All right. We will call to you order the March 27, 2025 budget finance and taxation committee. We can do a roll call please. Here. Here. Exanders. Average. Here. Hardy. Okay. We've got an agenda in front of us on entertainment motion for approval. Move the approval. All in favor. Hi. Any opposed? Motion carries. We've got March 13, 2025 minutes on entertainment motion for approval. Move the approval. All in favor. Hi. Any opposed? Motion carries. OK, we're going to jump right into it this morning. And today we're going to discuss our FY24 external audit. and I'm going to turn it over to Eric Alangans. Welcome, Erica. Good morning. Today I have with us our external audit partner, Richardi Meckert. FY24 external audit, and I'm going to turn it over to Eric Alangans. Welcome, Erica. Good morning. Today I have with us our external audit partner, Richard Beckert, Lauren Stroke. And we also have with us that will introduce later into the agenda, Lauren's Blotts with Nighthart. There are actuarial firm that does a different actuarial report to see throughout the financial statement today. So we have provided to you the annual comprehensive financial reports. That's the large document. That's our audit document. We've also provided to you our debt supplement report that we upload as well to Emma for our municipal bonds that are on the bond market for continuing disclosure purposes. And we provided to you our PAPA, the popular annual financial report. So this is a nice, lossier version for residents and different stakeholders to read. We'll go through those today after our financial audit presentation with any questions you may have for people listening at home. These are available on www.heat.org as well anytime in the year. All right. I'll have Lauren kick off the audit summary from this year. Well, at that, I'll take it away. My name is Lauren Stroke, and I am a partner with Terry Becker, and I have the pleasure of serving as your audit partner this year. I promise you I'm a much better auditor than I am a presenter. So come on. Don't sell yourself sure. We've been with presentations. Come on. But if at any time you have any questions, please don't hesitate to share out a map. And obviously, we can go over anything at the end as well. So this is just a quick summary of a agenda that we're going to go through. Really, we're going through the summary of the audit. So the nature, the timing, the extent of the audit procedures and the results of what we found the one way. This is your core client service team. And I say core because as you know, there's a lot of people that touch this audit from a Terry's Becker's perspective. We have a former Gazby Fellow that sits with us that we can salt with. They have a lot of folks, but this is your core engagement team, and I did want to mention this is the same core engagement team that we have last year as well. Samuel Gotterrey does what's referred to in our industry as a poll review. So after me and my team complete our audit, come to all of our conclusions. He reviews all of our work and make sure that we did everything that we're supposed to do and I here agrees with the judgements that we made along the way. So everyone's favorite slide, the results of the audit. So we have completed our audit and we rendered our opinion. Everything is date of February 28th. I mentioned everything and that's just because we actually issue five different reports when we complete your audit. So the first one is the irregular generally accepted auditing standards, which is where we're telling you that we feel that the financial statements are free from any sort of material error and that they comply with gap or generally accepted accounting principles. We rendered an unmodified opinion. I set a lot of words there. But what I'm getting at is this was a clean opinion. This was the highest level of assurance that we as your external auditor can provide is the only type of opinion that you want. Also, when we complete your audit, we follow government auditing standards and we'll kind of talk about the results of that report here in a minute and what that report means. We also issue reports under both your federal and state single audit. So you get a lot of federal and state dollars, and as you know, there's a lot of strings attached to that money. So we have to look at the compliance requirements with those, and we'll talk about that here in a second too. We also issue a management letter that's required by the state of Florida under chapter 10.550, rules of the auditor general. or please to pleased to report that we're issuing a issued and no comment letter, which is a clean opinion there. Lastly, here in the state of Florida, you are required to get an examination over your compliance with investment policies under Florida State Statute. We did complete that examination and issued an unmodified or clean opinion there as well. So excellent results. All right, I mentioned we kind of dive into the single audit and that covers both your federal and state dollars. So you can see I won't list them all out for you, but these are the programs that rose to the level of a major program or project that needed to be audited this year. You did have an under-controlled deficiency that was reported in the Home Investment Partnerships Program, and that just had to do with inspections, not going along with the required inspection schedule. Professional standards do require that I communicate to you any sort of uncorrected or corrected misstatement. What that means is after management's given us, the trial balance given us the draft, if we as the auditor have to say we have to make these adjustments to really bring that in line with gap that would be a misstatement, correct misstatement. If management chose for whatever reason not to correct it it would be uncorrected and I'd have to communicate that with you. I'm pleased to report that we did not have any of those during the course of our audit. All right, I promised you we'd circle back around to the government auditing standards report. And what those standards have us do is really look at internal controls over your financial reporting and kind of take a deep dive in looking there. We don't actually apply on those internal controls, but if we become aware of any sort of material weakness or significant efficiency, we would be required to communicate that to you. So what is that? So material weakness is a deficiency or combination of deficiencies such that there's a reasonable possibility that a material misstatement could happen and be in your financial state. A significant deficiency is less severe than that, but it still warrants the attention of those charged with governance or those fearless ones. We did not note any material weaknesses and internal control as we completed our audit. We did have one significant efficiency and that related to a data transfer error in the AP automation system as you can see as a result both your expense and your AP had to be adjusted for about a million dollars there. So that related to that significant difficulty. As far as the qualitative aspects of accounting preferences management is responsible for selecting which ones will be used. If you look and know one of the financial statements, I know some of you mentioned that you like the financial statements as much as I do, that tells you all of the selections that the initiative made and how they account for all sorts of things. This year you had no new accounting pronouncements adopted. I feel like the last several years there's been something out there, but this year everything is apples to apples in comparison to how it was in the past. I think I mentioned it, but we did not know any inappropriate accounting policies or practices as we completed our audit. We do look in a related party in transactions and relationships in our audit just to make sure that those are either properly disclosed. We are pleased to report that there are no material related party transactions transactions in your financial statements, but all of them that were there were appropriately told to us by management. So we did not find any additional ones that needed to be disclosed. So good news then. significant and unusual transactions and looking through the accounting literature is really entity by entity. So for purposes of this presentation and our professional standards there were no significant or unusual financial statement transactions that occurred in 2024 that I need to make you aware of. You have a lot of things going on so I know that that seems a little unusual but in terms of accounting statements you did not have any significant or unusual transactions. The financial statements that you have are just they're not all hard numbers. And, apparently, to comply with GAP or generally accept it accounting principles, management has to put a lot of estimate and judgment into a lot of these numbers. As you can imagine as the external auditor we spend a lot of time looking at those estimates and judgments to ensure that they're reasonable to the financials of the whole. Here's a list of a lot of them. The pension and op-hub liabilities are huge estimates. So I'm really glad that you have your actuary here to kind of explain more as to what goes into those. But we look at the inputs and the census data that's provided by management and sure that, again, that it relates back and it's fair and reasonable to the financial statements as a whole. We looked at the estimate of the least receivable because there are some variable payment components in there. Same with the least and subeta payables. The estimate of the compensated absences liability has to do with employee leave estimates and use. Your arbitrage liability is based on analysis from an independent third party. You have your estimate of usefulize of your capital assets, which impacts obviously the depreciation expense that you're taking year over year. Your estimates of the claims and judgments is based on an actuarial amount where they're kind of coming up with the estimate of what that incurred but not reported liability is at year end. Bear with me, we're almost through. The estimate of the allowance for doubtful accounts is just based on management's historical knowledge of those and what's going on with the folks that owe the city money at any given time. And then the estimate of the fair value of investments, if you look in that fit, and there's a lot of stuff that goes into that depending on how a particular investment is valued, but we do look at the estimates as it relates to that as well For all of these, all of these fun things we found everything to be fair and reasonable in relation to the financials as a whole. So as your independent auditor, it's very important that I maintain my independence and we are fully independent of the city, both in appearance and fact. We do perform a couple of non-attest services for you, which kind of sounds funny, but it just means it's non-audit-related. One is our section of the data collection forum, which is a filing that happens with your federal dollars. And then drafting some of the special reports we assist with that. And all cases we maintained our independence and they are services that are allowed to be provided both by the AICPA and member Yellowbuff. I'm going to start with the first one. I'm going to start with the first one. I'm going to start with the first one. I'm going to start with the first one. I'm going to start with the first one. I'm going to start with the first one. I'm going to start with the first one. I'm going to start with the first one. I'm going to start with the first one. in all cases we maintained our independence and they are services that are allowed to be provided both by the AICPA and under yellow book. Just some fun, the required communications. We are pleased to report that we did not have any significant to vocalties in dealing with management. I do kind of want to give them a shout out, Rob. But this is a hard year, as you all know, in the hurricanes, with everything that happened. And they still managed to get us an amazing act for them time for us to review. So we definitely appreciate all of their help. We do not have any disagreements with management as it relates to any sort of financial treatment. I, as the auditor, did not have to consult with folks outside of our given engagement team and over to complete this engagement. We did request management representations. It stated the same day as the report or 228. It basically just says that everything that management provided to us or told us during the course of the yacht it was true to the best of their knowledge of belief. We are not aware of any situation where management is consulting someone with someone else solely for accounting treatment. That would only be relevant if management told us, hey, the entire reason why we did this transaction this way was because ABC firms said that that's going to do it. We just want to make sure that we got the same information and hopefully come to that same conclusion. Every year we go through a client retention process, a client acceptance process that's required by professional standards. Nothing came as a result of that last year or this year as it that I need to bring to your attention today, which again is always a good thing. As fraud is fraud and illegal acts are concerned, we don't audit specifically for fraud, but obviously we have a heightened sense of awareness. it's a possibility of fraud as we complete our audit. Our standard does have a lot of different things that we do in order to address the risk of that. As such, in just journal entry testing, we use IT software in order to help us select riskier transactions. We talked to folks throughout finance, a member of the board, and folks throughout, as we complete our audit, and nothing was brought to our attention during that time. Had something that brought us to our attention, I usually get this as an expression. We would have worked in procedures in order to address that risk or depending upon the severity just come directly to use those governance. As far as going concern is concerned, there is no conditions or events that indicate a substantial doubt of your ability to continue as a going concern. So very good. All right, so that gigantic book, I do certain things with certain parts of that book. So your basic financial statements are what our opinion covered. But you have a lot of other information in there too. So although we're what our responsibilities are to that. So your required supplementary information is called required because it's required by the gazby to be a part of your basic financial statement. That's going to be your NDNA, your pension and no PEP schedule. We do the exact same thing that we do for supplementary information. So I'll just hold up on that. Supplementary information is anything else that's required by anybody else other than the gazbi. So for instance, your CFR, your schedule of expenditures of federal awards, that's going to be supplementary information. Finally, the other information that's going to be the introductory section in this physical section, you notice that those sections, if there's not a lot of numbers in them, and so we actually don't have a pine on those. But what we do for the required supplementary information and for the supplementary information is get an understanding of management how they're created. And we ensure that in all cases where it should tie back to the basic financial statements that it does. With the other information we read through that we make sure that if anything is said that it should tie back to the basic financial statements that it does does and We also review the entire thing to ensure that it is going to comply with that GFOA With with what they say needs to be in your app for in order to continue to get your certificate every year So a lot of information in that book But this is what is done with it and if you read through that first opinion, this is what we're saying there. I'm always talking about the past. This is my chance to talk about the future a little bit. These are some upcoming, more reporting financial changement. I think the big one for you all is gonna be 104. Just a disclosure of certain capital assets, is it related to land health for resale? You are a good company of folks that are looking through that right now and we're working with management on that. But those are what's kind of coming down the pipe for you. And with that, I would be happy to answer any and all questions that you have. Council member, we have it. The last statement that you just made, you said some, I missed it, something for resale. Land, land, say a few things. I'm going to say a few things. I'm going to say a few things. I'm going to say a few things. I'm going to say a few things. I'm going to say a few things. I'm going to say a few things. I'm going to say a few things. I'm going to say a few things. I'm going to say a few things. did a great job. One of my quick questions is like you said we talk about the past a lot you, we use words like historical and they're estimating established. Well, we all know that this year is going to be an insurmountable amount of changes financially for us. Have we begun having those conversations as to what is going to look like, are look like next year. Yes so Lauren and I talk all throughout the morning of what's going on now so I don't just talk to her about what happened at that freeze point in time. Lauren and I talked during the year so like we're going to kick off in a couple months for this year's audit but during that, whenever she sees new accounting announcements or state legislative votes on something we're communicating. And she knows what's going on in the city right now. So we talk about these are what you need to know also for staffing for next year. Hopefully more federal grants. We're going to have FEMA work to look through. These are the notes we're issuing. These are the different challenges we're having. Okay, so are we going to see some some of those changes in the new document for our certain risk disclosures. We may. We may see them in the certain risk disclosures. We haven't had anything trigger because a lot of our like so like home shopping network leaving right in a smaller city that would be a risk disclosure that triggers reporting. They're large to our community but they're not reporting triggers. So we do already have that built-in to our workbooks and finance to look through all those things, because I like to know anything that's major I should report in the financial statements that can impact our city. So we already had something similar built-in that does this risk disclosure, because you'll see back in the statistical section, there are top 10 employers. So I'm like, okay, we might need to have some disclosure in the future. So we are thinking about those different things that impact us. They will filter through the report as needed. Okay thank you. Thank you chair. Thank you. Thank you chair. You're welcome. I just had one quick question on the deficiency and I certainly don't want to you know go down a rabbit hole. Is that just a translation error between two programs? Yeah, that's a technical issue. And I don't wanna talk about it in the public space because it's IT security related, but I'm happy to have one on mine to talk more about. Cool, thank you. That's what I got of it, but sometimes the descriptions of these are so broad, you're like, and we're kinda, yeah. Purvisfully, I get it. Yeah. Anything you get into the IT security, I don't want more out there. Absolutely. Nope. But I'm happy to talk to you as well over that matter. Okay. Yeah, I mean, I just, when you see deficiency, you just want to, it's double click on it. Absolutely. Absolutely. Enough said. Thank you. Council members, committee members, any other questions? I mean, I'll just say, you know, thank you to the team. I'm Jerry Burkard, Lauren, thanks for the presentation. And Tom, Erica, the rest of the team continue to do fantastic work. These are like some of the easiest presentations we can be at F&T. So, you know, my excitement is also that it's easy. So I very much appreciate it. Okay, Erica, turn it back over to you because I think we're going to talk about some of the defined benefit programs. We are. And if anybody had an I wanted an opportunity if anybody had questions about the actor or debt supplement or Paffer I'm happy to go through those as well if you want to wait until after this presentation So these questions are probably about I know it's throughout the actor so however you want to set that up Yeah, I think we'll go ahead and go through this and then you know I again I'm very much appreciate and I heart being here I know in previous committee meetings We've had some questions about the actuary, also very happy to have you here. And yeah, let's do that, and then we can answer any questions. Okay, perfect. And Lawrence's team also does all of the pension funding actuary reports, so there was a divorce in actuary, a world between accounting and funding. So he does both of those reports for all three of our plans. Today we're going to focus on the actual accounting as it goes for our accounting standards. He is going to be coming back in a discussion I believe in the future about the funding impacts of the future years that we're looking and preparing in the budget right now. So we're going to focus more on the accounting impact. He does not do our OPEB report, but another team member at Nihart does, so he can be prepared to talk about that as well, because OPEP's a large impact on our financial statements. But I just wanted to put that out there. We're talking accounting, but it's also good for new council members to talk about how the actual studies work and what's the inputs as well. So it's a good opportunity. Awesome. Thank you. Thank you Mr. Chair. Thank you so much. I don't have the presentation. Oh here let me think it is. Just by way of introduction I'm Lauren's wife actually with my heart. I'm in Atlanta but most of my business is public sector down here in the corner so I'm big. You're very often. Welcome. Fourth week in wrote it. Thank you. Yes. We see Lawrence often. It's really great. It's wonderful to be here. So you have a book probably in your packet. The first few pages are one we're going to talk about today and the numbers are in the appendix and the fact. And so like Erica said, we work with Erica and her team and Chris Gwela under Tom and his team to put together the funding reports and the accounting reports and frankly each plan is very different. Everything is very custom and pension plans in general are very complex and complicated. So it will hesitate to interrupt me at any point. But like Eric has said, I'm going to focus mostly on the accounting numbers and what goes into the effort. But if you have questions about funding, they're obviously related someone, even though there's a bit of worse than the numbers. The contributions you see here are based on numbers we calculated for the year. So that hits on the very first point, because the accounting expense that you recognize in your income statement is lower than last year. That's primarily because the last two years have been very strong in the markets and expected return on assets helps reduce your pension expense but don't conflate that with meaning that the contribution next year or two years to nose will be more because they are related but they're not exactly the same and in fact for at least one of the plans we're seeing some pressure on contributions in the future which we'll talk about in a minute. The three boards that we work with, there's one independently for fire and police, which are somewhat related because of state while there's premium tax that comes in from the state to support fire and police plans if you're following my certain rules. And then there's the general police plan, which covers general city employees and is larger in terms of headcount. So the fire plan of the three is the best funded, and you'll see that when we look at the numbers on the next couple pages They were also the first to lower their discount rate assumption So as you all probably know when the most important assumptions that management makes in terms of disclosing pension liability is The discount rate so what what value are we using to discount future pension? Lawrence, I'm sorry to interrupt you. Will you move that mic over just a little bit? Thank you. Certainly. I want to make sure you're getting, yeah. Thank you, Mr. Chair. Sorry, is this better? I don't know. I'll get a test if it's not. Yeah, I know. I know. I know. Understood. I'll get a little bit. Thank you. Sorry about that. Oh, no. Thank you for interrupting me. So the discount rate is a very important assumption that we make in order to calculate the estimated present value of liabilities. And there has been general pressure across the state and across the country to lower discount rates over the last couple of decades, even though the last couple of years, interest rate environment has improved a little bit. And because fire did that first, they were kind of ahead of the curve, their liabilities and that financial statements jumped on a relative basis earlier than the other two plans did. And so we're still lowering discount rates for both the police and general plan. But that said, the fire plan is the best funded of the mole. And you'll see on an accounting basis, they were actually over 100% funded, which which means based on what's been earned today they have more money than they need. There is one caveat there that I say that that state money I mentioned a few minutes ago that premium tax that gets accumulated the fire in the ordinance has negotiated that they're going to get a 2% cost of living adjustment for firefighters who've retired after 2008. And it's been treated as an ad-hoc cost of living adjustment in the past for accounting purposes. It gets reauthorized every year, that 2% co-la. But it's been going on long enough, and the understanding is that it is more or less permanent as long as there's money to support it, that we're to the point where we're going to have to start is closing that total liability in the future. So next year when we come in the present, you're going to see a probably higher liability, which is going to have to start disclosing that total liability in the future. So next year when we come in the present, you're going to see a probably higher liability which is going to reduce that funding percentage as we reflect that permanent treatment of the CO-1. On the police board, they have been laggard a little bit in reducing their discount rate assumption, but the last couple of years they have come down quite a bit. So this year's accounting statements are showing them at a 7.25% discount rate. That puts them at 89% funded, so still very well funded in terms of the realm of public sector plans across the state, across the country. But they did move their discount rate down to 7% this year. So when we come back next year and present the accounting numbers, there will be another hit, the liability, another increase there. General employees took a different tack. They've been coming down gradually over time, lowering their discount rate five basis points a year. And I realize I'm talking a lot of numbers, but there are just different strategies to get roughly to the same place. Everybody's targeting that 7% discount rate right now. And very similar to the police plan, they were 86% funded on an accounting basis here. So if we go to the next slide, these are the actual contributions by source to the plan that came in during fiscal year 24. Because of the way the funding calculations work, these numbers were actually calculated back in 2022. There's a year-lag basis when you calculate it. And you can see on a relative basis, ERS is the biggest in terms of contributions, and fire is the smallest. In terms of headcount, police had about 530 active, fire had about 315, and the general plan had over 1800s as of the last valuation. So they're very different sizes. And you also see on funding side of things that the state kicks in for fire and police, but there's one big caveat there that I meet in the middle. Because of state law, that money gets negotiated. And theoretically, some of it can go to benefit improvements and some of it can go to defrain the city's cost of contributions. And for both foreign police that is how it works. Some of it is set aside for future benefit improvements and some of it is kind of granted to the city to defray its required contribution. Just a note there that there is more short term projected volatility for police just due to historical reasons that we'll talk about in the future of population. So here are the big numbers. I know that we've hand-waved a little bit about it, but these are what show up in the financial statements and under GAT, the GASB's promulgated, the net pension liability, so the unfunded liability that you have on a market-value basis has to be reported on the balance sheet. And that was new as of about 10 years ago when you guys be 67 and 68 came out. And you see here that they're very different in terms of scale and what the unfunded law will do. We don't need to run through everything, but just look at that third column. And you can see that you actually have a surplus, so extra money for a fire plan, $32 million. and then police and general have substantial unfunded liabilities. They called that the net pension liability or NPL and accounting parlance, about 70 million for police and about 90 million for general employees. Pension plan expense, often in public sector world, doesn't matter very much. But Erica cares about it. And so we have it here for you, and it's a lot more volatile from near to year, right? So it depends on asset levels, it depends on some other things that are going on, and you can see there. Similarly, they're in scale, fire is the smallest, and general employees is the largest, but there's a big difference if we look at what we reported last year versus this year. And so some that is due to historical experience some of that's due to the strong asset returns I mentioned earlier, but we don't need to dwell too much on that So before I go off the slide does anybody have questions about size of the liabilities or What that means to many members? I'm gonna wrap up shortly, but like Erica said we also do the op-ed valuation And so this is for the retiree medical benefits. So OPEP is other post-employment benefits, meaning other than pension. And so very similar to the pension side of things, there were new pronouncements in gas, B74 and 75 about a decade ago, that also require you to disclose your net OPEP liability on the balance sheet. The very big difference between the OPEB plans, the retiree medical plans and the pension plans, is that the city has not chosen to prefund those retiree medical benefits in advance. And because of that, under GAP, you cannot use the expected return on assets to discount the liabilities. You have to use what's a very high quality municipal bond rate, basically a double-A governing municipal bond rate to discount the liabilities. And that fluctuates from year to year. So a couple of years ago it was in the twos, then it moved up to the threes, and it's been in the fours, as the interest rate environment has changed. And so that's why you will see typically year-to-year more volatility on what's reported on the balance sheet for OPEC. Now I say all that. And this year it was actually very, very similar relative to last year. So things kind of counterbalanced each other. And you are reporting net OPEC liability with about $195 million. You actually reported a slight net OPEC income last year. now it's a very small expense of $3 million. Only other thing that I'll say is that a question that a lot of our plans, I should say this up front. Pay go, which is not having a trust set up to fund these benefits ahead of time, is far and away the most common in the public sector. But since the gasbeap announcement, 74 and 75 came out a decade ago, we have seen a shift where more Sponsors have elected to start prefunding their retiree medical benefits and part of the big driver for that is because it will reduce your balance sheet Liabilities if you have money there you can start using a blended discreet between the expected return on assets and then the Double-A bond rate that I was talking about earlier. And we have worked on have a tool from Nihar about different funding ratios. If we start funding 500,000 a year, $1 million a year, and on top of the pay go to start accumulating assets, what that impact will be over time and to reduce that liability. So it's a nice tool and a presentation that Nihar team could bring to council if you guys are very interested in starting to fund this open liability and see benchmarks the tool and see the appetite for that in our budget. Just while we're on it I'll just go ahead and ask. Other than making sure there's money in the bucket from reducing our liability. I mean, what's the biggest advantage? Are credit rating? Yeah. OK. So because this is treated like debt. Right. So moody's and rich look at this. They do their own calculation. And they look at it just like debt. So they're looking at that and you're overall leveraging for your credit rating, exactly. All right. I just wanted to make sure I understood the biggest advantage of starting to move that way. I'm Mr. Chair, I wanna be respectful of your time, but... your credit rating. Okay. Alright. I just wanted to make sure I understood the biggest advantage of starting to move that way. Okay. I'm Mr. Chair. I want to be respectful of your time, but could I have two more minutes? Yeah, of course. Walk through. I'll go to the appendix. So we have appendices for all the plans I just talked about, but I just want to walk through a couple of disclosures that you'll see in the financial statements just to make sure that everybody understands because of the address as a question that came up earlier. What happens if we were using a different discontrary or we decide that we're going to move down? And that's actually one of the requirements in GASB that you disclose what things look like if you were assuming a discontrary 1% higher or 1% lower. And I pull up police because we know police is coming down next year, right? And so you see at that 6.25% column, the liability would be about $80 million, $78 million higher than it was this year. Everything else the same, all else equal. So we're lowering it about 25 basis points next year. It's not exactly linear, but you can do rough math and it'll be about a quarter in between. And so on the OPEP side, if I click through, you have the same thing. What's up 15? I went too far back, but it is on 14, actually, is what I intended to show. 14? Please go. By 14, you also have to do things with the sensitivity for the trend rate. So how much medical expenses are anticipated to grow in the future, right? Plus or minus 1% in addition to the plus or minus 1% on the discount rate. So don't want to put everybody to sleep. If you need some bedtime reading then they're curious. But thank you all for having me very much. Thank you. Committee members, any questions? Vice Chair Announcement. Thank you, and thank you so much for the presentation. There's a lot there. I just want to talk a little bit about the discount rates. Obviously, the appendix is helpful because it allows people to understand, OK, if we just move at one percentage point up or down, look at the huge difference in terms of liability. And having said that, obviously we're an environment where I'm sure it's not lost on you. We have foreign policy concerns, foreign currency risks, all those things, tariffs. And so I'm wondering in terms of the discount rate. I'm seeing here is probably under normal circumstances. This is what you see. But now when things like this are happening, how do you deal with that and how do you look at discount rates in the lens we are now, which is a very different dynamic environment? I'm putting it. For instance, I have both been a lot of the pension board meetings. Yes. we are now, which is a very different dynamic environment. Put it in. Sure. Lawrence and I are both in a lot of the pension board meeting. Yes. Great discussion. So it's part of every pension board meeting. Yes. We're talking about the investment mix. Yes. It's different types of investments they're having. What, how they're holding them for how long, along with the discovery, because it's driving all of it. Right. long-term path. And so I think like a lot of I know ERS is looking at what they're holding and maybe changing a little bit because they have a new investment consultant this year so there's a chance there to look at different types of investments and that's why they're all coming down slowly to get a lower rate I think that's when we we look at benchmarks and Lawrence and we see what other people have and try to get there. Maybe not like ERS is doing it slowly, fire didn't really smart at the point of time they didn't and reduced it and have had really great returns with their type of investments. But it's also the word, they do the study. They have an experienced study that they do regularly, which is best practice where they look at all of the assumptions, right? And we look at the discount rate every year because our professional standards, we have to be able to sign off and say it's reasonable. But as part of the experience study, Eric is mentioning we're looking at historical returns, the current and best of all C and then usually forward looking for agnostication. And so when we have geopolitical events that are very serious market changes, if we had another 0809, even in 22 when things greater to lot. There were a lot of discussions about, hey, is this discount rate reasonable? There's also one thing I should say, there is no explicit requirement that the discount rate that we are using for accounting purposes is the same as for funding purposes, but because the city has been comfortable that they're reasonable in both instances they have state time. So is that getting your question? Yeah, no that's very helpful and I mean you're saying you're trying to get to a 7% discount rate right? There are all the boards are trying to do these boards that we're talking about. But is that a standard in terms of an industry standard? What do you see in municipalities normally? So we are assigning 7% why? Yeah, so two things. We do bring benchmarking across the state and across the country. 7% is far and away the most common expected return for a broadly diversified and thus and portfolio, somewhere to what these boards have. The thought, and this is different, I must say, in the United States versus the rest of the world, is that the discount rate should be tied to that expected return on assets. And so most of our analysis is tied to what we think the assets and the trust are going to earn based on the current investment policy based on the current prevailing interest rates based on the board's risk tolerance, those sorts of things. Another way of thinking, and this is how it's done in many countries across the world, is, well, pension liabilities are, I don't want to say guaranteed, but they have very strong protections. So we should not be discounting with an expect return assets. And maybe we should do something that's closer to a risk free rate, not exactly the same. And that was historically how many accounting numbers came to be. And so GazP made a compromise and basically said, if you have assets to back up this obligation, this promise, you can use the expected return on assets. If you don't, you have to blend, which is what you do in the OPEP valuation, where there's basically zero assets, and you get zero, and then you have a close to risk-free bond rate. The other thing that I will say, and even though we're not talking about funding, is now for our funding reports and disclosures, we have to disclose something that's they call LD1, a low default risk obligation measure, which is exactly what I was just describing. It's what would the liability look like under an alternative discount rate that was very, very low risk? And... low default risk obligation measure, which is exactly what I was just describing. It's what would the liability look like under an alternative discount rate that was very, very low risk? And as of the last valuation, it was somewhere in the 5% range. I realize I'm dancing a lot around your question, but the short answer is that seven is far and away the most common, but the move and the pressure is downwards. And FRS, the statewide system is at 6.7. The average among large statewide plans like FRS that are even bigger than your pension plans is in the 6.9 range right now. And so to your point, some people might say, well, there's a lot more volatility. Interest rates are high. Can we assume higher discount rate? That's not the way that things are going right they're going lower Okay, no, it's just something to keep in mind because obviously our retirement plans are a huge part of our budget and To piggyback on what he said if we for act for accounting purposes Don't think that the rates where the pension boards are going we can deviate and we can go more conservative and go to a lower rate for accounting purposes we don't think that the rates where the pension boards are going, we can deviate. And we can go more conservative and go to a lower rate for accounting purposes. We'd go through that talk with Lawrence and make that decision to deviate if we think it's more conservative and better to show it at a different rate. But it's good to keep in mind that we know that the trend is downward in terms of the discount rate. That's the consensus. Okay, great. Thank you. Thank you. Yeah. Thank you. Any other council members? Committee members? Yes, sir. in terms of the discount rate. That's the consensus. Okay, great, thank you, thank you. Yeah, thank you. Any other council members, committee members? No sir. Just have, sure. Yeah, go ahead, council member Devons. Thank you, appreciate it. Just want to talk for a moment about the retiree pension plan. Understand that we talked about the Cola for a moment. It is one of our better funded options that we have. So my question is, why aren't we giving those firemen who I think it was about a hundred and 55 firefighters who have retired or excuse me, joined the fire department prior to I think 1973. My understanding is they don't receive that annual 2% raise. Have we looked at that? Where do we stand with negotiations? Yeah, it's a great. That was a council item recently, wasn't it? Yeah. Go back and watch the recording. Yeah. Yeah, there was a pretty large discussion about it. Do you remember when it was, Tom? Yeah, November. November, December. And council decided to keep it ad hoc as of now. And so, rather than rehash it, I would encourage you to go and find that meeting. And certainly, you could have a one on one with administration. I think that there was a pretty lengthy discussion during that council meeting. And I think even the year before maybe the same thing. So it was council made the decision last year to keep it at Hawk is really the short and long bit. Vagina, I appreciate that. And I understand that was the outcome. Is there an opportunity to revisit that decision? Well, as it is currently as an ad hoc, we do evaluate that annually. Thank you, appreciate it. They bring it to us annually. Yeah. Okay. Any other questions? Thank you so much. Looking forward to the other side of this conversation too. This is super helpful and I'll just repeat it. Erica, Tom, rest of the team. Thank you so much for all the great hard work. And thank you to our partners at Nihar and Cherish Becker one more time. And thank you for the great presentation. Thanks for being a nerds with us. Counting the end of the extra. OK, so our upcoming meeting, April 10th, will have a discussion on the city's disaster short term funding and then April 24th will go into our 2025 grants reports and 2024 external audit. No way. Yeah, on the CRS. Yeah, all right. Thank you. Okay, there's nothing else for the good of the order. Be up and tease adjourn. Thank you everybody. Thank you everybody. Thank you