05:39:23 Start of Tape s2

04.03.2014 RGRTA-Committee

Transcription Date: 04/08/2014 – DY/ace

[BEGIN AUDIO]

SCOTT ADAIR: We have a rather what I call probably a brief meeting today for the

Finance Investment Committee.

We have a few things to go over; one thing to present to you is the annual report for our investment account effectively.

We will then talk a little bit about, give you a brief update as to where we are with transit center financing and some of the conversations that Chris and I have had with some of the banks regarding that an then ultimately the last thing that we will be looking for you to do is; last year we presented to you an updated investment policy which at the June meeting we had approved and subsequently I feel like we should just re-approve it.

We have no changes to it this year, but I just feel like from a board perspective it would be a good thing to make sure that we update our understanding of the policy each year regardless of whether there’s changes or not changes to it.

So with that under the first section of your slides in the agenda you will find the annual investment report for the authority and you will notice here that we have continued to do this summary report to kind of give you the information that is necessary from the State

Controller’s perspective and from the [PH] ABO’s perspective regarding our annual investment report.

And you will see that we have in our special portfolio account approximately $28.7

Million broken up into a variety of different securities including U.S. Treasury of New

York State securities and Ginnie Mae’s.

A lot of stuff has been going on as far as our investment account this past year.

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We have made some decisions regarding it.

Our investment account has been a very laddered investment account based on what

Manning & Napier has recommended to us, but as you can well imagine with the price fluctuations that we’ve had with Ginnie Mae this past year we have been seeing a growing portion of our portfolio being eaten up by unrealized losses at this point in time.

The reality of that is and I bring it to your attention because it is real as we speak about it today, but the intention of this portfolio all along has been to hold it to maturity.

So realizing those losses will not take place when we go to cash these in at the end of their majority we will get back every dollar that we had invested in the to begin with.

So you will see this monthly report and you will notice on here that we have a caveat or a caption here of what the unrealized losses are.

That is just to make you aware if something was to happen that we had to collapse the fund as of that particular month end.

So during this past year we have unrealized losses in our portfolio of approximately

$750,000 and that’s just all market fluctuation really based on the Ginnie Mae’s I think is where the predominate loss has been.

We have noticed some loss in market value in the New York State securities as well, but because of the type of portfolio it is, it is still spinning off a decent interest rate overall from that perspective, but when you match it up with what the unrealized losses are it gets a little bit close to the vest as far as what the actual interest rate for this past year is for the plan itself.

So we continue to attempt to; we’re not investing in longer term securities at this point in time.

We have kind of stopped that laddering from our perspective.

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We believe that the risk associated with some of these things and going out too far could cause a cash flow issue at some point in time in the very off distance, but it is something that we continue to monitor and talk with Manning & Napier on a quarterly basis regarding our investment strategy at this point in time.

BARBARA JONES: So Scott part of the decision to go to this strategy was because we wanted to increase the interest that we were earning.

SCOTT ADAIR: Uh-huh.

BARBARA JONES: Clearly we knew that there was some increased risk on that in order to do that.

So as we look at kind of the balance between our return and our risk are we reassessing that even though I realize this is all right now paper, you know, paper losses, but are we beginning to reassess that balance between the increased earning and the interest?

SCOTT ADAIR: It’s a great question and I think the reason why it is such an interesting process to go through is the fact that our money market account, the interest rate that we are earning on our basic savings is virtually nothing right now.

You know just as many of us are experiencing on a personal basis, on the business side of it is a really, I mean I think we are in .1% right now on the $18 Million that we have in a money market account.

So the investment portfolio is certainly even with the unrealized losses at this point is certainly outpacing what the money market accounts are doing, but it gives a moment of pause from a perspective of how much do we want to have; how far out do we want to go with those investments from a laddering perspective as to when we think we may need that cash.

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Right now effectively what we have done is the Eight Million Dollars that you see on here is Ginnie Mae’s is really almost tied exclusively to our OPEB liability.

So when we match up securities with what we have reserved the money for, we are kind of saying most of our OPEB liabilities is in a lot of those out year issuance or out year maturity dates so that I am not necessarily thinking that that is cash that I need until that point in time.

Some of the other things like we had mentioned in the New York State securities, I think if memory serves me correctly the maturity date on those is like 2015 or 2018.

So it is like I know that sounds like a long ways away, but 2018 is not that far away from a cash flow perspective from our standpoint.

I mean the fact of the matter is is that from an overall financial perspective our bank accounts are rather healthy at this point in time and that is a good thing and it gives us this added flexibility to be able to do some of this laddering.

And I think when the market turns around from a municipal securities standpoint which is effectively all we can invest in we will continue to look as to when Manning says this is the right time to jump back in and start buying at that point.

BARBARA JONES: What is Manning saying as to when that is going to happen?

SCOTT ADAIR: They are really hesitant to kind of say anything at this point in time.

Again we have a meeting coming up with them the early part of April or is it May?

We are in April now so I think it is May.

Or it is being scheduled I guess is what I should say.

STEPHEN CARL: Who do we meet with over there?

CHRISTOPHER DOBSON: Jim Hebst and Jim Nawrocki

STEPHEN CARL: Okay.

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BARBARA JONES: And it is a quarterly meeting?

SCOTT ADAIR: Quarterly meeting that we have them in to talk to us about what they think is the right thing to do and so we have effectively and just stopped investing in things at this point in time and continue to draw funds out of as they come to maturity or as the interest is paid we draw those funds back out of the special portfolio account.

STEPHEN CARL: You know it is interesting as Federated; we are the third largest money market manager, money fund manager in the world and the last five or six years they have had a strategy of buying more because people just want to get out of that business.

So we have over $400 Billion assets under management, $300 Billion of it is in money funds and they are all in waivers.

Federated does not make a dime off that $300 Billion because there is no spread right now.

There is nothing.

So there is nothing going out so they are hoping for interest rates to go up a little bit and

I remember in 2009 sitting across as they were making these acquisitions oh this is a strategic thing you want to do?

And they said oh in the middle of 2010 these rates should be going back up.

Well he we sit in 2014 and the prospect is and so it has been a tough road for them, but I know for our portfolio we have got such a limited narrow stretch that you can invest in.

It does not allow you to go too risky unfortunately, I mean even a high yield has done well in the last few years which could have been very helpful, but I know we are not by statute allowed.

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SCOTT ADAIR: You know it is interesting we have had these conversations before and it is like there are some municipal securities out there that are probably a little bit more risky outside of New York State, but those are things that we cannot invest in at this point in time.

So, you know, I think that the - -

STEPHEN CARL: And there are risks because Oppenheimer who is a big mutual New

York Muni Fund, they had a lot of Puerto Rican bonds that had blown up and muni people look at that as a safe secure investment and then to get a statement they go what?

And those are, you know, causing a lot of turmoil with their client base and I hear it all the time.

And so sometimes you hear I got a little more spread, I can deal with a little more, you know, return on that.

Well it comes with extra risk and it is showing itself.

SCOTT ADAIR: Yeah, yeah, so it has been a challenge from that perspective.

It has been a challenging year in looking at our portfolio and trying to figure out exactly what to do, but I think the reality of it is is you can do little or nothing at this point in time and you are still probably pretty much okay because there is not a lot of activity or positive activity from an interest earnings perspective and what we can invest in at this point in time.

STEPHEN CARL: And I think they tend to stay high quality.

SCOTT ADAIR: Yes, definitely, yeah.

And so what you see on this page is what our special portfolio includes, those three types of securities.

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You see our cash and cash equivalents, number of $17.4 Million.

That is effectively what is in our money market accounts at this point in time.

And then down below you see how we have segregated them out into the different reserves.

We have our working capital account obviously.

We have a capital reserve which is zero at this point in time because we have been using that money to fund the transit center expenses.

And then we have our self insurance reserve of about $3.6 Million.

Our OBPA reserve after this past board meeting where we increase that by Four Million

Dollars or approximately Four Million Dollars, we’re up to $12.8 Million in our OPEB reserve, which is from an operating standpoint as a smart business transaction; that is a liability that does exist out there and we are making steps towards funding it from the appropriate standpoint that we can fund it by setting assets aside for it at this point in time where the state does not allow us to set up a trust fund for it.

And then the last reserve that we have is our para-transit reserve and that balance hovers around Three Million Dollars ever year.

You will notice up above where we list out with the actual income that we have earned on the special portfolio, the $902,000 and the $59,000, almost $60,000 in fees associated with that account at this point in time.

Beyond this page if you can read it - -

CHRISTOPHER DOBSON: I was attempting to equate the font size to the rate of return.

SCOTT ADAIR: [LAUGH]

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SCOTT ADAIR: We effectively used to and I remember, Barbara, you asked this question, we used to include this in our board packet and at that point in time the font was no bigger than this.

We have subsequently eliminated it from our board packet, but we thought as though it was relatively useful information for today’s purposes, but I struggled with getting the font size to something that is actually readable from anyone’s perspective.

So I apologize for that, but what this activity shows you is just the money market activity for the past year and what we have done with our working capital account.

And if you could read the numbers you would see that our interest rate in our money market account started out at .2% at the beginning of this year and now for about the last, I think it is three months or so, four months it has been around .1% so there is not a lot of happiness in these numbers.

So the smaller they are the better they are. [LAUGH]

It is one of those things that we continue to look at as far as options or opportunities that are out there, but again to the point of what our investment policy allows us to do there is not a whole lot without tying it up for long periods of time.

STEPHEN CARL: And at our next meeting it is going to be on annuities. [LAUGH]

SCOTT ADAIR: Well I promise that I will get to a point where it is readable to Chris.

This morning he said, you know, he goes I think I can read a lot of things, but he goes I am not even 100% sure I can read this, so we will get it to the point where Chris can read it and none of the rest of us can so we will all know that it is good at that point in time.

JAMES REDMOND: Scott, you mentioned that basically we have stopped investing and we are withdrawing the money when the bonds hit maturity.

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Where is the money going from there, just into the money market?

SCOTT ADAIR: Goes into the working capital, into the money market. And the reason for that Jim is that everything that is worth investing in and not reinvesting it is so far out right now that we do not feel as though it is appropriate for us to lock that money up.

That rate of return on those dollars that we are getting back on a real time basis do not necessarily help us from a cash flow perspective if we were to reinvest them for a longer period of time.

I believe there could be some issues there.

STEPHEN CARL: Do we have a duration target for the portfolio?

SCOTT ADAIR: Well we don’t necessarily have a specific duration target.

I will say this that some of our investments are out as far as 2030, 2031 so that they won’t come to maturity.

Now when I say that the caveat that I have to pull is again most of them are Ginnie

Mae’s which up until recently with the housing market we have seen a lot of refinancing activity in the Ginnie Mae’s.

So they cash out sooner than you would expect to go to final maturity.

So we anticipate that to pick up at some point in time again, but who knows when that will be, but if we were to have to hold them to maturity some of those go out as far as

Yes, that is a long time. [LAUGH]

But we do not have a specific duration.

BILL CARPENTER: I have told Scott he cannot leave until we get all our money back.

[LAUGH]

SCOTT ADAIR: That gives me a moment of pause. [LAUGH]

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On the last two pages here what you see is the government’s securities transaction report that we have had during this past year.

The items that we have purchased and sold during this past year.

I believe this is 100% here, is that correct Chris?

CHRISTOPHER DOBSON: Those are the - -

SCOTT ADAIR: These are the purchases.

CHRISTOPHER DOBSON: Purchases.

SCOTT ADAIR: Okay, thank you.

Then the last item on page three is just a reconciliation of what has happened over the life of the portfolio and the fact that we transferred $29.8 Million into the fund at its inception.

Some of those dollars have come back out to the money market account, approximately

$1.4 Million.

We have had $1.8 Million in interest earnings.

We have had government return of principal of about Six Million and I think I have got these lines right?

Yeah, the U.S. Treasury piece of it, $39 Million and the UBS statement cash balance of approximately $3.3 Million.

Now our annual investment report, this document as well as some of the process and procedures as far as our investment policy goes is a document that is audited by

Bonadio each year.

They do an agreed upon procedure which is required as part of the State Controller’s edict to us on our investment policy that needs to be reviewed annually from an outside

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Transcription Date: 04/08/2014 – DY/ace auditor’s perspective and historically that will not happen until obviously after the fiscal year end.

It will be part of our standard financial statement audit and we will bring that report back to you at that point in time to let you know if they had any findings.

Historically they have not in that area.

Any questions that any of you have for any one of us on that?

JAMES REDMOND: Is there anything we are missing; anything that we could be doing that we are not and might want to consider?

SCOTT ADAIR: You know we had one of our bankers in recently and we did have that conversation about okay what is it that we are not aware of.

And their answer to us was you are pretty much doing everything that you can.

They did suggest a conversation with another smaller bank and talk about some investment strategies that they have regarding some other governments that are doing it and basically it is farming out short term CDs across the country to different banks.

There is one local bank that has decided to sort of shepherd that and so they will go out and get quotes for I will call a six month CD from a bank in South Dakota that is paying a better interest rate than anything is here.

It is something that we continue to look at.

We are concerned a little bit about insurance or collateral from that perspective because everything that we do needs to be collateralized at the end of the day.

So that does create a moment of pause for us, but they have effectively told us that other municipalities are doing this.

I am not sure that there are a lot of them out there that are doing this, but it is something that we can - -

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JAMES REDMOND: And do they have control boards?

SCOTT ADAIR: [LAUGH] That conversation has not come up, but I will certainly ask that question the next time we talk about it. [LAUGH]

Yes, so - -

JAMES REDMOND: I don’t want to be a transit authority and bank.

SCOTT ADAIR: Yes, exactly, yes, and so, you know, so one of the things is that there is nothing that says we have to keep our deposits local from a state perspective.

So it does allow us that vantage point, but I do not necessarily know that, you know, doing $250,000 here and $250,000 there gets to be a management issue as far as controlling that and monitoring it versus what we are actually realizing from an overall interest rate return perspective.

So it is one of those things that we have to figure out what the balance is here and if it is worth actually investing going down that road versus kind of hanging out and saying something is going to happen on our special portfolio side of things.

It is going to all of a sudden start to give us an up tick that we feel more comfortable going back to that and starting to invest in cash back in that.

So we are kind of watching both sides of that.

STEPHEN CARL: It’s just a narrow the scope you have to get and when I look at the market we are looking at all these things.

This is such a - - the most ultra conservative end and you can plan anywhere in the year, you know.

SCOTT ADAIR: It is a great topic because I think that a lot of people hear about investment portfolios and think that, you know, we should be making a lot of money, but when you really boil it down the State of New York has done a great job since I think it

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Transcription Date: 04/08/2014 – DY/ace was 1984 when the market was a little bit wider open for municipalities to invest in a lot of things that they should not have been or they did not have the knowledge to be able to strategically think about it.

And they put the clamps on folks as to what they could invest in and sort of really narrowed that scope down to be things that the chance of losing money if you can hold it to maturity are slim to none at this point in time.

STEPHEN CARL: It reminds of Steve Martin in the Jerk.

If you land anything between, well anything between here and here, anything here is great.

All the other things, no you cannot hit that, you can hit anything, the rubber band and the rates for that is about the point.

SCOTT ADAIR: Yeah, exactly, so and certainly the account itself has been a very educational process for myself and I think we have spent a lot of time this past year kind of getting our arms around it.

Bob has certainly had his arms around it when it got established and got off and running.

So for me it’s been sort of a learning curve and sort of peeling back the onion a little bit further to figure out okay what are we really doing here?

And I think we are in a good spot.

I mean I think the meetings that we have had with Manning have helped immensely, the conversations that we have had with the different banks have helped immensely to make us feel like okay we are not going afoul here.

We are certainly making sure that we are good stewards of these funds and making sure that we are getting the best rate of return that we can at this point in time.

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So with that I would entertain a motion to accept our annual investment report so that we can move that along from that standpoint.

BARBARA JONES: Moved.

STEPHEN CARL: Second.

Commissioner Jones, Commissioner Smith, okay, very good.

SCOTT ADAIR: Great.

STEPHEN CARL: All in favor.

[CHORUS OF AYES]

SCOTT ADAIR: Thank you.

So moving on to a much happier topic than interest rates, but ultimately affected by interest rates we will give you a verbal update as to where we are with the Transit Center borrowing.

So when we last left you we talked about the fact that we were going through the process of considering what to do, whether or not we should borrow long term or not on the Transit Center and I think the conclusion has been that we will borrow some long term debt regarding the Transit Center, the local share of that cost rather than paying for it out of current operating dollars or working capital.

And effectively we have had a recent conversation with one of the national banks talking about a portfolio that they do for small loans because having less than Five Million

Dollars tied up in our asset or our financing would be a small bank qualified loan perspective from the bank’s vantage point.

They were very interested in continuing discussions with us regarding their process in going through it which would mean that we wouldn’t necessarily need to go through the rating agency process and all of the other jumps and hurdles that you have to go through

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Transcription Date: 04/08/2014 – DY/ace to offer any public securities at this point in time being the preliminary official statement, the official statement and that stuff.

It is more of a relationship type borrowing than it is anything else.

Certainly comes with some decreased costs associated with it; then going for the full blown Wall Street analysis of it.

Still kind of working with them to determine what we would be looking at as far as an interest rate goes on that, but I feel as though in today’s marketplace with interest rates being paid that are so low it is probably a good time as well to be in the longer term borrowing market as well.

The one caveat that they have presented to us that it is a little bit difficult for us to get our heads around is their internal portfolio only allows them to do a borrowing up to ten years which is a shorter pay back time period than what we thought we were going to do when we started talking about the Transit Center debt.

We were looking at a twenty year bond offering as the useful life of the facility would be much longer than that, but they generally like to keep their portfolio to ten years or less.

And so that is one of the things that we are going through in trying to run some models to figure out how does that work from our budgeting perspective for our overall operating budget because our debt service costs could be significantly higher than what we had originally anticipated, but the debt would be paid off much sooner is the upside to it.

So the total interest cost would be more slower than going out over a longer period of time.

So those are the conversations that we are having with the banks and we have only had that with one of the national banks and my gut feeling is is once we start to tap into some of our other national bank connections that they will all have similar programs.

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So we will still be able to get a competitive interest rate out there from their perspective because we will be able to put the banks against one another versus going out on the open market and incurring the additional costs that would be associated with that.

So that is sort of the; what’s the word I’m looking for, the two paths that we are going down regarding bank finances.

BARBARA JONES: They were not talking about private places; the bank was going to actually hold - -

SCOTT ADAIR: The bank was actually going to hold it, yeah.

BARBARA JONES: And the rationale for that was - -

SCOTT ADAIR: They believe that there is a market for it and plus I also believe that there is something in some of the new federal legislation that is out there that requires them to hold a certain amount and so they have got to tie these funds up in something and they look at the municipal portfolio as being a good quote/unquote risk free investment.

And I think they are also trying to keep their dollar limits pretty small as far as the amount of money that they are willing to put at risk out there regarding those.

HENRY SMITH: What is our timeframe?

SCOTT ADAIR: We would be looking more than likely to borrow probably in the late

November, December timeframe to actually fund it because at that point in time we probably have; we better have a pretty good estimate as to how much we have actually spent on the building to be able to borrow for the full amount rather than doing some piecemeal thing.

What I do not want to do is do an interim financing step at this point in time where we would go out with something that let’s say we have Three Million invested in it today

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Transcription Date: 04/08/2014 – DY/ace which is not the number, but let’s way we did borrow Three Million today which will roll over into a bigger loan at the end of December; certainly something we could do, but we certainly had the cash to be able to float that loan ourselves.

And since it is certainly not earning a lot of money there is really no reason to pay a bank from that perspective that additional interest.

We are not earning - -

JAMES REDMOND: In terms of process with procurement guidelines and everything like that, are you required to put out an RSP or are you required to get a certain number of bank opinions or discussions with banks?

SCOTT ADAIR: There is no requirement to do it, however the borrowing does need to be approved by the State Controller’s Office and so that is sort of where they ask the question okay how do we know this is a competitive interest rate?

And so we have to go through an analysis for them whether it be us internally doing it or our financial advisor assisting us with doing it to kind of size the market and see what everybody else is doing for an agency like us and the interest rates that they are going are going to have to be supported because ultimately it will need their final blessing before we can issue.

JAMES REDMOND: Well I mean it would seem that we would not want to negotiate against ourselves and it would pay to shop around and, you know, get at least three quotes if not five.

SOCTT ADAIR: Yeah and I think what we would, I mean just speaking off the top of my head, I mean the national banks are obviously the ones that we could target and pull out with this particular type of a program.

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But it doesn’t rule out any of the local, regional or smaller banks because I do not think this borrowing is so large that people would necessarily not be interested in it.

You know the financial success of the organization and the positive results that we are having from an operating perspective bode pretty well from us when I am sitting across the table from a banker saying I want t borrow Five Million Dollars for our facility.

And having a relationship with somebody who is closer to it here in Rochester sometimes is beneficial as well so having those conversations is very beneficial from that standpoint.

They can actually see, feel and touch the Transit Center where somebody in New York

City is probably not going to have that same see, feel and touch the Transit center and feel the impact that it is making to the community as a whole as to whether or not this was a good investment for the authority.

They are just looking at it as though it is an investment that they are making to us.

BARBARA JONES: Do we have to identify what banks or how many banks we want to talk to about the loan?

SCOTT ADAIR: We have talked to one and I would assume that we would talk to at least two others at this point in time, but I would be - - to say that I have exhausted all possibilities, no.

I think we could probably go out even larger than that and I think there is probably some others that would be interested as well once we start to sort of pierce that envelope of once it starts to be talked about on the street I think that we will probably be approached by other banks.

BARBARA JONES: I would think so also.

SOCTT ADAIR: Yeah.

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STEPHEN CARL: I would just say to James’ point of having that wider net because I will tell you when I went out - - I know almost all the bank presidents and when I went out for the Dairy Queen, you know, financing, he had great friends with Dan Burns and, you know, a neighbor and went through the whole, you know, we thought it was going to be a deal with them, and when I got through it did not seem like a great rate and I almost did not benefit by, you know, going out and I said well you know I still got time.

I went around and there are some banks, you might catch them at a certain time or they are just saying and they are offering just as much security and they want to get market share; they want to get in, you know, you can take advantage of that because there are certainly benefits to that.

I saw it first hand, I was surprised and ESL was surprisingly they have been trying to get, not being this one, it was not even on my radar screen and they came in by far the most aggressive.

SCOTT ADAIR: Yeah, it is always interesting to kind of feel out that marketplace because especially with somebody who is aggressive and wants to get in it and develop a relationship with you is sometimes better than your existing relationship with somebody else.

I mean there is sometimes just I think that from a business standpoint people at times take relationships for granted versus - -

BARBARA JONES: And can I assume that kind of pretty much all the, what I am going to call, local banks, even though we have got obviously some national banks here, but local banks are on our approved list, so called approved list.

SCOTT ADAIR: Yes, so it will be a challenging but a fun process as we go through it and to see what is out there as far as - -

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BARBARA JONES: And who is on your team because when you start doing this you want to make sure that you have the same people obviously you know listening and, you know, the input you have to the banks, the responses you want to make sure you got the same ears listening to that so you really can plan angles.

SCOTT ADAIR: So you are looking at the internal team that would probably be talking with them, but in addition to that we also have our financial advisors that would sit in on those conversations that we have been engaged previously, which is pray.

STEPHEN CARL: Who would help with that?

SCOTT ADAIR: So we will work with them as well to kind of go through this process.

They have not been, you know, our conversations to date have been these one off visits from banks where all of a sudden we talk about the lay of the land from the Authority’s standpoint and what’s going on and when they hear about the Transit Center there is a component of financing too and it certainly generates peeked interest from them and they get excited when they to somebody that is as financially well off as the Authority is at this moment in time because there are too many other governments that are not in that position.

BARBARA JONES: It is my understanding, to recap, we are going to actually fund a local piece out of our cash flow and then we are going - - are the bonds going to be used to replace that?

SCOTT ADAIR: Yes, that is correct.

BARBARA JONES: And so I know that Henry had asked the issue of timeframe, but in terms of once the Transit Center is built what is your timeframe for when you want to be able to have whatever bond is going to take place in place?

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SCOTT ADAIR: I would say that we would have it in place no later than probably

January 15th.

BARBARA JONES: Okay, January 15th.

SCOTT ADAIR: My preference would be probably - - I hate to put one more thing on the Authority’s plate, but it would need to be some time in November before we open the

Transit Center, but I also need to be realistic about what we are going to have going on around here and then that December timeframe regardless of where you are at, how they sort of sneak in there and create problems in trying to close any business transaction.

So I would say probably some time in January is probably the most - - if we cannot get it done before the Center opens it would be by January.

And there is always the ability to push people to get something done in December.

HENRY SMITH: One other thing, you talked about the long term ten years is really not considered long term from my standpoint or would you consider ten years if the rate was favorable to us?

SCOTT ADAIR: I would certainly consider it and I think it is going to depend - - I think the thing that we got to really look at is (a) our ability to afford the repayment over ten years; that’s like priority number one from an operating budget perspective.

But factored into that has got to be the discussion of okay what is it really costing us because for ten years in the private placement piece of this could not do much less costly not from an interesting rate perspective, but an overall perspective because of some of the costs that we may avoid like going to the rating agencies and getting a rating, going to and having all these other documents between the lawyers, the accountants and the printers to get these documents all printed up.

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The bank in turn what I refer to as internal borrowing loosely is a much more refined or easier process; doesn’t mean it will be easier on us.

We will still be providing on the same level of information, but the outsider’s involvement in that information will be less because it is more based on the relationship that we have with them than the formalized documents.

So I think that we have to factor in a lot of things to make that part of the information whether it’s ten or twenty years, but one of the things that jumped right out of the page at us when we heard that the bank that we were speaking with said that the longest time that they would go - - that they would like to go with it would be ten.

It was like okay how does this impact us from an operating budget in order to be able to service this debt?

And if it all works then great, but that could be one of the road blocks in getting to the ten year financing versus the twenty year financing.

The reality of it is is this useful life on this building will probably be certified in somewhere between the forty and fifty year range and so we could borrow for that long.

Now financially I do not necessarily know that that makes sense and who knows if I am looking from an investor’s standpoint what kind of interest rate I want to get on something that is forty or fifty years out there, probably significantly higher than something that is ten years out there at this point in time.

STEPHEN CARL: So ten years from now if you had to go and get refinancing, the rate is going to be higher, you know.

So it is a good time they lock in longer term.

SCOTT ADAIR: Yeah and so it is one of these flip a coin, which one do you want to jump off on first and I think that is what we are going to do.

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We are going to have to make a jump in point from some sound business decisions or business reasons, but as I often say the rear view mirror is what always kind of keeps me up at night, people questioning what you did, you know, five years ago and why you chose to do this at that moment in time, but I think right now looking ahead I think we have got some promising opportunities regarding this long term financing, whatever length of time it is.

BARBARA JONES: Scott, what is your timeframe when you want to be able to come up with that recommendation or the decision as to exactly which way you are going to go?

SCOTT ADAIR: No later than September, no later than September.

Right now the board has authorized us to borrow so we do not necessarily need to get any further authorization from the board regarding it, but I would like to inform you of the decision process that we went through so that probably in the next finance investment committee meeting which scheduling wise we can discuss, that would be the timeframe where we would like to kind of make sure that you guys are all up to speed on this as well before we say oh and by the way here is what we have done.

So just to make sure that we are all on the same page.

Any other questions?

The last item I have is real simple.

It is the investment policy which I promise you even though it is a black and white document has not changed from the last time that you saw it.

STEPHEN CARL: Why is the font so big? [LAUGH]

BILL CARPENTER: It is doing better than our - -

SCOTT ADAIR: [LAUGH] It is a little easier - - a lot easier to read.

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STEPHEN CARL: Yeah. [LAUGH]

SCOTT ADAIR: And so ultimately we revised this last year as you recall for just some slight tweaks to it that we thought were important to make to kind of more mirror the [PH]

JFOA information that we had received regarding investment policies and kind of brought us up to date.

There was nothing wrong with the prior investment policy.

It is just that we felt we would tweak some of the language for more current terminology.

And so effectively this does not change any of the investment items that we can invest in because the state has not changed any of those.

So it still allows us that very narrow window of investment and just kind of watch through what the purpose and objective of our plan is, what our standards of care is, that was sort of a new section last year which is just sort of a rearrangement of prior year’s policy.

Section Five walks you through the different permitted investments and then it walks you through in subsequent chapters how we need to actually flow through our investment procedures.

So diversification, maturities, written contracts and procedures and how we go about doing our actual investing business is the main purpose.

I will give you a chance to read through that and if you do have any questions we will entertain them.

STEPHEN CARL: And nothing changed from last year?

SCOTT ADAIR: No.

BILL CARPENTER: We have written contracts with Manning & Napier and others.

SCOTT ADAIR: Yes.

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And with the other banks we have written contracts as far as their ability to hold our funds and collateralize our funds.

STEPHEN CARL: Do we need anything to add?

SCOTT ADAIR: I guess I would like a motion to accept it with no updates basically so just that we would have it on record that we have reviewed it from that perspective and as we bring policies forward to the board they can say that they have been reviewed at the city level as well.

BARBARA JONES: So moved.

STEPHEN CARL: Okay.

All in favor.

[CHORUS OF AYES]

STEPHEN CARL: Okay, very good.

SCOTT ADAIR: I have no other business at this point in time.

If there are any other questions or anything that anybody wants to talk about we would be more than willing to entertain them.

STEPHEN CARL: Okay, anybody - -

BARBARA JONES: Now just you talk about our next meeting, I was just - - that meeting relationship to kind of, you know, target date of September by when you want to have the recommendations in place.

SCOTT ADAIR: So I cannot remember when the next meeting is scheduled for.

Maybe Chris, I hate when I do this to Chris, I try and tap his memory to what is scheduled for.

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But what I would like to do is last year we had a joint meeting, finance investment and audit committee when the audit results come out and I would like to try and do that again this year.

It is not on the calendar that way right now, but it was tentatively scheduled for June 26 th

I believe it is.

So I would like to kind of mirror those two dates up.

That date needs to be somewhat flexible because we do not know the timing of the actual finishing of the audit, but I think it is important that this committee as well as the audit committee hears from the auditors what has actually gone on.

And because the auditors do run an audit of our investment policies so it is something that they need to report back to you anyways.

So I think that that is important to do and then we would look for either a September or early October because we coincide with the board meeting so I do not necessarily know that we would need to update you September 1st I will call it versus October 1st for that first board meeting in October, so it would be during that timeframe is when our next meeting is.

STEPHEN CARL: are there any other questions?

Gavel goes down. [LAUGH]

Thank you.

[END AUDIO]

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