Board.

I'd like to call to order the meeting.

And if we can stand for the pledge allegiance, please.

It was what happened.

She shut me off.

Okay.

Let me start that again or just go on with the announcements of the names.

All right.

Member Bills.

Member Baker.

Present.

Member McRae.

Member Jablonski.

Present.

So we have a quorum.

Consent calendar.

Approval of the May 28th, 2025 regular meeting minutes.

Can I get a motion?

Mr.

Chairman, I review the minutes.

I make a motion to approve.

Motion and second.

Roll call.

Thank you, Chair Wainwright.

Member Baker.

Approved.

Chair Wainwright?

Yes.

Member Jablonski?

Yes.

And Member Bill Opps.

Yes.

The consent calendar has been approved.

Okay.

Thank you.

Next is discussion and deliberation.

Um part two of the agenda is review and input on the permanent fund performance.

Is Mallory Sampson present?

Looks like Chad Stapleton is going to be here.

Oh, Chad, are you asking me?

Okay.

Chad, are you ready to present?

Share your screen.

Uh yes.

Absolutely.

Welcome to that.

Can you hear see me okay?

Yes.

Okay.

Perfect.

I'll go ahead and uh share my screen briefly here, real quick.

Bear with me.

All right.

Is everybody able to see that okay?

Thanks.

Perfect.

Perfect.

Well, it's a pleasure to be here this evening.

We hope uh all of your summers are going well.

My name is Chad Stapleton with PFM Asset Management, a division of U.S.

Bank Corp Asset Management, and I'm joined this evening by Mallory Sampson as well.

And over the next 10 to 15 minutes, what we'll do is one, we'll quickly review what happened in markets in the second quarter and reviewing some drivers of those returns during the second quarter.

Then we'll take a closer look at our investment committee's viewpoints for the markets and the economy and what we're watching going forward.

And then finally wrap up with the review of the permanent fund, the performance, and how it ended the quarter from an allocation standpoint.

So to start off first, we'll quickly take a look at our quarterly market summary.

And this is broad asset classes and various indices in these asset classes and how they perform through the end of June 30th.

And before we start taking a look at some of the numbers on the page, I really just wanted to go over some of the headlines that came out of the second quarter.

First, we start off the second quarter with tariff announcements and proposed tariffs that would potentially increase tariffs from two to three percent to over 20%.

On top of that, we saw Moody's downgrade U.S.

debt, and we saw war happen between Israel and Iran, which resulted in the U.S.

bombing Iran nuclear facilities.

And I'm sure I've missed plenty of headlines as well.

And despite all this, if we look at the quarter today column or the second quarter returns for various asset classes, we see strong returns across the majority of indices.

We look at the SP 500, you can see in the second quarter was up nearly 11%, which is even more remarkable.

I'm sorry.

Was there a question?

Sorry.

Okay, I apologize.

Um, but it was made even more remarkable that the 11% return was achieved when during the first week of April, after initial tariff announcements, the SB 500 was down as much as 10% in April.

But on April 9th, we saw many of those tariffs paused and really led to a strong risk on rally in U.S.

equities.

A large part of that was driven by the magnificent seven, or those seven technology and AI associated stocks like Microsoft and NVIDIA that really drove a lot of the returns in the second quarter from U.S.

equity markets.

We look at international equities, we can see double digit returns from international equities in the second quarter as well, continuing strong performance that we saw in the first quarter.

And many of those drivers of returns from the first quarter continued in the second quarter.

We saw continued fiscal stimulus and defense spending out of Europe, as well as continued weakness from the US dollar.

And quick reminder as the US dollar depreciates, that helps U.S.

investors returns when they invest in assets outside the U.S.

Just as an example of that, the MSEI, all country world X USA index that you see there in the middle that was up 12.03% in the second quarter, without the effects of US dollar weakening in local currency terms was up 6% during the second quarter.

Then if we take a closer look at the alternatives of diversifying assets, you do see some negative returns from real estate, but you do see nearly a five and a half return from infrastructure.

And then finally, wrapping up with fixed income, we see the Bloomberg U.S.

aggregate index up 1.21% in the second quarter.

So moving on kind of from what markets have done and taking a closer look at what our viewpoints are on the markets and the economy going forward.

So we'll the next few pages are certainly there for your reference.

We're happy to answer any questions or any comments on those pages.

But the next page I really want to bring to your attention in the interest of time is our factors to consider over the next six to twelve months.

And this is how we feel different economic factors will influence risk assets and what we're watching going forward around these economic factors.

And we can start here in the bottom right-hand corner around political or policy risks, and it's an area you can see where we're negative.

We do have the continued conflicts from a geopolitical perspective that we're all well aware of, as well as continued uncertainty around policies and trade policies in particular.

Our investment committee has actually commented that they see policies driving markets to the largest extent that they've seen going back to the global financial crisis in 2008 and 2009.

Now, one of the byproducts of this increased level of uncertainty and policy uncertainty is we have seen business and consumer confidence really pull back during the start of the year as well.

And that's somewhat worrisome to us because if we see that decreased sentiment lead to decreased spending from consumers and businesses, that could be a negative for the economy going forward.

On the flip side, if you look at corporate fundamentals, it's an area where we remain slightly positive.

Companies continue to enjoy strong profit margins, strong balance sheets, and so far second quarter earnings have been strong.

If you look at the top six factors across the top or the top six boxes here, you can see we're neutral across the majority of these.

And a big reason for that is you can certainly find reasons to be positive for each one of these factors, but you could also find reasons to be negative for each one of these factors as well.

And going forward, we really think the positives and the negatives are in balance.

So we've certainly seen progress made on inflation going back to the highs we saw in 2022, but some of that progress does seem to have stalled somewhat, and 3.1% is certainly higher than the Fed's preferred target of 2%.

Now there is some concerns about the effects of tariffs and if it will lead to increased prices and inflation going forward.

And we have seen some indications of this in some goods that are more sensitive to tariffs, like appliances and furnishings, we have seen prices increase.

However, in some other areas like autos, we haven't necessarily seen those increases to prices yet.

If we look at labor markets, just underneath that, unemployment sits at 4.2%, which isn't worrisome.

We are in a low turnover environment in which we're seeing lower hiring, but we're also seeing lower firing as well.

However, at this point, we do think the labor markets are cooling.

If you look at the non-farm payroll report for July, which is a measure of job creation in the U.S., not only did July come in, somewhat disappointing, but we did see negative revisions down to both of the previous months.

And actually, over the last three months, the 35,000 average over the last three months of new jobs created, it's actually the lowest it's been since 2011 outside the pandemic period.

And even Drone Powell, the Fed chairman has come out saying that they're seeing downside risks rising to labor markets.

And that really then finally brings us up to monetary policy.

The Fed hasn't resumed the rate cutting cycle during 2025 that they started in 2024 and are taking more of a wait and see approach, really waiting on the data and primarily waiting to see the impacts that tariffs may have on inflation.

But they're really stuck between a rock and a hard place.

If they were to see inflation persist or inflation increase due to tariffs as labor markets weaken, it increases the potential for a Fed policy mistake of either cutting rates too soon or cutting rates too late.

Now, Jerome Powell did speak last week at Jackson Hole, and the market really took it as a signal that rate cuts may be on the table for September.

However, there certainly wasn't anything definitive.

At this point, markets are putting the chance of a September rate cut at approximately 88%.

Overall, our overall outlook is neutral to positive.

We do have positives that we can see coming forward over the next six to twelve months.

We do have potential for future rate cuts as well as some of that uncertainty has been removed with the passing of the tax reconciliation bill.

And besides removing some uncertainty, there could be some pro-growth components of that bill passing.

But as I mentioned, recording in progress.

The positives and negatives are somewhat balanced.

And the negatives over the next six to twelve months could be that before mentioned policy mistake from the Fed.

We do have elevated valuations, continued policy uncertainty, and continued deficit concerns as well.

On the next page, we really take some of these viewpoints and how we feel or our sentiment against different asset classes.

Now, what you see on this page is reflected as of the end of the second quarter how we felt about different asset classes.

And indeed, during the second quarter, we did become slightly negative on our viewpoints on equities, both US and non-U.S.

Given the increased levels of uncertainty, we felt that there was more risk to the downside than the market was necessarily pricing in.

Now, as the quarter went on, the market did become more comfortable with the levels of uncertainty and certainly continued into the third quarter as well.

And in July, we did take off that slightly negative stance on U.S.

equities and non-U.S.

equities and move to more of a neutral feeling or neutral sentiment across asset classes going forward.

So with that, we'll transition from our viewpoints looking forward and take a closer look at the permanent fund portfolio performance and allocations through the end of June.

Now one of the things I really wanted to point out here is you'll notice some differences between this report and what we reviewed last quarter.

And this report does reflect changes to the portfolio from recommendations stemming from the extensive asset allocation and investment policy review we conducted back in February in the conversations we had with you.

Now coming out of that review, the approval came in April, and that included the inclusion of real assets and changes to the small cap allocation as well as the small cap pool as well.

And you see we'll see those changes reflected on this page now through the end of the second quarter.

They were conducted during the second quarter.

And we partnered very closely with staff during the second quarter on making those rebalancing recommendations, and staff was phenomenal to work with during the second quarter as these changes were implemented.

As a reminder, the target allocation is 60% equity, 40% fixed income for the portfolio.

Looking at the total fund line, you can see the market value of the overall portfolio was 14,763,038 as of June 30th.

And in the second quarter, that one quarter column represents the second quarter, a positive return of 6.55%, which is a strong absolute return for a diversified portfolio over a three-month period, but it did slightly underperform the blended benchmark, which you can see just below.

For the fiscal year, we see a positive return of 11.70% and some slight outperformance versus the blended benchmark.

And just to put that 11.7% return over the fiscal year into somewhat of perspective, the one-year return on an investment in dollar terms would be a positive 1.5 million dollars positive.

And going since inception back to January of 2023, the average annualized return for the portfolio has been 13.30% and in line with the benchmark.

Quickly looking at what contributor detracted from some of that performance during the second quarter.

We can look at the domestic equity sleeve.

It was up 8.88% in the second quarter.

However, it did underperform the Russell 3000 index, primarily attributed to the small cap portion of the portfolio.

The international equity portion of the portfolio was up 11.24%, but did slightly trail the MSEI upcountry world X USA benchmark index.

Next portion is that real asset portion that you see as a new addition to this report with the inclusion of the real estate pool and the real return pool to the portfolio.

You'll see for several of these NAs listed for the returns.

Because of the recent additions to the portfolio, we just don't have the performance figures over a month to include.

Next quarter, when we take a look at this report, there will be performance figures populated in there after we have more than a one-month performance time frame.

And then also as a reminder that real asset allocation was included to increase overall portfolio diversification with the goal of improving the risk-adjusted returns for the portfolio, as well as reducing the volatility over the long term for the portfolio.

And then finally, the fixed income portion of the portfolio was up 2.31% during the second quarter and outperformed the Bloomberg U.S.

aggregate benchmark by over 100 basis points in the second quarter.

Another thing that you won't see listed on this performance report was some additional uh recommendations and changes during the second quarter as well that we work closely with staff on on making recommendations, and that really stems from the international equity portion of the portfolio.

There were some pool changes implemented by the state investment council and changing the available pools for non-U.S.

public equities, moving from a developed and emerging market available pools to pools that are more focused from a market cap perspective, including large cap pools as well as small mid-cap or smid cap pools as well.

So we've worked very closely with staff during the second quarter on recommending allocations to those pools to align the allocations in line with the investment policy statement, as well as the strategic benchmark of the MSEI all-country world X USA index.

And quickly to wrap up, the final thing we wanted to go over today is how the portfolio was allocated through the end of June.

You can see that asset allocation column is the portfolio allocations, and then the target allocations, the minimum allocation and maximum allocations from the investment policy statement.

Now, those allocations have also been updated with the updates that we discussed and reviewed in February that were approved in April, the new IPS updates are reflected in the target minimum and maximum allocations that we see here.

So with that, that's the end of our prepared remarks, but we'd be happy to open it up for any questions or comments.

Questions?

See none.

Thank you, Jed.

Appreciate it.

Thank you very much.

Next, we have the review and input on the core and liquidity portfolio performance.

And I believe we have Frank McDonald that's going to be doing this.

Welcome, Frank.

Thank you for having me.

Good evening.

Let me share my screen here.

All right, can you see the presentation?

Okay, thank you.

Thank you.

So again, my name is Frank McDonnell, and I will be speaking towards uh the Rio Rancho uh portfolio uh for Q2 2025, and I'm representing government portfolio advisors.

So given the in-depth market analysis already provided, I'll keep my market overview brief, uh, really just highlighting what we're focused on here on the more fixed income side of just the impact of what's going on with interest rates as well as the fixed income market.

Uh so for this first slide, I'd like to just keep the attention to the top left chart, which is the FOMC dot plot.

And really, what this is showing is the expectation of future Fed funds rates from the end of 2025 for the next few years.

And really, the theme here is that the expectation is where rates are currently at 433.

The expectation is by the end of the year, the majority opinion is they could be as low as 387, and that that trend would and will likely continue for the next few years.

The next page, some of these numbers have been touched upon, but really just the focus here is as mentioned, you know, the Fed is really focused on this dual mandate of managing the overall economy versus the risks of inflation.

These are just some backup graphs and darts and information that highlights what's already been touched upon.

So for these slides, uh I'd like to take our attention to the yield curve, really just see what's been going on in this market for the last year.

So the light blue line is the yield curve for three months out to 30 years, uh, one year ago, as of Q225.

Really the focus to what's happening on the front end uh with the three-month bill specifically, the rates drop within that one year period from close to a 550% yield down below the 450% yield.

And with our own investments, we're focusing on that three-month bill out to about the five-year.

And you can see that while that shift has also happened in the two-year note as well as the five year, it's not nearly as pronounced.

What's this has resulted in over the course of the year is what we refer to in the market as a more normalized yield curve where you're starting to see front-end rates drop below the intermediate and long-term rates, which is a theme we expect to play out here in the coming months and years.

Uh the next slide here kind of reiterates that point.

Um, really a lot of information, but the focus here uh on the top charts is just this is like the the interval maturity structure of U.S.

Treasuries to focus on just how the underperformance has uh flipped in the last few years.

Uh so just to touch upon if you look at a three route three-year track record of the US Treasury zero to one year, and as you work your way down, you actually see uh the shorter maturities have outperformed the longer maturities, which is very unusual.

But if you move to one column to the left and look at the last year, you can see the relationships become more normalized, where that front end of the curve is starting to underperform as you go out the latter maturities, which is a theme we're starting to see throughout the portfolio, which is gonna um play into some of the uh investment strategy we're putting in place.

So now speaking specifically towards the the overall total portfolio, uh every quarter uh on a regular basis, we're constantly reviewing the compliance reports to make sure we're in line with the policies.

Uh and this page uh is the highlight for the end of the quarter, and you can see that for the policy diversification constraints, uh, we are client.

This is also uh as well for the maturity structure, the maturity constraints as well as the credit constraints.

So again, we're we're monitoring this and we have daily flags that would update if there are any changes within the portfolio that should draw our attention.

So the next slide here, here we're actually looking at the component portfolios that make up the total portfolio for Rio.

And really what I want to focus on here is in the bottom section where it breaks down each of the five portfolios, uh, for the um intent of this conversation, the focus is really going to be on the bottom three, which is a combination of the catch matched investment portfolio, the investment core portfolio, which is the lion's share of the assets at 169 million, as well as the liquidity portfolio.

And just to put in perspective, like what the focus is where we're at within each of these portfolios, I think it's easiest to focus here in the middle of that bottom section, which is the book yield.

And this is just an opportunity to see the relative yields for each portfolio.

Uh and again, the theme we'll touch upon on later slides, but you can see that the bottom portfolio, the liquidity portfolio currently has a book yield of 427 versus just above it, the investment core portfolio has a book yield of 395.

This this again is showing that inverted relationship of a longer strategy portfolio having a lower yield than the liquidity portion.

And this is the trend that we expect to uh flip over the coming months.

The next slide here is showing just the overall structure of the portfolios as of the end of the quarter.

You know, a lot of information here, but again, let me just take your attention to the top right of this graph, which is uh showing the book yield.

And specifically what I like to look at on these slides as we focus on the cash match portfolio, the investment core as well as liquidity of how have those book yields changed year over year.

And so looking specifically at the liquidity portfolio, we can see it ended 20 uh second quarter of 2024 at 5.25%.

But in that one year period to this past quarter uh month end, we see it's dropped to 427.

So a drop of uh one whole percentage point, uh, which is which is pretty dramatic.

And as you work your way from the liquidity up to the core, the investment core specifically, you can see that book yields unchanged.

And what we're seeing there is that that pivot point of when the front end curve is starting to come down and longer end rates are starting to perform or outperform the short-term rates.

So again, we expect this trend to continue and that liquidity to continue to experience pressure downward, and we're really looking to target the portfolio maturities and investments at that four, you know, four percent rate in that investment core portfolio.

Uh also just bringing your attention to the bottom of this page.

Another number we like to keep in mind is uh the unrealized gain loss position.

As of uh the end of 20 or Q through uh to 24, uh the the overall portfolio was sitting at a negative uh unrealized loss of 1.8 million.

And with the drop in rates, you know, as rates come down, the prices appreciate in the fixed income portfolio.

So we're now sitting at a 1.3 million dollar gain on the overfolio.

So really what that means for us internally is that we give us more flexibility within the portfolio if and and if we were so choose to use it.

The next slide here.

This is looking at the actual um income earned of the portfolio from last year uh into Q2 into 2025.

Uh so a lot of information again, but what I would like to take your attention to in the top section of this page, uh the book income.

Uh the book income for the total portfolio for 2024 was 11.7 million, and we can see that that's increased uh into 20 uh 25 to 12.4 million.

So that's an annual increase of earnings of 700,000.

Um and these are actual realized earnings within the portfolio.

Uh that is again a reflection of uh the ability of the uh core portfolio to kind of lock in those longer term rates as the front end of the curve continues drop down uh in interest income.

The next slide here really just looks at the overall portfolio structure within the total portfolio.

Uh and really the focus here is these are high quality assets.

Um 70 percent roughly is in U.S.

Treasuries and agencies.

Uh we also have you know the liquidity portion, that's it's between the money market funds and the bank deposits, and then we have a small 4.25 percent on the right-hand side in that column, uh, allocation of corporate investments.

The next slide here is looking at the overall maturity profile of the portfolio.

Uh again, the focus here is this this is a short, um, this is a high quality short portfolio.

And if you look at the first four columns on the bottom there, that's all represented within one year of maturity.

So over half the portfolio uh matures within one year, which just uh ensures uh access to liquidity um you know for for the city here.

Next slide.

So this then takes us to the portfolio holdings, uh, which are here for your reference.

So at this point, I will take any questions if anyone has them.

Questions, comments.

That's it.

Thank you.

All right, well, thank you for having me.

Have a good evening.

And the next item on the agenda is the procedural recommendation discussion on earning withdrawal and emergency fund allocation.

Director Carroll Harmil.

Thank you, Mr.

Chair.

Um we brought forward this on the um agenda to have the discussion about member Baker's proposal that he had submitted prior to the last board meeting.

Um we I believe we included it in your packet material so that you could review it.

And this is just so that you can have your discussion about it and what and and thoughts about what you may or may not like to recommend to the governing body with respect to this proposal.

Mr.

Chairman, I did have a question.

Um, is this a recommendation that we need to to vote on, or just give our blessing to continue forward?

What are you asking the board with this document?

Um what what we um what we talked about at the last meeting was that we would have a discussion about it at this meeting because we didn't have it noticed on the last meeting, we didn't have the open discussion.

So this is just for for the benefit of the board to discuss what you might like to do.

This is a proposal that the member made.

He can speak to it and offer any additional any additional insights or whatever he uh had related to his proposal, and then you all as the body can discuss it.

And if you do want to make a recommendation to the governing body with respect to moving forward on the proposal, you can do that through a couple of different means.

One would be through your annual report that will be due in December, right?

And then the other option would be to wait and make the recommendation at the time that uh in your February meeting when it comes time to make a recommendation about use of the 50 percent of the earnings.

If I can speak.

So I made the recommendation and this last year, I don't know what was the earnings amount that we we decided to keep inside the fund.

I don't remember.

I remember exactly.

It was north of 500,000.

So let's just call it 500,000 for recommendation.

So what I'm proposing is that we could decide not to send it out to be spent, but take 50 percent and put it into a wherever that would go.

I don't know the policy and procedures with a client, I would just put it in money markets.

That if we have a negative year where there is no earnings, we could access that this fund I'm talking about that would have assets in there in case we have a negative economy, because if we have a negative economy, I'm gonna tell you the stock market's not going to participate in a positive way.

So it would put us in a position where we would have assets we could gather and use for the city when there is a negative market with um markets on the account not participating as well.

So we could be strapped as a as a city financially, and we couldn't access money.

This would give us access to some funds.

I don't know what the what the procedure would be, and I don't know what the legal jargon would be.

That's not my expertise in writing or creating.

I gave an example, but that's just an example of what that could look like.

Um that's what I'm proposing.

That we move forward with getting legal verbiage so that we can make this proposal.

I mean, what if if we get to the point where we vote against taking 50 percent of the earnings?

Well, then we don't fund it.

But if we we do, then there's funds available in case the city's economy and uh the the uh revenues coming in are off, we have some funds to access.

That makes sense.

Mr.

Chairman, um and I'm not sure how the the city of Ria Rancho works, but for example, with uh with the with the state, if there's a uh a rule change or maybe a statute change, there's this legal process and this public hearings that need to be done.

And is it as simple as us just saying, yeah, let's change it?

Or do we need to get a hearing officer and start a process to get some of these rules adjusted or changed?

What I'm saying is we would vote as a board to suggest to the governing body that we implement this to happen, and then it would go before the board or the governing body, the city council, to actually vote on it to make that change happen.

We we we're not able to make any kind of changes like that to uh on what we vote on.

We just vote on what we suggest to the governing body, and then they would vote on making that actual change.

So can I make a recommendation to the board that we vote to present to the city that this would be an emergency fund that could be very valuable to the city and that they look into something like this amended inside the documents to allow for um up to 50 percent of the earnings in a good year to be parked for a bad year when there's no market gains?

That's my recommendation.

Mr.

Chair, um if I may, a couple of um points to make.

Um the city ha holds currently 20 almost 30 percent cat reserves in its general fund.

Chair um if I may a couple of um points to make um the city ha holds currently twenty almost 30 percent cat reserves in its general fund so an emergency fund um which and that is something around 30 million dollars the state only requires 8.3 percent and so we are well above what the state uh mandates for municipalities to hold as emergency uh reserves so we already do have an emergency fund which is invested in a conservative manner based on the policy that you um reviewed and approved last August I believe it was a year ago um it'll be up for review again next August and so while um you absolutely have some really uh you know that you're absolutely correct member Baker um that having funds set aside for emergencies is important we feel like we've already done that with our large reserves we have a policy guideline that requires 25 percent um we do have um so that is invested in our portfolio that Frank just reviewed with you um it's that it's part of the money that's in there so it is conservatively invested um the recommendation you're you know as a body you can certainly make a recommendation when you you know to to the governing body to you know regarding the permanent fund that is your purview um it would require uh for sure it would require uh the governing body to change the policy which they do by resolution and um then it's possible that it may have uh necessitate a change to the ordinance as well um the one thing we can't do and I don't think your proposal uh does that one thing we can't do is change the charter the charter land charter language is very specific but I I don't believe your um recommendation would necessitate any kind of change to the language in the charter but that would certainly have to be looked at as well.

If it does require a change to the charter then that's um not something that the governing body has the power to do the charter is voted on by the voters and there's a whole process for that and that can only be changed every six years and it's done there through a committee that puts the questions on the ballot and then the voters decide.

So that's something we would have to look into as well if that's something that that that you wanted to request of the governing body those are recommendations that you could make you could make the recomm a recommendation to change the policy to accomplish what you want to accomplish here again that is that is up to you to make that recommendation.

So just wanted to make those couple of points for you Ms.

Kerr I had a question we we talk about making community investments with the permanent fund but not the the general fund, the larger fund right?

And this 30 percent 30 million would be in that it's that's the city's general fund right?

That's correct.

So I I would be recommending only on the permanent fund for stuff like we talked about allocating some money to maybe police and fire or or parks or education and I think that that is having that money that's not in the budget and then just saying okay here's this last year was 500,000 and the city didn't need anything because everything was running smooth so we we voted on putting it back into the the permanent fund I think what this is what I'm looking at is if we're going to do small stuff that makes big impacts like I don't know maybe the police and fire the budget is is is uh is is um maybe they could use 2500 in the budget and we don't want to raise the permanent fund because the economic cycle happening in rear rancho is off but the permanent fund would be able to make a 2500 so I don't I'm not wanting to add to the the reserve fund I think it's phenomenal what Rio Rancho has done and we've gotten national recognition on that having those those reserve funds because we are phenomenal on that that is go find a city following us there's not many.

So what I'm thinking is separate from the permanent is that from the general does that make sense?

Um the the ordinance currently reads that that decision is the decision that you make in February when we give you the report on the earnings of the fund of the permanent fund for the year.

That would withdraw the the 50 percent of the earnings out, and you can make a recommendation to designate it to any government purpose.

Um the that government purpose has been designated as returning it to the permanent fund for the past two years so that we could grow the fund.

And as you can see, it's grown nicely.

We we're really happy with the way that it's gone based on our original um investment.

So that's that's how actually the ordinance was written.

The original ordinance is intended to function.

Um your proposal to set the money aside into an emergency fund is kind of redundant with our reserves because that government purpose would be to support the city in a bad economic situation, but that's what our reserves are for.

So I think that.

Well, ooh, goodness, holy smokes.

That's what happens when you talk with your hands.

Sorry.

Pardon me.

I get that from my mama, rest her soul.

I've always joked that she wouldn't be able to speak if we tied her hands behind her back.

Um I lost my train of thought.

Oh, so it was it's it, you know, having the reserves is what your proposal is intended to do, I think.

Um so I I'm I'm not a hundred percent sure that um adding, well, I mean, we can add to the reserves, which would be in the general fund used for general purposes, which is what we could do if that's how you chose to make a recommendation, and then it would be included in the pool where we invest, as you saw the core portfolio and the liquidity and cash match portfolio where it would be invested conservatively.

So we can, I mean, that's certainly something that you can do as far as uh uh changing requesting a change to the policy, that would be a good alternative to what you're recommending recommending, it would be an alternative proposal to include it with those um Ms.

Carl, what if what if uh like this last year one of the recommendations I think was a park, something to do with a park?

Let's just say that there was a park that we wanted to enhance, and it's $200,000, and the city doesn't put it in the budget, and it gets to the point where we would like to put the $200,000 into it.

We could have made that recommendation this last year.

But it's the market's off 12%.

We wouldn't be able to make that recommendation.

That's where this fund would come from.

That's where this fund would be valuable.

Does that make sense?

Uh I understand what you're saying, um, for sure.

I understand what you're saying.

The board could recommend certain things.

Um the governing body is likely to um to do to determine that the priorities that have already been established in the strategic plan and the way that things are you know established through the you know the prioritization of expenditures for the city and the and all our are what they're gonna go with, to be honest.

You know, they may, you know, they may decide that that if there's a down market and we don't have, you know, don't we can't spend the money out of the reserves um for that 200,000 dollars that goes to the park, but they're unlikely to want to do that if we if there's a down market and the city is struggling either way.

If that I I'm not sure I articulated that very well.

But it uh it makes me a little confused that uh the fact that we make recommendations, but then if we have a a good year, and we just want to park the funds in on the sidelines for a bad year where we can help a school or we can add money to that that it would be rejected by the general I get it.

But then it it the question comes back to if they're just going to do that, why are we here?

Well, Member Baker, you're here to offer recommendations.

The governing body is the you know the governance, so they can decide for or against any recommendation made by any um advisory board that the city has.

Um their uh their the the expertise in this area is the reason why you're here to be able to provide you know logical, reasonable recommendations that the board can act on, because this is not their area of expertise.

And you bring input, um citizen input um as needed and required by the ordinance.

I I totally get where you're coming from.

I I understand the process on that.

So basically, if we took 50 percent of the earnings and moved it, they would put it in the permanent fund and we would no longer have the ability to make recommendations on that.

I'm sorry.

So then we're taking from the permanent fund 50 percent of the earnings in one year and moved it to the general fund into these this 30 million we have, then at that point in time we would no longer have ability to make recommendations on that cash that was put into the reserve fund.

That's what it sounds like.

Um I would say you could probably make a recommendation um to of how the money gets spent.

I don't I don't think there's anything prohibiting you from doing that.

Um I but if we're in a down market, the the you know the city is gonna be more worried about paying the bills and you know, not you know, and in investing it according to the priorities established by the governing body.

Which may or may not be actually priorities of the board.

If we add it to the reserve fund as a big picture, we we might go 10 years and not have needs to take money out of the permanent fund, but if we've took two or three hundred thousand dollars a year over a 10-year period, that's an extra two million dollars.

That could be valuable.

It could be.

What do you guys think?

Uh Mr.

Chair, um, Mr.

Baker, would would that be the 50 percent on the earnings on the uh would it be annually done automatically, or was it there be a review and a vote every year on that 50 percent?

We could leave all the money in place, or we can take up to 50 percent and park it for when the more when the account doesn't do well, we still have funds we can make a recommendation on.

What if what if uh the cutbacks cut back on a school or even fire in police?

And uh, you know, 300,000 or 600,000 in a reserve fund could make a big difference and not come out of the general budget.

It would be would be nice if we had a separate escrow fund or separate from put it into the 30 million, because it kind of just gets lost in that basic how versus a separate fund where we could tap into those short-term emergencies and I had a question on the 30 percent reserve.

Is is that historically been that way, or is that uh reviewed annually based on revenues for the city, so they could raise it to 35 one year if they get extra revenue, or has it been 30 percent for the last five years on the reserves?

Um member Jablanski, the reserves have increased um over the last well, since I've been here nine years, the reserves have been increasing.

Um we have the ability, I mean we have the ability if we get excess revenue to let that sit in reserves.

Um the the projections for the next five years don't show us having excess revenue that would add to the reserves.

Um they show our reserves staying around the 28 percent mark for the five-year projections that we have for revenue and expenses.

So, Mr.

Chair, you have the ability to uh lower the reserve percentage from 30 percent to one year to 25 percent depending on the revenue.

Well, the the reserves the the reserve the policy state the policy for our reserves is twenty-five percent.

We could we being the city could spend everything up to you know until and bring it down to twenty-five percent.

Um if we if the city did that, it would undoubtedly be on one-time expenses and not you know recurring expenses because you have we wouldn't have a structural balance at that point.

But um the reserves go up and down based on the availability of cash and the uh and how much money we have uh or how much revenue we're projecting.

That makes sense.

So what what we don't spend at the end of the year from our current budget ends up in the reserves, what excess revenue we have ends up in the reserves.

The following year it can be budgeted for one-time expenditures or not, and that's how we you know keep it sort of level.

But as a you know, as the um the the economy flattens out as our GRT projections have flattened out for the next five-year period, um the likelihood of having a lot of unspent budget or excess revenue is declining.

That is like a really hugely simple simplified version of what we do to get our to get our budget and where the reserves come from.

So, Mr.

Chairman, and uh and thank you all.

I appreciate this discussion and speaking with uh member Baker, I I understood exactly the the paradox he was discussing.

Um I wrestled with it the thing, I'm sure the same way he did.

Um but upon hearing from Carroll about our reserves and our policy on the 25 percent now up to 30 percent.

I I think I'm leaning towards more leaving it the status quo than to which is completely different than when I when I read this morning and was coming in thinking yes, we need to change this policy, but now I'm thinking probably not.

Um I'm wondering if this is something that we could table for a year possibly or I I don't know when the discussion would need to come up, maybe if our reserves dropped closer to 25 percent, but it seems like at least for the next pereseable future we're we're we're we're fine.

I understand that the needs to build parks for for sure, but yeah, if we had a market turn of twelve percent um salaries would be a bigger priority than parks.

My thought on this is gonna be that if we that we don't really vote on anything tonight, that the board um use this as an option at next February's meeting and we say that, hey, you know, if we're gonna vote on putting it back into the fund like we've done so far, uh, you know, being this this new permanent fund board um or you know, use it for some kind of capital expenditure, which we get every year, and uh we say, hey, we want a park, we want fire, we want whatever, whatever we decide is the best use of that of those earnings, 50 percent of those earnings, or maybe take some of those or all of those earnings and put it into this emergency fund.

But you know, making something you know to vote on tonight or you know, at the next meeting, I I I don't see a reason that we should make that decision now that this could be something that we do with those earnings when we get the earnings at the end of the year at the beginning of next year.

That's that's my thought that this board should consider.

Mr.

Chair, um next year will be the year you have to review the policy again, and so that will um give you afford you an opportunity to um change the investment policy also if that's something that you all feel needs to happen or you know, if something uh along this line or you know, to to add to the policy or some part of this needed to be added, that would be another opportunity for you to do something to make uh recommendation to amend the policy at that point, and then that would go to the govern the governing body would have to approve the policy by resolution, which they do, and they would have to do whether this was in it or not, um as part you know, part of the process for the biannual um review of the policy.

If I may, Mr.

Chair, I have a recommendation to consider.

Um what about possibly you'll be tasked with completing your annual report to the board for your next meeting?

Chair I uh I'd like to ask Ms.

Carroll a question um is is the only way to remove the 50 percent is to put it into the general reserve fund there's no way to keep it in the permanent fund as a like a secondary account that's just liquid um member baker the um gosh let me see hold on because I brought it up brought up the ordinance just in case I needed to got it so let me see the ordinance specifies on the ordinance specifies the timing of taking it out the first quarterly meeting in the calendar year is when are we able to keep that connected to the permanent fund and not put it in the general fund um well that's what you've been doing the ordinance the the ordinance um would return any um the or per the ordinance any investments not pulled out becomes part of the corpus for purposes of calculating the earnings next year so it becomes put it for for this purpose it becomes a principal and so the next time the the next year is when it starts from that point you know it's 14 35 whatever now that's the new principle and then whatever is earned above that for the following year is what so there's there's not a way to take in a good year half that earnings out and still have access to it but access within the permanent fund it has to go to the general fund and then we no longer have any recommendation on that well it would not be able to stay in the permanent fund it would have to go to a different fund it could go to a go to the general fund or it could be placed in a special revenue fund that's established for that purpose that would be a whole nother thing that has to be done um the city has quite a number of special revenue funds already um so it would have to be set aside into a special revenue fund accounted for separately monitored separately audited separately all of the things that all of our special revenue funds are um subject to that's a potential recommendation as well Ms.

Carroll it sounds like the concept is a good idea but the process of making it happen is very difficult that's what it sounds like um challenging better word I like that I make a motion that we table this to a later date possibly the February meeting and have a discussion at that time gives us all time to think about it maybe do some homework on what the process would look like maybe talk to some people who would create this process and then they might say it's too challenging or oh yeah we can do that and simple if if you had 10 million with me I would open up another account and put 5000 over there separate but still on your name so it's still connected and then have that 5000 to grab when the market's down is you don't want to sell when things are off and then we could still make a recommendation on it if if it is to a point of too cumbersome then maybe we we we can make that decision in February.

So I make a motion that we move this till February meeting.

I'll second that motion.

Thank you.

Chair Wainwright?

Yes.

Member Jablonsky.

Yes.

Vice Chair Baker?

Yes.

And member Bell Opps?

Yes.

Okay.

The item will be postponed.

Can we uh couple things?

Is there any public forum?

Anybody sign on or put any questions to us?

No?

No, Sarah, there is not.

Any other comments by our members?

Okay, this meeting is adjourned.