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HomeMy WebLinkAbout2005-07-28 MinutesFiremen's Pension & Relief Fund Board of Tmstees Meeting Minutes July 28, 2005 Page l of 5 Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes July 28, 2005 A meeting of the Fayetteville Firemen's Pension and Relief Fund was held at 11:00 a.m. on July 28, 2005 in Room 326 of the City Administration Building Marion Doss called the meeting to order Present: Marion Doss, Danny Farrar, Dennis Ledbetter, Pete Reagan, Ronnie Wood, Sondra Smith, Trish Leach, Accounting Department and Kit Williams, City Attorney, Elaine Longer, Kim Cooper, Christa Ferguson and Kenneth Biesterveld, Longer Investments. Absent: Mayor Coody Approval of the Minutes: Pete Reagan moved to approve the June 30, 2005 meeting minutes. Dennis Ledbetter seconded the motion. Upon roll call the motion passed 5-0. Ronnie Wood was absent during the vote. Mayor Coody was absent. Approval of the Pension List: Pete Reagan moved to approve the August, 2005 Pension List. Danny Farrar seconded the motion. Upon roll call the motion passed 5-0. Ronnie Wood was absent during the vote. Mayor Coody was absent. Old Business: Nichols & Campbell, P.A. - Income Tax refund for Retirees — Update Patricia Leach, Accounting: We have the letters almost ready to go out. We will be sending two different letters, one to the pensioners that are not eligible and one to the pensioners that are eligible. The people that are eligible to participate, we are sending the information to them, for them to approve our calculations. When they approve it and get it back to us we will then forward the information to the Department of Finance. It will take them approximately six weeks to process the information. Marion Doss: I am glad you sent a letter to the ones that are not eligible so there will not be any confusion. Firemen's Pension & Relief Fund Board of Trustees Meeting Minutes July 28, 2005 Page 2 of 5 TIF Lawsuit — Update from Kit Williams Kit Williams: I had a meeting with almost all of the attorneys initially to try to agree to the stipulated facts so we could then submit briefs and decide. We have a second meeting scheduled the first part of August and hopefully we will agree to the stipulated facts that I have presented. I will present it to them again and tell them if there are any facts they want, to let us know, and we will include them. If we can get everybody's agreement on the stipulated facts then we will be in pretty good shape. There are a few questions that I will ask of the school district, to clarify what their debt service was in relation to what the law says. Once we have that I think we will be in a position to file legal briefs with the court and let the court decide. It is just a matter of law as to how that money should be divided. If we get to that point then I will be happy because the amount of attorney's fees that you will pay will be fairly small. I can't guarantee you that there will not be a hearing, the school board's attorney has said that he wanted to have testimony. We are trying to accommodate everybody, but I don't understand the need for it. Dennis Ledbetter: Who represents the school? Kit Williams: Rudy Moore. Everyone has been cooperating. I think we are all working at this in a very cooperative way. I would like to get some final decisions on this TIF District and get everything done properly. Pete Reagan: The bottom line of this lawsuit is that we are asking the Arkansas Supreme Court to determine what? Kit Williams: How to distribute the tax increment. There is a base, but everything above the base, the increase in tax that is questionable about who gets it. Does it go to the schools, the Police and Fire Pension Boards or the TIF District. The law is somewhat unclear so we are asking the Arkansas Supreme Court to tell us where to send the money. Marion Doss: Isn't the idea of the TIF that the increase goes to the TIF. Kit Williams: Some of it must in order to pay off the TIF funds, but this law and the constitution is a little unclear as to what part goes and what part doesn't go. Not everything is supposed to go. The debt service requirements of the school district are protected. There is also a question about the 25 mils that were required by Amendment 74 to be used solely for the operation and maintenance of the school, does that mean it can't be used for the TIF. Marion Doss: Our contention is that we should get the increase for our pension fund. Kit Williams: The new law stated that you all would not lose any money to the TIF. The question will be whether that new law applies to our TIF that was established by an ordinance before the new law. Dennis Ledbetter: Time frame wise, what are we looking at? Kit Williams: If all of the attorneys will agree on the stipulated facts, at the meeting coming up next week, then I would think we could agree on a briefing schedule and submit it to the local judge within a couple of months. Then it would take him 30 days at least to read everything and Firemen's Pension & Relief Fund Board of Trustees Meeting Minutes July 28, 2005 Page 3 of 5 to try to determine his ruling. After that it will have to be appealed to the Arkansas Supreme Court to get the final decision on exactly how this tax is going to be distributed. Longer Investments Report: Elaine Longer, Longer Investments: Page 1 of your report is the June 30, 2005 update. A lot has happened since June 30th. Page 6 is an update through Friday of last week. We did get the approval at the last board meeting to be able to go beyond the 50% equity exposure to a limit of 55%. We did that because we were pretty close to the 50% and I anticipated that if the market did move up fairly strongly that we would go over the 50%. We are there, we are about 54%. We need your approval of any overage. We are still under the 55% maximum. Pete Reagan moved to approve the overage in Equity. Sondra Smith seconded the motion. Upon roll call the motion passed 6-0. Mayor Coody was absent. Elaine Longer: The stock market has really performed better since the end of June, mostly because the earnings reports for the second quarter are coming in a little bit better than expected. The Fed's has raised interest rates again in June to the 3.75% level, but it is not having an impact on the economy at this point. The economy is still growing at about a 3.50% growth rate, inflation appears to be moderate. The ten year treasury is at 4.25% so that we don't have a lot of attractive alternatives to owning stocks at this point in time. That is why the stock market has been able to move higher. We are at about 10,650, which year-to-date now, that is up about 1% or 2%. We have been all over the place this year, in March we hit 10,900 backed off to 10,000 just recently as June, now we are back up to 10,650. At least we are back into a positive territory year-to-date. When we wrote the June newsletter we were still negative year-to-date. Month -to - date in July the stock market is up about 3.7%, so that is a really big move in the last three weeks. Page 10 shows that your overall market value is $9.5 million. The income yield, which is just what you receive in terms of dividends and interest income, is 3.4%. On page 11 the realized gains year-to-date is about $147,000 and net income, which is dividends and interest, net of your expenses is about $120,000. On page 12 we have your bond portfolio information. There are a lot of numbers on this page but the most important ones are the average yield to maturity on your bonds which is close to 5%. You have a weighted average maturity on the bond portfolio of just 7.4 years. That compares to, in the treasury market, currently your yield on the 10 year treasury is 4.25%, so you have a much higher income yield with a shorter maturity than what is currently available out there. The most important part of the bond portfolio right now is that about 26% or 27% of the total portfolio is within a three year maturity. As interest rates continue to go higher, which we don't think the Fed's are completely finished with this rate increase cycle, we have plenty of flexibility in the short maturities to be able to take advantage of those higher rates. We don't have to hold a bond until maturity, it is not like a CD, so if we get an opportunity to move and get higher income and lock in longer maturities, we will be pulling from this, one to three year maturity range, to be able to do that. We consider that 26% to be cash equivalent. Firemen's Pension & Relief Fund Board of Tmstees Meeting Minutes July 28, 2005 Page 4 of 5 On page 13 are your largest holdings. Most of them are 4% or less on percentage of equity portfolio, but even your largest holding is only 2% of the total portfolio. So, it is still very well diversified in high quality stocks. On page 14 we have the industry and sector ratings that we review each time. We have made a few changes. We are still over weighted on the capital goods side of the economy. We are about 15% of equity exposure in the capital goods area versus 8.50% on the S&P. The reason is that the corporate sector is very strong in terms of balance sheet and cash flow and they are spending more on capital equipment. We are very much more favorably disposed to the capital side and the corporate side of the economy than the over leveraged consumer side. Page 15 you will see that we are under weight on the consumer with about 10% versus 17.9%. In energy we are still over weight at about 12.9% versus 8%. We have trimmed some of the energy stocks out of the portfolio; at one point in time I think we were as high as 16% to 17%. We retained the high dividend paying energy stocks and we sold the ones that have a lower dividend yield. So, we still have the high quality energy stocks in there with the good dividends. One change, that is the largest sector change that we've made this year, is that we are now about equal weight in the financial sector. It has been interesting, the banks have really trailed the market year-to-date and they trailed last year because they are sensitive to a rising interest rate environment. There is a lot of value in the banking sector and in fact the average dividend yield on the banks that you own is 3.8%. I don't think the sector will really take off until we get to the end of the interest rate increase cycle. We may have one more increase in August; we may have two before year end. As soon as you see light at the end of that tunnel, then the financial stocks can perform better and that is certainly where the value is because you have high dividends and they have trailed the performance of the overall market year-to-date. We have been taking advantage of declines in that area to really increase our holdings. So we are equal weight financial at this point in time. We are slightly over weight in technology at 19.5% versus about 15% on the S&P 500. The earnings have come through very good in the technology stocks, there hasn't been one of our companies that has disappointed this quarter and the outlook that is being expressed by corporate management is also very favorable. So, we like the technology sector as well. Page 19 has the contributions and distributions from inception to date. The contributions have been about $477,000; the distributions have been about $2.5 million. Page 20 has your performance report. The one for June 30, 2005 shows your stocks down about 4%, bonds were up about 2.7%; your real estate investment trust was up about 7.5%. So you are still down by about 0.9%. As of yesterday you are up about a half of one percent. The stocks have really come back and that has helped to move the whole portfolio into the black, year-to- date. Since inception, your stocks have done about 8.3%, and bonds have done about 4.7%. Your total return is about 6% compound annual inception to date. The indices by comparison are listed below. The S&P is up about 9%, the DOW with compounded dividend is up about 7.8% and the Salomon Brother Treasury Index is up about 4.4%. So, net of your expenses, which we net out of your performance numbers you are still out performing the indices by comparison. Your net investment return has been about $1.67 million. Between the contributions that have been made and the investment return, if you will notice your beginning and your ending is about the same even though we have had $2.5 million go out of the portfolio. We are hanging in there. Firemen's Pension & Relief Fund Board of Trustees Meeting Minutes July 28, 2005 Page 5 of 5 Pete Reagan: Where do you think the projects will be at year end for this fund? Elaine Longer: I really think that the relative valuation of stock versus bonds had really moved, even more so to the stock side from the first quarter. When we wrote the newsletter in the first quarter, the earnings estimates for the S&P 500 were about 72.50 for this year and the ten year treasury was about a 4.56%. By the time we wrote the second quarter newsletter, the S&P earnings estimate had come up to 73.50 and the ten year treasury was down under 4%. So, you had rising valuation, rising earnings estimates on the S&P 500 and a decline in the alternative investment return, which is the ten year treasury, so there again the relative valuation in stocks versus bonds was more heavily weighted on the stock side. I still feel that way. We are not having any trouble moving new cash into the market. We've been able to move new cash in to stocks that meet our valuation criteria still pretty smoothly. I am still pretty optimistic about it. I do think we still have a better buying opportunity on the bond side out there before the end of the year so we are little bit conservative on our bond allocation. Dennis Ledbetter: What effect will the housing market have on this? Elaine Longer: We are not very exposed to the housing market. We don't own any of the housing stocks. Our play on the housing sector is the Sherwin Williams and MASCO, which both of those companies play on construction and home remodeling. Those two stocks still meet our valuation criteria, so we are very comfortable with them and they have reported good earnings. On the housing bubble, I really think that would affect more of the consumer spending and we are very underweighted in consumer. I do think if you get into a point where the 10 year treasury yield goes towards 5% then you will start to see some impact on that housing area. But we are not there yet. We are still at 4.25% and the 30 year mortgage keys off the ten year treasury, so we are not at a point yet where there is a lot of pressure on all those new types of mortgages. I think we have to get to the point where the ten year is closer to 5% before you start to see some cracks in the foundation there. Meeting Adjourned at 11:40 AM.