FRIDAY, SEPTEMBER 27, 2013 Local Government Center

Transcription

1 PAGE 1 OF 5 FRIDAY, SEPTEMBER 27, 2013 Local Government Center OSBA board members in attendance at meeting start: President Terry Lenchitsky, Vice- President Dave Krumbein and Secretary-Treasurer Bobbie Regan OSBA staff in attendance at meeting start: Director of Finance Mike Robison, Executive Director Betsy Miller-Jones and Administrative Assistant Tonya Hammer OSBA Finance Committee members in attendance at meeting start: Russ Allen, Business Director, Greater Albany School District; Nori Juba, Board Member, Bend-La Pine School District OSBA Guest in attendance at meeting start: Brent Peterson and Will Dietz, both with Royal Bank of Canada (RBC) OSBA Finance Committee members not in attendance at meeting start: Mike Doherty, Special Districts Association of Oregon Committee Chair, Bobbie Regan, called the meeting to order at 1:07 p.m. I. Welcome and introductions Introductions commenced around the table, to include the advisor, Will Dietz, with RBC. II. Approval of minutes A. March 15, 2013 meeting Motion: President Terry Lenchitsky moved the committee to approve the March 15, 2013 Finance Committee meeting minutes; seconded by Vice-President Dave Krumbein. The committee voted on the motion and it passed unanimously. III. Investments and finances A. Investment portfolio and performance Mike began the discussion by advising the committee that OSBA transferred all trust services to Comerica successfully in September. As of October, payments will no longer be made to RBC. RBC now holds stocks and bonds at Comerica. In the past, bonds were held at West Coast Trust, while stocks were held by RBC. Presently, both stocks and bonds are with the third-party, Comerica, who will provide consolidated performance reporting. OSBA is paying just below four basis points for the service and the full assets are held with

2 PAGE 2 OF 5 Comerica and registered in OSBA s name. Brent provided history, outlining that as a part of Oregon state statute, third-party involvement is required. He then directed the committee to the quarterly performance reports for both Prime Income and Dividend Growth. These numbers come in quarterly, so the data that is in the packet is from June He reviewed the quarter-to-date beginning and ending data. As for the personal rate of return, just short of one year, it is up percent. He clarified that this is growth, not income. Russ Allen questioned the benchmark being used within the report and asked whether there is a better benchmark to use for this portfolio. The portfolio currently uses the S&P 500. Brent opined that with the custom-created dividend portfolio, the S&P 500 is as close as is available at the moment. Other indexes are broader-based; they are not finite in their scope. He did suggest that RBC could look at a fund, but it would be more of a comparitor rather than a benchmark; however, this is not the industry standard. Will Deitz, also with RBC, agreed to further research this to see if there is a better benchmark for comparison with the OSBA portfolio. Betsy added that this portfolio is structured very specific. It is a goal-based index rather than a market-base index. Brent continued the discussion by referencing page 3 of the packet, which reflects that the styles of stocks that OSBA is currently investing in are very different from the previous quarter. The June 30 numbers on page 9 of the packet reflect $173,000 in realized gains. The next portfolio under discussion is the Dividend Growth. The beginning and ending values were noted, as was the additional investment of $1.7 million. Net market value is up and growth is shown. Russ requested that RBC provide information on risk assessment to the committee so that the risk associated with these portfolios could be better understood. Informational tools are available for this risk assessment. Will with RBC will look into it. Discussion continued around risk and performance. According to Brent, the income estimate for 2014 is $2.7 million. The philosophy behind dividend growth was shared. Brent opined that it is less risky to build off of dividend growth. In weighing capital gains versus dividends, some years it is taken as income and other years it is reinvested to grow the portfolio. At this point, OSBA is committed to growing principal over time. With the bond portfolio, there is no real way to grow the principal balance. The way the current portfolio is positioned, there is approximately 50 percent of bonds coming due in the next 3 years. If interest rates continue to rise, OSBA will be in a position to reinvest in the higher interest bonds. There are currently no callable bonds. Brent is comfortable with our position in individual bonds. There is potential to increase yields and lock in gains. From a strategic standpoint, if there is one year of maturity left, it would be beneficial to sell the bond and book the gains. He is currently exploring this concept.

3 PAGE 3 OF 5 Brent continued with a synopsis of the overall markets. He compared the global outlook. He provided a current status of market behavior. Will Dietz resumed the presentation by reviewing several key items within the Global Insight newsletter in the packet. Discussion ensued on foreign markets and global growth. Will then referenced page 44 of the packet, which is a graph of Stocks and Bonds: Risk Versus Return ( ). He began discussion on this risk versus return concept to meet the education of the board requirement within the RFP. The definition of standard deviation, volatility of returns and risk versus reward were discussed. Nori asked where OSBA stands currently as far as stocks versus bonds investment. Brent advised that OSBA is at about 60 percent bonds. In his opinion, this is a good place from an income standpoint. It was asked if at some point, a decision will be made to take money out of equities and move it to fixed income. Betsy added the perspective of OSBA, the rate of return and the short and long term growth of investments. RBC is a professional management company and their job is to make the decisions, like the one associated with the question above, for long term investments and income. They will assist OSBA with long term growth while maintaining income. Bobbie concluded the discussion by outlining that her report to the Board would include the income estimate for 2014, the risk versus return and how this portfolio is structured and that the investment goals of 60/40 were achieved. Brent and Will left the meeting at 2:14 p.m. B Audit Update Mike referred the committee to the Post-Fieldwork Memorandum in the packet. The auditors were here the second week of September and upon completion, provided this letter with the exit interview. He made mention of the item in the exit comments that indicated that the reconciling spreadsheet did not match the General Ledger. He attributes this to inexperience in understanding the new pieces and where they fit. This was corrected and journal entries were made. He advised the committee that OSBA received a clean, unqualified audit. Two items were noted for best practices, once of which the Board took action on in June when they increased the crime policy to $5 million. As for the duty issue, it is difficult in a small organization. In discussing this with the auditors, it was agreed that if there are no check signers in the office, Mike can approve payment and sign checks, but Betsy will review, sign and date the check register in these instances. Betsy has the final review on the check register. Tamara Graham skyped in on the exit interview and informed them that this audit was very clean and much improved from last year.

4 PAGE 4 OF 5 The auditors will present at the January 2014 Board of Directors meeting. An additional change that was made through Policy is that at this meeting, OSBA staff can be asked to leave the room during the presentation, if requested. On a separate note, Bobbie advised Betsy that she is no longer receiving Betsy s expenses for review monthly. C. Prior year financial report Mike referenced page 47 in the packet - OSBA Monthly Financial Report for the Month of July There is positive revenue reported, greater than expenses, at $513, 930. In reviewing , the total revenue is approximately $1.513 million higher than was budgeted. This is almost completely a result of the change in the investment policy. Mike made mention of the footnotes on page 47 which referenced the net income amount from unrealized gain. D. Current financial report Mike reported that OSBA is $377,000 ahead of August of This is basically due to the change in the investment policy. On page 49, which outlines the OSBA Investment Portfolio, there is an unrealized gain reported of $366, This can change dramatically over the next ten months. He then reviewed the actual value of OSBA assets. Russ asked Mike s opinion on including unrealized gains and losses in the income statement. The standard is to book mark to market and reset values to the market at the end of the year. A request was made to reference the unrealized gains at the bottom of an income statement so that actual revenue and expenditures are visible without computation. The revenue that came in as a result of investments should be separate. In addition, there was mention of the increase in personnel costs on the OSBA Monthly Financial Report Betsy explained that bonuses were not paid to Legal and HRD staff in 2012 until August and Mike s salary was also not included in the 2012 budget. This year, bonuses were paid a month earlier, which appear here, in this financial report. A request was made that the bonuses appear differently in the report so that actual salaries can be computed with the numbers given. Mike suggested that he could make a footnote on the report outlining the bonuses, so that numbers can be compared to the budget. IV. Other business Bobbie asked if Betsy would report on the real estate purchase. Betsy indicated that the information is outlined in her Executive Director s report. She provided an overview for the committee. The Board authorized $550,000 for the purchase of the building and the purchase was made for $525,000. This doesn t show up in an income or expense statement because this is actually an investment. As an example, instead of buying a bond, the property was purchased

5 PAGE 5 OF 5 and Dwill only appear on the balance sheet. The building will come down within the next year to accommodate additional parking, which was the purpose of the purchase. PERS litigation was the next topic of discussion. The Executive Committee approved $150,000 - $500,000 to be used in litigation. This will show up on income statements once it is paid. The hiring is complete. The first bill has not yet been received. The work thus far has been minimal. Betsy explained that with the approval of the range above, the Executive Committee acted in lieu of the Board. Conversation returned Rto the property purchase and a question was asked as to whether the property will show up as an investment. Mike indicated that on a usual balance sheet, the property will show up as a fixed asset. Discussion ensued on the ownership of the new real estate, the split of the ownership of the land that the Local Government Center sits on and the McDonald s leased parking. V. Adjourn Committee Chair, Bobbie Regan, adjourned the meeting at 2:50 p.m. A F T

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