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HomeMy WebLinkAboutOrdinance No. 2529-2011Uic ci[ of NENA SKA v CITY OF KENAI ORDINANCE NO. 2529 -2011 Suggested by: Administration AN ORDINANCE OF THE COUNCIL OF THE CITY OF KENAI, ALASKA, AMENDING CHAPTER 7.30 OF THE KENAI MUNICIPAL CODE, "AIRPORT LAND SALE PERMANENT FUND," TO RENAME THE CHAPTER AS "LAND SALE PERMANENT FUNDS" IN ORDER TO ESTABLISH INVESTMENT GUIDELINES FOR SALE PROCEEDS FROM THE SALE OF CITY- OWNED, NON -TRUST LANDS JUST AS THE CITY HAS ESTABLISHED INVESTMENT GUIDELINES FOR THE AIRPORT LAND SALE PERMANENT FUND, AND TO MAKE TECHNICAL CORRECTIONS. WHEREAS, the City of Kenai owns several categories of lands, including lands reserved for the use and benefit of the Kenai Municipal Airport and that are known as "Airport Lands," lands known as "trust lands" that are restricted under the terms of conveyance of those lands to the City, and other lands referred to as "non- trust" lands that are for the general use and benefit of the City of Kenai and that are known sometimes as general fund lands; and, WHEREAS, the City has created an Airport Land Sale Permanent Fund which is a restricted fund that allows for the expenditure of the monies in that fund only for the use and benefit of the Kenai Municipal Airport and the City Council has provided investment guidelines for those monies generated from any sale of Airport Lands; and, WHEREAS, in addition to providing for investment of monies received from the sale of Airport Lands, the City's Code limits appropriations from that restricted permanent fund to an amount not to exceed five percent (5 of the five -year average of that fund's calendar year end market value for airport operations and capital needs; and, WHEREAS, as with Airport Lands, the City may also sell general fund lands (both trust and non trust), which sales are provided for by the City's Charter and ordinances; and, WHEREAS, the City's Charter provides for the principal proceeds from sales of City owned, non -trust lands to be recorded in a separate City account where monies in the account must be invested and may not be spent or appropriated for any purpose; provided, however, that revenues earned on monies in such an account may be used for any lawful purpose as set forth in the City Charter section 5 -11; and, WHEREAS, it is in the best interests of the City to preserve monies received in the sale of non -trust lands for the continued use and benefit of the City, just as the City has done with respect to Airport Lands and as required by Charter; and, New Text Underlined [DELET TEXT BRACKETED] Ordinance No. 2529 -2011 Page 2 of 7 WHEREAS, the City has historically maintained a separate account of proceeds from the sale of non trust, general fund lands and these funds have been invested under the general investment guidelines, for all city funds; and, WHEREAS, by specifically outlining the investment methodology for the investment of non trust, general fund land sale proceeds, the City and its citizens will be able to enjoy the benefits of any land sale in the many years to come, as it may have done if the City had retained the land as a fixed asset of the community; and, WHEREAS, with the assistance of an investment advisor, the City established a set of investment guidelines for a portfolio with generally- acceptable risk levels for public entities with long -term investment goals and has enjoyed a modest return on those monies since the inception of the Airport Land Sale Permanent Fund; and, WHEREAS, the investment guidelines are also similar to other permanent fund structures created by other governments; and, WHEREAS, a General Fund Land Sale Permanent Fund managed under the same investment guidelines as the Airport Land Sale Permanent Fund would provide for sound investment of monies received by the sale of general fund lands and principled expenditure of monies generated by the investment of those sale proceeds; and, WHEREAS, management of Airport Land Sale Permanent Fund and a General Fund Land Sale Permanent Fund under the same investment guidelines will standardize investment decisions, provide consistency through the budget process and help develop investment knowledge of the City officials and its contractors who invest its funds; and, WHEREAS, it is in the best interest of the City to more clearly define and establish investment guidelines for a General Fund Land Sale Permanent Fund. NOW, THEREFORE, BE IT ORDAINED BY THE COUNCIL OF THE CITY OF KENAI, ALASKA, as follows: Section 1. Form. This is a Code ordin Section 2. Amendment of Chapter 7.30 of the Kenai Municipal Code: The Kenai Municipal Code, Chapter 7.30 Airport Land Sale Permanent Fund, is hereby amended in its entirety to read as follows: Chapter 7.30 [AIRPORT] LAND SALE PERMANENT FUNDS 7.30.050 General Fund Land Sale Permanent Fund 7.30.010 Airport Land Sale Permanent Fund 7.30.020 Investments New Text Underlined' [DELETED TEXT BRACKETED] Ordinance No. 2529 -2011 Page 3 of 7 7.30.050 General Fund Land Sale Permanent Fund. (a) A separate fund of the City of Kenai is hereby established as the General Fund Land Sale Permanent Fund. The purpose of the fund is to account for the principal proceeds of the sale of City -owned non -trust lands that are not subject to deed or other conveyance restrictions that require the funds be used for specific other uses or benefits (General Fund Lands). (b) The General Fund Land Sale Permanent Fund shall be a restricted fund. City Charter prescribes the establishment of a separate City account for the principal proceeds from sales of City- owned, non -trust lands; however, the establishment of the investment guidelines for that account is within the discretion of the Kenai City Council. (c) The net proceeds received by the City on closing sale of non -trust lands shall be deposited in the General Fund Land Sale Permanent Fund. Where notes are taken in payment for General Fund Lands, all principal payments on said notes shall be deposited in the General Fund Land Sale Permanent Fund. Interest on notes taken in payment for General Fund Lands shall be recorded as investment earnings in the General Fund Land Sale Permanent Fund. (d) Money placed in the General Fund Land Sale Permanent Fund shall not be available for use by the City for any purpose other than for investments in accordance with City Charter and ordinances. (el Interest or income earned by the General Fund Land Sale Permanent Fund shall be recorded as investment earnings in the General Fund Land Sale Permanent Fund and then deposited in the General Fund. The City Council may, by ordinance, transfer funds from the General Fund to the General Fund Land Sale Permanent Fund. After such a transfer, the money will become a Dart of the General Fund Land Sale Permanent Fund to be used only for the investment purposes for which the fund is established. 7.30.010 Airport Land Sale Permanent Fund. l� A separate fund of the City of Kenai is hereby established as the Airport Land Sale Permanent Fund. The purpose of the fund is to account for the principal proceeds of the sale of Airport Land. Airport Lands shall consist of all land owned by the City of Kenai and held by it for the use or benefit of the Kenai Municipal Airport under the terms of the 1963 Quitclaim Deed from United States of America recorded at Book 27, Page 303 at the Kenai Recording District, Kenai, Alaska. Additionally, any other land owned by the City and acquired with airport funds shall be Airport Lands. New Text Underlined [DELETED TEXT BRACKETED] Ordinance No. 2529 -2011 Page 4 of 7 (b[A]) The Airport Land Sale Permanent Fund shall be a restricted fund. The establishment of the fund known as the Airport Land Sale Permanent Fund is within the discretion of the Kenai City Council. Deed restrictions, federal regulations and grant assurances require that airport funds be used for the use and benefit of the Kenai Municipal Airport. (c[B]) The net proceeds received by the City on closing sale of Airport Lands shall be deposited in the Airport Land Sale Permanent Fund. Where notes are taken in payment for Airport Lands, all principal payments on said notes shall be deposited in the Airport Land Sale Permanent Fund. Interest on notes taken in payment for airport lands shall be transferred to the Airport Enterprise Fund. (d[C]) Money placed in the Airport Land Sale Permanent Fund shall not be available for use by the City for any purpose other than for investments in accordance with City ordinances. (e[D]) Interest or income earned by the Airport Land Sale Permanent Fund shall be deposited in the Airport Enterprise Fund. The City Council may, by ordinance, transfer funds from the Airport Enterprise Fund to the Airport Land Sale Permanent Fund. After such a transfer, the money will become a part of the Airport Land Sale Permanent Fund to be used only for the investment purposes for which the fund is established. 7.30.020 Investments. (a) The Land Sale Permanent Funds shall be managed by the Finance Director, with the following conditions: (1) The [ADMINISTRATION] City will contract [OUT] for the management of the investments for each [AIRPORT] Land Sale Permanent Fund [INVESTMENTS] with one (1) or more professional investment managers with experience handling institutional endowment investments subject to Council approval. (2) The Land Sale Permanent F[F]unds shall be invested in such types of income producing investments as limited by subsection (b), Authorized Investments, below_ The investments for each Land Sale Permanent Fund [AND AS] shall be approved [SPECIFICALLY DESIGNATED] by resolution annually, usually during the City budget process, in the form of an asset allocation plan, with each Land Sale Permanent Fund following the same asset allocation plan. The asset allocation plan shall [WILL] have specific categories of investments for the funds with percentage targets that allow for reasonable fluctuations above and below the target percentage. The plan will establish benchmarks for evaluating the performance of each investment manager and asset classification. Investments shall be managed such that the target ranges of the asset allocation plan are adhered to. New Text Underlined; [DELETED TEXT BRACKETED] Ordinance No. 2529 -2011 Page 5 of 7 (3) All income derived from investment of [THE AIRPORT] each Land Sale Permanent Fund, including interest income, realized gains, and undistributed earnings shall be included in the corpus of [THE] each respective Land Sale Permanent F[Flund and shall be invested in accordance with subsection (b) below, Authorized Investments. (4) Appropriations from the Airport Land Sale Permanent Fund may be made as follows: Ii) In any fiscal year, an amount not to exceed five percent (5 of the five (5) year average of the fund's calendar year end market value may be appropriated for airport operations and capital needs. For the first five (5) years the calendar year end market values following the effective date of the ordinance codified in this section will be averaged to calculate the average fund market value. (ii[5]) For the first year, FY 2009, the appropriation from the fund shall not exceed the lesser of either [(I) OR (ii) BELOW: (i) F]five percent (5 of the market value of the fund at the effective date of the ordinance codified in this section or[;] [(ii) T]the increase in the market value of the fund from the effective date of the ordinance codified in this section to May 31, 2009. (iii[6]) For the second. year, FY 2010, the appropriation from the fund shall not exceed the lesser of either [(i) AND (ii) BELOW: (i) F]five percent (5 of the market value of the fund at December 31, 2008 or[. (ii) T]the increase in the market value of the fund from the effective date of the ordinance codified in this section to May 31, 2010, less the amount appropriated for FY 2009. (5) Appropriations from the General Fund Land Sale Permanent Fund shall be limited to the lesser of the actual calendar year earnings for the fund or five percent (5 of the fund's fair market value as of December 31 of each year. (b) Authorized Investments for the [AIRPORT] Land Sale Permanent Funds. (1) Investments authorized by KMC 7.22.030. (2) Corporate obligations of investment_grade quality as recognized by a nationally recognized rating organization. If, after purchase, these obligations are downgraded below investment grade, the[Y] obligations shall be sold in an orderly manner within ninety (90) days of downgrading. (3) Domestic equities, which taken as a whole, attempt to mirror the characteristics or replicate the Standard Poor's 500 Index, including both mutual funds and exchange traded funds (ETFs). (4) Domestic equities, which taken as a whole, attempt to replicate the Standard 86 Poor's 400 Mid -Cap Index, including both mutual funds and exchange traded funds (ETFs). New Text Underlined; [DELETED TEXT BRACKETED] Ordinance No. 2529 -2011 Page 6 of 7 (5) Domestic equities, which taken as a whole, attempt to replicate the Standard Poor's 600 Small -Cap Index, including both mutual funds and exchange traded funds (ETFs). (6) International equities, which taken as a whole, attempt to replicate the Morgan Stanley Europe, Australasia, Far East (EAFE) Index, including both mutual funds and exchange traded funds (ETFs). (7) Equities, which taken as a whole, attempt to replicate the universe of domestic real- estate investment trusts as represented by the Standard Poor's REIT composite index, including both mutual funds and exchange traded funds (ETFs). (8) Emerging market equities, which taken as a whole, attempt to replicate the Morgan Stanley Emerging Market Index including both mutual funds and exchange traded funds (ETFs). (c) Officers and employees involved in the investment process shall refrain from personal business activity that could conflict with proper execution of the investment program, or [WHICH] that could impair their ability to make impartial investment decisions. Such employees and [INVESTMENT OFFICIALS] officers shall disclose [CONFIDENTIALLY] to the City Manager any material financial interests in financial institutions that conduct business with. the City and such information shall be kept confidential to the extent otherwise allowed by law. Employees and officers shall subordinate their personal investment transactions to those of the City, particularly with regard to the timing of purchases and sales. A "material financial interest" in an entity is a financial interest of any kind, which, in view of all the circumstances, is substantial enough that it would, or reasonably could, affect the employee's or officer's judgment with respect to transactions to which the entity is a party. (d) The Finance Director shall submit to the City Council a quarterly investment report that summarizes recent and anticipated market conditions[,] and that describes the City's investment portfolio in terms of transactions during the quarter, maturities, risk characteristics, and investment return compared with both bench mark performance returns and with the City's budgetary expectations, [THE FINANCE DIRECTOR SHALL SUBMIT TO THE CITY COUNCIL A QUARTERLY INVESTMENT REPORT THAT SUMMARIZES RECENT AND ANTICIPATED MARKET CONDITIONS, AND DESCRIBES THE CITY'S INVESTMENT PORTFOLIO IN TERMS OF TRANSACTIONS DURING THE QUARTER, MATURITIES, RISK CHARACTERISTICS, AND INVESTMENT RETURN COMPARED WITH BENCH MARK PERFORMANCE RETURNS.] (e) The Finance Director shall establish custody and safekeeping procedures with regard to all investments authorized by this [SECTION] Chapter. All such investment securities, or their related collateral securities, shall be either held by the City or by a custodial agent for the City. New Text Underlined [DELETED TEXT BRACKETED] Ordinance No. 2529 -2011 Page 7 of 7 Section 4. Effective Date: Pursuant to KMC 1.15.070(f), this ordinance shall take effect one month after adoption. PASSED BY THE COUNCIL OF THE CITY OF KENAI, ALASKA, this second day of February, 2011. ATTEST: Carol L. Freas, City Clerk PAT PORTER, MAYOR New Text Underlined [DELETED TEXT BRACKETED] Introduced: January 19, 2011 Adopted: February 2, 2011 Effective: March 2, 2011 KENAI, ALASKA To: Rick Koch, City Manager /From: Terry Eubank, Finance Director Date: January 13, 2011. Re: Ordinance 2529 -2011 "fr2ilaye with a Past, Ci Y with a Future" FINANCE DEPARTMENT 210 Fidalgo Avenue, Kenai, Alaska 99611 -7794 Telephone: 907 283 -7535 ext 221 FAX: 907 283 -3014 In July 2008, the City adopted a new investment methodology for the City's Airport Land Sale Permanent Fund. The new methodology was more structured to the long -term goals of a permanent fund as opposed to the everyday operating needs of the remainder of City funds. The new methodology authorized investment in equities (stocks of publicly traded companies) and corporate bonds (debt of publicly traded companies) both of which on average have significantly higher returns than the investment vehicles authorized for all remaining City funds. Along with higher rates of return comes higher risk but over a long -term, say 20 years, the higher rates of return will overcome the risk and produce an estimated average rate of return of 7.2 Similarly, the fixed income portfolio used to invest the remainder of City funds is estimated to yield less than 4 The dependence upon the City's investment portfolio for everyday operations and capital needs explains the conservative approach and acceptance of a lower rate of return. In the case of a permanent fund, where the corpus of the fund can never be spent, the same day to day dependence is not present allowing for assumption of more risk in search of greater return. Since inception of the new investment methodology, the Airport Land Sale Permanent Fund has returned 14.11 The remaining City investments have returned an average 1.83 Ordinance 2529 -2011 will allow investment of the General Land Sale Permanent Fund like the Airport Land Sale Permanent Fund. Annual appropriations from the General Land Sale Permanent Fund will be limited to the funds actual earning or 5% of the funds average balance at December 31 of the preceding five -years whichever is less. This will assure the principle of the fund is never spent, as prescribed in the City's Charter.