Palo Alto finance committee reviews sharp insurance cost rise, recommends council amend FY26 general liability budget

The Finance Committee of the Palo Alto City Council on Oct. 21 reviewed the city’s risk-management and insurance program and recommended that the full council amend fiscal year 2026 appropriations for the General Liability Insurance Fund to close a roughly $1.5 million shortfall.

City staff told the committee the increase reflects a national hardening insurance market and rising claims; staff proposed drawing on fund balance and reallocating within the fund for FY26 and building higher premiums into FY27–FY28 forecasts.

Why it matters: The committee was shown that recent large claims across member cities, fewer insurers in the market and higher reinsurance costs have driven up excess liability premiums for all public agencies. Committee members pressed staff on how the city calculates reserve confidence levels, the size and duration of the budget impact, and operational steps that could reduce future claims. The committee unanimously approved a referral package to the council asking for further analysis and policy consideration.

David Rambert, Administrative Services Department, opened the presentation and said staff was responding to a referral and “bringing awareness to the recent steep increase in insurance costs.” Risk Manager Kelly Pujetti outlined how the city layers coverage: a $1 million self-insured retention, $9 million shared through the Authority for California Cities Excess Liability (ACCEL) pool, and $55 million in commercial excess — for a commonly cited total liability program limit of $65 million. Pujetti told the committee the city funds the General Liability Insurance Fund at an “85% confidence level.”

Staff described the FY26 budget impact: the fund began FY26 with a $2.1 million starting balance; staff expected premiums near $5.1 million but recorded higher costs this year (corrected during the meeting to $6.6 million), producing a delta of about $1.5 million. The staff proposal to close that gap calls for reallocating approximately $600,000 within the fund and drawing roughly $900,000 from the fund balance, leaving an estimated ending balance of about $1.2 million.

Committee members and ACCEL/Alliant representatives identified the main cost drivers: payroll growth (staff said payroll increased by more than 20% in FY26), higher claim severity and frequency across the market, and ACCEL’s decision to raise its pooled reserve target to respond to recent large member claims. Connor Bogy, representing the ACCEL/Alliant administrators, explained how actuarial confidence levels and a city’s payroll and claims experience feed premium calculations, noting that the city’s experience modification factor (X-mod) of about 0.8–0.86 places Palo Alto below the national benchmark of 1.0.

Several operational and policy issues were discussed in depth: committee members pressed for a systematic claims analysis and mitigation plan; staff and ACCEL representatives recommended targeted risk controls (for example, de-escalation training for law enforcement, improved project recordkeeping to preserve design immunity for streetwork, and stronger pursuit and training protocols to limit high-cost law-enforcement liability). The committee also questioned the city’s cyber and earthquake insurance limits; staff said Palo Alto’s cyber liability limit was currently $2 million and that the city self-insures the first $1 million of earthquake damage while evaluating parametric or traditional quake coverage.

Committee action and follow-up: Committee members agreed on a set of referrals to the council and to staff. The committee voted unanimously to forward the staff budget recommendation (to amend FY26 General Liability Fund appropriations in the city’s midyear report) and to refer five additional items to the council for consideration or to staff for further work:

- Evaluate higher limits or additional coverage for cyber liability and earthquake (staff to present options and estimated premium impacts). - Add “tort reform” to the city’s legislative guideline review and refer that to the Policy & Services committee for consideration. - Direct staff to perform a systematic claims analysis that identifies patterns, lessons learned and mitigation strategies (not only retrospective case summaries but proposed operational changes). - Require a staff update on the city’s safety culture and risk-reporting practices, including how close-call reporting and cross‑departmental risk awareness are communicated to frontline employees. - Evaluate whether current staffing and senior safety positions across departments are adequate, and if not, propose organizational or budgetary changes (to be considered within the budget cycle).

Chair Burt called for the vote; the motion passed unanimously. (Roll call earlier in the meeting showed Chair Burt, Council Member Lickot Haynes and Council Member Rechdal present.)

Staff said the FY26 midyear adjustment would carry the immediate budget change to close the $1.5 million gap and that long-range forecasts will be updated for FY27–FY28 to reflect market assumptions (staff proposed building roughly 20% increases into forecasts for the next couple of fiscal years and flagged a possible FY28 excess-liability exposure near $9 million under a stress scenario). Staff also said any recommendation to increase coverage (for cyber or quake) would be evaluated with the ACCEL pool and brought back to the council as part of budget development so premiums and trade-offs could be weighed against other city priorities.

The committee’s discussion included several staff commitments: provide more details on actuarial methods behind the 85% confidence level, supply a confidential (as needed) claims‑pattern analysis and mitigation recommendations that could be shared with council, and return with policy options in time for the midyear budget process and the December/February long‑range financial forecast updates.

The committee’s referrals will return to the council and staff in coming months as part of the midyear budget packet and later long-range-forecast updates. The next Finance Committee meeting agenda (announced at the end of the session) will include water quality, CIP updates and major revenue items.

Ending: The committee framed the discussion as a mix of near-term budget action and a multi-month operational review: staff will close FY26’s gap via the midyear report while continuing a cross‑departmental review of safety, claims trends and insurance options that could alter FY27 and FY28 forecasts.