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HomeMy WebLinkAbout2013-10-17 MinutesLioneld Jordan Chairman Sondra E. Smith Treasurer Eldon Roberts Secretary/Retired Position 1 Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes October 17, 2013 Page t of 13 y Jerry Friend Retired Position 2 John Brown Retired Position 3 G Melvin Stanley Retired Position 4 Frank Johnson Retired Position 5 Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes October 17, 2013 A meeting of the Fayetteville Policemen's Pension and Relief Fund Board of Trustees was held on October 17, 2013 at 3:00 PM in Room 326 of the City Administration Building located at 113 West Mountain Street, Fayetteville, Arkansas. Eldon Roberts called the meeting to order. PRESENT: Frank Johnson, Eldon Roberts, Jerry Friend, John Brown, Kit Williams, City Attorney, Sondra Smith, City Clerk, Dee McCoy, City Clerk's office, Trish Leach, City Accounting Office, Elaine Longer and Kim Cooper, Longer Investments. ABSENT: Mayor Jordan, Melvin Stanley Approval of the Minutes: Approval of the July 18, 2013 meeting minutes Frank Johnson moved to approve the April 18, 2013 meeting minutes. John Brown seconded the motion. The minutes were approved in a unanimous vote. Pension List Changes: None Eldon Roberts: That will be for the next three months: November, December, and January? Sondra Smith: Yes sir. Eldon Roberts: Okay. No changes as of now. That always can change. Sondra Smith: If that changes, we will put a revised list in the next agenda packet. Approval of the Pension List: Approval of the November and December, 2013 and January, 2014 pension lists Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes October 17, 2013 Page 2 of 13 Jerry Friend moved to approve the November and December, 2013 and January, 2014 pension lists. Frank Johnson seconded the motion. The motion passed with a unanimous vote. Unfinished Business: None New Business: Revenue and Expense Report: 3`a Quarter -September 30, 2013 report Eldon Roberts: Accounting does this for us every time. They keep running totals. It's a handy document. You can find where we were four, five years ago versus where we are today. It covers every facet of revenue, expenditures, and market adjustment on our equities and portfolio. Frank Johnson: Sondra I have a question. On the 10% fines and forfeitures, is this a percentage off of a line item in the city? Kit Williams, City Attorney: Percent of fines and costs actually received. Frank Johnson: Any fines and forfeitures, anything that meets the state statutory requirement for what we get 10% is in one line item in the city's budget for revenue, or is it dispersed? Sondra Smith: In the City of Fayetteville's budget? Frank Johnson: Yes. Kit Williams: It all comes here, but I'm not sure if they have one line item or not. I would think it would, but I can't guarantee it. Sondra Smith: I remember that statute. Didn't it say it went to the court and the court dispersed it accordingly? I don't know for sure, we would have to talk to accounting. You would like to know how the 10% fines come to the city. Frank Johnson: Yes, if it's just 10% off of a line item that's in the city's budget, and does the city's budget accurately reflect any other revenue that's coming in that would fit the statute for what we would get 10% from. Sondra Smith: The pension funds are handled totally different than any other funds here at the city. I would assume that would come directly into the pension fund and not come into the city's general fund or anything like that. Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes October 17, 2013 Page 3 of 13 Eldon Roberts: That has stayed relatively consistent. I don't see any big jumps in it anywhere. I think it's the fine and forfeitures that's collected, not what's levied. 2012 Annual Actuarial Valuation Sondra Smith: Pages nine and ten are the pages that you probable want to look at because they show your unfunded liability. Eldon Roberts: Page ten, the last three columns there in the print out and the very last column has the funded percent. The last time one of these was done was for the end of 2011, we were 36.7% unfunded liability and now we are at 34%, we are going the wrong direction. You can see the numbers of the total unfunded liability in the first column of the three last ones. $13,467,000 in December 2011 and this time it is $13,684,739. Sondra Smith: The asterisk beside a year, those are the years that something changed, like benefits increase or an assumption changed or something. Kit Williams: The latest one was not you all. That was when the big board up there decided to change the amount. They were assuming 6% or 7%, then they decided another higher percent on the turn, right before the crash. Sondra Smith: If you'll look back in 1995 and 1997, you were 100% funded in 1997. The next year there was some time of large benefit increase given and you went from 102% to 68% funded in one year's time. This is the report that we will talk about a lot, the unfunded liability and the percent funded. Kit Williams: Keep in mind that this has been a good year for stocks. The final figure, if it maintains where it is now, will be significantly higher than it was in 2012 from the stocks coming in. Now, it's not enough to pay all your expenses, but it's been a good year for the stock market. I would imagine that you all would see some pretty good gains to the fund from that. Sondra Smith: Trish, you know the 10% fine that comes in for the Policemen's Pension fund, can you explain where that comes in? Does it come into the general fund and then go out or does it come directly into the pension fund? Trish Leach: I'm going to be honest and let you know I don't know much about that. I would be glad to find out. I believe it comes from the court. Kit Williams: We will try to get that answer to you for your next meeting. Trish Leach: I'll get something together and send it to Sondra. Sondra Smith: I'll e-mail it out and we can discuss it again. Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes October 17, 2013 Page 4 of 13 Frank Johnson: If the assumption is that the district court is the only process that collects for fines or who else, like the parking people or a fine associated with not being in compliance with the folks in planning, I would just like to reconcile that. Sondra Smith: We might be able to get a copy of how they calculate that. Eldon Roberts: These parking enforcement officers, if they give someone a ticket for double parked or whatever, and the person just pays it, where do they pay it? Do they go to court? If they don't think they are guilty of this ticket they get, where do they go? Sondra Smith: If they don't think they are guilty of the ticket, I think they go to district court over it. If it's some type of small fine and they aren't going to go to court and don't want to mess with it, they can pay traffic tickets at the police department. Some little fines can come in downstairs, like parking, none of that would come into the pension fund, none of that would be considered because that's parking fines to pay for parking lots and other things. Frank Johnson: The only fines that a city collects, where we met the elements of the statute are fines collected by the court? Kit Williams: I would have to look at that. I think that's probably correct. I want to know for sure before I give you an answer. Jerry Friend: If you pay at the police department, they include court costs and that's what divided up between us and the library. Sondra Smith: State statute is pretty defining on where those fines come from. Eldon Roberts: That's where we get our portion, out of the court costs. Jerry Friend: When you pay the bond on a ticket to the police department, you pay court cost. Eldon Roberts: Right, then it's dived out between the library and us. Frank Johnson: I understand that as a process, but when I read the statute, I don't see that it has to be part of a court's collection, just a city. Kit Williams: They do the collection then turn it over to us. The judge levies the fine, or whatever it is, and then it's paid either through the police department or the court system and then we get paid. Eldon Roberts: What would you think if someone came in and paid a ticket that a parking enforcement officer gave them down on Dickson Street? Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes October 17, 2013 Page 5 of 13 Kit Williams: I think parking enforcement is not administered by the police department, instead parking enforcement. It might not be under that same statute. Jerry Friend: It has no court cost. Frank Johnson: It's still a fine though. Kit Williams: What can happen though is there can be a warrant fee on it if they don't pay it in time. Eldon Roberts: If you'll look into that and let us know how it all works. Bud2et discussion re2ardin2 communications, consultin2, & NCPERS Conference Frank Johnson: This was just a conversation I had with Sondra about how we pay our bills and if we wanted to do a mailer, if we wanted to attend a conference or if we wanted to pay for some consulting outside of what we get from Elaine, should we have our own budget for it? Sondra Smith: You may not be aware, but you do have a budget. Every year I do that budget. There's not very much on the budget, mainly your actuary expense and your pension expense. We might buy a roll of stamps once a year. We send it down to our budget department. I have already done the budget for the Police Pension for 2014. We have to have that done in July before the coming year. Anything that needs to be added can be added by a motion of the board. The Firemen's Pension at one point in time was sending one person to the NCPERS conference. They aren't doing that anymore because they can't afford to do that. That one conference used to cost anywhere between $3,000 to 4,000 to send one person. Frank just asked me about a budget. I told him we do have a budget but it's very limited what we have in the budget. Frank Johnson: As long as we have the right as a board to adjust our budget. Kit Williams: You can adjust your budget. The City Council adjusts their budget throughout the year if something happens and they need to change it or add something. As long as you have reserves, which you have, then you can adjust the budget and amend it. Eldon Roberts: If this board votes in a majority, if it's a good faith effort in what we are trying to pursue, I think we can. It's like doing a special actuarial evaluation. If we vote to spend the $4,000 to do it, and it carries, then I guess we can. Frank Johnson: Just to get compensation for people, such as you, going back and forth to Little Rock and things like that. Eldon Roberts: I get to ride down there and back for free. Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes October 17, 2013 Page 6 of 13 Longer Investments: Longer View: A copy was given to the Board Longer Investments letter dated Julv 31, 2013 Longer Investments monthlv report Elaine Longer: We wrote the newsletter on what's going on in the bond market, because if you remember the past several rimes I've been here, we've been warning about the price sensitivity of bonds in relation to an increase in interest rates. We've kept our maturity short, but you have high coupon treasury bonds in your portfolio that we can't replace, so it's not as if we can trade those, even though you had a good price appreciation as interest rates dropped. We can't sell out of those bonds because we can't replace that 4% coupon. The price decline has more than offset the income return on bonds this year. That's why bond returns are negative, year to date. It doesn't mean that your bonds are less than investment quality or that they are not a good portfolio holding, because that's a 4 '/4% coupon on treasuries that we can't replace. It's a fluctuation in the market price of the bond in response to what's going on in the interest rate market. This has happened across the entire fixed income spectrum, whether you're holding treasury bonds, agency bonds, corporate bonds or junk bonds. Bond prices are negative this year, more so than the coupon return. Total return on bonds is negative. That's the first time since 1994. We're finally here, where we thought we would be, and the good news is that back in 2011 we amended the investment policy so that we could incorporate other asset classes on the income side of the portfolio, such as your utility fund, high dividend bond fund, and master limited partnership fund so that we could achieve the income objective without necessarily having to have as much exposure to the bond market. Those assets have delivered positive return even while bonds have delivered negative returns. You still own bonds and they still did have a negative return year to date, but because of the fact that we've differentiated away from bonds in the income side of the portfolio the hit to total return was not as great as it could've been if you had more bonds. That's what the newsletter was about. We've had questions this year from clients like, why do I even own bonds? This is a good question. The last time we had this question asked this much was back in 1999. That was the year that tech stocks were going crazy. The NASDAQ index, which was the tech heavy index, was up 80% that year. The S&P was up about 25% and bonds were up 2%. Bonds were a four letter word back then, nobody wanted bonds. The reason you own bonds is because, in the next three years, the stock market went into a three year downturn. That was the first time we had a three year back to back negative return in stocks since 1939 to 1942. During that period of time, bonds returned anywhere from 25% to 36% depending on the maturity while stocks gave up 42% to 67% depending on whether we are looking at S&P or NASDAQ. Within a portfolio structure, bonds support the income needed to fund distributions. They are also the stabilizing factor in a negative stock market environment. Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes October 17, 2013 Page 7 of 13 In 1999 your stock return was only 5.7%. A lot of times, our disciplines are conservative. When the party hats come out and something is taken off and it outruns our evaluation parameters, we can't go there. In 1999, your stock return was 5.7%, bonds were .3%, and other income assets were down 3.5%. Your total return in 1999 was 3.3%, even with all the party hats out and the NASDAQ up 80% and the S&P up 21%. The return that you achieved in a conservative profile was 3.3%. Over the next three years, while the markets lost between 45% and 67%, the total down draft in your portfolio was only about 4%. That's what really makes the difference in your funding requirements also, because when you lose money it's real hard to make it back. If you go down by 20%, then you've got to make 25% on what you have left to get back to break even. If you go down by 25%, you've got to make 33% on what you have left to get back to break even. That's why, if you look at the stabilization in the negative markets, you can see what bonds did during 2001 and 2002. They really stabilized the account and the other income assets did so that your net decline, in a really terrible bear market, was really minimal. Also, looking in 2008, stocks were down 40%, bonds were actually positive by 6 Yz%, so your total hit to your total performance was minus 19%, which was made up fairly quickly in the next year and half. In a year like this, where you have stock performing, and bonds are flat to negative, we are getting that question. It harkens back to where we've been before where stocks have had a pretty good performance and bonds have a negative return in the 1990's. The fact of the matter is they're non -correlated assets. What that means is that the factors that give you strong bond returns are typically factors that give you not so strong stock returns. The factors that give you strong stock returns, higher economic growth, more monetary policy freedom can also give you negative bond returns. It's the asset diversification that stabilizes the performance over time. That's why we wrote the newsletter to address this because it's good to remember what part bonds play in the portfolio. If you look at the first pages of the portfolio, you'll see that equities make up about 51% of the total. The yield on your cost, which is just the dividend income yield, is 3.7%. That compares to, even though the treasury yield has increased dramatically, the ten year treasury is still yielding about 2.6%. On your equity side of the portfolio, you have and income yield that exceeds the ten year treasury by about 120 basis points. The other income category that we incorporated to diversify somewhat away from bonds but still be able to achieve the income objective of the portfolio, you can see that those assets make up about 12.3% of portfolio and yield on those assets is 5.8%. That's more than double the yield that we could get in the ten year treasury. In the meantime, the appreciation in those assets has been about 10%. These are Blackrock Bond America Bond Trust, it's a bond trust that has the Build America Bonds in it. It has a little bit of leverage, so you have a higher yield than off a straight bond. Then you see the Guggenheim Multi -Asset fund. This fund is a highly diversified fund that owns high dividend paying stocks, utility stocks, pharmaceutical, and energy. They also own a little bit of real estate investment trust, and a little bit of bonds. It's a highly diversified portfolio. That represents about 7% of the total portfolio and yields 6.21 % on your cost. If you look at the utility fund, we paid 34 for the fund and it's trading for 37 3/8. We've made about 10% appreciation while we are earning a 4.3% dividend yield. That is only 4.1% of portfolio. The thing about incorporating these assets Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes October 17, 2013 Page 8 of 13 into the portfolio, we want them there to offset some of the price risks that we see in bonds. We have to be cognizant that in a 2008 event, these will act more like stocks than bonds. It's a little bit of a balancing act. You want to use these assets to boost income and to go for conservative income plus growth. At the same time, you can't get overly exuberant about them because in a market crisis they will act more like stocks than bonds. We considered them outside the equity class but because of the fact that they do own stocks, we do ask for the waiver of the 50% plus 10% on equity side of the portfolio that we have to have to be at that kind of equity exposure. We're looking at them as income equivalent. From a technical standpoint, we think it's prudent to get the approval at the pension board. Sondra Smith moved to approve the equity overage. Frank Johnson seconded the motion. The motion passed with a unanimous vote. Elaine Longer: If you go to the next page, you'll see that we also have an investment grade bond fund. The reason we buy a corporate bond fund as opposed to a number of corporate bonds, is because this is a highly diversified bond fund. You can get a much better diversification than what we can get trying to invest 14% of the portfolio in numerous different bond issues. You can see that it has appreciated in price from $108 to $113.50. It yields 4.06% and it's a bond fund that just holds investment grade bonds. Next, you'll see the government bonds. You can see the treasuries make up about 14.6% of total portfolio. Your yield on cost is 4.05%. If you look at the price for instance, the 5.125% treasury, we paid par for, or 100 cents on the dollar, it's got an appreciation of 12% because it's currently priced at $112.06. To give you an example of what's happened in terms of price function this year, on December 31, that bond was priced at $115.62. You can see that even though you have a 12% on realized gain in the bond and you own a 5.125% coupon that we can't replace, the market price has come down about 3.6% during the year because of the rising interest rates. There's really nothing to be done with a bond like that. You can't sell a 5.125% coupon, I can't come close to replacing it. This is just a market fluctuation that does impact performance but it doesn't really call for anything to be done about it. If you look at the next bond, $800,000 at the 4%, we paid $103.76. It closed the year at $117.50 and is trading at $112.77. There we've had almost a 5% price decline netted against approximately 3% in income return, year to date. That's a negative return of 2%. You look at the market value versus the par value or what we paid for it. We paid $980,000 for these bonds and they are trading at $1,077,000 and producing a yield that's over 4 % which we can't even begin to touch even if we went into 30 year bonds. We can't do that, that's too risky That's good to see that because you can understand what price fluctuation means in terms of total return but how it can impact the portfolio in a negative way in the short term. All it is really is taking away some of the price appreciation that has happened since those bonds were purchased because interest rates dropped. The next one is the Federal Farm Credit, 6.127%. You can see that it's trading at $112, we paid about par for it. It closed the year at $116.91, about a 4% to 4.50% price decline while the income has been about 4.50% year to date. We still have a little bit of the Central Fund of Canada. It's a gold fund that represents less than 1% total Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes October 17, 2013 Page 9 of 13 portfolio value. Cash is about $61,000 or 0.8%. Then we have the Alerian Master Limited Partnership, this is a limited partnership of MLP's in the energy sector. It is a high income asset and it yields 6.13%. It's an energy and inflation beneficiary, 2.6% of total portfolio because we can't overweight an asset like this. In a 2008 type crisis, this performs more like a stock than bonds. That's why, six years ago, we could get bond market return of 6% fairly easily, so we were in agencies with five year maturity and two year costs we could get income easily without having to venture outside of the treasuries and the agency markets. What's happened now, you really have to go in a number of different directions to get the income into the portfolio in a prudent way without much exposure to the price risk that's in bonds at this point in the market. The total income on the portfolio is 4.16%, which exceeds the ten year treasury yield by 50%. That includes a 60% growth component in the portfolio with your stocks. The reason it's so high is because we've stuck to a conservative posture in your equity side of the portfolio where you can see that you've got high income paying stocks, high dividends, nearly 4%. Even on your growth side of your portfolio, you're generating more than bond income. The ending portfolio value of September 30 was about $7.358 million. Since September, we've had some interesting developments in the market between the Federal Reserve and the high wire act in Washington on will they default, will they not default. The market for the month to date is up about 2% through today. Everything has appreciated approximately 2% from where we closed on September 30`s. The next page shows the realized gains year to date, about $117,000 net income, which is just dividends and interest income that have come in of $144,000. The next page shows the bond portfolio. We break it down to look at the average yield to maturity and the average maturity. What we've been looking for is a profile where we are holding high coupon bonds. The average yield to maturity is 4.4%, which greatly exceeds the yield on the thirty year treasury but your average maturity is only 4.1 years. We have a very high coupon bond on a very modest yield to maturity. That means you have good income with very little duration risk. The price volatility of bonds in response to a change in interest rates is called duration. We look to minimize the duration risk in a market environment like this. You can't eliminate exposure totally because you have to have bonds in the portfolio. If you look at the next table, you'll see that 30% of your bonds mature within three years. What this means is that is as good as cash to us, we don't have to hold a bond to maturity. If we see that interest rates spike and we want to roll and capture those higher interest rates, we can sell anything that's cash tomorrow to us to buy another bond. At this point in time, there's really nothing attractive enough out there for us to let go of a 4 or 4.25, 5 1/8 coupon to extend maturities into something that pays less income. It's there if we want to do it, but the markets aren't where that is an attractive trade just yet. The next report shows the performance inception to date by asset class. Year to date through September, stocks were up 8.1%, bonds down 3.5%, the other income assets, 11.7% but they only make up 12% of portfolio. The total return in 2.5% year to date because bonds are muting some of the equity return. However, if you look at the long term compounded returns, you can Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes October 17, 2013 Page 10 of 13 see that equities have returned 5.4% compound annual. Fixed income has returned 5.6%, other income assets 8.8% so that the total compounded return, net of all expenses, is still at 6% compound annual. The next column over shows the actuary return assumptions behind the portfolio for the year's inception to date. When we started managing it was 6%, and back in 2008 to 2009 they popped up the actuary rate of return to 7%. Following the financial crisis, they came down to a 5% actuary rate of return which is where it is right now. The compounded actuary rate of return inception to date has been 5.91% and you've achieved 6% compound annual. Within your investment policy, the policy defines the return objective as to meet the actuary rate of return, and it has net of all expenses. The next page shows contributions and distributions year to date. The distributions have been about $524,000 year to date. The next page shows the beginning value back in 1990 which was $1.35 million. The additional contributions that have come in and transfer of securities as you consolidated into one portfolio. The total distributions inception to date have been just over $10 million. Then you have the components of return which are net income, realized gains, and unrealized gains so that your ending value is $7.358 million. Your net investment return has been $8.215 million. You can see that the $10 million in distributions has exceeded the net investment return of $8.215 million by about $1.8 million. That shows the weight of the benefits on the capital because the actuary rate of return assumption has been achieved. The next report is the investment policy. We like to review it. Basically every account that we manage has a policy that guides the investment of that portfolio. In that, we define the return object, the fiduciary responsibility or the risk level, in your case this also includes the prudent investor rule and the investment objective. The investment objective in the policy that guides what we do when we're investing the portfolio seeks to provide for growth and income within a balanced portfolio structure consistent with prudent levels of risk. Because this is a public pension fund, you're fiduciaries and we're fiduciaries. It has to abide by the prudent expert rule for prudent levels of risk. To achieve the long term actuary return objective of 5% compound annual return over a long term time period, it's actually achieved 6% over that time period. Then, it defines the investments that are acceptable for the plan, and the ranges that we can operate within. Within the equity category in 35% to 50%, fixed income 25% to 65%, other and we are up from 0% to 10%, and cash can be anywhere from 0 to 25%. We are within all of those ranges. International securities are limited to 50% of the equity portfolio at cost. At one point in time we had about 15% of the equity exposure invested in the international, but we left that a couple of years ago because the domestic outlook was so much better than the international. We still haven't really gone back into the international markets. The U.S. markets have outperformed international this year and have outperformed last year. We do have the authorization to use options in exchange traded funds for hedging purposes but not for gambling purposes. There's a difference. When you use hedging, that's covered calls, that's a hedge on an underlying security. That's different from what's called naked options where you're just buying calls or puts that have no relationship to an underlying hedge. That's why I says that's gambling. Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes October 17, 2013 Page It of 13 Eldon Roberts: If there was anything you wanted us to change, you would bring it to our attention, right? Elaine Longer: We did change this recently. I think it gives us plenty of flexibility within the equity ranges to be very conservative. When we feel it's okay to be at 50% then we are at 50%. In this market environment our equity return is trailing the S&P 500 because we are invested in those conservative stocks. It's not unlike what happened in 1999. I kept telling Kim I can hear the party, I just can't get there. We have disciplines we follow and we invest according to our valuation models and there are certain market environments where our valuation models won't take us to where the party is. It's very frustrating, but over time it does tend to stabilize performance in the portfolio and achieve the growth and income needs for clients over a long time period. Jerry Friend: I have a question about sometime back, the Feds mentioned they were going to stop printing money. If they really stopped, how long of a term chunk would it be? Elaine Longer: This was the show of 2013, to taper or not to taper. The Feds surprised everybody in September with no taper. They've been hinting in May of taper. That's what caused the bond markets to go into total chaos. For bond interest rates to go from 1.6% on that ten year to 3% it started killing the housing recovery and the refinancing activity. Economic growth started to taper back, in particular, the just emerging housing recovery. By the time we got into August, the economic numbers were looking a little bit weaker. Retail growth was falling off the cliff. Then we're facing the government impasse that was eminent after the Fed met in September. They came out and surprised the world with no taper. With that, interest rates went back down. They haven't fully recovered the rise, but the ten year had tagged 3% and it's now trading at about 2.60%. It's nowhere near the 1.60% before they started talking taper. It was a pretty dramatic pull back off of that 3% level. What the Fed has done is drawn a line in the sand at 3% and said we will not take a ten year above 3%. The thirty year mortgage keys off the ten year treasury, that's why the ten year is so important. The stock market measured by the DOW hit its high in May. Since May, we came down 1,000 points, we went back up to the peak, and then we came off about 1,000 points and are now back up at the peak. We really haven't gone anywhere since May. Jerry Friend: How long can they print before we start using a wheelbarrow to go buy a pair of shoes? Elaine Longer: That's the big question. Everyone is watching. Our Federal Reserve has what's called a dual mandate. They have a mandate for price inflation protection, price stability, but also, maximum employment. The Fed is walking a tight wire because their only responsibility is not just inflation. The ECB, European Central Bank, has a single mandate, it is inflation, price stabilization. Our Fed has a dual mandate. So they are walking this road trying to accommodate both price stability and maximizing employment. What they've been saying is that their decision to taper will be data dependent, not calendar dependent. What confused everybody back in May is that they jumped ship. There wasn't anything in the data that made it look like they should be Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes October 17, 2013 Page 12 of 13 tapering. It was total chaos. In September, he went back to data dependent and the economy is still soft and are facing this fiscal uncertainty and unemployment is still too high. Here we are again, data dependent. Now you have in the last twenty-four hours a resolution of the fiscal uncertainty. We're just basically kicking the can down the road again like we did in 2011. We face it all again. Back in July 2011, we couldn't arrive at a debt agreement to raise the debt ceiling. Then they punted to November and commissioned the super committee that was charged with finding the answer. With that, they attached sequestration cuts that would be so onerous that surely the committee wouldn't fail. The committee failed. That's how we moved into 2012 with sequestration. Now you've got a second layer of sequester cuts. They were supposed to hit the first of the year and there's no telling how this drama will unfold as we move toward January. We aren't out of it yet. The basic thing is it's the fiscal imbalance that's creating the uncertainty and holding the economy back because the Fed is doing all they can do in their power by buying $85 billion a month in treasury securities with money they create out of thin air. The problem is, while they are doing that the velocity of money has just gone down. They are putting the money into the banking systems but it's not going out the door. Nothing has happened to money supply, there's no jobs created, there's no increase in anybody's standard of living. The velocity of money is falling off as the Fed is creating all these reserves in the banking system because loan demand is still not there to move it through the economy. The Fed can only do so much. Frank Johnson: Thank you Elaine, very informative. Informational: 2014 Meeting schedule: A copy was given to the Board Sondra Smith: There was one thing on the agenda I wanted to point out. We received a letter from Elaine Longer that they are wanting to put in some better security. When something is e- mailed to us, there has to be a password to open that file so that you don't have to worry about someone else getting into your files that shouldn't be into the files. The budget for 2014, I budgeted $100 for office supplies. That's for postage. Audit expense is for your actuarial report. The only other thing we budget for is $60 for bank service charges. Eldon Roberts: Do we have to pay for those actuarial evaluations or only if we ask for a special one? Sondra Smith: We have to pay for one a year, the way I understand it. I will double check on that and see. Eldon Roberts: I thought they did that for us. Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes October 17, 2013 Page 13 of 13 Sondra Smith: I will double check. If we have a special one, the other things we budgeted for in the past was when we've done a cash flow or an actuary study. We paid for an attorney in the TIFF district. Eldon Roberts: How much was that? Sondra Smith: I don't have that here but I can look it up if you want me too. Eldon Roberts: No, that's okay. I thought you had it right there in front of you. I remember when we did that. It seems like it was the schools and the maybe the fire and police pension plans that needed someone to look after their interest in that TIFF. That was a program where they were going to build that big high hotel or motel and they froze a lot of property tax. We were going to lose some percentage of our personal property tax on that. I don't think we lost any did we? The police, fire and school retained theirs. That's why Kit recommend we get legal counsel and we hired Jim Rose to watch after our interest in that little hearing. We fared as well as we could out of that. Frank Johnson moved to adjourn the meeting. Adjournment: 4:30 p.m.