Audit Committee - Regular Meeting

You there? Hello? Great. Let's start. Do have a roll call?

Committee Member Moore? Present. Chair Member Wu are absent. Vice Chair Mohan? In. Chair Schmitt. There.

Great. We've got a quorum. And welcome, everybody, to the New Year and the Audit Committee of '20 twenty five, I guess. We'll call it that. Lots of good stuff. Orders of the day. I always wonder what those are, but I don't think we have any. So it's on our agenda. But the approval of the minutes, let me ask if everybody's read those or Sheila

I

have. Or have you had a chance to read the minutes?

I'll be abstaining, but you'll still be able to pass it with the two.

Yeah. I see. I see. Okay. Okay. So and meeting member of Hong Kong.

To approve the minutes.

Okay. And the one adjustment that I wanted to make

I saw that.

Got it. So okay. So your motion is to approve the minutes as adjusted by city staff.

Moor, second.

Okay. Great. Got it. Let's take a vote. All in favor? Aye.

Aye.

Thanks, everybody. World Communications. We may have some. I don't know if we have any on YouTube either. I guess we don't have them because somehow it's a high gear that they will dissipate. But we do have them. I don't know if you have desk.

I'll just take the the time to introduce. Yeah. Alright. This is Richard. He is our new senior accountant.

Oh, fantastic. Awesome.

Quite some time. Eighteen years? Yes. Eighteen years as an accountant. So he's he's stepped up as as Beth has separated from the city. So he will whenever I'm not around, he'll be my well, he's my right hand person. So stepping into my shoes at that one needed.

Fantastic. Welcome. Congratulations, and welcome. And sorry I didn't recognize you.

You're a long standing member of the team. Okay. That's very good. Which brings us to just to confirm, we're going to follow our agenda because everybody's timing is consistent with that. Great. So, first item is item number two, receiving the OPEB and pension section 115 trust performance report for quarter ending 12/31/2024. And usually what we do is hand this over to PARS or US Bank, or I think I saw her on the screen there. Mhmm. So you wanna kick us kick it off, Jennifer or Jonathan?

Jonathan, I apologize. Do you see Keith Stribling in the waiting room?

No. Let's take a quick peek. I don't

Let me see.

I'm connecting with video.

For your patience, just typically don't have this files. Yeah.

I will.

Live streaming button part too important. So I'm sure video can take the the live stream and port this over to the. Now I can invite to the panelists. Yeah. There's one.

Angela. No.

Keith, can you hear us?

Looks like we can't hear Keith either.

Looks like he did unmute.

Can you unmute him?

Sorry.

Can you see on?

Keith is on. Keith and Angela did join us. This Keith, it looks like we may have some audio issues.

Are you guys able to hear me okay?

Yes. You can hear Angela. Thank you.

Okay.

Different Angela. That's not not different.

And you just can't hear Keith?

No. He's having some issues. He just logged off, so he's probably gonna try to log back in. Hi.

Can you hear me?

Oh, yes. Awesome.

And there's my video. Oh, you know, it was funny. I was trying to figure out where my video was too. There we go.

Well, welcome, Keith. You've, heard for the technical problems. Happy New Year

to everybody. Great.

Angela, we've got all three of you on the screen in the Okay.

Perfect. Well, thank you all so much for having us today. Dennis Mullens was unable to be here for today's meeting, but in any place, Keith Stribling from PFM is gonna be presenting today's report.

Great.

K. Keith, you can go ahead.

Great. So I'm not seeing anything right now, weirdly.

Okay. I have the presentation up to slide eight.

I can't, see the presentation for some reason. So I'm not sure what slide eight is. Can everybody see the presentation except me?

Here. So, Keith, we have page eight of the the bars with US Bank statement.

Okay. So I'm I'm hang on a sec. Let me just see if I can I'm gonna pause for a second here and try and find the presentation in my email and open up my own copy so that I can see what page we're on. I'm sorry. I for some reason, it's not I'm not seeing the presentation.

Alright. Okay. Alright. I've got it. I'm not gonna have my video on so I can toggle in between, so I can look look at this, presentation. I hope you don't mind.

Sure, Keith. If we can

yeah. Sorry sorry about that. Don't know what's going on. But so we don't waste a lot of time. Let's start on page 13, lucky 13. That would be the performance page for the OPEB plan. Alright. So things to highlight in here. First thing I would mention is we recognize that we have the S and P 500 as the benchmark. And, if we're looking at the previous slide, the a MSCI AC World Free Index is the, actual benchmark.

So I will make sure that my colleagues add that as a line item at the top in the in future presentations and also make sure they have that under the equity comparison. Just looking at it, you can see last quarter was basically a a change of administration that caused a lot of changes in the in the financial markets, including a higher interest rates. And so things like bonds down two and a half percent, which outperformed the benchmark down 3%, but still negative. And interest rate sensitive rates in were negative as well. So that kinda dragged down the portfolio returns.

Also, the only thing that was really and, also, foreign equities were negative, but that was probably mostly just dollar appreciation. So dollar can have a big impact on the value of currencies and returns for foreign equities. And in this case, higher interest rates, higher growth rate equaled stronger dollar, which equaled which hit international returns. Generally speaking, you can see over the the inception to date time period, portfolio compounding at almost 7%, so it's doing quite well. Looks to be under the benchmark.

I'm assuming that's the benchmark, seven and a half percent. Of course, don't have the history on that portfolio, so I don't I can't really speak to that too much. But regardless, whether it's in line or not, 7% is a pretty good return. This one is a balanced strategy, so it's a sixty forty mix of stocks and bonds. I'm just gonna talk briefly about I apologize for my voice.

I have a bit of a cold today. So I'm just gonna talk briefly about the economy, the change in the economy, and how that might impact holdings. So we got a change of administration in November, and it is a more pro you know, the Trump policy direction would be more pro growth agenda. Things like tax cuts and government regulations are stimulated to the economy. Immigration and tariffs are potentially inflationary to the economy.

He's also called for lower interest rates, so that would be stimulative to the economy as well. So his policies are generally potentially inflationary and pro growth. This could cause force the Fed to pause its foreseeable interest rate cuts as yield curve, you know, has steepened a bit and, is no longer inverted. We are basically positioned neutral to the strategic asset allocation, looking at the risks of the Fed having to stop lowering rates, inflation picking up, global unrest, balancing that with fundamentals that still favor a soft landing, no recession, and accelerating growth. So between those two, we kinda come down right down the middle.

Any questions before I leave this area?

Yeah. Keith, I think this is usually a great, slide to ponder if that's we'll open it up to our if if other committee members have anything, I'll jump in. I do have some questions. I'm glad you prefaced by saying we've got the S and P index on this particular slide, and you're going to look in or the team will into having it match the benchmark, which is on on the slides that that we've had for years. But but I got a couple questions on on looks like if if you just look at the year column, which sort of filters out maybe last election type of results that you're alluding to, which pretty volatile.

But for the whole year, yeah, it's pretty amazing to me. The total fixed income seems to have been 2.53% that the city achieved, whereas the index was, if I'm reading that correctly, the BBRC, I think, or however you pronounce that, BBRC Global Ag, so minus 1.69 for the entire year. So I'm kind of curious what, first of all, comprised that difference. Why why did the Citi do so much better than the index?

Yeah. So that's a good question. And what I would say is the the Barclays Global Aggregate Index is, includes foreign bonds. So US, you know, that's gonna have a impact from, the dollar strengthening. Whereas if you look at the Barclays Ag, it's just US, and it's a little bit more at least it's directionally the same. It's still below the, you know, the the portfolio still outperformed it, but, it it's a little bit more correlated.

So the Citi just to just so I sorry. I'm going slow. I gotta sip some more talk. So I guess the index, the b bark has foreign bonds in it. And Global

one. Yes. Mhmm. Because they're both Barclays Bloomberg aggregate bond index.

Yeah. Which is a good quest while we're on that, I'm not sure why you're including the b bark US aggregate then since got on So

what I would say is there's no downside in like, if I were I were doing this, I would add your appropriate benchmark to the equities. I might keep these other benchmarks also so that we could talk about what worked and what didn't. So you can see, for example, for the year, S and P 500 up 25%, small cap stocks up 8.7%. So to the extent you had anything other than the S and P, which is overweight and the magnificent seven, you're gonna underperform that benchmark. And I I don't actually know what what your index return was, but, you know, that you know, it's a it it would be a way just to see, like, internals of the market and how they performed.

So Okay. So definitely wanna have the benchmark in there. You know, I'm not I'm not suggesting don't have that. I'm just saying it's not nothing wrong with having some extra benchmarks in there too. Okay.

That's fair. I I think I understand what you were saying, but but I agree also. It's useful to have extra information at other index indices to bear and see. That's all good. So but I guess maybe we can come back to it next quarter if it's not obvious right now.

But but my question is, I guess, why the city did so much better over the year in the fixed income category as opposed to the index. And I guess if it's because we're not matching the index because we're we're, for example, not investing in foreign bonds, which the index does invest in, then maybe we should be using as our primary comparison the domestic bond index. And that's why I was, you know, trying to puzzle over why we're 4%, almost more than 4% for the year 2024 over what appears to be our index, which is the b bark one that we've had for years in there. So I'm just trying this is the year for always looking at new things. So apologize to put you on the spot.

You don't deserve it. Okay. Can register as a question.

If you go to page 23

Excuse me? If we go

to page 23 real quick.

Okay. Where

there holdings in it. So not being familiar with the Fidelity US bond index fund, but I'm guessing that by the fact that it says US bond index fund, it doesn't have foreign bonds in it, and the high yield fund doesn't. So just if you want you know, the the benchmark is sort of an organizational decision. It's if you want the global benchmark in there, then it just means the portfolio manager is either taking a bet against foreign bond. You know, if they if they have this position versus that benchmark, they're taking a position of betting against foreign bonds, basically.

That doesn't necessarily mean it's a bad thing. It's just, you know, a portfolio management decision. But

if that's

not really what you want, then, you know, there's no harm in changing that benchmark.

Okay, Keith. We're on the same wavelength. That's this is the music to my personal ears. So I think we're not talking right now. At least I'm not talking about changing the index. Okay. We put the index into the investment plan that that gets approved annually. So right now, we're looking at really the performance of the investments that PFM has made in order to beat that investment policy document that city council and audit committee previously agreed to. So Yeah. All that is great.

So let's not talk about changing the index. Let's keep the index just the way it was. And the first is the fixed income, if you go to slide 12, Keith, maybe we should go there just for a moment.

Sure.

In the fixed income category, we've got the BBR Global Aggregate Index. So I'm I'm very happy to have a discussion when we get around to looking at the investment policy at whenever we do that later in the year to sort of see is the b bark the right index, but we're not really that's not really the task right now for this particular meeting that we had. Like, every quarter

I will will let Dennis know that that issue came up. And I would just also say, I I don't believe I have many, if any, clients with the global bond index. I they almost all have the US ag. Okay.

Well, that's fine. Yep. Yeah. I'm I'm, you know, somewhat embarrassed that we as a committee haven't haven't surfaced this over the past, you know, many years. But why don't we sync up what what you guys think is a decent index for the city?

And in the meantime, we will ask you why we're varying from the current index that's in the policy. And right now, it sounds like we might have come across a couple of examples. One is maybe there's some high yield that's in our portfolio, in the Citi's portfolio that's not in the BBARC Global Aggregate Index. There's also some foreign bonds that may have been in there. So it's it's interesting that foreign bonds did maybe better than US bonds last year, but I'll take your word for it.

That's good. So in the so I'd like to do the same thing that you would you jumped to, which was the equity side of the house. The MSCI AC Free Index, as you could see, is our long established benchmark. So going back to your page eight that you were pointing out to us that there's there's or whatever page you were on, there there that page. It'd be nice to sync that one up too.

And I know you were saying the same thing, and and I don't mean to re rehash it so much. But I just go down this chart because it's what it's the key summary. And if I look at the fixed income, there's a big difference between the index, which we just addressed. But if you go back up to the equity side, not that big in a a difference on the year for the for the equity index, assuming that the you know, again, this has been constructed so that you're using the the index. So that might be something your team wants to go back and confirm for our next meeting that the third row there where it says city of Cupertino that you're actually using the index that's on the other page, MSCI AC World Free Index.

But I assume you are. Right?

Yes. So, this is my introduction to you guys. So I I don't know all all the answers, but I'm taking notes to make sure I you I do wanna be careful not to just say things that end up not being true.

Okay. No. Yeah. That's pretty

I was same thing. Let's just say no.

Yeah. Yeah. So you I think Jonathan is is well attuned. We just we had some talks about this, I think, just last week. So he can answer any detailed question. Some of us are happy to hop on a phone call. But, Sheila, you had a a a question.

I I did have a question. I I think maybe in in at the October meeting, we had talked about these these benchmark indexes and whether when was the last time it had been refined and any changes since October?

We have not made any of these changes since October. These have been well, the actuals may have changed, and that's gonna change depending on what portfolio manager chooses. Right? But as far as the the benchmark or the targets, those have remained the same. They haven't changed since I've been here. They've been pretty constant whenever we provide that to the audit committee as part of the the the investment policy, both for OPEB and the the pension.

Okay. And I think one

of Mhmm.

I was just gonna say I might add one thing. Usually, if there's a benchmark change, they list they show another page with the like, it'll say the 2020 benchmark, and then it'll say the 2024 benchmark.

Right. So

If usually sure. So that make leads me to believe this has been what it has been since the beginning.

Okay. If I remember right, part of the discussion we had were about how relevant are these benchmarks and the need for the benchmarks to be relevant to our particular city. Mhmm.

Yeah. I'm

I'm not sure what action was taken.

We've started these conversations in a in 2025, we'll start to see some adjustments being made. So we'll be working closely with Dennis to to make sure that these the benchmarks that that we set or make those comparisons are relevant. So in that previous page of o 13, what we're setting as an example here of the MSCI rather than S and P 500. Another that Chair Schmidt had made in the October is if you go to page 11, you'll see the comparison here is to the s and p 500 rather than the MSMS. So making those adjustments to the report would be more user friendly so you can kind of you can compare our performance are is and what that is to the the benchmark.

Right? And so we have not

And I'll just add. You can see here a massive underweight in technology, but that other index is more broad, and it includes mid and small cap stocks. So that would dilute this because, of course, technology is heavily weighted by the largest companies, and S and P is a a large cap or is a cap weighted index. So it probably isn't as overweight or underweight as it appears.

Sheila, you wanted to So remark there. Yeah. No.

I think 100, that that made sense, and I'm I'm glad we start. But, Jonathan, you said something about user friendly. I I think the issue was not so much being user friendly as as relevant.

And then in if in case benchmarks do need to be adjusted, we would have to update the the policy. So should we decide to change the marks between here and next October, we would have to bring that policy back to the audit committee and then city council. And then we can open up that discussion maybe at the next audit committee. We'll have discussions with the chair and see what's the the most appropriate time to do that or just to wait till then to see if that's the

just

continue to solve the rule.

So I think to recap that great little sub interaction there, Keith, I think the understanding that I'm getting is you're gonna go back and see whether you can redo the performance, the the indicators that are benchmark indicators on the performance part. We're not changing that to our index whatsoever. We're keeping that page 12 as not being discussed next meeting anymore than it is this meeting. This is in the policy document. But what we are talking about is changing the other indicators that you show on that page, 13 or any there's a few other pages that we've already alluded to.

So I think the main the main goal, Keith, is to be able to understand, well, what kind of decisions were made that caused the fixed income portfolio that the Cupertino City has to exceed the index by 4%. That's usually gonna indicate, you know, either a higher risk or, you know, like we we've surfaced here. There's there's maybe foreign bonds that are causing us to look in. So that that kind of decision, we're we're not just doing this to give your life more difficulty. And I think I did hear one of your team say last time that you may not have these indexes in in your database, which would be astonishing to me, but let's hope that's not the the problem.

The Yeah. I I don't know. I'm I don't because I don't think I have like I said, I the Barclays Global Bond Index, I'm sure I don't have that as a benchmark in any of my client accounts.

Okay. So so when you say that, I guess maybe it makes me a little nervous that you can't really change the index, but we we'll address it next quarter when you come and and maybe between now and next quarter, you can alert Jonathan as to what's going on, and we can adapt accordingly.

Yep.

Much much appreciate your patience with us as we face the New Year, and we're trying to make things more relevant.

Yep. Totally understand it.

Okay. So I think the one fifteen pension is very similar to what you've showed us for OPEB. Yes.

I don't

to that in any more detail unless committee members have an appetite. So I I hear I see no. So anything else that we should cover? And Sheila?

I I think about months ago when at at the city council meeting, we had the disc what to do with the discretion the reserve. And the decision was made that we would take 10,000,000 and prefund

Right.

CalPERS. Yeah. CalPERS.

Yeah.

So does that

show up? What did he reflect it here? That was directly out of our what would be our discretion or or I mean, what was the unexcited fund balance, but this could've technically this is separate. So this put in is not included in that. It was, in a sense, pulled from our cash.

Didn't didn't have something to do with the prefunding?

So pension, the section one fifteen trust, we could have used, which is that second account. If we go down to page

the

performance page is 19, I believe.

Yeah. We could essentially, could have pulled it from here to put that down.

Yeah. We have 20,000,000.

And then you

decided to use the the the funds that were relieved from the due to the settlement from the CDTFA to use part of the that that that 74.5 to the 10 mil to to pay directly towards helpers as an additional discretionary payment. So that's how it was paid. And so it it directly came out of the Citi's checking account. We did not need to move funds around from the channeler portfolio or length. It came directly out

of the check.

Correct. Correct. Direct.

Directly from the shares.

Marvelous. That was a great clarifying question. I was thinking too that it was gonna get added maybe in 2025 to this fund, but now we don't have to worry about that.

I mean, this city does have discretion to pull this these funds to pay that QA out to work, should they choose.

Which

is the purpose of this.

Yeah. Maybe I'll just add a comment to that. One of the things I think is really nice about the one fifteen trust is it it you're allowed, you know, you're allowed to invest it in a way that is, you know, similar risk profile to Caliper's pension. But, by having money here in the one fifteen trust, it gives you the financial flexibility should anything go wrong where you have, you know, some reason you don't you know, you need to pay your Caliper's liability and but you have other obligations. So, you know, it it it's still growing in a in a similar way to CalPERS, but gives you, as as a city, financial flexibility to manage your obligations.

And so just pulling it just because it's there, it is not usually my recommendation. It's usually, like, in, in a moment when you really need it.

Okay. Thanks, Keith. I think we have deliberated. Appreciate your stepping in and answering our questions, and look forward to talking with you more in future meetings.

Great.

I think the action for us is to accept this report, which I you know, I sometimes we do motions, and I think the more efficient way is we have a consensus here. We've now accepted, I think. All of us are nodding our heads. So thank you, ours and US Bank, and we'll see you probably next time.

Bye. Bye bye.

Bye bye. So our next agenda item is well and and again, I offer up any help that I can separately if city staff wishes to have me, you know, what screwball questions I might have been talking about. Think we're on the same wavelength, obviously. For some reason, Lee, we just did not paid attention to those indexes, and it took I don't know how that slipped past us. So my my apologies as a long time committee member.

Passed them. We just didn't act on it.

Oh, yeah.

We it did come to our notice, though.

Yes. You're right. We we started last year, but we now I'm getting a little more impatient because, to be honest, it's been at least two this is probably the third meeting that I can recall. So I do look for their responsiveness. So next agenda item then is the informational item, receive the internal audit fraud, waste, and abuse programs update.

Chelsea, I it's probably over to you or Jonathan, but I'm guessing it's you, Chelsea.

Hi, everybody. Good evening. I will share my screen here and walk you through the internal audit status update. So this is from October 21 all the way through January 22 year. There's four programs that were in this fiscal year, and so just kinda wanna walk you through those four programs that belong to the internal audit program.

So the first one is the grant management internal control review. We are gonna kick that one off in February. We plan to finish that in May. So nothing for this period, but next period, we'll be initiating that fieldwork and conducting our analysis. We also have the special revenue fund process review.

We started this in August, and we're gonna go hopefully through July 2025. There's been some delays with scheduling. So we have this period, we were able to confirm the interview list for one department, but we're still awaiting confirmation from two other departments to really kick this off and get it going. So for next period, we're gonna be scheduling those interviews with individuals on the lists and hopefully getting some fruitful information on that one.

I have to go ahead.

At column, could could you help me with the acronyms? It's CDD, PW, and PNR. Just wondering who those Jonathan's gonna help, I guess.

That's what happened. So CDD is community development.

Ah, of course.

W public works. Okay. Parks and Rec is PNR. But to be honest, I think that was a typo on our end. I think when we submitted it, it wasn't supposed to be Parks and Rec. It was just supposed to be Public Works.

Got it. Well, I should have guessed those, but thank you. Sorry to interrupt you, Flo.

No. Absolutely. Please ask questions when they come up. Going on, though, recommendation validation process establishment. This is an ongoing project throughout the the entire year.

So that started in July, and we're gonna go all the way up until June. And so this past period, we received documentation, and we're beginning to validate recommendations on city staff reports, making sure that those past findings have been implemented and corrected. We're gonna continue to work with the city to validate those recommendations and make sure that city staff reports are implemented. So that's we'll keep on going, and we are making progress. So great news.

And then lastly, there is the ongoing internal audit services. That's what I'm doing today. So that's when we attend those audit committees and council meetings. We prepare the status reports that you're seeing today. We also monitor the fraud, waste, and abuse. No problems. That is running smoothly. Any questions on those four items?

On the the third column with the the gap, my my question is, I guess, you're you have quick access to all the internal audit recommendations, so I I can guess how you got those. Can you can you maybe talk a little more about the external audit and and what periods they I think the audit because there was a new auditor, they came on. They went a little bit the timing is a little different. I'm wondering if maybe you've got comments from a couple of years whereas so my my general question is how many, if any, external auditor recommendations are you do do you have in your inventory that you're checking the gaps on?

That's a great question. You know, I am not the project manager on this, but I can I I do believe, and I can definitely have the project manager reach out to you? I believe it's all external findings. So it would have gone back, from the from and, Jonathan, please let me know if I'm misstepping here. But I believe it is all audit findings. Is that correct?

To be frank, I'm not sure how far back we we were going back. I think as far as I know, it's far back as when Adam Moss Adams started as an internal auditors and and and maybe went too far back. You I understand that in certain situations from year over year, if there's a deficiency, that is highlighted or an internal process, it will stay as a, deficiency. And so if it's an ongoing issue, you would see it year over year. And so with the latest audit, if there is any the idea is with the latest one would actually kinda call out.

Has there been any findings? If there's been a correction on the city's part as far as its process, it would actually no longer include that as a finding. So by omission, it's essentially saying that there's been a correction. Sometimes you have from one auditor to the next. There might be a difference of opinions, and that could also change things. So some auditors are more sticklers on certain processes than than others.

Fantastic. Yeah. That makes a lot of sense. I wasn't even thinking of that. That makes perfect sense. The external auditors, you would think, would have been looking at what happened in the previous year. But so but to be honest, I don't remember any comments. These things used to be called internal control efficiencies or there there's was there a report like that separate that was calling those out that we looked at last year and I'm just not recalling it right now?

Yes. And the the biggest one that calls to mind was the prior period adjustment that was having to deal with reclassing certain reps

to Oh, identify liability. Yeah. Yeah. Asset. Unidentified asset. Correct. So Yeah. So those are the

type of things that they they that they'll pull out. And that wasn't an issue in the 2320 sorry. 2324 audit. Yeah. So that that was corrected then. So the first year, they they they they had that finding. The three phone call was a much more cleaner year. It was the second year, so we've only got a lot of those issues. And as you know, we were able to bring that that that audit to council much sooner. So as we're kind of moving along, we'll we're making those refinements and adjusting. So every year, things will they'll they'll find new things to that that that go digging into. So as of now, we'd

from my perspective, I don't think we've had

found list. It says for 2022 single audit. It a single audit I guess, dash 20 s a dash 22. So I'm not sure what that means, but it looks like the only one that's under review that I can tell would be the 2022 single audit for our Which

is that federal so every whenever you expense over 700,000 in federal funds, it triggers the city to have a single audit. So this will actually be the next year we're undergoing that second single audit, and this was due to a capital improvement for some the street project. And so two years ago, the the there was also a finding relating reporting. So the city missed a reporting deadline or Right. It was nope.

Not so much of a reporting deadline, but partly misreporting. There was some confusion between auditors and how they interpret what's considered a revenue recognition or loss versus That is attributing to an expense. So there was

Adam will go in into that detail, but to answer your question, that's the only one, Donna, the single

Okay.

Recommendation from 2022.

Appreciate it. And and my my last question, anybody else chime in? But this is like a point in time type of gap where you're helping establish a process that the city will then take and be able to update over time? And either way, it'd be interesting for us as an audit committee to be that I if if it is an ongoing thing that you guys are supervising, then you'll be bringing it to us without any problem. Otherwise, maybe we have more discussion or whatever. Absolutely.

Yes. So this this would be something that we would be going forward with, and validating that recommendation process throughout the audit years.

Great. Seems like a great project for me. I always liked it. Any other questions for Chelsea?

Moss Adams also did that so the policy inventory and app analysis. Right? So that's not here?

That's correct. That was from the last fiscal year. So we were we were catching up. So last time I talked with you all, that was still on the that was still, you know, on this the status update, but that has since been finalized.

Oh, okay. Because there were maybe one I I remember the sort of red red line item. Yeah. One particular one. What is it? CIP. CIP policy. So are you saying that's been resolved?

It came to audit committee twice.

Uh-huh.

Because we made a slight change because it had the council and the administrative policies. So now we're so Moss Adams handled all of the administrative policies. Staff is doing a deep dive into council policies. So we're trying to get that one step component done that is on staff. We'll finish that and bring that to council. Right now, we're anticipating March. Okay. So it

doesn't bring It doesn't go back

to Moss Adams? So Moss Adams will present it at city council.

Check

it. But the but the council policies because all the council asked for was an inventory, we're gonna bring that inventory to council to say, based on our search here, all the council policies, we were able to find for council to do whatever direction you wanna give us to do with those policies. And then for the administrative ones, Moss Adams has looked at them and has recommended kind of an implementation schedule to either put policies together and or update policies. So both of those will come to counsel likely the second meeting in March.

So their responsibility is over?

For the policy for the administrative policy. Yes and no. Like, for the policy audit, yes. But then this will roll into the validation process. So based on what staff agrees to to get stuff done, Moss Adams will be checking in with us and saying, hey. You were gonna update this policy. Yeah. Where's the updated policy to validate that we're doing what we said we would

do? So with regards to the hotline statistics, are we gonna be hearing more about those reports that are open, and could we when a case was opened, how long they've they've been open so we have some sense of how long these take.

Yeah. That's, you know, very fair, and and I was gonna go into that. So let's let's first look at what happened this past quarter. There was one complaint that came into the fraud, waste, and abuse hotline. We referred that to appropriate city officials, and it has subsequently been closed.

As you can see, we also give you the hotline statistics. So from when we started the fraud, waste, and abuse hotline, that was back in October 2022 through now, there's been a total of 29 reports, and there's five that are still open. So we do check-in. So those have been all obviously been referred to city, the appropriate city officials. We do check-in with those city officials.

There's you know, if they're under investigation or whatnot, from time to time to make sure that there's still progress and movement and that they have not been closed. We typically would not give the committee unless, you know, it is it is warranted that the committee needs to know. We would not give those details of the extent of what they are and how long they've been open. Going strictly from what your what your policy, your fraud, waste, and abuse policy is.

If I'm thinking through the chair, we we can make some deductions about how long they've been open given we get this the audit committee gets this report. And for instance, the last time I recall checking in, there were three open reports, and and now I see five. So somewhere between the last time I checked in and now, then something else started, and then then I can infer that the cases have been open for some time. Okay. Alright. Thank you.

Chelsea, would it be too much to ask if there's cases open that pertain to a previous quarter? Can we have some sort of statistics showing the length they've been open to?

We can definitely do that. If the committee wants the length of how long the reports have been open, I can definitely make note that next time I present this, there would be a length time. Is that something the committee is interested in?

I think that would be helpful. I think we've also asked in the past about the the fraud element, and and, of course, there's legal confidential elements. We're not necessarily trying to drive into those, and there's categorization over the telephone that may not be accurate. It may not be an employment issue or whatever. I I think anything that makes this more informative I mean, it's it's informative as it is, but it sometimes it raises more questions. What are those five? That and I know we can't go into a lot of detail, but certainly, if if one of those five relates to October 2022, that would be something that we would inevitably wanna ask city staff more about, I would think, for example.

Absolutely. Absolutely. And I can I can definitely we will pull out the link or when those were opened and so that you all know the time span that it's taken, that they're still open?

Super. And if it's possible to categorize them as to what kind they were, that's also helpful. But if you can't, that's fine. We're trying to be fair here in the public realm.

Definitely.

The chair also. Our city attorney has has resigned, so I don't know what his involvement is.

Oh, yeah.

The the reporting effort. I don't know if that's something that he's handling. Right. Maybe that the length of time is is going to be expanding while we find an an interim and a solution. Okay.

Great. Very helpful, Nicole. Thanks, Chelsea, for adapting the report. That that will be great for us. Anything else you wanted to bring up?

Nothing on my end. If there's any questions, I'd be happy to answer, but that is all I have to report this time around.

I appreciate it. I don't I think we've got our questions answered. So thanks again for starting the new year off with us.

We'll Absolutely.

Do in future.

Alright. Talk to you all later. Bye bye.

Bye. And since this is another this is an informational item again, our action item is to receive it. I hereby say we've received it. So our next item is number four, the treasurer's investment report for the quarter ending 12/31/2024. And we've got a staff report and the most attachments of all. So Jonathan and Carlos probably.

A short presentation before I think we're move that. Carlos.

And I wanna make sure you're not waiting for me. Right?

No, Carlos. Okay. Good. Our various accounts before I'm saying that I'll have to do. So as you can see from last week's biz from last quarter to this quarter, our

increased by about $20,000,000,

and that is just largely due to operations. This does account for the $10,000,000 that we have paid you, CalPERS for additional discretionary impairment as, for the council's direction. As you can see, most of the balances have remained, static, with the exception of most of them just increasing due to interest service. So next, and at this time, the city's investments are in compliance with

the state

law and city's investment policy as well as California government code fifty three six twenty six. NASA has sufficient funds to meet its expenditures requirements for the next six months. Carlos? And Carlos will be, going over our family investments.

Absolutely. Good evening, everybody. I'm gonna share from my screen because I realized that the version they sent out to you that's in your packet does not have that at a few returns, and I wanna make sure that you see those, because I do have those, and I'm gonna show to you. I think it's important to note, the backdrop that this is work that that that we're working under right now because it's it it it's really coloring everything we do. But before I get into the economics, let's just look at the numbers, and then we can talk very, very briefly about what what drove things. Can you see my screen? And are you are you able to see the returns page that I'm showing you here?

Yeah. Yes.

Okay.

Excellent. Carlos, you can I interrupt this first? Is is it okay if we have questions while you go, or do you prefer you go through the entire flow and then we ask questions?

No. I'm happy to take questions along the way. That's not a problem at

all. Thank you.

Okay. So the re no no problem. The return for the last for the last twelve months ended December 31 were $4.15. When you factor in the fee of about 7.12 or 7.2 basis points annually, you're looking at a return of $4.00 8 after the fee is paid. The benchmark was $3.35. You did well against the benchmark for a couple of reasons, which I'm gonna get into in just a second. But I wanna I wanna highlight something here that I think is really important. Had we looked at that same measure, meaning a twelve month look back, three months prior, meaning had we looked at that and you did. You have it, and you we we provide it to you. But had you looked at that number three months prior, that number would have been seven thirty eight.

That's how much higher it was. It still ended up being a very strong number through the end of the year or point one five, but it's down from earlier in the year. And the reason that's just a look back three months prior if you looked at the twelve month number then. The reason that is is because towards the end of the year, while interest rates have been falling through most of the year, interest rates pop back up, and they pop back up, I wanna say, starting in the month in the month of late September through most of October through December, even through pretty much through most of January. We're almost at the January, and that caused the values to fall.

This is what you see. If you look at the three month number, you've got negative returns for the three month number. You you earned a yield. You earned interest income, but the fair value change, the negative change in fair value as a result of those rising rates was enough to overwhelm the interest income that you earned on your portfolio. Look.

Again, you know, strong returns. Look at the two year number. That's annualized. That four thirty eight means that you you you generated for an average of 4.38 per year for those last two calendar years, taking compounding into effect. So I'm gonna roll back up and just look at the treasury yield curve because I think that's that's where this well, here, we'll we'll start with the fed funds rate and the treasury yield curve, and then I'll I'll go into we did what we did.

Yes, sir. Carlos, that's my favorite page practically to start with the one you just went to, and I think it's worth just spending two seconds on saying, well, those are very nice numbers. I mean, it and and by the way, I spent an extra 15 minutes looking for the net of fees. So I you're you know exactly my first question is what where are the fees in there? And I really appreciate you going to the effort of putting that in there. And, Justin, it's been one of my longtime pet peeves of not you know, I really wanna understand net even though, of course, the index is gross. I get that. So but thank you, and a very impressive performance from my individual comment perspective.

Thank you. Thank you for that. And I can't I can't take all the credit for starting with that, Paige. You know, Jonathan and I always coordinate before these meetings, and he reminded me that this is important to you and to the committee. So you can also thank Jonathan for that. Thanks, John. So so what what why did rates rise? So, I mean, you you saw the returns. The returns were good, but they weren't as good as how we were doing earlier in the year and even through the third quarter of the calendar year. They were all these were all great returns, but not just just the end of the year just ended up being not as good as as, like, through third quarter.

The reason for that is because the Federal Reserve, as you can see here on the right hand side, well, they lowered interest rates. That that that they we've talked about what what what they do here about how they lower that overnight lending rate between banks, and that manipulates rates. They lowered that rate in in September, 50 basis points. They lowered it in November, 25 basis points, and then they lowered it again in December, another 25 basis points. But as we were progressing through the course of that quarter, it became apparent that the economy continued to show more strength than anybody anticipated, and that was primarily driven by strong employment numbers.

We and and this is all in your packet. I won't bother you with all the details are going there. I'll let you look at it on your own. But we had strong employment numbers through those months ending the year, which led investors to believe that, yes, the Fed is lowering that Fed funds rate, but they might not be as aggressive as investors had hoped. It might not move down as fast as they thought.

And as a result, investors have been backing off from the bond market and and heading into the stock markets. And, also, if if inflation may be around a little longer than anticipated because there is strength in the economy, investors, especially on the longer end, those that buy the longest maturities, started demanding higher yields, meaning they paid less for it. It's an inverse relationship. Higher yield, lower values to pay for those bonds in order to be compensated for what inflation would do to their fixed payment from the future, which is to erode it. So even though rates have been coming down because of Fed activity, you still had investors think on the longer end that rates rates and and well, inflation will be with us a little longer.

This economy is stronger than expected, so they push rates higher. This is what it looked like. There's that treasury yield curve. I'm gonna zoom in on that real quickly. There's the treasury the yields for treasuries from three months all the way to thirty years on three separate days. Here we are December 31. The dotted line is December 31, a year ago, December 2023. The gray line is just three months ago. But I just want you to note a year ago how inverted this curve was, the front end, and short term investments were were were were had an advantage. And the Fed did their maneuver that I just discussed, and that this came down.

This impacted two years and in, but everything beyond that is driven by inflationary expectation. And I just finished saying that the economy is stronger than people anticipated, which might mean that elevated inflation might be with us a little longer than possible. For that reason, all these rates, you can see where they were debt back in back in a year ago down where this dotted line is. Today, let's just look at 10 you don't invest in ten years, but look at ten years, see where they were, see where they are today. So rates are higher on the longer end.

What is happening is that this inversion is finally going away, and eventually, this will become steeper as the Fed lowers rates through this year. We ended the Chandler view is we anticipate the Fed to lower rates once, perhaps two more times through the course of this year. We see room for that happening. How did we stay ahead of the benchmark? Well, remember that the benchmark in your case represents it represents the the amount of risk that you're taking on in this portfolio as measured by duration.

You you you have a treasury agency benchmark, and you hold more than treasuries and agencies. That's one of the drivers, but the main driver is the duration number. And if you remember, we had a pause for a season in this portfolio to to hold off on reinvesting because there was a possibility that the city might have to take cash from here. And we've since learned from staff that, no, the city will not need to take that cash. So we've been gradually building the duration to be somewhere in line with the benchmark. Three months ago, we were at two twenty eight years, two point two eight years. We're moving towards two forty eight. Today, we're 2.39. We were moving longer. It means that we were picking up those longer maturities with higher yield, and that helped the return.

That was very helpful. The other piece is as interest rates shifted higher towards the end of the year, longer investments underperformed shorter investments. And because we were a little bit just a tiny bit shorter than the benchmark, you can see that by comparing these two numbers here that I'm gonna highlight in green. Just because we were a little slight little shorter, that was enough. Just look at the three months. It's it's it's all right there. That that was enough. The benchmark went negative 76 basis points. We only went negative 49. So those are part of the reasons why.

The the other reason why we outperformed was because, obviously, you know, we still hold strong allocation to yield advantage securities, which continue to pay us competitive yields. Now going I'm gonna I'm gonna pause there. Going into the future, I would tell you you should expect, yields to be sticky. They'll be volatile. Yields actually came back down today on the day considerably.

You probably heard that there was some, capital markets activity related to NVIDIA. NVIDIA stock took a 17 per hit percent hit on the day today, and that is the biggest one day drop of any stock in the history of the S and P 500. And all of it was because there was news coming out of China that China China may be coming out with a cheaper alternative to artificial intelligence. It's called WeSeek. That's neither here nor there.

We don't know what that's going to look like. But that drove that spooked investors in the stock markets, especially those invested in in tech stocks. Those tech stocks make up approximately when you look at the Standard and Poor's 500, they make up almost one third of the index between Apple and Meta and Alphabet and I I can't remember all the other ones, but but all all these tech companies make up over like, around 30% of the S and P 500. So as investors dropped those and sought safety, they bought treasuries driving their prices up, which in turn pushes their yield down. So it's volatile.

It's volatile. You should expect that volatility going forward. The idea here, this is a safety and liquidity portfolio. The idea is to keep it diversified on a sector standpoint, keep it keep it diversified on a, on an issuer standpoint, and most certainly keep it diversified on a maturity standpoint. You'll see the duration continue to get longer even though we we just you know, we've we've seen pressure higher for rates and then lower today.

Eventually, if the Fed does what they're supposed to do, we still think that on the balance through the course of the year, rates will be slightly lower than they are today. And for that reason, we're going to maintain you slightly that duration that I showed you will be moved to be slightly longer than the duration of the benchmark, but just slightly, not much. We're gonna be on the on on we're we're gonna be just conservatively longer than the benchmark. I'll stop there and take any questions that you may have.

Any members, any questions? I've got one that I'll kick off. It's sort of a merger with the staff report and the Chandler detail. We can dive this is an accounting question. I mean, we have to cycle in and out. Right? Sometimes we go theory, other times we go into the weeds in these reports. So this one's gonna be an accounting kind of question on on Carlos, your your page 19 in your report, you've got a really nice table on the account summary, and I don't know if you can flash that back easily.

I certainly can.

If you can, there's a number that gets picked up into the staff's treasury report, which is the cost value in that little table, there's a $172.09 4 number, which translates to a 170,300,000.0. And so my accounting question deep in the weeds, you know, we don't need to know too much. But what's the difference between a cost value and a book value from your perspective and why then the staff report pick one or the other? In this case, they're picking cost value. So you both of you guys can help me understand that.

Absolutely. So so the cost value is the amount of money that you actually paid for the securities. So if if you you know, there there's a cash position. Let's say that you started from, you know, from $10,000,000. We're just throwing I'm throwing out a a figure.

When you purchase the securities, you're purchasing you're paying a value for those securities. And, of course, there is a crude interest that is owed to the prior owner of that security unless you bought the security on the on the on on the accrual date when it pays out its coupon, its semiannual coupon. Somebody's owed that interest, so you have to pay you have to front that accrued interest to the prior owner. But, basically, the net of that, excluding that accrued interest, is your cost value. That's what you actually paid for it.

Now as you're aware, when the securities mature, they they pay you back par value, which you see up here. Okay? That's I'm gonna highlight that one in, I'm gonna highlight that one in yellow. Okay? So when you purchase those securities, you're you're sometimes you're paying above par value, and sometimes you're paying below par value.

And that just happens because let's say you bought the security a year ago and you bought it at 5 percent, and today, interest rates, let let me start all over. Let's say that you have a security that that was issued a year ago, and it paid 5%. A million dollars, 5% is $50,000. And today, interest rates are up from 5% when they were when that bond was issued up to 6%. So a new investor can buy the same bond today with a similar maturity, similar credit quality, but they they get $60,000 a year.

So they wouldn't wanna buy your bond to only get 50,000. So if you wanted to sell your bond today, you'd have to lower the price by basically roughly $10,000 to make up for that that change in interest rates. That's why when rates rise, the the values fall. So you're not always buying everything at par value. You're buying it depending on what the market is doing.

And and so you buy something below par value or above par value. That is called a premium when you buy it below or or above par value, and it's called discount when you buy it below par value, and that's additive to your return. So what happens with that premium or discount, that amount above par value or below par value, you can either, from an accounting perspective, you can either realize it, ignore it, and realize it as a onetime loss or gain at maturity, or you can spread it out over the life of the bond as long as you hold it as the basically, from your purchase date to your maturity date. And and we call that you you you're either amortizing it or amortizing the premium or accreting the discount. So whatever amount of premium that you paid for it, you're gonna ding yourself that amount, the daily equivalent from the day that you bought it to the day that it matures.

So every thirty days, you're dinging yourself thirty days equivalent of that, and you're reducing your income. And if you bought it at a discount, it's the opposite. You're adding to your income that little bit every month. Well, your book value is your cost position netted for all the premiums and all the discounts that you have accreted or amortized to date. That is the difference.

And if you wanna get into the weeds on it, I can I can give a I can give a training on this? But, basically, that is the difference. The the cost is what you paid for it. The book value is that amount that you paid for it, but netted for whatever you've amortized of a of a premium or accreted of a discount to date. And that sometimes some people call that a carrying value. Now most cities will carry their investments at either cost, at book, or at market value. Most people carry it at cost or book. Very few carry it at market value. In your ACFR, in your financial statements at year end, everybody carries it at market value, but you only do that once a year.

Right. I hope that helps. That's plenty of detail. That's great, Carlos. I appreciate that. That's just what I wanted. And so I I think, Jonathan, you're about to explain why you guys picked cost value then as your treasury report indicator. So cost value is just as as Carlos said, is is what the city just did.

So for us, it's easier just to record that and make sure that that's what we're looking selling at each quarter. And as Carlos would say, we we at year end, as part of the actor, are we do a mark to market Right.

Is even more interesting to us.

So whatever the value of those assets in the portfolio, whether it is a it's more oh, it's valued more because you have interest or higher interest yielding assets rather than compared to the the going market. So you essentially raise the the value portfolio, and you record that as interest if you wanna get into the accounting side on our end. And then at the at the following year, we essentially reverse it. And sometimes you'll see a negative interest reversal, and that gets a little funny when we report out our quarterlies. We'll have to highlight why it's a little different because we have to reverse it out. Because, again, during the year, we just care we report the the the our statements or we adjust our statements to to to show the cost down.

Great. Thanks.

I might I might add one last thing really quickly. I I think this is important. This return number that we show you is a total return. You could see that listed here. These are total returns. This that adjustment that Jonathan just described with where that that one that year end adjustment is per GASB 31. It's it's you're adjusting the interest income for that change in fair value. That's why you're saying interest or negative interest. Well, these numbers right here factor those in already. That's why it's called a total return.

Right. Just to put a a bold ribbon on that, that includes, I was assuming, market value adjustments as well. Yeah. Okay. Great. Okay. Good. I, you know, I can see all sorts of reasons you pick one or the other. It just great. So I presume it's a consistent thing. You're always using books, so it's you're not moving from one to the other.

Use cost during the

Yeah.

We don't use both the Right. I I think from my perspective is because we're not actually making the adjustments. We're not amortizing the premiums or the discounts. It's easier for us just to report it to cost. We rely on Carlos and his team to do the the that amortization for us. So that'll kind of work between, and they present those numbers.

Makes sense. It might

be it might be also helpful to know, just to back up what Jonathan just said. Of course, as you're aware, you're all aware that as your investment adviser, we we don't actually touch any of this money. The money is sitting at a custodian account, a custodian bank. When the custodian reports out on these investments, they report it at cost. So it makes it very easy for the city to very quickly verify what we say they're holding versus what the bank actually says the city's holding.

Oh, yes. That's another plus.

And that actually, that was an interesting point. Thanks for the, Carlos. That was one of the AUTs that that that Right. That that Well, the time group wanted us to adjust that language. We it's always gonna cause a difference because different firms for asset management are gonna have their their methodologies may be a little different. And so the market values will be different from what Chandler says versus what what what Principal.

US Bank. Oh, principal. Sorry.

Yeah. Would would have that those three.

Gotcha. Other questions?

Yeah. I sort of had a general question, and I think you mentioned that last time that in general, you invest in high quality fixed fixed interest fixed income securities. That's the

That's correct.

And nothing has changed at

No. No. Of course not. Nothing has changed in that front. You're absolutely correct. Code lays out the the objectives of the city's investment portfolio. Those are mandated by the law, and they are safety by liquidity and then followed by return. So we have to think about safety and liquidity before before we can invest in anything. And if you want, I can give you the I can email you the citation of code if you wanted to look it up where it says that. But that comes from code.

And then, of course, if you look at the city's investment policy, the investment policy states in accordance with code, safety, liquidity, and return. In order to do that, we can only invest in those asset classes that are allowed by California government code. And those are exactly as you just described them, very high credit quality, widely held, liquid, fixed income investments. Basically, what what is that? They're bonds and fixed income instruments that are five years or less with a minimum credit quality of single a or higher, and code dictates maturity limits for for most of them.

Some of them can go to five years. There are some instances we can go longer, but you don't do that. That that's not usually appropriate for Citi. Some of them are shorter maturities. The credit quality is laid out in code, and then you also have concentration limits. You're not allowed to hold too much of one asset type in in in the portfolio. So it's very, very well diversified. These are it's exactly as you described it. It's still high credit quality, short duration, widely held liquid fixed income securities.

Thank you. Great. One last question.

Because

of what we went through last year with the uncertainties with CDTFA and so on, didn't we reduce didn't we ask them to reduce the maturity level?

I think the duration, but I think we started to move back toward the three year. Yeah. Kinda knew it was going to happen.

And so will that any will will that change?

Yeah. We've actually saw it. Tell us. Can you bring up the that side where we're from even

last four Absolutely.

The duration start, getting longer.

Wait a minute. Let me get the right one up there.

Okay.

So you should be able to see my screen.

It's 21.

Page one?

So from it's two thirty nine. We're already moving back to our benchmark of 48. So we're moving in the right direction.

Correct. And and if I can show you the term structure, what that means is that last quarter, we if you're able to see my my my mouse moving around, we had less in investments out here on the right hand side of this chart and more on this chart such that they averaged the this number, 2.28. This quarter, they averaged 2.39. That's what that looks like. And what you'll see is you'll see for the following quarter, less investments here and redeployed out here to basically move us back to somewhere just slightly longer than 2.48.

The strategy is is to maintain the investments between one and five years. The benchmark that I'm seeing here is a one to five year benchmark, which happens to have a duration of somewhere around 2.48. That 2.48 moves every month just slightly just slightly every month. So we have to rebalance all the time. And then, of course, we we that's one of the decisions that we make as your adviser, whether we wanna stay neutral to that number or shorter or longer.

We don't get too long, and we don't get too short because this how we decide where we position that number, that out of all the decisions we make will be the most impactful decision on risk and on return. Right now, we wanna be back to strategy. It just so happened that because we were shorter and rates backed up, they came back up at the end of the year, that actually helped you. But normally, it should have hindered you a little bit, but that's okay because this was set with a long term outlook, not just for what's happening this quarter.

It's more than a quarter. Right? We we we changed it for about a year.

Yeah. We've been moving. So so we're comparing the September 30 portfolio to the September 30 December 31. And so it's just gonna take time to adjust what our progress previous duration is to that that

That's correct. We we make our moves incrementally. We don't we don't ever shock this portfolio because it's really meant for safety and liquidity. We we just we we we don't wanna do overnight shifts. We just don't you know, we we dollar cost average as much as we can. So as we do this, we wanna be very thoughtful about it. We didn't we don't just don't wanna do it overnight.

But but we're heading in the sort of

The c d c d t f a.

Great. So I think we got, our questions answered for today at least. Thanks, Carlos. Appreciate it. Happy New Year, and, look forward to seeing you again next time. Thanks.

Likewise. Hopefully, the next time we'll do it in person. I apologize I couldn't be there in person. I I sit on a standing committee at at the government at Government Finance Officers Association, GFOA. And black window you see behind me is is Downtown Washington DC at what is it now? It's almost 08:00. So so I couldn't be there, but but I be there the for the for the next

Take care. Safe travels.

Travels.

Alright. Take care, guys. Bye bye. Mhmm. Here. Our action item on that one was again to receive it, but this one is more important than most that we received because there's filing issues somehow. Forty five days, if I recall. So Item five, received the proposed audit committee 2025 schedule and work plan, which, is now on the screen. Jonathan, you wanna track us through?

So, based off of changes that were discussed last, at our last meeting, we ended up changing a few additional items. So, seeing that today, council had be conducting interviews for our fifth committee member, Angela Chen. No. That long will be with us after. Right?

So at our next meeting, we'll hopefully have that that fifth person in attendance. So we decided to move the appointment of the chair and vice chair to our next regular meeting so that everyone should be in attendance. And then we confirmed our special meeting for April for February, which will include the today's meet minutes as well as Moss Adams status report update and a paper tail budget format. So we're finishing up that that draft as we speak. So that that'll we'll be presenting recommendations to y'all, and you'll have an opportunity to discuss that.

And who's likely to be able to come? And we've again, we don't have five, I guess. We've got a subset.

So from my understanding, well, actually, you three have confirmed will will be there. Anyan has informed for me that it is Kiwi, so he will be in Tahoe. K. I will be working with him to see if he would like to join remotely, but that comes with a few additional steps on his end and then possibly that that fifth member, whoever that may.

Right. Which is, again, as close to it's tough to get them in in this meeting, but the more sooner we can get all five of us together, the better. Okay. I have no other changes on this. I've seen this often enough. Anybody else have a question or comment or hey. Russell.

In regard to the benchmarks that we were discussing earlier, we've done something that's going to fit into a work plan item that's already there.

I kinda think of it as in like, every quarter we have we are tasked with looking at that open pension. So you see that up there on all the regular meetings. So I I'm certainly going to raise it again because I'm very curious what the new benchmark or not the new benchmark, how the new presentation shows the long accepted benchmarks that we've done. But, yeah, great questions.

I But it'll be at the April meeting?

Yeah. I think when we'll we'll that's right. Three months from now is typical.

Some of the changes they proposed, anticipate them making those adjustments for the next report, which would be report ending October 30 or March 31.

We'll

start seeing those changes. Now if we're planning on benchmark, typically, that is done you see it on that October 27. So we can start those discussions whether we wanna change the benchmark and include incorporated in the policy to make those adjustments and have a dialogue. If y'all wanna meet earlier before that to to make those adjustments, certainly do that and think that

that that would be fine. So let's follow on that a little bit. I expressed my somewhat in a way that I'm a little frustrated. I do hope to see some movement. I mean, I'm very open to changing the index if that's what US Bank or PFM is recommending, but they haven't really brought that up in the past. We haven't really had an appetite for that. We were kinda happy on the high level policy. But, you know, the so I'm a little disturbed that Keith doesn't seem to have a lot of background on our account. And, of course, I guess our regular dentist But he's kinda new too, it seems.

I think Keith just stepped in. He's typically not someone that's managing our analysis. Dennis Yeah. Dennis will be overseeing those changes and ensuring that they they start that they're incorporated in the next report.

So for example, to follow it up, if Dennis would say, well, we should have a different index, well, then we're gonna wanna accelerate that kind of discussion so that we could, October, have a a reasonable so I I can't answer it personally in advance how we put it on our work plan, but it's sort of an if this, then that. I would hope they can come back with performance indicators that because that should be something they should be doing all the time. It's just it's not like we're asking for something else here.

What we can probably do then, I'll have those discussions with them in the next couple weeks and see if they if they would like to come back to the audit committee and make those recommendations. So if there is a change, we can either import I can report out on the February 18 meeting, or if we we wanna come up with a a better presentation, maybe I think April meeting. Want to include it maybe on the July meeting before the the the October to make incorporate those changes into the policy.

Anyways, that's. It's a great question.

I I like February, but I I feel like we might need a meeting between April and July to discuss it.

Well, and there's two points to it. I mean, they come back and say, well, your index is wrong. Therefore, we can't really do anything until you tell us what the index is. Okay. That makes us a really October discussion, which, okay, let's accelerate that would be my if then my answer to that is, Well, instantly, we should change that.

But I would hope they would say, well, we've been advising you on it for a long time, and these indexes are pretty well established. They should be changing their reporting. So I hope they don't come back and say, well, we can't report a modified report because your index is not right. I hope they would come back and say, well, it was a lot of work, but we're gonna come back, and we're gonna show you how you're performing compared to your index. Then I'm not and then then, you know, it'd be great if you could tell us that in February because then we'll just say, okay. Great. We're not gonna do it until October and we see it. I mean, maybe April when we would see the March new jazz report. But if you tell us in February, well, they come back and said, well, we can't do that. She said, we have been advising you with somebody incorrect for so long that we should fix it.

Well, we can't fix it because our team is well, maybe it's a great idea for you to have that accelerated conversation and just tell us what that conversation was in parallel. Right? That'd be great. Then we can give you more direction, and we can deliberate more as a team here. It's kinda Okay. Great point, Katie. Thanks for bringing that up. That's a great point. Yeah. Okay.

So I guess we're gonna receive this too as our as our as the chair. I I mean, we should vote on those things in general that these are again, that's So we can maybe vote on the revised work plan if somebody has an appetite for that at some point. Okay. I'm gonna pause and adjourn unless we have any other reports and things. Yeah. We really thought it's always really good things. Anything? No? Okay. I declare us adjourned. You. Okay. And sir. Longer