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IV. Financial Structure The City's liability risk financing program consists of a $1 million per occurrence self-insured retention and joint powers authority coverage of $40 million above the self-insured retention. The joint powers authority coverage is a combination of pooled protection among participating governmental agencies and commercial irisurance. A. Risk Retention Capacity Risk retention capacity, in the context of this study, means the level of unexpected loss the organization can sustain and still achieve its fundamental business purpose. Generally, the larger the entity, the more is its risk retention capacity. Size, however, is only one indicator. To detennine an organization's capacity to absorb unexpected losses, it must consider several subjective and objective factors, including: · Attitude of senior management toward risk. · Amount of operating and capital expenditures that could be cancelled or deferred to meet short-term cash needs to fund accidental losses. · Ability to raise revenue to finance accidental losses. · Existence of financial reserves available for catastrophic loss payment. · Ability to issue debt. All of these factors must be considered in the context of the ongoing business risks (e.g., loss of a major source of tax revenue) faced by the entity. We discussed many of these issues with management. We understand that the City is challenged by declining revenues and increasing expenses. It has modest contingency resources, consisting of a $5 million emergency fund and a $7.6 million contingency fund. However, the City does have significant ability to issue debt, with current outstanding debt being well below the City's $1.1 billion legal debt capacity. 37 ARM Tee h