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HomeMy WebLinkAbout2019-01-16 Council Minutes - Work SessionKENAI CITY COUNCIL WORK SESSION PERMANENT FUND INVESTMENT REVIEW JANUARY 16, 2019 — 5:00 P.M. KENAI CITY COUNCIL CHAMBERS 210 FIDALGO AVE., KENAI, AK 99611 MAYOR GABRIEL, PRESIDING NOTES Council present: Mayor Gabriel, Vice -Mayor Navarre, J. Glendening, H. Knackstedt, R. Peterkin, G. Pettey, B. Molloy Others present: City Manager P. Ostrander, Finance Director T. Eubank, City Attorney S. Bloom, City Clerk J. Heinz A. Call to Order Mayor Gabriel called the work session to order at 5:00 p.m. B. Introduction — Mayor Gabriel Mayor Gabriel introduced Council and staff members present. C. Introduction of Alaska Permanent Capital Management Representatives — Administration Finance Director Eubank introduced Brandi Nicklai and her team from Alaska Permanent Capital Management (APCM) who were presenting a historical summary and future investment options to Council. D. Presentation of Investment Methodology & Recommendations regarding Permanent Fund Investments —Alaska Permanent Capital Management Finance Director Eubank noted the City wasn't going to see a return on investment in FY19 and pointed out the City had seen $13 million in returns since inception of the investments ten years ago. He added that he brought the topic forth to Council to consider some reallocations. Brandi Nicklai of APCM noted the City typically saw a 7.4% return and the investment policy implied a return goal of supporting a 5% distribution. She noted meeting inflation plus a 5% return was difficult but the City accomplished that 60% of the time over ten years. Ms. Nicklai reviewed the Airport Land Sale Permanent Fund noting the City could maintain the current spending rate and accept partial asset preservation by optimizing allocations and maintaining spending policies. Or, the City could establish a sustainable flexible spending rate to preserve existing asset base by optimizing allocations and adapting its spending policy. It was noted a change from the current spending policies would require a code change. There was discussion about asset classes and how they were managed. The difference between arithmetic return and geometric return was clarified. KENAI CITY COUNCIL WORK SESSION JANUARY 16, 2019 PAGE 2 of 2 The current spending policy and alternative spending options, based on inflation-adjusted principal, were discussed. Additional topics discussed included the need to protect the principal over the long term and concern with the airport needing more funding for successful operations. Ms. Nicklai reviewed the General Land Sale Permanent Fund noting the principal of this fund could not be spent. She suggested evaluating choices by prioritizing noting the current plan prioritized higher individual distributions over the frequency of distributions. She also noted staff suggested an earnings reserve, similar to the Alaska Permanent Fund Dividend. A model of the earnings reserve option was summarized noting the spending policy would need to be amended for this fund as well to be structured based on a 4% sustainable rate, to recognize dispersion of anticipated returns, and to utilize good years to stabilize distributions in down years. It was also noted cumulative distributions over a ten-year projection showed higher distribution and higher frequency of distributions. It was suggested the earnings reserve was a viable solution for the General Land Sale Permanent Fund to maintain the City's spending rate and increase distributions. It was noted an ordinance would be coming forth E. Council Comments Council expressed gratitude to Administration and Alaska Permanent Capital Management for their work in preparing the review. F. Public Comment There was no one wishing to be heard. G. Adjournment The work session adjourned at 5:55 p.m. Notes were prepare by: Heinz, CMC J cr4 ��DED