COMMISSIONERS OF PUBLIC WORKS

Minutes of July 25, 2006

The regular meeting of the Board of Commissioners of Public Works was held on Tuesday, July 25, 2006, at 10:00 a.m., in the boardroom at 121 West Court Avenue.

In attendance:

Gene P. Hancock    Steve D. Reeves, Jr.         Vickie Gorham

Bill Patrick               Michael G. Monaghan   Ken Barnett

Jeff Auman              Charles Schulze               Henry O. Watts

Stacia May              Ron Lemon                      Michael Nix

Denise Giannetti     Richard Gentry                Rebecca Steifle

Chris Lindley          Ken Whittle                      Jean Martin

Jeff Meredith           Melinda Bishop                Jeff Fowler     

I.              Chairman Hancock called the meeting to order and noted that Commissioner Monaghan would be arriving later. The invocation was given by Ken Barnett .

II.                 Chairman Hancock gave the statement of compliance with the notification provision of the Freedom of Information Act.

III.               A motion was made by Commissioner Watts and seconded by Commissioner Monaghan to approve the minutes of the June 22, 2006 regular meeting; and the July 13, 2006 regular meeting. The motion was unanimously approved.

Chairman Hancock changed the order of the agenda to allow Mr. Michael Nix with Greenwood Capital to give a quarterly report.

IV.              New Business:

A. Ms. Rebecca Steifle with Countybank reported on a recent meeting with Ms. Giannetti and everything was satisfactory with the Countybank at that time. Mr. Michael Nix with Greenwood Capital Associates distributed copies of Investment Reports for fiscal year 6/30/05 through 6/30/06. He referred to the first two pages showing Realized Gains and Losses on bonds that matured, called or sold during that time. He pointed out that a couple of issues had matured during the period and then were reinvested. Mr. Nix stated that the next several pages showed Unrealized Gains and Losses which effectively is a summary of the current account showing Treasury Obligations and Agency Bonds. He stated that these are laddered and he had talked with Ms. Giannetti to be sure there are bonds coming due at the beginning of 2007 to be prepared for any financial needs relating to gas prices, etc. He stated that so far as positioning the portfolio, they have been looking at extending a little within the guidelines of the account. He noted what has been experienced in the recent period is when rates have continued to rise, they have actually stabilized and started coming back down, and typically when you see the Federal Reserve reaching a point where they may start actually lowering rates, you will tend to see the short of the curve and yields start coming back down. That is beneficial from a performance standpoint because lower yields means higher prices in the value of your bonds; it is negative from a cash flow standpoint because lower yields equals lower income. He stated that there is a balancing act in accommodation of position of portfolio so there is money available but also trying to take advantage of yields and getting the best rate positioning on a “go forth” basis. He noted several issues coming due in the next six to eight months. If that money is not needed, it will be rolled out and positioned out on the portfolio. Mr. Nix stated that with going forward and looking at estimates for 2006, the actual performance on the portfolio was 2.06% versus the Lehman Brothers 1 to 5 year government, which is our benchmark of 1.08%. He pointed out that the incomes are going up because rates have been going up and the values have depressed. Mr. Nix stated they are pleased with the performance with the average yield on the portfolio for fiscal year 2006 right at 3.55% to 3.6%. He reported that they have been positioning money for fiscal year 2007. They are seeing about a 1% - 1.5% increase in the yield on the portfolio for this fiscal year based on the bonds held today and the expectation of being able to reposition some bonds on a “go forth” basis. Mr. Nix stated that most likely, the average yield on a portfolio will move from that 3.5% - 3.75% to 4.5% - 4.75% which would equate to a cash flow of an additional $500,000 for fiscal year of 2007. Mr. Nix stated that the income calculated for 2006 was roughly $343,000; they did get the benefit of some incretion of discounts that goes into the yield equation that would compare to the estimate right now for 2007 fiscal year income of roughly $422,000. He stated that it is a more favorable environment and recognized that current yields from an investment standpoint are 5+ % depending on where you are on the yield curve, and we are probably anywhere from 5% to 5 ¼% on agency bonds. Mr. Nix stated that everyone is aware of the macro-economic conditions and the geo-political risk and when you have that uncertainty as it relates to the bond market, it can cause a lot of volatility. A lot of things are going on with Iran, China, Cuba and the situation in Lebanon that definitely are geo-political risks from an economic standpoint and are affecting ten-year raise rates beyond what a lot of people expected. The rates are at the 5 ½% level now and will probably stay there until the first part of 2007 when they will start lowering again in an effort to stave off inflation and not to stifle growth. He stated that they are not reinvesting as actively as in the last 18 to 24 months. Mr. Nix concluded by stating that the portfolio is positioned properly to prepare for potential short-term cash needs, and to set in some more attractive rates for the longer terms as rates start to move back down. Commissioner Monaghan stated that he was pleased with the performance last year. He asked Mr. Nix about moving more operating cash and restricted cash to the investment category as long as we are liquid enough. Ms. Giannetti responded that we probably could, but pointed out that our money is being invested right now. She further explained that it is not invested through bonds but is in Federated Funds or being swept out of the Countybank account every day. It is actually earning the current yield and is invested, but not on an overnight basis. Ms. Steifle explained that there are two sweep accounts at the Countybank; one is the Bond Construction Account with approximately $3.2 million, earning 4.6% today, which are restricted funds. The other sweep account currently has approximately $2 million and is also swept into a Federated Account where it earns a competitive rate of interest. She added that the Operating Account has a zero balance right now which they try to maintain because they agreed to sweep 100% of CPW’s funds to maximize earning potential. That account typically stays at a zero collected balance, so all of those funds are either swept into Countybank’s sweep account, where combined between the two sweep accounts they always maintain $5 million on deposit. Anything above that gets swept out and is typically invested either with Jean Martin in Federated, or can be invested in the investment account that Michael Nix manages. Ms. Steifle added that both of the Countybank money market account regular bank accounts are earning 4.6%. Ms. Martin stated that as of yesterday, there was $4,230,000 earning a daily rate of 4.75%, and that rate changes daily. Mr. Nix stated that in the past when these discussions have taken place with Denise, they have tried to figure out the most prudent way to do this and this was a good step in utilizing those funds because Federated uses Treasury Obligation Funds which meets the requirements of the South Carolina Act and gets a much better rate than just a typical bank deposit rate. Mr. Nix stated that as it applies to short-term cash needs, this is the best way to go. He suggested that if a decision is made at some point when reserve money has built up in this fund and could be invested on a longer term, i.e. six months or a year, then you might consider the investment account. Ms. Steifle added that the account managed by Ms. Martin from the trust department gave them the ability to sweep more of CPW’s funds into an account at a more favorable rate than the bank side could provide. Commissioner Monaghan asked if $5 million is automatically given to Mr. Nix’s investment account. Ms. Steifle stated that $5 million automatically goes into Ms. Martin’s account and Jean is able to give it back to the bank during operating needs that Ms. Giannetti may have, such as when checks are clearing, wires are going out, etc. They are being invested with Ms. Martin at a more favorable rate than the bank is offering, and then when they are needed, she is able to automatically sweep those back into the bank. Commissioner Monaghan asked if there is a level where it is automatically triggered and if they had agreed on an amount to go to the investment account rather than staying in the sweep accounts. Ms. Giannetti responded that they try to maintain the $5 million balance at Countybank for operating, but that is still being swept and earning interest and anything over that amount automatically goes over to federated funds. She added that when they start to invest it in bonds it is not as liquid. Commissioner Monaghan asked about the decision process. Ms. Giannetti responded that if interest rates started to decline and it was more favorable to have those monies invested longer term, then they would move those monies. Commissioner Monaghan asked who makes those decisions and what triggers them. Ms. Giannetti responded that if she were watching, she would ask Mr. Reeves who would then come to the Commissioners to move the money. Commissioner Monaghan asked should there be a device for moving funds. Ms. Giannetti responded that there should probably be an investment policy. Ms. Steifle added that an investment policy was initially discussed at Greenwood Capital; Mr. Nix could assist with developing an investment policy and Jim Fowler had offered to assist as well. She added that they could discuss a way to formulate decisions on how to invest any excess funds that may be in a sweep account at Countybank to more proactively manage those funds to get those into a longer term investment account. Commissioner Monaghan stated that he thought that the Countybank was going to reduce the minimum requirement level from $5 million to $3 million. Mr. Reeves stated that the $5 million was set with the signing of the agreement with Countybank for the annexation. Ms. Giannetti stated we would not want to have it under that amount because there would not be enough to cover operating needs. Ms. Steifle pointed out that $3.2 million of the $ 5 million is in the Bond Construction Account which is restricted.

V.                 Financial Statement:

            Commissioner Monaghan asked about developing a way to capture what is actually spent on annexation and promotion efforts. Ms. Giannetti stated it would not necessarily be reflected on the financial reports but they could provide supplementary information from information that is captured in a separate account. She suggested a separate account in the general ledger just for the purposes of gas incentives so every time there is a charge code associated with each type, at some point they could pull a report and would be able to keep up with that information. Commissioner Monaghan also asked for information showing the effectiveness of the incentives. For example, if we get a $500,000 grant, that should offset a lot of expenses and this information would help us better understand what we are doing. Ms. Giannetti stated this is not something that is necessarily quantifiable in the financials but would have to be monitored. Mr. Patrick asked Commissioner Monaghan if he was asking for how much is spent on annexation and asked if the intent is to include things like if you have to put in a sewer line. He stated for clarification that probably Commissioner Monaghan wants to see how much commitment CPW has made financially to bring additional pieces of property into the city to increase the tax base and to increase the electric load. Commissioner Monaghan responded that we need a way to gauge whether or not it is worthwhile. Mr. Patrick added that if you were going forward doing something like was done on the Lowe’s tract of property with some incentives, or building sewer lines or whatever to get property into the city, then that would be something you would like to be able to show. Mr. Patrick added this would be different from promotions and would not want to mix those two. Commissioner Monaghan stated that he would like to see this information if it can be provided. Commissioner Monaghan then asked if there are any categories within the “Miscellaneous” category that are over $100,000 and should be taken out. Ms. Giannetti stated that in scanning through it, the larger ones have already been pulled out but she would check again for any particular charge codes that are generating large amounts. She added that there are about 300 charge codes going into those accounts. She noted that there could be large checks such as reimbursement for a large insurance claim from three years ago that would have to go against some type of revenue account.

IV.              New Business:

            The meeting returned to the order on the agenda with Item B. under New Business.

B.     Manager Reeves reminded the Commissioners that the Board had approved a $500,000 grant for upgrades to the water system in the East Cambridge area back in March. That grant required that CPW provide not only matching funds but a commitment to meet the additional obligations to complete the project. Back in March, the amount was estimated to be $250,000. Now that the project has been better defined and the cost of materials has been revised, that brought the estimate up to approximately $812,000. Mr. Reeves informed the Commissioners that it was necessary to submit a letter of commitment to the Council of Governments stating our intent to provide those funds. He stated that he attempted to contact the Commissioners by phone and obtained two of the three votes to the “affirmative” to provide that letter of commitment. Mr. Reeves asked for authorization for the total amount of $312,000 needed to complete this project. A motion was made by Commissioner Monaghan and seconded by Commissioner Watts; the motion was unanimously approved.   

C.     Chairman Hancock stated that the low bid for 12-in. and 8-in. ductile iron pipe came from Griffin Pipe Products Company at a cost of $86,316.60, including tax. Commissioner Monaghan made a motion to approve the low bid, Commissioner Watts seconded, and the motion was unanimously approved.  

D.    Chairman Hancock stated the recommendation to accept the bid from Line Equipment based on the lowest cost of ownership in the amount of $11,700 for two 75-KVA padmount transformers. A motion was made by Commissioner Monaghan, seconded by Commissioner Watts, and unanimously approved.

                  E.   Manager Reeves updated the Commissioners on issues discussed at the last meeting.

1.      The website link issue has since been resolved and the CPW link will be on the front page of the Partnership site.

2.      Credit card payment issues have been resolved between the programmers and the state and testing began today. According to Mr. Auman, actual live application of credit card payments will be up to SC.Gov. Once they approve the testing, which should begin within a day or two, and then it will be ready to go about  four to six weeks after that. 

3.      Contracts were signed yesterday on the water treatment plant roofing project.

4.      Manager Reeves reported that there have been no changes on annexation issues since the last meeting. There is a draft of an agreement ready for the Zimmerman property. Mr. Fowler asked if anyone had spoken with Charlie Barrineau about the Corley annexation. Manager Reeves responded that he spoke with Charlie about the commitment the Board had made to do whatever was necessary to move forward. Mr. Fowler stated his appreciation and noted that although they are involved with the process, many times most of the benefits of annexation are coming from CPW and Metro, and the City also recognizes that.

5.      Mr. Gentry reported that the Maxwell grant in the neighborhood of $900,000 had been officially announced, and the search for more funding opportunities continues. He reported that bids are  in on the “Get Well Card” for the well management system and samples have been requested from the low bidder. He reported that there have been a lot of questions from the gas department on incentives and that an impromptu meeting was held to help our guys answer questions out in the field. Manager Reeves stated that a recommendation will likely be forthcoming to revise the incentive policy. A customer came to us with three heating units; one was 60,000 btu’s and the other two were 40,000 btu’s, and they had three hot water heaters. They wanted to know if this was “per unit”. Mr. Reeves stated that in applying for the hot water heater, it is clear that we would probably want to apply it to each one. He stated that with the heating units, each of the 40,000 btu’s unto itself does not meet the 50,000 requirement, but would if you combine them to 80,000. He stated that the recommendation will probably be to include a small increment for every 10,000 above the 50,000 btu requirement. Mr. Gentry reported that the gas ad is on hold because the photograph he had came from the American Gas Association. We are only allowed to use the photograph if we are a member and we are not. Information on membership has been requested.

VI.       Other Business:

1.      Commissioner Watts asked about the status of the Sprint/Embarq pole agreement. Mr. Meredith responded that the transitional agreement has been presented to their management and should be approved quickly. There are a few small issues to iron out on the formal five-year contract.

2.      Chairman Hancock asked about annexation at the Genetic Center. Mr. Fowler stated that the primary holdup is a Commissioner on the Higher Education Board that handles the endowed chairs for the state. Clemson is requesting the endowed chair and USC stepped in and blocked it a couple of weeks ago. That affects and delays the plan for Clemson building the new center there. The Genetic Center would like to have that firmly in place before starting the road project. Once they start the road, then they would like to work on annexation. Mr. Schulze added that Carolina is the holdup. He explained that it goes to how the matching funds are going to be developed for that project, and matching funds are required for the grant. He stated that this is a little unique and is a first-time used methodology. The problem was that it was not a protest from someone at the top, but rather somebody three or four rungs down. Mr. Schulze stated that he had done a lot of research and the way they are trying to put this together looks pretty good, and he believes that it will go through eventually.

VII.      Executive Session

            A motion was made by Commissioner Monaghan, seconded by Commissioner Watts, and unanimously approved to go into Executive Session to discuss a contractual matter pertaining to janitorial services.  

            The meeting returned to open session.

            Manager Reeves stated that a contractual matter was discussed during Executive Session pertaining to janitorial services and it is the recommendation of management that the current janitorial contract with Jani-King be terminated by providing thirty-day written notice, pending action of a similar nature by Greenwood Metropolitan District. A motion was made by Commissioner Watts, seconded by Commissioner Monaghan, and unanimously approved to terminate the contract with Jani-King.

            Manager Reeves stated that discussion of a contractual matter pertaining to a fiber optic contract took place during Executive Session.

VIII.     With no further business, the meeting was adjourned.