Porter Foundation considers changes

Entity generates income for county from hospital sale proceeds

Changes may be afoot for how Porter County’s foundation calculates its returns each year.

The foundation got started on April 1, 2016, with proceeds from the 2017 sale of the county hospital. A change in state law allowed its creation to generate more income in perpetuity for the county, and it was the first foundation of its kind in the state. Its board is comprised of the seven members of the County Council and the three commissioners.

As it stands now, yields are calculated based on the earnings as of Dec. 31 each year. A change in that policy requires both a majority vote from the foundation board and an amendment to the state law that created the foundation.

As Amanda Black, chief executive officer of Capital Cities, the foundation’s investment firm, told the board at a Nov. 19 meeting, if the yield is higher than 5%, the county can use up to that 5%, with the rest of the returns going back into the principle.

If yields are below 5%, the county can spend that percentage; for example, Black said, if the yield were 3%, that’s how much the county would get in return.

If the foundation loses money, the county gets nothing to spend, she said, adding annual spending is determined by a single day’s market value.

Most foundations use a rolling average of market values, called smoothing, Black said, which would’ve helped the county last year when the market had a tough fourth quarter and the foundation lost money for the first time.

“We would have had three positive quarters that went into the average (in 2018),” said Commissioner Laura Blaney, D-South, the foundation’s president.

The change, Black said, keeps the foundation from spending too much money when it’s doing well and can allow for spending when the foundation suffers a loss, as was the case last year.

“I think it’s clear that the smoothing approach makes a lot of sense,” said Councilman Mike Jessen, R-4th.

County attorney Scott McClure, who also serves as the foundation’s attorney, said the switch would require a change in the law that created the foundation.

“I know what it felt like with that 2018 drop,” said Councilwoman Sylvia Graham, D-At large, adding the foundation board should move toward smoothing

Mark Ritzi, one of the foundation’s non-voting financial advisers, used his own parents as an example, and said they need a certain amount of money each year, regardless of the market.

“The question is, how have we allotted this money and are people expecting it every year?” he said, adding smoothing is a good thing but if the county doesn’t need the money, not to take it.

The county is counting on the funds, Blaney said. The foundation set up a rainy day fund of reserves to cover the needed funds in off years.

Smoothing is more dependable and reliable and less volatile, said Matt Vessely, another of the board’s financial advisers, reminding the board that the foundation is a long-term investment and while the yield may dip some years, there also will be years it doesn’t. Blaney suggested looking at a board resolution on the smoothing at the foundation’s next meeting early next year.

Despite the foundation’s performance at the end of last year, Black said returns have been strong this year and since its inception a few years ago.

The foundation ended the third quarter of this year on Sept. 30 with almost $167 million, Black said, with a 10.7% return during that time period.

“It’s really outstanding performance in 2019, well ahead of your performance target of 5%,” she said.

Since its inception, the foundation has averaged an annual return of 7%, she said, adding its market value was $170.2 million as of Nov. 15.