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Home My WebLink About12/06/2011 08 Airport Insurance Reduction Request • .. : `' �. " " Atir i kan BUSINESS OF THE CITY COUNCIL YAKIMA, WASHINGTON AGENDA STATEMENT Item No. • For Meeting of: December 6, 2011 gmemstesmammansmoszearnmmatim ITEM TITLE: Consideration of airport insurance reduction request. SUBMITTED BY: Don Cooper, City Manager CONTACT Don Cooper, 575 -6040 PERSON /TELEPHONE: SUMMARY EXPLANATION: The Airport Board has proposed to reduce the insurance coverage on buildings at the airport in an attempt to reduce operating costs. Resolution Ordinance Other (specify) • Contract: Mail to: Contract Term: Amount: Expiration Date: Insurance Required? No Funding Source: Phone: APPROVED FOR City Manager SUBMITTAL: STAFF RECOMMENDATION: Staff asks for Council direction on this request. BOARD /COMMISSION RECOMMENDATION: ATTACHMENTS: • Click to download ❑ airportinsurmemo • ;.1 *a, OFFICE OF THE CITY MANAGER ' ii■ o, 129 North Second Street City Hall, Yakima, Washington 98901 .s :-..,,:k.,:-,::,',4,;:...,,-: r n ,, ° ,,, ,,� P (509) 575 -6040 Memorandum TO: Honorable Mayor and member of the Yakima City Council FROM: Don Cooper, City Manage ■ DATE: November 28, 2011 • SUBJECT: Insurance coverage for City /County owned property The Airport Board has proposed to reduce the insurance coverage on buildings at the airport in an attempt to reduce operating costs. The proposed reductions would be to one, reduce coverage for the terminal from replacement cost to functional cost and two, to drop coverage on three other buildings. The estimated savings would be between $5,600 — 7,000 per year. These proposed reductions would expose the City and County to a potential Toss based upon our policies. As of late last week, Yakima County had not agreed to the reduction in coverage. The City must also approve the reduction in coverage (it should be noted that both the City and County need to be in agreement since they are co- owners of the property). Our insurance broker does not recommend the reduction in coverage (see attached emails). I concur with the insurance broker's recommendation. The Airport Board has not approved a budget for 2012. Normally they are required to present a budget to the City and County for approval by November 1 of each year. They requested, and received, permission from the City to delay the budget presentation until December 1; however, it does not appear that deadline will be met. Chapter 35RCW requires a budget to be passed by the end of the fiscal year. It remains to be seen if a budget will be adopted by the end of the year (any budget must be approved by the City and County per the agreement). It should also be noted that the airport owes the City approximately $80,000 that is due by 12/31/11. This amount may or may not be able to be repaid. In the budget that was presented to the Airport Board (but not approved) it showed a small operating deficit but no funding for capital items. There also seems to be some questioning of the numbers that were presented as part of the budget discussion. As the Council is aware, the County has proposed to provide financial management as an in -kind service commencing in January. The Airport Board has not yet agreed to this proposal. Based on this information, does the City Council agree or disagree with the proposal to reduce the insurance coverage for the buildings at the airport? ill „. Yakima • ra-r .,, I1 1I U 79ni Cooper, Don From: DeBord, Rita Sent Tuesday, November 22, 2011 12:11 PM c ' carl .remmel @yakimaairterminal.com' Cc: Cooper, Don; Waarvick, Chris; Morales, Michael; Epperson, Cindy; Dukart, Robin Subject: RE: Airport Budget is Carl, In response to your email to Chris Waarvick, below, here is updated information: - -> You asked for a breakdown of the airports current outstanding (delinquent) bills to the City; they are as follows: - -> $24,708.96 Medical Insurance July - October 2011 $12,354.48 Medical to be billed Nov / Dec. 2011 - -> $10,985.88 SIED Loan - -> 31,899.00 2011 Property Insurance - -> 45.004th Qtr. Fire Alarm billing $67,638.84 Past Due Amount $12,354.48 Additional payments due by Dec. 31st $79,993.32 Total - -> With regards to the airport's proposal to reduce insurance on airport property, as noted in #2 of your email below, the two property owners (City & county) have been informed of this request. The County has indicated they do not approve of this proposal, I have not yet received City Council's response. Please let me know if you have any further questions regarding the above information and please advise me of the airport's plan for bringing the above accounts current. Thank you, Rita Rita DeBord Director Finance and Technology City of Yakima - - -- Original Message--- - From: Waarvick, Chris Sent: Monday, November 21, 2011 12:36 PM To: DeBord, Rita; Morales, Michael Subject: Fw: Airport Budget FYI. • Original Message g ge 1 L. From: Carl lee Remmel [ mailto: carl .remmel @yakimaairterminal.com] Sent: Monday, November 21, 2011 12:01 PM To: Waarvick, Chris Subject: RE: Airport Budget (1) Once 2012 budget is agreed upon tomorrow night, it will be put under a cover ltr and hand carried to both the City and County offices on Wed. This was what the last reso from the Airport was about asking for this relief. (2) "Rita is of the mind that Council may need to consider the property value adjustments." I spoke w /Rita about this. All I can say is this was approved by the YAT Airport Board. (3) " - - - as well as if any consideration will be given to the request from the County and City for $100,000 each to be able to function beyond a bare bones budget." Only spoken to once; way, way off the table, Chris. (4) " And you are well aware that the Airport is in arrears for nearly $70,000 in payments to the City at this time." Can you break this done further for me, please ? ?? Carl L. Remmel Carl (Lee) Remmel, AAE Airport Manager Yakima Air Terminal 2400 W. Washington Ave. Yakima, WA 98903 (509) 575 -6149 (Office) (509) 575 -6185 (Fax) (509) 731 -5578 (Cell) cart .remmelPyakimaairterminal.com Important Notice: This email is intended only for the use of the individual or entity to which it is addressed and may contain information that is priviledged, confidential and /or exempt from disclosure under applicable law. This email may not be provided to any other party without the sender's consent. If you feel you have received this email in error, please delete it, notify the sender and do not retain, read, copy or disseminate this email. Original Message From: Waarvick, Chris [mailto:cwaarvic @ci.yakima.wa.us] Sent: Monday, November 21, 2011 11:26 AM To: Carl Lee Remmel I >> Subject: Airport Budget Lee, Inquiring minds in Finance are curious as to the detailed schedule of events for City Council to consider the Airport planning you Budget. If it on November 29th, it needs to be in to the City Clerks hands by late tomorrow or g Y P g to bring early Wednesday. City Council adopted a revision to the original consideration date for the Airport Budget to late November a few weeks ago, I believe. Rita is of the mind that Council may need to consider the property value adjustments, as well as if any consideration will be given to the request from the County and City for $100,000 each to be able to function beyond a bare bones budget. And you are well aware that the Airport is in arrears for nearly 70,000 in payments to the City at this time. Y p Y tY 2 So much for the good news! Chris • • • s 9 i 1 ft. t .;, I1 �,. 3 • Cooper, Don . From: DeBord, Rita Sent: Tuesday, November 22, 2011 12:19 PM To: Cooper, Don Subject: FW: Property Ins. - Airport FYI: See both emails below — one from County the other from our insurance broker. R. From: Craig Warner [ mailto :craig.warner @co.yakima.wa.us) Sent: Monday, November 21, 2011 10:01 AM To: DeBord, Rita. Cc: Harvey, Helen; Cutter, Jeff; Mike Leita; Rand Elliott; Kevin Bouchey Subject: RE: Property Ins. - Airport Rita, I I spoke with the Commissioners (Mike and Kevin) and they are unwilling to approve any change of coverage that would expose greater risk at this time. Thanks for keeping the County informed. Craig From : Joel.Pearson @wellsfargo.com [ mailto :Joel.Pearson @wellsfargo.com] 0 Sent: Monday, November 21, 2011 7:12 AM To: rdebord @ci.yakima.wa.us Cc: hharvey @ci.yakima.wa.us; jcutter @ci.yakima.wa.us; Craig Warner Subject: RE: Property Ins. - Airport Rita, Mr. Cooper is correct, the City and County do have some risk associated with these changes. Let me explain. There would be no coverage for the buildings being deleted from the policy. The problem would be a partial loss since there would be costs associated with demolition and clean - up. However, since the City has a $100,000 deductible, those costs would have to exceed that amount before it becomes an issue. Based on the value of the buildings, that does not appear to be a great risk. So these deletions make sense in my opinion. The terminal is a more difficult issue. As Craig pointed out in a previous email, the policy is on a Toss limit basis, so the coverage is not limited to the value shown for the building. That is when everything is on a replacement cost basis meaning the policy pays for the cost of replacing the building exactly as it is now._ However, the coverage is being changed to functional replacement cost meaning the cost to replace the building for the same function, but not the same type of construction: Mr. Remmel feels an adequate value would be $10,000,000, so that would be the limit in the policy. The insurance carrier feels the full replacement cost on the building would be between $25 to $30 mil. 1 The risk is that the amount established by Mr. Remmel would not be adequate to replace the buildin g on a functional basis and the City & County would have to pay the additional amount. A partial Toss could also create issues since major I repairs could be on a functional basis. i 3 1 Since we are having computer issues, I do not have the exact premium savings for the value reduction on the terminal, but I believe it was around $5,600. Not enough savings to justify the risk in my opinion. Joel Pearson Managing Director Wells Fargo Insurance Services USA, Inc. 1430 N. 16th Ave. Yakima, WA 98902 Phone: 509 - 853 -4211 Fax: 509- 248 -9007 • This message is intended only for the addressee. Please notify the sender by email if you are not the intended recipient. If you are not the intended recipient, you may not copy, disclose, or distribute this message or its contents to any other person and any such actions may be unlawful. Wells Fargo Insurance Services reserves the right to monitor and review the content of all messages sent to or received from this email address. From: DeBord, Rita [ mailto:rdebord @ci.yakima.wa.us] Sent: Friday, November 18, 2011 6:26 PM To: Pearson, Joel Cc: Harvey, Helen; Cutter, Jeff Subject: FW: Property Ins. - Airport Joel, 1. See emails below 2. What is your recommendation from a risk management perspective for the coverage levels? • f.' Call me if you want to discuss. [ Thanks Rita E. #576 -6771 From: Cooper, Don Sent: Friday, November 18, 2011 4:43 PM To: DeBord, Rita Cc: All City Council Subject: RE: Property Ins. - Airport The city owns the property jointly with the county I believe both bodies would have to approve such a change as it means will be absorbing a greater risk, I would also like to have a recommendation from risk management as to level of coverage. But at a minimum I am of the opinion that the CC and Cty Com must approve. From: DeBord, Rita Sent: Friday, November 18, 2011 2:23 PM To: Cooper, Don Cc: Epperson, Cindy Subject: Property Ins. - Airport Don, 2 I am in the process of finalizing the renewal of our property insurance for 2012. Their is one outstanding item for which I need clarification before we can finalize our renewal data, and it relates to Airport property. (Note: the city includes airport property on our property insurance because we receive better premiums than would the airport on its own; we do bill the airport for their portion of the city's premium costs.) Issue: The Airport manager has requested several changes to coverage of the airport roe insurance p g 4 g g p property rtY n� year; presumably in an effort to reduce the associated premium costs. These changes include: (a) reducing coverage on Main Terminal Bldg from its current Replacement cost value of approx. $25 M to a Functional cost value of $10 M and (b) eliminate coverage on three other buildings Our insurance broker has stated that these changes would reduce premium costs by approx. $7,000 annually, while reducing the amount of coverage by over $16 M. I understand the airport board has authorized these changes; however, I don't know if the property owners (City and county) have agreed to these changes — which amounts to accepting the risk of a significant loss of property value in the event these buildings are destroyed. Before we officially change the coverage on the insurance policy, I want to ensure that the City and County have agreed to this change. How would you like me to go about obtaining Council authorization for this change? I believe the airport's proposed 2012 budget is on the Dec. 6th CC agenda — should I simply address this issue at that time? Or would you like this to be handled in another manner? 3