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Minutes - Investment - 2009-05-20• COSTA MESA SANITARY DISTRICT MINUTES OF INVESTMENT OVERSIGHT COMMITTEE MEETING May 20, 2009 CALL TO ORDER The meeting was called to order at 11:20 a.m. by Treasurer /Finance Director Marc Davis ROLL CALL Committee Members Present: President Arlene Schafer (rotating committee member) Director Gary Monahan (rotating committee member) Mr. Rob Hamers, Manager /District Engineer Staff Members Present: Mr. Marc Davis, Treasurer /Finance Director Mr. Thomas Fauth, Assistant Manager Ms. Joan Revak, Board Secretary /Program Manager /Clerk of the District Ms. Sherry Kallab, Management Analyst Ms. Teresa Gonzalez, Accountant NEW BUSINESS Review of Treasurer's Report Mr. Davis reported that the District's portfolio was earning approximately 2.26% as of April 30, 2009, compared to LAIF earning approximately 1.60 %. A large percentage of the portfolio is in LAIF and that is what is holding the earnings percentage down. LAIF has a high balance because a second large installment of property taxes was received in April. The County released funds early and then came back with an additional payment. Mr. Davis pointed out that the District is entering into a dry period of cash and therefore, his plan is to keep the LAIF balance high and draw over the next several months. Mr. Davis made reference to the graphical representation of the District's yield curve compared to the different benchmarks and noted that the District is above all benchmarks. A couple of the securities with call dates in June are expected to be called due to their current high yields of about 3.5% and 3.3 %. President Schafer inquired about participation in the CaITRUST Investment Pool and Mr. Davis responded that we are in the process of opening the account. He intends to make the initial deposit in the Medium -Term Fund for the purpose of obtaining a higher yield. The Medium -Term Fund restricts access to the funds to once a month. Director Monahan, then inquired if consideration for the CIP cash flow needs has been taken and Mr. Davis responded that yes, approximately 60% of the District's portfolio is liquid and immediately available. MINUTES OF INVESTMENT OVERSIGHT COMMITTEE MEETING May 20, 2009 Page 2 Investment Policy for Fiscal Year 2009 -10 • Mr. Davis distributed a working draft of the District's Investment Policy and noted that only pages 7, 8, and 11 had changes. The California Government Code has limited investment in Shares of Beneficial Interest, and so has the District, down to 20 %; this includes investments in CaITRUST, money market funds and money market mutual funds. The Investment Policy on page 8 clarifies that the audit of the District's portfolio is part of the annual audit of the District, and on page 11 it details out that the auditors will perform analytical review on cash receipts. The Investment Policy for fiscal year 2009 -10 will be presented to the Board at the July 2009 regular Board meeting for approval. Update on CalPERS Investment Losses On May 14, 2009 CSMFO hosted a CalPERS teleconference on the topic of CaIPERS investment losses and its relation to the retirement contribution rates. In the fiscal year 2008 -09 CalPERS investment losses have fluctuated between 25% — 30% and currently sitting at a 25% loss. The current smoothing model requires an immediate adjustment on any gains or losses greater than 20 %, or outside the corridor. It requires taking a hit in the corridor year. The CaIPERS staff discussed how the model does not work in this economic downturn, on what they are calling a catastrophic event and therefore, they proposed to adjust the smoothing method. The proposal, approved 6 -4 by the Board, proposes to isolate the year and to recover the loss over a 3 -year period, then amortize over 30 years. The adjustments will vary by agency, but approximately the retirement contribution rate will have a 16% increase in year 1, 14% in year 2, and 12% in year 3, then normal adjustments for the next 30 years. The model will continue assuming an investment rate of return of 7.75 %. The final loss numbers for June 30, 2009 will most likely not be available until October 2009 due to the market adjustments on the real estate portfolio. PUBLIC COMMENTS There were no items discussed under public comments. ADJOURNMENT The meeting adjourned at 11:45 a.m Approved by: Secretary, Costa`' `sa'l'�rrft ry District (r4esident, Costa-Mesa Sa itary District Board Directcrs Board of Directo