Municipal risk management case study: City of Lethbridge to discontinue unique school bus service

Lethbridge has several claims to fame, including their picturesque coulees and beautiful Nikka Yuko Japanese Garden. But did you know that this Alberta city is also the only municipal jurisdiction in North America that has provided school bus services to its provincially-administered school divisions?

However, as of September 2020, this unique aspect will no longer be a service that sets Lethbridge apart, as their City Council recently discontinued their delivery of school bus service due to overwhelming liability and corporate risk.

Why risk management for municipalities has become a priority

Risk is often considered to be what could go wrong – and for AUMA members, that means any potential event that could affect the achievement of municipal objectives. Municipalities face unique challenges and risks due to the large scope of services, programs, and infrastructure they provide, and the critical role they play in the wellbeing of residents.

Local governments are increasingly aware that managing and mitigating the many risks is a critical part of responsibly stewarding public tax dollars. The liability for a number of services that were previously taken on by municipalities on behalf of other entities has become too risky and costly to continue.

Reviewing municipal operations to mitigate risk

Municipalities are being asked to do more with less, particularly after the recently-announced provincial budget. Many municipalities are currently reviewing municipal operations to determine whether there are ways to deliver the quality services citizens expect while finding ways to reduce cost or discontinue providing services that do not fit within a municipal mandate.

In the case of Lethbridge, their independent enterprise review of operations suggested that they have an obligation to mitigate risk by transitioning the operation of school busing back to the school divisions, especially since they are the only Alberta municipality to take on that risk.

Appropriate risk management means transitioning away from unnecessary exposure

"An important part of our recent review has been to ask ourselves whether this was a responsible level of risk. Although the City has been providing this service for some time on a cost-recovery basis, the reality is that this is not the extent of the fees involved. What if the worst happened one day and there was a fatal accident? As it stands right now, the City of Lethbridge, and therefore municipal taxpayers, would be responsible,” says Chris Spearman, Mayor of Lethbridge.

“In a worst-case scenario, the effects on our city’s budget and operations would be disastrous. The cost associated with this liability, and the perception that we have deep pockets, is not something we should saddle our ratepayers with.”

Barry Morishita, AUMA President and Chair of the MUNIX Advisory Board, AUMA’s reciprocal insurance exchange, says this is an issue compounded by a challenging time in the insurance markets for municipalities. “What AUMA has heard loud and clear from its meetings with international underwriters is that insurance premiums are going to increase, which means taking on unnecessary risk makes even less financial sense than it did in years past. Risk is inherent in everything municipalities do to provide services, and we know that Alberta municipalities do their best to manage this risk with the resources they have.”

He adds, “Reviews like the one undertaken by the City of Lethbridge are best practice, and something many municipalities use as a valuable tool to help them be responsible financial stewards for their residents. Lethbridge used the information about their risk exposure to make a better decision about spending, while thoughtfully considering true costs of what they were delivering to residents.”

Please watch for upcoming AUMA Digest issues featuring opportunities for municipalities to manage and mitigate various risks by limiting exposures. 

MUNIX, AUMA’s reciprocal insurance exchange, was formed in 2002 to serve the insurance needs of its members. MUNIX is owned by you—the subscribers of the reciprocal. For more information about AUMA’s enterprise risk management tools for our members, visit our website.