[Roll Call]
[00:00:04]
GREAT. WELL, GOOD MORNING AND WELCOME TO THE BOARD FINANCE COMMITTEE OF THE EAST BAY REGIONAL PARK DISTRICT. WE'RE MEETING TODAY ON FEBRUARY 11TH, AND I'LL CALL THE MEETING TO ORDER AT 10:34. ONCE AGAIN, WELCOME ALL. WE'RE GOING TO DO A ROLL CALL TODAY, BUT WE HAVE A PERSON OR ONE OF OUR MEMBERS HERE REMOTELY.
WELCOME, ELIZABETH. IT'S GOOD TO SEE YOU, DIRECTOR ECHOLS.
DO YOU HAVE A STATEMENT TO MAKE TODAY AS TO... YOU KNOW, THE WHOLE DEAL. WHY YOU'RE NOT HERE, AND IF THERE'S ANYONE 18 YEARS OR OLDER IN THE ROOM WITH YOU. THANK YOU. GOOD TO SEE YOU ALL. YEAH, SO I AM ATTENDING REMOTELY TODAY UNDER THE JUST CAUSE PROVISION DUE TO ILLNESS. AND NO, THERE'S NO ONE 18 OR OVER IN THE ROOM. EXCELLENT. THANK YOU VERY MUCH. THEN WE'LL CONTINUE WITH THE ROLL CALL.
MADAM CLERK. YES, DIRECTOR ECHOLS. PRESENT. DIRECTOR MERCURIO. HERE. CHAIR WASPIE.
HERE. OKAY. AND AS A HOUSEKEEPING NOTE, TODAY, WE'RE GOING TO MOVE ITEM, AND OUR ACTION ITEMS WERE IN MY MOVE ITEM B FIRST AND THEN A SECOND. AND OUR FIRST ORDER OF BUSINESS WILL BE THE
[Approval of Minutes]
APPROVAL OF THE MINUTES OF THE BOARD FINANCE COMMITTEE MEETING OF NOVEMBER 11TH.2025. ANYBODY HAVE ANY QUESTIONS, COMMENTS, OR I'LL ACCEPT A MOTION TO ACCEPT IF I WOULD. MOVE APPROVAL. SECOND. OKAY, WE HAVE A MOTION AND A SECOND. ALL IN FAVOR SIGNIFY. OH, NO, LET'S HAVE A ROLL CALL VOTE ON THAT ONE. DUE TO HAVING A REMOTE MEMBER, WE'RE GOING TO BE TAKING A ROLL CALL VOTE FOR EVERY ACTION, FOR EVERY ITEM. SO, DIRECTOR ECHOLS? AYE. DIRECTOR MERCURIO? AYE. DIRECTOR WASBY. AYE. IT PASSES UNANIMOUSLY. WE'LL MOVE TO THE APPROVAL OF MINUTES OF THE BOARD OF FINANCE COMMITTEE MEETING OF DECEMBER 10TH, 2025. ANY ADDITIONS, COMMENTS, OR CAN I GET A MOTION TO APPROVE? MOVE APPROVAL.
SECOND. I HAVE A MOTION AND A SECOND. HEARING NO FURTHER DISCUSSION, ALL IN FAVOR, LET'S HAVE A ROLL CALL VOTE.
EXCUSE ME, DIRECTOR ECHOLS? AYE. DIRECTOR MERCURIO? AYE.
DIRECTOR WASPIE? AYE. THAT PASSES UNANIMOUSLY ALSO. WE'LL MOVE NOW TO PUBLIC COMMENTS, NOT ON THE AGENDA. ITEM'S NOT ON THE AGENDA. DO WE HAVE ANYBODY HERE FOR THAT? NO PUBLIC COMMENTS. THAT'S OKAY.
[Action Items]
THEN WE'LL MOVE STRAIGHT TO ITEM B, THE ANNUAL FINANCIAL AUDIT PLANNING MEMO FOR THE YEAR ENDED DECEMBER 31ST, 2025, AND ENGAGEMENT LETTER WITH THE INDEPENDENT AUDITORS. GOOD MORNING EVERYONE. KAREN SIKAT, ASSISTANT FINANCE OFFICER IN FINANCE AND MANAGEMENT SERVICES. AS OUTLINED IN OUR BOARD OPERATING GUIDELINES, THE FINANCE COMMITTEE PLAYS AN IMPORTANT ROLE IN OVERSEEING THE ANNUAL INDEPENDENT AUDIT PROCESS. FOR THE PARK DISTRICT'S ANNUAL COMPREHENSIVE FINANCIAL REPORT, IS WHAT WE ALL KNOW AS ACFER, AND TODAY WE'LL BE REVIEWING THE AUDIT, PLANNING AND ENGAGEMENT FOR THE FISCAL YEAR ENDING DECEMBER 31, 2025. THIS AUDIT IS CONDUCTED IN ACCORDANCE WITH THE GENERALLY ACCEPTED GOVERNMENT AUDITING STANDARDS, AND IT INCLUDES AN ASSESSMENT OF OUR INTERNAL CONTROLS, COMPLIANCE WITH MAJOR FEDERAL GRANT PROGRAMS, ALSO KNOWN AS THE SINGLE AUDIT, AND AN OPINION ON WHETHER OUR FINANCIAL STATEMENTS ARE FAIRLY PRESENTED IN ACCORDANCE WITH THE U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES.SO THE PROCESS BEGAN WITH PLANNING AND INTERIM TESTING LAST MID-DECEMBER, AND THE AUDIT FINAL FIELDWORK IS SCHEDULED FOR LATE APRIL THIS YEAR. SO THE RESULTS WILL ULTIMATELY BE PRESENTED TO THE PARC ADVISORY COMMITTEE, THE FINANCE COMMITTEE, AND THE FULL BOARD, HOPEFULLY IN AUGUST. SO, MAZEN ASSOCIATES HAS BEEN ENGAGED TO PERFORM THE PARK DISTRICT'S INDEPENDENT FINANCIAL AUDIT, AND THIS WILL BE THEIR SECOND YEAR OF THEIR CONTRACT WITH US.
SO, TO PROVIDE A DETAILED OVERVIEW OF THE AUDIT OBJECTIVES, SCOPE, AND TIMELINE, I'M PLEASED TO INTRODUCE AMY MEYER, OUR AUDIT PARTNER FROM MAZEN ASSOCIATES, WHO IS JOINING US REMOTELY VIA ZOOM. SO, PLEASE JOIN ME IN WELCOMING HER.
AMY, IF YOU'D LIKE TO, PLEASE,
[00:05:09]
YOU CAN SPEAK NOW. GREAT. HI, EVERYONE. I KNOW I WAS ABOUT TO SEND THE PANIC EMAIL. I HAVEN'T BEEN PROMOTED. THANK YOU.WELCOME. THANK YOU. SO I SHOULD SEE. I DON'T THINK I CAN. CAN I SHARE MY SCREEN? SO IT'LL BE SO I CAN CONTROL THE SLIDES OR DO YOU WANT TO ADVANCE THEM? SHE'LL ADVANCE THEM. OKAY. ALL RIGHT. SO WE CAN GO, LET'S DIG IN. SO GOOD MORNING, COMMITTEE MEMBERS. SO KAREN GAVE A GREAT OVERVIEW THAT REALLY JUST TOOK CARE OF MY WHOLE PRESENTATION.
LIKE SHE SAID, WE'RE GOING TO DIG INTO SOME OF THE DETAILS. AND AS WE GO ALONG THE WAY, SINCE IN THIS VIEW, YOU'RE VERY TINY, IF YOU HAVE ANY QUESTIONS, IF SOMEONE COULD JUST ALERT ME, BECAUSE YOU CAN STOP ME ALONG THE WAY IF YOU HAVE ANY QUESTIONS. AS WE GO THROUGH THE SLIDE DECK. SO THESE ARE THE TOPICS WE'RE GOING TO COVER TODAY. WE'RE TO TALK ABOUT THE AUDIT STANDARDS BRIEFLY, AND EVERYTHING'S GOING TO BE BRIEFLY. THERE'S A LOT IN HERE, BUT WE'RE GOING TO KIND OF TOUCH THE SURFACE ON EVERYTHING. THE REPORTS TO BE ISSUED, OUR RESPONSIBILITY, WE'RE GOING TO TALK ABOUT GROUP AUDIT, AND I'LL EXPLAIN WHAT THAT IS WHEN WE GET TO IT. AND, AS KAREN MENTIONED, THE AUDIT TIMING, MANAGEMENT REPRESENTATIONS, AND FRAUD CONSIDERATIONS.
OKAY, SO OUR AUDIT IS CONDUCTED IN ACCORDANCE WITH THESE DIFFERENT, EXCUSE ME, DIFFERENT AUDITING STANDARDS, DEPENDING ON THE COMPOSITION OF THE DISTRICT'S AUDIT. SO WE'RE ALWAYS REQUIRED AS EXTERNAL AUDITORS, WE'RE REQUIRED TO COMPLY WITH THE AUDITING STANDARDS GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA, THOSE THAT ARE ISSUED BY THE AICPA. I LOVE IT WHEN ANIMALS JOIN OUR MEETINGS. I LOVE IT. AND THEN ALSO BECAUSE THE DISTRICT HAS A COMPLIANCE COMPONENT TO ITS AUDITS, WHICH IS RELATED TO ITS GRANT FUNDING FOR THE FEDERAL AWARD GRANTS.
WE'RE ALSO REQUIRED TO COMPLY WITH GOVERNMENT AUDITING STANDARDS, WHICH ALSO YOU MAY HAVE HEARD OF, YELLOW BOOK STANDARDS. THAT'S THE SAME THING. GOVERNMENT AUDITING STANDARDS AND YELLOW BOOK ARE SYNONYMOUS. ALL RIGHT. SO THOSE AUDIT STANDARDS REQUIRE US TO DISCUSS THE AUDIT PROCESS WITH THE BOARD, FINANCE COMMITTEE AND MANAGEMENT, AND AS WELL AS OTHERS THAT WE DEEM NECESSARY THROUGHOUT THE YEAR AND EACH YEAR. AND THE REQUIREMENT IS, THERE'S A DISCUSSION. IT JUST REQUIRES A TWO-WAY DISCUSSION.
IT DOESN'T HAVE TO BE IN PERSON. IT CAN BE IN THIS FORMAT. IT CAN BE IN PERSON. IT CAN BE VIA EMAIL.
IT JUST HAS TO BE TWO-WAY. AND THAT'S WHERE WE HAVE TO MAKE THESE COMMUNICATIONS EACH YEAR.
OUR RESPONSIBILITY UNDER THOSE AUDIT STANDARDS, THE PLANNED AUDIT SCOPE, GROUP AUDIT CONSIDERATIONS, ET CETERA, WHICH IS WHAT WE'RE GOING OVER TODAY. LAST YEAR, WE DID THE COMMUNICATION THROUGH TEAMS MEETINGS AND MET WITH THE VARIOUS PARTIES. AND THEN THIS YEAR, IT'S THIS, AND IT WILL BE A COMBINATION OF THAT DURING THIS YEAR'S AUDIT. SO WHAT, WE AUDIT. SO WE ALWAYS WANT TO MAKE SURE THAT THERE'S NOT AN EXPECTATION GAP OF WHAT DO WE AUDIT, WHAT DON'T WE DO. AND THAT'S WHAT WE TRY TO TALK ABOUT THROUGH THINGS, THROUGHOUT THINGS. WHEN WE DO THE VARIOUS PRESENTATIONS DURING THIS TIME. AND THEN ALSO AT THE END OF THE PERIOD WHEN WE'RE PRESENTING THE FINANCIAL STATEMENTS. SO FOR THE DISTRICT, WE AUDIT TWO MAIN COMPONENTS, WHICH IS THE PARK DISTRICT AS A WHOLE, WHICH IS. THE RESULTS OF THAT AUDIT ARE CONTAINED IN THE ANNUAL COMPREHENSIVE FINANCIAL REPORT, OR ACFR. AND THEN WE PERFORM COMPLIANCE TESTING, AUDITS OVER THE FEDERAL AWARD PROGRAMS OR THE SINGLE AUDIT. SO ANY TIME THE DISTRICT RECEIVES, AS OF TODAY, THERE'S A THRESHOLD THAT'S GOING TO CHANGE. BUT AS OF TODAY, WHEN THE PARK DISTRICT EXPENDS $750,000 OR MORE ACROSS ALL OF ITS FEDERAL AWARD PROGRAMS IN ANY ONE CALENDAR YEAR, THAT TRIGGERS THE NEED FOR A SINGLE AUDIT OR FEDERAL AWARD PROGRAM AUDIT. SO THAT COULD BE, I DOUBT, IN YOUR CASE, THAT THE FUNDING IS GOING TO.
GO DOWN, BUT ONE YEAR YOU MIGHT GET MORE STATE FUNDING THAN FEDERAL, AND SO MAYBE YOU WOULDN'T NEED A SINGLE AUDIT IN A PARTICULAR YEAR. AND SO THAT ASSESSMENT OR MEASUREMENT IS DONE EACH YEAR. SO THE REPORTS THAT WE'RE GOING TO ISSUE, THERE ARE SIX REPORTS IN TOTAL. THE FIRST FIVE ARE RELATED TO THE AUDIT. THE LAST BULLET? THERE IS THE GAN LIMIT, OR THE APPROPRIATIONS LIMIT CALCULATION THAT THE DISTRICT HAS TO PERFORM. AND THAT IS CONSIDERED AN AGREED UPON PROCEDURES REPORT. IT IS NOT AN AUDIT. IT'S AGREED UPON PROCEDURES. IT'S A DIFFERENT TYPE OF ATTESTATION REPORT THAT WE ISSUE. BUT THE FIRST FIVE, THE INDEPENDENT AUDITOR'S REPORT, THAT'S OUR AUDIT OPINION THAT'S INCLUDED IN THE ACFER. THEN WE ALSO ISSUE A REPORT ON, AND I'M GOING TO READ IT, INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS. OR THAT YELLOW BOOK. THAT AUDIT OPINION IS INCLUDED IN THE SINGLE AUDIT REPORT.
AND THEN WE ALSO ISSUE A REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL PROGRAM THAT WE TEST RELATED TO THE SINGLE AUDIT.
THAT IS ALSO IN THE SINGLE AUDIT REPORT.
[00:10:01]
THEN TWO OTHER DOCUMENTS THAT WE ISSUE, THE REQUIRED COMMUNICATIONS IN ACCORDANCE WITH STATEMENTS OF AUDITING STANDARDS 114 AND THE MEMORANDUM ON INTERNAL CONTROL. AND AS A MATTER, JUST SO, YOU KNOW, WE ALWAYS ISSUE A MEMORANDUM ON INTERNAL CONTROL, EVEN IF THERE ARE NO MATTERS TO REPORT, JUST SO THERE IS THAT DOCUMENTATION EACH YEAR.WE DID HAVE MATTERS LAST YEAR.
AND THEN THIS YEAR'S MEMORANDUM ON INTERNAL CONTROL WILL INCLUDE ANY CURRENT YEAR COMMENTS WE FIND, AND THEN THE UPDATE OR STATUS OF THE PRIOR YEAR COMMENTS AS WELL. SO OUR RESPONSIBILITY, AS DESCRIBED IN THE PROFESSIONAL STANDARDS, IT'S TO EXPRESS THOSE OPINIONS, EXPRESS OPINIONS. AND WE USE PLURAL IN THIS SENSE. BECAUSE THE AUDIT OPINION, EVEN THOUGH IN THE ACFRA IT'S ONE LETTER TO YOU, WE EXPRESS OPINIONS BECAUSE THERE ARE A NUMBER OF DIFFERENT. OPINION LEVELS, WE OPINE ON THE DISTRICT AS A WHOLE, WHICH IS THE ENTITY-WIDE FINANCIAL STATEMENTS.
INDIVIDUAL MAJOR FUNDS, SO THOSE ARE THE FUNDS THAT MATHEMATICALLY QUALIFY TO BE REPORTED SEPARATELY IN THE ACFER. AND THEN NON-MAJOR FUNDS, SO EVERYTHING ELSE IN TOTAL.
SO EACH OF THOSE SEGMENTS IS CONSIDERED AN OPINION. WE'RE OPINING ON EACH ONE, BECAUSE THERE COULD BE A PROBLEM WITH ONE OPINION UNIT BUT NOT THE REST, AND SO THAT'S WHY IT'S BROKEN DOWN INTO THE DIFFERENT OPINION UNITS. AND SO OUR, BUT. YOU KNOW, EVEN THOUGH WE'RE AUDITING, OUR AUDIT DOES NOT RELIEVE YOU OR MANAGEMENT OF YOUR RESPONSIBILITIES. YOU KNOW, WE'RE AUDITING THE DISTRICT'S FINANCIAL STATEMENTS, BUT IT'S MANAGEMENT AND THE DISTRICT'S STILL RESPONSIBLE FOR THOSE FINANCIAL STATEMENTS.
RIGHT. SO WE WILL ALSO, AND THIS IS WHERE YOU CAN GET KIND OF A LITTLE CONFUSING IN SOME OF THE NUANCES OF THE DIFFERENT TYPES OF WORK WE DO AND THINGS LIKE THAT, AND THE PROVISIONS CAN GET A LITTLE HAIRY HERE.
SO WE... CONSIDER INTERNAL CONTROL OVER FINANCIAL REPORTING TO DESIGN OUR AUDIT PROCEDURES, BUT WE DON'T PROVIDE ASSURANCE ON THE INTERNAL CONTROL OVER FINANCIAL REPORTING. SO IT CAN GET A LITTLE CONFUSING FOR THAT, BUT WE DO ASSESS INTERNAL CONTROL. WE USE IT TO DESIGN OUR WORK. THEN, OF COURSE, WE MAY NOT OPINE ON THE INTERNAL CONTROL, BUT WE DO, IF WE FIND ANY ISSUES, WE WILL REPORT ON THOSE MATTERS IF WE SEE ANY INTERNAL CONTROL WEAKNESSES. AND THEN WE ALSO PERFORM COMPLIANCE WITH CERTAIN PROVISIONS OF LAWS, REGULATIONS, CONTRACTS, AND GRANTS.
BUT AGAIN, PROVIDING AN OPINION ON COMPLIANCE OF THOSE PROVISIONS IS NOT AN OBJECTIVE OF OUR AUDIT. BUT IF WE RUN ACROSS SOMETHING, WE WILL REPORT ON IT. RIGHT.
SO WHEN IS THE PARK DISTRICT SUBJECT TO SINGLE AUDIT? I ALREADY TOLD YOU, BUT JUST IN CASE, BECAUSE IT'S THAT THRESHOLD OF $750,000 OR MORE PER YEAR ACROSS ALL PROGRAMS. SO IF YOU HAD $10,000 ON 75 PROGRAMS, THAT'S GOING TO TRIGGER YOUR.
IF YOU HAD 750 IN ONE, MY MATH DIDN'T WORK THERE. I SAID, 70 IN 10, BUT YOU KNOW WHAT I MEAN. AND THEN IF YOU HAD ONE PROGRAM THAT SPENT 750 IN A BUNCH OF OTHER PROGRAMS, THEN YOU'RE GOING TO REQUIRE A SINGLE AUDIT. BUT IF ALL THE PROGRAMS TOGETHER WERE LESS THAN 750, THEN IT WOULD NOT BE REQUIRED. NOW, THAT THRESHOLD IS INCREASING IN 2026 TO $1 MILLION, SO THAT'LL CHANGE THINGS.
BUT PROBABLY, AGAIN, YOUR FEDERAL FUNDING TENDS TO BE IN EXCESS OF THOSE THRESHOLDS. SO I DON'T THINK ANYTHING'S GOING TO CHANGE. PARDON ME, AMY. MAY WE ASK QUESTIONS ALONG THE WAY? ABSOLUTELY.
PLEASE DO. OKAY, GREAT. I APOLOGIZE FOR INTERRUPTING YOU. SO MY QUESTION WOULD BE, I ASSUME THE PARK DISTRICT IS ALWAYS OVER THIS LIMIT, 750. I MEAN, ALWAYS. NEVER. THE LAST 50 YEARS HAS NEVER BEEN. THERE YOU GO. THERE'S YOUR ANSWER.
YES. YES. OKAY. GOOD. YEAH, I WOULD THINK SO, TOO, JUST WITH THE LEVEL OF YOUR GRANT FUNDING. I MEAN, THAT'S YOUR WHOLE, YOU KNOW, YOU WANT TO OBTAIN GRANTS TO KEEP THE PROGRAMS GOING.
AND IT'S JUST THAT I KNOW THERE'S BEEN A LOT OF MORE FEDERAL PROGRAMS, BUT THERE'S ALSO BEEN A LOT OF STATE FUNDING. SO SOMETIMES ONE COULD TRUMP THE OTHER. IF YOU HAPPEN TO SPEND MORE OF A STATE FUNDING BEFORE YOU SPEND THE FEDERAL FUNDING, COULD SWING IT. BUT I AGREE.
IT'S, YOU KNOW, WE ALWAYS TRY TO SAY, IF APPLICABLE. BUT FOR YOU, I AGREE. I'LL STOP SAYING, IF APPLICABLE. ANY OTHER QUESTIONS? NO, THANK YOU.
OKAY, AND SO IN ACCORDANCE WITH THE UNIFORM GUIDANCE, SO THE CODE OF FEDERAL REGULATIONS, SECTION 200, IS CALLED UNIFORM GUIDANCE.
BECAUSE IT BROUGHT ALL OF THE RULES RELATED TO SINGLE AUDIT INTO ONE UNIFORM PLACE IN THE CODE OF FEDERAL REGULATIONS.
SO WE REFER TO IT AS UNIFORM GUIDANCE, OR UG. SO THEN WE EXAMINE ON A TEST BASIS THE EVIDENCE ABOUT THE PARK DISTRICT'S COMPLIANCE WITH THE TYPES OF COMPLIANCE REQUIREMENTS DESCRIBED BY THE OFFICE OF MANAGEMENT AND BUDGET. THEY ISSUE COMPLIANCE SUPPLEMENTS EACH YEAR. THAT ARE REQUIRED HERE. THEY'RE TIED TO EACH YEAR. THEY ISSUE THE RULES AND REGULATIONS THAT WERE REQUIRED TO TEST FOR ANY MAJOR PROGRAMS. AND WHEN I SAY MAJOR PROGRAMS, THERE'S A MATHEMATICAL CALCULATION AND A RISK ASSESSMENT THAT GOES
[00:15:01]
WITH EACH FEDERAL AWARD PROGRAM TO DETERMINE WHETHER IT NEEDS TO BE TESTED IN A PARTICULAR YEAR. SO THERE'S INDIVIDUAL CALCULATIONS AND THEN ALSO AN OVERALL COVERAGE CALCULATION THAT WE'RE REQUIRED TO MEET THE THRESHOLD. AND SO THAT IS IN IN THE THAT'S ALSO CONTAINED IN THE UNIFORM GUIDANCE. SO, INCLUDED IN THE DISTRICT'S ACFER, THE ACFER IS COMPRISED OF FIVE SECTIONS. SO THERE'S THE BASIC FINANCIAL STATEMENTS IN THE MIDDLE OF THE REPORT.THAT STARTS THE PART THAT STARTS WITH OUR AUDIT OPINION AND GOES ALL THE WAY BACK TO THE END OF THE FOOTNOTES.
EXCUSE ME, THE BASIC FINANCIAL STATEMENTS INCLUDES THE, FROM OUR OPINION, TO THE SUPPLEMENTARY INFORMATION, BUT IT'S COMPRISED OF FIVE COMPONENTS. IT'S PRECEDED BY INTRODUCTORY SECTION, THEN YOU HAVE THE BASIC FINANCIAL STATEMENTS, REQUIRED SUPPLEMENTARY INFORMATION, SUPPLEMENTARY INFORMATION, AND THEN STATISTICAL SECTION.
SO WE AUDIT OR OPINE ON COMPONENTS OF THE MIDDLE, BUT THE INTRODUCTORY AND STATISTICAL SECTIONS WE DO NOT OPINE ON. SO, THE REQUIRED SUPPLEMENTARY INFORMATION INCLUDES MANAGEMENT'S DISCUSSION AND ANALYSIS, THE BUDGET AND ACTUAL SCHEDULE FOR THE GENERAL FUND, AND THE PENSION AND OPEB SCHEDULES. SO IT SUPPLEMENTS THE BASIC FINANCIAL STATEMENTS. WE PERFORM, APPLY CERTAIN LIMITED PROCEDURES, BUT IT WILL NOT BE AUDITED. SO WE'RE TICKING AND TYING IT AND AGREEING IT TO OUR WORK, BUT WE DON'T OPINE ON THE RSI, WHICH CAN BE CONFUSING WHEN I GET TO THE SUPPLEMENTAL SECTION, WHICH IS THE NEXT SLIDE. SO IN THE SUPPLEMENTARY INFORMATION, WHICH YOU WOULD THINK REQUIRED, SUPPLEMENTARY, WE WOULD OPINE ON, AND SUPPLEMENTARY WE WOULDN'T, BUT IT'S ACTUALLY THE OPPOSITE.
WE PROVIDE WHAT'S CALLED AN IN-RELATION-TO OPINION ON THE SUPPLEMENTARY INFORMATION, BECAUSE THOSE ARE THE SUPPLEMENTARY FUND SCHEDULES FOR THE NON-MAJOR FUNDS THAT ROLL UP INTO THE FUND-LEVEL STATEMENTS THAT ARE AT THE FRONT OF THE REPORT. SO THEY ARE RELATED DIRECTLY TO THOSE STATEMENTS. SO. WE DO PROVIDE AN IN RELATION TO OPINION ON THOSE SCHEDULES. AND YOU'LL NOTICE, ODDLY, THE BUDGET ACTUAL STATEMENT FOR THE DEBT SERVICE FUND, YOU NOTICE THE GENERAL FUND WAS IN THE RSI. DEBT SERVICE FUND IS IN THE SUPPLEMENTAL INFORMATION. AND THAT'S JUST A PRESENTATION REQUIREMENT. THE MAJOR FUNDS THAT ARE THE GENERAL FUND OR SPECIAL REVENUE FUNDS ARE PART OF THE RSI.
BUT ANY OTHER MAJOR FUNDS FALL TO THE SUPPLEMENTARY INFORMATION. SO IT'S A LITTLE STRANGE, LITTLE QUIRK IN THE REPORTING STANDARDS.
ALL RIGHT. SO, AS I MENTIONED EARLIER, FOR THE INTRODUCTORY AND STATISTICAL SECTION, WE DON'T AUDIT THEM. WE DO READ THROUGH THEM TO MAKE SURE THAT THEY DON'T HAVE ANY CONTRADICTORY STATEMENTS OR INFORMATION THAT DOES NOT AGREE WITH THE AUDITED FINANCIAL STATEMENTS. SO OUR PLANNED AUDIT SCOPE. SO IT'S SOMETHING WE HAVE TO DO EACH YEAR. WE HAVE TO PLAN THE AUDIT ON AN ANNUAL BASIS. WE HAVE TO PERFORM RISK ASSESSMENT AND BRAINSTORMING AND PLANNING WITH OUR AUDIT TEAM AS A WHOLE.
AND THEN WE CREATE AN AUDIT PLAN TAILORED TO THE PARK, DISTRICT AND SECTOR. NOW, THAT'S THE REQUIREMENT IN THE AUDIT STANDARDS. OUR FIRM SPECIALIZES IN MUNICIPAL AUDIT, SO WE DON'T HAVE TO CHANGE OUR ENTIRE AUDIT PLAN EACH YEAR.
YOU KNOW, WE'VE ALREADY GOT OUR BASIC AUDIT APPROACH IS ALREADY TAILORED FOR MUNICIPAL AUDIT.
BUT THEN WE TAILOR IT SPECIFIC TO THE DISTRICTS, THINGS THAT ARE GOING ON THAT YEAR, SIGNIFICANT GRANTS, NEW DEBT ISSUES, YOU KNOW, MAJOR EVENTS. WE'RE GONNA SWERVE THE AUDIT AS WE NEED TO AS NECESSARY, DEPENDING ON THE ACTIVITIES FOR THE FISCAL YEAR. SO, THERE ARE TRANSACTION CYCLES AND AUDIT AREAS THAT ARE SUBJECT TO CONTROL, TESTING AND SAMPLING, AND THOSE INCLUDE REVENUE AND RECEIVABLES, DISBURSEMENTS, PAYROLL AND ACCRUED LIABILITIES, JOURNAL ENTRIES, AND THEN FORM FEDERAL AWARD TRANSACTIONS. SO THAT'S WHERE WE'RE PICKING TRANSACTIONS, TRACING TO SOURCE DOCUMENTS, AND WHAT DO WE CALL IT, CRADLE TO GRAVE, YOU KNOW, WHEN IT COMES THROUGH THE DOOR. VIRTUAL DOOR THESE DAYS, THROUGH THE DOOR TO THE PARK DISTRICT, ALL THE WAY TO THE BANKS, THROUGH THE GENERAL LEDGER, TO THE BANK STATEMENT, AND THE OTHER DIRECTION, TOO, IF WE PICK A TRANSACTION AND TRACING TO SUPPORTING DOCUMENTATION, REVIEWS AND APPROVALS, THINGS LIKE THAT. AND THEN THERE ARE CYCLES, EXCUSE ME, FOR TRANSACTION CYCLES INCLUDES CONTROL OVER CASH TRANSACTIONS AND ACCRUALS. WE TEST TRANSACTIONS AGAIN. WE TEST INFORMATION SYSTEM APPLICATION CONTROLS. SO THAT'S LOOKING AT WHEN WE'RE... SELECTING A TRANSACTION, WE'RE TRACING IT INTO THE GENERAL LEDGER TO MAKE SURE IT'S POSTING TO THE RIGHT ACCOUNT. AND THAT THERE ARE CONTROLS AND VIEWS AND APPROVALS OVER THAT PROCESS. THEN WE PERFORM ACCRUAL TESTS AT YEAR END FOR THE RECEIVABLES AND THE PAYABLES. AND THEN CONFIRMATIONS, THIRD PARTY CONFIRMATIONS, WHICH IS A BIG TOOL IN THE AUDIT WORLD TO USE A THIRD PARTY CONFIRMATION.
THOSE AREN'T USED FOR TRANSACTION CYCLES, BECAUSE CONFIRMATIONS ARE GENERALLY USED FOR BALANCES RATHER THAN A TRANSACTION CYCLE. SO THEN THERE ARE SOME AREAS THAT WE TEST IN TOTAL, LIKE CASH AND INVESTMENTS. THE DISTRICT, AS
[00:20:01]
WITH MOST MUNICIPALITIES, EMPLOYS A POOLED CASH AND INVESTMENT PROCESS, WHERE ALL THE FUNDS SHARE IN THE POOL. SO YOU'RE TESTING CASH AND INVESTMENTS IN TOTAL INTO THE RECONCILIATIONS AND SUPPORTING DOCUMENTATION.CAPITAL ASSETS, DEBT AND DEBT SERVICE, COMPENSATED ABSENCES, CLAIMS PAYABLE, NET PENSION ASSETS AND LIABILITIES, AND NET. OPEB WAS AN ASSET LAST YEAR, I'M ASSUMING BASED ON THE BALANCE, IT'LL PROBABLY BE AN ASSET.
THIS YEAR AS WELL, BUT I'M SAYING, AND OR LIABILITY APPLICABLE IF IT EVER SWINGS. LET'S HOPE NOT, BASED ON THE ACTIVITIES IN THE PROGRAM. SO, ALSO, AS PART OF OUR AUDIT, WE EVALUATE OVERALL DUTY ASSIGNMENTS WITH A FOCUSED ATTENTION ON CONFLICT OF DUTY. SO WE HAVE A TOOL THAT WE USE. WE CALL IT THE GRID THAT HAS THE ASSETS ALONG THE TOP AND THE PROCESSING ALONG THE SIDE. AND ANY TIME THERE'S A CONFLICT WHERE SOMEONE'S INVOLVED WITH BOTH, DEPENDING ON THE AREA, THEN WE'RE LOOKING FOR SOMETHING THAT'S CALLED A COMPENSATING CONTROL OR A MITIGATING CONTROL, SUCH AS A REVIEW AND APPROVAL BY A SECOND PERSON. OR SOME SORT OF CONTROL THAT'S GOING TO MITIGATE THAT POTENTIAL RISK OF. THE PROCESSING. AND WHEN WE SAY ASSETS ALONG THE TOP, IT DOESN'T JUST MEAN, ASSETS ARE THINGS, YOU KNOW, YOU THINK OF ASSETS, YOU THINK OF CASH AND INVESTMENTS, OR WHAT'S ON YOUR BALANCE SHEET. ASSETS INCLUDE THINGS LIKE THE ABILITY TO PRINT A CHECK, YOU KNOW, ISSUE A CHECK, CHECK SIGNERS, AND THERE ARE OTHER AREAS THAT ARE CONSIDERED ASSETS IN THAT MANNER. AND THEN, AGAIN, THE INTERNAL, EXCUSE ME, INFORMATION SYSTEMS, WHICH IS THE GENERAL LEDGER SYSTEM WE TEST AS PART OF OUR TRANSACTION TESTING. SO THEN WE ALSO PERFORM COMPLIANCE TESTS. AGAIN, THE SINGLE AUDIT ACT, CERTAIN GOVERNMENT CODE PROVISIONS APPLICABLE TO CASH AND INVESTMENTS, NEW DEBT ISSUES WHEN APPLICABLE, WHICH WHEN THEY'RE GENERAL OBLIGATION BONDS, THOSE ARE USUALLY SUBJECT TO GOVERNMENT CODE RULES, REGULATIONS, AND LOCAL POLICY COMPLIANCE, WHICH IS TYPICALLY YOUR INVESTMENT POLICY AND YOUR PURCHASING POLICY. IF WE PICK A TRANSACTION FOR TESTING, WE'RE TESTING TO THE DISTRICT'S COMPLIANCE WITH THE DISTRICT'S OWN POLICIES. THEN ONE OTHER COMPONENT THAT WE HAVE TO LOOK AT IS, AGAIN, THE FINANCIAL STATEMENTS ARE THE RESPONSIBILITY OF MANAGEMENT.
SO, WHEN WE ARE USED TO PREPARE, WE OFTEN PREPARE THE FINANCIAL STATEMENTS FOR OUR CLIENTS, BUT WE HAVE TO MAKE SURE THAT CLIENTS ARE USING US AS A CONVENIENCE RATHER THAN A NECESSITY. AND SO WE DO HAVE TO ASSESS WHETHER STAFF HAS THE CAPABILITY TO PERFORM THAT TASK THEMSELVES.
AND THAT WAS NOT DIFFICULT SINCE THE DISTRICT, PRIOR TO US COMING ON AS AUDITORS, HAD BEEN PREPARING THE FINANCIAL STATEMENTS.
THEMSELVES AND HAD THAT CAPABILITY, AND HAD RECEIVED CLEAN AUDITS AND THE GFOA AWARD, IT WASN'T A STRUGGLE.
WELL, NOT THAT WE WERE THERE, BUT IT DIDN'T APPEAR TO BE A STRUGGLE. AND PLUS, BASED ON OUR INTERACTIONS WITH STAFF, WE'VE SATISFIED OURSELVES THAT THEY DO HAVE THE CAPABILITY. AND SO THEY'RE USING US AS A CONVENIENCE BECAUSE IT'S SOMETHING THAT WE'RE DOING EVERY DAY, AS OPPOSED TO WHEN THEY DO IT, IT'S ONCE A YEAR, THAT ONCE A YEAR TASK THAT CAN BE A LITTLE DAUNTING, JUST TIME-WISE, RATHER THAN... THE COMPONENTS OF IT. ALL RIGHT, SO NOW GROUP AUDIT CONSIDERATIONS. SO IF YOU REMEMBER FROM LAST YEAR, THERE WAS A CHANGE IN THE FINANCIAL STATEMENTS.
WHERE THE REGIONAL PARK FOUNDATION, BECAUSE THERE HAD BEEN A CHANGE IN THE GOVERNMENTAL ACCOUNTING STANDARDS BOARD PRONOUNCEMENTS.
A COUPLE YEARS AGO, THERE WAS A CHANGE IN THE ASSESSMENT OF HOW THE REGIONAL PARK FOUNDATION WAS VIEWED AS WHETHER IT'S A COMPONENT UNIT OF THE PARK DISTRICT. AND SO WHEN WE JUST... THAT'S THAT WITH PARK DISTRICT STAFF. THEY AGREED, YES, IT REALLY SHOULD BE A COMPONENT UNIT OF THE DISTRICT.
BUT HOW THE RULES ARE IN THE GASB PRONOUNCEMENTS? WHEN IT'S A NON-PROFIT, IT'S PRESENTED DISCREETLY. SO THAT'S WHY IT'S GOT THAT SEPARATE COLUMN ON THE STATEMENT OF NET POSITION AND STATEMENT OF ACTIVITIES. SO SOMETHING THAT WILL CHANGE THIS YEAR, THOUGH. SO LAST YEAR WE MADE REFERENCE TO THE RPS AUDITORS BECAUSE IT'S CONSIDERED A GROUP AUDIT, BECAUSE THERE ARE TWO SEPARATE ENTITIES BEING AUDITED BY TWO SEPARATE PEOPLE. LIKE, IF I WAS THE AUDITOR FOR BOTH, IT WOULDN'T BE CONSIDERED A GROUP BECAUSE I'M THE PRIMARY AUDITOR.
BUT BECAUSE I'M NOT THE AUDITOR OF THE RPF, IT'S CONSIDERED A GROUP SITUATION. AND SO WE MAKE REFERENCE TO THE OTHER AUDITORS. WELL, THAT WILL CHANGE IN 2025. YOU WON'T SEE THAT REFERENCE. IT'S STILL CONSIDERED A GROUP AUDIT, BUT WE ARE THE MASON ASSOCIATES AS THE AUDITORS OF RPF STARTING IN 2025. AND SO... IT'S STILL A GROUP AUDIT FROM OUR DOCUMENTATION SIDE, BUT WE'RE NOT GOING TO MAKE REFERENCE TO OURSELVES. SO YOU WON'T SEE REFERENCE. THERE IS A SEPARATE PARTNER THAT, YOU KNOW, IT'S STILL CONSIDERED GROUP AUDIT BECAUSE THERE'S A SEPARATE AUDIT PARTNER THAT SPECIALIZES IN NONPROFITS THAT'S DOING THAT AUDIT. SO I JUST WANTED TO, THERE'LL BE THAT CHANGE IN THE AUDIT OPINION. YOU KNOW, YOU MIGHT THINK, WHY DID IT, WAS IT THERE ONE YEAR AND GONE THE NEXT? IT'S STILL THERE, BUT IT'S DOCUMENTED ON OUR SIDE, NOT IN THE OPINION ITSELF. PARDON ME, AMY, CAN WE ASK A QUESTION? ABSOLUTELY. YEAH, HI. I'M JUST WONDERING, IN TERMS OF FUNDING THE AUDIT, WHO'S PAYING FOR THE RPF AUDIT? IS IT THE DISTRICT COVERS EVERYTHING?
[00:25:01]
RPF, THE RPF FUNDS THAT AUDIT.YEAH, I CAN CONFIRM THAT, THAT WE ONLY PAY FOR THE DISTRICT'S AUDIT, AND THEN THE FOUNDATION PAYS THEIR OWN. YEAH, THEY'RE SEPARATE.
IT'S JUST THOSE LOVELY ACCOUNTING RULES THAT CAN MAKE IT. IT HAS TO DO WITH THE REASON THEY'RE CONSIDERED A COMPONENT OF THE DISTRICT, HAS TO DO WITH THE PURPOSE AND WHERE THEIR FUNDING GOES.
THEIR PRIMARY PURPOSE IS TO PROVIDE RESOURCES, ISN'T THE RIGHT WORD, BUT, YOU KNOW, TO PROVIDE FUNDING TO THE PARK DISTRICT. AND SO THAT BRINGS IT UNDER THE UMBRELLA OF BEING CONSIDERED WHAT'S CALLED A COMPONENT UNIT OF THE DISTRICT. EVEN THOUGH FUNCTIONALLY, YOU KNOW, THEY HAVE THEIR OWN ACCOUNTING AND OWN DAY-TO-DAY OPERATIONS AND THINGS LIKE THAT, BUT IT'S THAT OVERALL PURPOSE THAT MAKES IT, IN A FINANCIAL STATEMENT PRESENTATION MANNER, A GROUP AUDIT, OR, EXCUSE ME, A COMPONENT UNIT. ANY OTHER QUESTIONS? OKAY, SURE. SO AUDIT TIMING, SO WE'VE MET WITH PARK DISTRICT STAFF, AND AS KAREN MENTIONED, THE INTERIM FIELD WORK WAS JUST... COMPLETED IN DECEMBER AND JANUARY. WE'RE WRAPPING THAT UP. AND THEN THE YEAR-END FIELD WORK, SCHEDULED FOR APRIL AND MAY, A WEEK IN EACH, IT COVERS THE END OF THE MONTH THERE. AND THEN RPF'S AUDIT IS SCHEDULED FOR THE WEEK OF MARCH 2ND, SO IT SHOULD NOT IMPACT, YOU KNOW, THERE WERE SOME TIMING ISSUES LAST YEAR WHICH IMPACT THE PARK DISTRICT'S FINANCIAL STATEMENTS. IT SHOULDN'T THIS YEAR BECAUSE THEIR YEAR-END AUDIT IS HAPPENING IN ABOUT A MONTH. SO, EVEN IF WITH IT BEING A FIRST-YEAR AUDIT FOR OUR FIRM, EVEN IF THERE ARE BUMPS ALONG THE WAY, WE SHOULD STILL HAVE ENOUGH TIME. AND GAP WHERE. THEIR FINANCIAL STATEMENTS SHOULD BE ISSUED TO NOT AFFECT THE ISSUANCE OF THE PARK DISTRICT'S FINANCIAL STATEMENTS THIS YEAR.
AND THEN THE SINGLE AUDIT FEDERAL AWARD, SO THAT'LL BE COMPLETED. IT HAS A DIFFERENT DUE DATE OF SEPTEMBER 30TH, 2026, SO THAT WORK WILL BE HAPPENING AND BE ISSUED BEFORE THAT DATE. SO AS PART OF OUR AUDIT, WE ALSO, YOU KNOW, WE RELY PRIMARILY ON OUR AUDIT WORK. BUT MANAGEMENT'S ASSERTIONS CAN UNAVOIDABLY AFFECT THE DATA, AND SO THAT'S WHY WE REQUEST A MANAGEMENT REPRESENTATION LETTER THAT ASSERTS THAT THE DATA AND ASSERTIONS PROVIDED ARE COMPLETE AND ACCURATE.
THEN, AS PART OF THE AUDIT, OUR AUDIT HAS TO BE DESIGNED TO DETECT MATERIAL INSTANCES OF FRAUD, AND SO WE HAVE TO CONSIDER FRAUD IN OUR AUDIT.
BUT WHEN WE USE THE WORD FRAUD.
IT DOESN'T JUST MEAN, YOU KNOW, YOU THINK FRAUD AND YOU THINK SOMEONE TAKING ASSETS. IT ALSO INCLUDES THAT, MISAPPROPRIATION OF ASSETS, BUT IT ALSO INCLUDES FRAUDULENT FINANCIAL REPORTING. SO THAT'S SOMETHING WE ALWAYS HAVE TO HAVE, YOU KNOW, AT THE TOP OF OUR MIND, BEING LOOKING FOR MATERIAL INSTANCES IN BOTH CASES. SO WE'LL BE MAKING INQUIRIES ABOUT THAT AS WELL WITH AREAS. AND THE NEXT SLIDE IS THE AREAS WE HAVE TO TALK ABOUT. YOU KNOW, IS MANAGEMENT AWARE OF INSTANCES OF FRAUD? ARE THERE ANY AREAS? THAT THEY BELIEVE ARE SUSCEPTIBLE TO FRAUD. AND THEN THERE ARE TWO AREAS THAT WE ALWAYS HAVE TO ASSUME. THEY ARE SUSCEPTIBLE TO FRAUD, WHICH MEANS IMPROPER REVENUE RECOGNITION AND MANAGEMENT OVERRIDE OF INTERNAL CONTROLS. AND SO THAT'S WHY ONE OF THE AUDIT STANDARDS REQUIRES THE TESTING OF JOURNAL ENTRIES, BECAUSE YOU COULD HAVE ALL THE CONTROLS IN PLACE THAT ARE WORKING GREAT THROUGHOUT THE SYSTEM, BUT THEN ONE JOURNAL ENTRY CAN CHANGE EVERYTHING. AND SO THAT'S WHY, AS PART OF THE AUDIT, WE'RE REQUIRED TO TEST JOURNAL ENTRIES ON AN ANNUAL BASIS. AND SO THAT'S WHAT YOU'RE LOOKING FOR, THAT REVIEW AND APPROVAL AND DOCUMENTATION OF THINGS FOR ANY POTENTIAL OVERRIDE OF CONTROLS. AND SO WE ALSO HAVE TO LOOK AT THE FRAUD RISK ASSESSMENT AND MONITORING PROGRAM. IT MEANS INTERNAL CONTROLS. YOU KNOW, IT'S JUST A LONG WAY OF SAYING. INTERNAL CONTROLS, WHICH IS THE TERM THAT WE'RE ALL FAMILIAR WITH, LOOKING AT PREVENTION, DETERRENCE, AND DETECTION TECHNIQUES. SO THOSE ARE INQUIRIES WE MAKE AND THINGS THAT WE LOOK AT AS WELL. AND THEN, SO THAT'S IT. FOR THE OVERALL AUDIT PLAN AND OVERVIEW, AND THEN JUST GIVING YOU SOME FYI'S FOR GOVERNMENTAL ACCOUNTING STANDARD BOARD PRONOUNCEMENTS THAT POTENTIALLY CAN AFFECT THE FINANCIAL STATEMENT PRESENTATION. LAST YEAR WAS THE BIG ONE FOR COMPENSATED ABSENCES. THE NEXT FEW ARE NOT THAT DRAMATIC, WHICH IS GOOD. SO FOR FISCAL 25, CERTAIN RISK DISCLOSURES, IF THERE ARE ANY RISKS. I DON'T THINK THIS IS GOING TO IMPACT THE DISTRICT, BUT WE'LL BE TALKING ABOUT IT WITH THE DISTRICT STAFF. IT JUST HAS TO DO. IF THERE ARE ANY, IT'S CALLED CONCENTRATIONS OR CONSTRAINTS. IF THERE ARE ANY, YOU KNOW, ONE INDUSTRY YOU WERE RELIANT UPON, IT MIGHT BE SOMETHING THAT NEEDS TO BE DISCLOSED. AND FISCAL 26, THERE'S FINANCIAL REPORTING MODEL IMPROVEMENTS, JUST CHANGES A LITTLE TERMINOLOGY IN THE FINANCIAL STATEMENTS, NOTHING TOO DRAMATIC. AND THEN SAME WITH 104, DISCLOSURE OF CERTAIN CAPITAL ASSETS, VERY MINIMAL DISCLOSURE REQUIREMENTS. AND FISCAL 27,
[00:30:01]
SUBSEQUENT EVENTS, DOESN'T CHANGE. HOW SUBSEQUENT EVENTS ARE DISCLOSED IN THE FINANCIAL STATEMENTS, BUT PUTS A LITTLE MORE DEFINITION INTO WHAT SUBSEQUENT EVENTS ARE AND WHAT NEEDS TO BE DISCLOSED. ALL RIGHT, AND WITH THAT, I'M AVAILABLE WITH ANY QUESTIONS, OTHER QUESTIONS YOU MAY HAVE.THANK YOU, AMY. ANY QUESTIONS, COMMENTS FROM BOARD MEMBERS? SURE, I'LL ASK. GO AHEAD, ELIZABETH. OKAY. SO, AMY, THANK YOU, FIRST OF ALL, FOR THE PRESENTATION. I THINK I HEARD YOU SAY AT THE VERY BEGINNING THAT SOMETHING CAME UP LAST YEAR REGARDING INTERNAL CONTROLS. SO I JUST WANTED YOU TO COMMENT ON THAT AND WHAT WAS THAT ABOUT? AND HAVE WE ADDRESSED IT? THERE WERE SOME INTERNAL CONTROL COMMENTS IN OUR MEMORANDUM ON INTERNAL CONTROL LAST YEAR, AND THEY WERE ADDRESSED BY STAFF. AND ALREADY, AS PART OF THE RESPONSE AND THE CURRENT STATUS IN THE MEMORANDUM ON INTERNAL CONTROL, YOU CAN SEE THE RESPONSES THAT ARE IN THERE. AND THEN WE'LL ALSO, AS PART OF THE, YOU KNOW, THAT WAS OUR FIRST-YEAR AUDIT.
SECOND-YEAR AUDIT, WE... DO THE TESTING TO SEE, YOU KNOW, IF THEY SAY IT WAS IMPLEMENTED, THEN WE TEST TO SEE THAT THINGS WERE IMPLEMENTED OR REVISED OR CHANGED. AND AS I'VE TALKED WITH THE STAFF, TOO, WE ALWAYS RECOMMEND, MAKE RECOMMENDATIONS TO THE IDEAL. THE ACTUAL, YOU KNOW, THERE ALWAYS HAS TO BE THAT COST-BENEFIT ASSESSMENT ON THE DISTRICT SIDE. DOES THE COST OF IMPLEMENTING CONTROL X EXCEED THE, OR THE COST EXCEED THE BENEFIT OF IMPLEMENTING THAT PARTICULAR CONTROL? AND SO IT'S SOMETHING THAT CAN ALWAYS BE ASSESSED BY THE DISTRICT AS WELL. AND SO. WHEN THAT'S THE CASE, YOU KNOW, SAY, WE SAY THAT SOMETHING NEEDS TO BE DONE. AND THE DISTRICT DETERMINES THAT THE COST OUTWEIGHS THE BENEFIT, THEN WE AMEND OUR AUDIT PLAN AROUND THAT AREA. YOU KNOW, WE NOTICED THIS, THE DISTRICT ASSESSED IT, AND SO WE'RE NOT GOING TO DIG OUR HEELS IN THE SAND.
UNLESS IT WAS SOMETHING, YOU KNOW, REALLY DRAMATIC, THAT WE COMPLETELY DISAGREE WITH, BUT THAT WOULD BE A DIFFERENT CONVERSATION. AND SO WE ALWAYS TRY TO, YOU KNOW, AS WE SAY WE'RE IN BUSINESS TO HELP OUR CLIENTS SUCCEED, WE WANT TO FIND. A PATH THAT WORKS FOR BOTH SIDES. YOU KNOW, WE HAVE AN IDEA HERE, BUT IF IT'S NEVER GOING TO WORK, THEN WE HAVE TO SEE IF WE'RE BEING TOO STIFF, YOU KNOW, AND NOT LOOKING AT THE REALITY OF IT. BECAUSE AGAIN, WE'RE GOING TO RECOMMEND TO THE IDEAL AND LOOKING AT THINGS, BUT THAT'S WHERE IT'S THE GIVE AND TAKE ON THAT. AND IF THERE WAS AN AREA WHERE IT WAS VERY IMPORTANT, WE WOULD HAVE THE CONVERSATION AS TO WHY IT WASN'T SEEN AS BEING IMPORTANT.
BUT THAT HASN'T BEEN THE SITUATION IN HERE IN THIS CASE. JUST TRYING TO KIND OF GIVE YOU AN IDEA, BECAUSE THERE'S A LOT OF DIFFERENT COMMENTS THAT WE CAN MAKE ALONG THE WAY, THAT USUALLY. AND SO WE WANT TO MAKE SURE THAT THEY'RE UNDERSTOOD AND IMPLEMENTED. OR IF THEY'RE NOT, YOU KNOW, MAYBE WE MISSED THE BALL. YOU KNOW, MAYBE WE SAW SOMETHING THAT WAS TOTALLY DIFFERENT AND THAT'S WHERE WE TRY NOT TO DO THAT. OK, THANK YOU.
YEAH, NOT A QUESTION, BUT I JUST WANT TO EXPRESS MY. APPRECIATION FOR THIS WORK THAT'S BEEN DONE.
IT'S INCREDIBLY COMPLICATED HERE. I MEAN, LOOK AT ALL THOSE, LOOK HOW MANY SLIDES IT TOOK TO DESCRIBE THIS. YOU KNOW, IT'S AMAZING. BUT, YOU KNOW, WE NEED TO BE AWARE OF ALL THIS, SO I RECOGNIZE THAT.
BUT I ALSO APPRECIATE THAT, YOU KNOW, I KNOW WE HAVE TO DO THIS, BUT IT, I MEAN, IT'S A GREAT TOOL FOR MAKING SURE THAT WE'RE DOING THE RIGHT THING IN THE ACCOUNTING WORLD. ALL DAY LONG, EVERY DAY, AND SO I REALLY, I THINK IT'S REALLY GREAT THAT, YOU KNOW, AND I DON'T KNOW HOW MANY YEARS IN A ROW, WE'VE HAD A CLEAN AUDIT. I WAS JUST IN CONCORD AT A CONCORD CITY COUNCIL MEETING LAST NIGHT, AND THEY JUST ACCEPTED THEIR AUDIT THERE, AND THEY SAID THEY HAD 20 OR 30 YEARS OF CLEAN AUDITS, YOU KNOW, AND I THOUGHT, WELL, THAT SOUNDS REALLY GREAT. THEN I THOUGHT, I WONDER WHAT OURS IS, BUT YOU DON'T HAVE TO ANSWER THAT RIGHT NOW.
ANYWAY, THANKS FOR ALL THE WORK BY AMY'S OUTFIT AND OUR FOLKS.
APPRECIATE IT. THANK YOU. WE DO HAVE 24 YEARS. JUST AN FYI.
GOOD. ANYTHING WHEN YOU GET INTO DECADES IS A GOOD THING, RIGHT? THAT'S A GOOD THING TO HEAR, YEAH. THANK YOU, AMY, FOR YOUR PRESENTATION, AND THANK YOU, STAFF, FOR ALL DOING THIS. I MEAN, THIS IS, I'VE BEEN THROUGH A FEW OF THESE, AND IT SEEMS LIKE, MAYS, YOU'RE IN YOUR SECOND YEAR HERE.
WE'RE HAPPY ABOUT THAT. IT SEEMS LIKE YOU DEPEND A LOT UPON THE STAFF PROVIDING YOU INFORMATION, AND IT SEEMS LIKE IT'S FLOWING REALLY, REALLY WELL, AND THERE ARE NO QUESTIONS. I'M GLAD TO HEAR, AS MY FELLOW COLLEAGUES ARE, THAT WE HAVE CLEAN AUDITS, AND I'M GLAD THAT I'VE SEEN A COUPLE THROUGH THE YEARS OF YOUR RECOMMENDATIONS, AND WE RESPOND TO THOSE RECOMMENDATIONS. SO I'M HAPPY, AND THIS IS GREAT COVERAGE FOR US. WHEN I LOOK AROUND, IT'S PRETTY DIFFICULT. KEEP A CLEAN ORGANIZATION AS WELL AS
[00:35:02]
WE DO. SO ARE THERE ANY COMMENTS FROM THE PUBLIC? NO PUBLIC COMMENTS. OKAY. HEARING NONE, I WILL EXPRESS MY CONFUSION. I SEE ON ONE PIECE OF PAPER I HAVE THAT THIS IS AN ACTION ITEM, BUT I DON'T KNOW WHAT THE ACTION WOULD BE. I THINK THIS IS JUST AN INFORMATIONAL ITEM. WE HAVE THE RELATIONSHIP WITH MAYS, AND WE'RE GOING TO GO FORWARD WITH THIS AS PER THE TIMELINE, AND I LOOK FORWARD TO THAT. I HEAR SOME NODS AND IT BEING INFORMATIONAL. NO, IT'S LISTED AS ACTION ITEMS, SO SOMETHING THAT YOU'D MOVE FORWARD AND VOTE ON IT. SOMEBODY PROPOSE A MOTION. I DON'T HAVE TO. DOES ANYBODY HAVE A MOTION ON THIS? SURE, I'LL MAKE A MOTION, BUT I ALSO JUST WANTED TO. I WAS HOLDING MY COMMENT BECAUSE I THOUGHT WE WERE DOING QUESTIONS AND COMMENTS, BUT WHATEVER. SO ANYWAY, I DID JUST WANT TO THANK AMY AND YOUR TEAM FOR YOUR WORK, AND ALSO OUR STAFF, OBVIOUSLY, IT'S A TEAM EFFORT, AND CONGRATULATIONS TO US ON 24 YEARS OF CLEAN AUDITS.THAT'S VERY GOOD. AND WITH THAT, I CAN MAKE A MOTION THAT WE ACCEPT THE ANNUAL FINANCIAL AUDIT PLANNING REPORT. IS THAT THE CORRECT MOTION, I BELIEVE? AND I'D BE HAPPY TO SECOND THAT. ALL RIGHT, WE HAVE A MOTION TO SECOND. ANY DISCUSSION AMONGST? THE GROUP HEARING NONE. UH, LET A ROLL CALL, VOTE, PLEASE DIRECTOR ECCLES, AYE. UH, DIRECTOR MERCURIO, AYE, DIRECTOR WASPY. ALL RIGHT.
THANK YOU VERY MUCH FOR YOUR PRESENTATIONS, AMY AND STAFF. AND WE WILL NOW MOVE TO ITEM A. JUST PROVE THAT, UH A WOULD BE THE U.M. ANNUAL FINANCIAL AUDIT, PLANNING MEMO. NOPE, WE'VE DONE THAT. AND ACCEPT THE QUARTERLY INVESTMENT REPORT. AND BEFORE WE GET STARTED, DIRECTOR WASPIE, IF IT WOULD BE OKAY FOR ME? JUST TO DO A BRIEF INTRODUCTION OF OUR NEW ASSISTANT FINANCE OFFICER THAT'S JOINED OUR TEAM THAT'S GOING TO BE PRESENTING THIS ITEM.
EXCELLENT. SO I WANT TO WELCOME TODAY CHRISTINA CROSBY. SHE'S RETURNING TO THE DISTRICT FROM HAYWARD, AND SHE'S SERVING AS OUR ASSISTANT FINANCE OFFICER OVER OUR NEW PROCUREMENT DIVISION.
AND SO SHE'S HERE TODAY TO PRESENT ON THIS ITEM. THANK YOU. OKAY, CHRISTINA CROSBY, ASSISTANT FINANCE OFFICER. I'M REALLY HAPPY. THANK YOU.
TO BE BACK WITH THE PARK DISTRICT TODAY AND TO INTRODUCE OUR NEXT ITEM.
OUR QUARTERLY INVESTMENT REPORT AND MARKET REVIEW FOR DECEMBER 31ST, 2025. I HAVE A COUPLE OF SLIDES ABOUT THE DISTRICT'S OVERALL LIQUIDITY AND INVESTMENTS, AND THEN I'M GOING TO TURN IT OVER TO JUSTIN RIZZILLO.
WITH PFM TO GO OVER OUR PORTFOLIO IN MORE DETAIL. AT THE END OF THE PRESENTATION, WE WILL BE ASKING THE COMMITTEE FOR A RECOMMENDATION TO THE FULL BOARD FOR ACCEPTANCE OF THE FOURTH QUARTER INVESTMENT REPORT.
SO, IF YOU'RE LOOKING AT YOUR PACKET ON PAGE 11 AT THE TOP OF THE PAGE, OR YOU CAN JUST FOLLOW ALONG WITH THE SLIDES HERE, YOU CAN SEE THAT WHAT WE CALL OUR LIQUIDITY PORTFOLIO MARKET VALUE HAS INCREASED FROM THE THIRD QUARTER, WHEN WE LAST PRESENTED, BY ABOUT $76 MILLION, FROM $164.6 MILLION TO $240.2 MILLION. AND THE PRIMARY DRIVER OF THAT IS PROPERTY TAX.
INSTALLATION PAYMENT THAT CAME IN DECEMBER. SO WE GET TWO OF THOSE A YEAR. WE RECEIVED DECEMBER AND WE'LL BE USING THAT FOR OUR OPERATIONAL EXPENSES THROUGHOUT THE REMAINING FISCAL YEAR. AND THEN WE'LL HAVE THE NEXT INSTALLMENT IN APRIL. SO, MOVING FURTHER DOWN THAT PAGE, WE'LL SEE THE SHORT, MID, AND LONG-TERM INVESTMENTS, WHICH JUSTIN WILL GO OVER IN MORE DETAIL. WE HAVE INCREASED OVERALL ABOUT 1.6, SEVEN MILLION, AND THE CHANGES NOTED HERE ARE IN. WE HAVE THE GREEN CIRCLE, WHICH SHOWS AN INCREASE IN OUR U.S TREASURIES AND A DECREASE IN OUR ASSET-BACKED SECURITIES AND OUR CERTIFICATE OF DEPOSITS. AND THEN FURTHER DOWN THE PAGE, YOU'LL SEE OUR PROJECT FUNDS.
SO IN THIS SECTION, WE JUST WANT TO POINT YOUR ATTENTION TO WE'RE CONTINUING TO DRAW DOWN OUR 1988.
YOUR AA BONDS FOR PROJECTS AND THEN ALSO OUR 2024 PROMISE PROMISSORY NOTES FOR PROJECT RELATED EXPENSES.
[00:40:01]
AND THEN, ON THE FLIP SIDE, YOU'LL SEE THE INCREASE IN OUR WW DEBT SERVICE FUND.AND THAT AGAIN WAS RELATED TO OUR PROPERTY TAX INSTALLMENT THAT WE RECEIVED IN DECEMBER.
AND THEN THIS IS WHERE I'M GOING TO TURN IT OVER TO JUSTIN. AND HE WILL DO HIS PRESENTATION. AND THEN, AT THE END OF HIS PRESENTATION, WE WILL ASK FOR ACCEPTANCE AND THEN THE RECOMMENDATION TO THE FULL BOARD. THANK YOU.
THANKS, CHRISTINA. I'M DELIGHTED TO BE WITH YOU ALL TODAY. OH, OKAY.
GOOD MORNING, EVERYONE. HAPPY TO BE WITH YOU ALL AGAIN THIS QUARTER. I ALSO WANTED TO SHARE MY WELCOME TO CHRISTINA CROSBY. ALSO BECAUSE SHE AND I ALSO COVERED, I ALSO HELPED TO COVER HAYWARD FOR A WHILE, AND I WAS JUST REALLY HAPPY TO HEAR THAT SHE WAS ALSO HIRED BY THE TEAM. SO I'M LOOKING FORWARD TO WORKING CLOSELY WITH HER. AS USUAL, WE'LL BE GOING THROUGH THE REPORT. I KNOW THAT WE HAD A SORT OF LENGTHY DISCUSSION ABOUT THE AUDIT. SO I WANT TO BE RESPECTFUL OF THE COMMITTEE'S TIME, AND I'LL FOCUS ON A FEW SORT OF HIGH-LEVEL THEMES. I'M GOING TO SKIP OVER SOME OF THE MORE SORT OF GRANULAR SLIDES SURROUNDING INFLATION AND UNEMPLOYMENT, IF THAT'S ALL RIGHT.
BUT I'LL GO THROUGH THE MATERIALS, AND PLEASE, AS ALWAYS, INTERRUPT ME WITH QUESTIONS. I WANT TO HAVE THIS BE AS HELPFUL FOR THE COMMITTEE AND CONVERSATIONAL AS POSSIBLE.
SO, YOU KNOW, I THINK THE CURRENT MARKET THEMES CONTINUE TO... TO PRESENT THEMSELVES AS SHOWING A RESILIENT U.S.
ECONOMY, BECAUSE THE CONSUMER CONTINUES TO JUST SPEND. YOU KNOW, I WAS TELLING CHRISTINA EARLIER THAT IT'S REALLY INTERESTING, YOU KNOW, THE BEGINNING OF THE YEAR WAS MARKED BY, FRANKLY, MONDAYS, WHEN I'D GET OUT OF BED AND COME TO A COMMITTEE MEETING LIKE THIS. AND HAVE TO TALK ABOUT VENEZUELA BEING TAKEN OVER, OR GREENLAND BEING TAKEN OVER, AND, YOU KNOW, ALL THESE SORTS OF MACROECONOMIC THINGS, THESE NEWS EVENTS. HAVING, FRANKLY, A REAL EFFECT ON HOLDINGS THAT WE MANAGE ON BEHALF OF CLIENTS LIKE THE DISTRICT. SO WHAT I'LL DO NOW IS JUST GO OVER HOW THE QUARTER ENDED AND THEN TRY TO BRING YOU UP TO SPEED.
ON SOME OF THE MORE RECENT EVENTS THAT WE SAW TRANSPIRE SINCE THE BEGINNING OF THE CALENDAR YEAR.
INFLATION FROM OCTOBER THROUGH DECEMBER 31ST. WE THINK THAT THERE'S A BIT OF INFORMATION LAG. THERE WAS THE GOVERNMENT SHUTDOWN IN OCTOBER. AND BECAUSE OF THAT.
WHILE WE SAW INFLATION COME DOWN WITH RESPECT TO THE DATA WE HAD, IT DOESN'T REALLY JIVE WITH PERHAPS WHAT WE SAW WITH CLEAN DATA THROUGH SEPTEMBER OF LAST YEAR. I'LL BRIEFLY HIGHLIGHT THAT IN THE SLIDES. UNEMPLOYMENT, THAT DID CONTINUE TO TICK A BIT HIGHER, TO ABOUT 4.4%, BUT WE DID SEE.
THE DELAYED JOBS REPORT RELEASED THIS MORNING ACTUALLY SHOWED OUTSIZED JOB GROWTH OF ABOUT 180,000 NEW JOBS GAINED.
IN THE PAST MONTH, MORE THAN DOUBLE EXPECTATIONS FROM THE MARKET. UNEMPLOYMENT ALSO FELL TO 4.3%, WHICH FRANKLY, MAKES THE FED'S JOB MORE DIFFICULT WITH RESPECT TO SETTING MONETARY POLICY. IF UNEMPLOYMENT AND LABOR MARKETS CONTINUE TO BE STRONG, THE POTENTIAL SORT OF IMPETUS FOR LOWERING RATES REALLY MAY NOT BE THERE. SO, THAT SAID, AGAIN, REWINDING THE CLOCK TO THE QUARTER. YOU KNOW, THE FED DID LOWER RATES BY ABOUT 50 BASIS POINTS IN THE FOURTH QUARTER TO 3.5 TO 3.75. YOU KNOW, CHAIR.
POWELL CONTINUES TO EXPRESS HIS DESIRE TO REMAIN VERY RELIANT ON DATA AS IT LOOKS TO MAINTAIN ITS DUAL MANDATE FOR MAXIMUM EMPLOYMENT AND GOODS PRICE AFFORDABILITY. THE DOT PLOT WE SAW ALSO DURING THE QUARTER DIDN'T REALLY SHOW ANY CHANGES TO WHERE FED GOVERNORS EXPECT. THE TARGET RATE TO GO, BUT CURRENTLY MARKET PARTICIPANTS EXPECT AT LEAST ONE RATE CUT DURING THE YEAR. REWIND BEFORE THE JOBS REPORT THAT WE SAW THIS MORNING, MANY OF US WERE THINKING WE MIGHT SEE TWO.
REWIND TO THE PRIOR FOMC PRESS CONFERENCE IN JANUARY, FOLKS WERE PRETTY SET THAT WE WOULD SEE TWO. SO, AGAIN, THE VIEWS ARE SORT OF CHANGING AS DATA BECOME AVAILABLE.
WE LOOK TO THE TREASURY YIELD CURVE AS THE PRIMARY SORT OF DRIVER FOR ASSESSING RELATIVE VALUE ON U.S. TREASURY ASSETS, AS WELL AS THOSE SORT OF SPREAD PRODUCTS, ASSET-BACKED SECURITIES, CORPORATE BONDS, MORTGAGE-BACKED SECURITIES.
SPREADS WERE PRETTY TIGHT AS WE CONTINUE TO SEE, FRANKLY, A STRONG U.S. ECONOMY SUPPORTING CORPORATE FUNDAMENTALS AND THE VALUES
[00:45:01]
ON THESE BONDS GENERALLY CLOSE TO U.S. TREASURIES. BRIEFLY HIGHLIGHTING INFLATION, YOU KNOW, I KNOW THIS DATA MIGHT BE A BIT STALE, BUT WE WANTED TO JUST ILLUSTRATE THE LAG DATA. SO, YOU CAN SEE HERE CONSUMER PRICE INDEX INFORMATION ON THE LEFT SIDE OF THE PAGE, SHOWING A DROP TO ABOUT...2.6, 2.7 PERCENT, BUT WE THINK A LOT OF THAT IS DUE TO THE LAGGED DATA COLLECTION FROM, YOU KNOW, THE FEDERAL GOVERNMENT. WE LOOK TO CLEAN DATA ON THE RIGHT SIDE OF THE PAGE. THIS SHOWS THE THREE MONTH AVERAGE FOR KEY GOODS IN GREEN AND LAST YEAR'S PRICE INCREASES IN BLUE FROM 2024. YOU CAN SEE, FRANKLY, A LOT OF GOODS PRICES HAVE RISEN.
YOU KNOW, THIS, THIS DATA, THESE DATA DON'T REALLY JIVE WITH WHAT WE SEE ON THE LEFT SIDE OF THE PAGE.
RIGHT. SO, AND AS YOU PROBABLY THINK ABOUT YOUR OWN SPENDING, GOING OUT TO THE GROCERY STORE, DINING OUT AT RESTAURANTS, PERHAPS EVEN FUEL COSTS, YOU KNOW, THESE, THESE COSTS HAVE BEEN RISING.
SO WE'LL LOOK TO SEE PERHAPS CLEAN INFLATIONARY DATA IN THE COMING MAYBE MONTH, PLUS FEDERAL. OR THE CHAIR, CHAIR POWELL, HAD TALKED ABOUT.
PERHAPS THESE SORT OF DATA LAGS BEING IN THE REARVIEW MIRROR, BEGINNING PERHAPS AROUND NEXT MONTH. YEAH. JUST TO BE CLEAR ABOUT THE 2024 COLUMN, THE BLUE, IS THAT THE ANNUAL? YEAH, THAT'S RIGHT. STUFF WENT DOWN.
YEAH. BY THE END OF THE YEAR, THOSE THINGS, THOSE WERE THE VALUES. YEAH, SO THE GREEN THREE-MONTH AVERAGE IS, WHAT WOULD THAT BE? OR JULY, AUGUST, SEPTEMBER, WHEREAS YOU SEE... PRICES HAD GONE DOWN THROUGH 2024. AND KEEP IN MIND, THE TARIFFS WERE THEN ANNOUNCED, YOU KNOW, CALL IT EARLY APRIL 2025. AND PRICES HAVE REALLY KIND OF SHOWN INCREASE. YEAH, JUSTIN, I FIND THE SAME THING.
I JUST HEARD THIS MORNING, YOU KNOW, THAT, YOU KNOW, THE JOBS WENT WAY UP, PEOPLE ARE EXPECTING THEM TO GO DOWN. BUT THEN, HOW DO YOU DEAL WITH THE...
THE REPORT WAS 180,000 NEW JOBS, WHATEVER THAT MEANS. I DON'T KNOW WHAT IT MEANS.
BUT I ALSO HEARD IN THE SAME REPORT THAT LAST YEAR THEY REVISED IT. THEY GIVE A GREAT REPORT, SO YOU'LL GO VOTE FOR WHOMEVER YOU WANT TO VOTE FOR. AND THEN, SIX MONTHS LATER, WELL, WE REVISED IT. AND IT'S REALLY NOT AS HOW DO YOU DEAL WITH THAT? YOUR JOB IS TO FIGURE OUT WHERE TO GO WITH MONEY AND STUFF LIKE THAT. DOES THIS HAPPEN ALL THE TIME? THE JOB REVISIONS ARE FREQUENT. I MEAN, WE'VE SEEN THIS FROM TIME TO TIME. YOU MENTIONED, FOR EXAMPLE, LAST YEAR'S JOB GAINS, THOSE WERE REVISED DOWN TO 181,000 FROM 584,000. AS A COMPARISON, 2024 JOB NUMBERS, THOSE WERE ACTUALLY REVISED DOWNWARD TO 1.2 MILLION FROM 2 MILLION. SO, YOU KNOW, I THINK THAT, YOU KNOW, WITH RESPECT TO THESE SORTS OF JOBS REVISIONS, WE DO EXPECT THEM. THE DATA ARE REFINED, THEY'RE COLLECTED, THEY'RE LOOKED AT MORE CLOSELY. IT DOES SOMETIMES MAKE OUR JOB A BIT MORE DIFFICULT.
AT THE SAME TIME, I THINK THE LARGER SORT OF ELEPHANT IN THE ROOM ARE REALLY, AND WE'VE PROBABLY TALKED ABOUT THIS, JUST A SORT OF LARGER CONCERN SURROUNDING FED INDEPENDENCE, DATA COLLECTION, THOSE SORTS OF THINGS, BECAUSE THAT, FRANKLY, IS PROBABLY PRESSURING TREASURY YIELDS EVEN MORE AS YOU LOOK TO, FOR EXAMPLE, THE THIRD YEAR. NOT THAT WE'RE INVESTED IN THAT SPACE FOR THE DISTRICT, BUT IT DOES SHOW ITSELF IN YIELDS. ALL RIGHT, SO FLIPPING NOW TO THE OTHER SIDE OF THE FED'S DUAL MANDATE, RIGHT? WE TALKED ABOUT MAINTAINING GOODS PRICE AFFORDABILITY. NOW WE'RE TALKING ABOUT MAXIMUM EMPLOYMENT. SO ON THIS SIDE OF THE PAGE, YOU CAN SEE, AGAIN, MORE STALE DATA.
BUT IT'S REMARKABLE, AND WE SHOULD NOTE, THAT THOSE SORT OF DOGE-RELATED FEDERAL CIVIL SERVANT CUTS THAT WE'VE TALKED ABOUT. MAYBE, YOU KNOW, CALL IT AT THE BEGINNING OF LAST YEAR, WE ACTUALLY SAW THOSE NOW IN THE NUMBERS. THOSE NUMBERS DID FINALLY SHOW UP. ABOUT 173,000 JOBS WERE LOST IN THE GOVERNMENT SECTOR, AND THAT ULTIMATELY LENDS ITSELF AS A DRAG TO MONTHLY JOB GAINS THAT WE SAW PRIMARILY IN HEALTHCARE, WITH ABOUT 22,000 LOSS PER MONTH OVER THE PAST QUARTER. THE ONE OTHER AREA WE PROBABLY LOOK TO AS KEY IS THE UNEMPLOYMENT NUMBER. SO WE'VE TALKED, YOU KNOW, REWIND OVER A YEAR AGO, OUT AT 2024. WE TALKED ABOUT UNEMPLOYMENT BEING WELL BELOW 4%. IT'S SINCE THEN TICKED UP TO OVER 4%, HIT AS HIGH AS 4.5% MORE RECENTLY. ON THIS SLIDE, YOU CAN SEE IT'S NOW 4.4% IN DECEMBER. AS OF THIS MORNING, THE DECEMBER NUMBER IS 4.3%.
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WE THINK THAT NUMBER SEEMS TO BE RANGE-BOUND, RIGHT? SO IT'S BETWEEN 4, 4.5%, STILL WELL BELOW 25-YEAR AVERAGES OF 5.25%, 5.5%. HOW DOES THIS ALL SHAPE THE U.S. ECONOMY? YOU THINK ABOUT THESE TWO MANDATES FUELING GROSS DOMESTIC PRODUCT AND THE U.S. ECONOMY.YOU KNOW, YOU CAN SEE ON THE LEFT SIDE OF THE PAGE HOW GDP SHOOK OUT.
YOU REWIND AGAIN TO THE BEGINNING OF THE YEAR.
WE SAW A LOT OF GOODS IMPORTED AT THAT BRIGHT GREEN BAR AT THE BOTTOM OF Q1. THAT LENT ITSELF TO NEGATIVE GROWTH IN GDP, NEGATIVE 0.6 PERCENT.
BUT... THE RESILIENT CONSUMER, CONTINUED TO SPEND DOWN THOSE GOODS, CONTINUED TO SPEND. IN FACT, FOR THE THIRD QUARTER, WE SAW GDP REVISED UPWARD TO 4.4% FROM 4.3%, WHICH IS WHAT YOU SEE ON THIS PAGE. WE DON'T YET HAVE FOURTH QUARTER NUMBERS, BUT ONE WOULD EXPECT CONTINUED RESILIENCE AND CONTINUED GROWTH IN THE U.S. ECONOMY BASED JUST ON PRELIMINARY HOLIDAY SPENDING AND CORPORATE EARNINGS REPORTS WE'VE BEEN HEARING OVER THE PAST SEVERAL WEEKS.
ONE THING THAT I WANTED TO HIGHLIGHT, BECAUSE IT'S ALSO BEEN A TOPIC AMONG TALKING HEADS AND IN THE NEWS, IS THE K-SHAPED ECONOMY. SO WE TRIED TO ILLUSTRATE THAT ON THIS PAGE, RIGHT? ON THE RIGHT SIDE, YOU CAN SEE THE LOWEST QUARTILE INCOME BRACKET ILLUSTRATED BY THE BLUE LINE, AND THE HIGHEST QUARTILE INDICATED BY THE GREEN LINE. REWIND TO 2021, THE PANDEMIC, RIGHT? THERE WAS A LOT OF TALK ABOUT. INCREASING THE MINIMUM WAGE, HAVING A LIVING WAGE. AND THOSE SORTS OF DISCUSSIONS, FRANKLY, DIDN'T JUST IMPROVE WAGES FOR LOWER INCOME EARNERS, BUT IT REALLY HELPED EVERYONE.
AND WE SEE THAT IN THE DATA, RIGHT? SO UP THROUGH, CALL IT 2022, ALMOST 2023, EVERYONE WAS ENJOYING WAGE GROWTH.
SINCE THEN, WAGE GROWTH HAS DIMINISHED, PARTICULARLY FOR THE LOWEST QUARTILE EARNERS.
THAT BLUE LINE CONTINUES TO DESCEND DOWNWARD. WHEREAS THE HIGHEST QUARTILE OF INCOME EARNERS SEEMS TO HAVE PLATEAUED, THERE IS A BIT OF A DIP THERE. THE CONCERN HERE REALLY ALSO STEMS FROM CHAIR POWELL'S COMMENTS, WHICH ARE AT THE TOP OF THE PAGE IN THE QUOTE. THE TOP THIRD OF INCOME EARNERS ACCOUNT FOR WAY MORE THAN A THIRD OF CONSUMPTION. SO THE QUESTION IS, HOW SUSTAINABLE IS THIS? YOU KNOW, WE'LL CONTINUE TO SEE HOW FOLKS SPENDING, HOW THE CONSUMER MAY CONTINUE TO BE RESILIENT AS WE LOOK TO, YOU KNOW. GDP POTENTIALLY GROWING. I'LL BRIEFLY SHARE HERE ON THIS PAGE JUST SOME OF OUR SORT OF POSITIVE OUTLOOKS. I THINK THE NEGATIVE AND NEUTRAL INFORMATION HERE, I WOULD SAY, AREN'T SO HEAVILY WEIGHTED. I THINK AT THIS POINT IN TIME, AS WE LOOK TO EASING FED POLICY, WITH A POTENTIAL FOUR-RATE CUTS, AS WELL AS TAX RETURNS COMING, THE CONTINUED RESILIENCE OF THE CONSUMER AND JUST CORPORATE FUNDAMENTALS AND EARNINGS REPORTS REMAINING STRONG. I THINK THE TREND SEEMS TO BE THAT WE'RE IN A SORT OF POSITIVE MOMENTUM WITH RESPECT TO THE U.S.
ECONOMY. LOOKING AT THE JOBS REPORT TODAY, FOR EXAMPLE, MIGHT BE ONE INDICATOR OF THAT. SO I SPOKE EARLIER ABOUT HOW, YOU KNOW, DESPITE ALL THE SORT OF LAG DATA DURING THE QUARTER, PERHAPS WE'RE BEGINNING TO SEE IMPROVEMENT WITH RESPECT TO LABOR. THE FED IS PROJECTING, WITH RESPECT TO THIS SUMMARY OF ECONOMIC PROJECTIONS, NO REMARKABLE CHANGES IN UNEMPLOYMENT INDICATED BY THE BLUE BARS. PERHAPS, FRANKLY, SOME DECLINE IN INFLATION INDICATED BY THE BLUE BARS.
BY THE YELLOW BARS IN THE LOWER LEFT. AND ULTIMATELY, THAT SHOULD LEAD TO GROWTH IN GROSS DOMESTIC PRODUCT, NOW EXPECTED AT 2.3%, THE DARK BLUE BARS IN THE UPPER LEFT. THAT'S NOW UP FROM BELOW 2% WHEN WE LAST SPOKE ABOUT OCTOBER, OR, PARDON ME, SEPTEMBER. SO, YOU KNOW, WE'LL SEE. IT'S STILL THE BEGINNING OF THE YEAR. YOU KNOW, I THINK THAT WE SHOULD ALL BE SORT OF FORTHRIGHT AND REMAINING CAUTIOUS ABOUT HOW THE U.S. ECONOMY MAY SHAPE. AT THIS POINT IN TIME, THE FED STILL SEEMS TO BE PRETTY POSITIVE AS TO POSITIVE TRAJECTORY IN GDP.
TO THAT END, THOUGH, THERE STILL REMAINS DIVISION.
AS A REMINDER, THIS IS THE DOT PLOT SHOWING HOW FOMC MEMBERS THINK ABOUT WHERE MONETARY POLICY SHOULD HEAD. THERE WASN'T A REAL CHANGE IN THE MEDIANS FROM SEPTEMBER TO OCTOBER. THE REAL CHANGE IS IN THE SORT OF DISPERSION OF THE DOTS. YOU CAN SEE THERE'S MORE VERTICALITY IN 26, 27, EVEN 28 AND LONG TERM.
CERTAINLY, STEPHEN MIRREN, WE KNOW THAT HE'S BEEN VERY VOCAL ABOUT GETTING CLOSER TO 2% FOR TARGET RATES. AND YOU CAN
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SEE THAT IN THE 2026 COLUMN.BUT GOING FORWARD, YOU CAN SEE, AGAIN, VERY CLEAR DIVISION.
THERE'S A FAIR CAMP OF FOLKS WHO ARE CONCERNED THAT THE LABOR ECONOMY NEEDS TO BE SUPPORTED THROUGH YOU LOWERING THE TARGET RATE, WHEREAS OTHER FOLKS MIGHT STILL BE CONCERNED ABOUT INFLATION BEING DETRIMENTAL TO THE U.S.
ECONOMY AND FAVORING HIGHER RATES FOR LONGER. SO WITH THAT, I'LL PAUSE AGAIN TO SEE IF THERE ARE ANY QUESTIONS BEFORE MOVING INTO HOW THE MARKETS PERFORMED IN THE DISTRICT'S ACCOUNT. ANY QUESTIONS, COMMENTS FROM THE GROUP? JUST FOR LEVITY, SO AT WHAT POINT ARE WE GOING TO CONSIDER WHAT AI IS GOING TO DO TO EVERYBODY AND EVERYTHING IN THE WORLD? SO MY PARTNER WORKS IN THAT FIELD. SHE'S A COMPUTER SCIENTIST, AND SHE AND I OFTEN DEBATE, LIKE, YOU KNOW, THIS IS THE FUTURE. YOU KNOW, HER CODING IS REALLY JUST ALL AI NOW, AND SHE'S JUST VERIFYING CODE AS AI COMPLETES IT FOR HER, WHEREAS, IN MY VIEW, I CAN'T EVEN GET COPILOT TO SCHEDULE A MEETING FOR ME. SO, YOU KNOW, I DON'T KNOW. I MEAN, I THINK THE IMPETUS IS THERE FOR COMPANIES TO INVEST HEAVILY IN AI.
CERTAINLY, THAT MAY REDUCE THE COSTS ASSOCIATED WITH A HUMAN WORKER, WHETHER THEY BE BLUE OR WHITE COLLAR.
BUT, YOU KNOW, I THINK THE EXPECTATION IS THAT WE SHOULD SEE EFFICIENCIES IF AI DOES PROVE TO BE THIS VERY USEFUL TOOL THAT MANY OF US EXPECT.
OKAY. ALL RIGHT. SO ONE THING I THINK I'VE IMPRESSED ON THE COMMITTEE WAS TO PUT THE TWO-YEAR TREASURY YIELD AS LIKE A WIDGET ON YOUR PHONE. YOU KNOW, MAYBE YOU DIDN'T SEE IT BOUNCE AROUND AS MUCH THIS QUARTER, DESPITE ALL THE SORT OF NEWS ITEMS THAT WE SEE HERE.
BUT I WILL SAY, WITH RESPECT TO THE STRATEGY FOR THE PORTFOLIO, AS WE TALK TO DURATION, YOU MIGHT RECALL THAT WE'VE MAINTAINED A CONSERVATIVE STANCE SURROUNDING DURATION OF THE PORTFOLIO BEING NEUTRAL TO THE BENCHMARK. BECAUSE OF THE RATE ENVIRONMENT FALLING.
AS WE THINK, PERHAPS WE'RE NOW REACHING A POINT OF STABILIZATION AND NORMALIZATION IN YIELDS, AND YOU CAN SEE ON THIS SLIDE. THIS IS PROBABLY ILLUSTRATIVE. THE TWO-YEAR YIELD HERE IS GENERALLY MORE STABLE THAN WHAT WE SAW IN LAST QUARTERS, WHEN IT WAS DOWNWARD SLOPING.
WE MAY NOW CONSIDER EXTENDING DURATION ON THE PORTFOLIO.
TO CAPTURE HIGHER COUPONS, HIGHER YIELDS FOR LONGER, GENERATE MORE SUSTAINABLE AND LONGER INTEREST IN FOR THE DISTRICT. THAT MAY OCCUR OVER THE NEXT TWO QUARTERS, AND I'LL BEGIN REPORTING THAT OUT AS YOU SEE. A DURATION EXTENDED TO POTENTIALLY AS HIGH AS 110% OF THE BENCHMARK, WHEREAS I BELIEVE CURRENTLY IT'S MUCH CLOSER TO 100%. HERE YOU CAN SEE YIELDS. I MEAN, I THINK, YOU KNOW, THE DISTRICT MAINTAINS AN AMPLE LIQUIDITY POSITION AS IT THINKS ABOUT.
OVERNIGHT RATES AND ITS CAMP MONEY. AS YOU LOOK TO THE FAR LEFT SIDE OF THE PAGE, WE SEE THE THREE-MONTH AT ABOUT $3.63. THAT STILL MAINTAINS. IT'S PRETTY CLOSE THIS MORNING. BUT WITH ONE RATE CUT, THE THREE-MONTH $3.63 SHOULD BE MUCH CLOSER AT OR BELOW THE TWO-YEAR YIELD. SO THAT WOULD MEAN, IN MY VIEW, WE CERTAINLY MAINTAIN A BIAS FOR THE MANAGED STRATEGY. NOW CONTINUES TO BE A SOLID TIME TO BE INVESTING IN THE MANAGED STRATEGY. HERE YOU CAN SEE KIND OF LEANING INTO THOSE TIGHT SPREADS THAT I SPOKE ABOUT EARLIER, FOURTH QUARTER RETURNS ON THE LEFT SIDE OF THE PAGE.
TREASURY SHOWING 1.12. THAT MEANT INCREMENTAL INCOME AMONG SOME OF THE ASSETS WE PURCHASED FOR THE DISTRICT. WAS REALLY QUITE SKINNY, SO ABS SHOWING TWO BASIS POINTS ABOVE U.S. TREASURIES.
CORPORATE, SINGLE A'S AND HIGHER, SHOWING ABOUT SEVEN BASIS POINTS.
ABOVE U.S. TREASURIES. SO WE'VE BEEN VERY DELIBERATE AND CAREFUL ABOUT THE SORT OF ASSETS WE'VE BEEN PURCHASING AS WE NAVIGATE SWAPPING OTHER SECURITIES INTO THE PORTFOLIO.
OVER THE PAST YEAR, HOWEVER, OUR RETURNS STILL SEEM VERY SOLID. JUST ONE OTHER SORT OF SLIDE THAT I WANTED TO SHARE TO EMPHASIZE THE STRENGTH OF THE STRATEGY WE'VE DEPLOYED ON BEHALF OF THE DISTRICT. SO THIS, AGAIN, IS THE TWO-YEAR YIELD, BUT NOW SHOWING HISTORICAL LEVELS BACK THROUGH 2005. YOU CAN SEE THAT 347 AT DECEMBER 31ST CONTINUES TO BE HIGHER THAN FIVE, 10, AND 20-YEAR AVERAGES. SO, YOU KNOW... IN MY VIEW, I THINK THE STRATEGY CONTINUES TO WORK AS DESIGNED, AND YOU
[01:00:01]
SHOULD STILL FEEL COMFORTABLE IN MOVING ADDITIONAL ASSETS INTO THE STRATEGY AS YOU DETERMINE THE BEST COURSE OF ACTION FOR LIQUIDITY. SO I'LL JUST PAUSE THERE TO SEE IF THERE ARE ANY QUESTIONS BEFORE DIVING INTO NOW THE PORTFOLIO. ANY OTHER QUESTIONS? ANYBODY WITH QUESTIONS, COMMENTS? OKAY. NO, I THINK, JOHN. SO THIS MORNING, ACTUALLY, I RAN ACROSS SOME, I DON'T KNOW WHAT YOU'D CALL IT, COMMENTARY, MAYBE ABOUT THE FUTURE VALUE OF THE DOLLAR AND HOW ACTUALLY THE PHRASE THAT WAS USED IS THE FED'S, AND I SAY THIS, I'M JUST GOING TO SAY IT LIKE, I'M A MONKEY.THE FED IS GOING TO CRASH THE DOLLAR. I'M NOT SURE WHAT THAT MEANS. BUT IT'S PORTRAYED AS BEING A DISASTROUS THING FOR THE ECONOMY. THIS IS JUST OBVIOUSLY COMMENTARY. SO NOW I WANT YOU TO COMMENT ON THAT. I GUESS THE QUESTION IN THERE IS, IS SUCH A THING REMOTELY POSSIBLE? IS IT LIKELY? IF IT IS, HOW WOULD WE DEAL WITH THAT? HOW CAN WE DO TO MITIGATE THE EFFECTS OF SOMETHING LIKE THAT? YEAH, THANK YOU FOR RAISING THAT. I MEAN, I...
WELL, NOW THAT I HEAR IT OUT LOUD DURING THE COMMITTEE, AS I THINK ABOUT WHAT WAS SAID, THE FED REALLY DOESN'T SPEAK TO, FOR EXAMPLE, THE DOLLAR.
THAT'S REALLY THE TREASURY SECRETARY. THE FED MERELY SETS MONETARY POLICY, SO THEY HAVE NOTHING TO DO WITH THE DOLLAR, FIRST OF ALL. BUT, YOU KNOW, AS I THINK ABOUT, YOU KNOW, THE, I'M GOING TO SAY, THE SELL AMERICA TRADE THAT WE SAW KIND OF DEVELOP AFTER TARIFFS WERE ANNOUNCED.
AND THE LIBERATION DAY SORT OF EVENTS, YOU KNOW, I THINK THAT THE U.S. ECONOMY HAS BEEN DINGED QUITE A BIT, YOU KNOW, WITH RESPECT TO THE U.S. DOLLAR. AND, FRANKLY, THE SORT OF UNPREDICTABLE NATURE I TALKED ABOUT IN THE BEGINNING OF OUR CONVERSATION, WAKING UP ON MONDAYS.
ABOUT ALL THIS SORT OF MACROECONOMIC, GLOBAL, GEOPOLITICAL NEWS THAT WE HAVE TO CONTEND WITH, YOU KNOW, REALLY KIND OF FUELING THAT.
YOU KNOW, I THINK IT'S NATURAL THAT FOLKS ARE PROBABLY CALLING INTO QUESTION THE U.S.'S.
POSITION IN THE FINANCIAL MARKETS.
WITH RESPECT TO THE DISTRICT'S PORTFOLIO, BECAUSE OF THE REQUIREMENTS OF SAFETY, LIQUIDITY, FOLLOWED BY SOME YIELD, WE STILL VIEW U.S. TREASURY MARKETS AND THE DOLLAR AS PERSISTING, STILL THRIVING. THE DOLLAR CONTINUES TO BE THE WORLD'S RESERVE CURRENCY FOR MANY CENTRAL BANKS OUTSIDE OF THE U.S. AND, SIMILARLY, THE U.S. TREASURY, THOSE SORTS OF BONDS THAT WE PURCHASE ON BEHALF OF THE DISTRICT, ALSO STILL ARE VIEWED AS THE THE PRIMARY STANDARD FOR SAFETY AND LIQUIDITY. WE HAVEN'T SEEN THE DISLOCATIONS IN THE MARKET THAT WE SAW DURING THE GREAT FINANCIAL CRISIS IN 2008. SO I THINK, YOU KNOW, WHAT YOU HEARD ON THE RADIO, THAT'S FAIR. YOU KNOW, WAKING UP EVERY, YOU KNOW, AFTER A WEEKEND OR JUST OPENING THE NEWSPAPER DOESN'T MAKE OUR JOBS EASIER. BUT, YOU KNOW, IT'S CERTAINLY A CONCERN THAT WE DO TRY TO KEEP IT CLOSE. RIGHT. ANY OTHER QUESTIONS FROM THE COMMITTEE? ELIZABETH, GO AHEAD. YEAH, I DON'T HAVE A QUESTION, BUT I WANTED TO THANK YOU FOR YOUR REPORT, JUSTIN. IT'S VERY, VERY INTERESTING AND SLIGHTLY MORE POSITIVE THAN I WAS EXPECTING. SO THAT'S GOOD.
AND ALSO, WELCOME TO CHRISTINA. GLAD TO HAVE YOU ON BOARD OR BACK ON BOARD.
THANK YOU. THANK YOU. ALL RIGHT. SO I'LL NOW PIVOT TO THE PORTFOLIO OF THE DISTRICT, YOU KNOW, AND, YOU KNOW, I MENTIONED EARLIER THAT, YOU KNOW, ALL OF THESE SORTS OF FACTORS WE'VE TALKED ABOUT RELATED TO THE FED'S DUAL MANDATE REALLY IMPACT HOW WE STRATEGIZE AROUND THIS INVESTMENT PORTFOLIO. YOU CAN SEE ON THIS PAGE, THE TOTAL PROGRAM HAS RISEN TO 176.4 MILLION. AS WE LOOK TO ABOUT A YEAR AGO, IT WAS ABOUT $160 MILLION LESS THAN THAT, OR $160 OR SO. SO THERE CONTINUES TO BE NICE APPRECIATION IN MARKET VALUE FOR THE PORTFOLIO. I MENTIONED EARLIER, THAT DURATION IS PRETTY CLOSE TO 100% OF THE BENCHMARK, WHICH IS THE ONE- TO FIVE-YEAR U.S. TREASURY INDEX. SO YOU CAN SEE HERE 2.49 YEARS RELATIVE TO 2.54.
SO THIS IS ABOUT 98% OF THE BENCHMARK. OUR EXPECTATION IS MAYBE OVER THE NEXT QUARTER OR TWO, WE'LL BEGIN TO EXTEND THIS OUT FURTHER SO THAT WE CAN CAPTURE COUPONS THAT ARE HIGHER
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FOR LONGER. YIELD AT COST, THIS REPRESENTS THE YIELD ON THE PORTFOLIO EARNED OVER TIME IF WE WERE TO HOLD ALL THE SECURITIES THROUGH THEIR MATURITY. THAT WAS 4.29 AT QUARTER END. AND RELATIVE TO LAST YEAR, IT WAS... 4.15. YIELD AT MARKET, THAT REPRESENTS THE YIELD ON THE PORTFOLIO IF WE SOLD IT ENTIRELY AT THE END OF THE QUARTER. THAT WAS 3.77.AND REWIND TO ONE YEAR AGO, IT WAS 4.15. THAT'S EXPECTED AS YIELDS HAVE FALLEN OVER THE PAST YEAR. CREDIT QUALITY CONTINUES TO REMAIN QUITE HIGH, WITH HOLDINGS RATED AA AND HIGHER ACCOUNTING FOR 67% OF THE PORTFOLIO. YOU'LL NOTICE THERE IS A SLIVER OF GREEN IN THAT PIE CHART IN THE LOWER LEFT, SHOWING NOT RATED HOLDINGS ABOUT 5%. THAT IS BECAUSE OTHER RATING AGENCIES, LIKE MOODY'S OR FITCH, MAY RATE THE HOLDINGS OF THE DISTRICT. THIS PIE CHART ONLY SHOWS S&P RATINGS. I'LL SPEAK TO SECTOR ALLOCATIONS ON THE NEXT SLIDE. OR, ACTUALLY, MAYBE IT'S NOT HERE.
I'LL BACK UP. SECTOR ALLOCATIONS. YOU KNOW, AS CHRISTINA MENTIONED EARLIER, THEY'VE BEEN RELATIVELY STABLE.
U.S. TREASURIES CONTINUE TO DOMINATE THE PORTFOLIO AT ABOUT 40% OF THE HOLDINGS.
THAT SAID, CORPORATE BONDS HAVE REMAINED PRETTY STABLE AT 27%, AND AGENCY COMMERCIAL MORTGAGE-BACKED SECURITIES, AGAIN, ALSO STABLE AT 15%.
PORTFOLIO ACTIVITY. SO WE'VE MADE SEVERAL PURCHASES DURING THE QUARTER ABOUT, LET ME SEE HERE. $5 MILLION IN U.S. TREASURIES, $5.1 MILLION IN CORPORATE BONDS, INCLUDING META, ALPHABET, NOVARTIS, SHELL, AND TRUIST BANK. $2.3 MILLION IN AUTO ASSET-BACKED SECURITIES. THAT INCLUDES VOLKSWAGEN, HYUNDAI, CHASE AUTO, TRUST, AND CAPITAL ONE AUTOS, AND THEN SOME FEDERAL HOME LOAN MORTGAGE CORPORATION BONDS. THOSE ARE THE AGENCY COMMERCIAL MORTGAGE-BACKED SECURITIES, TOTALING ABOUT $2 MILLION. AND NOW WE SHOW ON THIS SLIDE PERFORMANCE. SO IN PAST QUARTERS, I'VE HIGHLIGHTED THE INTEREST EARNED. YOU'LL SEE $1.7 MILLION EARNED THIS QUARTER. AND I'LL TURN BACK TO THAT NUMBER IN A MOMENT, BUT YOU ALSO SEE MARKET VALUES GAINED OF ABOUT $274,000, ALL LENDING TO TOTAL DOLLARS IN EXCESS OF $2 MILLION DURING THE THREE-MONTH PERIOD.
THAT SHOWS TOTAL RETURN FOR THE PORTFOLIO OF 1.16%, OUTPERFORMING THE BENCHMARK BY FOUR BASIS POINTS. THE IMPORTANT THING THAT I WANTED TO TURN BACK TO WAS THAT.
INTEREST EARNED NUMBER, 1.7 MILLION, STILL CONTINUES TO OUTPACE ALL OF THE PRIOR PERIODS ON A QUARTERLY BASIS. SO WE'VE CONTINUED TO BENEFIT FROM THOSE HIGHER COUPONS THAT WE PURCHASED OVER THE PAST SEVERAL YEARS AND EVEN THIS QUARTER.
AND AS YOU LOOK TO TOTAL PRIOR RETURNS, WE CONTINUE TO SHOW OUTPACED RETURNS RELATIVE TO THE BENCHMARK.
ON AN ACCRUAL BASIS, WE HAVE THE SAME NUMBERS FOR INTEREST EARNED HERE, AS WELL AS REALIZED GAINS AND LOSSES AND CHANGES IN AMORTIZED COSTS.
CERTAINLY, YOU KNOW, SOME OF THE SORT OF DECLINES THAT WE SAW AS RATES ROSE RAPIDLY ARE STILL CAPTURED IN THOSE REALIZED LOSSES. YOU SEE ON THE PAGE. BUT WE THINK WE'RE SLOWLY CLIMBING OUT OF THAT. AND THIS QUARTER, WE SEE REALIZED GAINS. SO BEFORE I PROCEED ON TO ESG REPORTING, ARE THERE ANY QUESTIONS ABOUT THE PORTFOLIO? OKAY, ALL RIGHT. SO, AS USUAL, ONE OF THE ADDITIONAL MANDATES FOR THE DISTRICT IS MEASUREMENT AND ASSESSMENT OF THE RISK.
OUTSIDE OF PERFORMANCE RELATED TO ENVIRONMENTAL, SOCIAL, AND GOVERNMENTAL GOALS THAT THE DISTRICT HAS IN ITS INVESTMENT POLICY. HERE YOU CAN SEE THAT THE UNIVERSE OF THOSE ASSETS THAT ARE COVERED BY THE ESG POLICY ACCOUNT FOR 60%. OF THE PORTFOLIO, OR 106.2 MILLION. THAT IS, LET ME SEE HERE, UP FOR ABOUT THE SAME AS LAST YEAR, WHEN IT WAS 60% OR $100 MILLION. THE RISK RATING CONTINUES TO BE LOW. IT IS NOW 19.1 WITH RESPECT TO THE SCORE, BUT THAT IS UP SLIGHTLY FROM LAST QUARTER, WHEN IT WAS 18.8 AND BUT DOWN FROM A YEAR AGO WHEN IT WAS 19.7. AS THE DURATION ON THE PORTFOLIO IS AROUND TWO YEARS, WHICH IS RELATIVELY SHORT, ONE SHOULDN'T BE SURPRISED THAT THERE WILL BE THESE SORT
[01:10:01]
OF PERIODS OF INCREASES AND DECREASES TO THIS RISK RATING. ONE AREA WE ALSO WANTED TO PRESENT WAS THE DIVERSIFICATION STRATEGY AND THE RISK RATINGS ASSOCIATED WITH THOSE. SO YOU CAN SEE HERE. THE BLUE BARS AND THE BLUE NUMBERS SHOWING THE ESG RISK RATING FOR THE 17 DIFFERENT INDUSTRY EXPOSURES RELATIVE TO PORTFOLIO WEIGHTING, WHICH IS CAPTURED BY THE BLACK DIAMONDS ON THE PAGE. HERE, YOU CAN SEE.THE BANK INDUSTRY'S RISK RATING IS HIGHLIGHTED BECAUSE OF THE OUTSIZED PORTFOLIO WEIGHT, ACCOUNTING FOR OVER 40% OF THE DISTRICT'S PORTFOLIO.
TYPICALLY, ISSUE MORE FREQUENTLY THAN OTHER COMPANIES INTO THE FIXED INCOME MARKETS, AND THAT RATING WAS 18.8, AND THAT IS SLIGHTLY UP FROM 17.9, BUT STILL WITHIN THE LOW ESG RISK RATING CATEGORY. THE HIGHEST RISK RATING IS OIL AND GAS THIS QUARTER. YOU MAY RECALL, PREVIOUSLY, IT WAS AEROSPACE AND DEFENSE DUE TO LOCKHEED MARTIN. THIS QUARTER, IT IS NOW 31.4 DUE TO A HOLDING OF SHELL BONDS THAT WE'VE ADDED TO THE PORTFOLIO. THE SECTOR ANALYSIS SHOWS THE RANGE OF THE ESG RISK RATINGS RELATIVE TO THEIR AVERAGES. IT SHOULD BE NO SURPRISE THAT CORPORATE NOTES REPRESENT THE LARGEST DIVERSITY OF SCORES ACROSS ESG RISK, AND THAT AVERAGE IS 18.5.
WITH RESPECT TO ASSET-BACKED SECURITIES, I SHOULD ALSO MENTION THAT IS THE HIGHEST WITH RESPECT TO THE AVERAGE RATING AT 19.7.
BECAUSE THOSE ASSETS ARE PRIMARILY AUTO-RELATED, AUTO LOANS, AUTO LEASES, AND THOSE SECURITIZED PRODUCTS.
LASTLY, WE WANTED TO ILLUSTRATE ESG RISK RELATIVE TO FUNDAMENTAL CREDIT RATINGS AS ASSESSED BY STANDARD & POOR'S. AND YOU CAN SEE HERE.
THE LOW ESG RISK RATING HOLDINGS ACCOUNT FOR $55 MILLION OF THE DISTRICT'S PORTFOLIO, WHEREAS HIGHER RATED AA AND HIGHER HOLDINGS THAT ARE LOW ESG RISK RATED ACCOUNT FOR ABOUT $30 MILLION. THE LOWEST ESG RISK IS AMONG COMMERCIAL PAPER AT THIS POINT IN TIME, SHOWING 15.5 AT THE BOTTOM OF THE PAGE, WHEREAS THE MAJORITY OF HOLDINGS IN THE AA CATEGORY ARE RATED 18.7. LASTLY, WE HAVE NAMES OF THE TOP 25 ISSUERS. YOU CAN SEE CISCO WITH THE LOWEST HERE, 10.2 IN COMMUNICATIONS. AND I MENTIONED EARLIER, THE HIGHEST RISK RATING, 31.5 HERE OF, OR 31.4 HERE OF SHELL. AND THEN WE ALSO SEE PACKARD AT 31.5. AND I'LL INVITE ANY OTHER FINAL QUESTIONS BEFORE I TURN IT BACK TO CHRISTINA. ANY QUESTIONS? I CAN'T RECALL, SINCE I'VE BEEN ON THIS COMMITTEE, WE'VE BEEN RECEIVING THIS INFORMATION AND THE DISTRICT'S BEEN DOING IT FOR SEVERAL YEARS, I KNOW.
HAVE WE ALWAYS BEEN IN THE LOW, THE OVERALL AVERAGE ALWAYS BEEN IN THE LOW, OR HAVE WE MOVED INTO THE, IS THAT THE DIRECTION THAT WE'RE GOING? AND THE SECONDARY PART OF THAT QUESTION IS, DO WE HAVE POTENTIAL FOR RESPONSIBLY BEING ABLE TO MAKE IT EVEN LOWER? THANK YOU FOR THAT QUESTION. FIRST OF ALL, I SHOULD SAY, OF THE MANY CLIENTS THAT I COVER HERE IN CALIFORNIA, THIS IS ONE OF THE MOST IMPORTANT CLIENTS THAT I'VE EVER HAD. I MEAN, ONE OF THE AGENCIES THAT MAINTAINS THIS SORT OF POLICY. SO YOU SHOULD FIRST BE VERY PROUD OF WHAT YOU DO. NOT ALL AGENCIES DEPLOY THIS LEVEL OF SCRUTINY ON THEIR INVESTMENT PORTFOLIO.
THE PORTFOLIO HAS BEEN IN THE LOW CATEGORY SINCE JUNE OF 2024. IT CROSSED INTO THAT FROM 20.5 IN MARCH OF 2024 AND 21.3 IN DECEMBER OF 2023. SO THAT WOULD, TO ILLUSTRATE ON THIS SLIDE, SCORES IN THE 20S ARE ESSENTIALLY MEDIUM RISK RATED, WHEREAS ONCE YOU'RE IN THE 10S, YOU'RE IN THE LOW RATING. I DON'T THINK WE'LL, FRANKLY, EVER GET TO THE NEGLIGIBLE AREA UNLESS PERHAPS WE RID OF, SAY, CORPORATE BONDS AND ASSET-BACKED SECURITY BONDS. I DON'T THINK THAT REALISTICALLY FALLS IN LINE WITH THE DISTRICT'S CURRENT INVESTMENT PORTFOLIO. BUT, YOU KNOW, THAT SAID. YOU KNOW, WE ARE COVERING A LARGE SWATH OF THE PORTFOLIO. YOU KNOW, I TALKED EARLIER ABOUT HOW THE MAJORITY
[01:15:01]
OF THE INVESTMENTS ARE IN U.S.TREASURIES. AND YOU CAN SEE THAT HERE. FORTY PERCENT ARE NOT RATED BECAUSE THOSE ARE NOT ASSESSED BY OUR ESG RISK RATING TOOLS.
THE U.S. GOVERNMENT AND THEIR ASSOCIATED ISSUANCES ARE, YOU KNOW, DON'T? WE DON'T VIEW THEM AS PRESENTING ESG RISK. BUT, YOU KNOW, WE'LL CONTINUE TO TRY HARDER. I MEAN, THERE ARE CERTAINLY OTHER WAYS WE CAN ENGAGE WITH STAFF ON POTENTIALLY IMPROVING THIS SCORE GOING FORWARD. NO, AND THAT'S WHY I QUALIFIED MY STATEMENT WITH RESPONSIBLY, BECAUSE YOU CAN TAKE IT TO THE ABSURD, YOU KNOW, AND IT'S NOT IN THE PUBLIC'S BEST INTEREST, REALLY. BUT I WAS JUST CURIOUS TO KNOW WHAT THE DIRECTION WAS.
I FRANKLY DID NOT REMEMBER THAT, ALTHOUGH I WAS ON THE BOARD. I WAS ON THIS COMMITTEE AT THAT TIME.
BUT I THINK NOW... WE SHOULD BE EXTREMELY PROUD OF THAT ACHIEVEMENT THAT WE'VE MADE OVER TIME. THANK YOU. YEAH, ABSOLUTELY. AND I SHOULD SAY I DIDN'T REMEMBER IT OFF THE TOP OF MY HEAD. FORTUNATELY, I HAD MY NOTES. SO THANK YOU. WELL, AND I CAN'T MISS THIS ONE. AND I FULLY SUPPORT THIS ESG, BY THE WAY. BUT CONVERSELY, IF WE JUST SAID, HECK WITH IT, WE'LL GO ALL IN ON LOCKHEED MARTIN AND CIGARETTES AND BOOZE. WOULD WE DO BETTER? I MEAN, AND YOU SUGGESTED THAT A CERTAIN AMOUNT OF AGENCIES, A LOT OF AGENCIES IN CALIFORNIA DON'T DO WHAT WE DO.
WHAT'S THE DIFFERENCE? OBVIOUSLY, IT DEPENDS ON WHAT YOU INVEST IN AND HOW MUCH YOU WANT TO MAKE VERSUS HOW MUCH RESPONSIBILITY YOU WANT TO HAVE. YEAH, AND THANK YOU FOR ENGAGING WITH ME ON THIS.
BECAUSE I THINK A LOT OF AGENCIES TEND TO THINK THAT DEPLOYING AN ESG STRATEGY MIGHT BE DETRIMENTAL TO TOTAL PERFORMANCE, AND THAT RELATED TO A BENCHMARK. LIKE, FOR EXAMPLE, YOU MIGHT GIVE UP ONE, TWO, THREE, FOUR, FIVE BASIS POINTS. THAT, IN FACT, IS NOT THE CASE.
LONG-TERM STUDIES HAVE SHOWN THAT AN ESG STRATEGY CAN ACTUALLY OUTPERFORM A NON-ESG STRATEGY BY ABOUT ONE BASIS POINT.
IN GENERAL, WITHIN THESE SORT OF...
FIVE-YEAR AND IN FIXED INCOME PORTFOLIOS.
SO, CONTRARY TO WHAT YOU'RE PRESENTING, AND I'M ALSO SURPRISED. FROM WHAT I UNDERSTAND AND THE DATA WE'VE GATHERED, THESE ESG STRATEGIES ACTUALLY OUTPERFORM NON-ESG STRATEGIES. THAT IS GREAT TO HEAR. THANK YOU. ALL RIGHT. SO WITH THAT, I'LL ALLOW CHRISTINA TO HOP ON. THANK YOU, JUSTIN.
AND I THINK WE'RE JUST LOOKING FOR A RECOMMENDATION FROM THE BOARD TO ACCEPT OR TAKE TO THE FULL BOARD.
RECOMMENDATION FROM THE COMMITTEE TO TAKE TO THE FULL BOARD. I WILL GET THERE EVENTUALLY WITH THE TERMINOLOGY. SURE.
THAT'S EXCELLENT, AND WE WILL BE THERE.
BUT DO WE HAVE ANY QUESTIONS, MORE QUESTIONS OR COMMENTS FROM BOARD MEMBERS? AND THEN WE'LL GO TO OPEN. NO QUESTIONS? I'M DONE. JUST TO COMMENT, YEAH, I'M VERY PLEASED TO HEAR THAT. WE CAN DO WELL AND ALSO DO RIGHT WITH THE ESG STRATEGY AND OUTPERFORM THE NON-ESG. SO THANK YOU FOR THAT, JUSTIN. I TRULY AGREE WITH DIRECTOR ECHOLS. ARE THERE ANY COMMENTS FROM THE PUBLIC? NO PUBLIC COMMENT. HEARING NONE, I WILL ENTERTAIN A MOTION TO ACCEPT THIS AND MOVE IT FORWARD TO THE FULL BOARD. I WILL MOVE THAT. THE BOARD FINANCE COMMITTEE RECOMMEND TO THE FULL BOARD OF DIRECTORS ACCEPTANCE OF THE DECEMBER 31, 2025 INVESTMENT REPORT. SECOND. WE HAVE A MOTION BY DIRECTOR ECHOLS. CURIO AND A SECOND BY DIRECTOR ECHOLS. HEARING NO FURTHER DISCUSSION, MADAM CLERK, WOULD YOU DO A ROLL CALL? DIRECTOR ECHOLS? AYE.
DIRECTOR WASPIE? AYE. MOTION PASSES, UNANIMOUSLY. THANK YOU VERY MUCH, JUSTIN. THANK YOU VERY MUCH, CHRISTINA.
WE'RE THERE, RIGHT? I FORGOT TO ASK JUSTIN OF ANY FUN HIKES YOU TOOK IN THE PARK DISTRICT, BUT I'LL CATCH YOU OFFLINE.
ANYBODY HAVE ANY ANNOUNCEMENTS? I DO NOT HAVE ANY ANNOUNCEMENTS. ANYBODY HAVE ANY ANNOUNCEMENTS FOR THE GOOD OF THE ORDER? HEARING NONE, IN THAT CASE, WE ARE ADJOURNED. THANK YOU.
* This transcript was compiled from uncorrected Closed Captioning.