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1991.05.09_FAB_Minutes_Regular�J TOWN OF HIGHLAND BEACH • FINANCIAL ADVISORY BOARD REGULAR MEETING - MINUTES Thursday, May 9, 1991 9.30 A.M. Chairman S. Myron Browner called this Regular Meeting of the Financial Advisory Board to order in Commission Chambers at 9:30 A.M. Deputy Town Clerk Doris Trinley called the roll. Present were the Chairman, Vice Chairman Victor P. Hadeed and Regular Members Richard Brunton, Fred Firstenburg and Dennie Freeman. Also present were Commissioner John Rand, Town Manager Mary Ann Mariano and Finance Director Michael Seaman. FAB Talent Bank Applicant Frank Magarace was present as an observer. Upon MOTION by Mr. Hadeed/Mr. Freeman, the minutes of the April 18, 1991 Regular Meeting were approved with unanimous vote. With no objection, the Chairman amended the agenda to allow Commis- sioner John Rand's address as first agenda item. • COMMISSIONER JOHN RAND The Commissioner said how pleased he was with the make-up of the pres- ent Board, adding that the other Commission Members, as well as the Town Manager, shared that feeling. Mr. Rand assured the members that he does not consider them a "rubber stamp" committee; rather his expectations were that they would act solely as financial advisers to the Town Commission and not in the capacity of "auditors," which function was covered by internal controls and by employment of outside auditors. Regarding upcoming review of the 1991/1992 Fiscal Year Budget, the Com- missioner asked the members to keep it "as lean as possible without, of course, sacrificing service and security to the Town's residents." He told the members they would have his support. Prefacing his financial presentation, the Commissioner said that the views to be expressed were solely his own and not necessarily those of his fellow Commissioners. Pension P1an...Mr. Rand said he viewed the existing 3-year vesting period as much too liberal, noting that some FAB members have agreed with this thought. He added that he will be continuing to research the background of this policy and would report back to the Board at a later date. Florida State Pool Investment Policy... Commissioner Rand said he had made an analysis of the breakdown of pool investments after receiving requested information on its composition from the Finance Director, and Financial Advisory Board Regular Meeting - Minutes May 9, 1991 Page 2 of 7 had brought the results of that analysis to the attention of the FAB Chairman and Vice Chairman; he expressed surprise that the investment pool composition had not been presented to the full Board for review. He advised that he had requested the Finance Director to obtain this information on a monthly basis and have copies transmitted to the members. The Commissioner used the chalkboard to detail his findings and voiced concern that of total monies invested, 14% was in Japaneses banks, with 7.78% being invested in other foreign entities (21.78% total). In this regard, he first noted that he was not suggesting Japanese or other foreign short-term paper was in jeopardy, adding he knew all of these banks quite well; however, he did express doubt that the Town should be investing monies in any but U.S. Government or State of Florida guaran- teed obligations, saying he thought yield alone should not be the basis of determining how these funds are invested. He made mention of the recent events in some middle east countries, which resulted in their assets being frozen, as well as the fact that Eurodollar deposits could entail a dollar transfer risk even though the credit risk was not a factor. In conclusion, he suggested the Board meet with three investment bank- ing houses, mentioning Merrill Lynch, Shearson Lehmann as two large •houses and Raymond James as a smaller house, to see what the Town's options were as regards investing only in domestic government paper and what yields could be expected. After these meetings, the Board could then make their recommendations to the Town Commission. Per advice given earlier in the meeting by Town Manager Mariano, the members noted that proper Motion to re -open discussion on the Commis- sioner's presentation had to be made and voted on because the Board had previously transmitted the following Motion to the Town Commission (see Minutes of April 18, 1991): THE BOARD RECOMMENDS THAT THE TOWN CONTINUE TO PARTICIPATE IN THE FUND INVESTMENT ACCOUNT AND THAT THE FAB MONITOR INVESTMENTS AND RATE OF RETURN ON A QUARTERLY BASIS. Accordingly, a MOTION to re -open discussion relative to this subject was then made by Mr. Brunton/Mr. Freeman and met with unanimous favor- able vote. Starting discussion, Vice Chairman Hadeed remarked that he understood and respected the points made; however, he noted that no matter who managed the funds, it would be very difficult to micro -manage them unless they were managed in-house. Regarding foreign investments, Mr. Hadeed said he viewed the economy as "global" and offered that a "parochial" approach could be costly rela- Financial Advisory Board • Regular Meeting - Minutes • May 9, 1991 Page 3 of 7 tive to yield. In this regard, he suggested that perhaps a study could be made using Treasury Bills as a comparison to see what the difference in yield was over the last few years; he added that even with T-Bills there is a risk in value regarding liquidity. Pointing out that the current investment policy was approved by the Town Commission in 1987, and that the Town Charter calls for the Town Manager to be responsible for the investment of funds, the Vice Chair- man questioned that if the FAB recommended that any one of these cur- rent investments was unacceptable, then perhaps a change in Charter would be called for. Commissioner Rand responded that he was not requesting the FAB to take on this responsibility; he was pointing out what he considered to be an improper investment and thought the funds should be invested risk -free and properly handled. Mr. Freeman agreed with Mr. Rand, saying that if a firm were engaged, they could be told that the Town wants no foreign investments, only very secure domestic investments. Mr. Firstenburg also agreed with Mr. Rand, noting that the funds needed to be diversified and although larger Florida cities are seemingly do- ing their own investments, the Town's small size would not lend itself to this approach. He said he was in favor of the Board receiving ad- vice from the sources similar to those mentioned previously by the Commissioner, noting that the Town was not in a position to tell the administrators of the State pool how to invest. At this point, Mr. Rand noted that the administrators of the pooled fund are also dealing with brokers and said his concern was that who they were was unknown to the Town. Regarding administrative fees charged to the Town for their participation in the fund, Mr. Seaman confirmed the cost to be 3/10 of 1% of earnings. Mr. Brunton advised he had sat in on the 1987 investment policy dis- cussions, during which a legal opinion on the pooled fund had been sought; he added that he had not been too happy about the ultimate de- cision to participate in the fund. He mentioned the possibility of buying T-bills directly from the Federal Reserve and also the fact that the pooled fund is handy if money is going "in and out;" however, the Town was in a position to be able to make a fixed investment for a year or two and he suggested this as another possibility. Chairman Browner said he had studied the information presented in depth and had questions regarding Canadian investments and insured C.D.'s. He was advised by Mr. Seaman that the Canadian investments were in U.S. dollars and by Commissioner Rand that foreign banks do not have FDIC • insurance. Financial Advisory Board Regular Meeting - Minutes May 9, 1991 Page 4 of 7 The Chairman stated that his feeling on investment of Town funds was that there should be some risk -taking in order to maximize return and yet also have a conservative and diversified approach. Concluding discussion the following Motion was made by Mr. Freeman/Mr. Firstenburg and met with unanimous approval: AS SUGGESTED BY COMMISSIONER RAND, THE BOARD WOULD LIKE TO INVITE THREE INVESTMENT BANKING HOUSES, TWO LARGE AND ONE SMALL, TO MEET WITH THEM AND EXPLAIN POSSIBLE OPTIONS TO THE STATE POOLED INVESTMENT FUND. Mr. Hadeed requested to make a further comment, saying he felt the safety of principal could sometimes be carried to extremes. He gave an example of his reasoning and said he did not feel a responsible fiduci- ary should only safeguard captial without regard to yield. Before moving to the next agenda item, Town Manager Mariano asked to be heard. She referred to Mr. Firstenburg's remarks wherein he suggested the State pooled fund was a vehicle for smaller municipalities only and corrected his impression by naming several very large entities who participated, i.e., the State Capitol, Miami, Orlando, St. Petersburg, and West Palm Beach. • Referring to Mr. Hadeed's remarks regarding the Charter, Mrs. Mariano said that while the Charter and the Investment Policy do give her the power to invest Town funds, the Town Commission appoints this Board to ensure that she is doing the best for the Town; whatever comes out of this Board is implemented by her office. At this time, Chairman Browner recognized Talent Bank Applicant Frank Magarace and thanked him for his recent letter regarding the Board's discussion of Commercial Paper investments (see Minutes of 4/18/91), which he read into the record. The Chairman told Mr. Magarace the members agreed with the thoughts expressed in the letter. (Copy of letter and Town Manager's reply attached to and made part of these Minutes.) MARCH FINANCIAL STATEMENT It was the Consensus of the members not to review the March Financial Statement on a page -by -page basis. Questions raised were answered satisfactorily by Mrs. Mariano and Mr. Seaman, with the exception of why interest income is allocated on an actual basis, but not allocated on a budget basis. Mr. Seaman will check on this and report back to the Board. The Board found the Statement itself to be satisfactory. • Financial Advisory Board Regular Meeting - Minutes May 9, 1991 Page 5 of 7 40 SUB -COMMITTEE REPORT RE RECOMMENDATIONS FOR AUDITING FIRM The Chairman advised that he, Mr. Hadeed and Mr. Brunton had reviewed audit presentations. He said Presas and Haas had been ranked number one by a majority and Grant Thornton ranked second. During the discussion that followed, Mrs. Mariano explained that a Motion from the full Board would be necessary to approve the sub-com- mittee'sranking of Presas and Haas as number one. She also advised the Board of procedures per State statutes as follows: . Presas and Haas would be notified of their number one ranking and asked to submit their price. Only one negotiation at a time was permitted; State Profes- sional Engineering Acts and Auditing Acts prohibit working back and forth between two or more firms. Therefore, when the Presas and Haas price had been received and reviewed, if it was thought to be completely out of line, only then could Grant Thornton be approached to present their price. If it was decided the Grant Thornton price was out of line, there would be no going back to Presas and Haas. It was brought to the attention of the Board that in the past Presas and Haas had been very helpful to the Town, offering software programs and assistance at no charge. The choice of a smaller firm over a larger firm was discussed when Mr. Freeman raised questions regarding the staff size of a small firm not having the continuity of personnel that could be needed, as well as their capabilities to perform any special studies should the need arise. Mrs. Mariano replied that special studies would not be considered with- in the scope of the audit contract; however, she did say she was aware that Chuck Haas, major partner in Presas and Haas, has a substantial background regarding bond issues, etc., which could probably put that firm in the running if such a special study was called for. She also noted that the Town now does all its own financials on its own com- puters, which would enable an auditor to do an overview of the Town's own records, not an actual audit. Referring to Mr. Freeman's concerns regarding number of personnel, Mrs. Mariano suggested that should Presas and Haas be awarded the Town's auditing contract, it could be done on a one-year basis. In a discussion regarding Coopers and Lybrand, the current auditors, Mrs. Mariano said that firm's presentation was among the four the staff had transmitted, with no recommendation, to the sub -committee for re- view. Relating some of the Town's experience, she noted a constant Financial Advisory Board Regular Meeting - Minutes May 9, 1991 Page 6 of 7 shift in Coopers and Lybrand personnel, mentioning that the Town's pre- vious Finance Director, CPA Joanne Rutherford, had come from their ranks; it was Ms. Rutherford's opinion, after getting acquainted with the Town's books and realizing that all materials needed by the audi- tors were being supplied to them by Town staff, that the Town did not need this type of big firm, which in turn had a big overhead. Chairman Browner expressed concern with Coopers and Lybrand's previous handling of the pooled investment fund, giving Mr. Brunton credit for raising the issue, and saying that in their original audit report Coopers and Lybrand gave very little attention to the fund and the in- ference one could gather was that the Town was in an extremely safe investment. Concluding discussion, a MOTION by Mr. Brunton/Mr. Hadeed was made as follows: THE FINANCIAL ADVISORY BOARD REQUESTS THE TOWN MANAGER TO NEGOTIATE WITH PRESAS AND HAAS FOR THE SUBMISSION OF AN AUDIT CONTRACT, WHICH IN TURN WILL BE TRANSMITTED TO THE BOARD FOR REVIEW AND RECOMMENDATION. The Motion met with unanimous favorable vote. • SUB -COMMITTEE TO MEET WITH WATER RESOURCES ADVISORY BOARD SUB -COMMITTEE RE BUDGET PROCESS Chairman Browner asked Mr. Firstenburg and Mr. Freeman to act as the FAB sub -committee in this regard and to report on what recommendations the Water Resources Advisory Board had in mind regarding the 1991/1992 Fiscal Year Budget. NEXT MEETING The Chairman noted the next meeting date to be May 21, at 9:30 A.M.; it will be the first meeting regarding the proposed 1991/1992 budget. Mrs. Mariano advised the members would have complete budget packages in time for review before the meeting. There being no further business to come before the Board at this time, the meeting was adjourned upon MOTION by Mr. Freeman/Mr. Hadeed at 10:45 A.M. dmt APPROVE: yron Towner, Chairman Victor P, Ha eed, Vic Chairman s o�•'�` H�A"� 1� Town of Highland Beach ayor: Joseph A. Boulay •— • i :; '. e�j 3 • : a Vice Mayor: Bill Paul ♦�' '�i Commissioners: 3614 SOUTH OCEAN BOULEVARD • HIGHLAND BEACH, FLORIDA 33487 Arthur G. Eypel �� *'., ,.•# ArlinG. Voress �� OR ;Op 407-278-4548 John F. Rand Palm Beach County, Florida FAX 407-265-3582 Town Manager: Mary Ann Mariano a E • April 22, 1991 Mr. Frank A. Magarace 3450 South Ocean Boulevard Highland Beach, Florida 33487 Dear Mr. Magarace: Please let me than. Financial Advisory further appreciate at that meeting as I have transmitted Advisory Board mein k you for your attendance at the meeting of the Board held on Thursday, April 18, 1991. I your interest in the subject matter addressed evidenced by your letter of April 19, 1991. copies of that letter to each of the Financial hers. The present Talent Bank Application procedure provides that subsequent to an applicant attending a meeting of the board his choice, such applicant is then interviewed by the Town Commission at a Workshop Meeting. The next Town Commission Workshop Meeting will be held on Tuesday, April 30, 1991 at Please contact Anne Kowals, our Town Clerk, for information regard. Again, on behalf of and I look forward Board Meetings. Sincerely, Mary Ann Mariano Town Manager of 1:30 p.m. in this the Town Commission, thank you for your interest to seeing you at subsequent Financial Advisory cc: Commissioner John Rand Financial Advisory Board Anne Kowals, Town Clerk "Tree City U.S.A." April 19. 1991 Dear Mary Ann: First, let me thank you for welcoming me and introducing me to the members of the FAB on Thursday -- it made me feel that I belonged to be there as an observer. I found the meeting to be quite interesting. For whatever help it might be, I have one comment regarding the proceedings and it relates to the concern expressed about the risk of having 38% of the investment funds tied up in commercial paper. If I understood it correctly, the concern was that we have a risk by having 38% in one investment. "Commercial paper" is not a specific investment. There is an individual risk attached to each investment in the commercial paper of each legal entity and the risk factor will vary with each company. • As I see, it, we do not have a risk of 380 of our monies in commercial paper as it is inconceivable that the individual companies would all go bad at the same time, but rather we have a specific risk attached to each investment within the category of "commercial paper".