Transcript National Association of Local Housing Finance Agencies April 26, 2012 • Presenters Mark Ulfers, Dakota County Community Development Agency • Barbara Portwood, Leonard Street & Dienard • Kathleen.

National Association of Local Housing Finance Agencies
April 26, 2012
•
Presenters
Mark Ulfers, Dakota County Community Development Agency
•
Barbara Portwood, Leonard Street & Dienard
•
Kathleen Aho, Springsted Incorporated
 Introductory Comments
 Roles and Responsibilities
 The Board
 The Executive Director
 Tips for Housing Commissioners
 Legal Considerations
 Fiscal Considerations
 Hiring Professionals
 Resources
 Q&A
 Energized –I can change things for the better!
 Empowerment -Because I’m the Mom, that’s why!
 Disillusionment - But I’m the Mom!
 Despair - Why did I think this was a good idea?
 Commitment - Together we can make good things
happen
How it Works
The Board
Executive Director
Staff/Professionals
Getting the Job Done
NALHFA Conference, Austin, TX
April 26, 2012
Mark Ulfers, Executive Director
Dakota County Community Development Agency
[email protected]
651-675-4400
 Approve bylaws, resolutions, policies & procedures
 Select a qualified Executive Director
 Delegate responsibilities and authority to Executive
Director on the Commissions behalf
 Establish policies such as: personnel, grievance,
procurement, disposition, admissions and continued
occupancy, agency administrative plans, etc.
 Review & monitor budgets to ensure expenses are in
compliance with laws and other requirements
 Approve policies and procedures for internal and
external monitoring controls
 Approve policies and procedures to detect and prevent
program fraud, waste, mismanagement and abuse
 Ensure the agency is acting legally and with integrity
in its daily operations
 Hiring, training and terminating staff
 Preparing budgets, applications, contracts and
procurement documents
 Administering first mortgage and downpayment
assistance loans
 Supervising cash management, bank reconciliation,
program selection guidelines
 Monitoring operations for fraud and abuse
 Maintaining overall compliance with Federal, State
and local laws, as well as agency policies and
procedures
 Keeping Commissioners informed of any problems
such as audit concerns, major resident issues, financial
status and changes to laws
 Reviewing program performance of private
participants (e.g. mortgage lenders and loan servicers)
 Understand your agency’s
 Develop a strong rapport with
 Read the legislation that created
 Require commissioner packets
mission and organization
your agency
 Know and understand Roberts
Rules of Order
 Tour projects developed by your
agency
 Attend local/national trainings
 Access online resources for
additional information
the leaders of the agency
are received in advance of
meetings
 Don’t be afraid to ask questions
 If there is a project or issue that
is controversial, get all of the
facts before forming an opinion
 Represent your jurisdiction at
agency events
 Housing and Development Law Institute (www.hdli.org)
 National Association for County Community & Economic
Development (www.nacced.org)
 National Association of Local Housing Finance Agencies
(www.nalhfa.org)
 National Association of Housing & Redevelopment
Officials (www.nahro.org)
 Public Housing Authorities Directors Association
(www.phada.org)
 U.S. Department of Housing & Urban Development
(www.hud.gov)
FOR BOARD MEMBERS ONLY
Barbara Portwood, Shareholder
National Association of Local Housing Finance Agencies
April 26, 2012
Today’s Topics:
 Roles and Responsibilities of Boards and their Commissioners/Directors
 Specific Issues for Governmental Boards
 Board Dynamics – 7 fundamental biases that affect how groups make
decisions
 Why the SEC is focused on the Muni Market and what might it mean
Board of Commissioners
The fundamental role of a board of commissioners is to direct (but
not perform) the activities of the organization. The Board is
responsible for overseeing:
 Strategic planning and focus:
o The vision, mission and goals that drive the organization
o Identifying and navigating risks to the organization
 Hiring and overseeing the Managers/Executive Director
 Setting the tone for ethical conduct
o Developing a culture that encourages compliance with laws and
ethical behavior
Commissioner Role – Duty of Care
 Show up, be prepared and participate in deliberations. Ultimately make your
own decision.
 Gather enough information to make a decision. Read the materials supplied
and ASK, ASK, ASK the questions you need to ask.
 “Nose in – fingers out”
 Commissioners may generally rely on information provided to them, but if it
doesn’t make sense or ring true, request more information.
Commissioner Role – Duty of Loyalty
Requires that a Commissioner:
 Act in good faith and in the best interests of the organization
 Avoid conflicts of interest – know your statutes
 Maintain confidentiality – data privacy
Commissioner Role – Duty of Candor
Requires that a Commissioner inform other commissioners and
managers of direct, relevant information she may have about a
decision at hand.
Commissioner Role – Risk and Compliance Oversight
Commissioners should assess whether there are systems in place designed
to comply with applicable laws and assess business risks. Think Enron, AIG,
Fannie Mae, Freddie Mac and so many others.
The board is ultimately responsible for insisting on a culture of compliance
and ethical conduct for the organization.
Commissioner Role – Business Judgment Rule
For a corporate board the standard of review is what would a
prudent person have done under the same set of facts.
If:
 the directors have exercised the duty of care and were
reasonably informed and have acted in good faith, and
 there’s a rational basis for a decision that has been made,
courts will defer to their decisions.
The comparable governmental standard is whether the actions of
the board were arbitrary or capricious.
Specific Issues for Governmental Boards:
 Dillons Rule – Governmental entities require statutory authority for their actions.
 Open Meeting or “Sunshine” Laws – be aware and beware of email.
 Data Privacy Laws – to protect the personal data collected by governments.
 Conflict of Interest – Be aware of perceived as well as legal conflicts.
Newspaper standard.
 Gift Bans.
Board Dynamics:
Recent research on unrecognized biases that give us insight into the dynamics
of how groups make decisions. Seven fundamental biases to be aware of:
1. Loss Aversion – finding or losing $20
2. Confirmation Bias – why some watch Fox News and some watch MSNBC
3. Attentional Bias – invisible gorilla video
4. Conformity Pressure – Challenger disaster
5. Availability Bias – Academy Awards
6. Anchoring and Insufficient Adjustment – the first to speak
7. Common Information Effect – neighbor problems
SEC’s Focus on the Municipal Market
SEC has signaled that it is focused on the municipal market because:

Size - $2.9 trillion.

Retail Investors – 70% of investors are retail

Secondary Market Trading - $5.5 trillion in 2008

Number of Issuers – more than 50,000 of varying size and quality

Municipal Bonds Do Default – Default rates doubled in 2010 and 2011

Abuses – current trial of GIC brokers; ongoing concerns about underfunded
pension liabilities and stress on municipalities
Current Securities Laws
Broad exemption from federal securities laws for municipal debt.
Subject to the anti-fraud rules.
Backdoor regulation through SEC and MSRB rules for underwriters.
1.
2.
Deemed final official statement for public offerings;
Continuing disclosure agreements; recent changes to 15c2-12
Securities Regulation on the Horizon
SEC has signaled that it is interested in:

Greater control over municipal disclosure and accounting standards

Regulation of financial advisors, GIC brokers and rating agencies

Making municipal bond disclosure more like corporate debt disclosure
Barbara L. Portwood » (612) 335-1594 » [email protected]
www.leonard.com
© 2010, Leonard, Street and Deinard Professional Association.
Leonard, Street and Deinard and the Leonard, Street and Deinard logo are registered trademarks.
Fiscal Responsibilities &
Hiring Professionals
Kathleen Aho, President
Springsted Incorporated
[email protected]
Fiscal what?
• What does “Fiscal Responsibility” mean in the context
of:
– Leadership
– Policy oversight
- Policy development
- Communication
• Unfortunately, may be easier to define what it doesn’t
mean:
– fraud and manipulation
– breach of fiduciary duty
– negligence
- personal financial gain
- financial mismanagement
- mistakes and errors.
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Context
• Housing agency financial activities are often complex
• Sources of revenue may be diverse and more restricted
in usage than a general government
• Not being involved in the day-to-day financial operation,
how does a Director exercise financial diligence?
• What does “nose in” mean as it relates to financial
matters?
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Exercising Business Judgment in Fiscal Matters
• Review the last audit with staff.
–
–
–
–
Management Letter
Don’t ignore the Notes
Is there Supplement Information?
Ask for a layman’s explanation if you are not a financial
person
– Ask about internal controls and how they work
• Be familiar with the budget and budget process
– How does it relate to your agency’s mission?
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Basics of Exercising Business Judgment (2)
• Lead with your head not your heart on financial matters
– Is the action consistent with your mission?
– Does it set a precedent, and if so, is it one you can sustain?
• Do a gut-check: “How would this read on the front page
of the newspaper?”
• Set standards for your organization
– Require reporting that let’s you monitor high level results
– Consider written policies in key areas
• Avoid conflicts of interest
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Drawing Parallels – what do rating
agencies look at?
• Earnings and financial strength
–
–
–
–
Leveraging subsidy
Additional revenue streams
Adequate reserve levels/liquidity
Consistency of performance
• Management and operations
• Portfolio quality (physical assets)
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Drawing Parallels – Financial Management
• S&P (Standard & Poor’s) – a national rating agency
• Measures financial management policies & practices
• S&P assigns a rating (Financial Management
Assessment), like a bond rating
– “strong” – practices strong, well embedded, sustainable
– “good” – practices currently good, but not comprehensive
– “standard” – finance department maintains adequate policies
in most, but not all key areas
– “vulnerable” – lacks policies in areas deemed critical to
maintaining credit quality
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What S&P expects a Council/Board to see/do
• Reasonableness of revenue and expenditure
assumptions in budget and planning
• Budget amendments and updates – does Board see
these formally, at least quarterly, to see deviations
from budget?
• Long term financial planning – is there a multi-year
plan that anticipates issues and solutions and
facilitates strategic planning?
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• Long term capital planning – are five-year capital
needs identified and planned for?
• Investment management policies – what can be
bought, from who & how, investment objectives,
regular reporting & disclosure to Board of holdings &
performance
• Debt management policies - define acceptable debt
levels
• Reserve and liquidity policies –take into consideration
cash flow/operating requirements & volatility
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Emerging Requirements for Bond Issuers
• SEC related – level of diligence
– Primary disclosure
– Secondary disclosure
– Conduit financings
• IRS related – tax-exempt bonds
– Use of proceeds, bond-funded property
– Appropriate investment/expenditure of bond proceeds
• Impetus for post-issuance compliance policy
• Conduit Bond Policies
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Every agency is different
• Get an initial orientation. Find out what reports you will
get routinely & how programs run
– budget variance
– project updates
– investment holdings
• Be attentive to fiscal affairs: you can’t abdicate your
financial responsibility to others
• Ask for training
• Ask questions
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Hiring Professionals
• Why do you hire professionals?
–
–
–
–
Need a special area of expertise or a unique service
Legal/Market requirement
Staff time constraints
Desire for independent observations
• What might you need?
– Agency Counsel
– Financial Advisor
– Trustee
- Auditor
- Bond Counsel
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-Engineer/Architect
- Underwriter
How are they hired?
• Manner of selection can vary
– Historical relationship
– Competitive process
– Recommendation
– Panel
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How are they hired?
• Requirements
– Capable of doing the job
– Experienced in doing the job
– Appropriate level of personnel assigned (number,
qualifications, availability)
– Able to meet your time line
– Works well with others on your team – staff or other hired
professionals
– Communicates well, trustworthy
– Reasonably priced
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Bond Transactions – GFOA guidance
• GFOA – Government Finance Officers Association
(www.gfoa.org)
• Develops best practices in key areas
• Debt management policies
– “Selecting and Managing the Method of Sale of State and
Local Government Bonds
– Selecting Bond Counsel
– Selecting Financial Advisors
– Selecting Underwriters for Negotiated Bond Sales
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