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TODAY IS THURSDAY, FEBRUARY 13, 2025, AND WE'RE BEGINNING AT A COUPLE MINUTES AFTER 11.WE HAVE DIRECTOR WAESPI ATTENDING REMOTELY. AND I'M THEREFORE REQUIRED TO ASK DIRECTOR WAESPI IF THERE ARE INDIVIDUALS 18 YEARS OF AGE WHO ARE OR WILL BE PRESENT WITH YOU AT YOUR REMOTE LOCATION.
NO THERE WON'T. ALL RIGHT THEN I WILL ASK DEBRA TO TAKE THE ROLL CALL OF THE COMMITTEE.
[Roll Call]
DIRECTOR MERCURIO. HERE. DIRECTOR WAESPI. HERE.CHAIR COFFEY. HERE. ASSISTANT GENERAL MANAGER, FINANCE AND MANAGEMENT SERVICES.
DEBORAH SPAULDING HERE. GENERAL COUNSEL LYNNE BOURGAULT HERE.
MEMBERS OF THE PUBLIC WISHING TO MAKE A PUBLIC COMMENT MAY DO SO BY SUBMITTING AN EMAIL LEAVING A VOICEMAIL, OR JOINING VIA ZOOM WITH THE LINK PROVIDED ON THE AGENDA LOCATED ON THE PARK DISTRICT WEBSITE.
IF THERE ARE NO QUESTIONS ABOUT THE MEETING PROCEDURES, WE WILL BEGIN.
OKAY. THANK YOU, DEBRA. WE HAVE NEXT ON THE AGENDA APPROVAL OF MINUTES.
ARE THERE ANY PUBLIC COMMENTS? NO PUBLIC COMMENTS.
ALL RIGHT THEN WE WILL MOVE TO OUR THREE ACTION ITEMS ON THIS MORNING'S AGENDA.
[Action Items]
THE FIRST BEING FOR A RECOMMENDATION TO THE BOARD OF DIRECTORS BY THE COMMITTEE TO AWARD A CONTRACT FOR DISASTER RECOVERY SUPPORT SERVICES TO PUBLIC CONSULTING GROUP IN THE AMOUNT OF $250,000 AND WHO WILL BE PRESENTING.GOOD MORNING BOARD FINANCE COMMITTEE . KATIE DIGNAN, ASSISTANT FINANCE OFFICER, FINANCE AND MANAGEMENT SERVICES, HERE TO PRESENT TODAY ON AGENDA ITEM 4A. KATIE.
A LITTLE BIT OF BACKGROUND. WE HAVE TWO ACTIVE FEMA PUBLIC ASSISTANCE GRANTS FOR TWO 2017 WINTER STORMS AND 2023 WINTER STORMS. FROM 2017, WE STILL HAVE ABOUT TEN PROJECTS REMAINING TO BE COMPLETE OF THE INITIAL 55 PROJECTS WE HAD.
AND FOR 2023, WE'RE STILL GOING THROUGH THE PROCESS.
WE'RE ALREADY IN 2025 AND HAVE OVER 16 PROJECT WORKSHEETS AWAITING 13 MILLION IN OBLIGATIONS.
AND SO WHAT WE'VE IDENTIFIED IS IT REALLY WOULD BE A BENEFIT TO THE DISTRICT IF WE HAD A PRE-POSITIONED CONTRACTOR TO HELP US SUPPORT US WITH FUTURE DISASTER RECOVERY AND RELIEF EFFORTS FOR THE FEMA PUBLIC ASSISTANCE PROGRAM AND THEN ALSO ADDRESS SOME OF THE SPECIAL ISSUES WE'RE HAVING WITH OUR 2017 AND 2023 WINTER STORMS. AND THE TYPE OF SERVICES WE'RE LOOKING FOR IS REALLY IMMEDIATELY FOLLOWING A DISASTER, HELPING WITH DAMAGE ASSESSMENTS AND HAVING THE PROFESSIONAL ENGINEERS AVAILABLE TO GIVE US GOOD COST ESTIMATES AND THEN AS WELL AS ADVISE ON ELIGIBILITY DETERMINATIONS, HELP WITH WHEN WE HAVE ANY APPEALS, AND COORDINATE ALL OF THE DOCUMENTATION AND MANAGEMENT OF THESE OF THE DISASTER SO THAT WE HAVE EVERYTHING IN THE PROPER SUBMITTAL PACKAGES TO GO TO FEMA WHEN WE NEED TO DO SO.
SO WE REQUESTED A PROPOSAL ON SEPTEMBER 6TH WE ISSUED THE RFP ASKING FOR THESE SERVICES.
AND ON DECEMBER 10TH, WE RECEIVED FIVE PROPOSALS.
WE HAD A SELECTION COMMITTEE CONSISTING OF TWO MEMBERS FROM FINANCE AND MANAGEMENT SERVICES, MYSELF AND OUR GRANTS MANAGER, KATY HORNBECK.
AND THEN WE INVITED OUR DIVISION LEAD FROM DECO REN BATES TO ALSO PARTICIPATE IN THE REVIEW.
OUR SCORING WAS BASED ON EXPERIENCE, APPROACH, QUALIFICATIONS AND ADDITIONAL ITEMS AND PRICE.
WE SHORTLISTED TO TWO TOP FIRMS, THEN CONDUCTED INTERVIEWS AND COMPLETED REFERENCE CHECKS.
THEY'VE ASSEMBLED A VERY DIVERSE TEAM. AND WHAT WAS VERY AND WHAT REALLY GAVE THEM THE EDGE WAS THAT THEY HAVE TERRAPHASE, WHICH IS LOCATED IN OAKLAND, WHO HAS A LOT OF EXPERIENCE DOING DAMAGE ASSESSMENTS.
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THE CONTRACT WILL BE BASED ON TASK ORDERS. SO SPECIFICALLY IDENTIFYING THE SCOPE OF WORK THAT WE NEED BASED ON THE EXTENT OF THE DISASTER OR THE SPECIAL SERVICES, AND THEN WE WOULD BE ISSUING THOSE WITH A MAXIMUM COMPENSATION AND SCHEDULE FOR DELIVERY.SO WE'RE REQUESTING AUTHORIZATION TO AWARD THE CONTRACT FOR UP TO $250,000.
SO OPEN TO QUESTIONS. OKAY. THANK YOU. KATIE.
DO THEY HAVE A PARTICULAR EXPERTISE IN THE CURRENT FEDERAL GOVERNMENT? I MEAN, AN ABILITY TO PREDICT WHAT THE FUTURE OF FEMA IS AND IS THAT WHAT WE'RE GETTING HERE? UNFORTUNATELY, I HAVEN'T ASKED THAT QUESTION, BUT THEY DO HAVE EXTENSIVE EXPERIENCE WORKING WITH FEMA AND BOTH ON THE PUBLIC ASSISTANCE SIDE AND ON THE HAZARD MITIGATION SIDE, AND THEY'VE ASSEMBLED, LIKE I SAID, A TEAM THAT HAS BEEN DOING THIS.
ALL RIGHTY. QUESTIONS FROM MEMBERS OF THE COMMITTEE.
DIRECTOR WAESPI. SURE. YEAH. THANKS FOR THE PRESENTATION KATIE.
I THINK WE DEFINITELY NEED THIS. AND ANYTHING WE CAN DO TO SPEED THIS UP WILL BE GREAT. I'M WONDERING, SO WE'RE TALKING ABOUT OF THE 55 PROJECTS FROM 2017 STORMS WE ONLY GOT TEN LEFT.
WHAT DID WE DO TO ADMINISTER OR DO THIS TYPE OF WORK ON THE PAST 45? DID WE DO IT ALL IN HOUSE OR DID WE JUST HIRE WILLY NILLY EACH PROJECT HIRE A NEW ADMINISTRATOR? SO WE WE DID MOST OF THE COORDINATION IN HOUSE.
BUT THEN WE HIRED INDIVIDUAL ARCHITECTS AND ENGINEERS TO HELP WITH THE LARGER PROJECTS THAT HAD PROJECT WORKSHEETS AND COMPILED THE DOCUMENTATION AS WE DID. THE INTENT WITH THIS IS STILL TO USE IN-HOUSE RESOURCES AS NEEDED, BUT THEN TO HAVE ONE OVERALL THE CONSULTANT WITH THE PROVIDE THE EXPERT TECHNICAL ASSISTANCE WE NEED. OKAY, GREAT. YEAH.
ANYTHING TO SHORTEN THE PROCESS. FANTASTIC. NO, I'M ALL FOR THIS.
GREAT. THANK YOU. THANK YOU. THANK YOU DIRECTOR MERCURIO.
IS THAT CORRECT? THAT'S CORRECT. OKAY. WELL, CONGRATULATIONS FOR COMING UP WITH THIS APPROACH BECAUSE AS DIRECTOR WAESPI SAID IT JUST TAKES TOO DARN LONG, AND AND WE NEED TO FIGURE OUT A WAY TO GET IT GOING FASTER.
THERE'S STILL $13 MILLION. IS THAT WHAT. YEAH.
NOW GET IT FROM YOUR CONTRACTORS. GET IT FROM STAFF.
AND I'M ALSO PLEASED THAT WE HAD FIVE FIRMS TO CHOOSE FROM.
[INAUDIBLE] I MEAN, THERE'S NO DURESS OR ANYTHING.
IT'S LIKE WE DEFINITELY WERE ABLE TO FIGURE OUT WHO WAS BEST, A BEST FIT FOR US.
AND AND WE GOT THEM. WE'RE GOING TO GET HIM. I HOPE WE'RE GOING TO SAY YES.
BECAUSE THIS SOUNDS REALLY GOOD. I'M THIS IS A GREAT ITEM.
I'M CERTAINLY IN SUPPORT OF IT. THANK YOU. THANK YOU.
I DON'T HAVE ANY THING TO ADD. ARE THERE ANY PUBLIC COMMENTS? NO PUBLIC COMMENTS. ALL RIGHT. DIRECTOR WAESPI, WOULD YOU LIKE TO MAKE A MOTION SUPPORTING THE RECOMMENDATION? I WILL MAKE THAT RECOMMENDATION, YES. AND THAT MOTION.
AND A SECOND. SECOND. WE HAVE A MOTION AND A SECOND.
WOULD YOU. WELL, I GUESS ALL IN FAVOR? OH, NO.
WE HAVE SOMEONE REMOTELY. SO WE CALL THE ROLL.
THANK YOU. DIRECTOR WAESPI. AYE. DIRECTOR MERCURIO.
AYE. CHAIR COFFEY. AYE. THANK YOU. ALL RIGHT.
RECOMMENDATION PASSES UNANIMOUSLY. WE MOVE TO ACTION ITEM B, RECOMMENDATION TO THE BOARD OF DIRECTORS TO ACCEPT THE QUARTERLY INVESTMENT REPORT AND MARKET REVIEW FOR DECEMBER 31ST. ALL RIGHT.
GOOD MORNING. I'M DEB SPAULDING AGM OF FINANCE AND MANAGEMENT SERVICES.
AND LET ME PULL UP MY PRESENTATION AND WHILE I'M DOING THAT, I'LL JUST GIVE YOU THE OVERVIEW.
SO THIS IS YOUR QUARTERLY INVESTMENT REPORT. WE BRING THIS TO YOU ROUGHLY EVERY THREE MONTHS.
AND AS USUAL, I WILL START WITH AN OVERVIEW OF THE DISTRICT'S ENTIRE PORTFOLIO.
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AND THEN WE HAVE JUSTIN RESUELLO WHO'S HERE FROM PFM, AND HE'S GOING TO GET INTO THE CURRENT MARKET CONDITIONS.AND SOME MORE DETAIL ABOUT OUR INVESTMENTS IN THE SHORT, MID AND LONG TERM RANGE.
SO. SO THIS IS LOOKING AT THE TABLE. I DON'T HAVE PAGE NUMBERS IN MY BOOK, BUT IT'S MAYBE ROUGHLY PAGE SIX IN YOUR PACKET AND IT SAYS ATTACHMENT A. SO I'M JUST GOING TO WALK YOU DOWN FROM THE TOP.
OH SHOOT. THIS IS OH NO, THIS IS RIGHT. OKAY.
AND THE COUPLE OF THINGS TO POINT OUT HERE. ONE IS THAT WE RECEIVED OUR PROPERTY TAXES IN DECEMBER, AS WE ALWAYS DO. WE GOT OUR TWO LARGE INSTALLMENTS OF PROPERTY TAXES IN APRIL AND DECEMBER, AND SO WE DRAW DOWN THOSE ON THOSE FUNDS IN THE INTERVENING MONTHS.
SO YOU'LL SEE THAT BIG JUMP IN THE TOTAL OF THE POOLED INVESTMENTS BETWEEN SEPTEMBER AND DECEMBER.
LAIF IS MANAGED BY THE STATE OF CALIFORNIA AND CAMP IS MANAGED BY PFM.
AND SO YOU CAN SEE WE HAVE A LOT MORE FUNDS IN CAMP RIGHT NOW. AND THAT'S BECAUSE THAT HAS A HIGHER RETURN. AND THAT DOES CHANGE THOUGH FROM TIME TO TIME WE TRY TO KEEP SOME FUNDS IN BOTH, OR WE ALWAYS KEEP FUNDS IN BOTH JUST TO MAINTAIN THAT DIVERSIFIED PORTFOLIO.
SO SHORT, MID AND LONG TERM SECURITIES. A COUPLE OF THINGS TO POINT OUT HERE.
ONE IS THE INCREASED HOLDINGS IN TREASURIES BETWEEN QUARTER THREE AND QUARTER FOUR.
AND THEN A DECREASE IN OUR INVESTMENTS IN CORPORATE BONDS AND NOTES.
SO I DID A FIVE YEAR LOOK BACK GOING BACK TO 2020, AND IT REALLY DOES FLUCTUATE QUITE A BIT.
AND DIRECTOR COFFEY HAD MENTIONED HE REMEMBERED IT BEING SUBSTANTIALLY HIGHER.
AND SURE ENOUGH, BACK IN 2022, WE WERE AROUND 53%.
SO IT REALLY DOES VARY QUITE A BIT. AND IT'S I THINK JUSTIN WILL TALK IN HIS PRESENTATION ABOUT WHAT CAN CAUSE THAT, WHAT MAKES PFM DECIDE TO INVEST MORE HEAVILY IN TREASURIES OR, CORPORATE BONDS, AND HOW THEY MAKE THOSE CHANGES OVER TIME.
LASTLY, MOVING FURTHER DOWN THE PAGE THESE ARE THE FUNDS HELD IN TRUST.
SO THESE ARE OUR PROJECT BOND FUNDS, OUR PENSION TRUST, AND THEN OUR DEBT SERVICE FUNDS.
SO THE BIG CHANGE HERE IS THAT WE MADE THAT CONTRIBUTION TO CALPERS IN DECEMBER OF 2024.
SO YOU CAN SEE THE DROP FROM SEPTEMBER 30TH TO DECEMBER 31ST, WHERE WE TOOK 6.825 MILLION.
AND THAT'S GOING TO RESULT IN, I BELIEVE IT WAS 18 MILLION IN SAVINGS OVER THE NEXT 15 YEARS.
AND THEN THE OTHER THING TO POINT OUT IS THE INCREASE IN OUR DEBT SERVICE FUNDS.
SO WE RECEIVED OUR QUARTER FOR PROPERTY TAXES.
AND PART OF THAT IS THE WW DEBT LEVY THAT GETS BROUGHT IN AT THE SAME TIME.
SO WE NOW HAVE THOSE FUNDS ON HAND AND WE'RE READY TO MAKE OUR, OUR NEXT WW DEBT SERVICE PAYMENT.
SO THAT CONCLUDES MY PORTION OF THE REPORT. I'M GOING TO TURN IT OVER TO JUSTIN.
AND THEN WE'LL LOOK FOR A RECOMMENDATION AT THE END.
MORNING, FOLKS. LET ME GO AHEAD AND PULL UP MY DECK HERE.
ALL RIGHT. THANKS AGAIN FOR YOUR PATIENCE HERE AS I PULLED UP THE DECK WITH YOUR STAFF'S HELP.
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SO THANK YOU. WELL, FIRST OF ALL, I JUST WANT TO SAY I WAS SHARING WITH DEB OVER EMAIL AS YOU ALL KNOW.ME AND MY PARTNER SOPHIA, WE LOVE VISITING REINHARDT REDWOOD.
AND WE WERE SO HAPPY TO SEE THE NEW BRIDGE THAT THAT WENT UP.
AND I'M ALSO DELIGHTED TO BE WITH YOU IN PERSON.
THANK YOU FOR ACCOMMODATING ME WHILE I WAS SICK.
BUT NOW YOU CAN SEE I'M LIMPING AROUND ON MY ON MY LEFT ANKLE.
[LAUGHTER] SO ANYWAY, NONETHELESS, I'M STILL HAPPY TO BE WITH YOU ALL.
SO I INVITE YOU ALL TO CHIME IN WITH QUESTIONS.
CERTAINLY. I'LL TRY TO ADDRESS THE SORT OF MOVEMENTS DURING THE QUARTER.
THERE'S CERTAINLY BEEN A LOT THAT HAS HAPPENED, PARTICULARLY WITH WASHINGTON DC AND FISCAL POLICY THAT'S BEEN DISCUSSED BY THE NEW PRESIDENTIAL ADMINISTRATION. SO I'LL TOUCH ON THAT ALSO DURING OUR DISCUSSION HERE.
SO EACH QUARTER WE SHARE THIS SLIDE ON JUST CURRENT MARKET THEMES.
AND WE STILL FEEL THAT THE ECONOMY IS ON TRACK FOR A SOFT LANDING.
AND WHILE THAT HASN'T YET BEEN SPECIFICALLY ACHIEVED AND DATA WON'T SHOW THAT UNTIL POTENTIALLY ONCE WE'RE IN THE SOFT LANDING, YOU KNOW, IT DOES SEEM THAT A LOT OF THE SORT OF MEASURES THAT MIGHT PREDICT THAT, FOR EXAMPLE, INFLATION, FOR EXAMPLE, EMPLOYMENT NUMBERS, THOSE ARE ALL GENERALLY SUPPORTING THAT SOFT LANDING SCENARIO THAT THE FED AND MANY ECONOMISTS EXPECT TO PLAY OUT.
THAT SAID THERE IS A SORT OF NARRATIVE THAT RATES MAY STAY HIGHER FOR LONGER ESPECIALLY AS WE LOOK TO A LOT OF THE NEWS THAT'S COMING OUT OF WASHINGTON, DC. AND THAT'S REALLY SURROUNDING UNCERTAINTY, RIGHT? I THINK IT'S FAIR TO SAY THAT EACH NEW PRESIDENTIAL ADMINISTRATION CERTAINLY HAS THEIR PRIORITIES.
AND THEY YOU KNOW, WE SEE THAT IN THE FIRST 100 DAYS AND EVEN DURING THEIR INAUGURAL SPEECH.
BUT AS WE SAW WITH THE FIRST PRESIDENTIAL ADMINISTRATION FOR TRUMP WE SAW THE FIRST TIME THAT IT WAS VERY VOLATILE AND WE WOULD EXPECT THE SAME THING AGAIN, THIS, SECOND TERM. SO YOU KNOW, WE'LL CONTINUE TO BE VERY NIMBLE AND BE AND KEEP A VERY CLOSE EYE ON ALL THAT COMES OUT OF WASHINGTON DC.
SPECIFICALLY, I'LL DIVE INTO SPECIFIC CONCERNS THAT THAT WE'RE BEGINNING TO LOOK AT.
THAT SAID, SO RETURNING TO KEY MEASURES THAT WE'RE LOOKING TO INFLATION AND EMPLOYMENT.
WE DID SEE INFLATION COME IN A BIT HOTTER THAN MOST ECONOMISTS EXPECTED.
CPI, THAT'S THE CONSUMER PRICE INDEX, IN FACT, INCREASED TO ABOUT 3% FOR THE YEAR FOR THE MONTH OF JANUARY THAT'S UP FROM 2.9% IN DECEMBER. WE SAW NEW TARIFFS POTENTIALLY ANNOUNCED FOR STEEL AND ALUMINUM LAST WEEK.
BUT YOU KNOW, THE TIMELINE OR IF THOSE WILL ACTUALLY COME TO PASS, ACTUALLY IS REALLY IN THE AIR.
THERE'S UNCERTAINTY THERE. SIMILARLY TARIFFS AMONG MEXICO AND CANADA THOSE, AGAIN, ARE ALSO IN QUESTION, THOUGH WE DID SEE THE TARIFFS AMONG CHINESE IMPORTS.
THOSE DID GO INTO EFFECT. THAT SAID INFLATION NUMBERS DID COME IN.
JOBS REPORTS NUMBERS CONTINUED TO SHOW PRETTY STRONG NUMBERS.
YOU KNOW, WE SAW AROUND 250,000 PLUS NEW JOBS CREATED FOR THE MONTH OF DECEMBER.
AND THAT'S WELL BEYOND WHAT MANY ECONOMISTS EXPECTED OF AROUND 100,000 FOR THE MONTH.
SO THE ECONOMY CONTINUES TO BE DOING QUITE WELL THROUGH THE FOURTH QUARTER.
MARKET REACTIONS, WE GENERALLY SAW YIELDS INCREASE AND RELATIVE TO WHAT WE PRESENTED LAST QUARTER, WHERE WE SAW REMARKABLE GAINS IN THE DISTRICT'S TOTAL RETURN FOR PORTFOLIO.
THERE WAS SOME NEGATIVE GROWTH, REALLY. AND THAT'S THAT'S ATTRIBUTED TO THE RISE IN RATES.
AS RATES ROSE WE SAW MARKET VALUES FOR THE PORTFOLIO FALL.
THAT SAID AS CREDIT CONDITIONS CONTINUE TO BE WHERE THEY'RE AT WITH SPREADS AT THEIR TIGHTS WE REALLY FEEL THAT, YOU KNOW, WE'RE ABLE TO ADD VALUE WITH THE NEW MARKET, WITH NEW MARKET OFFERINGS.
AND WE'LL CONTINUE TO LOOK FOR THOSE AS APPROPRIATE FOR THE DISTRICT.
SO TURNING NOW TO THE DUAL MANDATE HERE YOU CAN SEE INFLATION ON THE LEFT SIDE AS MEASURED BY THE CONSUMER PRICE INDEX, AS WELL AS THE CORE PERSONAL CONSUMPTION EXPENDITURES INDEX AND THE FED TARGET FOR 2%.
SO SPEAKING TO THE LEFT SIDE OF THE CHART, YOU KNOW, AS I MENTIONED, CPI ROSE TO 3%.
RIGHT. AND THAT'S NOW STARTING TO GO. YOU KNOW, FRANKLY SIDEWAYS COMPARED TO THE 2% LEVEL THAT THE FED HAS SPOKEN TO FOR MANY, MANY MONTHS. WE FEEL THAT, YOU KNOW, THERE'S CERTAINLY MORE CONCERN HERE NOW, ESPECIALLY WITH TARIFFS THAT MAY BE POTENTIALLY INFLATIONARY.
AND WE'LL CONTINUE TO MONITOR THIS VERY CLOSELY BECAUSE THIS WILL DRIVE, IN OUR VIEW, GOING FORWARD, HOW THE FED MAY MOVE RATES WITH RESPECT TO UNEMPLOYMENT AS WE LOOK TO THE FED'S DUAL MANDATE, THAT'S YOU KNOW, FULL MAXIMUM EMPLOYMENT OF US CITIZENS ON THE RIGHT.
WE'RE CERTAINLY NOW ABOVE THAT. BUT NONETHELESS, NEW JOBS ARE BEING ADDED.
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AND WE SAW REALLY GREAT JOBS NUMBERS IN DECEMBER, AS I MENTIONED.RIGHT? OUR MAIN CONCERNS ARE TAXES, TARIFFS, IMMIGRATION AND REGULATION.
YOU KNOW, WHILE TAX CUTS WILL PROBABLY BE GOOD FOR YOU KNOW, GENERAL GROWTH WE FEEL THAT AT THIS POINT IN TIME, IT MIGHT BE A NEGATIVE FOR THE DEFICIT. THERE REALLY HASN'T BEEN ANY SORT OF POINTED OR SPECIFIC SORT OF, I CALL IT REVENUE OR EXPENDITURE SORT OF ADJUSTMENTS TO MAKE UP FOR THESE POTENTIAL TAX CUTS.
SO WE'LL HAVE TO CONTINUE TO SEE, YOU KNOW, THERE'S STILL UNCERTAINTY AROUND THAT. TARIFFS, AS I MENTIONED EARLIER, YOU KNOW, THERE ARE A NUMBER THAT HAVE BEEN ANNOUNCED. THE ONLY ONES THAT WE'VE REALLY SEEN COME TO PASS AND BECOME ENACTED WHERE THOSE IMPORT WHERE THOSE TARIFFS AMONG CHINESE GOODS. IMMIGRATION BORDER SECURITY, YOU KNOW, THAT'S IT'S NOT REALLY CLEAR TO US AS TO HOW A POTENTIAL DEPORTATION PROGRAM OR WHAT THE SCALE OF THAT DEPORTATION MIGHT ACTUALLY LOOK LIKE.
BUT IN OUR VIEW, THE IMPACT TO LABOR IS REALLY MOST IMPORTANT BECAUSE WE'LL SEE POTENTIAL PRESSURES ON WAGES, AS EMPLOYERS WILL HAVE TO LOOK FOR POTENTIALLY MORE EXPENSIVE WORKERS TO FILL CERTAIN JOBS, AS WELL AS CHANGES IN WHAT THE LABOR FORCE LOOKS LIKE NATIONALLY.
LASTLY, REGULATION. WE WOULD ANTICIPATE THERE WILL BE EASING, ESPECIALLY AMONG ENERGY AND FINANCIAL SERVICES COMPANIES, WITH THE POTENTIAL FOR MAYBE A BUMP IN M&A THAT WE HAVEN'T SEEN THAT COME TO PASS YET.
BUT AGAIN, ALL OF THESE ARE SORT OF UNCERTAIN SORT OF POLICIES THAT HAVE BEEN SPOKEN ABOUT, YOU KNOW, FROM THE WHITE HOUSE. BUT MANY OF THEM HAVE NOT REALLY BECOME ENACTED OR FRANKLY, WE DON'T SEE HOW HOW THOSE ARE THOSE WILL SPECIFICALLY BE IMPLEMENTED PER SE.
AND YOU CAN SEE THAT PARTICULARLY HERE IN THE DATA, THE DARK BLUE BARS SHOW PURCHASES FOR NOVEMBER RELATIVE TO WHAT THOSE LOOK LIKE AVERAGED FROM AUGUST TO OCTOBER. ON THE LOWER RIGHT HAND SIDE OF THE CHART OF THE PAGE, YOU'LL SEE MENTIONS FOR TARIFFS IN S&P 500 COMPANIES EARNINGS RELEASES. AND YOU KNOW A LOT OF COMPANIES ARE GROWING CONCERNED ABOUT THIS.
AND YOU CAN SEE THAT IN THIS CHART AS WELL AS YOU KNOW OUR OBSERVATION THAT COMPANIES ARE BECOMING CONCERNED ABOUT HOW SUPPLIER OR OPERATIONAL SORT OF EFFECTS MIGHT BE SEEN IF TARIFFS, IN FACT ARE FURTHER ENACTED.
SO WHAT IS OUR CRYSTAL BALL LOOK LIKE? THAT'S, WHAT THIS SLIDE KIND OF LOOKS TO.
SO, YOU KNOW, AS OF DECEMBER WE'RE LOOKING AT CONSUMER PRICE INDEX INFLATION ON THE LEFT SIDE, AS WELL AS FORECASTS FOR US ECONOMIC GROWTH ON THE RIGHT SIDE.
ON THE LEFT SIDE, YOU CAN SEE WE ENDED THE YEAR WITH INFLATION OF ABOUT 2.7%.
AS I MENTIONED, INFLATION HAS INCREASED TO ABOUT 3%.
AS OF JANUARY, THE RANGE BOUND FORECAST. YOU CAN SEE HERE IS AROUND CALL IT, YOU KNOW, JUST UNDER 2% TO AROUND 4% BY THE END OF THIS CALENDAR YEAR, WITH MEDIAN FORECAST OF ABOUT 2.6%. DIRECTOR MERCURIO.
THAT GRAPH THAT YOU'RE TALKING ABOUT RIGHT NOW ON THE LEFT? WHAT IS THE SHADED AREA REPRESENT? OH, ABSOLUTELY. YEAH. SO THE SHADED AREA REPRESENTS THE RANGE OF FORECASTS THAT ECONOMISTS SEE FOR CONSUMER PRICE INDEX INFLATION THROUGH YEAR END.
AND IT CERTAINLY GROWS WIDER RIGHT. AS UNCERTAINTY SORT OF PERSISTS LATER ON IN THE YEAR.
THE CRYSTAL BALL ISN'T AS GOOD. YEAH. AND YOU SEE.
IT GOES OUT AT ONE YEAR ALMOST A YEAR. SO I COULD SEE HOW THAT MIGHT BE THE CASE.
BUT YEAH. IS THAT RANGE? I'M ASKING YOU TO SPECULATE HERE.
SYMPTOMATIC OF THE UNCERTAINTY IN THE FEDERAL ADMINISTRATION.
WOULD IT NORMALLY BE THAT BIG OF A RANGE? I'M NOT SURE WHAT IT MIGHT NORMALLY LOOK LIKE.
BUT I THINK THAT WHAT YOU'RE SAYING HAS A LOT TO DO WITH IT.
AND, AS WE LOOK TO THE ACTUAL DATA THAT THE FED ALSO PUT OUT, THEY'VE SPECIFICALLY SAID THAT SOME OF THEIR, YOU KNOW, VOTING MEMBERS. AND I CAN IMAGINE THIS IN THE SAME CASE, SOME OF SOME ECONOMISTS HAVE ACTUALLY TAKEN INTO ACCOUNT THE EFFECT OF POTENTIAL FOR
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TARIFFS, WHEREAS OTHERS HAVEN'T. YOU KNOW, SO THAT'S WHY THE RANGE IS FRANKLY, SO WIDE.I THOUGHT IT WAS REALLY INTERESTING HOW YOU USED THE WORD COUNT.
I'VE NEVER ENCOUNTERED THAT BEFORE. I THINK IT'S BRILLIANT. YOU KNOW WHAT'S THE CHATTER GOING ON? AND IT'S JUST GOING UP QUITE A BIT, SO. YEAH.
THAT'S GREAT. YEAH. NO. THANK YOU. THANK YOU, DIRECTOR MERCURIO.
SO IN RELATION NOW TO US GROSS DOMESTIC PRODUCT, YOU KNOW, AGAIN YOU CAN SEE, YOU KNOW, FAIRLY GOOD PRODUCTION UP THROUGH THE THIRD QUARTER. I BELIEVE FOURTH QUARTER PRELIMINARY NUMBERS FROM THE BUREAU OF ECONOMIC ANALYSIS ACTUALLY SHOWED 2.6% GDP FORECAST FOR THE FOURTH QUARTER.
FOLKS WERE CALLING FOR A CONTRACTION IN THE ECONOMY.
WELL, THE DATA JUST AREN'T THERE TO TO SUPPORT THAT.
SO NOW, SPEAKING TO SPECIFIC DATA FROM THE FED, THE FEDERAL OPEN MARKET COMMITTEE, YOU KNOW, THESE FOLKS PUT OUT THEIR OFFICIAL FORECASTS EACH QUARTER AND YOU CAN SEE SEPTEMBER PROJECTIONS IN THE LIGHT BARS.
DECEMBER PROJECTIONS, THE MOST RECENT ONES WE HAVE HERE ON IN THE DARK BLUE BARS.
RIGHT. IT'S GONE FROM ABOUT 2% TO 2.5%. AND AGAIN, THAT GOES TO THE POINT THAT CERTAIN FOMC VOTING MEMBERS DID OR DID NOT FACTOR IN TARIFFS. AND YOU KNOW WE DON'T KNOW TO WHAT EXTENT THEY MAY OR MAY HAVE NOT DONE THAT.
THE FED IS NOT VERY SPECIFIC OR DOESN'T PROVIDE THAT SORT OF INFORMATION TO US.
BUT THIS IS THE SORT OF MEDIAN PROJECTION AMONG ALL THE VOTING MEMBERS.
BUT GENERALLY, IF YOU LOOK AT ALL THE OTHER DATA, THEY ALL LOOK PRETTY GOOD, RIGHT? SO GDP ACTUALLY GREW TO 2.1% FROM 2% FOR YEAR END.
UNEMPLOYMENT CAME DOWN TO 4.3% BY YEAR END. BUT YOU KNOW, THE ONE SORT OF AREA WHERE, YOU KNOW, IN LINE WITH INFLATION, WE WOULD EXPECT THIS TO KIND OF BE OFFSET BY A POTENTIAL INCREASE OR HIGHER FOR LONGER RATES.
AND YOU CAN SEE THAT HERE WITH 3.9% EXPECTED AT YEAR END FOR THE TARGET FED FUND RATE AND THE NOMINAL NORMAL LEVEL NOW SHOWING 3.0% RELATIVE TO 2.9% LAST QUARTER. JUST OBSERVATIONS NOW ON THE DOT PLOT.
SO THESE ARE THE SORT OF VOTES OF EACH OF THE FEDERAL OPEN MARKET COMMITTEE MEMBERS.
RIGHT. YET WE STILL SAW A RATE DECREASE. THE OTHER KEEN OBSERVATION HERE IS, YOU KNOW, AGAIN, THE LONG TERM NOMINAL RATE IS NORMAL. RATE IS NOW EXPECTED TO BE 3%.
THAT'S UP FROM 2.9% IN SEPTEMBER FROM A YEAR AGO.
IN FACT, YOU KNOW YOU KNOW, CERTAINLY THESE NUMBERS ARE OUT OF DATE NOW.
AND THAT YOU KNOW, WHILE THE FED WAS PROJECTING OR IS STILL PROJECTING TWO CUTS, I SHOULD SAY FOR THIS CALENDAR YEAR, MUCH OF THE MARKET IS NOW PREDICTING PER BLOOMBERG, SORT OF DATA THAT WE MAY SEE ONE CUT IN POTENTIALLY SEPTEMBER, THOUGH, THAT SORT OF TIMELINE FOR THAT CUT HAS REALLY BOUNCED AROUND QUITE A BIT.
AND AGAIN, A LOT OF THIS IS REALLY SPEAKING TO THE UNCERTAINTY THAT WE'RE SEEING OUT OF WASHINGTON.
SO HOW DID YIELDS CHANGE IN THE QUARTER? NOW THIS IS REALLY THE PUNCHLINE I THINK FOR THE PORTFOLIO.
RIGHT. THE DOTTED LINE IS SHOWING SEPTEMBER. THE SOLID LINE IS SHOWING DECEMBER RATES ROSE DRAMATICALLY, WHICH IS GREAT FOR A LOT OF THE NEW PURCHASES THAT WE'VE BEEN ABLE TO MAKE FOR THE PORTFOLIO THAT WE'RE NOW ABLE TO LOCK IN, YOU KNOW, SLIGHTLY HIGHER INCREMENTAL INTEREST INCOME OFF OF THESE BONDS THAT WE'RE PURCHASING FURTHER OUT ON THE YIELD CURVE.
BUT FOR THE EXISTING HOLDINGS, THOSE VALUES DID COME DOWN EXPECTEDLY.
RIGHT? AS RATES RISE THE BOND VALUES WILL FALL.
YOU KNOW, WE'RE SEEING NOW 4.31 FOR THE THREE MONTH DOWN FROM, YOU KNOW, A LITTLE OVER 4.5.
YOU KNOW, CAMP IS I WANT TO SAY THE SEVEN DAY YIELD IS AROUND 4.33 RIGHT NOW.
[00:30:07]
WE'LL SEE A GENERALLY STEEPENING AND NORMAL YIELD CURVE THAT'S NO LONGER INVERTED.COMPARED TO SEPTEMBER TO DECEMBER FURTHER OUT ON THE YIELD CURVE, YOU'LL SEE HERE THAT THE 5 TO 10 YEAR WAS GENERALLY POSITIVE SLOPING WITH STILL SOME NEGATIVITY ON THE TWO YEAR, BUT NOW WE'RE SEEING GENERALLY POSITIVE STEEPENING YIELD CURVE ALL THE WAY EVEN TO AROUND ONE YEAR NOW.
SO YOU KNOW THE YIELD CURVE IS NORMALIZING. YOU KNOW I GUESS THIS IS ALL GOOD FOR THE ECONOMY.
THOSE SIGNS POINTING TO POTENTIAL FOR RECESSION.
AGAIN JUST REALLY AREN'T THERE. AND NOW THAT WE'RE STARTING TO SEE THAT IN THE YIELD CURVE AS WELL. NOW FOR SPECIFIC INVESTMENTS YOU KNOW, AS DEB SPOKE TO YOU EARLIER ABOUT, YOU KNOW, HOW WE SORT OF CONSIDER ALLOCATIONS TO TREASURIES AND OTHER SORT OF SPREAD PRODUCT LIKE THESE AGENCIES, CORPORATE NOTES, MORTGAGE BACKED SECURITIES AND ASSET BACKED SECURITIES.
OVER THE YEARS, SPREADS HAVE TIGHTENED. NOW FOR FOR US AND OUR ABILITY TO CONTINUE PURCHASING SPREAD PRODUCT THAT IS THAT GENERATES INCREMENTAL YIELD ON THE PORTFOLIO YOU KNOW, IT'S CERTAINLY MORE DIFFICULT, RIGHT? BUT THAT'S THIS IS REALLY A FUNCTION OF THE ECONOMY, FRANKLY, DOING SO WELL. WHY WOULD SOMEONE TAKE RISK ON, FOR EXAMPLE, CORPORATE NOTES OR ASSET BACKED SECURITIES WHEN US TREASURIES ARE PERFORMING QUITE WELL RELATIVE TO A VERY STRONG US ECONOMY? SO THAT'S WHAT WE'RE SEEING HERE. ZOOMING INTO THE QUARTER NOW, WHERE DID WE FIND ACTUAL VALUE.
SO AGAIN IN LINE GENERALLY WITH THE ONE YEAR AVERAGE.
TOTAL RETURNS FOR US THE 1 TO 5 YEAR INDEX. SO THIS IS THE BENCHMARK FOR THE DISTRICT IS SHOWN HERE.
AND YOU CAN SEE FOR THE FOURTH QUARTER YOU KNOW VALUES DID COME DOWN QUITE A BIT.
AND AGAIN THAT'S A REALLY A FUNCTION OF INTEREST RATES RISING AS MUCH AS THEY DID.
BUT A LOT OF THAT WAS OFFSET FOR THE YEAR. YOU KNOW, AS WE TALKED ABOUT LAST QUARTER, THERE WERE SOME REALLY REMARKABLE GAINS IN THE PORTFOLIO DURING THE THIRD QUARTER AS RATES FELL AND WE SAW MARKET VALUES RISE.
AND AT THE SAME TIME, WE HAD BEEN ABLE TO LOCK IN A LOT OF NICE INTEREST INCOME FOR THE PORTFOLIO.
SO THAT GENERALLY WRAPS UP MY SORT OF ECONOMIC QUESTIONS OR ECONOMIC AND MARKET SLIDES.
WE HAVE SOME SORT OF WRITTEN COMMENTARY HERE, AS WELL AS OUR SECTOR PREFERENCES.
IT JUST MEANS THAT, YOU KNOW, THE VALUE WE'RE FINDING, FRANKLY, ARE ON THAT AT THIS POINT IN TIME, THAT SHORTER END OF THE CURVE. AND YOU CAN SEE THAT HERE WITH COMMERCIAL PAPER AND CD RATED SLIGHTLY POSITIVE.
FACTORS TO CONSIDER. I MENTIONED BRIEFLY, YOU KNOW, THE MONETARY POLICY THAT WE'RE SEEING YOU KNOW, IS BEING AFFECTED BY A LOT OF THE FISCAL POLICY THAT IS SPOKEN ABOUT FROM DC, RIGHT? SO THE FED, YOU KNOW, IN FACT, DID PAUSE RATE CUTS IN JANUARY.
SO, YOU KNOW YOU KNOW, WE'LL CONTINUE TO MONITOR THIS CLOSELY.
SIMILARLY, INFLATION, A LOT OF THAT IS BEING DRIVEN.
A LOT OF THAT IS DRIVING, YOU KNOW, THE MONETARY POLICY THAT WE'LL SEE OUT OF THE FED.
SO ARE THERE ANY QUESTIONS BEFORE I DIVE INTO THE PORTFOLIO ITSELF? OKAY. OKAY. ALL RIGHT. THANK YOU. SO WE SHARE EACH QUARTER, THIS CERTIFICATE OF COMPLIANCE.
DURATION. DIRECTOR MERCURIO, I BELIEVE YOU ASKED ABOUT BEFORE OUR MEETING.
YOU ASKED ABOUT HOW WE MIGHT BE CHANGING THE SORT OF POSITIONING OF THE PORTFOLIO.
AT THIS POINT IN TIME. YOU KNOW WHAT WE'VE DECIDED TO DO FOR MANY, OF MANY GOVERNMENTAL PORTFOLIOS WE MANAGE AT PFM IS TO BE ABOUT 100% OF DURATION TO THE BENCHMARK SELECTED BY EACH AGENCY. SO IN THIS CASE, YOU CAN SEE THAT HERE CLEARLY 2.48 YEARS FOR THE PORTFOLIO IS ON PAR WITH BENCHMARK.
YOU KNOW, IDEALLY WE'RE NOT GOING TO WE'RE NOT TAKING ANY SORT OF DURATION BETS.
YOU KNOW, WE DON'T DO THAT AMONG OUR PORTFOLIOS. IF ANYTHING, IF WE SEE INCREMENTAL VALUE AMONG SPREAD PRODUCT AND WE'RE ABLE TO PURCHASE, FOR EXAMPLE, CORPORATES OR AGENCIES OR MORTGAGE BACKED SECURITIES OR ASSET BACKED SECURITIES,
[00:35:05]
THEN WE WILL GO AHEAD AND DEPLOY THE CAPITAL THAT WAY TO TRY TO GENERATE INCREMENTAL YIELD.BUT WE'RE NOT GOING TO SAY, YOU KNOW, START BUYING, YOU KNOW, FIVE, YEAR BONDS JUST FOR THE SAKE OF BUYING FIVE YEAR BONDS THAT'S NOT WHAT WE DO. HERE YOU CAN ALSO SEE YIELD AT COST. AND THAT APPROXIMATES FORWARD EARNINGS FOR THE DISTRICT.
THAT WAS 4.15 FOR THE QUARTER YIELD AT MARKET.
THAT REPRESENTS THE YIELD ON THE PORTFOLIO. IF WE SOLD IT ENTIRELY AT THE END OF DECEMBER, THAT WAS 4.53. AND BOTH OF THOSE NUMBERS ARE UP FROM THE PRIOR QUARTER.
ANOTHER GOOD THING TO DISCUSS HERE IS CREDIT QUALITY.
WHILE YOU SEE HERE IT'S RATED AAA. IF YOU TAKE THE SUM OF THE AA AND HIGHER RATINGS.
SO THIS 1% DOUBLE A, 56% AA PLUS AND 9% AAA, THOSE NOW TOTAL 66%, WHICH IS GREAT.
CREDIT QUALITY HAS IMPROVED FROM 62% LAST QUARTER.
AND I'LL SPEAK NOW TO ON THE. OH ACTUALLY HERE, I'LL SPEAK TO THIS HERE.
SECTOR ALLOCATIONS, AS DEB HAD MENTIONED AGENCY CMBS HAVE GENERALLY REMAINED STABLE.
WITH RESPECT TO SPECIFIC ACTIVITY IN THE QUARTER, YOU KNOW, WE DID QUITE A BIT AS YOU ALL KNOW, THIS PORTFOLIO IS ACTIVELY TRADED DAILY. SALES TOTALED ABOUT ONE $11.7 MILLION IN THE QUARTER.
AND NEW PURCHASES OF 14.69 REPRESENTED ON THE BLUE BARS ON THIS CHART.
THOSE OCCURRED IN THE QUARTER. WE PURCHASED TREASURIES TOTALING ABOUT 10.35 MILLION, WITH A TRACK OF COUPONS RANGING 2.87 TO 4.12%. WE ALSO PURCHASED CORPORATES WITH FAMILIAR NAMES INCLUDING ACCENTURE AND STATE STREET BANK.
AND THEN LASTLY, WE PURCHASED SEVERAL ASSET BACKED SECURITIES, INCLUDING PACKAGE LOANS FROM GM, TOYOTA, HYUNDAI, HONDA AND NISSAN. AND THOSE COUPONS WERE ATTRACTIVE OF BETWEEN 4.33 TO 4.41% GOING FORWARD. AND THAT'S ABOUT $2 MILLION. SO YOU KNOW, AS I MENTIONED EARLIER, YOU KNOW, YOU CAN SEE HERE PERFORMANCE YOU KNOW, WAS NEGATIVE FOR THE QUARTER ON A TOTAL DOLLAR RETURN BASIS.
AND YOU CAN SEE INTEREST WAS EARNED OF 1.5 MILLION.
THERE WAS THAT CHANGE IN MARKET VALUE OF NEARLY 2.5 MILLION.
AND THAT'S AGAIN ATTRIBUTED TO THE RISE IN RATES.
TOTAL DOLLARS WERE LOST OF ABOUT $919,000. BUT RELATIVE TO THE BENCHMARK, YOU CAN SEE THE PORTFOLIO OUTPERFORMED BY ABOUT 22 BASIS POINTS. ONE THING THAT I WANT TO MAKE SURE I NOTE HERE, IF YOU TAKE EACH OF THESE INTEREST EARNING NUMBERS AND SORT OF MAKE AN AVERAGE BY QUARTER, RIGHT.
YOU CAN SEE THAT THIS QUARTERLY INTEREST EARN NOW OF 1.5 MILLION, IN FACT, EXCEEDS ALL OF THE PRIOR PERIODS, INTEREST EARNED ON A QUARTERLY BASIS. SO ON A ONE YEAR BASIS INTEREST EARNED ON A QUARTERLY BASIS WAS ABOUT 1.4 MILLION.
FOR THREE YEARS IT WAS $940,000 FOR FIVE YEARS, 780,000, AND FOR TEN YEARS $581,000.
SO, YOU KNOW, NOW THAT WE'RE IN A HIGHER INTEREST RATE ENVIRONMENT, IT'S REALLY GREAT TO SEE MEANINGFUL INTEREST, NOT JUST, FRANKLY, IN THIS QUARTER, OFFSETTING SOME OF THE MARKET VALUE DECLINE, BUT ACTUALLY, GENERATING MEANINGFUL RETURN FOR THE DISTRICT.
SO, YOU KNOW, THIS IS A VERY DIFFERENT CONVERSATION RELATIVE TO WHEN WE WERE, FOR EXAMPLE, IN A, YOU KNOW, VERY LOW OR ZERO RATE ENVIRONMENT. AND THEN FINALLY YOU'LL SEE HERE ACCRUAL BASIS EARNINGS SHOWING THE SAME INTEREST EARNED AS WELL AS REALIZED GAINS AND LOSSES. AND THEN TOTAL EARNINGS FOR THE DISTRICT.
ARE THERE ANY QUESTIONS ABOUT THE PORTFOLIO ITSELF BEFORE I BEGIN TO DISCUSS ESG? ANY QUESTIONS? DENNIS. OH. DENNIS. OH, NONE. OKAY.
ALL RIGHT. SO I'M GOING TO TURN TO ESG. THERE ARE SEVERAL SLIDES HERE THAT ARE KIND OF SPEAKING MORE BROADLY TO ESG AND HOW IT'S BEEN IN THE NEWS YOU KNOW, CERTAINLY A LOT OF THIS YOU KNOW, IS IN FLUX.
[00:40:04]
SEVERAL NOTES HERE. THE RISK RATING OF THE PORTFOLIO MEASURES ECONOMIC VALUE AT RISK BASED ON ESG FACTORS, AND LOWER ESG SCORES ACTUALLY REPRESENT LESS UNMITIGATED RISK, WHICH IS WHAT MANY AGENCIES PREFER.THIS QUARTER'S ESG RISK RATED UNIVERSE IS A BIT SMALLER.
AS DEB NOTED EARLIER, AND AS I MENTIONED EARLIER, SEVERAL CORPORATE HOLDINGS WERE SOLD.
AND THAT'S DOWN FROM LAST QUARTER, WHEN IT WAS 65%, COVERING ABOUT $108 MILLION.
THE ESG RISK RATING, HOWEVER THAT ALSO INCREASED TO 19.7 THIS QUARTER FROM ABOUT 19.6 LAST QUARTER.
BUT RELATIVE TO ONE YEAR AGO, IT WAS 21.3. SO, YOU KNOW, WE'LL EXPECT THIS NUMBER, AS I SAY, EACH QUARTER, TO BOUNCE AROUND AS THE DURATION OF THE PORTFOLIO IS PRETTY SHORT AT 2.5 YEARS.
BUT THAT SAID, THIS IS STILL A LOW ESG RATED RISK PORTFOLIO.
YOU'LL SEE HERE INDICATED BY THE DIAMOND NEARING 50%.
BUT THE ESG RISK SCORE FOR THESE SORTS OF HOLDINGS IS PRETTY LOW.
LOCKHEED MARTIN 28.1 RISK RATED. BUT AGAIN, ACCOUNTING FOR, YOU KNOW, LESS THAN EVEN 3%.
YOU KNOW, THERE'S A WIDE DIVERSITY OF COMPANIES AND THEIR COMMITMENTS TO ESG TYPE POLICIES.
MANY OF THE CDS AGENCY AND MBS HOLDINGS SHOW GENERALLY LOWER RISK, AND ABS YOU'LL SEE HERE IS SLIGHTLY ELEVATED, HOWEVER, AND THAT'S REALLY DUE TO THE AUTOMOBILES, THE AUTOMOBILE COMPANIES THAT HAVE A LOT TO DO WITH THESE PACKAGED LOANS.
FINALLY. YOU'LL SEE S&P RATINGS, THIS IS ANOTHER LENS BY WHICH WE EVALUATE ESG RISK AND IN AGGREGATE LOW ESG RISK RATING HOLDINGS NOW ACCOUNT FOR NEARLY 65 MILLION OF THE WHOLE PORTFOLIO.
SO THAT'S THE SUM OF EACH OF THESE LIGHT BARS NOW ACCOUNTS FOR 65 MILLION OF THE DISTRICT'S PORTFOLIO, WHEREAS THE HIGHEST RATED DOUBLE-A AND TRIPLE-A PORTIONS, THESE TWO LIGHT BARS HERE, THAT ACCOUNTS FOR AROUND 34 MILLION OF THE PORTFOLIO. SO THE LOWEST ESG RISK IS AMONG THE DOUBLE BUCKET SHOWING 16.6 FOR THE RATING. AND THAT'S, YOU KNOW, THE LARGE MAJORITY OF THE HOLDINGS FOR THE DISTRICT.
AND THAT ESSENTIALLY WRAPS UP ALL MY REMARKS, THE REMAINING SLIDES SHOWCASE PORTFOLIO DETAIL AS WELL AS A RANKING OF THE TOP 25 AND BOTTOM 25 ESG ISSUERS HELD IN THE PORTFOLIO. SO I'LL INVITE ANY QUESTIONS FOR THE COMMITTEE.
DIRECTOR. AT THE END, PERHAPS. YEAH. DIRECTOR WAESPI.
NO. THANK YOU FOR THE GREAT REPORT. IT'S INTERESTING HOW YOU MAKE THESE THINGS WORK.
IT'S VERY INTERESTING. YEAH. WONDERFUL REPORT.
I DON'T HAVE ANY FURTHER QUESTIONS. NO, I THINK WE'RE GOOD.
OKAY. WONDERFUL. THANK YOU FOR YOUR TIME. ANY PUBLIC COMMENTS? NO PUBLIC COMMENTS.
THANK YOU. IT'S A DIFFICULT TOPIC AND YOU MADE IT EASY TO GRASP.
ALMOST. YEAH. AS USUAL. THANK YOU. DEB, ANY CLOSING? NO, NO. NOTHING TO ADD. YEAH. WE'RE JUST LOOKING FOR A RECOMMENDATION TO BRING IT TO THE BOARD.
ALL RIGHT. DIRECTOR MERCURIO, DO YOU WANT TO MAKE THE MOTION? I MOVE, WE RECOMMEND.
SECOND. AND WE HAVE A MOTION. AND A SECOND. WOULD THE CLERK PLEASE CALL THE ROLL? DIRECTOR WAESPI. AYE. DIRECTOR MERCURIO. AYE.
[00:45:02]
WE'LL MOVE TO ACTION ITEM 4C. KATIE.GOOD MORNING AGAIN. KATIE DIGNAN, ASSISTANT FINANCE OFFICER.
AND I'M ALSO JOINED WITH WITH GRANT BOYSEN OUR CHAIR OF THE DEFERRED COMPENSATION.
SORRY, DEFERRED COMPENSATION ADVISORY COMMITTEE.
AND HERE TO TALK TODAY ABOUT THE RECOMMENDATION TO THE BOARD OF DIRECTORS TO APPROVE A PLAN EXPENSE FEE OF TWO BASIS POINTS OF TOTAL ASSETS FOR THE PARK DISTRICT'S DEFERRED COMPENSATION PLANS TO PROVIDE AN ANNUAL $20,600 TRAINING, TRAVEL AND OUTREACH BUDGET FOR THE DEFERRED COMPENSATION ADVISORY COMMITTEE.
SO FIRST, A LITTLE BACKGROUND. THE DEFERRED COMPENSATION ADVISORY COMMITTEE, DCAC, PROVIDES RECOMMENDATIONS TO THE BOARD ON ADMINISTRATION OF THE 457 DEFERRED COMPENSATION PLAN. WE'RE A FIVE MEMBER COMMITTEE WITH THREE ALTERNATE MEMBERS FROM AFSCME POLICE ASSOCIATION AND OUR REPRESENTATIVE FROM OUR RETIREES. THE CAC MEETS EVERY TWO MONTHS AND USES A WORK PLAN TO GUIDE ITS ACTIVITIES AND RECOMMENDATIONS.
AND POWER IS THE PLAN ADMINISTRATOR FOR THE 457 AND 401 A PLANS.
AS OF DECEMBER 2024, THE 457 PLAN HAD 1096 PLAN PARTICIPANTS AND A BALANCE OF 142.1 MILLION IN TOTAL ASSETS. THE 401 A PLAN IS CLOSED TO NEW PARTICIPANTS, AND THEY'RE ALSO NOT.
THE CURRENT PARTICIPANTS AREN'T ALLOWED TO MAKE ADDITIONAL CONTRIBUTIONS. SO THE PLAN IS PRETTY MUCH CLOSED AT THIS POINT, AND OUR CURRENT BASIC PLAN ADMINISTRATION FEE CHARGED BY EMPOWER TO PARTICIPANTS IS 1.85 BASIS POINTS.
THE MEMBERS BELIEVE IT'S ESSENTIAL FOR ALL COMMITTEE MEMBERS TO HAVE TRAINING ON A REGULAR BASIS.
THIS YEAR, THE CONFERENCE IS GOING TO BE HELD IN SEPTEMBER 28TH IN SAN DIEGO.
AND WHAT THE COMMITTEE IS ASKING IS $20,000 FOR FIVE COMMITTEE MEMBERS AND THREE ALTERNATES TO ATTEND THE CONFERENCE, AND THEN ALSO $600 FOR THE ANNUAL NAGDCA MEMBERSHIP FEE.
SO THAT IS THE BUDGET OF $20,600. SO IN LOOKING AT WAYS TO FUND THIS, HISTORICALLY WE HAVE FUNDED SINCE 2022, ATTENDANTS OF THIS CONFERENCE THROUGH BOARD CONTINGENCY FUNDS.
WHAT THE COMMITTEE LOOKED AT WAS ALSO ESTABLISHING A PLAN EXPENSE ACCOUNT AND ASSESS PLAN PARTICIPANTS, EITHER A FLAT DOLLAR FEE FOR ALL 457 AND 401 A PARTICIPANTS, OR PUTTING TWO BASIS POINTS OF ASSETS FOR ALL OF THE PARTICIPANTS. AND SO IF YOU SEE THE FLAT DOLLAR FEE, WOULD IF WE DID IT FOR $20 WOULD EQUATE TO ABOUT $21,9 20.
AND IF WE DID THE TWO BASIS POINTS, IT WOULD BE $30,800.
SO AFTER DISCUSSING THIS, THE COMMITTEE RECOMMENDED THAT THE MOST EQUITABLE WAY TO DO THIS WOULD BE TO ASSESS THE TWO BASIS POINT FEES FOR ALL 4 57 AND 401 A ASSETS TO FUND THE COMMITTEE MEMBERS TRAINING AND OUTREACH EFFORTS.
IN RE LOOKING AT THIS AND AND LOOKING AT THE PREVIOUS EXPENSES THAT THE COMMITTEE HAS INCURRED FOR CONFERENCE ATTENDANCE NOT EVERYBODY IS USUALLY ABLE TO GO. NOT ALL COMMITTEE MEMBERS AND STAFF.
THE STAFF RECOMMENDATION IS POSSIBLY TO CONSIDER A PLAN EXPENSE ACCOUNT AT ONE BASIS POINT FEE FOR THE AND JUST ASSESS THE 457 PARTICIPANTS AND SUGGEST ROTATING DCAC MEMBER AND ALTERNATE PARTICIPATION AT THE ANNUAL CONFERENCE.
ABOUT 41% OF PLAN PARTICIPANTS HAVE BALANCES BELOW $25,000 AND 16% HAVE BALANCES ABOVE 250,000.
[00:50:04]
SO WITH THE AVERAGE BALANCE, WE'D LOOK AT ABOUT $26 ANNUALLY OF A FEE FOR TWO BASIS POINTS, AND FOR ONE BASIS POINTS IT WOULD BE $13 ANNUALLY.SO WE OPEN THIS UP FOR DISCUSSION. YOU HAVE A COUPLE OF DIFFERENT OPTIONS TO CONSIDER.
ONE BEING WHAT WAS RECOMMENDED BY THE DEFERRED COMPENSATION COMMITTEE ADVISORY COMMITTEE OF THE TWO BASIS POINTS, WHICH WOULD EQUATE TO $20,600 ANNUALLY, OR WHAT STAFF IS RECOMMENDING IS ON THE ONE BASIS, POINTS OF TOTAL ASSETS. AND JUST ASSESS THE 457 DEFERRED COMPENSATION PLAN, WHICH WOULD EQUATE TO ABOUT $14,000 ANNUALLY OR AS WAS SUGGESTED IN THE PAST WE CAN ALSO GO BACK AND AMEND THE WE HAVE A SURVEY THAT WE'RE CURRENTLY GETTING READY TO ISSUE TO ALL PLAN PARTICIPANTS, AND WE COULD AMEND THAT PARTICIPANT SURVEY TO INCLUDE A QUESTION ON IF PARTICIPANTS SUPPORT A PLAN EXPENSE, A FEE ACCOUNT TO SUPPORT TRAINING OF THE DEFERRED COMPENSATION ADVISORY COMMITTEE, OR WHAT OTHER OPTIONS YOU WOULD LIKE US TO MOVE FORWARD WITH.
SO WITH THAT, WE'RE HERE TO ANSWER ANY QUESTIONS.
THANK YOU KATIE. SO WE'LL MOVE TO COMMITTEE QUESTIONS.
DIRECTOR WAESPI. YEAH. THANK YOU, KATIE, FOR THE PRESENTATION.
I UNDERSTAND THE VALUE OF THIS. I UNDERSTAND THE HISTORY OF THIS ISSUE.
I'M WONDERING MY ONLY QUESTION WOULD BE, WHAT DO THE PARTICIPANTS SAY? AND I KNOW THERE'S A HARD THERE'S YOU COULDN'T. WELL, I GUESS YOU COULD POLL THEM, BUT THAT WOULD BE VERY DIFFICULT AND PROBABLY COST MORE THAN $20,000. BUT AS IS THIS PRESENTED TO THE RANK AND FILE OR PEOPLE THAT ARE MEMBERS OF THESE PROGRAMS? I THINK I'M A MEMBER AS A RETIREE. I HADN'T HEARD A THING ABOUT IT.
AND NOW WE WANT TO FORMALIZE IT. HOW MANY PEOPLE WENT IN THE PAST? AM I CORRECT IN MY COUNTS THAT THERE ARE EIGHT MEMBERS, FIVE REGULAR MEMBERS AND THREE ALTERNATES? THAT'S CORRECT. OKAY. AND SO DO ALL EIGHT OF THE MEMBERS ATTEND EVERY YEAR OR IN THE PAST TWO YEARS OR TWO CONFERENCES.
HAVE THEY ALL EVERYBODY ATTENDED? NO. SO LAST YEAR THERE WAS FOUR OF US THAT ATTENDED.
AND THEN THE YEAR BEFORE THAT, THERE WAS ONLY ONE MEMBER THAT WAS ABLE TO ATTEND ONLINE.
AND THEN I DON'T HAVE HOW MANY BEFORE, BUT IT HASN'T NOT ALL MEMBERS HAVE BEEN ABLE TO.
NOT ALL EIGHT HAVE EVER ATTENDED THE CONFERENCE.
OKAY. AND WELL, I'D LIKE TO BREAK IT DOWN A LITTLE MORE.
WILL YOU GO? WILL THE REGIONAL PARK DISTRICT REPRESENTATIVES GO? DO YOU FIND IT A VALUE, OR DO YOU TAKE IT ONLINE OR WHAT'S GENERALLY BEEN THE PAST PROCEDURE FOR THE MANAGEMENT MEMBERS OF THE COMMITTEE.
SO I ATTENDED I ATTENDED LAST YEAR. I THOUGHT IT WAS VERY VALUABLE.
BUT MY PERSONAL OPINION IS I THINK I DON'T NEED TO GO EVERY SINGLE YEAR.
SO THAT'S MY PERSONAL OPINION SINCE I DID ATTEND LAST YEAR.
SO THEY HAVEN'T BEEN ABLE TO ATTEND THE CONFERENCE IN THE PAST.
BUT I'LL HAND OVER TO GRANT TO KIND OF GIVE HIS FEEDBACK TO.
I BELIEVE THIS SENDING MEMBERS, ALL MEMBERS TO THIS IT'S VERY IMPORTANT.
THE DEFERRED COMP COMMITTEE EXISTS BECAUSE WE EXIST AT THE PLEASURE OF THE BOARD.
SO FOR OUR MEMBERS TO STAY ABREAST OF LEGAL UPDATES FUND LINEUP UPDATES, WHAT OTHER DEFERRED COMP PLANS ARE DOING IN THE AREA OR IN THE INDUSTRY IT'S EXTREMELY IMPORTANT AND VALUABLE FOR THE COMMITTEE TO COME BACK AND GIVE YOU, AS A BOARD, AN UP TO DATE OPINION ON WHAT'S GOING ON WITH DEFERRED COMP PLANS.
SO THIS TRAINING IS, I THINK, INVALUABLE TO THE COMMITTEE.
[00:55:02]
THE COMMITTEE AT THIS TIME? THE FORMALIZED BOARD MEETING ANNUAL REPORT.THE COMMITTEE ONLY BRINGS THINGS FORWARD TO THE BOARD IF THE COMMITTEE BELIEVES THAT THERE NEEDS TO BE A CHANGE IN, SAY, THE FUND LINEUP. IF OUR EMPOWER REPRESENTATIVE WORKS WITH US AND SAYS, HEY, SOME OF THE FUNDS THAT WE HAVE IN OUR 457 PLAN SHOULD BE CHANGED BASED ON MARKET CONDITIONS OR THE FUND LINEUP ITSELF? WE COME TOGETHER AS A COMMITTEE QUARTERLY, AND IF THAT IF A CHANGE NEEDS TO BE DONE, WE BELIEVE WE COME TO THE BOARD AND SUGGEST THAT.
THE BOARD HAS THE FIDUCIARY RESPONSIBILITY TO MAKE THAT CHANGE.
BUT WE EXIST AS AN ADVISORY COMMITTEE TO THE BOARD.
SO WE DON'T WE ONLY COME WHEN CHANGES ARE NEEDED.
OKAY. THANK YOU. I WOULD BE IN FAVOR OF THE F ULL FUNDING OF THIS.
BUT I SURELY WOULD LIKE GRANT YOU'RE LIKE YOU REPRESENT THE POA.
I HOPE YOU GO TO YOUR, YOUR MEMBERSHIP OR YOUR CONSTITUENCY AND SAY THIS IS GOING TO COST 20 BUCKS.
WHAT DO YOU THINK? AND I HOPE THE RETIREES GO TO THE RETIREES, OR THE RETIREE REPRESENTATIVE GOES TO THE RETIREE ASSOCIATION AND ASKS FOR SOME CLARIFICATION OR SOME SOME LEANING ONE WAY OR THE OTHER BEFORE THEY VOTE.
SO THAT'S JUST A WISH. BUT I WILL SUPPORT THIS.
AND DIRECTOR WAESPI GOING BACK TO ONE OF YOUR PREVIOUS QUESTIONS YOU ASKED IF WE INCLUDED THIS IN THE SURVEY, OR WE COULD INCLUDE THIS IN THE SURVEY. WE DO HAVE A SURVEY GOING OUT LATER THIS MONTH TO ALL OF THE 457 PARTICIPANTS.
WE DIDN'T INCLUDE THAT QUESTION ORIGINALLY, SIMPLY BECAUSE IF YOU ASK ANY PARTICIPANT, HEY, DO YOU WANT TO CONTRIBUTE $25 A YEAR TO SEND PEOPLE TO TRAINING? IN OUR OPINION, THE AVERAGE PERSON IS GOING TO SAY, NO, IT'S MY $25.
I WANT TO KEEP IT. AND IF YOU ASK ANYBODY IF THEY'RE GOING TO DONATE MONEY TO A CAUSE.
THE VAST MAJORITY OF PEOPLE ARE GOING TO SAY, NO, I WANT MY MONEY. I UNDERSTAND THAT.
YEAH. SO WE CAN ABSOLUTELY ADD THAT QUESTION BACK TO THE SURVEY. IT GOES OUT AT THE END OF THIS MONTH, AND WE SHOULD GET THE RESULTS BACK FAIRLY QUICKLY. IT ONLY GOES OUT TO PLAN PARTICIPANTS SO IT DOESN'T THERE'S NO COST TO THE DEFERRED COMP COMMITTEE OR THE BOARD.
WE ARE ALREADY PLANNING ON SENDING THE SURVEY OUT THROUGH EMPOWER THROUGH THEIR PORTAL.
GOT IT. OKAY, GREAT. THANK YOU. JOHN. SO TRYING TO UNDERSTAND THIS HERE WE HAVE TWO DIFFERENT RECOMMENDATIONS HERE, RIGHT? SO WE HAVE TO CHOOSE ONE OF THOSE.
OH, WOW. THAT SOUNDS LIKE A LOT OF FUN. YEAH.
OR YOU COULD. OR YOU COULD SUGGEST SOMETHING ELSE.
IT'S NOT GOING TO HAPPEN. SO I THINK THE STAFF RECOMMENDATION NUMBER TWO IS REFLECTIVE OF THAT.
IS THAT IS THAT CORRECT? YEAH. YOU KNOW I'M KIND OF LEANING TOWARD THAT.
BUT I ALSO WANT TO JUST MAKE IT CLEAR THAT IT IS, AS DIRECTOR WAESPI MENTIONED, THERE'S A LOT OF VALUE TO ANYBODY WHO'S GOING TO THIS TYPE OF TRAINING. I MEAN, THE BOARD GOES TO CONFERENCES AND SEMINARS AND THINGS LIKE THAT.
AND WE GET I MEAN, I PERSONALLY GET LOTS OF A BENEFIT OUT OF IT, NOT JUST FROM THE SUBJECT MATTER, BUT FROM THE NETWORKING THAT YOU DO.
AND I THINK THAT'S HAPPENING HERE. SO I JUST THINK REALISTICALLY THE, THE AMOUNT THAT GENERATES 14,000 TO 10 IS PROBABLY GOING TO DO IT. THAT'S A LITTLE BIT OF A QUANDARY HERE.
YOU KNOW, I MEAN, IT'S BUT IT HAS SUCH TREMENDOUS IMPACT, YOU KNOW.
SO I THINK I WOULD LIKE TO DEFER AT THIS TIME TO CHAIR COFFEY'S OUTLOOK ON THIS. SO THE CHAIR'S OUTLOOK IS THAT MAYBE WE WANT TO ADD ONE OTHER OPTION, WHICH WOULD BE A REFLECTION ON THE FLEXIBILITY THAT YOU'RE SUGGESTING MAY BE NEEDED.
AND THAT OTHER OPTION WOULD BE SIMPLY ALLOCATING SOME WITHIN WHEREVER YOU CHOOSE TO PUT IT IN OUR BOARD APPROVED BUDGET OF AN EXPENSE TO COVER THIS. SO RATHER THAN ASSESSING THE PARTICIPANTS OR SURVEYING PARTICIPANTS, KNOWING THEY'RE GOING TO, YOU KNOW, NOT MY $25 GIVEN THAT IT'S NOT EASILY PREDICTABLE WHAT THE EXPENSE IS
[01:00:02]
GOING TO BE ANNUALLY, THAT WE JUST FUND THIS AS A BOARD, AS A ORGANIZATION, OUT OF THE ORDINARY BUDGET? IT'S NOT A LOT OF MONEY. SO YOU KNOW THAT THAT IS ANOTHER OPTION THAT WE HAVE.PERSONALLY, I KIND OF LIKE THAT OPTION SIMPLY BECAUSE IT ADDS FLEXIBILITY.
AND IT SUPPORTS THE MEMBERSHIP OF THE COMMITTEE WITH GOOD GOVERNANCE PRACTICES AND SUPPORTS OUR RETIREES IN, YOU KNOW, YOU DON'T NEED TO PUT UP YOUR $25.
WE'LL COVER IT. THAT'S MY THOUGHT. YEAH I WAS.
I'D SECOND THAT. I WAS STRUGGLING BECAUSE THAT YOU KNOW TO TO SOME FOLKS 25 BUCKS IS THEY'RE GOING TO REACT NEGATIVELY TO THAT, YOU KNOW. AND NO JUDGMENT ON THAT WHATSOEVER.
JUST IT'S NOT SOMETHING YOU OPEN UP THE LETTER THAT SAYS THAT IN THERE.
AND YOU'RE NOT GOING TO SAY, OH WOW, THAT'S GREAT.
YOU KNOW. SO THANK YOU FOR THE REALLY GOOD OPTION.
I'LL SUPPORT CHAIR COFFEY'S VARIATION IN THIS.
I WOULD SECOND THAT MOTION. SO I WOULD ASK DEB IF THERE'S A WAY TO FORMULATE THAT OPTION SO THAT WE CAN RECOMMEND IT TO THE FULL BOARD. YES. SO WE CAN COME UP WITH A STRATEGY OF WHERE WE COULD PLACE THIS IN THE BUDGET AND BRING THAT TO THE BOARD FOR APPROVAL.
SO IF WITH THAT CAVEAT, I'LL, MAKE THAT MOTION THAT WE RECOMMEND TO THE FULL BOARD THAT A FUNDING OF ANNUAL GOVERNANCE EDUCATION FOR THE COMMITTEE BE INCLUDED IN OUR ANNUAL BUDGET AND THAT WE WILL HAVE SOME BETTER WAY TO FORMULATE THAT AND WORD THAT FOR THE FULL BOARD.
ALL RIGHT. WE CAN DO THAT. SO I'LL MAKE THE MOTION. IS THERE A SECOND? YEAH, I'LL SECOND THAT. WE HAVE A MOTION AND A SECOND.
ANY FURTHER COMMENTS? NOPE. COUNCIL. WE'RE OKAY.
ANY PUBLIC COMMENT? NO PUBLIC COMMENT. ALL RIGHT.
WE HAVE A MOTION AND A SECOND. PLEASE CALL THE ROLL OF THE COMMITTEE.
DIRECTOR WAESPI. AYE. DIRECTOR MERCURIO. AYE.
CHAIR COFFEY. AYE. OKAY. I THINK THAT'S A GOOD OUTCOME AND APPRECIATE ALL THE EFFORT.
THANK YOU. [INAUDIBLE] . YOU KNOW, IF WE CAN EXERCISE SUCH WISDOM FOR $20,000, I'M ALL FOR THAT. ALL RIGHT. WE ARE AT ANY INFORMATIONAL ITEMS, DEB, FOR THE COMMITTEE. I DON'T HAVE ANYTHING.
ALL RIGHT. ANNOUNCEMENTS. DENNIS ANY ANNOUNCEMENTS? NO. THANK YOU. JOHN. I DON'T HAVE ANY. ANYTHING FOR THE GOOD OF THE ORDER THEN WE WILL ADJOURN THE FINANCE COMMITTEE MEETING. THANK YOU. THANK YOU ALL.
THANK YOU.
* This transcript was compiled from uncorrected Closed Captioning.