2005-04-28 Work SessionITEMS FOR DISCUSSION
ASSEMBLY WORK SESSION
April 28, 2005 - 7:30 p.m.
Borough Conference Room
1 AGENDA
CITIZENS' COMMENTS (limited to three minutes per speaker)
1. Investments - Mary Lou Pratt ' 1 ,y4 � r
2. Fire Protection Area No. 1 Board Update - Scott Arndt a
3. Gateway Team Presentation - Pam Foreman p 01/4 0
4. Budget - Enterprise Funds, Solid Waste, KFRC, E -911, Capital Projects 9: /0
PACKET REVIEW /
MANAGER'S COMMENTS
CLERK'S COMMENTS
MAYOR'S COMMENTS
ASSEMBLYMEMBER COMMENTS
1 ON LEAVE
Wells
Branson - May 1 -13
Abell - May 5 -6 - SWAMC
Bonney - May 10 -22
ASSEMBLY CALENDAR
April 2005
30 - KIBC 3.08.030B The school district shall submit to the manager the proposed budget and local support
requirements for the school by the 30th thirtieth of April so the major funding can be
incorporated into the borough budget and budget message.
Within thirty days after receipt of the school district budget, the assembly shall determine
the amount of funds to be made available from local sources for school purposes and shall
furnish the Board of Education with a statement of the sum to be made available.
May 2005
2- 7:00 pm School Board Work Session - SD /CR
5- 7:30 pm Assembly Regular Meeting - AC
10- 7:00 pm Parks and Recreation Committee Meeting - CR
7:30 pm City Council Work Session - SD /CR
11- 7:30 pm Planning and Zoning Commission Work Session - CR
i .:S %
12- 7:30 am Assembly Work Session - CR (AADC Update) - (SD Budget) -B Budge
Special Revenue Funds)
7:30 pm City Council Regular Meeting - AC
16- 7:00 pm School Board Regular Meeting - AC
18- 7:30 pm Planning and Zoning Commission Regular Meeting - AC
19- 7:30 pm Assembly Regular Meeting - AC (SD Budget PH) - (MB Budget Ordinance Intro)
23- 7:00 pm Womens Bay Service Area Board Meeting - WBFH
24- 7:00 pm Parks and Recreation Committee Meeting - CR
7:30 pm City Council Work Session - SD /CR
26- 7:30 pm Assembly Work Session - CR (MB Budget)
7:30 pm City Council Regular Meeting - AC
June 2005
2- 1:OOpm Local Emergency Planning Committee Meeting - AC
7:30 pm Assembly Regular Meeting - AC (MB Budget PH - Adoption)
7- 7:30 pm City Council Work Session - SD /CR
6- 7:00 pm School Board Work Session - SD /CR
8- 7:30 pm Planning and Zoning Commission Work Session - CR
9- 7:30 pm Assembly Work Session - CR
7:30 pm City Council Regular Meeting - AC
14- 7:00 pm Parks and Recreation Committee Meeting - CR
7:30 pm City Council Work Session - SD /CR
15- 7:30 pm Planning and Zoning Commission Regular Meeting - AC
16- 7:30 pm Assembly Regular Meeting - AC
20- 7:00 pm School Board Regular Meeting - AC
23- 7:30pm City Council Regular Meeting - AC
28- 7:00 pm Parks and Recreation Committee Meeting - CR
7:30 pm City Council Work Session - SD /CR
30- 7:30 am Assembly Work Session - CR (Non -Profit funding)
July 2005
7 7:30 pm Assembly Regular Meeting - AC (Non -Profit Funding Resolution
13 7:30 pm Planning and Zoning Commission Work Session - CR
14 730 pm Assembly Work Session - CR
20 7:30 pm Planning and Zoning Commission Meeting - AC
21 7:30 pm Assembly Regular Meeting - AC
28 7:30 pm Assembly Work Session - CR
please print your name
( S( c/
8.
2. 7749/
10.
1 1.0
big
12.
FAY
KODIAK ISLAND BOROUGH
WORK SESSION
n, MEETING
Work Session Meeting of: z� /unb
-e r
13.�J1 I
14.
15.
PRESENTATION
KODIAK
ISLAND BOROUGH
April 28, 2005
ALASKA P1E1f�V11A N IF NT
CAPITAL MA \AGEME \T COMPA \Y
2
Our Assignment
* Deliver investment alternatives for Assembly
consideration and implementation
* Recommend revisions to the Borough's
Investment Policy
* Provide actual asset allocations and historical
returns from sample communities
,ALASKA PERMANENT
W CAPITAL MANAGEMENT COMPANY
3
Executive Summary
• Objective:
Design an investment strategy for the Facilities
Fund that provides the best return for a
moderate amount of risk.
Maintain purchasing power of the Fund while
generating earnings for annual distributions.
A ALASKA PERMANENT
IF CAPITAL MANAGEMENT COMPANY
Executive Summary
• Income Needs:
Assets to be managed in a manner consistent with
the need to distribute 4% of trailing 5 -year
average market value.
(POMV approach)
4
ALASKA PERMANENT
CAPITAL MANAGEMENT COMPANY
5
Executive Summary
Recommendations:
Adopt broader and more flexible investment
guidelines consistent with common industry
practice.
Consider an asset allocation consisting of 70%
bonds and 30% equities.
AALASKA PERMANENT
t 'g r CAPITAL MANAGEMENT COMPANY
6
Importance of
Asset Allocation
� ALASKA PE
Asset Allocation
• Diversification to improve risk/reward tradeoff
• Consider modest equity exposure/ inflation hedge
• Prefer intermediates vs longer bonds
* Risk of loss shrinks as time horizon extends
7
ALASKA PERMANENT
.7 CAPITAL MANAGEMENT COMPANY
8
29%
One Year Periods Five Year Periods
CID
Source: Ibbotson Associates
Risk of Stock Market Loss
1926 -2003
Ten Year Periods
3%
1 2%
*,ALASKA PERMANENT
ENT
Annual Returns
Best Returns
% Positive Return
9
Source: Ibbotson Associates
Stock/Bond Allocation
Five Year Rolling Periods
1926 -2003
100 %Stocks /0 %Bonds 70/30 30/70 0 %Stocks /100 %Bonds
10.4% 9.3% 7.3%
28.5%
88%
•US T -bill annualized returns over period was 3.7%
•US Inflation rate over period was 3.0%
22.8% 21.3%
93% 100%
5A%
21.6%
92%
OAALASKA PERMANENT
CAPITAL MANAGEMENT COMPANY
10
Facilities Fund
Investment Alternatives
4ALASKA PERMANENT
CAPITAL MANAGEMENT COMPANY
11
Sample Asset Allocations
• Alaska Permanent Fund
• AEB
Fixed Income 78%
Domestic Equity 20%
International Equity 2%
• MOA Trust Fund
U.S. Fixed Income 28% US Fixed Income 40%
Non U.S. Fixed Income 4% Domestic Equity 48%
Real Estate 10% International Equity 12%
Alternative 3%
Domestic Equity 37%
Non Domestic Equity 18%
• City of Fairbanks Permanent Fund
U.S. Fixed Income 75%
Domestic Equity 25%
A ALASKA PERMANENT
CAPITAL MANAGEMENT COMPANY
•
•
•
Alaska Permanent Fund
Lehman Aggregate
Aleutians East Borough
Lehman Int Gov /S &P 500
Returns as of 3 -31 -05
Fairbanks Permanent Fund
Lehman Aggregate /S &P 500
last 12 mo
last 3 yrs
0.96% 5.76%
1.15% 5.99%
1.96% 5.13%
1.17% 4.53%
2.97% 5.70%
2.58% 5.44%
last 5 yrs
6.60%
7.14%
4.21%
4.25%
4.81%
4.73%
12 ALASKA PERMANENT MANAGEMENT
13
Choosing the Best
Asset Allocation
AALASKA PERMANENT
4r CAPITAL MANAGEMENT COMPANY
14
20
15
10
5
10
5 Year Nominal Rolling Returns
(50% Equity /50% Bonds)
50Equity:50Bonds
- - - - Aeerage Retum(8.03 %)
Inflation
4'3 � °) i b b N 0 "5 N c b ib 0 ' 01'' cbt N ck 0 N 4°' 43 :\ 1\ N oS° X 05 3 4 4° X 4 1/4 O � X 41/4 � � 9 � 0 �e ^e 93% e � � 9 6 A� 0 rt�� O rye `L rle b
X 9 (0 " . 9 � L '. " . 9 41 ' . � ' . n � " . " . o D O " � 9 b r 1 % � . t 4 ` , . c " " . b0 . i0 " c . b ' . C o ' . � 0 ' ' . � 0 0 " . l % � 9 0 c " X 9 06 " X 9 e " . \ O + X 9 A q % � 9 At" " X 9 ^ 6 � 9 , `% " e # X 9 0` Y � $ P X 9 06 " � 9 � 0 " � 9 (F " ^ 9 �' : o t �' ' e r y9 c9"
A ALASKA PERMANENT
r CAPITAL MANAGEMENT COMPANY
15
20
15
1
5
0
5
5 Year Real Rolling Returns
(50% Equity /50% Bonds)
50Equity:50Bonds Real
- - - - Average Real Retum (4.81%)
-10
�9 �0 � r0ti no re) � 10° O � �t` 4 6Ca � 9 y O 41' bt`
X9 9 y0 % C P � g 6 `L 050 A ° A l' A t` A Q` ,9 X 9 9 A 0 e el'
� ^ 9 e b 4) co % c e 1g � � �9L � p0. � �6 � �0 ry �O e
ry0 0 �L ry
,�ti6 A ti� , 9 ��� cb# 9 `t 4 3 � �� ° , 9° 6 0 9°O 43 9`' %, 9 h# ��°° d �°° e e a '�o• Aq'� � 9 A 6� 0 �0 0 �0 cg9 a �6 9° � �'ry � �'b , �'6 a 90 ry ci s
A, ALASKA PERMANENT
!e CAPITAL MANAGEMENT COMPANY
5.00
0.00
5.00
0.00
ilik a.
*
I
Ilr r
5.00
D.00
30Equity /70Bonds
- - - - Aeerage Retum (7.00 %)
Inflation
16
d
E
a
1
-1
5 Year Nominal Rolling Returns
(30% Eq uity/70 % Bonds)
oh( 5 onib , 9,56 1 99 0p ^ �`L 1 0 ��61�0 01? � oe � �j% .\0 � At% g0 1 0 `L � 9 6b � _ a ) „sg0 ,. . 0 1 (11. b L19 9 , ,6 ,0,,0 r�00 0 t� b oiogi ,9ry6 � °j� X 09 1 0 1 906 � � e � � ° j y0 �. ° j 61; 0,4k � � � � ,OAO x.0,9; c'�b,9�6,9�6,�0 �& � 1 �" ��S N t ry
A ALASKA PERMANENT
( IF CAPITAL MANAGEMENT COMPANY
17
0
20.00
15.00
10.00
5.00
0.00
-5.00
-10.00
5 Year Real Rolling Returns
(30% Eq u ity/70% Bonds)
30Equity:70Bonds Real
- - - .Average Real Return (3.78 %)
�. �°j b
� b 1',5(0 ^o' r j 0 19 b 0 19 b`L ^g � 9 b6 1 9 b0 1 9 � 41' ^g CP ^ b
9 43 �. 9 C)% CD% CZb X 9 66 ♦ ° j 60 1 ° ' ^ � ^ X 9 ,` 6 X 4 \9 ' �9 X 9 06 X 9 00 � �9 ^ 1�'19e'0r- 00-0`' ,..0b 95 N461f0140.14`1'16 \Cgb ,° Nc rL Nct \°A . � o . �� ry � . 1 : 6 NO ■
•,4)1 ^ � v r ,4° Nc9 ,9 ^ � 9 ^6 ^ ^ wry ^ � b . ,rb � � � o � , � ^tea ^6,
A ALASKA PERMANENT
CAPITAL MANAGEMENT COMPANY
c
0 5.00
18
20.00
15,00
10.
0.00
-5.00
-10.00
5 Year Nominal Rolling Returns
(1 00% Bonds)
°'0 5 ,99 0 ,9b 0 ''b , 9b b , 9b 5 , 9b 0 ^ 9 5 0 „95 , b X 95 0 � 9 b 0 �� 'V � N90 ^ � 0� 9 ,�0 ^ 9 � �L ^9 .� A ,9 , � 6 ,9 ,� 0 , 9 � 0 , 90 9L , g �b X 9 4 , � � ^ 9 p �A t g9 0 ry � O aGe
�9�5 ^gry 0, 9 n�0 , 90 �L � 9 r 5 b � .. F � 9n� 0 � 9b0, 9b ry, 9pP, 9b0 ^ •
9 50 •
9 5`x' op $ X 95 0 f op o ` , FiO , 9A0 ,9 Ary ,9^b , ^9 00 ,9 ,9 0`}' ,9 op` x ,9 ry0
ALASKA PERMANENT
'S c CAPITAL MANAGEMENT COMPANY
Si -4161114i
N re 1111 all p re
100% Bonds
- - - - Average Return (5.46 %)
Inflation
c
0 5.00
18
20.00
15,00
10.
0.00
-5.00
-10.00
5 Year Nominal Rolling Returns
(1 00% Bonds)
°'0 5 ,99 0 ,9b 0 ''b , 9b b , 9b 5 , 9b 0 ^ 9 5 0 „95 , b X 95 0 � 9 b 0 �� 'V � N90 ^ � 0� 9 ,�0 ^ 9 � �L ^9 .� A ,9 , � 6 ,9 ,� 0 , 9 � 0 , 90 9L , g �b X 9 4 , � � ^ 9 p �A t g9 0 ry � O aGe
�9�5 ^gry 0, 9 n�0 , 90 �L � 9 r 5 b � .. F � 9n� 0 � 9b0, 9b ry, 9pP, 9b0 ^ •
9 50 •
9 5`x' op $ X 95 0 f op o ` , FiO , 9A0 ,9 Ary ,9^b , ^9 00 ,9 ,9 0`}' ,9 op` x ,9 ry0
ALASKA PERMANENT
'S c CAPITAL MANAGEMENT COMPANY
J.".
0.00
5.00
0.00
5.00
—100% Bonds Real Return
- - - •Merage Real Retum (2.24 %)
c
0
V
a
1
1
5 Year Real Rolling Returns
(100% Bonds)
N 900 #\0% 4:b% ,N0% x90 90,Not e9k X91 X 0 . . 9 - y p 0 � ,,9y � ^ e 96 ry ^d r A \ or r r 0 � 9 1r , 0 � ^ Q � g9 \ 9 ? k ^9 ^9 � 0 X 0 0 � O p� �L . ` 03 ` b g oi9 6 � 03q 0 � 0 t`Op .0
. 9 ry6' . 9 ry0 • �.°j � p• , 9 � ry �. 9 � ,, �. 9 � 6, � 9 ,b2) ' �. c fr ,• ,9 acil , •,° `'0 , •,9 `9 , 4 / ^` • ° � 6• .,` , ., 9 � 0, ., 9 � ry � 0 ^p. .� 9 '1%# � % • ., 9 0 0, � � '1 ' 0 , 0� cil ` � A
19 *ALAS PE
CAPITAL
Historical Returns ( Year Rolling)
Stocks/Bonds Nominal Real # Periods Negative
50/50 8.02% 4.81%
30/70 7.00% 3.78%
0 /100 5.45% 2.23%
20
*1926-2004
4
2
0
tt ALASKA PERMANENT
7r CAPITAL MANAGEMENT COMPANY
Bonds
Stocks
21
Source: Ibbotson Associates
APCM 5 Year Outlook
Expected Return
5.0%
9.0%
•6.2% (Return) — 4% (POMV) = 2.2% to cover inflation
•5 year expected inflation = 2.7%
Weight
X 70% = 3.5%
X 30% = 2.7%
6.2%
A ALASKA PERMANENT
IF CAPITAL MANAGEMENT COMPANY
22
We Recommend a
Balanced Portfolio
70% Fixed Income — 30% Equity
Fixed income portion invested in securities replicating the Lehman Aggregate
Index.
Target allocation is 70 %, with a 60% minimum and 80% maximum
Duration limited to 80 -120% of the Lehman Aggregate
Equity portion invested in an S &P 500 Equity Index Fund
Target allocation is 30%, with a 20% minimum and 40% maximum
ALASKA PERMANENT
rr CAPITAL MANAGEMENT COMPANY
23
We Recommend Updating
Investment Guidelines
• Worked with staff to update operating and facilities fund
guidelines.
• Operating Fund (3.04.020) additions include the ability to invest
in commercial paper and short AA rated corporate debt.
Clarification on repurchase agreements, money market funds
and collateralization requirements.
• Facilities Fund (3.04.051) specifications for broad range of
investment grade bonds and stock index funds. No derivatives
or leverage permitted. POMV withdrawal set at a maximum of
4 %.
FOA ALASKA PERMANENT
CAPITAL MANAGEMENT COMPANY
24
Kodiak Island Borough Determinations
• Investment Objective
• Investment Goals
• Investment Policy Considerations
• Asset Allocation
• Implementation
ALASKA PERMANENT
V CAPITAL MANAGEMENT COMPANY
25
Appendix
ALASKA PERMANENT
MANAGEMENT w CAPITAL
Duration vs. Return
Five Year History Return
as of 3/31/05
26
7.50% -
7.00% -
6.50% -
6.00%
5.50% -
5.00%
4.50%
4.00%
4.80%
Lehman 1 - 3 Year
S &P 500 - 3.16%
4.75 -
4.25 -
3.75 -
3.25 -
2.75 -
2.25 -
1.75 -
1.25
1.73
Lehman 1 - 3 Year
5.37%
2.35
6.08%
6.71%
7.14%
Lehman 1 - 5 Year Lehman Intermediate Lehman Intermediate Lehman Aggregate
Govemment Gov/ Credit
Duration (Risk)
3.33
3.66
4.50
Lehman 1 - 5 Year Lehman Intermediate Lehman Intermediate Lehman Aggregate
Government Gov/ Credit
A t' ALASKA PERMANENT
CAPITAL MANAGEMENT COMPANY
Duration vs. Return
27
7.50%
7.00%
6.50%
6.00%
5.50%
5.00%
5.42%
5.80%
Ten Year History Return
as of 3/31/05
6.24%
6.60%
7.14%
Lehman 1- 3 Year Lehman 1- 5 Year Lehman ktermediate Lehman Intermediate Gov/ Lehman Aggregate
Government Credit
S &P 500 10.78%
4.75 -
4.25 -
3.75
3.25 1
2.75
2.25
1.75
1.25
1.73
2.35
Duration (Risk)
3.33
3.66
4.50
Lehman 1 - 3 Year Lehman 1 - 5 Year Lehman Intermediate Lehman Intermediate Lehman Aggregate
Government Gov/ Credit
ALASKA PERMANENT
IP> CAPITAL MANAGEMENT COMPANY
Inflation 3.0 3.1 4.3
U.S. Treasury Bills 3.7 3.8 3.1
Intermediate -Term
Government 5.4 5.5 5.7
Long -Term
Govemment 5.4 5.8 9.3
Long -Term
Corporate Bonds 5.9 6.2 8.6
Small Company
Stocks 12.7 17.5 33.1
Large Company
Stocks 10.4% 12.4% 20.396
IM
MI
Mat
■
111
MO
INNS
III=
MI
M
MVO
a
N
0
th
0
co
0
0
0
O
3
s
m =.
� n
Basic Series: Summary Statistics of Annual Total Returns
1700Z 0 1 9Z6 wo4
uoencaasia
I 11 11 I
a
N N W A W V N e; 3
8 8'4 8 8 ti e3 `3
w.
8 S 8 8 v m 3g
NH H
Oq
yy q �
0� O p� p� O� O�
8 8 8 8 8 8 8 Boa
al n
3
q �
O O O N W O 8 OT.
0......
g �
o -1 264'48
S3
mi a �
cb
N m m m 1 0
9
O + fJ O
m N m N +
O N A N W 8 A 32
3
�Y
C
ro
8888888
c
a
0 000 * *g
A � w R
PRWM
w �0W (0
N
rn 9' w a :- 9' n
8;8885288 5
�� gag
b- N p - 9 9
O Oo A 8; IT v 8 51
.3
d<
(0(0(0 m
Y gT�; = m
�O0 A jl,A,
F
o wl
O
C r:
e •
I•000 0 0 8
33
� Q
N A +➢ U N g S
0000001
6 �8R� g 2 g � $ 2 $
11001
111
N P-& O A N N 33
N pm m @ @@ a3
N N N N!`f n
888808“
N
m
3
988888
3
EEEMEEE
Ip 56 " N 0 0 �• 93
m m 8 8 6 w o 3e
8888888 a o
S3
ma
N �
mO
0
800060843
O
al
m m O N W D
b a 0 T w o
N A A N
f0 0 G a 0 O
D W D 01 J D
N 10 PO CT CO
b
m
D p
W D
0) N
D V CO 0
O O D
4] J ro a
•
a D
D to N • 0 a
P
0 O
N W A D D J
D W 01 01 m N
D O+ W m
D 0 V CO 01 CO
b
n
co PO
U W
0
m
a 0
co.
N
0
C 0
fT
co
'D
I0
0 8.
9
g N
01
3
C
D
0
Cr 00
0
E
Cr
0
0
D
0.
0
0
m
P.
5 ; ;1; ;8-m
0
8 0 at e 8 m X e
9 9 9 1 9"
k _ �
$ e m m
gi
8
0
O
co J m (1
5.5, D N
to
1
g
D b
e
a
D
O
V D
O O W D
W D CO D
CO
88
0
D
co S a a 2.
in (0 A 0 0
m 1
3 3 0-
m 5
0
n
O .
A A
0
3
m_
ID
m
0
6
m
0
V
5 x x a C
C �c i
D
U 111111
Wa 0
0
�+o
N W J D D O O D y
a A a a a ' n
D - N 0 3
0t - a v is 3 n
om
g.S
on
(0D - e ac
W W a
tT D Y A W j (�
m
3 3 a
3 m
o g
8
0
o
0
3
m_
0
0
E
a
p 0
0
N
N
0)
0
to
01
8 N
Index
Fs
0
0
0
- d 0)
e
s r
a N
0 ° N
N 0
01 N
11 H
fA y,
O <
3
m
5
m
O
0
0
n
O
m
ALASKA
1ERMA»\ 1E\1
CAPITAL MANAGEMENT COMPANY
is relationship driven and views itself as a
long -term partner with its clients.
YOUR BUSINESS IS IMPORTANT TO LIS!
OA ALASKA PERMANENT
rr CAPITAL MANAGEMENT COMPANY