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Home My WebLink AboutContract 45281-ExZ-A1 (2)��C. AUG �21 GI �� S�Gft�:IARY ki �, ^rt ., i � :. ... 4 . j-., . ' ��f4..�i .�..,�e. ...__..._..«. FIRST AMENDMENT TO TRUST AGREEMENT FOR THE FORT WORTH PERMANENT FUND This FIRST AMENDMENT TO TRUST AGREEMENT FOR THE FORT WORTH PERMANENT FLTND ("First Amendment") is made and entered into by and between the City of Fort Worth, a home-rule municipal corporation of the State of Texas, as Grantor, and Wells Fargo Bank, N.A., as the Trustee. WHEREAS, effective June 10, 2013, Grantor and Trustee entered in to a Trust Agreement for the Fort Worth Permanent Fund (the "Trust Agreement"); and WHEREAS, the Trust Agreement does not include a definition of the concept of "income" and instead looks to Texas trust law, which defines income solely as "current return from a principal asset;" and WHEREAS, Article V, Section A of the Trust Agreement, entitled "Amendment," allows the Fort Worth City Council to amend the Trust Agreement under certain conditions, all of which have been met; and WHEREAS, the City wishes to amend the Trust Agreement to define income to also include net gains from the sale of principal assets in order to better align the operation of the Trust with Grantor's intent in establishing it; and WHEREAS, the parties also wish to amend the Trust Agreement to revise and clarify the process for making distributions from the Trust. vJ NOW, THEREFORE, the City of Fort Woi-th and Wells Fargo Bank, N.A., do mutually covenant and agree as follows: � � ��I�:dG�,fL e�� i , - , �� f First Amendment to Trust Agreement for the Fort Worth Permanent Fund Page 1 of 3 1. That Article III, Section B of the Trust Agreement, entitled "Distributions," is hereby deleted in its entirety and replaced with the following: B. Distributions. The goals of the Trust are to produce income from investments and provide a long-term source of revenue for the designated purposes of the different Funds of the Trust for the benefit of not only the present citizens of the City but for future generations as well. Each year the Chief Financial Officer of the City ("Chief Financial Officer") and the Trustee shall review the financial position of the Trust in light of the goals of the overall Trust and of each Fund and/or sub-account to determine the amount of income available to be distributed, and the Chief Financial Officer shall prepare a written recommendation for distribution of income (as defined in Article VI) for consideration by the City Council. The amount of income available to be distributed to the City each year from a particular Fund of the Trust shall be determined by the Chief Financial Officer and Trustee and the recommendation made by the Trustee to the City Council by July 1 st of each year. The City Council shall consider the recommendation in connection with the City's annual budget-adoption process and shall adopt a Trust distribution plan and schedule for the fiscal year. In distributing income to the City each year, the Trustee shall follow the Council-adopted written plan and schedule unless the Trustee determines that following such written direction would result in a breach of the Trustee's fiduciary duty or would violate the terms of the Agreement, and Trustee shall not be held liable for following written directions that Trustee determines, in the exercise of its reasonable discretion, does not constitute a breach of the Trustee's fiduciary duty or would violate the terms of the Agreement. The Trustee shall identify the Fund from which each disbursement is made. The amounts distributed may be expended as determined in the sole discretion of the Fort Worth City Council, and the Trustee shall have no obligation to monitor the uses and purposes of such expenditures, nor shall Trustee be liable for the manner in which such amounts are expended by the City following disbursement. 2. That Article VI of the Trust Agreement, entitled "Definitions," is hereby amended to add a new Section C defining the concept of "Income." Section C shall read as follows: C. Income. In this Agreement, references to "income" shall mean current return generated by investments, including, but not limited to, interest payments, dividends, and coupon payments. In addition, for purposes of determining amounts available for distribution, the term "income" shall also include realized net gains from sale of Trust assets. First Amendment to Trust Agreement for the Fort Worth Permanent Fund Page 2 of 3 3. That all other terms and conditions of the Trust Agreement shall remain in full force and effect throughout the term of the Trust Agreement and any subsequent renewals. IN WITNESS WHEREOF, the parties her�eto have executed this First Amendment in Fort Worth, Tarrant County, Texas, this ��-1'f�day of �; ��i.; � , 2015. GRANTOR: CITY OF FORT WORTH "w' �- ��'��'�'L-� Susa Alanis ssistant City Manager Approved as to Form and Legality: ;, �� , t� By: ; r�,, � Denis G: 1VIcE1 oy,..� Assistant City �ftorney '�� ; _ �;,, . ,� `��,,j, Attest: By: City ,. � Q---� ��: ��;= ,� �, ; [., - � -. '. `^ - C .r� � �� : First Amendment to Trust Agreement for the Fort Worth Permanent Fund g � �� :Y� � . , � � � TRUSTEE: WELLS FARGO BANK, N.A. GGt; Heidi Coombs Vice President �;��"niifJ(S�V�V`2� U i�t�*� Page 3 of 3 City of Fort Worth, Texas Mayor and Council Communication COUNCIL ACTION: Approved on 8/25/2015 DATE: LOG NAME: SUB.TECT: Tuesday, August 25, 2015 REFERENCE NO.: **G-18538 13FIRST TRUST AMENDMENT Authorize Amendment to the Trust Agreement for the Far•t Worth Permanent Fund with Trustee Wells Fargo Bank, N.A., to Define Income as Including Realized Net Gains and to Revise and Clarify Distribution Process to Better Align with the City's Budget Process (ALL COUNCIL DISTRICTS) RECOMMENDATION: It is recommended that the City Council authar•ize an amendment to the Trust Agreement for the Fort Worth Permanent Fund with trustee Wells Fargo Bank, N.A., to (i) define income as including realized net gains and (ii) revise and clarify the process for making distributions. DISCUSSION: The purpose of this Mayor and Council Communication (M&C) is to authorize execution of the first amendment to the Trust Agreement for the Fart Worth Permanent Fund (Trust Agreement) with Wells Fargo Bank, N.A. (Wells Fargo) as trustee in ordei• to streamline the management of the trust and align operation of the trust with the original intent of the Agreement. The concept of using a trust to manage a portion of the gas—related revenues from City property dates back to 2008 when the City Council adopted a policy setting aside revenues for a trust and expressed its intention to establish a trust (M&C G-16013). A formal Trust Agreement was put in place in 2013 following a competitive process that resulted in the selection of Wells Fargo as trustee. Once the parties began operating under the Trust Agreement, they began experiencing operational challenges that had not been anticipated at the time of execution. In particulat•, it was noted that the amount of income available far� distribution was lower than originally projected and that the process for making those distributions was somewhat unclear and out of sync with the City's overall fiscal planning process. Staff discussed these issues at length with the trustee. It was determined that the limited amount of distributable income was the result of the Trust Agreement not having a definition of "income" and instead relying on default definitions in state law. The default definition limits the concept of income to "current return," meaning things such as dividends and interest payments. Staff was unaware of this limitation at the time the Trust Agreement was executed and had intended for distributable "income" to include realized net gains. The proposed amendment would add to the Trust Agreement a definition of income that includes both current returns and realized net gains from the sale of trust assets, meaning that the trustee will conduct a global review of all purchases and sales of assets, calculate gains and losses and identify the amount of net gain (gain remaining after all losses and operating costs have been offset) that has been realized and that is available for distribution. The other operational challenge was a lack of clarity regarding the distribution process, in particular how the process interacted with the City's overall annual budget and financial planning efforts and how distributions were to be scheduled. In negoriating the Trust Agreement, the parties had intended the trust distribution process to mesh seamlessly with the City's annual financial planning processes. However, as it began to operate as trustee under the Agreement, Wells Fargo noted that the process for presenting findings and recommendations regarding distributable income was not as clear as it could be and also expressed concerns regarding the lack of direction on the mechanics of making distributions, i.e., whether distributions are to be made on an annual basis, quarterly, or at some other interval. The proposed amendment would make revisions to the Distributions section of the Trust Agreement with the City's Chief Financial Officer (CFO) and the trustee undertaking an annual review of the trust's financial position and identifying distributable income. The CFO would then make written recommendations to the City Council. Those recommendations would then be considered by the City Council during the budget adoption process and an annual trust distribution plan and schedule would be adopted, providing the trustee with clear instructions on how much of the available income to distribute and when to do so. If the amendment is approved and these changes are made, the City Council will be able to take a more active role in managing the trust and determining on an annual basis how to balance the goal to maintain and grow the trust coipus for future benefit with the goal to use trust income to help meet more immediate needs. Approval of the amendment to the Trust Agreement via M&C is the final step in the lengthy trust amendment process, which began in February and included a series of three public hearings to provide ample opportunity for interested parties to weigh in on the proposed changes. FISCAL INI'ORMATION: The Financial Management Services Director certifies that upon approval of the above recommendations, changes to the management of the Trust will be immediately implemented. FUND CENTERS: TO Fund/Account/Centers CERTIFICATIONS: Submitted for Citv Manager's Office b�, Originating Department Head: Additional Information Contact: ATTACHMENTS FROM Fund/Account/Centers Susan Alanis Aaron Bovos John Butkus (8180) (8517) (2438) 1. Trust — 1 st Amendment.�df