As a taxpaying city resident, I don't like having to foot the bill for bad behavior. (I also don't think cities should be so quick to settle.)
My solution is give whatever money the city is now paying out to the police department budget. Raise the police budget by that much. And we're talking millions. And then tell the police department: it's on you. All future lawsuits will come from your budget. I guarantee you this would result in fewer lawsuits.