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04/28/2005 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