The Turlock City Council shifted $5.35 million from overfunded self-insurance accounts into General Fund reserves during a special meeting Wednesday night, but questions lingered as to how those accounts became so inflated in the first place.

The move will increase the General Fund Reserve to approximately $13.5 million. Those additional funds could help the city bridge a projected $5.49 million deficit this year.

By reducing self-insurance funding levels to better match expenditures going forward, Turlock will save an additional approximate $1 million per year in ongoing costs.

An additional $1 million will be returned to other non-General Fund accounts.

The refund became an option for the City of Turlock when the budget subcommittee learned last week that city departments had been overcharged for unemployment insurance, life insurance and workman’s compensation — among other self-insurance costs — since at least 2006.

According to City Manager Roy Wasden, it remains unclear as to why the self-insurance funds became so drastically overfunded, above and beyond any traditionally safe reserve. Council is not believed to have been made aware of the excessive balances before, nor did they approve the increase in self-insurance reserve funding.

“I talked to staff, I don’t believe there was any intent to hide this,” said Councilwoman Mary Jackson. “Maybe there were concerns to be prudent and they had no idea what Workman’s Comp reform (which took place in 2006) was going to do.”

Ultimately, that reform stabilized the city’s annual workman’s compensation costs rather than increasing them, Wasden said.

The redirection of General Fund dollars into self-insurance savings accounts without council direction was characterized as “unforgiveable” by Councilman Ted Howze. Pulling millions from the city’s discretionary pot of money limited the council’s ability to draft a balanced budget, he said.

“There was absolutely no reason to stick these balances into the funds that they did,” said Howze. “None.”

If self-insurance costs had overshot the reserve funds, the City would have been obligated to pay the costs out of General Fund reserves. Holding the excess money in specialized accounts rather than a general reserve made no sense, Howze said.

Members of the audience urged council to consider simply not funding the self-insurance accounts and gradually drawing them down, rather than immediately refunding the $5.35 million to General Fund Reserves, but Howze said it made no difference.

Howze did advocate setting aside some of the newly found reserves for equipment replacement, including a new $500,000 fire truck which has been ignored by the Turlock City Council over the past few years due to the budget crunch. Wasden said the city’s replacement accounts should be fine for the next year or two.

Vice Mayor Kurt Spycher suggested moving $1.3 million into restricted reserves — which require a four-fifths council vote to use — to deal with those replacements, but at the direction of Councilwoman Amy Bublak the funds were placed into general reserves to deal with the budget gap first and equipment replacement when it becomes necessary.

The one Turlock self-insurance fund that is underfunded — the health insurance account — will likely require higher employee contributions to sustain.

“The premiums charged need to reflect keeping the balance positive,” Wasden said. “… We will see a higher medical premium to keep this fund solvent.”

In the past, council learned, funds had been transferred without their knowledge from the overfunded accounts to help stabilize the health account. All the while, council was informed that the health account was at a healthy level.

Because council was misled about the status of the health insurance fund, Howze said, the city was unable to accurately conduct negotiations with city unions.

“This can’t happen again,” Howze said.

To contact Alex Cantatore, e-mail acantatore@turlockjournal.com or call 634-9141 ext. 2005.