COMMISSION WORK SESSION AGENDA Special Meeting at Port of Port Angeles November 7, 2016 9:00 A.M
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COMMISSION WORK SESSION AGENDA Special Meeting at Port of Port Angeles November 7, 2016 9:00 a.m. ***Commission and Staff Photos by Ernst—8:15 AM*** *** Time Specific Item 10:30 AM, Robert Hodgman with WSDOT*** I. CALL TO ORDER/PLEDGE OF ALLEGIANCE II. EARLY PUBLIC COMMENT SESSION (total session up to 20 minutes) III. DISCUSSION/QUESTIONS FOR AFTERNOON REGULAR MEETING IV. WORK SESSION TOPICS A. Q3 2016 Financials & Investments Reports (Pages 1-47) B. American Forest Resource Council (AFRC) Quarterly Meeting Report (Commissioner Beauvais Presentation) C. Alaska & Puget Sound Leadership Summit trip report (discussion) D. FIA Apron project delay (Page 48) E. National Business Aviation Association Conference trip report (discussion) F. Robert Hodgman, Senior Aviation Planner, WSDOT (Pages 49-50) (Time Specific 10:30 AM) V. FUTURE AGENDA TOPICS A. Work Session (Page 51) B. Business Meeting (Page 52) VI. PUBLIC COMMENT SESSION (total session up to 20 minutes) VII. EXECUTIVE SESSION - The Board may recess into Executive Session for those purposes authorized under Chapter 42.30 RCW, the Open Public Meetings Act. VIII. ADJOURN RULES FOR ATTENDING COMMISSION MEETING • Signs, placards, and noise making devices including musical instruments are prohibited. • Disruptive behavior by audience members is inappropriate and may result in removal. • Loud comments, clapping, and booing may be considered disruptive and result in removal at the discretion of the Chair. RULES FOR SPEAKING AT A COMMISSION MEETING • Members of the public wishing to address the Board on general items may do so during the designated times on the agenda or when recognized by the Chair. • Time allotted to each speaker is determined by the Chair and, in general, is limited to 3 minutes. • Total time planned for each public comment period is 20 minutes, subject to change by the Chair. • All comments should be made from the speaker’s rostrum and any individual making comments shall first state their name and address for the official record. • Speakers should not comment more than once per meeting unless their comments pertain to a new topic they have not previously spoken about. • In the event of a contentious topic with multiple speakers, the Chair will attempt to provide equal time for both sides. 3rd QUARTER 2016 INVESTMENT REPORT As of September 30, 2016 Presented by John Nutter, Director of Finance & Admin BACKGROUND: The Port revised its Investment Policy in December 2010 by approving Resolution No. 10-987. The revised policy included specific reporting requirements. On November 13, 2012 the Commissioners revised the policy guidance to allow the purchase of securities carrying one of the three highest credit ratings instead of only the two highest ratings. MANAGEMENT SUMMARY The attached reports provide information to allow the Port Commissioners to ascertain whether investment activities during the reporting period have conformed to the investment policy. The Port has continued to earn an investment return that is higher than the benchmark rates. However, as investments mature or are called, the proceeds are reinvested at market rates, which are lower. Therefore, the investment returns will trend lower. Comparison of Investment Yields to Benchmark Rates Average Weighted Average Weighted Benchmark Benchmark Rates Maturity Yield Securities 3.23 to 3.35 years 2.134% to 1.824% 3rd/4th Quarter 2012 0.01% to 1.65% 3.51 to 3.38 years 1.833% to 1.663% 3rd/4th Quarter 2013 0.00% to 1.85% 3.88 to 3.75 years 1.550% to 1.550% 3rd/4th Quarter 2014 0.01% to 1.85% 3.07 to 4.11 years 1.422% to 1.887% 3rd/4th Quarter 2015 0.00% to 1.81% 4.04 years 2.009% 1st Quarter 2016 0.23% to 1.73% 2.37 years 1.555% 2nd Quarter 2016 0.19% to 1.41% 1.75 years 1.269% 3rd Quarter 2016 0.18% to 1.26% 90 Day T-Bill 0.18% to 0.34% 1 Year T-Note 0.44% to 0.63% 2 Year T-Note 0.56% to 0.84% 3 Year T-Note 0.66% to 0.96% 5 Year T-Note 0.94% to 1.26% The short term benchmark rates remained flat while longer term rates continued decreasing during the 3rd quarter which caused a continued flattening of the yield curve. The Port’s investment portfolio as of Sept 30, 2016 is structured to earn an annualized return of $172,361 more than if the Port invested only in LGIP. Cash and Cash Equivalent Holdings Current investments (cash and LGIP) plus operating cash exceeded 12 months operating expenses by approximately $8.8 million as of Sept 30, 2016. This was due $740,000 worth of bonds reaching maturity and the receipt of $7.7 million relating to the K-Ply cleanup settlement. Those funds were not immediately invested in long term investments due to unresolved agreements about insurance reimbursement and the fact that the LGIP fund was paying around 0.5% and Port funds would need to be invested for at least 2 years to match that rate. 1 Investment Policy Limit Exception There were no Investment Policy limit exceptions. 2016: Investment Approach Based on an analysis of the current holdings, the Port has had limited opportunities to diversify its investment portfolio due to historically low interest rates and the need to maintain a portfolio weighted toward the near term because of the capital needs of the Port within the next few years. 3rd Quarter Comments Economic Data: Over the first half of 2016, the U.S. economy grew at an average annual rate of 1.1%, weaker than the post-recession average of roughly 2%. Much of the growth was attributed to personal consumption, exports, and non-residential fixed investment (spending on plants and equipment). Overall, financial analysts expect the 2nd half of 2016 growth to be higher than we saw during the first half of the year, although some estimates have been seeing reductions recently. The IMF has cut its economic outlook for 2016 in the U.S. from 2.2% to 1.6%. The explanation for this reduction was weak business investment and lower demand for goods. The Fed decided once again not to raise interest rates in their recent meeting, keeping their target at 0.25-0.5%. In their statement, the Fed determined “the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives.” There have been no interest rate increases this year. Last December was the last time the Fed raised interest rates, the single interest rate we have seen during this economic recovery. The Fed’s policy during this economic recovery has been atypical, partly because of how gradual the recovery has been. At the next FOMC meeting in December, the Fed will likely raise rates. Where rates go in the future will be largely dependent on the Fed’s perception of the U.S. economy over the next several months. Investment Activity There was 1 purchase during third quarter which was $2 million worth of 2-year Fannie Mae bonds. They are callable quarterly and will yield 1.08% if held to first call, and 0.90% if held to maturity. There were 3 redemptions during 3rd quarter. All three had been held to maturity and the face value and interest rate of each was: • $250,000 that was paying 3% • $190,000 that was paying 2% • $300,000 that was paying 1% 2 BACKGROUND & INVESTMENT REQUIREMENTS Resolution No. 10-987 Investment Policy was approved in December 2010 and authorizes the investment of Port District funds which are not required for immediate expenditures and specifies the permitted types of investments, subject to statutory constraints (RCW 39.59 Public Funds – Authorized Investments). The investment policy sets forth the following reporting requirements: Requirement Comments Quarterly investment reports, including a management See Management Summary above summary that provides an analysis of the status of the and reports. current investment portfolio. Listing of individual securities held at the end of the See List of Securities by Maturity reporting period. Date. Realized and unrealized gains or losses resulting from Not applicable. Current investments appreciation or depreciation by listing the cost and market are intended to be held until maturity. value of securities over one-year duration that are not intended to be held until maturity (in accordance with Governmental Accounting Standards Board (GASB) requirements). Average weighted yield to maturity of portfolio on See last page of List of Securities by investments as compared to applicable benchmarks. Maturity Date. Benchmark rates are Treasury securities from the 90-day T-bill to the 5 year note. Listing of investment by maturity date. See List of Securities by Maturity Date. Percentage of the total portfolio, which each type of See Diversification by Issuer & investment represents. Diversification by Type of Investment. In addition to the reporting requirements there are other key requirements provided in the investment policy such as maintaining one year operating reserves, defining investment grade securities as one of the two highest ratings (the commissioners provided guidance on November 13, 2012 to follow RCW 39.59 which allows investments in one of the three highest credit ratings), and limiting the concentration of investments in specific securities and issuers. 3 2016 YTD Quarter 3 Financial Review Presented November 7, 2016 By John Nutter, Director of Finance & Admin 4 Agenda • Total Operating Results • Line of Business Results 5 2 Revenues: higher mainly due to increased export log activity Expenses: lower across most departments, lower tanker repair volume, no air carrier service Q3 Surplus/(Deficit) History: 2014 = $2.50 million; 2015 = $908k 2016 = $984k Actual Q3 Operating Surplus better than budget – increased revenues paired with decreased expenses 6 3 2016 Q3 by Line of Business 1,600,000 79% Operating Margin $3,284,506 Before Allocated Costs $2,300,010 1,200,000 & Depreciation $1,576,833 47% 800,000 30% 400,000 31% 11% 0 Marine Marine Rental Prop & Log Yard Marinas Terminals Trades Airports Q3 Actual 1,589,533 39,011 418,525 335,877 901,560 Op Margin % MT 79% LY 30% Marinas 47% MTA 11% RP + ARP 31% 7 4 MT & LY Activity • Marine Terminal – T3 log ship export operations driving revenue (Dockage-Cargo, Wharfage, Services & Facilities) – T1 Tanker Repair under with 3 scheduled Q4 Tanker repair vessels expected to raise EOY close to budget.