The Council of the City of Destin met in special session with the following members and

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1 MINUTES SPECIAL MEETING DESTIN CITY COUNCIL SEPTEMBER 6, 2017 CITY HALL BOARDROOM 5: 00 PM staff present: The Council of the City of Destin met in special session with the following members and Destin City Council Mayor Scott Fischer Councilmember Rodney Braden Councilmember Chatham Morgan Councilmember Prebble Ramswell Councilmember Parker Destin Councilmember Jim Foreman Councilmember Tuffy Dixon Councilmember Cyron Marler Destin City Staff City Manager Carisse LeJeune City Interim Comm. Dev. Director Steve Schmidt Public Information Manager Doug Rainer City Attorney Jeffrey Burns Clerk Rey Bailey Finance Director Bragg Farmer IT Manager Webb Warren CALL TO ORDER Mayor Scott Fischer called the special meeting to order at 5: 00 PM on Wednesday, September 6, 2017, at the City Hall Annex Council Chambers WORKSHOP 1. Investment Authority Direction Mr. Brian Haugen and Mr. Steve Cann, investment advisors for Raymond James, provided the following presentation: History of the City' s Current Investments RFP- FIN sought to improve the City' s yield on surplus funds without sacrificing financial safety and flexibility. Previously, the City' s reserve assets were held entirely in cash earning very little interest after the 2008 financial crisis Current directives limit the City' s investments to relatively safe assets similar to those in the current portfolio, emphasizing principal protection and liquidity over yield

2 The City could, through Resolution, decide to broaden the scope of allowable investments. However, State statutes still dictate that " The optimization of investment returns shall be secondary to the requirements for safety and liquidity." Performance Objective defined by Resolution as follows: Maintain Safety of principal of City funds Maintain a diversified investment portfolio Maintain adequate liquidity Achieve a market rate of return on relatively safe investment instruments Goal Resolution further states: The investment portfolio shall be designed with the objective of regularly exceeding the average rate of return on a six month U. S. Treasury Bill" Results The City' s current investment portfolio supports these investment objectives, and has met the stated investment goal Other Allowable Investment Options Cash and/ or Money Market Instruments Certificate of Deposit( FDIC insured bank CD) U. S. Treasuries Government Agency Bonds Mortgage Backed Securities Investment Grade Corporate Bonds Asset Backed Securities Florida PRIME As a result of historical problems during the 2007/ 08 crisis, the current PRIME fund has much greater controls on credit quality and liquidity. Accordingly, investment returns on the PRIME fund are very low, generally less than the City' s performance under Eagle Asset Management Florida League of Cities Offers a broad mix of low- cost and well- diversified portfolios, with some liquidity restrictions. The main risks are simply the volatility and risk of losses associated with the various underlying assets. At least 7 of the 11 available portfolios contain securities that are not currently authorized by the City' s investment mandate. The League' s comparable bond funds have underperformed the City' s current investment strategy, and with additional restrictions on liquidity Mutual Funds When comparing mutual funds that limit their investments to only those allowed by the City' s investment policy, they have generally underperformed the City' s current investment strategy FDIC- Insured Bank Certificates of Deposit( CDs) Allowed under the City' s current investment policy Short-term CD rates (maturities of 2 years or less) have seen a general rise in yield over the past year Page 2 of 5

3 Yields are currently available in the range of 1. 10% to 1. 75% with maturities of 2- months to 2- yrs If liquidity is not a concern then the city could lock in these current yields with a portion of the city' s funds, providing a known rate of return that would not be subject to future changes in market interest rates These investments are available via Raymond James, and would not be subject to a management fee Final Thoughts and Recommendations The City' s current investment policy places the greatest emphasis on safety and liquidity. The current investment strategy with Eagle Asset Management supports these objectives while providing an investment return commensurate with the interest rate environment CDs offer the most attractive alternative currently, offering a partial hedge against future interest-rate changes. The City could choose to move some of the current portfolio into CDs DISCUSSIONS: Councilmember Braden asked if the present Council could legally change the City' s investment policy to allow for other investment strategies since the current policy limits the City' s investments to relatively safe assets. Mr. Haugen stated it is not their motive to encourage it; adding that while there are high rewards for a high risk investment, there are also volatility and risk of significant losses associated with it. He also expressed that they take very seriously their responsibility to being prudent money managers to the City taxpayers' dollars; and to recommend a change in policy in order to " broaden the horizon" would have to be a very compelling argument to expand safety or propensity for potential growth. Councilmember Foreman asked for an example of an Asset Backed Security. Mr. Cann explained that Asset-Backed Securities are bonds or notes backed by financial assets; and that these assets typically consist of a company' s receivables other than mortgage loans. percent range. Councilmember Dixon inquired as to the possibility of getting a 5- year CD in the 2. 5 to 3 Mr. Cann noted they have CDs with maturities of 2 months to 30 years; and that current reports show a 5- year CD in the 2.4 percent range, and a 1- year CD at 1. 5 percent. Councilmember Dixon asked if it would be within everyone' s comfort zone for the City to invest about$ 10 million in a CD. Page 3 of 5

4 The Finance Director suggests they look at the overall need for those funds over the course of one to 11/ 2 year; and if they do not feel they would need those funds during the period, then put $ 2 to $ 3 million range at the most in a CD to keep enough liquid cash in case of emergency. He also stated they would get some guaranteed return without the volatility of the market. Councilmember Dixon stated that these percentages can change overnight, and that the City Council cannot always convene and immediately decide on the course of action; and so they need to have knowledgeable people monitoring these issues on a daily basis. He continued they may also need to give the City Manager and Finance Director some flexibility to make some informed decisions. Councilmember Dixon stated he would be willing to support investing$ 3 million in a CD. Councilmember Braden noted they have the ability to cash in (with or without penalty) or borrow against their investments in case of an emergency. Mr. Cann noted that the City Council sets the parameters, but grants them the discretion to make the day to day investment decision; and so they do not have to come before the City Council every 3 months to roll a CD. Councilmember Dixon moved to set aside $ 3 million to invest in a Certificate of Deposit( CD), and grant City staff flexibility to invest the money in the best CD rates possible; seconded by Councilmember Destin. The Mayor suggests they put more emphasis on the rate of return on investment, and not necessarily investing all their money in a CD; and that he expects the investment advisor to provide them the best possible options. Mr. Cann noted that they have done just that; but anything they found so far has a much higher risk. He also stated they face some challenges every day since interest rates dropped so low after 2008; and that part of their due diligence is to monitor what the other investment options Florida PRIME, Florida League of Cities, Mutual Funds) are doing to improve their return on investment. Councilmember Ramswell noted they currently have 3 suggests switching these accounts to a higher rate. accounts with 3- star ratings. She Mr. Cann explained that they found 5- star funds that are out-performing them; however, upon further research they found out these investments are no longer in a traditional bond portfolio. They are going short in the bond market and are purchasing derivatives and other things that basically" blew up" in He also pointed out that the investments they selected for the City are completely meeting their objective by performance, risk rate of return and duration. However, there Page 4 of 5

5 are some short-term investments they could do to diversify their portfolio, and that CD is the most attractive alternative that they do not currently hold. The Mayor called for a vote on the motion, which passes 7-0 ( Council members Morgan, Destin, Marler, Foreman, Dixon, Ramswell and Braden voted" yes"). OTHER BUSINESS Having no further business at this time, the meeting was adjourned at 5: 55 PM. ADOPTED THIS 2ND DAY OF OCTOBER 2017 By: ATTEST: Scott Fischer, Mayor r. Rey 1% iley, City er Page 5 of 5