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COMMISSIONERS OF PUBLIC WORKS The regular meeting of the Board of Commissioners of Public Works was held on Thursday, April 22, 2010 at 10:00 a.m., in the Boardroom at 121 West Court Avenue. Meeting attendees are listed in the Print Friendly PDF version above.
A motion to approve the minutes of the regular meeting of March 11, 2010 and the regular meeting of March 25, 2010 as submitted was made by Commissioner Monaghan and seconded by Commissioner Watts; the motion was unanimously approved.
Commissioner Monaghan asked why such a large negative income amount was shown in the financial report for only one month. He pointed out that the other departments looked pretty good, but the electric department showed sales of $1 million with electricity costs of $1.4 million. Ms. Ogletree reminded Commissioner Monaghan that part of the cost of electricity is recovered through the PPAC, and that the PPAC is a three-month rolling recovery. She explained that we are still collecting from customers in February and March for electricity that was paid for in January; what was paid in March will be collected in April and May. She continued that it is similar to PGC except spread over three months. Mr. Meredith added that we are billed from the power provider for the month the energy is used; they go ahead and pay that full amount. He explained that we get the chance to recover that amount by using a blended PPAC the first month; we are using half of the month of actual data, and half the month of projected data. He continued that all PPAC’s are projected; that is the number used to charge us, and the next month they have the actual fuel charge. They have to adjust that up or down; that is added into the equation for Denise to do the PPAC, then billed the following month. Mr. Meredith clarified that it really takes three billing cycles because of the way the charges come in versus the way the fuel charge is estimated. In theory, the next month you should see that the cost went down or stayed the same and revenues went up. Mr. Meredith noted in some shorter months, such as those following a cold winter, bills can be a little higher and take a little longer to fully recover. Commissioner Monaghan asked about the impact of this type of system on customers. Mr. Meredith responded that it ebbs and flows based off of the fuel charges; if we get a break on the fuel charge, the customer gets a break on the rate. He added that there have not been very many breaks lately, but there was a time when there were breaks. There may be instances where a customer has less consumption but their bill was $5 more; the customer may not understand that and they have to talk them through the fuel charge process. Commissioner Mongahan asked if there is a way to estimate average impact to level it out so there is not such a dramatic difference from one month to the next. Mr. Meredith responded that in looking at the fuel charges that had been added lately, it is fairly consistent. They actually take the purchase provider’s estimations, which is better than trying to figure out what their system charges are, and use that in the formula to determine the PPAC. Mr. Meredith commented that this would become an issue if a trend starts to develop, but there is no cause for concern with just a one-month anomaly. Commissioner Monaghan then referred to the budget revenues versus expenses summary shown on page 7. He noted that according to the budget, we would be $21,000 to the good at year end. Ms. Ogletree responded that amount does not include the transfer to the City; after taking out $1.2 million, it would be a negative amount. Commissioner Monaghan asked why that was not shown; Ms. Ogletree responded that it could be, and pointed out that it is included in other statements. Commissioner Monaghan asked that it be put on that page also; Ms. Ogletree noted that page 6 reconciles that number. Mr. Patrick suggested that it might be better for the Commissioners if Ms. Ogletree were to include something such as “anticipated transfer to the City” since it is not necessarily a firm thing. It is almost a given, but in effect, you have to have made a margin. Manager Reeves suggested it be shown in a below-the-line reconciliation. Ms. Ogletree stated that it could be added to page 7 and removed from page 6; Mr. Barnett noted that the Commissioners would then be able see the transfer below the line.
A. Mr. Michael Nix with Greenwood Capital provided a quarterly report on investment accounts. He reported that for a number of months they had been working with Bank of New York and were able to secure all agreements so those funds can now be managed as an individual portfolio versus being kept in a money market. He stated that they began investing securities out of the money market into individual securities. For accounting purposes, there are actually four subaccounts secured against each of four different bonds run under one account, with a consolidated number for the debt service reserve fund. Commissioner Monaghan commented on having read some negative articles about Fannie Mae. Mr. Nix responded that they continue to pay attention to what is going on in the marketplace as it relates to government sponsored agencies and in particular looked at opportunities to move any longer term agency bonds into treasuries. He expressed that there is more comfort with the shorter end of the curve looking at agency bonds, where every time as bonds mature, those are rolled over into either treasury bonds or shorter term agency bonds so there is not any credit risk further out into the curve. Mr. Nix then reported on Investment Account 1802, starting with realized gains and losses showing any issues that had matured, were called, or sold during the first period of the year. He noted that by design a lot of maturities had come due this time of year with the expectation that rates would be higher. That has not happened as they thought it would; the short end of the curve is staying artificially low; and longer maturities have moved out. He stated that as the feds start to raise rates, they should see those move up pretty drastically, so they are still very conservative on how they position. Mr. Nix referred to two pages showing current assets in the account using a qualified money market or any cash and equivalents. He pointed out state statute approved securities including U. S. Treasury Bonds and U. S. Agency Bonds, noting that anything purchased lately was typically U. S. Treasuries or very short U. S. Agency Bonds. Mr. Nix referred to page 4 that is a timeline of activity in the portfolio since the beginning of the year including: beginning value, accrued interest, withdrawals, realized gains, unrealized gains, interest received, and an ending value. Mr. Nix reported on page 5, realized gains and losses for Revenue Bond Fund 1975. He pointed out shorter duration because this account is managed to a draw schedule. Nothing of concern was noted with securities; all had matured during this period by design for draw schedules. He referred to a significant holding in cash as of March 31 shown on page 6, and pointed out that it had since been drawn down. Cash was raised through those maturities to meet the draw schedule and that had occurred. Mr. Nix noted a relatively short duration portfolio of U. S. Treasuries and Agencies. He then referred to a performance report of Fund 1975 showing beginning value with accrued interest, withdrawals, realized and unrealized gains, interest generated during the period, and the ending portfolio value. He stated that short-term accounts managed right now look to be yielding right around 1%, which is pretty good for what they are trying to accomplish. In looking at the local government investment group right now, that is earning right around ½%. The goal is to stretch out a little and match the draw schedule to generate excess return. Mr. Nix reported on the next group of accounts, the Debt Service Reserve Fund 2047, consisting of four sub accounts consolidated for reporting purposes. He noted that these funds are just now being fully invested; on average, there is probably between 15 – 20% in money market still in securities, but given the activity being seen in the market, they would be putting that to work. He noted a lot more treasuries being bought with cash, with most of the agencies being bought designed to be twelve months. Commissioner Monaghan inquired about a draw schedule. Mr. Nix responded that they are actually pulling money out of the Investment Account to fund the Debt Service Reserve; they had originally had a monthly amount which is why the withdrawals are seen coming out of the Investment Account that were going to the money market at the Bank of New York. They are pulling money from the Investment Account now back into the Debt Service Reserve Fund that they are managing. He noted that there is no draw schedule per se. Mr. Patrick clarified that the Debt Service Reserve Account had to be established over a period of months because the insurance on the bonds lost the ratings. You think about bond accounts being ones we go draw from to pay for improvements, but this is flowing the other way. We are taking it out of our funds and putting into the Debt Service Reserve Fund with the Bank of New York. Mr. Nix added that it is basically a self-insurance type of account. Commissioner Monaghan asked if they had somehow calculated the amount and were keeping the amount at the same level. Mr. Patrick recalled that it was supposed to be a certain number of months; they did a prorata amount per month to get it fully funded as needed. Mr. Nix added that there was an initial catch-up; they had to go back a few months; it should now be more like a bell curve where it will drop back off after that period of time. Mr. Patrick stated that once they get there, they would probably be through. Ms. Ogletree added that an amount was prescribed in the bond covenants. Mr. Patrick added that a percentage of the bond is required to be in the Debt Service Reserve Account that was not funded initially because we paid for insurance, which made sense at the time; then the insurance lost the rating, and the bond document states that if the insurance did not maintain that rating, you have to go back and put the money in to protect the bond holders. Commissioner Monaghan asked if the debt service principal would be paid out of O & M. Ms. Ogletree responded that there are two debt service type accounts; there is Debt Service Reserve like Mr. Nix is referring to, then there is a Debt Service Account that the payments for bond principal and interest come from at the Bank of New York. Initially, they come out of O & M and go into the Bank of New York, but the payments are made to the bond holders out of the Bank of New York. Commissioner Monaghan asked why there are two accounts at Bank of New York. Mr. Patrick explained that the Bank of New York is the trustee on the bonds for the benefit of the bond holders. The amounts paid out of O & M goes into an account more like a current account for bond holders; then the Bank of New York formally takes that money and pays it to the bond holders as payments of principal and interest; the other account is having to catch up where we purposely did not fund the Debt Service Reserve Fund. It is like an escrow for the benefit of the bond holders if we start missing payments. If money is not put into the first account, then this account that is held as an escrow is there to fund the payments that were not put in. Ms. Ogletree added that that money would be released back to us at the end of the life of the bond if all of the payments have been made. Commissioner Monaghan clarified that in the meantime, Mr. Nix had arranged to call the shots with investing the money rather than it staying in a money market account. Mr. Nix noted that the benefit of being able to manage this as an individual portfolio is incremental as far as what can be generated from an interest standpoint. Commissioner Monaghan asked how the second account at the Bank of New York is reported; Ms. Ogletree responded that it is not in the financial reports. Commissioner Monaghan stated that it should be, and should show what we have versus our debt; Ms. Ogletree responded that it would be included. She noted that it was included in restricted cash, but could be broken out. Mr. Nix reported on current assets in the performance report, and pointed out that no value was shown for 2009 since this account was not open on December 31, 2009. The report shows the contribution was moved over under their management, and shows unrealized gains and interest. He noted that interest was shown as a negative because of the purchase of accrued interest, but would be caught up. Mr. Nix stated that overall the short maturities have stayed lower than they thought for longer than they thought. They have one of the steepest yield curves seen in quite some time. He stated they have to be careful not to get too aggressive with going out from a maturity perspective, particularly if the thought is that rates will continue to go up. Right now, from a street perspective, most people think the feds may start raising rates by the end of this year heading into 2011. Some, such as Goldman-Sachs, do not think that will happen until the end of 2011 going into 2012. Mr. Nix stated that some of the comments being heard are that the feds are keeping rates low for the benefit of the 30-year old, to the detriment of the 65-year old, meaning those who really depend on fixed income are in a tough situation because interest and dividends have really come down. He expressed the belief that the feds will have to start raising rates; they have to start moving up with the debt situation we are currently faced with potential future inflation down the road. He noted that they could take them up to 1 – 2 % fairly easily and not be constrictive for monetary policy. He continued that the fed has to be near perfect in execution of the change in monetary policy to avoid hyper-inflation as was seen in the 70’s, or a double dip as was seen during the last depression where there was a steep recovery in the early part of the 30’s followed by a steep drop in the late 30’s because they were too aggressive with raising rates. Mr. Nix noted that it is hard to have a tremendous amount of confidence with what is going on right now, but you have to have faith; they keep an eye toward positioning the portfolio when they think opportunities exist. He stated that they are willing to be patient and wait for activity to pick up before starting to move out from a maturity perspective. Mr. Nix concluded by stating that tremendous value is placed on the relationship, and that they are willing to provide whatever is needed for reporting and to be a resource to answer questions. Commissioner Monaghan asked about funding GASB and if that is shown anywhere in a report. Ms. Ogletree responded that $500,000 was funded and a report could be provided. Commissioner Monaghan commented that it should be incorporated into the financial report to show that amount was put aside, and to follow the value as it grows. Commissioner Monaghan asked if Mr. Nix had anything to do with GASB funds; Mr. Nix responded that they had helped to evaluate the situation and determined it best to place the money with SC Orbit. Commissioner Watts asked how the recently passed healthcare bill might affect GASB. Ms. Ogletree responded that John Phillips might have information by their next meeting as to how this might influence the South Carolina Local Government Assurance Group. She noted that they would have to determine if we are considered a Cadillac plan and could have to pay some type of additional fee because of having a more expansive plan. Commissioner Monaghan asked about the yearly contribution amount; Manager Reeves responded that we are in good shape. Ms. Ogletree added that no additional payments had been made into the Insurance Reserve Fund. Commissioner Monaghan stated that he was referring to the GASB account; Ms. Ogletree responded that we are behind with that payment by $1.2 million with more being added each fiscal year. She noted only about $741 in income made so far on that $500,000 with SC Orbit. Commissioner Monaghan asked how that money is invested; Ms. Ogletree responded that it is invested in the same type of allowable investments.
A motion to ratify the action was made by Commissioner Monaghan; the motion was seconded by Commissioner Watts, and unanimously approved.
A motion was made by Commissioner Monaghan, seconded by Commissioner Watts, and unanimously approved.
A motion was made by Commissioner Watts, seconded by Commissioner Monaghan, and unanimously approved.
A motion was made by Commissioner Monaghan to renew the contract for two years as recommended; the motion was seconded by Commissioner Watts, and unanimously approved.
A motion was made by Commissioner Watts to elect Commissioner Monaghan as Vice Chairman; the motion was seconded by Chairman Hancock, and unanimously approved. A motion was made by Commissioner Monaghan to elect Chairman Hancock as Secretary; the motion was seconded by Commissioner Watts, and unanimously approved.
1. Chairman Hancock referred to a letter in The Index Journal from a reader expressing appreciation to CPW for the clean water received on their street and to the water department for their efforts to keep property damage to a minimum. He noted that replacement of old water lines in the mill villages was made possible through grant monies. He added that the stimulus money also made it possible for the contractors on these projects to keep working, which helped the economy in Greenwood. 2. Mr. Gentry reported that the application for the latest CDBG grant had been submitted. He added that once the application has been sent in, that means it has basically been approved. Mr. Chapman stated that the latest from Washington, D. C. was that Senator Graham had gone through and carved up all of the set-aside requests; every municipality in South Carolina that had come to him are getting an equal request of $250,000. He noted that this is roughly 30% of what was requested, but at least we have something. The lobbyist feels that is a good thing even though we are not at the level requested, because that opens us up for a multiple-year request. If Senator Graham felt it was important enough to make the request this year with the economy as it is, then he understands that it would not fund the entire project and would be receptive to our coming back in future years to request additional funding for the same project. He noted this was written up as the project to lay water lines to support our infrastructure looping in order to eventually have water going down to connect Troy, as requested by Councilwoman Edith Childs. This would position us to get there and also to pay for upgrades at the water plant. He noted an overall cost for the lines to get to Troy somewhere in the neighborhood of $4 million, but with the other infrastructure tied to this to have the hydraulics and additional capacity at the plant would put us closer to the $9 - $10 million range. If we set ourselves up to tie to Troy, we would then be connected to McCormick CPW, and would be considered a true regional water system having two water supplies inter-connected. Commissioner Monaghan asked about the $10 million amount; Mr. Chapman responded that amount would include upgrades at the water plant and infrastructure such as additional looping to get to other areas in the county. He noted that they were approached by the county at another time about getting water to the volunteer fire departments, so this is a slice of an overall larger countywide project. Commissioner Monaghan asked why we would want to go to Troy if McCormick is serving them. Mr. Chapman responded that based on Ms. Childs’ request, they cannot go much past Troy and are not getting the desired pressures and flows. Some businesses have looked at Troy in the past, and would no longer consider there because of not having the water flow and pressure. Manager Reeves added that McCormick is only serving a small portion of Troy.
A motion was made by Commissioner Watts and seconded by Commissioner Monaghan to go into Executive Session for contractual, legal, and personnel matters.
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