2005 Comprehensive Annual Financial Report

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CITY OF SOUTH BEND NOTES TO FINANCIAL STATEMENTS (Continued) K. Loss on Sale /Leaseback of Leighton Parking Garage During 2000, the City completed construction of the Leighton Parking Garage and capitalized the cost of the garage, $11,439,712, in the Parking Garage Fund, an enterprise fund. On December 1, 2000, the City sold the garage to the South Bend Transportation Company (TRANSPO) for $3,000,000 as part of a sale /leaseback agreement. The proceeds were receipted into the County Option Income Tax Fund. This fund is also making the future lease payments to TRANSPO. The present value of the lease, $1,960,044, was the new basis for the parking garage. As part of this salelleaseback, the Parking Garage Fund recognized a deferred loss of $8,439,712, which is being amortized over the 15 year life of the lease. L. Property Held For Resale The City's Redevelopment Commission has purchased properties in blighted areas for redevelopment and subsequent resale. At December 31, 2005, the market value of these properties was not known. These properties are recognized as assets at cost in the funds that purchased the property. IV. Other Information A. Risk Management The primary government is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; job related illnesses or injuries to employees; medical benefits to employees, retirees, and dependents; and natural disasters. The risks of torts; theft of, damage to, and destruction of assets; errors and omissions; and natural disasters are covered by commercial insurance from independent third parties. Settled claims from these risks have not exceeded commercial insurance coverage for the past three years. There were no significant reductions in insurance by major category of risk. Liability Insurance The primary government has chosen to establish a risk financing fund for risks associated with job related illnesses or injuries to employees, automobile liability, and comprehensive liability. The risk financing fund is accounted for in the Liability Insurance Premium Reserve Fund, an internal service fund, where assets are set aside for claim settlements. An excess policy through commercial insur- ance covers individual claims in excess of $250,000 per year for job related illnesses or injuries to employees and $50,000 per year for damage to and destruction of assets. Settled claims resulting from this risk did not exceed commercial insurance coverage in the past three years. A premium is charged to each fund based on a study of paid claims and based on the number of employees and percent of the total budget. Provisions are also made for unexpected and unusual claims. Claim expenditures and liabilities of the fund are reported when it is probable that a loss has occurred and the amount of the loss can be reasonably estimated. These losses include an estimate of claims that have been incurred but not reported (IBNRs). Claim liabilities are calculated considering the effects of inflation, recent claim settlement trends including frequency and amounts of pay outs and other economic and social factors. 51