Risk Management Division reports $3.9 million shortfall in settlement fund

Yahoo

07-02-2025

The state government building that houses the General Services Department, seen from West Cordova Road in Santa Fe.(Photo by Austin Fisher / Source NM)
The agency charged with insuring New Mexico state government reported a negative balance of $3.9 million in its settlement fund, and estimated during a Wednesday presentation to the Senate Finance Committee that the fund could be on the hook for $87.9 million more in outstanding settlements.
In short: 'The fund is currently negative with outstanding liabilities that far exceed the assets,' said Risk Management Deputy Director Markita Sanchez.
Several large settlements — particularly from New Mexico's child welfare and corrections departments — drove the losses, the Legislative Finance Committee reported in its proposed budget.
The government insurer plans to raise rates across most state agencies by $10 million to nearly $33.7 million and is also seeking a $17 million dollar plug from state lawmakers to shore up the fund's reserves. But independent legislative analysis found in 2023 the state's laws are not primed to 'cover or prevent escalating settlement costs,' a responsibility often left to the agencies.
The $87.9 million figure is only an estimate of future costs for the fiscal year, but lawmakers said the dollar amount raises continued concerns for the solvency of the state's public liability fund.
'The system is broke,' said Sen. Pat Woods (R-Clovis) to members of Risk Management on Wednesday. 'It's not your fault, you're living under the law; it's not your fault the system is broke.'
The Risk Management Division — a portion of the broad umbrella of the General Services Department — is the self-insurer of 130 state agencies against a variety of claims, and manages the fund for voluntary or court-ordered settlements from anything from injuries from tripping on a sidewalk, to civil rights violation allegations, severe injuries, sexual misconduct and death.
The state pays those settlements using the Risk Management Fund but, in recent years, the increase in the number and costs of settlements has risen.
The average number of claims filed against New Mexico doubled in the last four years to 2,350 per year. In May of 2024, the public liability fund only had enough cash to cover 16% of the anticipated payouts, about $145 million short, according to a report from the Legislative Finance Committee.
Last year, the Legislature allowed a $20 million dollar transfer to boost reserves in the Public Liability Fund and allowed for additional transfers from state state agencies. The goal, according to state report cards, is for the fund to have at least 50% of reserves to cover outstanding liabilities. State law has some caps for settlements, but those limits do not apply to federal civil rights.
The state Constitution usually limits most state agencies from spending money they don't have, but because these settlements are often made to end lawsuits, state law allows Risk Management to fulfill settlements and recoup the costs from later premium charges.
But the costs of settlements are outstripping how much the agency is charging for the costs of insurance, and more agencies are having to pay higher premiums.
Joe Vigil, the spokesperson for the General Services Department, told lawmakers that insurance premiums are rising for approximately 74% of the state's 130 agencies.
Large departments with large settlements had the highest insurance premium increases: the New Mexico Corrections Department; New Mexico State University; the Children Youth and Families Department; the University of New Mexico; and UNM Hospital, according to an August Legislative Finance Committee report.
'Most agencies, even those without claims history, saw a large percentage increase – it might only be a few thousand dollars – but a large percentage increase in their liability premiums,' Vigil told the committee. ' Because, to make up those other rate increases, other agencies are pitching in as well.'
The premiums increase is based on loss history, so the greatest jumps are for the small number of agencies with 'significant claims history,' while 34 agencies will see no change or insurance costs decrease.
State accounting procedures mean that higher liability insurance payments show up as increases in agency's personnel costs, the LFC noted.
Sen. Nicole Tobiassen (R-Albuquerque) said she was frustrated that some agencies are picking up the tab for other agencies' settlements.
'If I were running an effective agency that maybe had the lowest rate of claims, I would be very unhappy right at this moment, knowing that I'm paying for the challenges – let's say, the gaps in all these other agencies,' Tobiassen said. 'I understand why it works that way, but it's definitely alarming.'
Acting General Services Secretary Anna Silva said Wednesday the agency is instituting steps to better address the number of claims, such as doubling the number of attorneys working at the agency. She promised to hold meetings with the state agencies that generate the majority of claims.
These meetings would address that 'claims are being settled without the knowledge of leadership,' Silva said, adding that the meetings would start after the legislative session.
The staffing changes include a team of three staff assigned to the Children Youth and Families Department, Silva told lawmakers.
In 2024, CYFD settled $18 million across 12 settlements, according to a Source NM review of the settlement data available on the state's portal. The settlements ended lawsuits alleging the department's responsibility for the deaths or severe injuries of children in state custody, from years ago.
The most recent was a $4 million December 2024 settlement to end a civil lawsuit brought on behalf of two children who had remained in the custody of parents when the department had more than two dozen complaints alleging abuse first filed in 2020.
Additional attorneys will address state agencies before claims are filed, but also have more time for fighting in the courtroom, Risk Management Division Director Jeannette Chavez said during Wednesday's Senate Finance Committee meeting.
'With the amount of attorneys that we have in the team that we have, we can start working with the individual agencies with their legal counsel, informing them and partnering with them on what we can do to not only settle the claims, but also fight those claims that can be fought,' Chavez said. 'Because before we have always just been an open checkbook and we are stopping that.'
On Monday, the Senate Judiciary Committee tabled Senate Bill 132, which would have capped settlement payments.
The Senate Judiciary did approve Senate Bill 220, also carried by Woods, which requires the Risk Management Division to continue publishing settlement data with state agencies within 30 days of settlement, which the department is currently doing voluntarily. The bill heads to Senate Finance next.
SB 220, if passed, would also require Risk Management to appoint a review team when a state agency's alleged actions cause a death, serious injury or substantial loss, a practice inspired by a program in Washington state.
SUBSCRIBE: GET THE MORNING HEADLINES DELIVERED TO YOUR INBOX