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HomeMy WebLinkAboutMay 3Finance and Investment Committee Meeting Town of Los Altos Hills Town Hall Council Meeting Room Monday, May 3, 2010 Chair Roddy Sloss who prepared these minutes called the meeting to order at 5:00 p.m. Members present: Allan Epstein, Jim Lai, Frank Lloyd, Jean Mordo, Stan Mok, Bill Silver, Roddy Sloss, Lalla Stark Members absent: None Staff present: Nick Pegueros, Finance Director Public Present: Gary Waldeck, Nick Ward Approval of minutes: The March 29, 2010 meeting minutes were approved as submitted. Report by Jean Mordo on Recent Council Activities of Interest: Hidden Villa annexation has been tabled for further study related to zoning, future use permits and cost benefit analysis related to incremental annexation costs. The Town’s 6/30/2009 audited financial statements and the related auditor’s letter on internal control deficiencies were received by Town Council and control issues were discussed. The Council approved the acquisition of the Tyler software with the condition that it not be implemented until the Town’s new financial manger position is filled. Report by Nick Pegueros on Recent Finance Department Activities: The 6/30/2009 audited financial statements were timely filed with the West Loyola Bond agent. The temporary part time accountant from Maze & Associates is continuing to perform well. Maze & Associates proposed a well-qualified candidate for the Financial Manager position who after interviewing with Nick will begin on May 17, 2010 initially for a three-day per week period and then a full time temporary assignment. Once the Town and the consultant have established a mutual interest, the Town will evaluate how to move forward with a permanent appointment The annual Town budget is not yet ready for FIC review. A working group of the FIC, (Allan Epstein and Roddy Sloss) have offered to perform interim due diligence on work to be provided. There will be a May 13, 2010 Council review of Capital Budgeting, a May 20, 2010 Joint Budget Review for both Council and the FIC, and a final FIC budget review on June 7, 2010. Some major budget assumptions, while still under study by Town staff, were presented to the FIC. At present, unmanageable budget issues are not anticipated. Presentation by Roddy Sloss on Prepayment Opportunities for consideration in the budgeting process: 1. Pension Plan Side Fund (Past Service Costs) totaling an estimated $637,320 Analysis of CalPERS 10/09 actuarial report (most recent) and a June 2009 CalPERS letter on Side Fund prepayment led R Sloss to believe that prepayment has an intrinsic interest rate of approximately 5.1% and that the Side Fund although prepaid, may not be extinguished. A September 2009 presentation to the FIC left the impression that prepayment would extinguish the Side Fund and the intrinsic interest rate was 7¾%. During discussion it was noted that because the final liability for the vested employee retirement benefits rests with the Town, prepayment of the Side Fund while it may extinguish the Side Fund liability ultimately may not protect the Town from adverse investment results or assumption changes. Continued Finance and Investment Committee Meeting Minutes, Monday, May 3, 2010 – page 2. It is requested that the Town’s actuary, Bartel & Associates make a Side Fund prepayment presentation to the FIC addressing at least the following questions: a. What is the prepayment amount? b. What, if any, liability is extinguished as a result of making the prepayment? c. What is the minimum average investment income rate the Town must earn over the remaining amortization Side Fund term to make prepayment worthwhile? d. What is the effect of assumptions changes e.g. “transfers” on the Side Fund balance? e. What are the other advantages and disadvantages of prepayment, if any? Preceding the prepayment, a CalPERS letter should be received stating 1) the present prepayment amount, and 2) clarifying whether or not the Side Fund prepayment will extinguish the Side liability. 2. Prepay Town Hall on 9/16/10 for $1,436,389 The Town Hall Lease can be prepaid in its entirety on any semi annual lease payment date. The 9/16/10 lease date prepayment has a simple intrinsic interest rate of approximately 5.1% (and an IRR of 4.65%) i.e. if the Town can earn more than 5.1% on its investments over the remaining lease term, it should not prepay. Because there is a small declining prepayment penalty, these rates decline slowly over the remaining lease term. This opportunity should be prioritized after the Side Fund because of the lower intrinsic interest rates. 3. Prepay Retiree Medical Past Service Cost (OPEB) In March 2008 Bartel & Associates reported that this liability as of June 30, 2007 was approximately $1,594,000. An updated report is expected to be available in June 2010. The FIC would like to receive a presentation from Bartel addressing their updated report including the following issues: a. What are the major assumptions determining this liability i.e. how much is vested past service cost? how much is for younger employees who may or may not retire with LAH? What are the most sensitive variables (investment income rate? participant age? participant turnover?) b. What are the advantages and disadvantages of investing with CalPERS as opposed to creating a more conservative option such as restricting Town cash for this obligation? Or moving to another administrator/trustee? c. What is the estimated future value of this obligation? 4. Put aside cash for employee pension costs Discussion on this topic brought out the following points: a. Should the approximately $3.6m of the Town’s unrestricted cash be used for prepayments or should prepayments be funded as an alternative to other capital projects? b. What can be done to improve awareness of the Town’s future obligations that are not recorded in the financial statements? Presentations from the floor - Lalla Stark reported on the results of canvassing local banks for superior insured savings rates. Banks contacted generally were not familiar with governmental banking and calls to the FDIC provided insufficient information about related FDIC insurance. Next FIC meeting is the May 20, 2010 joint FIC Council Budget review. Adjournment - The meeting adjourned at 7:00 p.m.