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DRAFT <br /> This cost analysis assumes that the City of Eugene will continue to manage the wetland <br /> preserves owned by the Bureau of Land Management. The management requirements and <br /> associated costs for perpetual stewardship are detailed in the Property Analysis Record (PAR) <br /> which is an attachment to this letter. The monetary contribution necessary for the Center to <br /> manage the properties generally has two parts: (1) a cash amount to cover initial aid capital <br /> expenses such as a management plan, initial field evaluations, setting management and <br /> accounting systems, and a legal and contingency fund; and (2) a endowment amount to cover on- <br /> going costs. For this project, only the endowment amount is being calculated since the City is <br /> presently providing the expenditures for the initial and capital amounts. <br /> The endowment must be sufficient to provide income covering the cost of management of the <br /> property, inflation, and money management fees. In consultation with endowment managers, we <br /> have used a 30 -year history of changes in the consumer price index, bond returns, stock <br /> appreciation and yields to determine our of the appropriate size of the endowment. We will be <br /> happy to review this data with you along with our management cost assumptions and charitable <br /> contribution criteria and guidelines. <br /> If the City of Eugene owns and/or controls the endowment, Oregon state law ( ?) requires that the <br /> endowment be invested only in bonds which over the long -term return 6.5 to 7 percent annually. <br /> If the City donates the endowment to a nonprofit or community foundation under a trust <br /> agreement providing income to the City for management, the endowment may be invested in a <br /> balanced portfolio which on average provides a rate of return of 9 to 9.5 percent annually. In <br /> general, the long -term rate of inflation has averaged about 4 percent annually and money market <br /> fees are about .5 percent. The following table illustrates the variation. <br /> Government Owned Privately Owned Portfolio <br /> Portfolio <br /> Total Portfolio Return 7% 9.5% <br /> Inflation 4% 4% <br /> Money Management Fee . 5% 5% <br /> Available for Stewardship- 2.5% 5% <br /> Capitalization Rate <br /> The purpose of reinvesting the amount of the gain attributable to inflation is to secure the <br /> purchasing power of the endowment over time. Without reinvestment, the purchasing power of <br /> the endowment would decline rapidly and after just about 20 years at historic rates would be <br /> virtually worthless. <br /> The amount remaining for stewardship under the two scenarios ranges scenarios from 2.5% to <br /> 5% of the total endowment in the average year. Some years will be less because of expenditures <br /> for capital items will not occur. When capital items are purchased, the percent may be more. <br /> Also the percent may be less in years when the market does extremely well. The unusual gains <br /> from such a year needs to be reinvested to offset years in which the market does poorly. <br /> The following table illustrates the effect of the capitalization rate on the preserve endowments as <br /> provided in the PAR. It is necessary to understand that the capitalization rate is a divisor. The <br /> annual stewardship budget divided by the capitalization rate returns the amount of endowment <br /> 05/08/01 8 <br />