Frustrated Fort Smith Board OKs insurance deal on city property, vehicles

by The City Wire staff ( 10 views 

City directors appeared frustrated with Fort Smith management at the Feb. 17 Board of Directors meeting as part of a discussion to renew insurance for an estimated $240 million in city assets.

The event, held in its usual location at the Fort Smith Public Schools Service Center, featured one item in particular where directors expressed annoyance at being placed in time crunch mode with what they viewed as a dearth of information for making an informed decision.

The item pertained to the possibility of changing to the Arkansas Municipal League (AML) for property, vehicle, and equipment insurance on city-owned assets. Travelers Insurance through Fort Smith-based Brown Hiller Clark and Associates is the current provider. For 2015, there would have been a premium difference between the two with AML coming in $240,000 cheaper than Travelers' $794,298 ($330,770 for Property, $393,680 for Auto, and $69,848 for Equipment).

However, there were key differences in coverage. For instance, Travelers offered the city insurance on a replacement cost basis with a blanket that would allow the city to recoup the full cost of rebuilding a property in the event of a total loss. AML offered actual cash value, which would be replacement cost minus depreciation.

As an example, if a building was 20 years old and it was leveled by a storm, Travelers would provide funding to rebuild the property at what it would cost by today's standards. The AML would factor in how much the building had depreciated over the course of 20 years and remove that amount from the final total.

Another key difference: if the city had a storm that damaged the roofs on five buildings, it would have to pay one $25,000 deductible ($50,000 for wind/hail damage), for the one occurrence instead of the deductible for each building. AML's $5,000 deductible would be per location, adding up to a total of $25,000 if equal damages were done to each location.

Whether the city would save money was a point of contention, and City Directors Tracy Pennartz and Keith Lau didn't believe there was enough information to see if Fort Smith would come out ahead on the AML plan.

Pennartz asked for "trend data" on claims that the city had issued over an extended period of time, but did not receive it. Lau reiterated that such data would have been helpful in making a decision as to whether the city was over-insured rather than having to decide on one provider without the proper data and a March 1 deadline (when Travelers coverage expires).

"This is typical that we’re getting crammed with this decision at the eleventh hour without adequate analysis of the consequences of our decision," Lau said. "I think a loss-run analysis is warranted. I think we’ve got to gauge the catastrophic consequences of being underinsured especially as tight as our budget is."

Lau continued: "I’m not sure our funds or fund balances could handle the stress of a non-coverage catastrophic event. I’m not saying that ultimately I don’t agree with this decision in participating in the Municipal League. I just don’t think in my opinion it’s prudent to make a hasty decision to save $300, $200,000, whatever it is, a year and expose ourselves potentially to a $600,000 to $1 million loss, which would eventually have to be funded out of a fund balance or ultimately (we’d) have to issue debt to cover."

Due to the "limited amount of time and research" that directors were given, Lau didn't believe city staff had put enough thought into its findings and ultimately decided to vote against AML. Three other directors agreed, thus ending in a 4-3 vote to renew with Travelers for the 2015-2016 term. Voting for Travelers was Directors George Catsavis, Andre Good, Don Hutchings, and Lau. Voting against the Travelers coverage were Directors Pennartz, Mike Lorenz and Kevin Settle.

Also Tuesday night, the Board endorsed Mars Petcare for participation in the Tax Back Program.

Mars Petcare is planning an $81.7 million expansion of its facility at Chaffee Crossing that will add an estimated 95 “good-paying” jobs. It’s the second significant expansion of the plant in the past two years. Mars Petcare – based in Brussels, Belgium, with a U.S. headquarters located south of Nashville, Tenn. – opened the Chaffee Crossing site in September 2009.

In October 2013 the company announced a $50 million expansion that was expected to add 42 jobs.

The “Tax Back Endorsement” the Board approved is a formality as part of an incentive program administered by the Arkansas Department of Economic Development. The program allows businesses to seek refunds of sales taxes on construction materials, new equipment and other qualifying expenses of investments that result in new jobs.