Should Portland authorize a temporary interfund loan not to exceed $15 million from the Facilities Services Fund to the Health Insurance Operating Fund to provide…

The City of Portland ordains.Section 1. The Council finds:The City self-insures its healthcare programs for eligible participants, including City employees, dependents, retirees, and COBRA participants. The Health Insurance Operating Fund ("Health Fund") was created to budget and record activities for programs and services related to healthcare and other supportive benefits. The Health Fund is funded with resources from bureau contributions, premiums collected from retirees, administrative and other fees and interest income.The Health Fund is guided by the City's adopted financial policy FIN-3.69 (the "Health Policy"), which provides that, in addition to funding direct health benefits of employees and covered retirees, the Health Fund should maintain two reserve components: a restricted reserve to pay for liabilities incurred but not yet paid ("IBNP"), and a Risked Base Capital Reserve ("RBC") to cover requirements established by the National Association of Insurance Commissioners.Historically high cash outflows in recent years have stressed the financial position of the Health Fund. Factors contributing to the current financial position include pent-up demand for medical procedures following the COVID-19 pandemic, market inflation escalating at higher rates than Health Fund inflationary factors, a dramatic increase in prescription drug claims, and other factors.Total Health Fund expenditures in FY 2024-25 increased by 17.8 percent over FY 2023-24, compared to a prior five-year average increase of 5.1 percent.The Health Fund reserves were below actuarily recommended levels entering the budget development phase for FY 2024-25, with levels of $17.1 million compared to recommendations from the City's actuarial consultant, AON, of $29.3 million. That trend continued in budget development for FY 2025-26, with budgeted fund balance at $7.4 million compared to recommendations of $34.6 million. Actual FY 2024-25 performance was weaker than expectations, resulting in fund balance of $4.3 million, which was reflected by budgetary adjustments within the FY 2025-26 Fall Technical Adjustment Ordinance.Health Fund expenditures are forecasted to continue to outpace resources, such that by fiscal year end, the Health Fund could have negative cash assets and a negative fund balance.Given recent historically high levels of outflows for claims, paired with the lack of reserve-building increases to the Health Fund rate, discussions are underway to set FY 2026-27 and future citywide inflation factors at levels to fund employee health costs and to achieve reserve-building targets over a three-year period. Recommended changes are expected to put the Health Fund into a sustainable ongoing position over the coming years.Oregon Local Budget Law requires that fund balances not be negative at the end of a fiscal year.U.S. Generally Accepted Accounting Principles (i.e. GAAP) requires that governmental funds not end the year with negative cash assets.Per Oregon Local Budget Law (ORS 294.468), the City may loan money from one fund to another for operating purposes for up to one fiscal year.The Facilities Services Fund (Fund 701000) has sufficient resources to lend monies to the Health Operating Fund (Fund 700000) temporarily until sufficient revenues are available to repay the loan. Loaned Facilities Services Fund cash will be repaid with interest by no later than June 30, 2027, the maturity date of the loan.Resources and expenditures relating to the loan are included in the Spring Technical Adjustment Ordinance for the City's FY 2025-26 budget.NOW, THEREFORE, the Council directs:The City hereby authorizes a temporary interfund loan in an aggregate principal amount of not more than $15,000,000 from the Facilities Services Fund to the Health Operating Fund in accordance with City financial policy FIN 2.18 and the terms shown in Exhibit A.Section 2. The Council declares that an emergency exists in order to avoid negative cash balances in the Health Operating Fund at the end of FY 2025-26, which would violate State budget law and U.S. GAAP; therefore, this Ordinance shall be in full force and effect from and after its passage by the Council.