ALC-Executive Subcommittee

Members we would come to order you would please stand with me and representative coopers going to lead us in prayer. Hey man thank you represent me. Members of the word will go to our agenda our first item is there if you would. Few hours in addition several committee and your welcome to present the contract for our visual enough audio thank you mr chair jill they are bureau of legislative research at the request of the subcommittee the bureau prepared a draft rf for audio visual system and services for the fifth floor of the big mac as well as the. Soon to be fourth floor house offices so you should all have a copy of that in your packet and i'm just going to go over a couple of the main points for a year. If this is approved today the bureau plans to post this rfp on their office of state procurement website next tuesday we're also aware of two vendors at this time that do provide these services one is the one that we're currently using and then another one so we will also email the rfp to those two vendors so that they can provide a proposal to us. On page three of the rfp you'll see the timeline that we've set out. And this would as I said be released on february twentieth we're gonna offer the vendors and optional site visit so that they can come here and tour the facilities take any measurements they may need to ask questions of our at staff and to aid and hopefully getting the best proposals that we can possibly get from these vendors. And the closing date for proposals will be marched twenty sixth after that as usual we will review all the proposals we receive in summer as those for a year and then the subcommittee will meet to hear a presentations of any proposals that we receive. And you'll see on page four that right now the dates for those or a two be announced and then also the dates for a final approval of any contract are still pending cause that will be based on when you conclude the fiscal session and have your first legislative council week after that so either may or june. Most of this is standard language as I said we did add provisions about the optional site visit and then if you'll look on page seven. Under section one point one six a this contract is a term contract I am going to make one change you're still have april nineteenth as the start date. And not sure why I put that in there it's the type earn and have fixed bad in that's going to be upon approval of the legislative council over this is going to be a three year contract and that's the standard for these types of other deals. If you look at page eleven beginning on page eleven sections to and three set out the scope of work for the proposal or at staff put this together it's very detailed it includes am information regarding the type of system that we have now and then I expectations for any new system and this does cover as I said all of the fifth floor of big mac the committee rooms your rooms back behind the lobby and then the house officers there are being constructed on the fourth floor. I'll take any questions the rest of this is fairly standard. See no questions members are need emotion to approve the rp process. A motion of second have second auto's in favor say are opposed as have it thank you mister. Skys of something we are doing can off the agenda real quick dcfs has appointed a new director. And now just so everybody has an opportunity to meet him i'm going to have mistiveney and janet man come to the table and that way. The membership gets a chance for introduction. The. The. So you guys introduce yourself for the record and you're recognized to. Speak thank you good afternoon jane at me and deputy secretary and medicaid director fraud arkansas dhs. Good afternoon tiffany right director for the division and children and family services. Thanks to me in ten every one of you I don't know I don't know what you wanted to know if you want to ask me any questions but I just really wanted to i'm trying to learn all the names and faces and build a relationships until it was important for me to be here today so reason questions from the committee members. Sooner right now going to show shirt at last room right now but if you will get it your contacts information. Yeah so i'll just give you my work cell phone number it's easiest way to find me there okay okay thank you center over thank you and I welcome congratulations your part of the team and I think just such a critical time you know for for that as we're going through some things that are stay so could you just let us know what your background is I think it's important for a few more. Yes of course so I started at dcfs and fresh out of college in two thousand and nine and I was a front line family service worker from two thousand and nine until um mid two thousand and sixteen when I promoted to be the foster current manager in central office and then from foster here manager covered adoptions as the adoption manager went on a few special assignments in the state and then became a program administrator of community services now field operations and then from their promoted to the assistant director of build operations and did that for almost two years before become in director miss retailer I just think it's so great and that they get so important to have somebody at this level who has been out on the field and in the front lines working with our constituents and that's why when it hurt it be able to say uh speak for folks here to understand that cause it's just so important you know exactly what's happening out on the ground and that's that's just tremendous value for for at stake congratulations and welcome thank you. Your spam see a no further questions congratulations and thank you for wanting to come in meet us I think it's important to the committee he to that that that you Due to assist let us know and look forward to work and we thank you so much thank you so members with that we'll move on to c um we get a presentation from the department I believe it's part of the adequacy versus the facility responsibilities and department I think we're here from greg rogers and a team. The. If you guys would introduce yourself for the committee and you recognize to begin thanks gagages time and education camcaign director facilities and transportation so earn we've got a to short presentation mechanic overwhelmed the division of that commitment seals the transportation is kind of responsible for when it comes to inspections maintenance and insurance and will be happy to try to answer any questions that you might have. Okay so first of all the division the responsibilities that the vision has primarily on the friend is to go out to the score districts and but there's pretty much the law premium says for the district for the division to do is so make unannounced random on side inspections to go through the facilities master plan to look at all the different inspections that different required to do keep up with those prepare report that's given back to the district work to see anything that the district may be inefficient on any inspection they might not have gotten completed in that year or what needs to be done and to if they haven't gotten contact with that particular agency or person that suppose be doing that that inspection to help coordinate that as well as working with in make sure that any violation is remedy within thirty days of the report being prepared by the division. And this is that their step there with the division each time they do their random inspections are required to go out and look at everything in front of the rose to the ballers to fire extinguishers this is the list that they're looking at when they come through to make sure that the district has been keeping their inspections up on these on these several different individualities. More listing law what they're required to look at this kind of listed out a little bit easier what they're looking when they go through. They really that what I do their schedule and unscheduled maintenance requirements this is that this is the last that our divisions looking at each time they come to the the score districts they'll clean you to see then. And in this is a code which listed the frequency and the which parts the winter entity is supposed to be looking at the different things that are supposed to be evaluated for the far marshall health format labor in eighty gives the frequency that they're supposed to be checked and which section of counters was before and when they're coming out and checking those so this is the whole list of everything from those last few slides to this how often the they're supposed be random that the bus be checked that the division comes out and make sure that they are following these requirements. And then it is fired with adequacy as chairs book but earlier so there is requirement in law and six twenty one eight oh eight that requires that each district shout dedicatedly at dedicate nine percent of its foundation funding for maintenance mno maintenance operations. They are also required to use to operations hero it's a contract that the division has it's a computerized maintenance system that allows for the districts to keep up with how frequently everything has been inspected everything if there's a a door broke or air filters need to be changed or far excuse me to be inspected this operations hero keeps up with that the school districts are all required to use it charter schools are also required also are available to use that and this helps keep up their maintenance and in space that are supposed to have. Then as far as insurance where the insurance comes into effect with the division is that to be eligible for the partnership program districts are required to maintain insurance of a hundred percent replacement for the eligible for a state participation in the partnership program there is another rule that hasn't been updated since two thousand seven that we are working on updating it describes that a building that these good as you sell keep at least ninety percent of replacement calls back. This is the partnership program was updated in two thousand and twenty twenty three that's the one that we work with looking for eligibility for partnership programs that they had to have sin replacement calls to be eldered for partnership there's there's all two thousand seven while we are in the process right now that dating it is well. Some stop you there that ruth had a fifteen year life span so saves a single roof and has fifteen years life's brand. And we were in year twenty two. And we rerove this insurance program to where there's a depreciation after year fifteen would they be out of compliance at that point. These it wouldn't be a hundred percent anymore. But it's outside its lifespan. Right so mr chairman mature understand your question you're saying that if a roof was put on and then I had fifteen year life span but it was twenty two years because of depreciation would it not are you saying you're asking if it would me that one hundred dollars the yeah because it wouldn't be a hundred percent coverage a year twenty two anymore. The. That's a so I think in that situation they would have to look at the the condition at the roof and if it had gotten that bad and was there would have already been on our list of when they do their inspections because once they have to as respect they would have been looking to see that roof the the the wear and tear on the roof and it would have been listed on theirs is needing for replacement for the whole end of the depreciation but if it wasn't that would have been a situation in time where the division would have spoke to the the score district about the way in town that and suggested they make a replacement calls for that before we got to the. Warm safe dra under adequacy and looking at a facilities trash situation so that's part of what they are doing is out inspecting those roots for that wearing tear before the depreciation would come into depreciation value would come into question on it. Thank you. Well represent cost question. I mean I stepped out of me and missed something but I just had a question how many people do you have that do these inspections for the facility department to end and it was random and you pick them randomly but do you how many how many people do that sir and we have six inspector positions we also have a single manager that supervises them so we get six and they have six different areas of the state that the rest so that pretty well limited how many they can do a year or enough of a year so if you if you have so they do it a random are they do a rotation i'm going to say what if you have somebody call and say a I think you'll need to come look at this young they are doing that till you if we get a complaint we would go investigate okay so do you think you need more people to do this are you okay with those seven. Where I think we're okay right now those those six into this with our location regionally throughout the state they're not up to states are there that's their primary duty is there going on and looking at these facilities and I said we do the random but we also have I think it's at a two or three year rotation that we make sure that we've been on every campus somewhere within those two or three years as well as if we get a complaint from a considerable from us as principle or teachers somebody that has an issue with that facility then we do move that up and go look at that at that time so I think right now we're doing a previous job of keeping keeping the silly covered with what we have so do we have anybody follows up on it kind of make sure that they're doing a good job of inspection these buildings and and making sure they're right better totally qualified to do their saying they're doing a good job edit as I guess that's not biggest question to make sure that we do have people that are qualified to do it and they're doing the right job since or so few of them you know they can makes it hard to get all of these done very quickly yes sir they're that's a good question yesterday are trained and in their also their senior manager reviews every inspection report i'm cracking forward to prove okay thank you thank you thank you and just for the committees information those two sections are believe it's section for. Four point o two and five one o seven we've made a note to read that as long as the insurance parcel was bought through AR d. You would be covered under facilities so I think that what fixed that issue no matter what the roof coverage would become going fault so we're looking into that and legal team look at it but I think that addresses it so thank you guys thanks for pointing that out for. Job any other questions see a nine will move to hire in. With that members will move on to doctor warden and mister follow you guys introduce yourself for the record and you're recognized for your presentation can order commissioner division our education. Nick follow assistant commissioner for division of harriet. Before we get started talking through the sides we have it I would do want to make mention as we're looking at the facilities on the hiring camps as it is a completely different model than the way they can twelve is put in place that the oversight in the review of the the facilities on the campus are given to the the campus themselves the division does I have any employees or anything that goes out and does inspections of those campuses so it is reliant on the campus themselves and their facilities management teams to make sure that that facilities aren't proper order we we do have it a system each year that clicks square footage information for all of the facilities on the campuses and that helps us come up with a maintenance cost for a deferred maintenance that the campuses may have they get presented when we do the capital requests during the the regular sessions so you know how much of the dipper maintenance needs on each campus I think last year the the total of different maintenance on institutions is little over three billion dollars. Of maintenance needs for these facilities that there is currently not a funding stream available to them. So the floods we have for today or counted that the different funding sources that are available or in the works to be available for institutions to find the facilities maintenance. There are currently there's really four ways that campuses can phone maintenance over their facilities it's through institutional reserves the insurance of bonds are loans which must family then paid back through debt service from their tuition reserves. We have a new fund that was created during this past regular session the sustainable building maintenance program then also through any restricted reserve fund releases that may come through you offer approval for one time phones for any maintenance needs. The the first way that the institution may address maintenance needs to their institutional reserves this course depends on how much fun balance is each to institution has and can't bury depending on the sat school in the amount of reserves they have been in the for various low low cost maintenance needs on it on a day to day year to your basis there they are able to do this but again it's only usually able to find minor maintenance updates if it a major thing happens to the facility they're really not going to be able to find that through their tuition fee revenues. The main way that institutions currently phone major maintenance needs repairs to facilities as their bonder loan issue the institutions board has to approve any bonner low issue that the the campus wants to to go through bank financing for. At the time they have information that review has to come through the higher education coordinating board to review the terms of the interest rates the source of revenue for the death service on those and then to assess whether the it is feasible for the school to enter into that agreement. For any since two thousand ten for any new bonder loan issue that comes through the higher education coordinating board for the building of new construction a school has to set aside a certain dollar amount per square for of that new building for ongoing maintenance needs so we have tried to plan for future maintenance request to soften their blow on the deferred maintenance these for any new construction the problem is that that only started in two thousand ten or most of our campuses buildings are well older than that so any building prior to the end did not have any any kind of maintenance fun set aside for it. Yeah yes yearly art our division finance staff do prepare report showing the balance of those maintenance finds that each campus has set aside for this buildings we present that to the coordinating board and that is available on our website for anyone to review those what the thing that they're called platforms at the schools have set aside for maintenance of those newer buildings and then we also prepared to report yearly of any issue once the terms interest rates and the payment schedule of each loan that or bond that's issued throughout the year those are presented to our board early. Then the the most news program that we have is the sustainable billing maintenance program this was passed back and fifty one and twenty three the fiscal session there's currently no funding for this program the wait we did get the program established in the hopes of acquiring funds for this that will be a low interest loan through our division for maintenance needs that come up on an emergency basis for the campuses. We currently have a program that was initially funded through college savings bonds in the nineties that can handle new construction that is kind of a revolving loan fund as well but is only for new buildings that they can utilize so we created this before only form maintenance of existing buildings to try to generate some kind of ongoing thunderstream to help the schools with their needs. The. In the the last option is to for a restricted reserve request from the governor's office through to you all the council appear the legislative session have you released one time funds to help with any items that may be able to be requested at. We have the capital request that come through on the band your basis for the major needs and then fell request you all to release funds to those that that is the four ways that we can find maintenance needs on the campuses at this time. Any questions from membership thank you guys free presidential. So at this point members I want to make a. A request to department of education first off I think it's important that if you guys are going to pay allegedly of liaison and be here on days that you're before our committee I think his name is brandscape i'm not sure. But when sooner rice and a reuse of committee chairs and I granted emergency review of an eighty class wallet contract for education freedom accounts last august it was done with the understanding that contract had a one year term. Have to read the contract in looking it could be renewed so I want to be clear that we did not grant emergency review of any extensions that the department may want to do with that contract it is our expectation that any extension of that contract or any new contract that may come out of your procurement process relating to that contract for education freedom accounts will be submitted to review subcommittee in alc for full review and i'm going to note in the record the greg rogers is not said yes so just want to be clear that that needs to be reviewed going forward. Thank you so that members will move on to day which is the facilities property insurance thirty and will go to roberts lee with medals arms and lead. You guys would introduce yourself for the committee and you're recognized the star. Rubbish lay with matters items and lay morgan matters and leave. Clint lamberth matters adams and lane. Report. Keep up on prestation. We need to pull up our power boy. We all have a copy of it in your packet so i'll just get started real quirk so today we're just gonna run through this as a we're still involved in our program structured funding that we're working on we have a process update for you on page on the second page of our program so how are you so we're done with our loss analysis mapping whether modeling cars can put a pin in that for us today here in just a second. Um evaluate waiting the insurance trust and funding you know we've considered the market and then will be moving on to our family recommendations so that's really where we are the next time we sit before you will be submitting a founder report to this body so move into the next page call morgan is going to put it as a sad he's going to finish up with our weather modeling and final analysis for you to look at. Show in the square to the left the yellow bar is the path of the springdale tornado that came through twenty twenty two in the red bar just lower that goes from bomb walker to the top of maple hill at the very campus and that red bars expanded on the picture on the right with a little little buffers own outside of that and if you look right above the you. In university of arkansas on that that green rectangle is donald w reynolds raiser back stadium it's currently insured for four hundred and thirty five million dollars on paper and the limit you're paying for is five hundred million so there's your loss limit right there is that green recangle so this is the literate tornadoe that all bear familiar with said yellow line and then your red line is uams to ulr just in that path and you see their three point seventy five billion dollars right now on paper in there. With the five five hundred million dollars loss limit so that was in summary kind of going forward to the instruction funding that's where keeping into. In a perspective is the relevant limits playing this where I do concentrations and those are pretty much the tuesday you are to amount in the obviously the ubank campus. So when we started the study started looking at it. You know it was really price that got us to this table the cost the schools not being able to afford it. And as we started to do our analysis and we realized you know it in not surprisingly how any of it happened but that you know the call it was cost prohibited on the schools to get the adequate limits that were needed for the coverage they are the potential losses that could be out there so the challenge at that point then became you know to go from increasing to to lower the cost on the schools but increase the limits to an adequate amount. So it really shifted in drove our thoughts in terms of where the structure in funding that we're recommending so you know the reality of it is is that the structure in funding that's currently in place led to a bail out of these current programs by the our governor that's why we're sitting here so. The challenge that we have to do is figure out how to stabilize this cost to the schools. And to get the limits that we need so. We've really shifted gears from a completely different perspective in the way that the current program served or been run in the direction that we think this needs to go and we sat in this room last week we were here again some this week and can tell you that it's not going to be an inexpensive problem fix so I mean go the next thing so in review i'm just what we studied was the adequacy of the limits the finding the standards that are in place the valuation processes insurance to value you know what are the separations of duties in the programs you know you really need a represent in our mind to representative of the schools themselves and then you need a representative of an insurance company if that's if that's the direction you decide to go policy language there was shifts from really nice discussion about the roof tops what you can do in terms of depreciating those raves so I think there's you know certainly some opportunity and discussion around that and then looking at the capabilities it really looks like that you know a id is already doing the bulk of this and II think is certainly has the capabilities of taking on all three programs since as we will make a recommendation to merge them into one program and we like the state oversight so. When you look at this the one thing that we want to try to offer. In our program is some control. And there's controllable variables and there's variables that are outside our control so just rule quickly. If you look at it you know structurally funding how much money do we put into this program that's something that we can control that needs to be driven by our historical losses and it needs to be driven by the lost forecast going forward and it also is subject to the market analysis the limits of insurance that we purchase how much do we buy that's also something that's in our control we don't have to buy you know as much as we may recommend or is much as we may think that you need to buy and then the retention how much of these losses do we retain so in addition to that operationally risk management you know there's a lot of work done at the schools to try to protect the schools from from lawsuits so that is you know sprinkler systems you know all different roof types construction does a risk management tools. Trust versus an insurance captive you know we like an insurance company model versus a trust and we'll talk a little bit about that we like the regulation of it we like the oversight of it and then operationally. Policy language which was another thing that we were discussing a man ago so we can have language in the policy to address rooftops to address public adjuster issues anything like that that that we've experienced in the past were the variables we can't control we know what those are we can't control the weather we can't control convective storms hail flight. The schools are where they are I mean the concentrations when we mapped them out we can't move the schools so we have to deal with with what we have now going forward do we have to make a decision to build a school in one location that's going to put it in line with another you know five hundred million dollars you know facility no we did not so those are things that can be considered. Inflation not something that anybody can control and operational cost you know are going to be what they're going to be the insurance market we have this highlighted. Because the insurance market is going to be in control of what we do and and and control of our pricing but we can control where we enter the insurance market so where we go in is going to determine a lot about the affordability of our program and it's also going to turn a lot about the capacity that we that we have and that we can get to provide higher limits so. If you move to the affordability slide. You know right now the two programs that are in place you know the reinsurance markets participating in some of the placement and you know other parts you know not as much so we feel like that if the state wants control back of this situation in this program that we really need to look at operating this more like an insurance company we need to have a very very high retention and then we need to purchase reinsurance on top of our insurance company so. High retention is going to move it to that market which is going to reduce frictional costs and frictional costs where you have a broker in the united states going to another broker going to another broker to handle an insurance placement and it may be an insurance company going and buying insurance on top of the insurance that they just sold where we want to get to is where the insurance companies are buying their insurance and give the best opportunity to purchase or in it to make our insurance placement there instead of where you know consumers by insurance and when you're insuring inside where your losses are currently that's where all of us buy insurance you're right that's when we spend our money we moved to their cities. The slides kind of thirty men i'm an insurance garden mention that many many times in these meetings so i'm gonna try to make this as simple as possible if you look at the yellow line the yellow line represents. If if we had a thirty million dollar loss forecast and I think we saw lost forecast away this week that was somewhere in the forty million dollars range and we're not here to dispute what the loss forecast may or may not be. But if in this analysis with a thirty million dollars lost forecast if you look at the red dot and you look at the green line and the blue dot so if you can see on the left side of the line if we're insuring where we're trading dollars. With the insurance company our rate is high. If you look at the curve in the curve starts to come down and you moved to the right of the yellow line which is in a thirty million dollar loss for cast in a fifty million dollar retention meaning that's how much of our losses we would retain so for retaining more. Then we're then they expected losses or rate comes down so we want to enter the insurance market somewhere to the right of that yellow line that's where we need to do that that's what insurance companies try to do when they build when they build a yeah travelers whoever it is that's that's how they operate. So re insurance is insurance for insurance companies and that's where we want to try to get is much of our placement. As we possibly can that's what's going to help us drive the cost down now if you work and you see where the blue data is do you see how it starts to flat now the line starts to flatten out there becomes a point where. It just costs what it costs you can buy I over many hundreds of millions of dollars of coverage as you as you want to the capacity and that's one of the challenges that all of these programs have faced is getting the necessary capacity. And most of it. Has been purchased on the left side of that line cause it hasn't had the funding that we're going to be recommending so there will be a point of diminishing returns where it just flattens out and we'll just have to decide how much insurance do we need and how much can we get how much do we can we live with. So. Next page are variables that we have so this is just an example and again all of these are not hard and fast numbers these are hyper hypothetical but they're based upon the data that we have received if you have forty billion dollars of insurance that you're trying to place. You work at this and we have what the market controls and we have with the state controls. And so we're we'd started out thinking a hundred million dollars of funding is what we would be asking for a recommending to put into this I really don't think that's probably going to be enough money to make this work but we feel really good about the fifty million dollars retention that we're suggesting based on the analysis that we've done previous losses the loss forecasts that we've seen or or below the fifty million dollar attention and so as long as we can keep our attention above our loss forecast does it mean that we won't ever have losses that exceed fifty million dollars no it does not we can have that it has happened it happened to out of the last three years but what it does do is it puts us in a place where you can enter the market in a place where an insurer can look at it in simply say you know we should be able to instead in here provide an aggressive rate or a better rate than what we're currently getting and not expect any claims so it's a good it's a good place for an insurance company to step in his start taking you know except in the transfer of that risk. Uhm claims we just put thirty million for example re insurance premium if you had a five cent rate for that first five hundred million dollars you would have about a twenty million dollars premium and you could build these up to about forty million in this example so this shows you as. As we enter the market. With a much higher retained amount of losses it allows us to store increasing or limit to get it to where we need it to get to I don't know that there's any other way to get there other than to to try to retain more of our losses. In the market is going to control the rates I mean they're just gonna they're going to be in control of that. Sustainability. So you know. I mean we're here cause what we have isn't sustainable so. We got to protect the fund and the find meaning or lost find our attention so we think that there's probably at a minimum we want a fund for three retentions. We also have lateral insurance where we can buy insurance on the retention itself to to protect the fun and then we have the opportunity for investment income. So as we put you know a hundred hundred and fifty year more million dollars into a program we're able to take that money and invest it the way an insurance company does and we get a return on that investment and that goes into you our insurance company and stays in there for reserves and losses and we we think that's a good direction ago policy language i've mentioned that there's third time pension that in this there is an opportunity to write the policy language that is also going to protect our insurance company and then separation and duties and I mention that just a second ago and inside an insurance company you're gonna have several different divisions and you know who operates the company who handles the risk management who handles the investing all of those claims everything. Um sustainability and again this is just an example of how things would work but if we had forty billion dollars of value. And we targeted a ten center this is roughly a ten cent rate would generate about forty million dollars in premium so what we want to try to do is create a spread in the spread is what it's the profit that's the profit that stays in an insurance company that the state would own and operate. And so the charge to the members are to the schools would be about seventy two million dollars in this example with a reinsurance cost of thirty nine million dollars creating a spread and remember the previous slide that I showed you was not on a forty million dollar loss forecast but it was on a thirty million dollars lost forecasts so the goal should be to create a spread between what's charged to the schools and what the cost of the reinsurance placement is so that there's always enough money to cover the expected losses. So in your not that way you're not getting into the capitalization of your insurance company unless things go really really wrong. Uhm. Looking back so this is just a quick look back it it soons. A hundred million dollar cabilization. It assumes the thirty two million dollar premium spread that showed you on the previous slide it is not show in the investment income and it's a ten and a half year look back in a five and then five and a half year look back. It also caps the wind loss it eighty million which I think is the number that we received of where it might have. It was expected to be before the public adjuster came in and did their thing unfortunately so if we look at this if you have nine million dollars incurred in twenty thirteen you had a twenty five thousand dollars deductible in this example on k through twelve and a two hundred and fifty thousand dollars deductible this is for all losses any kind of claims. In higher ad. It would have reduced the amount by about three point one million dollars so this would have been the deductibles on the schools. You would have had about six point two million and retain losses and if you started with a hundred million dollars and a hundred and thirty two million dollars find you would end the year with a with hundred and twenty six million so as you move forward each year you can see that in twenty twenty three at at the end of this year you end up with about a hundred ninety nine million dollars in that fund still looking five and half years which is probably you know you always want as much data when you start looking at any type of insurance but realistically I don't think anybody can tell you that the last five years have been there but so many changes inside our industry and cost and cost of claims that I really think in this particular case I think the five and a half year look is really really important and paints the correct picture at a hundred million dollars of funding and capping the loss this would have performed and come in was still about a hundred and thirty three million dollars in the fund. That's a little bit too close for comfort for me personally and looking this in terms of sustainability and what we want to try to do. I feel like that. That that's going to drive us towards a recommendation that's going to be a little north of the hundred million dollars the next slide is a look forward so what is it look like projecting now in and again this is just a ten year look forward it's taking an average the ten year average of thirty five million dollars of claims that we've had with the same exact deductibles the fifty million dollar retention you'll notice there's nothing in this example that shows you getting into reinsurance india re insurance but there are two examples where you're fully getting into your your entire retention so in this particular case this keeps about it eight cents spread that spread in premium we're trying to create keeps it locked at about eight cents it's you're still end up with a two hundred and twenty eight million dollars loss fine at the end of that ten years that does not include any investment in come in it also shows an increase in the insurance rate over that time so that gives you an idea of how something like this would would look on a go forward basis. Is going to talk trust vs captive for a second so go ahead yeah just real quick we've kind of compared the the two and we were just kind of want to get into some detail on that the the current program or programs use trust for their funding but we're looking at and we think it's a better option is insurance captive which is captives of fancy word for an insurance company. And the reason we think it's a better option is insurance companies are very highly regulated so the department of insurance overseas that there's legislation that the code title twenty three chapper sixty three subchapter sixteen that is twenty six pages long that draws out how the cap is can be form how they're operational how they can invest their money. The trust code is tired code twenty three thirty five one or one and it's three pages long and it it's basically the document that the the funding is being regulated by now we think that it's a better idea because of the insurance department basically licenses insurance companies to operate in the state and their regulated as an admitted insurance company in that provides all the oversight it's it's it's spelled out a hundred percent there's no ambiguity and how the funds can be appropriated who uses them how the claims are paid how they have to operate so we don't have to did you redesign anything it's already spelled out there the the the captive the insurance company will be owned by the state and regulated by the state and that that is already all in place. The. Yeah and you know we like we like to separation of in all of the controls that are inside a captive version of trust which is operated by a trustee so probably that will be the recommendation that you will see from us we're still were still looking at things and considering but that's how I would expect that in practice how morgan's going to talk a little bit about some bigger dollars and some other opportunities in practice of how something like this might work. So this is one way you could go about it if you look at the tower this kind of on the bottom left. You think of it like a defined the money that be put into this would not be used to pay claims it wouldn't be the bail out per se or any type of you know is the roots of a program that you plan and that goes to create a fine above the ground that green and red box where you have your premium spread which is assuming a high end eleven cent reinsurance thing we think that window as you've seen the numbers we're doing nine point seven five to eleven is we're looking out with that fifty mill retention in deductibles where he said it would be keeping the program rate the same lower in the spread to six point seven five rather than eight that we've been playing with your twenty seven point four million dollars spread. That is your red box now if we were to expect forty million dollars in losses a year. You know twenty seven point four is lower than that there's a twelve point six made all the difference so what you do is you take that twelve point six million dollars number you need to make it forty. So if you're assuming like a four percent return on investments could be a three you know I suppose that changes. You reverse engineer to make that twelve point six million that four percent and you find out that you would need three hundred and fifty million in the find. Big number. But the issue you run into when you have investments playing a large role in the claims process like that is you can't every time someone's window gets broken or something happens you can't just sell off your investments grab the cash and pay it but number one goal here should be get the schools back fixed ready soon as possible so you create a separate bucket that's equal to the size of your attention that fifty million dollar pass through so that is hundred percent liquid cast that you pay your claims your investments grow you earn your spread. And you pay your claims out of fifty million and when the fruits ready to pick at the end of the policy term you sell you take the cash you feel your fifty million dollars buck it back up. In the beauty of this whole thing is if you have only forty million minutes like let's say the first year you suffer you know more than forty but less than fifty million dollars worth the losses. You're saying well we're going to eat into that three hundred fifteen million dollars fine that's where the sideways insurance comes in let's say you have forty million in your shop for forty five million in losses well that forty did fifty million dollar number you'd get ten million dollars capacity worth of lateral insurance for probably less than a half million dollars i'd say. And it protects your find so that in the event that you're about to road that three hundred and fifty million dollars number it kicks into a separate bucket three hundred fifty narrows touch your fifty million dollars retention that passed through you're never going to pay out more than the fifty million dollars in any given year so you never have to worry about that being eroded either so by protecting both of these grown the reach deep you can build something that self sustaining so that you shut the money up once. You get it ready you get it run and you have good years it grows you get more you can reinvest that you can use it for a preventive maintenance whatever you want to do but the ideas you set up once you make a sustainable you protect it and whether it fails in two weeks or two hundred years you just. Territory part and put the money right back where you got it from. And yeah. In addition that inside an insurance company you could also issue that against the insurance company. And what we're considering. Is the idea that debt can be issued against the insurance company. And that that could be loan back out to the schools at a favorable rate in order for them to make the investments that you need to make into their properties and do the things that they need to do so that'll also be sought part of something that we're looking at hopefully you know that's more than just a theory that's something that could be a reality so we feel good about where we are in the study in our we were asked to come in here and look at something that's pretty big problem and we feel like that we've come up with a good solution for the state of arkansas to follow and we're looking forward to president in our report to the committee and hopefully the adoption of it and that the state will put it into practice so I think that. One of the things that we want to make sure that we do is that the recommendation that we make is not like patch in a bottle. We want to make sure that we put you on the right road and we fix it for the long term in the long run and so having said that that's where we are in the study i'm sure we'll see all of you again in a month probably a lot more of you than we've seen today so anyway will be back at our office work in hard on our report thank you. See no questions thank you guys and look forward to seeing the report swift that members we do have other business today a more recognized director marty thank you martin guarantee with the bureau of legislative research we've been looking at a need for additional conference rooms this conference room behind these two committees is constantly used and there's a backlog so we've been looking at space in the lobby creating two additional conference rooms that would be the same size as a conference when we have back here before we proceed any further I need approval from this body to engage the services and get the quotes for those conference rooms that I would then present to this committee. Yes sir so for the members it'll be that too. Area so if you look out in the lobby there's different areas set up with couches it would be the two areas down closest to this room so straight across the lobby from this room and in those two couch sets. So it's proper request with that I need emotion of motions and urban and second authors in favor say are opposed as have it. So see and no for the business we standard.