HomeMy WebLinkAboutORD2023-007 Amend SSC Title 5 to Create 5.60 Trust Fund Sponsored by: Bower
Introduction: March 28, 2023
Public Hearing: April 10,2023
Enactment: April 10, 2023
CITY OF SEWARD,ALASKA
ORDINANCE 2023-007
AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF SEWARD,
ALASKA, ADOPTING SEWARD CITY CODE CHAPTER 5.60 TO
ESTABLISH A TRUST FUND FROM THE SALE OF SEWARD ELECTRIC
SERVICES
WHEREAS, the City of Seward is selling its electric utility, Seward Electric Services
("SES")to Homer Electric Association, Inc. ("HEA"), which sale is to be approved by the voters
of the City; and
WHEREAS, the City is seeking to offset SES's contribution to the City's general fund
each year; and
WHEREAS, the City wants to protect the net Proceeds from the sale through long term
investment; and
WHEREAS, HEA has, as part of its proposal, has agreed to pay the City $1.1 million
dollars per year for ten years after closing if the sale is approved by voters; and
WHEREAS, the City has determined that placing the funds in an account separate from
its general funds provides the most accountability to voters on the use of the net Proceeds from the
sale of SES; and
WHEREAS, the City has determined the best use for the net Proceeds from the sale and
the annual payments by HEA is to be put into a trust fund subject to annual appropriations and
certain limitations put in place by the City Council for the benefit of the City and its citizens.
NOW,THEREFORE,THE CITY OF SEWARD,ALASKA ORDAINS that:
Section 1. Chapter 5.60 is hereby enacted to read as follows:
Chapter 5.60-Trust fund from the sale of Seward Electric Services.
5.60.010-City of Seward Trust fund established.
A. The net Proceeds from the sale of Seward Electric Services Utility shall be used to establish a
trust fund with the balance of the Proceeds.
B. The trust fund shall be defined as an endowment fund with a controlled spending policy
limiting dividend distributions and managed by the City Manager and Finance Director under
this chapter with the following stipulations:
CITY OF SEWARD,ALASKA
ORDINANCE 2023-007
1. The fund, or a portion of the funds, shall be maintained in perpetuity as an endowment.
2. Any use of the fund,or a portion of the fund, separate from the controlled spending policy
of the endowment, may only be used for purposes approved by a majority of the voters
voting on a ballot proposition in a regular or special election;
3. Under the endowment's-controlled spending policy, an annual dividend may be
appropriated by the City Council provided that the annual appropriation does not exceed
four and one-half percent(4.5%)of the average asset balance of the trust.
C. The fund shall be invested and managed in accordance with this chapter.
5.60.020 -Definitions.
In this section,unless the context clearly indicates otherwise:
Annual earnings. Means the amount of interest,dividends,and realized gains and losses from
investment activities at the end of each fiscal year.
Annual dividend. Means the amount annually appropriated by the City Council from the City
of Seward Trust Fund and distributed to the City's general fund. The annual dividend is subject to
the controlled spending policy and shall be paid no later than 15 days prior to the end of the fiscal
year in which the dividend is appropriated.
Average asset balance. Means the market value of the `trust' assets, including accrued
investment interest and dividends, averaged according to the following specified terms:
1. 2025 annual dividend payment is to be based on the average asset balance associated
with the trailing two consecutive quarters ending June 30, 2025.
2. 2026 annual dividend payment to be based on the average asset balance associated with
the trailing four consecutive quarters ending December 31, 2025.
3. 2027 annual dividend payment to be based on the average asset balance associated with
the trailing eight consecutive quarters ending December 31, 2026.
4. 2028 annual dividend payment to be based on the average asset balance associated with
the trailing twelve consecutive quarters ending December 31, 2027.
5. 2029 annual dividend payment to be based on the average asset balance associated with
the trailing sixteen consecutive quarters ending December 31, 2028.
6. 2030 annual dividend payment to be based on the average asset balance associated with
the trailing twenty consecutive quarters ending December 31, 2029. Annual dividend
payments beyond 2030 will be based on the average asset balance associated with the
trailing twenty consecutive quarters ending December 31 of the calendar year before the
payment.
City of Seward Trust Fund. Means:
1. The aggregate of the following Proceeds previously deposited by the City Council:
a. Net Proceeds from the sale of SES;
Plus:
CITY OF SEWARD,ALASKA
ORDINANCE 2023-007
2. Increases from:
a. Residual market value appreciation remaining after paying the annual dividend each
fiscal year, in accordance with the controlled spending policy;
b. Inflation-proofing from available annual earnings;
c. Any other amounts the City Council may add.
Reduced by:
3. Fund expenses.
Endowment method. Means a long-term investment strategy that promotes corpus growth
by establishing a controlled spending policy,thereby requiring the annual dividend calculation to
be tied to a rolling average asset balance of the trust and providing for reinvestment of any net
annual earnings remaining after the annual dividend is determined.
Fund expenses. Means incurred expenses which are reasonably prudent and necessary to
manage and invest the assets of the trust, including all fees charged by external service providers
such as investment managers, advisors, custodians and other professionals, and also including the
City's internal direct and indirect expenses incurred in providing administrative and oversight
services for the benefit of the trust. Fund expenses are funded by annual earnings and are allocated
to the trust on a pro-rata basis.
HEA. Means Homer Electric Association, Inc.
Proceeds. Means the Initial Payment from the sale of SES, including the Escrow Account
(when funds are released one year after closing) but does not include the deferred or annual
payments.
SES. Means Seward Electric Services Utility.
5.60.030-City of Seward Trust Fund established.
Pursuant to this chapter,there is hereby established the City of Seward Trust Fund as Fund 15002
to be defined as an endowment fund with a controlled spending policy limiting dividend
distributions and managed by the City Manager.
5.60.040- Controlled spending policy.
A. No more than four and one-half percent (4.5%) of the average asset balance will be available
for annual dividend distribution though regular distributions.
B. The amount of the annual dividend distribution from the available amount is subject to annual
appropriation by the City Council.
5.60.060 - Net annual earnings.
CITY OF SEWARD,ALASKA
ORDINANCE 2023-007
Annual earnings are reported net of fund expenses.Net annual earnings remaining after paying the
annual dividend each fiscal year are reinvested in the trust on a pro-rata basis.
5.60.070-City Council appropriation.
Subject to and in accordance with the controlled spending policy, the City Council shall make an
appropriation from the City of Seward Trust Fund on an annual basis to provide an annual dividend
from the fund to replace or offset SES's Seward General Fund contribution.
5.60.080-Management of the funds.
The City Manager and Finance Director shall manage the trust in accordance with the provisions
of this chapter.
A. The City may contract with such investment managers, advisors, custodians and other
professionals as are reasonably prudent and necessary to manage and invest the assets of the
trust.
B. The assets of the trusts shall be managed and invested in accordance with this chapter.
5.60.090-Investment objectives.
The investment objectives of the trust are to utilize a balanced investment approach, combined
with a controlled spending policy,to preserve the purchasing power of the corpus and to maximize
rates of return over time by investing in equity and fixed income instruments, real estate and
alternative investments and strategies,within prudent levels of risk and consistent with established
endowment investment practices.
5.60.100-Investment policy.
An investment policy, consistent with this chapter, for the investment of the trust, shall be
established by the City Council by resolution and from time to time modified, as necessary.
5.60.110 -Authorized investments and restrictions.
In addition to the investments authorized by SCC 5.15, but subject to any additional investment
restrictions put in place by the City Council,the assets of the trust may be invested in the types of
investments authorized by resolution of the City Council.
5.60.120-Reporting.
A. An annual report on the performance of the trust,including net annual earnings and investment
holdings, shall be submitted to the City Council by March 15 of each year.
B. By March 15, 2026, and by the same date every fifth year thereafter, the City Manager shall
review the controlled spending policy and recommend adjustments, as necessary, to maintain
the long-term purchasing power of the City of Seward Trust Fund.
Section 2. This ordinance shall take effect ten (10) days following its enactment with
funding of the trust occurring on the date of closing of the sale of SES.
CITY OF SEWARD,ALASKA
ORDINANCE 2023-007
ENACTED BY THE CITY COUNCIL OF THE CITY OF SEWARD, ALASKA this
10t'day of April, 2023.
THE CITY OF SEWARD,ALASKA
QoAriWCILvic
Sue McClure, Mayor
AYES: Wells, Osenga, DeMoss, Finch, Barnwell, Calhoon, McClure
NOES: None
ABSENT: None
ABSTAIN: None
ATTEST:
Brenda J. Ballo M
City Clerk
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City Council Agenda Statement
Meeting Date: March 28, 2023 ►
To: City Council
From: Janette Bower, City Manager
Agenda Item: Ordinance 2023-007: Adopting Seward City Code Chapter 5.60 to
Establish a Trust Fund from the Sale of Seward Electric Services
Background and justification:
On August 8, 2022, the city council adopted Resolution 2022-087: Submitting the Question of
Selling the City of Seward Electric Utility to the Qualified City of Seward Voters at a Special Election
In and For the City of Seward on May 2, 2023.
In addition to submitting the ballot question to the voter, the resolution mandates, "the City
Council will enact an ordinance in advance of the May 2, 2023, election with an effective date
contingent on voter approval of the sale of the utility, establishing a permanent fund for the
receipt, investment, and use of proceeds from the sale and to direct that permanent fund
revenues be used to make a yearly transfer to the General Fund and to fund capital improvements
approved by the City Council".
This ordinance enacts Seward City Code Chapter 5.60 and establishes the trust fund from the
sale of Seward Electric Services and provides the parameters for the trust fund.
Comprehensive and Strategic Plan Consistency Information
This legislation is consistent with (citation listed):
Comprehensive Plan:
Strategic Plan:
Other:
Certification of Funds
Total amount of funds listed in this legislation: $ 0
This legislation (✓):
Creates revenue in the amount of: $
Creates expenditure in amount of: $
Creates a savings in the amount of: $
x Has no fiscal impact
Funds are (✓):
Budgeted Line item(s):
Not budgeted
x Not applicable
Fund Balance Information
Affected Fund (✓):
General SMIC Electric Wastewater
Boat Harbor Parking F1 Wat F1 Healthcare
Motor Pool Other
59
Note:amounts are unaudited
Fund Balance/Net position — unrestricted/unassigned $
Finance Director Signature:
Attorney Review
x Yes Attorney Signature:
Not applicable Comments:
Administration Recommendation
eAdopt Ordinance
Other:
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