HomeMy WebLinkAboutItem 7.1 Approval of Workers’ Compensation Program Structure and Recommendation Transition Self-Funded Worker's Comp
STAFF REPORT
CITY COUNCIL
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Agenda Item 7.1
DATE: November 18, 2025
TO: Honorable Mayor and City Councilmembers
FROM: Colleen Tribby, City Manager
SUBJECT:
Approval of Workers’ Compensation Program Structure and
Recommendation to Transition to a Self-Funded Workers’ Compensation
Plan
Prepared by: Sarah Monnastes, Human Resources Director
EXECUTIVE SUMMARY:
The City Council will receive a report on Staff’s analysis of workers’ compensation programs
and discuss Staff’s recommendation to transition to a self-funded workers’ compensation
program, supported by a third-party administrator for day-to-day claims administration and
excess insurance for catastrophic claims.
STAFF RECOMMENDATION:
Approve the City’s transition to a self-funded workers’ compensation model beginning January
1, 2026, authorize the establishment of a workers’ compensation trust account, and authorize
the City Manager to execute all necessary agreements related to administration and excess
insurance.
FINANCIAL IMPACT:
The recommended self-funded program option requires contracting with a third-party
administrator and purchasing excess insurance, which costs approximately $165,000 annually,
combined (this would be pro-rated for the current fiscal year). The City is also required to
establish a workers’ compensation trust account, which Staff recommends funding with an
initial $50,000. Claims will be paid directly out of the trust, and the City can replenish the funds
as needed. Staff will return with a mid-year budget adjustment to request the appropriation of
these funds for the remainder of Fiscal Year 2025-26.
In addition, the City currently has approximately $187,000 held by the Cities Group . Although a
portion of that will be used to fund dissolution costs, some amount is expected to be returned
to Dublin in Fiscal Year 2026-27, which may partially offset expenses in the second year.
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DESCRIPTION:
Background
Since 2005, the City of Dublin has been a member of the San Mateo County Cities Insurance
Group Joint Powers Authority (Cities Group), which has administered workers’ compensation
claims and related benefits on behalf of its member agencies. The City pays $3,000 annually
for the Cities Group program and operates with a self-insured retention (SIR) of $1 million per
claim and a $10 million per claim limit. Under this structure, the City is financially responsible
for the first $1 million of every claim, with pooled excess coverage providing protection for
catastrophic or severe losses up to $10 million dollars. The City is then responsible for
anything over $10 million.
As documented in the Staff Report presented to the City Council on October 21, 2025
(Attachment 1), the long-term viability of the Cities Group became uncertain following the
withdrawal of Foster City, whose claim volume and size represented a disproportionately large
share of the group’s overall risk pool. The withdrawal significantly weakened the group’s
financial stability and its attractiveness to reinsurers. After further review, the Cities Group
Board concluded that dissolution was the most prudent path forward for all remaining
members. The Board subsequently adopted a resolution directing the cessation of all workers’
compensation operations by January 1, 2026, and requiring each member agency to transition
its workers’ compensation program independently. As a result, Dublin must secure and
implement a new workers’ compensation structure prior to that date.
Following the October City Council meeting, Staff conducted a comprehensive review of the
City’s historical claim experience and existing risk structure, and analyzed viable options
available to California municipalities: 1) enrollment in the State Compensation Insurance Fund;
2) contracting directly with a joint powers authority (JPA) for claims administration; or 3)
establishing a self-funded workers’ compensation program supported by a third -party
administrator (TPA) and excess insurance coverage. Based on Staff's analysis, the self -funded
program is the most prudent option for Dublin. A discussion of the analysis is provided below.
Analysis
Claims History
In selecting the workers’ compensation structure that is most appropriate for the City as it
transitions away from Cities Group, Staff looked at the City’s historical loss experience using
the complete loss-run data from January 1, 2005 through September 30, 2025. The loss -run
captures more than 20 years of claims activity and provides a comprehensive picture of
Dublin’s long-term risk exposure.
Over the 20-year period, annual claim payments ranged from as low as $374 in 2020 to
$86,466 in 2005, with most years falling below $14,000. Recent experience is even more
modest, with total paid losses of $8,754 in 2024 and $2,546 recorded through Sept ember 30,
2025. These results reflect Dublin’s low-frequency, low-severity claim environment, supported
by a predominantly administrative and professional workforce and strong internal safety
practices. The City’s exposure is further reduced by contracting out police, fire, and
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maintenance services, which shifts the highest-risk functions outside the City’s direct
operations.
This historical claim performance must also be considered in the context of the City’s current
risk structure through Cities Group, under which Dublin operates with an SIR of $1 million per
claim and a $10 million per claim limit. It is important to note that Dublin’s claim activity has
remained far below the SIR level.
Workers’ Compensation Program Options Considered
1. State Compensation Insurance Fund. The State Compensation Insurance Fund is a fully
insured workers’ compensation program in which the State assumes full liability for all
claims. Agencies pay an annual premium based on payroll, class codes, and statewide
actuarial factors, and in exchange the State Fund becomes responsible for claims
payments, litigation costs, medical management, and all associated liabilities. While the
State Fund provides guaranteed acceptance for public agencies and delivers a predictable,
standardized administrative process, participation comes with several notable limitations.
Specifically, because the program is fully insured, agencies relinquish nearly all control
over claims handling. This includes decisions regarding compensability, medical treatment
direction, settlement strategy, litigation oversight, and return-to-work coordination. For
Dublin, which has historically benefited from close oversight of claims and early-return-to-
work practices, this loss of control could negatively impact claim outcomes and increase
indirect costs such as lost productivity and modified duty availability. This reduction in
control could lengthen claim duration, increase disability time, and diminish the
effectiveness of the City’s return-to-work approach.
Additionally, while the State Fund premium calculation is based on the City’s claim
experience, premiums include statewide risk assumptions, administrative overhead, and
insurer operating costs. As a result, the premium does not reflect Dublin’s actual workers'
compensation exposure, which typically totals only a few thousand dollars per year. The
annual premium quoted for Dublin to participate in the State Fund is $206,000, significantly
higher than the City’s historical claims.
2. Workers’ Compensation Joint Powers Authority (JPA). A workers’ compensation JPA is
a collective risk-sharing arrangement in which multiple public agencies pool their workers’
compensation exposures and jointly fund the costs of claims, administration, and long-term
reserves. Member agencies contribute annual premiums that support both current claim
payments and the reserves needed to cover future liabilities for the entire pool. JPAs
provide shared governance, access to pooled resources, and standardized risk -
management practices; however, participation also requires agencies to operate under
uniform policies and claims-handling procedures established by the pool.
Although the overall structure of a JPA is similar to that of Cities Group, where agencies
pooled their claims and purchased excess insurance collectively, the JPAs reviewed by
Staff differ in one important respect: they maintain much lower levels of SIR than Cities
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Group’s $1 million SIR. The JPAs that provided quotes operate with SIRs in the range of
$5,000 to $150,000. This lower retention level increases the amount of pooled claim costs
and administrative overhead that must be funded by all members. For a low-loss agency
like Dublin, this means paying significantly more into the pool to support claims generated
by higher-risk members.
Because JPA contributions are calculated based on the pooled actuarial needs of all
members rather than on each agency’s individual loss experience, low-loss agencies often
subsidize agencies with higher claim frequency or severity. For Dublin, whose workers’
compensation losses have been consistently modest and well below its long-standing $1
million SIR, this structure is financially unfavorable. The JPAs reviewed quoted annual
participation costs between $250,000 and $535,000, far exceeding the City’s typical annual
losses. Joining a JPA would therefore require the City to contribute substantially more than
is warranted by its actual risk profile. In addition, even in years where the City’s losses
totaled less than $10,000, Dublin would still be required to pay several hundred thousand
dollars into a pooled program, effectively subsidizing agencies with much higher claim
activity while receiving no materially different protection than the structure under which it
already operates.
3. Self-Funded Program with TPA and Excess Insurance. A self-funded program allows
agencies to pay only the actual cost of their workers’ compensation claims while
maintaining a dedicated trust account for those expenses. Under this model, a third -party
administrator handles day-to-day claims administration in close coordination with agency
staff, including medical coordination, investigations, regulatory reporting, litigation
oversight, and return-to-work support. The TPA charges a flat annual fee of approximately
$4,000, with additional à la carte fees for individual claims and specialty services. Based on
projected activity in Dublin, the TPA’s total annual cost for the City is expected to be no
more than $15,000.
To protect the City against catastrophic or unusually high -cost claims, the program includes
the purchase of excess workers’ compensation insurance, estimated at $100,000 annually.
Under the proposed structure, the City would assume an SIR of $750,000, meaning the
City is responsible for all claim costs up to that amount. The excess insurance provides
statutory limits coverage, which means the insurer will pay all legally required workers’
compensation costs (i.e., medical care, wage replacement, permanent disability benefits,
lifetime medical awards, and death benefits) without a dollar cap, as required under
California law. Once the City’s $750,000 SIR is reached, all additional benefits owed under
the Workers’ Compensation Act are fully covered by the excess carrier. This enhances the
catastrophic protection the City currently receives through Cities Group.
Given that the City’s annual claims have remained far below $750,000, and that Dublin has
decades of successful experience operating within a high -retention framework, a self-
funded workers’ compensation program remains the approach most consistent with the
City’s historical losses and overall risk profile. This option aligns costs with actual
experience, ensures unspent funds stay in a City-controlled trust rather than subsidizing a
pool, and preserves essential catastrophic protection through statutory-limit excess
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coverage. For these reasons, the self -funded model not only represents the lowest-cost
option but is also the most actuarially appropriate and operationally consistent approach for
the City moving forward.
Under this option, the City would need to establish an initial trust account to cover
anticipated claim expenses and maintain liquidity, at a level consistent with claims history.
Staff recommends depositing an initial $50,000 into the trust, with funding levels evaluated
annually thereafter.
Next Steps
Upon City Council approval to use the self-funded model, Staff will execute an agreement with
the selected TPA, bind excess workers’ com pensation insurance coverage effective January 1,
2026, and create the required trust and fund structure. Staff also will complete State self-
insurance filings, coordinate record transfers with Cities Group, and update the City’s internal
reporting and return-to-work procedures. Finally, Staff will bring a mid-year budget amendment
to the City Council to fund the transition.
STRATEGIC PLAN INITIATIVE:
None.
NOTICING REQUIREMENTS/PUBLIC OUTREACH:
The City Council Agenda was posted.
ATTACHMENTS:
1) October 21, 2025 Staff Report (without attachments)
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STAFF REPORT
CITY COUNCIL
Page 1 of 5
DATE: October 21, 2025
TO: Honorable Mayor and City Councilmembers
FROM: Colleen Tribby, City Manager
SUBJECT: Dissolution of the San Mateo County Cities Insurance Group Joint Powers
Authority
Prepared by: Sarah Monnastes, Human Resources Director
EXECUTIVE SUMMARY:
The City Council will consider approving a resolution consenting to the dissolution of the San
Mateo County Cities Insurance Group Joint Powers Authority and authorizing execution of a
Dissolution Agreement to govern the dissolution process. The Board of Directors for the JPA
has determined that an orderly dissolution is the most effective means to transitioning the
remaining Member Agencies to independent administration of their workers’ compensation
programs. Approval of the resolution will allow the dissolution process to proceed in
coordination with the other member Agencies, with operations anticipated to conclude by the
end of 2026.
STAFF RECOMMENDATION:
Adopt the Resolution Consenting to the Dissolution of San Mateo County Cities Insurance
Group Joint Powers Authority Pursuant to Section 5 of the San Mateo County Cities Insurance
Group Joint Powers Agreement and Approving a Dissolution Agreement to Govern the
Dissolution Process.
FINANCIAL IMPACT:
The City’s current annual payment for workers’ compensation coverage is approximately
$3,000. With the dissolution of the San Mateo County Cities Insurance Group Joint Powers
Authority (Cities Group), the City of Dublin will need to enroll in a new workers’ compensation
program, which Staff anticipates will cost significantly more ($200,000 - $500,000 annually).
Additionally, the City currently has about $187,000 in funds held by the Cities Group. As part of
the dissolution process, member agencies, including the City, will be required to share in the
costs associated with administrative closeout and legal obligations of the Joint Powers
Authority. Following the completion of this process, the City expects to receive a portion of its
contributed funds back, which may help offset some of the transition costs in the first year.
Attachment 1
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DESCRIPTION:
Background
The San Mateo County Cities Insurance Group Joint Powers Authority (Cities Group) was
formed on October 5, 1978, for the purpose of allowing its member agencies to pool resources
to fund and administer their respective workers’ compensation programs. The Cities Group
now also administers other benefits, such as life insurance, long-term disability, and dental
programs, on behalf of some of the member agencies. However, the Cities Group’s primary
purpose remains the administration of workers’ compensation programs.
The founding members of the Cities Group were the Cities of Half Moon Bay, Foster City, and
Brisbane, and the Towns of Atherton and Hillsborough. The City of San Carlos was added to
the membership in 1989, and the City of Dublin was added to the membership in 2004.
Although the City of Brisbane withdrew from membership in the early 2000s, th e Cities Group
has enjoyed stable membership during its 47 -year history.
However, in November 2024, the City of Foster City submitted a withdrawal notice to the Cities
Group, indicating that it planned to withdraw from membership as of July 1, 2025. Pursu ant to
Section 4 of the Joint Powers Agreement (JPA), as amended in 1997, any member agency
that has completed at least three years of membership may unilaterally withdraw from the
Cites Group on July 1 of any calendar year, after providing notice of its i ntent to withdraw on or
before January 1 of that same year. Ultimately, Foster City’s membership was terminated
August 1, 2025 pursuant to an agreed termination under Section VIII(B) of the Cities Group
Bylaws, as amended in 2000. Under the Termination Agr eement with Foster City, Foster City
assumed all liability for the past, current, and future claims it generated. The Cities Group,
therefore, is no longer responsible for any claims generated by the City of Foster City.
After receiving the withdrawal notice from the City of Foster City in November 2024, four of the
five other member agencies also submitted withdrawal notices prior to the January 1, 2025
deadline. Unlike Foster City, however, those members indicated that they issued their notices
in order to reserve their right to withdraw from the Cities Group but had not yet determined
whether they intended to withdraw as of July 1, 2025. Ultimately none of the other members
withdrew from the Cities Group, and the membership remains as follows: the Ci ty of San
Carlos, the City of Half Moon Bay, the City of Dublin, the Town of Atherton, and the Town of
Hillsborough.
Although the Cities Group has continued to operate successfully after the departure of the City
of Foster City, the future viability of the Cities Group is in question. Because Foster City
represented a disproportionately large share of the total claims handled by the Cities Group,
the Group will become financially less stable and will be less attractive on the reinsurance
market. With this in mind, and at the Board’s direction, Cities Group staff worked with the
Board President to conduct initial research into the possibility of merging the Cities Group with
another Joint Powers Agency or other public agency administering workers’ compensat ion
programs. However, each of the identified agencies indicated that Cities Group members
wishing to move their workers’ compensation programs would have to do so individually, rather
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than moving all five Cities Group members as a unit.
The Cities Group Board President and staff presented this finding to the Board of Directors in
February 2025 and recommended that each member agency conduct its own due diligence to
determine where it might take its claims should the Cities Group dissolve. The Board held
several discussions in the following months about the future of the Cities Group and the
prospect of dissolution.
On June 10, 2025 the Cities Group Board of Directors approved a resolution which found that
an orderly dissolution of the Cities Group was the preferable method of transitioning the
member agencies out of the Cities Group, rather than having each member agency individually
withdraw. That resolution directed Cities Group staff to create and present to the Board a
dissolution plan under which the Cities Group would cease providing claims administration and
all other benefit services on behalf of the members on or before December 31, 2025.
In accordance with the Board’s direction, the Cities Group staff drafted a Dissolution
Agreement that would govern the dissolution process and establish the ongoing rights and
obligations of the members. The draft of that Dissolution Agreement was provided to the
attorneys representing each of the member agencies, and Cities Group staff worked with
representatives from each agency to address questions, concerns, and objections to the terms
of the Dissolution Agreement. After completing that review process with representatives of
each of the five member agencies, the Dissolution Agreement was presented to the Board at
its meeting on September 9, 2025.
Discussion
At the September 9, 2025 meeting, the Board of Directors approved the resolution (Attachment
3), which formally recommends to the councils of the member agencies that they each consent
to the dissolution of the Cities Group and approve the Dissolution Agreement. Pursuant to
Section 5 of the JPA, the Cities Group cannot dissolve unless all Member Agencies consent to
the dissolution. Therefore, each of the five councils must adopt resolutions providing that
consent.
A draft resolution consenting to the dissolution of the Cities Group and authorizing the City of
Dublin to execute the Dissolution Agreement is included as Attachment 1, with the Dissolution
Agreement included as Attachment 2, to this Staff Report. If approved by all five councils of the
member agencies, the Dissolution Agreement will govern the dissolution process and set forth
the rights and responsibilities of each agency during that process. Most notably, the
Dissolution Agreement would require the following:
Each member agency must remain a member of the Cities Group for the duration of the
dissolution process (Section 2);
Cities Group will cease all claims operations and the provision of other benefits as of
the “Transfer Date” on January 1, 2026 (Section 4);
Each member agency must take responsibility for all of its past, current, and future
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claims as of the Transfer Date and assume all liability associated with those claims
(Section 5);
As of the Transfer Date, the costs of operating the Cities Group will be split equally
among the five member agencies as “Shared Expenses”, rather than apportioned
based on claim volume (Section 6);
At the direction of the Board of Directors, the Cities Group will conduct audits and/or
other studies to determine the correct ending fund balances for each of the member
agencies as of the Transfer Date, and those with negative balances will be required to
bring those balances to $0 on or before August 1, 2026 (Section 7);
Member agencies with positive fund balances as of the Transfer Date that are not
depleted through the assessment of Shared Expenses shall be refunded the balance of
those funds prior to the final dissolution of the Cities Group (Section 7);
The Board shall select one or more member agencies to retain the records of the Cities
Group for the periods required by statute (Section 12);
The member agencies agree to waive all potential claims related to the Cities Group
that they may have against one another or against the Cities Group (Section 14); and
The dissolution will occur at the time that the Board finds by adoption of an “Ending
Resolution” that all of the Cities Group’s outstanding obligations have been resolved.
Several member agencies requested that Cities Group staff provide an estimated schedule for
the dissolution process. A preliminary estimated schedule, which anticipates the completion of
the dissolution process by the end of calendar year 2026, is included as Attachment 4 of this
Staff Report. However, pursuant to Section 5 of the JPA, the Cities Group must resolve all of
its outstanding obligations before it can complete the dissolution process. The actual timeline
for the dissolution, therefore, will be dictated by the pace at which the outstanding obligations
of the Cities Group can be resolved.
Consent of the member agencies to the recommended dissolution will provide clarity to the
agencies and the Cities Group staff and enable them to plan for the date on which claims will
no longer be handled by the Cities Group. It is also important to allow enough time for Cities
Group staff to work with the member agencies to transfer claims to new claims administrators.
For those reasons, each agency must obtain council consent to the dissolution and approval of
the Dissolution Agreement by October 31, 2025.
For reference, the Cities Group Joint Powers Agreement and Bylaws, and the amendments to
each, are attached here as Attachment 5.
STRATEGIC PLAN INITIATIVE:
None.
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NOTICING REQUIREMENTS/PUBLIC OUTREACH:
The City Council Agenda was posted.
ATTACHMENTS:
1)Resolution Consenting to the Dissolution of San Mateo County Cities Insurance Group
Joint Powers Authority Pursuant to Section 5 of the San Mateo County Cities Insurance
Group Joint Powers Agreement and Approving a Dissolution Agreement to Govern the
Dissolution Process
2)Exhibit A to the Resolution – Agreement Dissolving the San Mateo County Cities Insurance
Group Pursuant to Section 5 of the San Mateo County Cities Insurance Group Joint Powers
Agreement
3)Exhibit B to the Resolution – A Resolution of the Cities Group Board of Directors of the San
Mateo County Cities Insurance Group Joint Powers Authority Recommending that the
Member Agencies Approve the Dissolution of the Joint Powers Authority Pursuant to the
Terms of a Dissolution Agreement
4)Estimated Schedule for Dissolution
5)Cities Group Joint Powers Agreement, Bylaws and Amendments
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Recommendation to Transition
to a Self-Funded Workers’
Compensation Program
November 18, 2025
159
Purpose of Tonight’s Item
Provide overview of Workers’ Compensation program options
Share analysis of the City’s 20-year claims history
Review viability and cost of available program structures
Present Staff recommendation for program structure
Request Council authorization to implement new program effective January 1, 2026
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Why a New Program is Needed
•Cities Group JPA is dissolving January 1, 2026.
•Each member agency must now establish its own WC structure.
•Goal –Ensure financial stability, strong claim oversight, and
continuity of service.
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Dublin’s Claim History (2005 –2025)
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Current Structure
Member of the Cities Group JPA $1 million SIR per claim
$10 million per-claim limit
City has never approached the $1 million retention level
Historical losses indicate Dublin is well-suited to a high-
retention model
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Program Options Reviewed
State
Compensation
Fund
01
Workers’
Compensation
JPA
02
Self-Funded with
TPA + Excess
Insurance
03
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Option 1: State Compensation Fund
•Guaranteed acceptance
•Claims fully insured and administered by State
Pros
•Loss of local control over claims decisions
•Could extend claim duration and reduce effectiveness of return-to-work
•Premium cost: $206,000 annually, significantly higher than City’s losses
•Does not reflect Dublin’s actual risk profile
Cons
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Option 2: Workers' Compensation JPA
•Shared resources
•Standardized risk management
•Much lower SIR levels ($0 -$150,000)
Pros
•Lower SIR levels = higher pooled costs
•Low-loss agencies subsidize higher-risk members
•Annual costs quoted to Dublin: $250,000–$535,000
•Significant mismatch with Dublin’s historical losses
•No meaningful benefit over prior structure
Cons
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Option 3: Self-Funded Program (Recommended)
•City pays only actual claim costs
•Excess insurance protects against catastrophic claims
•Program mirrors long-standing structure
•Lowest overall cost
•Greatest control over claims, treatment, and return-to-work
•Unspent funds remain under City control
Pros
•Minor additional administrative tasks required (e.g., OSIP reporting, actuarial)
Cons
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Financial Impact: Self-Funded Program
Third-Party
Administrator
•$4,000 Annual Fee
•Additional fees, based
on actual claims
•Estimated annual cost
= $15,000
Excess Insurance
•City pays first
$750,000
•Insurance pays
everything else; no
cap
•Estimated annual cost
= $100,000
Trust Account
•Separate bank
account claims are
paid from
•Initial funding
recommended =
$50,000
•Further funding based
on claim expenses
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Next Steps (If Approved)
•Execute an agreement with the selected TPA.
•Bind excess workers’ compensation insurance coverage
effective January 1, 2026.
•Create the required trust and fund structures.
•Complete State self-insurance filings.
•Coordinate record transfers with Cities Group.
•Update the City’s internal procedures.
•Request mid-year budget amendment to fund the transition.
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Requested Council Action
Approve the City’s
transition to a self-
funded workers’
compensation model
beginning January 1,
2026.
1
Authorize the
establishment of a
workers’ compensation
trust account.
2
Authorize the City
Manager to execute all
necessary agreements
related to administration
and excess insurance.
3
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Thank You
Any Questions?
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