Board of Finance Minutes-12/18/2012
BOARD OF FINANCE
REGULAR MEETING - 6:00 PM
DECEMBER 18, 2012
CALL TO ORDER
Paul Henault, Chairman, called a regular meeting of the Board of Finance to order at 6:00 P.M. on Tuesday, December 18, 2012 in the Main Meeting Room at the Town Offices, 933 Hopmeadow Street, Simsbury, CT. The following members were also present: Peter Askham, Jeff Blumenthal, Nicholas Mason, and Barbara Petitjean. Also present were; Mary Glassman; First Selectmen, Mary Ann Harris; Finance Director, Burke LaClair; Board of Education Business Manager, and other interested parties.
I. APPROVE MINUTES - November 20, 2012
Mr. Mason made a motion to move the approval of the minutes until later on in the agenda. The motion was seconded by Ms. Petitjean and was unanimously approved.
II. STATUS of REVALUATION & NOTICES to TAXPAYERS - David Gardner
David Gardner, Simsbury Tax Assessor, addressed the Board in order to provide an update on the process of the revaluation. Mr. Gardner began by showing the Board members what the assessment notice looks like in addition to the revaluation letter. Mr. Henault asked if this letter is different from the one sent out five (5) years ago and Mr. Gardner said it includes more property specific information and added that they should be out by the end of the year. Mr. Gardner explained how someone could schedule an appointment with the revaluation company after receiving their letter. Ms. Petitjean asked if Mr. Gardner could share the average value change and he responded it is around an 11%-16% decrease for residential properties. This was discussed further. Ms. Petitjean asked if commercial properties experienced a similar change and Mr. Gardner said he was not exactly sure, but the overall number is approximately 15%. Mr. Askham asked if there were certain neighborhoods that are affected more than others and Mr. Gardner said yes. When asked, Mr. Gardner said it is too early to provide accurate numbers regarding the Grand List. Mr. Askham asked when Mr. Gardner anticipates the final Grant List will be done and he responded, by the end of January. The Board members provided feedback/suggestions to Mr. Gardner on revisions to his letter that might prove helpful to the recipients. The Mill Rate was discussed and the potential variables that will have an impact. Ms. Petitjean asked if there were any philosophical changes in the way value was determined and Mr. Gardner said no, there were not. Mr. Henault thanked Mr. Gardner.
III. PENSION STUDY/PENSION ISSUES - Becky Sielman of Milliman
Mr. Henault introduced Ms. Sielman and said he would like her to address the following items specifically; 1)what investment return should the Board target for next year, 2)what should the annual required contribution be and 3)what should the length of the amortization period be.
Ms. Sielman said she would begin speaking about the assumption tweaks that were made including; mortality assumption, turnover assumption, retirement assumption and salary growth assumption. She said the demographic assumption (umbrella term including; mortality, turnover & retirement) changes resulted in a slight reduction in liability and a slight reduction in the annual contribution. She said the salary scale similarly resulted in a slight reduction in the liability and annual contribution. Ms. Sielman said there is one method change that she would strongly urge the Board to adopt, the Valuation Timing Adjustment. She said this a measurement of assets and liabilities (measured every July 1st) and that information is used to determine how much the town should contribute the fiscal year that starts one year later. She said would like to change that so they take the July 1st, 2012 (for example), calculate all of the numbers as of that date, and then apply one year’s interest to bring the numbers forward to July 1st, 2013 (which is when the contribution will actually be paid). This issue of timing was discussed further. Ms. Sielman then turned to the subject of the interest rate assumption. She spoke about the factors that need to be considered when setting the expected long-term return on investment. Ms. Sielman spoke about how the capital market assumptions have changed over time and how she personally is more optimistic then the numbers currently being used. She said, at this point, she would suggest Simsbury drop its interest rate assumption 50bps (7.75%-7.25%) and keep another 25bps at arm’s length for the time being and take a look at it in another couple of years. At that point, she continued, the Board can decide whether or not to drop it another 25bps. The 50bps change was discussed further with Ms. Sielman saying she does not feel an overwhelming compulsion to take the drastic move of lowering the interest rate assumption by 100bps all right now. Mr. Henault said he would like to see it lowered 25bps each year while constantly evaluating. Mr. Askham expressed his concern about the dropping funded percentage and asked if they will start going in a positive direction. In response, Ms. Sielman said they need to remember that the plan’s assets suffered enormous losses several years ago and those losses are gradually being recognized over a 5-year period, which prevents the funded ratio from rising. She said this is the last year of taking those big hits, so that drag will stop and a couple of years of nice gains will be reflected. Ms. Petitjean asked about the overall effect of the altered demographic assumptions combined with a more optimistic inflation rate. Ms. Sielman referenced the “Impact of Proposed Assumption Changes - 2012 Pension Plan Valuation” sheet distributed, which was reviewed and discussed. Mr. Askham asked Ms. Sielman to speak about the amortization period. She said the amortization period was reset to 25 years in 2008, and then goes down by one (1) year every year after that, bringing it currently to 21 years. Ms. Sielman said one thing the Board could choose to do, helping to mitigate the effects of lowering the interest rate assumption and making the timing adjustment, would be to extend the amortization period back out. She provided the numbers reflecting the potential results of that type of change. She said it does not change the funded ratio at all, but it does mean they would be tying themselves to a longer path to get the plan back up to fully funded.
Going back to the discussion of assumption changes, Ms. Petitjean asked if they could see the effect of each isolated line item change (within the “Impact of Proposed Assumption Changes - 2012 Pension Plan Valuation” sheet) in order to see the impact of those single changes. In response, Ms. Sielman said she thinks the other assumptions (reflected in the previous columns) are changes that need to be made regardless. When discussing options for potential changes, Mr. Mason said he is personally not in favor of lengthening out the amortization period. He said he thinks they need to decide whether or not to adopt all of the changes presented in columns A, B, & C (regarding Valuation Timing Adjustment, Demographic Assumptions & Salary Scale) and whether the Board wants to drop the interest rate 25bps or 50bps. Mr. Blumenthal asked about the perimeters for the amortization period and at what length will it still remain actuarially sound. Ms. Sielman said 30 years is the maximum period under the current GASB (Governmental Accounting Standards Board) standards and 30 years is as long as she would be comfortable recommending. Ms. Sielman said she thinks it is something to approach with caution. Mr. Askham then asked Ms. Sielman if they put $1MM into the plan, what would it do to the numbers. She responded by saying it would lower the required annual contribution and improve the funded ratios. Mr. Henault asked what would happen if they kept the annual required contribution the same and still put that chunk of money in. Ms. Sielman said at the next valuation, they would see that there was more money in the funds than expected and that would get factored into the required contribution. Mr. Mason said that would be making the choice to reduce the unfunded liability because the arc would remain the same. Ms. Sielman likened it to pre-paying a chunk of a mortgage and keeping the monthly payments the same. Mr. Askham asked to see what it would look like if they put that $1MM in. Ms. Sielman said the following year, the annual required contribution would be lower by about $70,000. Mr. Blumenthal said if they were to considering doing that, they would have to look at the cost/benefit analysis and what that money might have been used for otherwise. Ms. Sielman said the Board would need to evaluate the General Fund and decide if it is the right move for Simsbury.
Ms. Petitjean returned to the subject of the assumption change recommendations, saying these changes are worth a lot more than the interest rate change. Ms. Sielman described the study they conducted and research done in order to come up with these assumption changes. Mr. Henault said the Board needs to consider these options and decide which one they want to present to the Board of Education & Board of Selectmen. He said they should consider Mr. Askham’s idea of putting some money up front and he thinks Mr. Mason’s thought, regarding keeping the amortization period the same, is a valid point. Mr. Henault continued saying he would be willing to go to 7.5% if the next year they look at 7.25%. Ms. Sielman said she can put together a projection model that would allow them to look at those numbers in addition to the potential effects of putting some money up front. Mr. Mason said, as a Board, they need to be able to provide direction for the two (2) Boards in January in order for them to prepare for these adjustments. Mr. Henault then moved on to the topic of OPEB, which will also require increased contributions. Ms. Petitjean requested that they get FIA’s recommendation. When discussing potential interest rate changes, Mr. Mason said he would discourage moving 75bps, and he thinks Mr. Henault has the right idea of moving 25bps/year and then evaluate each year. Ms. Petitjean said she would agree with that if it were the only factor changing, but she is looking at the changing assumptions, which in reality might not even come true. Mr. Blumenthal said he believes assumption changes are based on strong research and he is relying on the actuarial advice. He continued by saying it is possible for the Board to be overly conservative to the detriment of the taxpayers. Ms. Petitjean said she does not think they can be overly conservative, given their current state. This was discussed further. Mr. Askham said they need to get more cash into the plan and they are in the right range looking at 7.25%. He said he would like to at least look at putting $500K in, and would not lengthen the amortization period. The topic of increasing employee contributions was discussed. Ms. Petitjean asked if the Pension Subcommittee meets, if the Board could get notice of that so they can ask questions there. Ms. Harris said the next Pension Subcommittee meeting is Feb 14, 2013.
IV. STATUS of AUDIT & FINAL JUNE 30, 2013 FIGURES
Ms. Harris said they are in the final draft stage. Mr. Henault asked about fund balance and Ms. Harris provided a spreadsheet to the Board members. She reviewed the numbers from the memo for the Board. The reimbursements from the October 2011 storm were discussed and the effects those numbers have on the fund balance. Ms. Harris said she has submitted everything, and they should have the audit filed in a timely fashion before December 31st and she will give the Board members a hard copy. Mr. Henault said the entire audit would also be on the website for the pubic to review.
V. OPERATING & CAPITAL BUDGETS
Mr. Henault said he would suspect for the January meeting, the Board of Finance will set a guideline for the two (2) Boards and he said, it would be helpful for the Board of Education and the Board of Selectmen come in prepared to report on what they are seeing (even if it is preliminary). Mr. Henault said he would suspect the Boards will have some additional requests this year. Ms. Harris then walked the Board through the Cash Flow Analysis distributed to the Board members. Ms. Harris reviewed the sheet and the numbers that were projected out to 2017. The topic of increased costs related to school safety, in light of the recent events in Newtown, was discussed with Mr. Askham saying that should be a priority.
Mr. Henault said he spoke with Matt Curtis, Superintendent of Schools, in the aftermath of Newtown, and he said the Board of Finance would support him regarding his recommendations that come out of a study on a comprehensive security plan.
VI. CNR UPDATE
Mr. Henault said they will not be making any movement on CNR until April.
VII. POLICIES & PROCEDURES UPDATE
Mr. Henault mentioned that Mr. Askham had forwarded some procedures, from other towns, regarding fund balance that he thinks will be good to review.
The Open Action Items list was then reviewed.
Ms. Petitjean moved to table the minutes until the next meeting. The motion was seconded by Mr. Mason and passed unanimously.
Mr. Petitjean moved to adjourn the Regular Meeting of the Board of Finance at 7:34PM. The motion was seconded by Mr. Blumenthal and passed unanimously.
Respectfully submitted,
____________________________________ ______________________________
Paul Henault, Chairman Leslie U. Faraci, Commissions Clerk