Lake Elmo was labeled a troubled and dysfunctional government two years ago.

Its leaders paid attention and made changes, and now the city is being rewarded for its efforts.

The Insurance Trust Board of the League of Minnesota Cities voted this month to lift the conditions that were placed on the city in 2016, when disputes among council members and substantial staff turnover prompted the league to raise the city’s deductible from $500 to $200,000. Without those conditions, the deductible will drop to $1,000.

“To have someone from the outside looking in recognize the changes and improvements we’ve made helps to validate all the work we’ve put in,” said Kristina Handt, Lake Elmo’s city administrator.

That work started after the league hit the city with the penalty, imposing a $200,000 deductible on all liability claims other than those for bodily injury and property damage. The insurance trust board ruled then that the disputes and turnover posed a risk for increased insurance claims.

Such a move is rare for the league, said Dan Greensweig, the insurance trust’s administrator. In the league’s nearly 40-year history, it has imposed only a handful of penalties because of city council dysfunction.

“The goal in a self insurance pool is to make sure we aren’t creating undue risk for the other members of the trust by providing coverage to one member,” Greensweig said.

Last year, the board ruled to ease the special conditions slightly by maintaining the $200,000 deductible for employment and land-use claims (the area Lake Elmo was seen as having the most risk) but lowering it to $100,000 for all other types of property and casualty claims.

Greensweig said that’s typical in these cases; the board wants to see a couple of years of stability before dropping special conditions altogether. He credits Lake Elmo for addressing its problems and steadily progressing.

“It’s a turnaround that has been really refreshing and fun to watch,” he said.

In talking with city officials and watching City Council meetings, league staff noticed that issues are handled with more civility than in previous years, Greensweig said. Council meetings are more efficient, better managed and less acrimonious. Staff morale has improved.

“While there are certainly times when there are differences of opinion on policy issues as one would expect in any city, the conversations have for the most part remained respectful,” Handt said in a letter to the league.

Relationships with other entities, including the county and the Metropolitan Council, have improved, Handt said.

“Hopefully we’ll not have to go through this again and keep our meetings well run and dysfunction to a minimum,” she said.