CITY OF ROCKY RIVER

DECEMBER 15, 2003

The Committee-of-the-Whole was called to order by Mrs. Bobst, President of Council, at 8:00 p.m.

Council Members Present: Mr. Gollinger, Mr. Potterfield, Mr. Frost, Mr. Malling,

Mrs. Bartolozzi, Mr. Hurtuk, Mrs. Bobst

Administration: Mr. Linden, Mr. Koran

Assistant Law Director: Mr. Hotz

Press: Mr. Dzurick

The meeting was opened with the Pledge of Allegiance.

MAYOR'S REPORT: NONE

As scheduled, President Bobst introduced representatives from Dawson Insurance Companies. Mr. Bill Gorton, a Senior Vice President representing Dawson and Rocky River resident, presented the case for the Ohio Municipal Joint Self-Insurance Pool (OMJSIP). He introduced his colleagues, Mr. Robert Lampus, General Counsel, and Mr. Jack Kellogg, Mayor of Marion, OH and member of the OMJSIP Board of Trustees. Mr. Gorton noted that Dawson, one of the city's largest employers, pays total taxes in excess of the annual proposed premium. The company has been in the insurance business since 1931 and has more than 200 employees.

Mr. Gorton indicated that the OMJSIP is a quasi-governmental group directed by the OML under the regulations in ORC section 2744.081. He added that tonight's presentation was in compliance with the Code, and that all other requirements had been met. By signing with the OMJSIP, the City could save $88,997 ($192,174 v. $281,171). The only significant coverage issue is the $5000 general liability deductible v. a $1000 bodily injury deductible with St. Paul. As requested, Dawson has calculated the impact of that deductible if the City had signed with the pool in 2002 and 2003. He stated that the additional cost in 2002 would have been approximately $1000 and in 2003, $9000. The required disclosure statement, an 11-page document had been filed as part of the original bid. The sole purpose of the OMJSIP, since 1987, is to provide low-cost stable insurance for its members. Its premiums are less because it is a "lean and mean" organization without the expenses of large insurance companies, without bureaucracy, premium tax or shareholders. It manages claims very well using local people and because only municipal claims are handled, do it well.

Mayor Kellogg continued, commenting that his city of 37,000 had been with the pool since 1993 and that he had been a member of the Board since 1994, serving as president for five years. He has been mayor of Marion for 12 years and before that, spent 14 years on Council. His city has had a great deal of success with the OMJSIP, experiencing great savings, and never being assessed. If Council is uneasy with the possibility of assessment, he recommends setting aside a portion of the savings to meet contingencies. He praised the convenience of handling claims with one phone call, and being able to speak to representatives who are experts in municipal laws and government. His Council requests that the administration go to bid from time to time, but the pool insurance rates have always been far less. He stated that his city has had nothing but good success with the program.

Mr. Gorton then addressed one of the most important provisions of the disclosure statement, the protocol for additional contributions, or assessments which would place some savings at risk. Since the inception of the pool in 1987, there has never been an assessment. The Board met in June to discuss the possibility and voted unanimously that it was unnecessary. If it were ever to happen, members could be assessed only for years of membership. Rocky River, for example, would have no responsibility for deficits which occurred in 1996, 1997 or 1998. Only cities that were members during that period would be assessed. This is different from insurance companies which must make up losses incurred from current premium payers. Any deficit from the years our city was a member would probably not be known for at least five years. Even a $1 million assessment, which would be huge, in a deficit year in which Rocky River was a member, would cost the City from $5000 to $17,000 depending on our loss experience. Mr. Gorton emphasized that there has never been an assessment, and he foresees none; even in the worst case, the possibility of paying $5000-$17000 in 6 or 7 years balanced against the savings realized would be a good move.

There are some similarities: both insurance companies and the pool buy reinsurance. In the case of the pool, liability claim amounts over $175,000 would be paid by the reinsurer: $5000 would be paid by the city, $170,000 by the pool, and the remainder by the reinsurer. Property claims in excess of $100,000 would be paid by the reinsurer. Pool reinsurers are highly rated companies, for property, American International Group (AIG) and for liability, Lloyds of London, both A+ or A rated companies. The pool has sufficient funds to pay claims of that amount. Mr. Gorton added that a new reinsurance contract had just been finalized for property with improved conditions (including $4500 motor breakdown insurance) and at a lower cost. In addition to a financial statement of September 30, he has submitted to Council members a November 30 statement showing significant improvement, a $190,000 profit.

Discussion: Mrs. Bobst asked how many years have been deficit years.

• •Mr. Gorton said that only 1996, 97, 98 and 2000 had shown deficits. All others had been profitable.

She then asked if the pool is a member of the Association of Governmental Risk Pools which provides members with services in risk management. She further wondered if the OMJSIP had risk management procedures.

• • Mr. Gorton explained that the pool provides outside appraisal service to update property coverages. It assists members to design programs to meet specific needs which are then outsourced by the member city.

Mrs. Bobst asked then if, like other municipal pools, e.g. PEP, rated AAA, the OMJSIP had ever been evaluated and rated.

• •Mr. Gorton acknowledged that there had been no rating of the organization, but noted that an annual formal audit was conducted by the reinsurers. Financial statements are filed with the State of Ohio and subject to audit.

Mr. Frost asked about the claim procedure if the city were to leave the pool.

• •As General Counsel, Mr. Lampus responded that the pool is very flexible, allowing the City to select counsel locally. The pool will work with any firm. This would work in our City, as our Charter mandates the Law Director's participation. In the $5000 deductible range, claims can be handled by the City, keeping the pool informed.
• •Mr. Gorton added that if the occurrence happened during the City's membership years and the claim were to be made three years later when the City was no longer a member, the claim would still go back to the pool. The only exceptions are claims made against public officials.
  
  
  
  

AUDIENCE PARTICIPATION:

Colin Dean, representing McGowan and Co. noted that his company had handled insurance for our City and others for many years, and that as our agent, he would be knowledgeable.

He asserted that the financial condition of the pool is extremely weak, as shown in his letter with copies of their financial statements attached. The deficit was $1.7 million in 2002 with an additional $200,000 or $300,000 since.

With the assessment potential, he cited the uncertainty of the future with the pool. What is known, he said, is that Rocky River will pay for deficiencies and pool losses not covered by reinsurers. The reinsurance market is volatile. St Paul, with $30 billion in assets has a stable reinsurance rate, and costs are known. If our City's experience is similar to that of the last two or three years, rates in the reinsurance market could be volatile.

The City would have no protection under the Ohio Department of Insurance because the pool is unregulated, and financial statements are not scrutinized by the Department. The pool is cash-starved and needs to write premium to survive. He said that they have never had an assessment, but have had loss years, which they are trying to cover with the premiums of new customers, like a Ponzi scheme. He urged Council to compare a $1.7 million deficit with $20-$100 billion in assets of St. Paul which is charging a reasonable premium for the risk. St. Paul believes that with continued loss prevention and risk management procedures our account, which has not been profitable to this point, will turn around. He said that this offer from OMJSIP was like an offer of 10% return from junk bonds with the same risk and ultimate cost.

St. Paul has a zero deductible. He urged Council to consider the security and stability of his company and asked Council to give the citizens of Rocky River the stability they deserve.

Mrs. Bobst indicated that an ordinance with each of the insurers will be on the agenda for vote next week.

UNFINISHED BUSINESS:

Ordinance No. 204-03: This ordinance, which authorizes a change order for soil removed from the Service Center, will have its third reading next week.

Mr. Hurtuk commented that he had had an opportunity to talk to Great Lakes Construction. To this point, he had not been in favor of the amount of the credit. He thought that if the fixed expenses had been made clearer at an earlier point, a different contract might have been written. He would like to see a larger credit, however, at this point, he favors focusing on recouping expenses and converting this to an income-producing asset.

Mr. Potterfield still disagrees with the credit offered. He calculated that the only 21% of the work to be done in the original contract has been performed, but that we are being offered a credit of 7% of the original contract. On a cubic yard basis, he calculated that 80,000 cubic yards for $492,000 would be $6.15/cubic yard. With 12,133 cubic yards not removed, we should be due $74,617 @ $6.15/cu yard. Finally, he asked if the contractor or the Normandy has a permit from the City for the dirt location and storage. Also, if the site is in compliance with EPA storm water runoff provisions and Rocky River provisions for this.

Ordinances No. 210-03 and 211-03: Mr. Potterfield indicated that these ordinances, which deal with political signs, have been referred to the Planning Commission for consideration at tomorrow evening's meeting.

Ordinance No. 215-03: Mrs. Bobst commented on this ordinance which would authorize a consent agenda. Any item can be moved from the consent agenda to the regular agenda at the request of any member of Council for any reason (which need not be stated). This agenda can include minutes (which may no longer be read), resolutions, etc. Mrs. Bobst asked for feedback on this issue.

• •Mr. Frost asked if rules of audience participation will be changed. Mrs. Bobst asserted that the same opportunities for participation will apply.
• •Mr. Gollinger asked about the removal process. Mrs. Bobst explained that it takes only one request from one council member with no reason specified.

Ordinance No. 216-03: Mr. Hurtuk indicated that he had had an opportunity to confer with Director Patterson who explained that current Recreation Department equipment is outdated. After consultation with Ron Gottschalk and the City's consultant, Phil Ardussi, the ordinance was drafted. Mr. Hurtuk plans to introduce the ordinance and move for a rule suspension and consideration of passage this week.

Ordinances No. 220-03 and 221-03: Mrs. Bartolozzi summarized these ordinances which authorize contracts with either Dawson Companies (OMJSIP) or McGowan and Company, (St. Paul Insurance Co.) These will be voted upon next week.

• •Mr. Malling asked if anyone had received the September 30 financial statement referenced by Mr. Gorton. He asked that the record reflect that it had not been received. He further asked who runs the pool besides the Board of Trustees.
  
  
• •Mr. Frost asked if Council members had decided on a direction which they thought best for the City. He expressed concern over a vendor with a negative net worth. He was considering if the savings were worth taking the risk. The reason for insurance is so that there will be no risk.
  
  
• •Mrs. Bartolozzi mentioned that of 96 members of the pool, the majority, 85% had populations of less than 1000.
  
  
• •Mr. Hurtuk noted that St. Paul has served us well. He felt that the cost differential would be money well spent. He found the financial statements concerning. He commended Mr. Linden for his hard work in bringing these two bids to the City
  
  
• •Mr. Frost pointed out the $95,000 savings and said that a very good summary was given. However, the point about the unknown, or uncertainty in the insurance market had to be considered.
  
  
• •Mr. Gollinger indicated that he would be guided by numbers, $192,000 and $281,000. He said that it was necessary to look closely at what is truly risk. St. Paul's rates have climbed and there seems to be no reversal to the trend, as we see significant increases. On previous bids, Council has felt that the pool needed more experience, which they have now. Looking at the savings, Mr. Gollinger pointed out that savings from the last bid would have been significant. In 2002, there was a $6000 difference in premium; now it is almost $100,000. The pool concentrates on Ohio municipalities without insuring medical claims or other fields. Their insurers are AA+-rated, and since 1987 they have worked to resolve problems.
  
  
• •Mr. Potterfield mentioned that his opinion is that the risk outweighs the reward on a short term basis. He is in favor of the existing carrier.
  
  
• •Mrs. Bobst has done research, and has investigated a number of pools, some insuring only Ohio communities with billions of dollars of assets. She feels that the deficit increase from $1.4 million to $1.7 million is going in the wrong direction, and is aware that there is an unknown with risks. She would like to see risk reduction and risk management available, which would make good sense since we are sharing risks with other communities. She thinks a pool should take a leadership position with risk reduction and risk management. At this point, she is leaning toward staying with McGowan and St. Paul.
  
  

The matter will be considered and one of the ordinance will be passed next week.

MISCELLANEOUS BUSINESS:

Lake Road Development Site Feasibility Study and Analysis. Mrs. Bobst thanked Mr. Koran for his patience as other matters were discussed. Mr. Koran spoke about the study, prepared by City Architecture with very little input from the City. Five development options were considered: single family detached, single family attached, single story office, two story office, and community park. A sixth option, leaving it as is, was also discussed. Mr. Koran reported that representatives from City Architecture are willing to come to answer questions.

In summary, the consultants did not offer specific land use analysis recommendations. A land owner may consider how he can make the most money, but as a city, there are other considerations and questions which must be internally answered. In his conversations with the consultant, Mr. Koran found that they did not feel that the presence of the WWTP will hinder development. They found that a residential use would be most compatible with the plan for the city, but office use has great potential for economic gain through property and income taxes. The park is the most subjective.

Mr. Koran then reviewed figures he had prepared showing the economic impact from each of four development possibilities (Exhibit "A"). Not surprisingly, a two-story commercial office space would provide the most income for the City.

Typically, for the sale of City-owned property, the process should be as follows:

• •Determine what is being sold, i.e. the size, legal description, any site restrictions, under-ground utilities, etc.
• •Determine whether the property is no longer necessary for public purposes
• •Determine a use for the property, i.e. zoning, or some understanding of final use
• •Determine how the City will sell the property. Options include a request for proposal process, or bids, or even a project-specific sale
• •Appraise the property
• •Thoroughly analyze for environmental issues.
  
  

When this process is complete and Council has passed an ordinance for the sale of the property, it can be marketed and bids reviewed.

The City can sell the property "as is" and give the highest bidder a period of time to do due diligence for the site. The City will receive whatever due diligence is done. In that process, if the high bidder finds a reason that the site is undevelopable, he could walk away from the contract.

• •Mr. Gollinger noted that the plan for the office project includes surface parking. He wondered if some multi-level parking would create more space. Mr. Koran commented that City Architecture has given some thought to multi-level parking, but did not include it in a conceptual report. In any case, they did not feel that a building of more than 80,000 sq. ft. should be recommended. If a developer wishes to spend the money for a garage, it could be done, however.
  
  
• •Mr. Malling asked if the City has considered a potential need to expand the WWTP. He asked if we should consult with someone who could advise us on alternatives if the EPA should demand it. Mr. Koran pointed out that such a consideration would come under the second step, determining whether the property is needed for public use. He has been told anecdotally that we will never have to expand, but should a consultant be hired?
  
  
• •Mrs. Bobst observed that the same consideration could be made for the Service Garage. Recently storing salt has been discussed and other needs may arise.
  
  
• •Mr. Malling pointed out that the federal government may not give us a choice.
  
  
• •Mr. Gollinger recalled that the Mayor said some land is available. In any case, topographically, the City would not use street frontage for these uses. He agreed, however, that this must be considered.
  
  
• •Mr. Potterfield asked if the commercial structure would fit in with other structures. Would this be a problem of spot zoning? Mr. Koran said that in the initial analysis, there is clearly no other commercial or office uses in the area. However, right behind is the largest industry in Rocky River.
  
  
• •Mrs. Bobst said that she had spoken to the Mayor, and he has not had an opportunity to put together use recommendations. She requested an executive summary for use recommendations by the Administration. The Mayor, Mr. Koran, the City Engineer, the Finance Director, and the Recreation Director could all have contributions. The next step is to define whether this property is needed for public purpose, now or in the future. It may require contacting the EPA and other agencies.
  
  
• •Mr. Frost asked, in the event the Mayor recommends a two-story commercial building, to see and hear from some developers with projects in mind that are owner-occupied. Because there are empty office spaces in the City, he is interested in real traffic projections. The two-story owner occupied use is a dream use because of the revenue it will generate.
  
  
• •Mrs. Bobst commented that she would be interested in feedback from developers. She wondered if residential would be compatible with the WWTP and the Service Department traffic. Mr. Koran said that he had been discussing this for quite some time, and has had calls from developers expressing interest in building attached residential projects. One developer, upon seeing the site, commented that it was a great site to build townhouses. To increase the City's income, we could try, as Mr. Frost suggested, to attract a single tenant with corporate headquarters, or we could ask for proposals for residential use. We will not know what is there until we go for bids.
  
  
• •Mr. Gollinger observed that at times the WWTP would be a factor. He commented that if someone has a plan, it could be an ongoing entity, or it could change into a vacancy. That is a risk which must be taken because otherwise the property will be wasted.

Further discussion will ensue when more information is presented.

COMMITTEE REPORTS:

Parks and Recreation Commission: will meet Wednesday at 8:00 a.m.

Safety Committee: Mr. Frost reported that the Safety Committee is working with the prosecutor on ordinances for next week which will bring the traffic code into compliance with the state code.

Economic and Community Development Advisory Board: will meet at 8:30 a.m. tomorrow in Mr. Koran's office to discuss the City Architecture report.

Planning and Zoning Committee: Mr. Potterfield attended the meeting of the BZA last week. The largest item, Beachcliff Row, was tabled. Member packages contained a memo sent to the BZA by the Mayor and Mr. Koran. Also included were letters from K.J. Der and a response from Mr. Kelly.

COMMUNICATIONS AND ANNOUNCEMENTS:

Mr. Hurtuk has received comments from Mr. Malling and Mr. Potterfield regarding the form of the financial executive summary. Any other comments from Council members should be received in time for Mr. Hurtuk to have recommendations in the Mayor's hands before the next meeting.

As there was no further business by Council members, the meeting was adjourned at 9:49 p.m.

____________________________ _______________________________

Pamela E. Bobst Misao Kurokawa

President of Council Clerk of Council

Please note: this is a draft copy of the minutes of the Committee-of-the-Whole of December 15, 2003. These minutes may be amended or revised at the next Legislative Meeting.