to maintain positive net positions."

In addition, the city is facing increased pressure to pay workers' compensation claims from the fund. About $13.2 million was budgeted for these claims this year, nearly $2 million more than what was paid out in 2016.

Ruff said the city will have to reassess the premiums charged to each department, particularly the Police Department. Whether city officials raise premiums or cut expenses elsewhere will be decided on a year-to-year basis.

Carol Becker, chairwoman of the city's Board of Estimate and Taxation, which sets the maximum tax levy each year, was less optimistic. The multimillion-dollar settlement, she said, will be one of the many reasons homeowners' property taxes are likely to continue climbing over the next several years.

"That money is going to have to be replenished, and that's going to come from property taxes primarily," Becker said. "People's levies are going to go up."

Property tax revenue was expected to rise about 30% over the next five years before the settlement, according to the City Council's adopted 2019 budget. Some of that money could help refill the self-insurance fund, likely over several years.

"The mayor and City Council determine the final levy," said Sarah McKenzie, a city spokeswoman. "It's speculative to say that this settlement would cause a levy increase."

Overall, the city is in a stable financial position. Its 2019 budget is $1.6 billion, with Standard & Poor's assigning it a AAA bond rating this month.

Ruff would not comment on what would happen if the city had to pay similar settlements or other large claims in the near future.

The city needs to be prepared for any other potential payout, whether it stems from another police shooting, a sexual harassment accusation or other large claim, said Loretta Worters, vice president of media relations for the Insurance Information Institute.

"Do they have enough money in reserves if there is a large loss?" Worters said. "And if they're drawing down from that reserve, what happens at the next big disaster?"