WASILLA -- Insurance costs are climbing and creating a challenge for the city of Wasilla. The city council has been poring over the 2003 fiscal year budget prepared by the administration of mayor Sarah Palin the past few weeks. Among the literally hundreds of line items in the city budget, insurance costs are shown going up in department after department. The council's first chance to pass a completed budget document was last night, after this publication went to press.

The total operating budget presented by Palin's staff for FY03 is $5.7 million -- a 2.32 percent increase over FY02. In her budget message to the council, Palin included a brief synopsis of how insurance affected the operating budget.

"The large percentage of the increase in the proposed budget is due to Sept. 11. The insurance carriers are projecting that property rates will increase by 100 percent, general liability by 50 percent, and worker's compensation by 30 percent," Palin wrote. Deputy administrator John Cramer said there is no indication that the insurance market will soften in the near future, so the administration looked for other cuts in general government spending.

"We've absorbed increases for items like insurance and the costs of other employee benefits by transferring money from other line items in the budget," Cramer said.

Cramer didn't have specific examples of cuts, but said the budget has been "refined" over the years. "Over time, you're able to refine your budget and find excess funds that you're not spending; that's really where most of the efficiencies come from," he said.

In the future, the city hopes to save money in the area of computer replacement. Last fall, at the administration's request, the city council created a special account known as the technology replacement fund, according to Cramer. The cost of replacing items such as computers, copy machines and printers have been difficult for various departments to manage in their annual budgets, simply because those costs are difficult to predict.

"In the past, what each department had to do was budget with the anticipation that some equipment was going to have to be replaced," Cramer said. "But you never knew when something would need to be replaced."

With the new fund, individual departments will have money put into an interdepartmental pool each year. The amount is calculated roughly according to what it costs to replace a third of that department's technology inventory so that upgraded equipment could be expected in three-year cycles. The fund operates in the same manner as the city's vehicle replacement fund.

"That's probably one of the most tangible things that I can put my finger on in terms of where we've gained some efficiency," Cramer said.

Health insurance costs were rising prior to the Sept. 11 attacks, but the attacks triggered steep, unexpected insurance hikes in other areas.

"Our liabilities on buildings and structures, and insurance on vehicles -- all of that is directly related to 9-11," Cramer said.

Currently, Wasilla purchases insurance from the Alaska Municipal League Joint Insurance Association, Inc. (AML/JIA). The current budget takes into account projections from AML/JIA. Cramer said he expects to have solid insurance rates from AML/JIA by the end of May, but the city also has an insurance broker shopping on Wasilla's behalf.

"Nothing's softening yet," Cramer said. "Based on what AML/JIA told us, all indications are that there are going to be increases."

The city hired Anchorage-based insurance brokerage firm Brady and Company to shop for better rates on the city's behalf. Senior Vice President of Brady and Company, Kirk Leadbetter, confirmed that the Sept. 11 effect is very real.

"What has happened recently is that reinsurance costs have gone up anywhere from 30 percent to 300 percent depending on what markets and what line of business -- aviation went up as much as 400 percent," Leadbetter said.

Reinsurance is sold by companies called reinsurers. If an insurance provider has $500 million on hand to cover claims against their clients, they purchase reinsurance in case claims go above $500 million. Reinsurers typically have billions of dollars on hand, but the destruction of the World Trade Center towers created sudden losses that affected the entire industry.

"The insurance companies that insure the insurance companies took a $70 billion dollars loss," Leadbetter said. "...Pretty much every major reinsurer had a part of that loss."