All right, I'm gonna call the meeting to order at 5 o'clock PM on Thursday, May 1st, 2nd. 1st. 1st, thank you. Roll call. William Chandler. Present. Dan Erickson. Present. Adrian Henson. Present. John Wendy's present. And Michael Zisler is not able to join us this evening for the meeting next is a Pledge of Allegiance Any began I pledge allegiance to the flag of the United States of America and to the Republic for which it stands one nation under God in the visible The liberty the justice for all. All right next order of business on the agenda is is there any presentation. No presentation from staff. All right thank you. Any public input. We're not receiving any public input for this meeting. All righty thank you.. Moving on to regular business, looking for the approval minutes for the January 23rd, 2025 meeting. Call for a motion to approve. Move to approve. Second. And go. Roll call. Dan Erickson. Approved. Will Ann Chandler. Approved. Aegean Henson. Approved. John Wondier approves. Motion passes for ZIP. All right. Second order of regular business is to turn over to hear from Jennifer Far from Davis Far in the audit report or letter. And I will turn that over to you to make the announcement. Just. Thank you commission and I would like to just do a quick introduction. We have on the line with us. Miss Jennifer far from the accounting firm of all the firm of Davis far. And she's out the manager. She's the partner who oversees our audit engagement. That's coming up and so we should like to share some required communications with the audit commission. Thank you. Thank you and good afternoon commissioners. I'm sorry, presentation up here. Hopefully that worked okay. Yeah, it is off. Thank you, Jennifer. Yep, we see it. Right. Right. Well, I'm happy to be meeting with you to kick off the audit for the fiscal year ended June 30 of 2025. And the purpose of my presentation to you is to kind of go over the scope and timing of the audit and talk about our audit risk areas for this year and feel free to interrupt me along the way if you have any questions. So I was part of our scope of the audit includes a number of different audits and reports that we issue. The biggest component of that is the annual comprehensive financial report, but we also issue letters to you on internal controls and communication of the audit results, and then we perform some compliance audits on the appropriations limit, the air quality improvement fund, and if your single audit expenditures exceed a certain threshold, then we'll do a single audit on your federal grant awards. This is just an annual reminder about the objective of the audit is to provide the users of the financial statements with reasonable assurance that they can rely on your financial statements to make informed decisions. So reasonable insurance is not absolute insurance and auditors use materiality so we can spot check and test certain numbers that we believe could result in material errors in the financial statements but this is just kind of a caveat to let you know that it's cost prohibitive to audit every single transaction. And so we do provide a reasonable assurance but not absolute assurance that the numbers are correct. For internal controls, we evaluate internal controls for the purposes of planning the audit, but we do not express an opinion on internal controls, so that's different than a publicly traded company where they are required to have an opinion on internal controls. So for the city, we will look at all of your key internal controls over your cabing such as your cash receding, cash disbursements, and payroll and investing activities. And as part of that look at internal controls, we identify your different key controls that are essentially keeping, keeping fraud from happening or ensuring that the numbers are accurate and then we will perform test of those key controls to make sure that they're operating effectively. So this slide just has a couple examples for you of some of the key control testing that we might perform. So for example, if we identify a control as the person who's processing payroll can't go in and change their own pay rate, we might stand behind them and ask them to try to do it in the system, which normally makes them a little nervous, but it's a great way to make sure that it's not just a good policy but that your systems are also supporting the good internal controls that you've set up for the organization. So we will perform certain key control testing and we'll definitely report back to you if there's any exceptions with that testing that we perform. Jennifer, I'd a quick question on that. for internal truck, for internal you do testing on an interim basis? And then this year end or do you do it all during the year end process? Do it mostly on an interim basis. So we'll be coming out to perform our interim procedures this month and during that time we've got the bulk of the transactions in there so we will pick a sample of cash disbursements that go up until the date that we arrive and then and then we'll do a follow-up of just a couple transactions for that other additional period. That's great. And then for the software, for the software that are being used, are we able to leverage control reliance upon the software? Like do they provide? Sock one reports or anything like that? We don't necessarily, I'm trying to think for the city of Teston specifically, I don't think we rely on any Sockland reports. We generally will test the system Controls as part of our testing of internal controls. There could be Situations, you know, if you outsource payroll to 80 p or something like that where we would then look at an SSE report. But I can't think of any off the top of my head that we rely on for the city of testing. Awesome. Thank you. That's a good question. Our general audit approach is to substantively test all the material asset and liability balances. So we are looking at getting confirmations from third parties, doing sampling and trying to test a significant portion of the total balance. So we can feel really comfortable that the balance sheet items are correct. and then we have more of an analytical approach on revenues and expenditures. So we might look at water revenue for example and assume that if water revenue is up that it has to do with either increase in rates or an increase in the volume of water, so then we'll get additional information from your system to corroborate that data to see if those numbers make sense from an analytical standpoint so that we do some substantive testing of revenues and expenditures, but mostly rely on an analytical approach. And then since your audit is performed in accordance with government auditing standards, we're also required to evaluate different laws and regulations that we believe are direct and material to the financial statements and then perform compliance testing. So a good example of that is testing with your debt covenants to make sure you have the right reserve requirements or testing your investments to make sure that it's allowed. of that is testing with your debt covenants to make sure you have the right reserve requirements or testing your investments to make sure that it's allowable under the state of California investment code. Each year during the audit we are required to identify risk areas and that's there's nothing inherently bad about them. It's just means that auditors are supposed to focus on something and that something needs to be evaluated every year. And so this year we have identified three areas to focus on and that just means we're going to spend more time than what we would normally do with our standard audit approach. So one of those areas is land management activities really just because of the significance of the land help for resale and the significance of the transactions when there is a sale of land or significant development activity. So if there is anything that happened during the year of significance related to land management will be testing those agreements and transactions to make sure everything's recorded correctly. Secondly is that this year is the implementation of a new accounting standard that changes how your accrued vacation and sick time is calculated. calculated so will be working with city staff to review those calculations that will result likely in a prior period adjustment to implement the new standard and we'll make sure that the numbers are correct and accurately reported in the footnets. And then lastly each year we we're required to have an unpredictability test, which is something that we did not do in the prior year, and it's kind of outside of our normal audit approach. So this year, we're planning on doing some extended testing of your loans receivable, and this could be like first time home buyer loans or a variety of different loan programs that the city has or will be looking at the loan agreements and transactions to make sure that we can rely on those individual receivable balances being correct. And then lastly, and included in our letter that's included in your packet is our fraud increase every year we will inquire with city management and a number of city employees to ask whether or not they have any knowledge or suspicions of fraud. and we're also required to ask you the audit commission and also the city council whether or not they have any of those same concerns. So if you did have something that you wanted to communicate to us, obviously you could do that during the meeting or you can contact me at any point during the audit, my contact information is on that letter. And we're interested in knowing if you have any suspicions of fraud or if you think that there are some internal controls where maybe management is overriding controls or that you think that there is an accounting policy or accounting transactions that aren't reported correctly then please reach out to. We will take that information and include that as part of our audit approach and modify our audit approach to address those risks. So with that, let's see if I can turn this off without having you look at my screen saber. It might not happen. That's all good. Any additional questions? How do you unshare? That is outside my pay grade, Jennifer. I'm not sure. You can see my picture of a leg taut that I took last week. Yeah, we still can see you. So there we go. You're good. OK, good. Yeah. Any additional questions? Anybody? All right. Well, thank you for giving us the insight on that, Jennifer, and look forward to seeing the report once you get done with all the aspects of the audit. So thank you very much. Thank you. Thanks. Recommendation just to receive and file the letter to move forward with the audit. Do I hear a motion to approve? Motion to approve. Second. All right. Call for Yezen A's, Dan Erickson. Approved. William Chandler. Approved. Adrian Henson. Approved. And John Wendy approves. Motion passes 4 to 0. Next on the agenda is a review of the March 31st, 2025 quarterly investment report with Chandler of asset management. And we're welcome to be back, Carl, on this. So whenever you're ready. Thanks, perfect. All right. for report for you guys is fiscal third quarter. March 31, 2025. Give you a quick economic update since the last time we spoke have a rate decision coming on May 7th. And we're anticipating no change for the May meeting, but it's definitely a live meeting considering the fact that today we got GDP, which I'll run over quickly next. But we're – tomorrow's a big day for the Labor Report as well. We get non-farm payrolls. ADP came in light this week. If we're seeing material weakening in the labor market tomorrow, and soon then the next week is still in play. We could see a Fed funds rate decrease, but our base case is for them to leave it unchanged for the moment. Yesterday we got first quarter or we got the first estimate to first quarter GDP and the first macroeconomic outcome of tariff talk, which was the advanced estimate of first quarter GDP negative at negative 0.3%. And well, the I guess you could say it's good's good news. The good news is that the decline can be almost entirely attributed to the 41% surge in imports, which I may have mentioned on our last meeting was going to probably happen. It was the highest surge in import of goods since 1975. And that's excluding theCOVID global shutdown and reopening. So we also got inflation for March and last couple of weeks which showed progress. Both I should say all the metrics from CPI and PCE came in below 3% year over year. So that would be good news, but unfortunately these are backward looking and tariff related data will start showing up here in the next couple of months and we'll start seeing the shipping data coming from China. It takes 30 days roughly for a container ship to get from China to the port of LA. So that'll be hitting here in the next couple of weeks. We'll see how that goes. Our focus is certainly on the labor market. We saw an uptick in jobless claims this week at 241,000 and continuing claims ticked up to 1.916 million. And again, if we see that material weakening in the labor market we might we may see the fed move sooner uh the net effects since the last time we spoke um we have short-term yields much lower the two year as of today got down to two got down to three fifty-nine it kind of sold off there toward the end of of the day up to about almost 3, but the five year was down to 373. And the two year 10 year spread is up to 59 basis points. So we have a little bit of steepening of the yield curve throughout the month. Fed funds rate remains at the four and a quarter, four and a half range. Lave is lower down to 4.27 percent and camp is lower down to 4.45 Percents and I'll run through some of this info for you like I just mentioned non-farm payrolls We get tomorrow. We had a big boost in March for 228,000 jobs added and we'll see you know might come in late, or that might come in a little bit soft tomorrow on employment ticked up to 4.2%. Job opening still, you know, show indicative of a relatively strong labor market for the moment. As I mentioned, CPI and PCE inflation measures are below 3%. So that's as much progress as you can get with all the tariff talk. We're at least for the moment approaching that 2% target. Retail sales picked back up in March just a little bit. But again, we still have knock on in a negative territory. You know, on a year-over-year basis, on any month since COVID, consumer confidence you might have heard, the soft data, everybody is less confident right now. And I think you can say, deservedly, leading economic indicators. I may have mentioned this again last time. The these might be somewhat antiquated because a lot of the measures that go into this, you know, we've had a lot of volatility in the stock market. That's what a main component for both. And essentially we'll see if we start seeing dwindling here signaling more slowing of the economy. Housing market, we, you know, we have in the commentary here that plunge to 11.4%. This tends to be, you know, plus or minus 10% is not really that unusual on a month over month basis for housing starts. And we are kind of hovering around, you know, an average level of housing starts on a month-to-month basis. We still have a positive territory on the K-6020 City Composite Home Values, almost 5% year-over-year for all the homeowners out there. And of course, our Institute of Supply Management, ISM, PMIs, purchasing managers, indexes, the short story is manufacturing, went back into contracting territory and services is on its way there too. So that's kind of showing slowing, which we would expect with all of the supply chain stress and kind of uncertainty for at least the near term in the production and manufacturing and services areas here in the states. GDP fourth quarter, we've talked about that 2.4 percent and now we're under the first quarter. I just mentioned our negative print there that could get revised positive again because we were barely negative at negative 0.3%. And the Fed, I mentioned, you know, we're anticipating the Fed is going to keep the Fed funds rate where it is next week. And the Balanchi Roll Off is just it's not as impactful. I should say maybe to a degree it is. they've just slowed the pace and they're going to continue with that slower pace of balance sheet asset runoff. Bond yields have been lower. We start, you know, we're seeing this trend here. Bond yields are continue to go lower across the curve. I wouldn't be surprised if we see curve steepening, which would be lower yields on the front end of the curve right here, the Fed Fundra and all of these coming down and the long end staying a little bit higher with all the uncertainty of inflation expectations, picking up a little bit, especially in the near term, whether it's transitory or not, probably see those longer term yields pick up a little bit at least remain relatively volatile. With that, I'll get into the rundown of all of the investment portfolios. We are in full compliance here with the state of California government code and of course the investment policy parameter set forth by the city of Tuston. Full compliance I think we have three pages here of compliance and so if we're looking at the portfolio all of the investable assets for the city on an aggregate basis this includes the Chandler managed short-term bond strategy the one to five year duration target this includes the Chandler managed short-term bond strategy, the 1-5-year duration target. This includes the Chandler liquidity portfolio, and it includes lay-of-holdings, camp holdings, money market holdings, all of the bank holdings that are reported to Chandler. The total market value of all holdings as of 331 was 199 million 820 thousand 310 dollars. The modified duration of on an aggregate basis was 1.08 and the purchase yield to maturity was 4.02 average final maturity. And I think that ticked up a little bit on an agribase to 1.2 years. And percentage of the consolidated holdings, maturing in less than 6 months is at 62.5%. Here we go graphically just showing your 62% in money market or six months holdings. And the Chandler managed short-term bond strategy. We have modified duration increased and that's still our goal. We're certainly still tactically overweight benchmark duration. The duration of the portfolio increased slightly and the modified duration is 2.38, just a tick up from 2.37 last month. Purchase yield increased, so it's good at 3.50% versus 3.44 last month. Market yield decreased as as we're seeing interest rates fall, kind of across the curve to 4.23%. And the total market value is 90,183,937. And just for the kicker, it's not part of this packet, the Chandler liquidity portfolio, total holdings is 14,282,,000 and the purchase yield on that is 4.65%. That's pretty much what I was planning on presenting today. Always happy and open to questions if you guys have any. Any questions? No. Hey Carl, I don't mean to put you on the spot. I'm trying to, I didn't find it today. I was looking forward. Do you think the rollback with the US Treasury unloading, you know, going from 25 billion to 5 billion is that because of the concern about taking on US debt because of the uncertainty of the tariffs and all that to go on on with it? Well, I think the short answer to that is not really. What it really is more indicative of is the, it was the juxtaposed position of whether or not we're going to raise the debt ceiling. And when it comes down to it, the Treasury has been running down their general market account balance. And, you know, basically when they, when they decide to inevitably, well, I shouldn't say inevitably, but when they decide to raise the debt ceiling, they're going to refill that Treasury, that the Treasury General Fund account at the Fed for the government and essentially what that does is that withdraws liquidity from the commercial banking system and what they don't want to have happen is any kind of issues in the overnight funding market. it. So when we're looking at repo and reverse repo and overnight funds, we ran into problems back in 2000, what was the 2019 right before COVID when there was some liquidity issues. They don't wanna run into liquidity issues again and they were kind of forecasting that that could have perhaps been an issue. So the best scenario for them was to start controlling the liquidity there by allowing the balance sheet assets to not roll off as quickly and limit that. So it's Basically, the money in and out of the Fed and whether or not the plumbing of the finance system would be affected by that. They're trying to control it with slowing that pace of balance sheet asset roll off. So they were clear and Chair Powell said it specifically and clearly that this wasn't any kind of monetary policy adjustment. It was just kind of a precautionary measure for liquidity. You know, essentially now rather than rolling off 25 billion a month in treasuries like you had mentioned, John, they're going to be rolling off that 5 billion a month for longer. They're not planning on changing that or shutting it off or even changing the roll off of mortgage-backed securities. So it was all just, you know, they say that it was a technical move. And, you know, I think that there's evidence that that was probably the case. Yeah, it makes total sense. Thank you for the explanation on that. Absolutely. I have a quick question. What is the thinking for loading up more on government versus agency securities? Or the portfolio or in general? The portfolio. Well, I think that right now, given, I would say even in the last almost, I probably two years or so, there has not been a lot of relative value in the agency space. Not that much spread. Not that much spread. Yeah, there's really nothing. I mean, we're seeing like even bullets like big time benchmark agency bullets coming at, you know, almost flat to treasuries, essentially, half a basis point. We're always never a big we're definitely not a big fan of agency collables because of the ill liquidity there. So, you know, the spread in shred or the spread in agencies is just not showing us very much relative value at the at this point. That is just straight agencies though, because if we're looking at the Freddie Mac CNBS, which is acid-backed securities backed by multi-family home complexes, there's actually relative value there. And there's a lot. know we you know we've been you know participating a lot more in that agency CNBS space that's right here oh am I still sharing my screen I think I am that's right here on the chart here at 5.73 percent of the portfolio so there's there's more there's more value in agency CNBS in agencies just as just as of right now, not a ton of, we would just rather be owning treasuries. Agency discount notes, discos are actually tremendously underperforming T-bills for our money market funds. So, you know, we were talking, you know, in the money market, probably negative 10 to 15 basis points in a lot of cases. So we would be buying teapots there too. Okay, thank you. No problem. Excellent. Thank you, Carl, as always. And if there's no other questions, we'll cut you loose. And have a great rest of your evening. Thank you. Appreciate it. All right. I'll see you guys next time. All right. Take care, Carl. Thank you, sir. Absolutely. Thanks. All right. Call for a motion to approve the quarterly investment report. So move. Any second? Roll call. Dan. Approve. Lily. Approve. Adrian. Approve. Don. Approve. Motion passes 4 to 0. Oh, yes. Final item today is a re-election for one of our investments subcommittee alternate members. I recommend that we have we have Adrian and myself on the subcommittee, but we'd like to also have a alternate in case one of us cannot make it to one of the meetings. So call for nominee. I'll call for Lohan. I'll nominate myself. Okay. Can anybody second it? Second, Lollian. Thank you. Call to vote in pass. Dan? Approved. Lollian. Approved. Adrian. Approved. John, approve. Welcome to the meeting. I'll turn it. Thank you. Motion passes 4 to 0. Any any other commission or staff comments at this time? All right. The next regular meeting of the audit commission scheduled for Thursday, July 24th of 2025 at 5 p.m. And with that we'll call this a meeting out of 532.