HomeMy WebLinkAboutAC 01-26-2026 Youtube and Zoom TranscriptWEBVTT
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Dennis Mullins: We're…
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Quinlan Conf Room: Oh, it's…
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Speaker 1 (Quinlan Conf Room): Consent item consists of the three items
that are listed on our agenda. You'll see a staff report, although there
is a staff report for one of the items. Is there something you want to
say?
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Speaker 1 (Quinlan Conf Room): introduce us to the consent item,
Jonathan. So, after, listening, to past discussions and to expedite.
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Speaker 2 (Quinlan Conf Room): Some of our meetings, some of the more
routine,
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Speaker 2 (Quinlan Conf Room): items such as the previous minutes or
quarterly reports. If there's nothing, noteworthy,
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Speaker 2 (Quinlan Conf Room): we would keep a consent so that we can
move on to other businesses, and spend a bit more time there, instead of
it bleeding over to a following meeting. As is, we have a short window to
conduct this meeting of 2 hours, and sometimes it does kind of bleed
over, so, for that reason, we introduced a consent calendar.
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Speaker 1 (Quinlan Conf Room): Any verifying questions? I think, Mayor,
you've mentioned that we can actually discuss the items if we want. I do
have a question, but… so… so you…
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Speaker 3 (Quinlan Conf Room): I'll go to public comment and see if any
members of the public have a comment on consent, and then…
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Speaker 3 (Quinlan Conf Room): If we have comments, we make them, and
then we'll…
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Speaker 3 (Quinlan Conf Room): the consent calendar as a whole, and so
rather than pulling it, do that, so… Okay.
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Speaker 3 (Quinlan Conf Room): Yeah.
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Speaker 1 (Quinlan Conf Room): Actually, you could ask clarifying
questions now, if you'd like, in advance of the public comments.
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Speaker 1 (Quinlan Conf Room): Sounds good.
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Speaker 3 (Quinlan Conf Room): Okay, so I pulled the cash and investment
bank balance from 2022, from the May 31st meeting, and then today's
balance, and I was curious about
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Speaker 3 (Quinlan Conf Room): the local agency investment fund had… it
was at $21 million, and now it's at $73 million, and I think he…
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Speaker 3 (Quinlan Conf Room): I was just wondering, was that…
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Speaker 3 (Quinlan Conf Room): purely, did… did we contribute to that? I
think we might have. And if you… do you recall how much we contributed to
it? And… and then is the rest of the gain, from the investments in it?
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Speaker 3 (Quinlan Conf Room): Wanna see it? Yeah, yeah.
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Speaker 2 (Quinlan Conf Room): Well, I can tell you. So, as part of our
cash,
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Speaker 2 (Quinlan Conf Room): management process that we've started
refining over the course of the last year, we started using LAFE as
essentially our… our go-to fund to pull cash as it's needed. So instead
of holding up into our cash interest… cash-bearing checking account.
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Speaker 2 (Quinlan Conf Room): We were using LAVE to, to, to transfer
funds back and forth, so any excess funds.
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Speaker 2 (Quinlan Conf Room): And so as, as there is sometimes an unneed
for immediate cash, we'll just leave it in lathe, and then we'll draw it,
draw on it. As you can see, our checking account, at this point, it's… we
want to maintain $5 million. We'll eventually kind of keep lowering it
down.
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Speaker 2 (Quinlan Conf Room): But, you can probably see about $7 this
last go-round. We transferred funds in from LAFE, to cover payroll, which
occurred that week, so we have to have a little bit of leeway time.
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Speaker 3 (Quinlan Conf Room): So by now, it's not really… It's back down
to…
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Speaker 2 (Quinlan Conf Room): We're trying to manage it at 5. And so
we're just using LAFE as the vehicle, or the… the investment, where we
can house most of the water, the fuel, sorry, most of the funds, that
are…
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Speaker 2 (Quinlan Conf Room): are yet to be identified as a need, or if
there is a potential need, say, a large project in the near future, or
there's discussions with City Hall.
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Speaker 2 (Quinlan Conf Room): And so, we kept that more available. And
so, as we… and we can kind of chat about it if we, the quarterly
investment with Chandler's pooled, but…
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Speaker 2 (Quinlan Conf Room): Over time, if we identify, no, these funds
are not going to be needed over the course of the next year, we'll likely
just transfer it to Chandler, and Chandler will manage it with bonds and
other investments.
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Speaker 3 (Quinlan Conf Room): Okay, and is there a upper limit for lathe
that you can have? 75 million.
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Speaker 2 (Quinlan Conf Room): So we're approaching that cap. Likely,
we'll have to transfer some funds into Chandler in the near future,
probably within the… by the end of this week.
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Speaker 2 (Quinlan Conf Room): And there's quite a bit of money sitting
in the life, so I highly doubt that we'll be needing to tap into that
money anytime soon, and so they'll be able to invest it into a,
investment that's probably in that
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Speaker 2 (Quinlan Conf Room): 3 to 5-year, term.
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Speaker 2 (Quinlan Conf Room): Okay. That's it. Thank you. Very good.
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Speaker 1 (Quinlan Conf Room): Any other questions? Anya, you have one?
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Speaker 1 (Quinlan Conf Room): No, I'm pretty good, too, this time, so
why don't we move to public comments, if there are any?
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Quinlan Conf Room: We have…
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Speaker 1 (Quinlan Conf Room): No hands raised on Zoom, and no speakers
in person, Sherry. Great, so we'll move right through that line.
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Speaker 1 (Quinlan Conf Room): Thanks, Lindsay. Follow up. Let me invite
a motion on our consent, calendar items.
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Speaker 1 (Quinlan Conf Room): More so moved.
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Speaker 1 (Quinlan Conf Room): Is there a second? I second.
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Speaker 1 (Quinlan Conf Room): Excellent, we've got,
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Speaker 1 (Quinlan Conf Room): our action items and the motion, any
further discussion on any of these items? Again, we can…
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Speaker 1 (Quinlan Conf Room): Discuss them now, if we want.
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Speaker 1 (Quinlan Conf Room): Excellent, let's take a vote. All in
favor? Aye. Aye. Unanimous,
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Speaker 1 (Quinlan Conf Room): Motion carries. Exciting first step of our
consent calendar, which I look forward to experimenting with you and
Laura in the future. Thanks, everybody.
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Speaker 1 (Quinlan Conf Room): All right.
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Speaker 1 (Quinlan Conf Room): So, item 4, our agenda item, is the
appointment of Chair and Vice Chair. It is a new year, so it is time to…
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Speaker 1 (Quinlan Conf Room): Look at that.
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Quinlan Conf Room: So…
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Speaker 1 (Quinlan Conf Room): Staff report, we don't have one.
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Speaker 2 (Quinlan Conf Room): Correct. There is no staff report. This
conversation is mainly going to be had by the chair and committee
members, to, to discuss who the next chair or a continuing existing
chair.
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Speaker 1 (Quinlan Conf Room): Great. So, if I can throw it out in the
public comment, are there any?
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Quinlan Conf Room: We have no hands raised on the Zoom chair.
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Speaker 1 (Quinlan Conf Room): Okay, well, we'll pass through that then,
and… That'll invite emotion.
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Speaker 1 (Quinlan Conf Room): For a discussion, depending on how to get
to the point.
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Quinlan Conf Room: Nominate, you know.
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Speaker 1 (Quinlan Conf Room): Second?
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Speaker 1 (Quinlan Conf Room): Okay, so that went pretty smoothly. We
also need a vice chair, so… should we cover that at the same time?
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Speaker 1 (Quinlan Conf Room): Has the same motion? Is it a motion?
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Speaker 3 (Quinlan Conf Room): You can do it that way, or you can…
separated out,
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Speaker 3 (Quinlan Conf Room): But are you accepting the nomination? I
guess so.
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Speaker 1 (Quinlan Conf Room): I'll accept. Yes, thanks for everyone, the
three of us.
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Speaker 1 (Quinlan Conf Room): No objections from city staff? Certainly
not. No one else in the public commenting, so yeah, okay, why don't we
take a vote on that motion, then?
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Quinlan Conf Room: All in favor? Aye. Aye.
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Speaker 1 (Quinlan Conf Room): created very tremendously. Again, thanks,
everyone, for your vote of confidence, which…
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Speaker 1 (Quinlan Conf Room): You know, it's always a mixed emotion.
Being chair is a great responsibility. On the other hand.
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Speaker 1 (Quinlan Conf Room): It's a great responsibility. So… All
right, so now we need a vice chair.
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Speaker 1 (Quinlan Conf Room): Let me, dominate Ponya, if you're willing
to serve.
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Speaker 1 (Quinlan Conf Room): Happy to help.
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Speaker 1 (Quinlan Conf Room): Yeah, you'd be great. Is there a second?
Second.
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Speaker 1 (Quinlan Conf Room): All right.
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Speaker 1 (Quinlan Conf Room): We've got a motion, and the more
communication on the motion.
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Quinlan Conf Room: All in favor, let's take a vote.
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Speaker 1 (Quinlan Conf Room): Aye. Courage unanimously.
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Speaker 1 (Quinlan Conf Room): We're very efficient.
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Speaker 1 (Quinlan Conf Room): Welcome aboard, my name. I look forward
to, yeah, our partnership. Your help again this year.
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Speaker 1 (Quinlan Conf Room): Okay, so… Item 5 agenda, is the,
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Speaker 1 (Quinlan Conf Room): The one that we actually deferred from
last time because of the slight wording incorrectness, so…
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Speaker 1 (Quinlan Conf Room): We've got… received the OPEB and Pension
115 Trust Investment Policy and recommended to forward it to City
Council. So, why don't we start off with the staff report, if you could,
Jonathan?
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Speaker 2 (Quinlan Conf Room): Just point of, clarification. There was a,
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Speaker 2 (Quinlan Conf Room): presentation that was erroneously attached
to a different, item, which was the quarterly report. We have provided
it, here as a,
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Speaker 2 (Quinlan Conf Room): as part of this item, and, as a desk item.
That goes a bit into the,
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Speaker 2 (Quinlan Conf Room): the presentation that, Dennis will be
presenting on shortly here.
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Speaker 1 (Quinlan Conf Room): Great. That'll drop.
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Speaker 1 (Quinlan Conf Room): But Dennis.
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Quinlan Conf Room: turn it over to Dennis, and…
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Speaker 1 (Quinlan Conf Room): Jennifer?
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Jennifer Meza: Thank you so much, committee.
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Speaker 1 (Quinlan Conf Room): Jennifer and Dennis.
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Jennifer Meza: Thank you. Thank you for having us.
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Jennifer Meza: Did you want us to share the presentation, Jonathan, or
will you be sharing it on your end?
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Speaker 1 (Quinlan Conf Room): Can you please share it?
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Jennifer Meza: Yes.
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Jennifer Meza: Okay, perfect. And then, Dennis, just let me know what
pages, and go ahead when you start seeing it.
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Dennis Mullins: Okay, let's go ahead and, start with page 5.
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Dennis Mullins: I'm going to, go through and hit the highlights here.
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Speaker 2 (Quinlan Conf Room): Yes, can we actually… we, the quarterly
report was part of the consent calendar, if you can jump right into the
presentation on the, ESG.
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Dennis Mullins: Oh, good!
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Quinlan Conf Room: We're discussing.
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Dennis Mullins: Okay.
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Dennis Mullins: Absolutely.
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Dennis Mullins: Okay, so here I'll begin on page 4, Jennifer.
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Dennis Mullins: Okay, quick recap, there have been some questions about
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Dennis Mullins: Some fairly broad topics. One is investments in fossil
fuels in the portfolios.
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Dennis Mullins: Another would be, The topic of data centers came up.
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Dennis Mullins: And then that kind of opened up the conversation a little
bit into the topic of customizing the portfolio, managing with
environmental, social, and governance objectives, and how we might
accomplish that. This presentation is a very quick overview
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Dennis Mullins: Of… of how that's done.
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Dennis Mullins: The differences in performance, The differences in
concentration, And the differences in cost.
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Dennis Mullins: So the idea here is to just take the conversation maybe
to the next level.
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Dennis Mullins: And, and address those concerns.
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Dennis Mullins: I'm gonna start off here by talking a little bit about
fossil fuels in particular, and then we sort of broaden the topic as we
go through this presentation.
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Dennis Mullins: On page 4, you can see…
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Jennifer Meza: We looked at your…
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Dennis Mullins: We looked at… U.S. equity exposure Eliminating fossil
fuel investments.
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Dennis Mullins: And whether or not it would be detrimental to investment
return.
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Dennis Mullins: On the bottom right-hand numbers on the lower table on
page 4,
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Dennis Mullins: You can see that for the last 15 years.
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Dennis Mullins: Eliminating fossil fuels from a U.S. equity portfolio
actually increases your return by about a half a percent.
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Dennis Mullins: 15… 0.06 versus 1452, and this compares the MSCI USA
Index, U.S. stocks, to, the MSCA USA
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Dennis Mullins: X fossil fuels.
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Dennis Mullins: So again, that just gives you a little bit of idea
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Dennis Mullins: It basically says that eliminating fossil fuels from the
U.S. equity portfolio is not a big deal when it comes to performance.
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Dennis Mullins: Let's go to the next page, page 5.
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Speaker 2 (Quinlan Conf Room): Can we ask a quick question?
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Dennis Mullins: Of course.
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Speaker 3 (Quinlan Conf Room): Okay, I'm just wondering if this has
anything to do with the, kind of pro-solar, pro-offshore wind environment
that we had been during that time frame, and…
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Speaker 3 (Quinlan Conf Room): How it's changed now, with the current
administration.
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Speaker 3 (Quinlan Conf Room): Like, that's been the history, but do we
expect that to… you know, can we predict how that's going to continue,
and do we have some information?
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Speaker 3 (Quinlan Conf Room): For, for 2025,
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Speaker 3 (Quinlan Conf Room): Yeah, so I have noticed there's been an
increase in production and turnover in, like, Texas, oil.
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Speaker 3 (Quinlan Conf Room): There's been a lot of activity, and it
seems like they're pumping more.
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Speaker 3 (Quinlan Conf Room): So I'm wondering if it's, yeah, increased.
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Dennis Mullins: I have no information to answer your question. I'd have
to guess.
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Dennis Mullins: But I'm hesitant to do that.
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Dennis Mullins: I can definitely make a note to… to dig into that later.
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Speaker 3 (Quinlan Conf Room): Yeah, and I mean, and he's, you know,
we'll have this administration for…
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Speaker 3 (Quinlan Conf Room): Not… not so many years, in the future, and
then… and then probably have some change, so, need to weigh that as well
for how long it's… it'll be, this type of environment that's,
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Speaker 3 (Quinlan Conf Room): More pro-oil than what we've seen in the
past.
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Dennis Mullins: Alright.
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Dennis Mullins: Good… no, good point. Keep in mind, though, in that 15-
year period that we're showing here, there was a previous Trump
administration, and I don't know if…
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Dennis Mullins: I don't know if the needle can be moved that quickly.
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Dennis Mullins: That's a good… For your administration, yeah.
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Speaker 3 (Quinlan Conf Room): So it was 2016, right?
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Speaker 3 (Quinlan Conf Room): And for those, yeah, for most of those
years.
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Speaker 3 (Quinlan Conf Room): Without oil, it was doing better. Okay,
that's…
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Dennis Mullins: Yeah, just… yeah, and the key to this is that
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Dennis Mullins: Energy itself is a small portion.
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Dennis Mullins: No, let me go to the next slide, page 5.
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Quinlan Conf Room: Alright, thank you.
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Dennis Mullins: And that'll kind of expand upon this answer. So,
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Dennis Mullins: A next concern we look at is risk concentration. Would it
really… would eliminating one industry cause you to be way overweighted
in the other industries? And the answer is simply no.
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Dennis Mullins: The entire market is in the bottom right-hand pie chart.
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Dennis Mullins: And if you can dig that out, it shows energy is 2.84% of
the overall market.
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Dennis Mullins: the U.S. stock market.
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Dennis Mullins: If we were to eliminate fossil fuel…
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Dennis Mullins: companies from the energy sector. You get the pie chart
on the bottom left-hand side, which leaves you with utility… I'm sorry,
energy at 0.65%. It's just not a big enough industry sector
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Dennis Mullins: To change all of the weights.
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Dennis Mullins: So, again, to recap on page 4, we said performance is not
a big difference.
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Dennis Mullins: almost immeasurable. On page 5, we're showing that we
don't have any concerns about overweighting
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Dennis Mullins: Another sector, because we eliminated a sector.
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Speaker 1 (Quinlan Conf Room): So, Dennis, while we're looking at these
two pages, is there a reason you focused on the U.S. rather than the
entire MSCI? I think that's our… the portfolio as an entire worldwide
portfolio, correct?
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Dennis Mullins: In my conversations with our ESG team, I think it's just
based on data availability.
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Dennis Mullins: we'd like to slice and dice a lot of the portfolio
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Dennis Mullins: In a more granular level, but a lot of the information
Isn't readily available right now.
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Speaker 1 (Quinlan Conf Room): But I just… I guess we can make some…
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Speaker 1 (Quinlan Conf Room): Conclusions or deductions that on an
international basis, the fossil fuels would not be significantly
different.
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Dennis Mullins: Correct.
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Dennis Mullins: Yup.
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Speaker 1 (Quinlan Conf Room): Simplicity.
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Dennis Mullins: Okay, so let's go to page, let's go, let's go forward,
Jennifer. I think we go to page 7 next. Yeah, we got a divider in there.
Alright, so let's look at cost.
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Dennis Mullins: So we did… again, to review, it didn't make a big
difference on performance, didn't make a big difference in concentration.
Let's look at cost. Your current lineup.
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Dennis Mullins: Real quick note about expense ratios. They can be
confusing, because every mutual fund that we use in your portfolios
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Dennis Mullins: Every ETF charges an expense ratio. Those expense ratios
are what the fund family charges to operate the fund.
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Dennis Mullins: They are always taken out of performance.
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Dennis Mullins: So we never need to adjust the performance returns for
these numbers, we're actually adding them back in. So keep that in mind
as we look at them.
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Dennis Mullins: Your current expense ratio on a weighted average basis is
12 basis points, 0.12%.
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Dennis Mullins: 1% is 100 basis points, so this is 12 one-hundredths of a
percent.
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Dennis Mullins: That's what you're currently paying.
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Dennis Mullins: So let's go to the next page, Jennifer.
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Dennis Mullins: If we were to Go with the…
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Dennis Mullins: lineup of funds that is shown here, which is our
recommended ESG fund lineup.
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Dennis Mullins: Your overall expense ratio goes to 17 basis points, or
.17%.
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Dennis Mullins: Now, you have $73 million invested here.
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Dennis Mullins: And so the… The fees on the… the expense ratios on the…
Current fund lineup.
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Dennis Mullins: Are about $86,000, $87,000 a year.
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Dennis Mullins: And again, be careful with these numbers. Instead of
looking at it as.
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Dennis Mullins: $87,000. I think it's more instructive to look at it as
12 basis points.
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Dennis Mullins: Because you've got an enormous amount of money invested
here, $73 million.
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Dennis Mullins: So it comes to about… again, 12 basis points comes to
about $86,000.
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Dennis Mullins: If we were to go with this sample ESG Environmental,
social, and governance fund lineup.
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Dennis Mullins: Your expense ratios would go from 12 to 17 basis points.
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Dennis Mullins: 17 basis points using that same market value is $123,000
and change. A difference, or a delta, of about $36,000.
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Dennis Mullins: A change of 5 basis points, which comes to about $36,000
on $72 million.
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Dennis Mullins: And again.
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Dennis Mullins: instead of looking at it as $36,000 difference, I look at
it as 5 bibs. Very little change. And again.
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Dennis Mullins: These expense ratios are always netted out of
performance. We looked at performance before, and there's almost no
difference.
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Dennis Mullins: So to recap, no big difference in performance, no big
difference in concentration.
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Dennis Mullins: In my opinion, not a big difference in fees.
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Speaker 1 (Quinlan Conf Room): So the reason these costs go up is because
you're tracking something special, SG. So there's some administrative
cost somewhere, it causes it to go up by 5 chips.
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Dennis Mullins: the mutual fund companies are charging a little bit more,
for a variety of reasons. These are smaller funds.
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Dennis Mullins: They're spreading some expenses out over a smaller base.
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Dennis Mullins: But it's more active management.
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Dennis Mullins: Right, the… The funds you're in right now are index
funds.
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Dennis Mullins: They're the easiest to run.
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Dennis Mullins: There's not a… there's not an investment committee that
meets and talks about what investments they like or don't like.
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Dennis Mullins: When you get into the active management here, to…
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Dennis Mullins: To achieve the ESG goals.
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Dennis Mullins: You've got a little more discretion, you've got people
doing research on individual companies.
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Dennis Mullins: The mutual fund company is buying research from
Sustainlytics and other analytical companies who measure effectiveness of
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Dennis Mullins: Companies meeting environmental social goals.
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Dennis Mullins: So… They charge more.
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Quinlan Conf Room: Got his face.
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Speaker 1 (Quinlan Conf Room): I have a question. So, two, two, including
this ESG index, Is it… is it…
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Speaker 4 (Quinlan Conf Room): Beyond excluding fossil fuel companies.
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Speaker 4 (Quinlan Conf Room): Like, what is it?
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Dennis Mullins: Yes, it goes beyond that, and I'll talk about that in a
second.
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Speaker 4 (Quinlan Conf Room): One thing, this,
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Speaker 4 (Quinlan Conf Room): This… our Risten high-income fund, the
expense, even though it's a smaller part of the portfolio, is only 5%.
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Speaker 4 (Quinlan Conf Room): The expense ratio just jumps out of the
page.
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Speaker 4 (Quinlan Conf Room): It's, like, order magnitude higher than
everything else.
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Dennis Mullins: No, that's an actively… that's an actively managed fund,
and that's actually the fund we're in now. That's a typo, it's artisan.
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Dennis Mullins: I did not notice the typo before, I apologize for that.
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Dennis Mullins: Most actively managed funds have an expense ratio
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Dennis Mullins: between, say, 50 basis points and 100… some of them are
over 100, depending on exactly what they're doing.
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Quinlan Conf Room: It's…
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Dennis Mullins: They've all been coming down over the last 10 or 15
years.
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Dennis Mullins: But for an actively managed high-income bond fund.
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Dennis Mullins: That's… that's not an unusual expense ratio at all.
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Dennis Mullins: So that's a very high fee compared to the others, but
it's a very small position, so it really doesn't raise our overall fees
that much.
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Speaker 1 (Quinlan Conf Room): I guess it does raise the question,
Denison, of are we getting the…
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Speaker 1 (Quinlan Conf Room): higher performance for the higher fee,
since it is obviously an outlier, as the Vice Chair points out here.
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Speaker 1 (Quinlan Conf Room): even though we're on the topic of ESG, it
does raise the question, why are we investing in such a high expense
fund? I presume because we're getting a lot better performance, but
that's something I haven't necessarily seen in past reports.
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Speaker 1 (Quinlan Conf Room): Because I may not be paying attention, or
maybe you can guide us to that at some point.
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Dennis Mullins: I'll make a note of that, and I'll run a comparison of
artisan net of fees versus…
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Dennis Mullins: the other alternatives, not a fees. Super, that'd be
great follow-up, thank you.
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Dennis Mullins: Okay.
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Dennis Mullins: Okay, let's go to, page 9, please.
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Dennis Mullins: Okay, so here's another idea. So, what I've talked about
so far is using
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Dennis Mullins: a lineup of mutual funds called ESG funds.
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Dennis Mullins: There's another alternative.
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Dennis Mullins: And that's customized, separately managed accounts.
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Dennis Mullins: If you said.
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Dennis Mullins: If you were to look at the mutual funds that I… I showed
as a sample so far, if you were to look at those and say, well, that's
not… that's not good enough, I don't…
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Dennis Mullins: I want to exclude particular companies.
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Dennis Mullins: And I want tremendous control over what goes in this
portfolio.
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Dennis Mullins: What we do then is we hire an SMA manager, separately
managed account.
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Dennis Mullins: Instead of buying shares of a mutual fund.
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Dennis Mullins: to get the exposure to an asset class, i.e. large-cap US
stocks, small-cap U.S. stocks.
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Dennis Mullins: developed foreign or emerging foreign. What we do is we
hire
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Dennis Mullins: A manager who's going to buy individual stocks.
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Dennis Mullins: And they're gonna buy them in accordance with the
instructions we give them.
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Dennis Mullins: And we partner with a company called Parametric here, so
what we did for the sake of simplicity is we just plugged in Parametric
for each of the asset classes.
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Dennis Mullins: And, equity asset classes.
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Dennis Mullins: The expenses go up,
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Dennis Mullins: A little bit, but what really goes up, and I've mentioned
this before, is the complexity.
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Dennis Mullins: Right now, your portfolio holds, at most times, 10 or 11
securities, individual mutual funds.
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Dennis Mullins: If we were to go with this as presented right here.
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Dennis Mullins: That very first line, Parametric Custom U.S. Equity SMA,
would probably hold 250 stocks.
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Dennis Mullins: And then… the, the small cap
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Dennis Mullins: manager, which is the second one shown there. We use the
exact same verbiage, it should say small cap.
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Dennis Mullins: Would probably hold another 250 stocks.
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Dennis Mullins: So the accounting complexity goes up, exponentially.
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Dennis Mullins: And again, ways that this manifests, your statement,
which now I'm guessing your… your custody statement from U.S. Bank is…
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Dennis Mullins: A listing of securities is a page and a half.
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Dennis Mullins: That's gonna be 75 pages.
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Dennis Mullins: And each month, you're gonna have dividend payments,
you're gonna have purchases and sales, and you're gonna have corporate
actions, which are stock splits.
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Dennis Mullins: Mergers, reverse stock splits, spinoffs, and again, the
accounting complexity Can be mind-boggling.
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Dennis Mullins: the… I just wanted to… Show this, that it's there… it is
there as an option.
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Dennis Mullins: If you were so inclined to say.
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Dennis Mullins: It's not good enough for me to just have ESG funds. I
want to exclude The following companies.
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Dennis Mullins: I don't typically recommend this, because…
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Speaker 1 (Quinlan Conf Room): Hello, Mr.
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Dennis Mullins: Yeah, the… now you're… you're, in effect, you're managing
the portfolio.
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Speaker 1 (Quinlan Conf Room): You're not close.
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Dennis Mullins: So, you know, just something to keep in mind. Is it
available? Yes, it's available.
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Dennis Mullins: And I don't know how you do your accounting, whether
you're using a data feed into your accounting system. I have met with
municipalities who account for every security one at a time.
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Quinlan Conf Room: And in those instances.
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Dennis Mullins: They would have to hire additional accounting staff to
cover.
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Speaker 1 (Quinlan Conf Room): So…
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Dennis Mullins: Just something to keep in mind.
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Speaker 1 (Quinlan Conf Room): Dennis, wouldn't this kind of a more
detailed portfolio apply to also a taxable portfolio, which…
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Speaker 1 (Quinlan Conf Room): The city's not in that situation either,
so tax harvesting… Yes.
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Dennis Mullins: Yeah, exactly. It gives you tremendous control.
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Dennis Mullins: Yo.
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Speaker 1 (Quinlan Conf Room): We need that for tax purposes, since
that's not relevant.
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Speaker 1 (Quinlan Conf Room): Okay, gotcha, it's SMA, an option.
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Dennis Mullins: Just enough.
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Speaker 1 (Quinlan Conf Room): Yep.
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Quinlan Conf Room: Okay, page 10, please, Jennifer.
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Dennis Mullins: Okay, let's… Couple of things.
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Dennis Mullins: So, I've already covered ESG funds, again, no real impact
on performance, no real impact on concentration, no real impact on cost.
Now, in my opinion, I don't think that's a real impact.
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Dennis Mullins: Sma is an option. I want to look at… I want to show you
something else here, and this is the way
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Dennis Mullins: some of this work is done on the ESG funds.
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Dennis Mullins: There's a company called Sustainalytics,
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Dennis Mullins: that Morningstar purchased in 2020, and they score…
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Dennis Mullins: fossil fuel companies on two metrics. One is called a
carbon risk score.
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Dennis Mullins: And that is an indication of the risk the company faces
from the transition to a low-carbon economy.
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Dennis Mullins: The other one, which I'll go through in the next page or
so, is called carbon involvement, and that's how involved is a company in
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Dennis Mullins: In carbon, based on their revenues.
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Dennis Mullins: So, on page 11, here's the takeaway. Your existing
portfolio has an overall carbon risk score of 7.4 compared to the
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Dennis Mullins: MSCI Acqui, the overall market, and now this does include
non-US companies here.
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Dennis Mullins: of 7.
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Dennis Mullins: So the only takeaway here is you've got a little bit
higher carbon risk score than the overall market.
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Dennis Mullins: Now, let's compare… let's go to page 12.
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Dennis Mullins: Page 12 is carbon involvement. You've got a little lower
overall risk score
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Dennis Mullins: On carbon involvement than the overall market.
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Dennis Mullins: Okay?
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Dennis Mullins: Now, let's go forward to the next two pages, 14 and 15.
On page 14, if we were to go with this sample ESG fund lineup.
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Dennis Mullins: Using the same scores from Sustainalytics.
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Dennis Mullins: Whereas before, today, you have a carbon risk score of
7.4 compared to the market of 7.
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Dennis Mullins: Using these ESG funds, you would have a carbon risk score
of 5.5 compared to the overall market of 7.
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Speaker 1 (Quinlan Conf Room): And let's go…
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Dennis Mullins: Go ahead.
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Speaker 1 (Quinlan Conf Room): Just to clarify, go back to the… to your
slide, if you could. The lowering of the risk… maybe the… the mayor had a
good question about current politics, but I guess
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Speaker 1 (Quinlan Conf Room): Even though this is a lower risk now, if
somehow there's a change in politics, that would mean… it would have to
mean… if suddenly fossil fuels are more desirable, that would mean a much
higher risk than the market.
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Speaker 1 (Quinlan Conf Room): In effect.
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Dennis Mullins: Yeah, we'd have to definitely watch what's going on
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Dennis Mullins: With the industry, and which way the political winds are
blowing.
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Dennis Mullins: Yes.
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Speaker 1 (Quinlan Conf Room): Hello?
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Dennis Mullins: Because everything could be in flux. It may not always be
great because of the historical numbers that you're looking at.
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Dennis Mullins: Yes, correct.
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Speaker 1 (Quinlan Conf Room): Okay, great. Thanks.
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Dennis Mullins: And then page 15, the next one, we looked at carbon
involvement BEFORE
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Dennis Mullins: You have a, right now, you have a 7.6 score versus the
market's 8.4.
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Dennis Mullins: If we were to go with these ESG funds, you would have a
4.4.
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Dennis Mullins: carbon involvement score, and that makes sense, right?
We're…
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Dennis Mullins: We're getting out of fossil fuel-related companies, and
so our carbon.
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Quinlan Conf Room: involvement, based on revenues, goes way down. We
would go from currently 7.6… Down to 4.4.
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Dennis Mullins: Where the market is at 8.4.
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Dennis Mullins: Okay, and I'm almost done here. If you go to page, 16,
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Dennis Mullins: Let's look at what happens. Very quickly, if we… if we go
with the separately managed account.
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Dennis Mullins: The way you do that is…
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Dennis Mullins: we go to Parametric and we say, this is how we want the
portfolio customized.
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Dennis Mullins: And go to the next page, please.
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Quinlan Conf Room: They can screen based on.
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Dennis Mullins: almost anything.
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Dennis Mullins: And here's a list of some of the governance and…
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Dennis Mullins: You know, this all started…
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Dennis Mullins: This all started with companies wanting to… mainly,
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Dennis Mullins: Either religious organizations or universities wanting to
limit exposure to tobacco, alcohol, or gambling.
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Dennis Mullins: And then it really took hold with apartheid in South
Africa years ago.
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Dennis Mullins: And this is a relatively young industry.
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Dennis Mullins: And so, there are companies out there that can screen
portfolios based on
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Dennis Mullins: whatever… I mean, we have very liberal organizations, we
have very conservative organizations. Sometimes they're on opposite sides
of an issue, but it's important to both of them that they invest in a
manner that's
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Dennis Mullins: Consistent with their values.
348
00:34:35.040 --> 00:34:43.659
Dennis Mullins: So, and again, this… this is just a couple of slides that
illustrate what is the process with a separately managed portfolio, the
screening.
349
00:34:48.580 --> 00:34:55.209
Dennis Mullins: And, I think that wraps it up. So, so, what's the
conclusion?
350
00:34:55.350 --> 00:35:00.060
Dennis Mullins: Making the move to ESG funds will be very easy.
351
00:35:00.680 --> 00:35:03.159
Dennis Mullins: Shouldn't have a big difference in performance.
352
00:35:03.790 --> 00:35:05.710
Dennis Mullins: Not a big jump in costs.
353
00:35:06.560 --> 00:35:11.689
Dennis Mullins: Making the move to a separately managed portfolio would
be much more involved.
354
00:35:14.020 --> 00:35:20.549
Speaker 1 (Quinlan Conf Room): Okay, got it. Thank you, Dennis. Why don't
we, throw it open to the committee for verifying questions?
355
00:35:21.170 --> 00:35:22.439
Quinlan Conf Room: If they're already.
356
00:35:24.550 --> 00:35:25.870
Quinlan Conf Room: Bear here?
357
00:35:25.870 --> 00:35:28.420
Speaker 1 (Quinlan Conf Room): They have… originated this.
358
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Speaker 1 (Quinlan Conf Room): Oh, yeah.
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Speaker 3 (Quinlan Conf Room): Well…
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Speaker 3 (Quinlan Conf Room): I was thinking in terms of plastics, and
if we make a move away from fossil fuels, would that also mean that we
are,
361
00:35:44.870 --> 00:35:54.210
Speaker 3 (Quinlan Conf Room): Sending a message that we are not in
support of the manufacture of All the single-use plastics.
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00:35:54.640 --> 00:35:59.249
Speaker 3 (Quinlan Conf Room): It's, becoming a huge… well, it's been a
huge problem.
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00:36:02.650 --> 00:36:06.119
Dennis Mullins: the, the ESG funds…
364
00:36:11.100 --> 00:36:13.660
Dennis Mullins: I'm sorry, I'm struggling with my own notes here.
365
00:36:14.010 --> 00:36:18.340
Dennis Mullins: The ESG funds, let me look… I think I have…
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Speaker 3 (Quinlan Conf Room): Sorry, it's sort of a side… side question,
I want…
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Speaker 3 (Quinlan Conf Room): what I'm wanting to know is if we're… if
we can kill two birds with one stone by pulling away from fossil fuels,
also saying that we're not in support of all this plastic waste, and we'd
like to see a decrease.
368
00:36:37.360 --> 00:36:40.679
Dennis Mullins: Yes, absolutely, yeah. Let's go, .
369
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Speaker 2 (Quinlan Conf Room): tests, I think there's…
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Dennis Mullins: Here's my notes. Let's go forward to page, 20…
371
00:36:50.760 --> 00:36:56.610
Dennis Mullins: Let's go to the appendix, page 20… 1.
372
00:36:56.870 --> 00:36:57.770
Dennis Mullins: 21st.
373
00:36:59.980 --> 00:37:07.590
Dennis Mullins: Good question, by the way. So, you're gonna kill a lot
more than, than, and this goes to the Vice Chair's question earlier.
374
00:37:07.740 --> 00:37:11.340
Dennis Mullins: You're gonna kill a lot more than one bird with that
stone.
375
00:37:11.710 --> 00:37:19.710
Dennis Mullins: So, this is a… more of an example of the Sustainalytics
scoring.
376
00:37:20.120 --> 00:37:31.109
Dennis Mullins: they score… All of the holdings of these mutual funds
based on a pretty broad list of things
377
00:37:32.960 --> 00:37:35.609
Dennis Mullins: Let me see, do they go into detail here?
378
00:37:35.910 --> 00:37:38.830
Dennis Mullins: No, unfortunately, they don't.
379
00:37:38.970 --> 00:37:43.389
Dennis Mullins: as another follow-up, I can get you more detail
380
00:37:43.750 --> 00:37:47.700
Dennis Mullins: on what goes into the ESG risk scores.
381
00:37:48.410 --> 00:37:56.070
Dennis Mullins: And this is a series of charts. Okay, on page 21, Your
current pension
382
00:37:56.440 --> 00:38:00.379
Dennis Mullins: Just using one of the accounts as an example, because
they're managed identically.
383
00:38:01.010 --> 00:38:11.590
Dennis Mullins: has a corporate sustainability score of 19, compared to
the market, 18.6. We're actually already a little higher.
384
00:38:18.100 --> 00:38:24.109
Dennis Mullins: Okay, so lower scores here are better, I'm sorry. So
we're a little higher than the market overall, but very close.
385
00:38:24.790 --> 00:38:26.889
Dennis Mullins: And what they do is they rank
386
00:38:27.260 --> 00:38:32.739
Dennis Mullins: sustainability on a 0 to 100 scale, lower scores are
better. Okay.
387
00:38:34.690 --> 00:38:40.259
Dennis Mullins: And if you go to page 23,
388
00:38:40.470 --> 00:38:45.140
Dennis Mullins: just like before, we compare the sample ESG fund lineup
389
00:38:46.250 --> 00:38:54.240
Dennis Mullins: To the same market benchmark, and instead of being a
little higher at 19 versus 18.6, you'd be at 17.4.
390
00:38:54.870 --> 00:38:55.870
Dennis Mullins: No.
391
00:38:56.720 --> 00:39:02.080
Dennis Mullins: We wouldn't be able to say, we have eliminated any
investments in anybody who produces single-use plastics.
392
00:39:02.580 --> 00:39:05.129
Dennis Mullins: But we would be able to say that we've…
393
00:39:06.470 --> 00:39:10.220
Dennis Mullins: Moved in that direction in a cost-effective way.
394
00:39:10.400 --> 00:39:12.800
Dennis Mullins: You know, and we're monitoring it.
395
00:39:13.290 --> 00:39:19.680
Dennis Mullins: So… but I'll have to… I'd have to follow up and get you a
detailed listing of everything they're looking at.
396
00:39:22.150 --> 00:39:23.570
Speaker 2 (Quinlan Conf Room): Okay.
397
00:39:25.310 --> 00:39:27.150
Speaker 1 (Quinlan Conf Room): Questions hung with it.
398
00:39:27.150 --> 00:39:38.819
Speaker 4 (Quinlan Conf Room): Just a real quick comment. I actually
follow this guy who runs this Norwegian Sovereign Wealth Fund. You know,
he's, like, Norwegian Sovereign Wealth Fund's the largest
399
00:39:38.940 --> 00:39:51.969
Speaker 4 (Quinlan Conf Room): government, kind of, Norwegian
government's, retirement fund, and I think, like, they, the guy who's
running the fund, he does a pretty good podcast interviewing CEOs of the
companies that he owns, part of.
400
00:39:52.090 --> 00:39:59.660
Speaker 4 (Quinlan Conf Room): I was just reading up upon, kind of, how
they deal with, you know, ESC-related. They actually have something
called an ethical council.
401
00:39:59.680 --> 00:40:12.560
Speaker 4 (Quinlan Conf Room): where they kind of, like, have these
active discussions on what companies to divest from their portfolio. They
have $2 trillion under their… in their portfolios that weren't the
largest money manager
402
00:40:12.680 --> 00:40:14.570
Speaker 4 (Quinlan Conf Room): In the public sector.
403
00:40:14.760 --> 00:40:16.800
Speaker 4 (Quinlan Conf Room): So I'm just curious, like, you know.
404
00:40:17.120 --> 00:40:24.050
Speaker 4 (Quinlan Conf Room): Dennis, on your end, like, what do you
consider as, like, best practices? Like, when you look at these, like,
ESG funds.
405
00:40:24.220 --> 00:40:26.030
Speaker 4 (Quinlan Conf Room): Like, what is the…
406
00:40:27.030 --> 00:40:36.879
Speaker 4 (Quinlan Conf Room): what does grade look like? What does good
look like? And what are some of the things that they kind of… you know,
you mentioned here, like, here, there's a score, but, like.
407
00:40:37.190 --> 00:40:41.999
Speaker 4 (Quinlan Conf Room): You know, is there any way for us to get
some insight into what kind of…
408
00:40:42.400 --> 00:40:46.520
Speaker 4 (Quinlan Conf Room): what makes a 100x100 score versus, like,
an 80 or something? I don't know.
409
00:40:46.950 --> 00:40:53.299
Speaker 4 (Quinlan Conf Room): Just a comment, not, not really something
that we can bore the ocean over today.
410
00:40:54.380 --> 00:41:00.269
Dennis Mullins: Well, very, very good comment. So, if you want to go in
this direction, what I would suggest next is
411
00:41:00.630 --> 00:41:08.619
Dennis Mullins: is that we come to the table with the list of recommended
ESG funds, and then we can go into much greater detail as
412
00:41:09.600 --> 00:41:12.330
Dennis Mullins: Who runs that fund, and what do they consider to be
413
00:41:13.050 --> 00:41:16.210
Dennis Mullins: what is it that makes it an ESG fund?
414
00:41:17.470 --> 00:41:21.690
Dennis Mullins: What… which issues are they investing around?
415
00:41:23.650 --> 00:41:28.020
Dennis Mullins: And which ones do they give weight to? Which ones do they
not give weight to? Things like that.
416
00:41:29.650 --> 00:41:38.039
Speaker 1 (Quinlan Conf Room): Yeah, I think, Dennis, that may be
helpful, depending on what the committee as a whole here thinks. I guess
some of my thoughts on
417
00:41:39.450 --> 00:41:56.180
Speaker 1 (Quinlan Conf Room): as we open the door to ESG, I think maybe
audience questions also opening the door to, how do you measure these
risk, profiles? I mean, this is one company that we're just learning
about that's doing this, and…
418
00:41:56.270 --> 00:42:07.959
Speaker 1 (Quinlan Conf Room): There's probably many other methods of
measuring things, as well as studying policy and, you know, other types
of individual stocks that
419
00:42:08.080 --> 00:42:11.630
Speaker 1 (Quinlan Conf Room): Various people have opposition to.
420
00:42:11.890 --> 00:42:19.530
Speaker 1 (Quinlan Conf Room): And so, I guess my initial thought is that
the SMA seems clearly too extensive
421
00:42:19.640 --> 00:42:25.900
Speaker 1 (Quinlan Conf Room): active management for what I think our
appetite is, but…
422
00:42:26.060 --> 00:42:38.629
Speaker 1 (Quinlan Conf Room): this is another form of active management,
it's just not as active as 200, you know, 2,500 shares or different
stocks. So, again, I've got a bit of a prejudice against
423
00:42:38.880 --> 00:42:48.719
Speaker 1 (Quinlan Conf Room): going too far in the active management
side, because there's many doors, and I'm not excluding any door, but on
the other hand.
424
00:42:48.880 --> 00:42:55.200
Speaker 1 (Quinlan Conf Room): You do have a position if you are a mono…
if you're… if you're tracking market indexes.
425
00:42:55.680 --> 00:43:08.440
Speaker 1 (Quinlan Conf Room): you've got a reasonable portfolio position
to say, well, what's our risk in that portfolio? Maybe as a policy, the
city can separately say it's opposed to whatever it's supposed to at the
426
00:43:08.730 --> 00:43:14.090
Speaker 1 (Quinlan Conf Room): City Council level, that makes a lot of
sense, since they're the policies that are
427
00:43:14.150 --> 00:43:29.599
Speaker 1 (Quinlan Conf Room): people, but as we're investing funds for
the retirement security of the folks in the city, I'm a little hesitant
to go active management in quite the way that
428
00:43:30.080 --> 00:43:34.270
Speaker 1 (Quinlan Conf Room): I guess I'm expressing here, there's so
many doors and mirrors that I'm not…
429
00:43:34.500 --> 00:43:47.969
Speaker 1 (Quinlan Conf Room): familiar enough with that I can see lots
of analysis being down the road when people raise these issues, rather
than just say, well, this isn't the role, necessarily, for us to take
that kind of active management.
430
00:43:48.160 --> 00:43:49.979
Speaker 1 (Quinlan Conf Room): Could be another policy.
431
00:43:50.370 --> 00:43:55.449
Speaker 1 (Quinlan Conf Room): Forum, that that is the place for that to
occur, but not necessarily in the
432
00:43:55.850 --> 00:44:15.699
Speaker 1 (Quinlan Conf Room): the 115 trust and the OPEB. So, those are
my thoughts coming out. Are you seeing a lot of cities recently move in
this direction? What's your… what's your pulse on this? That, are we so
far behind that we haven't been looking at this, and now we need to.
433
00:44:16.280 --> 00:44:22.210
Dennis Mullins: No, I have, in the last…
434
00:44:23.110 --> 00:44:29.620
Dennis Mullins: I've been doing this 40 years, and in the last 10,
435
00:44:30.700 --> 00:44:34.510
Dennis Mullins: This has been limited to,
436
00:44:36.480 --> 00:44:42.950
Dennis Mullins: Religious orders, and… and… and church-sponsored
universities, colleges.
437
00:44:45.010 --> 00:44:55.720
Dennis Mullins: it… It has not really become… Commonplace in the public
sector.
438
00:44:56.290 --> 00:45:00.740
Dennis Mullins: And you… you were getting into the reason right there.
439
00:45:01.390 --> 00:45:06.429
Dennis Mullins: as fiduciaries, We've got to be really careful.
440
00:45:06.810 --> 00:45:14.450
Dennis Mullins: About how far we… Alter the portfolio, based on…
441
00:45:16.500 --> 00:45:21.380
Dennis Mullins: Our environmental, social, and governance goals.
442
00:45:21.860 --> 00:45:25.690
Dennis Mullins: Because the risk… Is we limit things from
443
00:45:25.840 --> 00:45:30.320
Dennis Mullins: Being in the portfolio, the risk becomes that returns
start to lag.
444
00:45:30.820 --> 00:45:34.920
Dennis Mullins: And again, if you look historically, just…
445
00:45:35.040 --> 00:45:39.280
Dennis Mullins: Removing fossil fuels, it hasn't really had an impact on
the portfolio.
446
00:45:40.230 --> 00:45:42.730
Dennis Mullins: As we start to lay more and more
447
00:45:43.080 --> 00:45:51.699
Dennis Mullins: restrictions on the portfolio, we start to get a little
farther out, on that limb of…
448
00:45:52.470 --> 00:45:54.810
Dennis Mullins: you know, we've got to be careful. And…
449
00:45:55.310 --> 00:46:00.830
Dennis Mullins: if I'm not mistaken, I think this affected CalPERS in the
last
450
00:46:02.040 --> 00:46:04.950
Dennis Mullins: several years, I think it was 4 or 5 years ago.
451
00:46:05.180 --> 00:46:08.619
Dennis Mullins: They had some elected positions that were…
452
00:46:08.960 --> 00:46:17.529
Dennis Mullins: challenged because of their foray into ESG investing
practices that didn't turn out really well.
453
00:46:18.090 --> 00:46:18.470
Dennis Mullins: No.
454
00:46:18.610 --> 00:46:20.610
Dennis Mullins: Right. Yeah, they went…
455
00:46:21.280 --> 00:46:27.110
Speaker 1 (Quinlan Conf Room): It's a plus. But, yeah, Mayor, why don't
you…
456
00:46:27.110 --> 00:46:41.180
Speaker 3 (Quinlan Conf Room): Yeah, so looking at the plastics,
question, because I think, you know, for a lot of us, that seems like a
noble thing to get away from supporting that, and, but so I just took
the…
457
00:46:41.550 --> 00:46:50.040
Speaker 3 (Quinlan Conf Room): your, domestic equity iShares ESG,
optimized MSCI USA ETF.
458
00:46:50.180 --> 00:46:53.820
Speaker 3 (Quinlan Conf Room): and… As…
459
00:46:54.050 --> 00:47:06.710
Speaker 3 (Quinlan Conf Room): AI about it, and yeah, does this ETF
invest in companies that generate a lot of plastics, was my general
question. And it said, it can.
460
00:47:07.450 --> 00:47:26.020
Speaker 3 (Quinlan Conf Room): because it doesn't specifically screen for
plastic generation or waste. The fund's investment strategy focuses on
positive ESG characteristics in aggregate and in aggregate, and applies
specific screens. Major holdings, its top holdings are largely technology
companies like NVIDIA,
461
00:47:26.130 --> 00:47:29.019
Speaker 3 (Quinlan Conf Room): Apple, etc. However, it does…
462
00:47:29.380 --> 00:47:34.070
Speaker 3 (Quinlan Conf Room): old companies in the consumer defensive
sector, such as Coca-Cola.
463
00:47:34.200 --> 00:47:47.069
Speaker 3 (Quinlan Conf Room): which is a major global user of plastic in
packaging. In short, while the fund avoids the producers of the raw
materials, it still holds companies and industries like consumer goods
and retail. So I think…
464
00:47:48.340 --> 00:47:54.700
Speaker 3 (Quinlan Conf Room): it… it gets… it would get challenging.
Like, you could say, well, this…
465
00:47:55.030 --> 00:48:14.510
Speaker 3 (Quinlan Conf Room): the fossil fuels is one thing, but if
we're going after, synthetic clothing, going after bottles and bags, and,
you know, we're… then we get into exactly what Dennis is describing in
terms of regards to our fiduciary duty problem. So, where do you…
466
00:48:14.820 --> 00:48:18.029
Speaker 3 (Quinlan Conf Room): What can you do, and where do you stop?
467
00:48:19.610 --> 00:48:21.020
Speaker 3 (Quinlan Conf Room): Let's… maybe it is.
468
00:48:21.020 --> 00:48:24.879
Speaker 1 (Quinlan Conf Room): This is time for city staff to clarify
what,
469
00:48:25.320 --> 00:48:29.729
Speaker 1 (Quinlan Conf Room): City staff may have analyzed and thought
about this issue.
470
00:48:29.730 --> 00:48:54.549
Speaker 2 (Quinlan Conf Room): it really falls on finding the balance,
right? If we go into this SMA and heavily restrict the investments, then
it becomes a nightmare, because then you'd want to move away from Coca-
Cola, or even possible NVIDIA, right? NVIDIA has data warehouse. But then
again, you're also taking a grenade to your investment world, your
returns, right? And so it's finding that balance. Maybe by eliminating
the fossil fuels, you're getting rid of the
471
00:48:54.550 --> 00:49:01.779
Speaker 2 (Quinlan Conf Room): Essentially, the… the root. You're not
gonna get rid of all of it, right? There's still gonna be some… some,
472
00:49:01.780 --> 00:49:03.700
Speaker 2 (Quinlan Conf Room): Companies that, that,
473
00:49:03.850 --> 00:49:20.929
Speaker 2 (Quinlan Conf Room): that… that use fossil fuels that might
even say, right? We… our vehicles, some of our vehicles are… rely on
gasoline to power for the city. We're trying to move away from that with
getting some electric vehicles, but even us as a com… as a city, we have…
we rely on electricity with… with…
474
00:49:20.940 --> 00:49:26.399
Speaker 2 (Quinlan Conf Room): With fuel. So it's just finding that
balance in our portfolio to be able to
475
00:49:26.700 --> 00:49:35.610
Speaker 2 (Quinlan Conf Room): meet our fiduciary need for the pension
and our Section 115 trust, but also kind of starting to move away from
some of those
476
00:49:35.610 --> 00:49:48.999
Speaker 2 (Quinlan Conf Room): sticky investments, like fossil fuels, or
maybe the data centers that are… the companies are building the data
centers rather than utilizing them. Because, as you just pointed out, you
used AI, so…
477
00:49:49.000 --> 00:50:01.569
Speaker 2 (Quinlan Conf Room): So there is a benefit to all of it, so
it's just kind of finding where is the middle ground. And I think, what,
Dennis had, proposed with this ESG is this step in that direction.
478
00:50:01.570 --> 00:50:15.360
Speaker 2 (Quinlan Conf Room): maybe a few, a few years down the line, it
becomes a little easier, where we start kind of weeding out some of these
other companies, like Coca-Cola, but at this point, it is kind of… it may
be built into it, but at least we're moving in that direction.
479
00:50:16.500 --> 00:50:20.720
Speaker 2 (Quinlan Conf Room): And kind of bringing us back to the topic
in hand is, how would this
480
00:50:20.900 --> 00:50:32.709
Speaker 2 (Quinlan Conf Room): affect the policy, right? Because that's
what we're here for. Do we need to put something in our pension and… and
Section or OPEB policy to… to call out? Should we…
481
00:50:32.780 --> 00:50:46.989
Speaker 2 (Quinlan Conf Room): specifically move towards this, or is this
just more of a decision that we've made as a body? Like, this is the
Council's direction, like, we want to… these ESG, or do we want to call
out specifically in the policy? Now.
482
00:50:46.990 --> 00:50:53.590
Speaker 2 (Quinlan Conf Room): If, maybe this is a dentist question, but
do other cities have a,
483
00:50:53.790 --> 00:51:05.719
Speaker 2 (Quinlan Conf Room): language in their policies that says the
city shall or may use ESG portfolio or, investments. And so, that's kind
of the direction I'm…
484
00:51:05.730 --> 00:51:20.679
Speaker 2 (Quinlan Conf Room): I'm looking at you all, to make, so that
we can propose to audit… to the City Council, in the coming month or two,
with a proposal or a change in the policy, so that we can, kind of move
in that direction.
485
00:51:21.690 --> 00:51:24.680
Speaker 1 (Quinlan Conf Room): Dennis, do you have any thoughts on that
question?
486
00:51:25.190 --> 00:51:27.099
Dennis Mullins: Yeah, on the one hand, it…
487
00:51:27.220 --> 00:51:32.109
Dennis Mullins: It would be within the confines of your investment policy
to invest with those ESG funds.
488
00:51:33.050 --> 00:51:38.190
Dennis Mullins: On the other hand, I think it would be really good to
memorialize that in the policy.
489
00:51:38.490 --> 00:51:40.970
Dennis Mullins: With just a quick paragraph of…
490
00:51:41.090 --> 00:51:46.399
Dennis Mullins: You know, the board has decided that this is important to
invest in accordance with these values.
491
00:51:46.530 --> 00:51:51.860
Dennis Mullins: And the way we're gonna do that is, you know, through
these ESG funds. I think it would be good to put it in there.
492
00:51:52.210 --> 00:51:59.089
Dennis Mullins: But… You know, it's not… Not something that, you know.
493
00:51:59.820 --> 00:52:02.959
Dennis Mullins: We don't need a complete rewrite of the investment
policy.
494
00:52:04.630 --> 00:52:10.689
Speaker 1 (Quinlan Conf Room): Okay, let me… let me go a slightly
different direction here and see if there's any public comments at this
point.
495
00:52:11.590 --> 00:52:23.780
Speaker 1 (Quinlan Conf Room): Lindsay, anyone earning to make a comment?
We have no answers, and sharing. Okay, so we'll cross that one out, and
then, I'll bring us back to…
496
00:52:24.480 --> 00:52:27.209
Speaker 1 (Quinlan Conf Room): a motion, and I think what…
497
00:52:27.360 --> 00:52:35.379
Speaker 1 (Quinlan Conf Room): to talk out loud a bit on the motion. I
like the idea of balance. Whenever I hear balance, that's good. How can
we,
498
00:52:35.510 --> 00:52:43.289
Speaker 1 (Quinlan Conf Room): how can we do something the old Greeks
knew what they were talking about? But, I also hear policy, and
499
00:52:43.650 --> 00:52:47.339
Speaker 1 (Quinlan Conf Room): You know, policy changes depending on
500
00:52:47.530 --> 00:52:51.179
Speaker 1 (Quinlan Conf Room): in the chair are making the policy, and I
think maybe…
501
00:52:51.250 --> 00:52:56.450
Speaker 1 (Quinlan Conf Room): What we could do is distinguish our
committee a bit from
502
00:52:56.520 --> 00:53:12.810
Speaker 1 (Quinlan Conf Room): the upper… upper-level, policy makers,
and… and there's all kinds of policies within the city, I suspect, that
are environmentally friendly, sustainable, that we're not necessarily
paying attention to as finance folks here.
503
00:53:12.850 --> 00:53:23.259
Speaker 1 (Quinlan Conf Room): And so I'm leaning in the direction of
taking a pure financial rate of return fiduciary toward a responsibility
at this level.
504
00:53:23.640 --> 00:53:41.889
Speaker 1 (Quinlan Conf Room): just talking out loud as one individual,
but maybe as a way for us to move forward as a motion, where we… we have
diligently looked at the options. There are some ESG options, but we are
looking at how do we stay close to what the market is yielding without
505
00:53:42.030 --> 00:53:46.830
Speaker 1 (Quinlan Conf Room): Taking a position, because we don't want
to open the door to so many different
506
00:53:47.220 --> 00:53:53.630
Speaker 1 (Quinlan Conf Room): other concerns that we couldn't… You start
to become very active managers.
507
00:53:53.890 --> 00:53:59.499
Speaker 1 (Quinlan Conf Room): So that's how I throw this out, if any of
that makes sense. Guys, have any thoughts?
508
00:54:07.790 --> 00:54:16.640
Speaker 3 (Quinlan Conf Room): I like the idea of bringing the concept to
the Council for their consideration, and… Whiz…
509
00:54:17.040 --> 00:54:23.670
Speaker 3 (Quinlan Conf Room): Further information about their fiduciary
duty and responsibility there.
510
00:54:26.500 --> 00:54:27.559
Quinlan Conf Room: Add enough.
511
00:54:27.790 --> 00:54:45.120
Speaker 3 (Quinlan Conf Room): best about that duty, so that, you know,
down the road, if we end up with someone that's very activistic and wants
to get into that, highly managed portfolio because their views are so
strong that,
512
00:54:45.640 --> 00:54:51.650
Speaker 3 (Quinlan Conf Room): Yeah, providing some initial guidance from
the audit committee about
513
00:54:52.300 --> 00:54:57.089
Speaker 3 (Quinlan Conf Room): What we think is a wise thing to do and
keep in mind.
514
00:54:57.340 --> 00:55:02.319
Speaker 3 (Quinlan Conf Room): just, Steve, I really appreciate this
agenda item and this information, and…
515
00:55:03.270 --> 00:55:08.500
Speaker 3 (Quinlan Conf Room): brings up other questions about, you know,
where… where's barred enough is…
516
00:55:08.920 --> 00:55:15.720
Speaker 3 (Quinlan Conf Room): makes sense. We're… we're going down this
road, if it… where it makes sense.
517
00:55:16.510 --> 00:55:23.960
Speaker 1 (Quinlan Conf Room): would some of that information be, like,
if we know a lot of other cities in California are not
518
00:55:24.110 --> 00:55:27.910
Speaker 1 (Quinlan Conf Room): taking this path. Is that info that would
be useful?
519
00:55:28.100 --> 00:55:28.980
Speaker 1 (Quinlan Conf Room): Yeah.
520
00:55:28.985 --> 00:55:43.065
Speaker 3 (Quinlan Conf Room): And I wonder what… I thought maybe Palo
Alto had adopted a seat towards this, but at the end of the day, our job
is to be a steward of the finances and
521
00:55:43.305 --> 00:55:44.195
Speaker 3 (Quinlan Conf Room): Right.
522
00:55:44.200 --> 00:55:55.509
Speaker 1 (Quinlan Conf Room): I worry about that, and we've had some
good results, which is very positive, that we don't want to… the problem
with… yeah, okay, we've talked about that.
523
00:55:55.900 --> 00:56:05.180
Speaker 1 (Quinlan Conf Room): Any comments? Yeah, okay. I'm wondering if
maybe we need a little bit more information, or we're at the point where
we might maybe…
524
00:56:05.380 --> 00:56:11.729
Speaker 1 (Quinlan Conf Room): Take my suggestion and put it forward in a
very strict, subject to…
525
00:56:11.850 --> 00:56:29.639
Speaker 1 (Quinlan Conf Room): the fiduciary elements that we thought
were most, important to continue maintaining. We could continue not
specifying a change in the policy, but allow some additional research for
a subsequent City Council staff's report.
526
00:56:30.210 --> 00:56:34.040
Speaker 1 (Quinlan Conf Room): If you want to go that route. Or we can
get it at this level.
527
00:56:36.700 --> 00:56:37.960
Quinlan Conf Room: Lots of options.
528
00:56:39.420 --> 00:56:40.120
Speaker 1 (Quinlan Conf Room): Jeez.
529
00:56:46.620 --> 00:57:02.060
Speaker 4 (Quinlan Conf Room): Yeah, I think the example I brought up
earlier, the Norwegian… I think the Norwegian government, they're almost
like an activist government. They have a tops-down mandate. Exactly.
Versus, like, we don't have that mandate, we're kind of… Right.
530
00:57:02.065 --> 00:57:14.594
Speaker 1 (Quinlan Conf Room): we would face the same debate every
additional door we open down the road. So, just as a practical matter, I
think for us, it's easy to… easier to go down
531
00:57:14.595 --> 00:57:33.734
Speaker 1 (Quinlan Conf Room): let's monitor… it's difficult enough
monitoring the performance of the portfolio and matching the indexes that
we're choosing and having professional PSM come here to give us advice.
If we add additional complexity, I really personally think that's a
policy decision that comes at a different level than.
532
00:57:34.305 --> 00:57:36.175
Quinlan Conf Room: I'm comfortable with, but…
533
00:57:36.285 --> 00:57:37.514
Speaker 1 (Quinlan Conf Room): I'm flexing it.
534
00:57:40.140 --> 00:57:48.120
Speaker 3 (Quinlan Conf Room): So, right now, they could invest in…
Right, okay. ESG, ESG.
535
00:57:48.125 --> 00:57:48.855
Speaker 1 (Quinlan Conf Room): Right.
536
00:57:48.855 --> 00:57:51.694
Speaker 3 (Quinlan Conf Room): Right? Even within the current policy that
we have.
537
00:57:52.220 --> 00:57:55.140
Speaker 1 (Quinlan Conf Room): I believe so, yes. Okay.
538
00:57:55.960 --> 00:58:03.760
Speaker 3 (Quinlan Conf Room): So… Could… is there a way to add a
paragraph that says something… within…
539
00:58:04.760 --> 00:58:07.550
Quinlan Conf Room: Respecting our fiduciary duty to,
540
00:58:07.940 --> 00:58:17.520
Speaker 3 (Quinlan Conf Room): you know, for our investments, that there
is consideration of, these, the ESGs, and…
541
00:58:17.740 --> 00:58:25.090
Speaker 3 (Quinlan Conf Room): I'll make sure that let me spell it out
first. The Environmental, Social, and Governance, ETFs.
542
00:58:25.440 --> 00:58:31.600
Speaker 3 (Quinlan Conf Room): And is it specifically ETFs? It's not,
like… you're not looking at mutual funds, it's all ETFs.
543
00:58:31.990 --> 00:58:32.490
Speaker 3 (Quinlan Conf Room): Dennis?
544
00:58:32.490 --> 00:58:35.219
Dennis Mullins: It, it's either mutual funds or ETFs.
545
00:58:35.920 --> 00:58:36.969
Dennis Mullins: Could be.
546
00:58:38.220 --> 00:58:42.589
Speaker 3 (Quinlan Conf Room): That, that, that that would be considered,
547
00:58:43.850 --> 00:58:51.740
Speaker 3 (Quinlan Conf Room): But it wouldn't… I wouldn't do it as a
mandate, and I don't know if you would put it in the policy for why I
wouldn't put it in… but I wouldn't, because
548
00:58:52.160 --> 00:58:56.509
Speaker 3 (Quinlan Conf Room): You… the unintended consequences all over
the place.
549
00:58:57.440 --> 00:58:59.040
Speaker 3 (Quinlan Conf Room): With that, yeah.
550
00:58:59.220 --> 00:59:04.899
Speaker 3 (Quinlan Conf Room): And that it's also really difficult
because of just seeing that Coca-Cola example in there.
551
00:59:05.620 --> 00:59:06.430
Speaker 3 (Quinlan Conf Room): Yep.
552
00:59:07.400 --> 00:59:14.580
Speaker 3 (Quinlan Conf Room): And I don't know that everyone on the
Council even agrees with targeting fossil fuels.
553
00:59:15.240 --> 00:59:22.989
Speaker 3 (Quinlan Conf Room): for elimination. So I think it's… I think
it's actually… it would be an interesting, study session discussion,
554
00:59:23.180 --> 00:59:37.430
Speaker 3 (Quinlan Conf Room): Or it can come up as a, you know, as the
policy moves to the Council, but to… to have that determination do a
satisfactor approval, and know where people stand on… on… on that, might
be a curious thing.
555
00:59:39.090 --> 00:59:42.469
Speaker 1 (Quinlan Conf Room): So, I'm hearing you, there's, there's.
556
00:59:42.955 --> 00:59:56.045
Speaker 3 (Quinlan Conf Room): They're asking for really soft language to
address this option. And as it gets to the council, then just throw that
out there for, you know, what do people think about this, and how do we
balance that?
557
00:59:57.550 --> 00:59:58.750
Quinlan Conf Room: Is it…
558
00:59:59.570 --> 01:00:03.109
Speaker 1 (Quinlan Conf Room): Yeah. Okay, it's a way to open the policy
discussion, I see that, too.
559
01:00:03.110 --> 01:00:12.940
Speaker 3 (Quinlan Conf Room): And there was a different… there was a
slightly different definition on the, that risk, table.
560
01:00:13.190 --> 01:00:15.429
Speaker 3 (Quinlan Conf Room): That's what they call it?
561
01:00:17.030 --> 01:00:22.939
Speaker 3 (Quinlan Conf Room): carbon risks… 4.
562
01:00:22.945 --> 01:00:23.674
Speaker 4 (Quinlan Conf Room): moved by the time.
563
01:00:23.680 --> 01:00:37.000
Speaker 3 (Quinlan Conf Room): It's just these… the bar charts that we're
seeing between showing our… how we compare, and the slightly different
definition was something about, like, the costs of a company needing to,
564
01:00:37.290 --> 01:00:43.560
Speaker 3 (Quinlan Conf Room): Basically convert to, A lower carbon,
footprint.
565
01:00:44.020 --> 01:00:46.290
Speaker 3 (Quinlan Conf Room): Trying to find… Yeah, that's.
566
01:00:46.290 --> 01:00:49.159
Dennis Mullins: That's the carbon… that's the carbon risk score.
567
01:00:49.450 --> 01:00:50.670
Quinlan Conf Room: Yeah, so this other…
568
01:00:50.670 --> 01:00:51.610
Dennis Mullins: conversion.
569
01:00:51.900 --> 01:01:04.639
Speaker 3 (Quinlan Conf Room): was… yes, that's right, how much money a
company stands to lose as the world moves away from fossil fuels. And
that one starts raising red flags because of our Venezuela foray, and
570
01:01:04.790 --> 01:01:10.930
Speaker 3 (Quinlan Conf Room): And… and I… You know, this administration
is not moving away from busted fuels. That's… I don't see.
571
01:01:11.160 --> 01:01:18.630
Speaker 3 (Quinlan Conf Room): So… It… it… I think there's… there's…
there are a number of risks associated with… Yeah.
572
01:01:19.770 --> 01:01:22.799
Speaker 3 (Quinlan Conf Room): Just as a… as a policy. Right, definitely.
573
01:01:22.825 --> 01:01:25.275
Speaker 1 (Quinlan Conf Room): I agree with that. Yeah.
574
01:01:25.805 --> 01:01:35.934
Speaker 1 (Quinlan Conf Room): So, I guess maybe I was going to make a
question and an analogy. Dennis, is it permitted for the portfolio to
invest in ETFs or…
575
01:01:39.205 --> 01:01:47.154
Speaker 1 (Quinlan Conf Room): the sin-related things. I mean, you have
the permission to invest in them, but you don't. Am I correct?
576
01:01:49.085 --> 01:01:53.705
Speaker 1 (Quinlan Conf Room): I'm not sure what sin would be defined as
anymore, but there used to be… Tobacco. Tobacco.
577
01:01:53.710 --> 01:01:57.750
Dennis Mullins: The sin stocks were originally tobacco, alcohol, and
gambling.
578
01:01:58.390 --> 01:01:59.310
Quinlan Conf Room: Okay, perfect.
579
01:01:59.310 --> 01:02:04.300
Dennis Mullins: But… But that's not a really great example, because
there's such a small portion.
580
01:02:04.820 --> 01:02:05.690
Quinlan Conf Room: Okay. Yeah.
581
01:02:05.690 --> 01:02:10.599
Dennis Mullins: of the overall market, tobacco's almost gone away. Now,
it used to be big.
582
01:02:11.000 --> 01:02:11.490
Speaker 1 (Quinlan Conf Room): Okay.
583
01:02:11.670 --> 01:02:17.330
Dennis Mullins: Philip Morris used to be a, you know, blue-chip stock in
every portfolio, but…
584
01:02:18.630 --> 01:02:27.089
Dennis Mullins: so much of the alcohol and the gambling are just either
private equity or foreign-owned, or there's just not any out there. But
when you start talking about
585
01:02:27.820 --> 01:02:33.620
Dennis Mullins: You know, broader issues, You know, now we start… we
start bringing in, like, almost every company.
586
01:02:36.430 --> 01:02:44.269
Speaker 1 (Quinlan Conf Room): I was trying to make the analogy that if
you already have the right to invest in those, but we don't, that could
be similar to the ESG situation.
587
01:02:44.440 --> 01:02:45.090
Dennis Mullins: Yeah, we did.
588
01:02:45.410 --> 01:02:48.679
Dennis Mullins: Yeah, we… We do, but, you know…
589
01:02:49.230 --> 01:02:52.459
Speaker 1 (Quinlan Conf Room): Okay, if we do, maybe it doesn't work
somewhat, so they have…
590
01:02:52.900 --> 01:02:58.340
Dennis Mullins: We do have the ability to invest in permitted…
591
01:02:59.130 --> 01:03:03.630
Dennis Mullins: Prohibit… yeah, under prohibited asset classes and
transactions.
592
01:03:04.840 --> 01:03:09.810
Dennis Mullins: You know, it has to do with the structure of the
financing or the security.
593
01:03:10.490 --> 01:03:12.780
Dennis Mullins: But it says nothing about…
594
01:03:13.450 --> 01:03:19.379
Dennis Mullins: about, you know, what is now considered ESG. It used to
be called SRI, Socially Responsible Investing.
595
01:03:19.850 --> 01:03:23.590
Dennis Mullins: But the policies… the policies don't go into that at all.
596
01:03:24.460 --> 01:03:28.379
Speaker 1 (Quinlan Conf Room): Well, it's kind of going for the soft
learning, so, to some extent.
597
01:03:29.010 --> 01:03:29.840
Quinlan Conf Room: Yes.
598
01:03:29.840 --> 01:03:33.340
Speaker 1 (Quinlan Conf Room): Maybe we don't need soft wording, but on
the other hand.
599
01:03:33.600 --> 01:03:35.480
Speaker 1 (Quinlan Conf Room): How hard is it to craft?
600
01:03:35.760 --> 01:03:38.769
Speaker 1 (Quinlan Conf Room): Two sentences that would allow it.
601
01:03:38.960 --> 01:03:43.749
Speaker 1 (Quinlan Conf Room): but not mandated. I guess that's where
we're at, maybe.
602
01:03:44.670 --> 01:03:56.059
Speaker 2 (Quinlan Conf Room): I don't think it would be difficult at all
to put some soft language in there, propose it to Council, and let
Council deliberate whether they want to keep it in the policy or, or
just…
603
01:03:56.060 --> 01:04:05.020
Speaker 2 (Quinlan Conf Room): provide general direction to staff that
the investment strategy should follow X, Y, and Z, rather than
memorializing it within a policy.
604
01:04:05.160 --> 01:04:06.190
Speaker 2 (Quinlan Conf Room): Not satisfied.
605
01:04:06.195 --> 01:04:15.284
Speaker 1 (Quinlan Conf Room): me, because we're keeping… we're keeping
our nose very close to the fiduciary part, but we're allowing an opening
for the policy makers, which I look to
606
01:04:15.595 --> 01:04:18.515
Speaker 1 (Quinlan Conf Room): City Council being, rather than us.
607
01:04:19.005 --> 01:04:27.935
Speaker 1 (Quinlan Conf Room): Okay, you like that? Then maybe we can
direct staff with a long… well, we could have a motion that directs staff
to work with Dennis.
608
01:04:28.415 --> 01:04:29.325
Speaker 1 (Quinlan Conf Room): We do.
609
01:04:29.425 --> 01:04:36.794
Speaker 1 (Quinlan Conf Room): Like, we still have to do the work of
approving our policy, but maybe if there are no other changes to the
policy, we can go ahead and.
610
01:04:36.800 --> 01:04:41.520
Speaker 2 (Quinlan Conf Room): Would you want to keep global
infrastructure there, or do you want that removed?
611
01:04:41.810 --> 01:04:47.690
Speaker 2 (Quinlan Conf Room): That was the other… That that actually
kept this policy going along.
612
01:04:47.900 --> 01:04:48.980
Speaker 2 (Quinlan Conf Room): Right.
613
01:04:49.930 --> 01:05:04.239
Speaker 2 (Quinlan Conf Room): So, it's just a new asset class that, is
available. It would essentially be zeroing out commodities. At this
point, we actually do not invest in commodities, and just give the
ability all out, of global infrastructure.
614
01:05:04.245 --> 01:05:09.175
Speaker 1 (Quinlan Conf Room): Maybe you could just flash that on the
screen. I know we've got that in the policy documents.
615
01:05:10.470 --> 01:05:12.940
Quinlan Conf Room: So we're all on the same page.
616
01:05:14.230 --> 01:05:21.290
Speaker 2 (Quinlan Conf Room): And while we're doing that, Dennis, can
you please give a quick summary of what, global infrastructure, entails?
617
01:05:22.490 --> 01:05:29.320
Dennis Mullins: Yes, so global infrastructure became a separate asset
class somewhere in the last 5 to 10 years.
618
01:05:29.670 --> 01:05:32.569
Dennis Mullins: And kind of grew out of…
619
01:05:33.360 --> 01:05:35.889
Dennis Mullins: A blend of technology and real estate.
620
01:05:36.180 --> 01:05:40.310
Dennis Mullins: I think the best way to explain it is to use a couple of
examples. So…
621
01:05:40.770 --> 01:05:47.430
Dennis Mullins: Global infrastructure, Would… would take on…
622
01:05:47.600 --> 01:05:50.559
Dennis Mullins: Those companies would invest in those companies involved
in
623
01:05:51.480 --> 01:05:56.980
Dennis Mullins: huge construction projects. Think interstate highways,
bridges.
624
01:05:58.150 --> 01:06:03.080
Dennis Mullins: Like bridges, like you see on the East Coast, on the
inland coastal waterway, right?
625
01:06:03.310 --> 01:06:11.140
Dennis Mullins: They're 2 or 3 miles long, they cost billions of dollars,
and they take years to construct, or…
626
01:06:12.390 --> 01:06:18.840
Dennis Mullins: And then… The other example that I always come back to
for global infrastructure is
627
01:06:19.170 --> 01:06:22.280
Dennis Mullins: One of the companies in one of our funds
628
01:06:22.800 --> 01:06:27.190
Dennis Mullins: made a presentation to us. They… they purchased cell
towers.
629
01:06:27.600 --> 01:06:33.060
Dennis Mullins: They upgrade the cell towers to 5G, and then they either
lease them or they sell them.
630
01:06:33.670 --> 01:06:40.880
Dennis Mullins: You know, so… we're hoping that they do that in a very
profitable manner, and that 5G
631
01:06:41.100 --> 01:06:44.659
Dennis Mullins: Continues to be Drawing in a lot of capital.
632
01:06:45.500 --> 01:06:48.690
Dennis Mullins: And that seems like a pretty safe bet.
633
01:06:48.910 --> 01:06:56.399
Dennis Mullins: If you had to stop that company and liquidate it at any
point, what you own is a bunch of very small parcels of real estate.
634
01:06:57.100 --> 01:07:01.210
Dennis Mullins: You know, with a bunch of technology, hardware on them.
635
01:07:01.520 --> 01:07:06.700
Dennis Mullins: So… It… it's… Kind of leans heavily into real estate.
636
01:07:07.060 --> 01:07:10.420
Dennis Mullins: But not for the sake of, you know.
637
01:07:10.540 --> 01:07:14.900
Dennis Mullins: Real estate, in the traditional sense, commercial or
residential building.
638
01:07:15.280 --> 01:07:18.720
Dennis Mullins: You know, so that's global infrastructure.
639
01:07:19.490 --> 01:07:20.940
Speaker 1 (Quinlan Conf Room): It may.
640
01:07:20.940 --> 01:07:21.460
Dennis Mullins: Good.
641
01:07:22.290 --> 01:07:25.530
Speaker 1 (Quinlan Conf Room): Or settings chart, that's probably the
more relevant.
642
01:07:25.930 --> 01:07:37.649
Speaker 1 (Quinlan Conf Room): So, what we're really doing is, if we
agree with all that, we're just giving you the option, should you decide
that that makes sense in the portfolio, you would include it. Otherwise,
it'll be a 0%.
643
01:07:38.290 --> 01:07:39.850
Dennis Mullins: Correct. Yeah, yeah.
644
01:07:40.040 --> 01:07:44.080
Dennis Mullins: Yeah, much as we did with commodities. We held
commodities for…
645
01:07:44.900 --> 01:07:49.459
Dennis Mullins: A large portion of the last 10 years, but in the last 3
or 4 years, we have not.
646
01:07:49.730 --> 01:07:57.899
Dennis Mullins: Commodities are typically thought of as a play on
inflation, that you want to invest in something that's going to do well
in a period of high inflation.
647
01:07:58.870 --> 01:08:01.730
Dennis Mullins: And we just are not in that environment right now.
648
01:08:03.100 --> 01:08:08.109
Speaker 1 (Quinlan Conf Room): So, in answering the question, this seems
fine to me, this chart, Mayor.
649
01:08:08.115 --> 01:08:13.334
Speaker 3 (Quinlan Conf Room): Is there a definition of global
infrastructure in this policy?
650
01:08:13.490 --> 01:08:15.020
Speaker 1 (Quinlan Conf Room): They added a line.
651
01:08:15.190 --> 01:08:20.220
Speaker 1 (Quinlan Conf Room): Which I just took you guys away from. I
could go back to it. It's not difficult.
652
01:08:20.225 --> 01:08:23.115
Speaker 2 (Quinlan Conf Room): defined the sense of what it, yeah.
653
01:08:23.115 --> 01:08:28.584
Speaker 4 (Quinlan Conf Room): Dennis, I think last time you met… you
didn't mention highway bridges, and you talked about cell tower.
654
01:08:28.765 --> 01:08:33.115
Speaker 4 (Quinlan Conf Room): And today, the first sample you gave is
actually highways and bridges.
655
01:08:36.165 --> 01:08:39.145
Speaker 4 (Quinlan Conf Room): When I go to AI…
656
01:08:39.145 --> 01:08:51.864
Speaker 3 (Quinlan Conf Room): global infrastructure can include some,
negative things. Their definition is right, so it could include a coal-
fired power plant, oil and gas pipeline.
657
01:08:52.045 --> 01:09:01.735
Speaker 3 (Quinlan Conf Room): Waste-to-energy incineration,
petrochemical plants, airports, highway and toll road expansion, gas
utilities.
658
01:09:02.125 --> 01:09:16.595
Speaker 3 (Quinlan Conf Room): materials for heavy industry. So…
everything. And then probably also the NVIDIA, you know, data set. Just
all the water usage and all. Yeah, yeah, yeah, yeah, cell power. It's got
everything. That's amazing.
659
01:09:16.604 --> 01:09:24.894
Speaker 1 (Quinlan Conf Room): Okay, well, this brings us full circle.
Very good, I'm glad you did. So one would be basically offsetting… Right.
660
01:09:27.614 --> 01:09:35.844
Speaker 1 (Quinlan Conf Room): So, the main thing you told me just
recently here was it was a new asset structure, or asset class.
661
01:09:35.954 --> 01:09:46.594
Speaker 1 (Quinlan Conf Room): And I guess my previous comment had been,
don't we have a lot of asset classes that we don't all… we don't spell
out on that chart? We only spell out
662
01:09:46.804 --> 01:09:53.544
Speaker 1 (Quinlan Conf Room): 3 or 4 of the major ones, am I right? Have
you got more asset classes than the 4 on the,
663
01:09:53.774 --> 01:09:54.714
Speaker 1 (Quinlan Conf Room): chart.
664
01:09:56.700 --> 01:10:04.340
Dennis Mullins: No, that's about it. We call that the Tier 1 asset
classes in our parlance, so stocks, bonds, real estate, global
infrastructure.
665
01:10:04.340 --> 01:10:05.110
Quinlan Conf Room: Cash.
666
01:10:06.110 --> 01:10:09.309
Speaker 1 (Quinlan Conf Room): Global infrastructure is a Tier 1 asset
class.
667
01:10:09.310 --> 01:10:16.450
Dennis Mullins: It is, yeah, in the way that we work. Not everybody in
the industry does everything exactly the same.
668
01:10:17.910 --> 01:10:21.880
Dennis Mullins: When we do our asset allocation work, that's what we
start with.
669
01:10:23.410 --> 01:10:32.269
Speaker 1 (Quinlan Conf Room): Okay, well, maybe in our soft policy,
then, we could work with… work on global infrastructure, because the list
you just
670
01:10:32.970 --> 01:10:36.899
Speaker 1 (Quinlan Conf Room): The listing was pretty strong on the…
671
01:10:37.610 --> 01:10:46.980
Speaker 2 (Quinlan Conf Room): We don't need to have this. This is just a
proposal to bring all asset classes within the policy, as it's
specifically called out.
672
01:10:46.985 --> 01:10:57.864
Speaker 1 (Quinlan Conf Room): Great question. So, all Tier 1? First of
all, a couple of us have never heard of Tier 1 asset class. We've heard
of asset class. So, what's in Tier 2 asset class?
673
01:10:57.870 --> 01:11:01.959
Dennis Mullins: So, Tier 2 would be in equities, you've got… you've got
large cap U.S,
674
01:11:02.350 --> 01:11:06.390
Dennis Mullins: You've got mid-cap, small-cap U.S, you've got developed
foreign and emerging foreign.
675
01:11:06.700 --> 01:11:15.299
Speaker 1 (Quinlan Conf Room): Yeah, yeah, so we don't want to go into
that detail, so global infrastructure could be a subset of real estate,
just like it has been, or now you're… so… Used to be.
676
01:11:15.380 --> 01:11:16.600
Dennis Mullins: Used to be, yeah.
677
01:11:16.970 --> 01:11:19.610
Speaker 1 (Quinlan Conf Room): Maybe a Tier 1, so therefore we can't…
678
01:11:19.740 --> 01:11:21.600
Speaker 1 (Quinlan Conf Room): Look at it that way anymore.
679
01:11:22.640 --> 01:11:23.010
Speaker 3 (Quinlan Conf Room): I don't.
680
01:11:23.010 --> 01:11:27.079
Dennis Mullins: Well, and we set up all of our reporting systems to
follow that
681
01:11:27.840 --> 01:11:33.059
Dennis Mullins: that formatting, so I wouldn't be able to stick it in and
tell you it's a real estate fund.
682
01:11:33.840 --> 01:11:34.549
Dennis Mullins: Who would…
683
01:11:35.620 --> 01:11:39.780
Speaker 3 (Quinlan Conf Room): Some examples of the global
infrastructure…
684
01:11:40.910 --> 01:11:42.750
Quinlan Conf Room: My funds, or…
685
01:11:44.010 --> 01:11:52.850
Speaker 1 (Quinlan Conf Room): There was one that Dennis suggested last
time, if I recall. There's an actual fund, and maybe the composition of
that fund isn't quite as controversial.
686
01:11:53.720 --> 01:11:55.420
Quinlan Conf Room: There's what we may be a loop.
687
01:11:55.930 --> 01:11:58.709
Speaker 3 (Quinlan Conf Room): Or maybe it's getting a really great
return, and…
688
01:11:59.530 --> 01:12:08.069
Speaker 3 (Quinlan Conf Room): It would be foolish for us to not look at
it, or you could, you know, find the best among.
689
01:12:09.420 --> 01:12:12.519
Speaker 1 (Quinlan Conf Room): Okay, that's a good practical question.
690
01:12:16.930 --> 01:12:18.650
Speaker 2 (Quinlan Conf Room): Dennis, what, what,
691
01:12:19.140 --> 01:12:25.820
Speaker 2 (Quinlan Conf Room): What investments would you be, pursuing in
global infrastructure, and what kind of return are you seeing?
692
01:12:27.080 --> 01:12:32.720
Dennis Mullins: The index, we just added it a few years ago. The index
fund we're using is the IGF, is the symbol?
693
01:12:32.960 --> 01:12:34.260
Dennis Mullins: R.
694
01:12:35.910 --> 01:12:36.610
Speaker 4 (Quinlan Conf Room): Okay.
695
01:12:36.820 --> 01:12:40.029
Dennis Mullins: And, oh, I'd have to…
696
01:12:40.230 --> 01:12:50.150
Dennis Mullins: I'd have to get, I'm thinking for the year 2025, the
return for global infrastructure was lower than the return for the stock
market.
697
01:12:50.930 --> 01:12:56.069
Dennis Mullins: But it was a banner year for the stock market, and
that's, you know, that doesn't tell us an awful lot.
698
01:12:57.980 --> 01:13:04.669
Speaker 1 (Quinlan Conf Room): Well… We're trying to just get a real
quick, high-level sense of what ITF might actually be investing in.
699
01:13:05.770 --> 01:13:07.180
Quinlan Conf Room: at this point.
700
01:13:07.650 --> 01:13:09.640
Speaker 1 (Quinlan Conf Room): The top 10 holdings.
701
01:13:11.820 --> 01:13:13.360
Speaker 3 (Quinlan Conf Room): Got a nice chart.
702
01:13:14.180 --> 01:13:23.799
Speaker 3 (Quinlan Conf Room): Up 48.72% in the past 5 years. Hmm. I got…
Airports, utilities.
703
01:13:23.800 --> 01:13:24.550
Speaker 1 (Quinlan Conf Room): Here's cheap.
704
01:13:24.555 --> 01:13:26.995
Speaker 3 (Quinlan Conf Room): Oil, gas, pipelines.
705
01:13:27.205 --> 01:13:34.944
Speaker 3 (Quinlan Conf Room): does not incorporate ESG rather, but it's…
I don't know how it compares to the others, but it's done pretty well…
706
01:13:35.840 --> 01:13:46.659
Speaker 1 (Quinlan Conf Room): Well, I see two ways that I'm addressing
it. Just because Tier 1, we want to stick with whatever model we've got,
so if this is the exhausted role
707
01:13:46.840 --> 01:13:55.980
Speaker 1 (Quinlan Conf Room): Tier 1 assets, then maybe we could have it
still on this chart, but our wording then may be on the soft two
sentences.
708
01:13:56.170 --> 01:14:07.280
Speaker 1 (Quinlan Conf Room): would put global infrastructure, or we
could just eliminate it and just say, we don't want global… global
infrastructure is too new for us, we're just, you know, stuck in the mud
here. I think also…
709
01:14:07.280 --> 01:14:20.760
Speaker 2 (Quinlan Conf Room): If we could include it and just leave it
at the range, available range at zero. And so, if the asset class is
spelled out, and the policy says, we don't want to invest in there. At
this point. Right.
710
01:14:20.760 --> 01:14:23.559
Speaker 1 (Quinlan Conf Room): Okay, that's a way to get us.
711
01:14:23.560 --> 01:14:25.970
Speaker 3 (Quinlan Conf Room): We don't have any… we don't have council…
712
01:14:26.610 --> 01:14:28.530
Speaker 2 (Quinlan Conf Room): direction? Well…
713
01:14:28.630 --> 01:14:41.100
Speaker 2 (Quinlan Conf Room): we'll be making this proposal to Council
if it's desire of the Audit Committee to move forward with calling it out
as an asset class, but not investing, so the range, available range to
invest in is zero.
714
01:14:41.470 --> 01:14:45.060
Speaker 2 (Quinlan Conf Room): Okay. And so, as you can see on the other
715
01:14:45.470 --> 01:14:49.400
Speaker 2 (Quinlan Conf Room): Ranges here, that's… we have to stay
within that per policy.
716
01:14:49.660 --> 01:14:52.820
Speaker 2 (Quinlan Conf Room): In that range, right? So, if global
infrastructures
717
01:14:53.280 --> 01:15:01.349
Speaker 2 (Quinlan Conf Room): set to zero, we call out that is a Tier 1
asset. However, Council has decided not to invest into that.
718
01:15:01.350 --> 01:15:04.019
Speaker 3 (Quinlan Conf Room): a class. So that would be information
that…
719
01:15:04.340 --> 01:15:12.870
Speaker 3 (Quinlan Conf Room): would be easily brought to the Council
about how it's performing, because we're balancing that with our
fiduciary duty. So if we're saying.
720
01:15:13.300 --> 01:15:19.770
Speaker 2 (Quinlan Conf Room): We can provide this information to
Council, and Council can make the decision whether it wants to
721
01:15:20.060 --> 01:15:29.060
Speaker 2 (Quinlan Conf Room): pursue something closer to ESG, or kind of
balance the fiduciary duty with, you know what, do ESG, investments
722
01:15:29.310 --> 01:15:32.069
Speaker 2 (Quinlan Conf Room): Absent of this global infrastructure.
723
01:15:34.530 --> 01:15:41.449
Speaker 4 (Quinlan Conf Room): I also noticed the expense ratio for this
specific ETF you mentioned is quite high, 0.4%.
724
01:15:41.800 --> 01:15:42.310
Speaker 4 (Quinlan Conf Room): No.
725
01:15:44.290 --> 01:15:58.870
Speaker 1 (Quinlan Conf Room): As you saw, Dennis, you're going to be
looking at those expenses on the, ASP, whatever the small fund, so that's
another theme here we have, is we want to be sensitive to expenses,
expense ratios.
726
01:15:59.670 --> 01:16:07.899
Speaker 1 (Quinlan Conf Room): Okay, well, how do we bring this to a… it
seems like we're real close. We could include it in here with a zero.
727
01:16:08.010 --> 01:16:13.709
Speaker 1 (Quinlan Conf Room): Since we're not really convinced that this
is a super asset class, At this point.
728
01:16:14.010 --> 01:16:16.039
Speaker 1 (Quinlan Conf Room): I mean, we've been doing fine without it.
729
01:16:16.540 --> 01:16:17.680
Quinlan Conf Room: Be honest.
730
01:16:17.810 --> 01:16:26.059
Speaker 1 (Quinlan Conf Room): And we have a couple sentences that allow
for policymakers to step in.
731
01:16:26.850 --> 01:16:27.830
Quinlan Conf Room: And then…
732
01:16:28.680 --> 01:16:35.740
Speaker 1 (Quinlan Conf Room): You know, if the policymakers choose not
to, we've got the same policy that we've had, basically, but there's some
options for down the road.
733
01:16:36.910 --> 01:16:43.729
Speaker 3 (Quinlan Conf Room): And alternatively, that… that paragraph
can be struck, and if we have something that's saying.
734
01:16:43.960 --> 01:16:52.960
Speaker 3 (Quinlan Conf Room): basically to the council, you know, you
have a fiduciary duty for highest returns. You might not like these
investments, but…
735
01:16:53.180 --> 01:16:58.089
Speaker 3 (Quinlan Conf Room): Don't see an alternative that's going to
get you that yield, and… Right.
736
01:16:58.660 --> 01:17:00.010
Quinlan Conf Room: That would be really good.
737
01:17:00.310 --> 01:17:01.740
Quinlan Conf Room: Put that wording in.
738
01:17:02.940 --> 01:17:04.490
Quinlan Conf Room: Something fixes.
739
01:17:05.370 --> 01:17:08.880
Speaker 3 (Quinlan Conf Room): Okay. This ended up being a lot more.
740
01:17:09.780 --> 01:17:11.290
Quinlan Conf Room: complicated.
741
01:17:12.160 --> 01:17:15.210
Speaker 3 (Quinlan Conf Room): At first glance, seemed real simple and
clean.
742
01:17:16.650 --> 01:17:25.350
Speaker 1 (Quinlan Conf Room): Right, and that's… that's maybe the theme
here to be worried about, is we don't know what doors we're opening,
because many people are not opening these doors.
743
01:17:25.780 --> 01:17:41.140
Speaker 1 (Quinlan Conf Room): But, okay, if it's any confidence, 6 or 7
years ago, we went through a similar type of discussion and came to
something very similar as a result. So, fiduciary did Trump again, or
whatever the word is.
744
01:17:41.270 --> 01:17:44.009
Speaker 1 (Quinlan Conf Room): Right. Wow. So…
745
01:17:44.470 --> 01:17:51.400
Speaker 1 (Quinlan Conf Room): Let's see. What we need is a motion. It
summarizes what we've all pretty much come to.
746
01:17:51.500 --> 01:17:56.179
Speaker 1 (Quinlan Conf Room): Do you want to maybe stab at stating what
we were at, Jonathan?
747
01:17:56.310 --> 01:17:59.270
Speaker 1 (Quinlan Conf Room): And then we can see if one of those wants
to move.
748
01:18:00.230 --> 01:18:01.160
Speaker 2 (Quinlan Conf Room): aren't,
749
01:18:01.360 --> 01:18:19.950
Speaker 2 (Quinlan Conf Room): the committees directing staff, or making
the recommendation that staff present a policy that, considers ESG soft
language, considering ESG investments, respecting the issue duty to
their, pension and OPEC.
750
01:18:20.070 --> 01:18:28.610
Speaker 2 (Quinlan Conf Room): Investments, including, a bit language, a
bit more language what its fiduciary duty should be in this situation.
751
01:18:31.370 --> 01:18:33.939
Quinlan Conf Room: And otherwise, we keep the policy as…
752
01:18:35.790 --> 01:18:38.970
Speaker 1 (Quinlan Conf Room): craft storm? Or do we change this?
753
01:18:38.970 --> 01:18:55.329
Speaker 2 (Quinlan Conf Room): Thank you. We'll, update the recommended
ranges, to remove global infrastructure… well, to keep it global
infrastructure, but pin it to 0%. And Council will have the opportunity
to move that, range, should it choose to.
754
01:18:56.260 --> 01:19:05.129
Speaker 3 (Quinlan Conf Room): Could we bring two options, and just not
really be… like, we're… I don't feel 100% on either.
755
01:19:05.690 --> 01:19:10.320
Speaker 3 (Quinlan Conf Room): So that's… And that happens, where
there's, you know, there's…
756
01:19:12.390 --> 01:19:22.629
Speaker 3 (Quinlan Conf Room): would have this draft without the extra
language in there, and no changes to the percentage in there at all. Or
you have the soft language and
757
01:19:22.850 --> 01:19:26.049
Speaker 3 (Quinlan Conf Room): And the changed range. I propose…
758
01:19:26.050 --> 01:19:37.969
Speaker 2 (Quinlan Conf Room): My proposal is to include one staff… one
policy, and you can actually pull out what you would like to keep in
there, and what you want to keep as original. Will the staff report.
759
01:19:37.970 --> 01:19:39.749
Speaker 3 (Quinlan Conf Room): Have some… that you.
760
01:19:39.750 --> 01:19:43.729
Speaker 2 (Quinlan Conf Room): have the option. Okay, so it'll be written
up. Okay. So we're making…
761
01:19:43.735 --> 01:19:45.325
Speaker 1 (Quinlan Conf Room): one recommendation.
762
01:19:45.425 --> 01:19:49.594
Speaker 1 (Quinlan Conf Room): Correct. And staff boarding has options.
763
01:19:50.195 --> 01:19:54.235
Speaker 1 (Quinlan Conf Room): Maybe that's what… we should make one
recommendation.
764
01:19:54.785 --> 01:19:58.675
Speaker 1 (Quinlan Conf Room): Correct. Okay. Okay, that sounds right.
Pardon, we don't.
765
01:19:58.675 --> 01:20:03.284
Speaker 3 (Quinlan Conf Room): want to see it on consent, probably,
because we wanted some discussion on the council.
766
01:20:03.445 --> 01:20:04.185
Speaker 3 (Quinlan Conf Room): Yeah.
767
01:20:05.665 --> 01:20:08.114
Speaker 1 (Quinlan Conf Room): So, you want to make a…
768
01:20:08.655 --> 01:20:13.565
Speaker 1 (Quinlan Conf Room): And is there a second to that, motion? All
right, so we've got…
769
01:20:14.830 --> 01:20:16.880
Quinlan Conf Room: motion that I think we understand.
770
01:20:17.890 --> 01:20:20.740
Speaker 1 (Quinlan Conf Room): I suppose we vote or discuss it some more.
771
01:20:21.530 --> 01:20:22.470
Quinlan Conf Room: Yes.
772
01:20:22.470 --> 01:20:27.029
Speaker 1 (Quinlan Conf Room): Got you, I guess we can bring you in. Are
you happy with this? We've had… Yes.
773
01:20:27.680 --> 01:20:30.000
Speaker 1 (Quinlan Conf Room): Here. But,
774
01:20:30.900 --> 01:20:44.659
Speaker 1 (Quinlan Conf Room): a conclusion that may be modified in
future or not, but we are very concerned with the fiduciary element, so
we want to make sure we bring that forth in the policy and the report
that goes to City Council, and
775
01:20:44.660 --> 01:20:51.020
Speaker 1 (Quinlan Conf Room): Your… your diligence in helping draft this
with Jonathan will be much appreciated. And thank you for all…
776
01:20:51.360 --> 01:20:52.499
Dennis Mullins: Looking forward to it.
777
01:20:53.260 --> 01:20:59.870
Speaker 1 (Quinlan Conf Room): Thank you. Okay, so let's take a vote on
our motion, which we haven't quite done yet. All in favor? Aye.
778
01:21:00.070 --> 01:21:01.630
Speaker 1 (Quinlan Conf Room): So much is anonymous.
779
01:21:02.140 --> 01:21:08.819
Speaker 1 (Quinlan Conf Room): Great. Thank you, everyone. Thank you. So
that brings us to six, which is internal…
780
01:21:09.000 --> 01:21:18.999
Speaker 1 (Quinlan Conf Room): Audit, received internal audit and Fraud,
waste, and abuse programs update. We… you guys have been patiently
waiting. Thanks, Chelsea. We'll turn it over to you.
781
01:21:19.470 --> 01:21:20.970
Speaker 1 (Quinlan Conf Room): If we can.
782
01:21:21.550 --> 01:21:25.769
Chelsea Ritchie, Baker Tilly: Sounds great! Yes, let me pull up the
materials.
783
01:21:26.060 --> 01:21:28.529
Chelsea Ritchie, Baker Tilly: And walk you through them.
784
01:21:32.350 --> 01:21:35.030
Chelsea Ritchie, Baker Tilly: Can everybody see my screen?
785
01:21:36.030 --> 01:21:36.890
Speaker 1 (Quinlan Conf Room): EL?
786
01:21:37.050 --> 01:21:40.499
Chelsea Ritchie, Baker Tilly: Wonderful. And is it big enough for
everybody?
787
01:21:40.500 --> 01:21:42.280
Speaker 1 (Quinlan Conf Room): No.
788
01:21:42.380 --> 01:21:49.640
Chelsea Ritchie, Baker Tilly: I know, I had a feeling. It looked pretty
small even on my screen, so, I will… I'll…
789
01:21:49.980 --> 01:21:50.360
Quinlan Conf Room: I haven't.
790
01:21:50.360 --> 01:21:59.470
Chelsea Ritchie, Baker Tilly: So this is, the audit status report from
October 22nd all the way through last week of January 16th.
791
01:21:59.680 --> 01:22:23.100
Chelsea Ritchie, Baker Tilly: There still is one outstanding, project
that we are trying to wrap up from the past fiscal year internal audit
program, and that's the Grant Management Internal Control Review. We have
sent over a draft to, management, and we're working through… currently,
right now, I think it's sitting… sitting with the city manager.
792
01:22:23.100 --> 01:22:32.240
Chelsea Ritchie, Baker Tilly: to get any last feedback that they might
have, and really get that report finalized so that I can, report this to
you all next.
793
01:22:32.240 --> 01:22:45.850
Chelsea Ritchie, Baker Tilly: next time around. So that will close out
the internal audit program, for fiscal year 24-25. Any questions before I
move on to 25-26 internal audit program?
794
01:22:48.320 --> 01:22:53.249
Speaker 1 (Quinlan Conf Room): Question is, nope, I see that we're all
happy campers right now. Go ahead, Chelsea. Thank you.
795
01:22:53.250 --> 01:23:12.899
Chelsea Ritchie, Baker Tilly: Great, great. Well, then moving into the
25-26 internal audit program, we have the council-wide policy review.
This is going really well. We've held our kickoff meeting, we have sent
our document request, and we've also conducted a lot of interviews for
this project.
796
01:23:12.900 --> 01:23:27.019
Chelsea Ritchie, Baker Tilly: We're hoping to finalize our, interviews
during the next period and draft that report, so hopefully having either
a draft or, a final report to share with you all next quarter.
797
01:23:27.350 --> 01:23:31.979
Chelsea Ritchie, Baker Tilly: And that moves us into the investment cash
flow policy review.
798
01:23:31.980 --> 01:23:54.030
Chelsea Ritchie, Baker Tilly: So this is really looking at those policies
for the, you know, best practices, comparing it to the GFOA, making sure
that, you know, comparable to other cities of your size, that you have
well-rounded policies in this area. And we have reviewed those policies
and developed some best practice recommendations
799
01:23:54.030 --> 01:24:00.030
Chelsea Ritchie, Baker Tilly: We sent over those comments to city… city
officials last week.
800
01:24:00.030 --> 01:24:17.070
Chelsea Ritchie, Baker Tilly: And just needing to have them look over a
lot of comments, you know, 30-plus comments per policy, and then we're
going to meet, and discuss next steps, and make sure that we answer any
questions that they might have when considering, our recommendations.
801
01:24:18.060 --> 01:24:25.859
Speaker 1 (Quinlan Conf Room): Chelsea, while we're on that call, just
the, I guess, would that include… I mean, maybe you're just looking at
the policy, so…
802
01:24:25.970 --> 01:24:43.460
Speaker 1 (Quinlan Conf Room): Apologies for not having tracked that
carefully or remembered it, but there was also a cash flow projection
model that got developed late last year, as I recall. Is that subject to
what you guys are looking at, or is that outside the.
803
01:24:43.810 --> 01:24:50.209
Chelsea Ritchie, Baker Tilly: Yes, so that is something that we are
taking into consideration, especially with the cash flow policy.
804
01:24:50.640 --> 01:24:54.070
Speaker 1 (Quinlan Conf Room): Super, thanks. I look forward to hearing
and seeing your report.
805
01:24:54.380 --> 01:24:57.820
Chelsea Ritchie, Baker Tilly: Absolutely, great question. Any other
questions before I move on?
806
01:24:57.940 --> 01:25:00.670
Speaker 1 (Quinlan Conf Room): Jonathan's got something to say. So,
807
01:25:00.675 --> 01:25:22.854
Speaker 2 (Quinlan Conf Room): we developed the cash flow policy, as well
as that model, and both of those were provided to Baker Tilly. They are…
we have not taken the cash flow policy to Council. They provided some
input on that, so we'll be incorporating their comments into the policy,
and then we'll be bringing that forward to Council.
808
01:25:22.855 --> 01:25:26.675
Speaker 2 (Quinlan Conf Room): Well, probably in conjunction with this
report. Fantastic.
809
01:25:27.820 --> 01:25:36.570
Speaker 3 (Quinlan Conf Room): Question. So, with regards to… the cash
flow policy. I've had kind of an ongoing…
810
01:25:37.090 --> 01:25:45.860
Speaker 3 (Quinlan Conf Room): question about our total cash investments
total. That is… it has increased, and I've…
811
01:25:46.650 --> 01:25:57.709
Speaker 3 (Quinlan Conf Room): Wondered how it is that we make a
determination for what's the right amount versus… because, you know,
we're holding taxpayer dollars and not investing in it.
812
01:25:58.160 --> 01:26:11.160
Speaker 3 (Quinlan Conf Room): tangible for… services. So what's the
right amount, and who's the person to advise us on that?
813
01:26:11.420 --> 01:26:22.789
Speaker 3 (Quinlan Conf Room): And, yeah, just that kind of general
topic, because we're looking at having some expenditures. How are we
going to cover that? Is that going to put us in a situation where we're
going to
814
01:26:23.880 --> 01:26:27.529
Speaker 3 (Quinlan Conf Room): Because we're trying to… we're living off
of the interest.
815
01:26:29.250 --> 01:26:37.880
Speaker 2 (Quinlan Conf Room): I do believe the investment policy or the
cash flow policy will address what best practices, and if I remember
correctly, GFOA says they should have a fund balance of
816
01:26:38.160 --> 01:26:39.689
Speaker 2 (Quinlan Conf Room): 3 or 6 months?
817
01:26:40.040 --> 01:26:41.490
Speaker 2 (Quinlan Conf Room): Which we have.
818
01:26:41.650 --> 01:26:57.199
Speaker 2 (Quinlan Conf Room): near three times our budget, and so it's…
we have quite a bit of reserve. And so, I am unaware of a policy, maybe,
Chelsea can speak to this, that says that you should have a maximum
amount, and it's usually
819
01:26:57.410 --> 01:27:14.509
Speaker 2 (Quinlan Conf Room): counsel or, direction from Council, how to
spend that money. Well, this is available, so instead of spending, like,
the $74.5 million that we had set aside from the CDTFA audit, we spent
$10 million of it towards an additional discretionary payment towards
CalPERS, and it had a
820
01:27:14.510 --> 01:27:17.430
Speaker 2 (Quinlan Conf Room): A strong benefit to the city, because it
did,
821
01:27:17.430 --> 01:27:29.009
Speaker 2 (Quinlan Conf Room): that CalPERS did well, and we decreased
our liability. Now we have the other $64.5 million. What are we doing
with that? So there is a plan to possibly use that for a city hall.
822
01:27:29.170 --> 01:27:43.689
Speaker 2 (Quinlan Conf Room): we're up to, right? So, we… we are in
active discussions in that, like, we're holding… hoarding money just for
the sake of hoarding money, or using it to invest it and just live off
interest. But we can see if we can somehow integrate some
823
01:27:43.820 --> 01:28:01.200
Speaker 2 (Quinlan Conf Room): what should… what's best practice in the
industry, what should be your cap? Or if there is a, any kind of rules
that say that you should not have X amount of dollars more, because to
your point, these are funds or money that we have collected from
taxpayers.
824
01:28:01.200 --> 01:28:04.630
Speaker 2 (Quinlan Conf Room): And if we are over-collecting, that might
be an issue as well.
825
01:28:04.670 --> 01:28:12.029
Speaker 2 (Quinlan Conf Room): So… We want to show that we are collecting
and spending it and using resources that the community needs.
826
01:28:13.620 --> 01:28:15.520
Speaker 3 (Quinlan Conf Room): That's exactly it, because, yeah.
827
01:28:15.960 --> 01:28:19.060
Speaker 3 (Quinlan Conf Room): We're all gonna age out at some point, and
if…
828
01:28:19.780 --> 01:28:25.180
Speaker 3 (Quinlan Conf Room): Around for some facility to happen, and it
never happens, because
829
01:28:26.240 --> 01:28:33.510
Speaker 3 (Quinlan Conf Room): We're holding onto the money to live off
the interest, to keep other things going. Yeah, it's a balance, and I…
830
01:28:33.510 --> 01:28:49.219
Speaker 3 (Quinlan Conf Room): I appreciate, advice on that… on that
matter, and there used to be a strategic advisory committee of some kind,
that would talk… it seemed like they would speak to these types of
issues, whereas we're… we're really limited on what we can talk about.
831
01:28:49.260 --> 01:28:52.680
Speaker 3 (Quinlan Conf Room): But I think that… Some kind of a…
832
01:28:52.960 --> 01:28:58.780
Speaker 3 (Quinlan Conf Room): a subcommittee of some sort that discusses
this would be helpful.
833
01:28:59.350 --> 01:29:03.059
Speaker 3 (Quinlan Conf Room): And, yeah, to come up with a strategy.
834
01:29:03.060 --> 01:29:19.130
Speaker 1 (Quinlan Conf Room): Yeah, and there should definitely be some
industry standards out there, rules of thumb in the GFOA, and so that'll
be a good starting point. But then you're right, some decisions have to
be made, and if those decisions aren't made, you're sort of, what do you
do? That's…
835
01:29:19.250 --> 01:29:21.680
Speaker 1 (Quinlan Conf Room): the issue, I think.
836
01:29:21.685 --> 01:29:36.804
Speaker 3 (Quinlan Conf Room): for what I'm looking at is that we were at
219.3 million in 22, and now we're at $310. You know, it's good for us,
but what do you do with it? Right.
837
01:29:37.450 --> 01:29:45.869
Speaker 1 (Quinlan Conf Room): Yep, no, that'll be a great report.
Chelsea, looking forward… so we will see that at our next meeting, or is
that too down the road? That's what we're shooting.
838
01:29:45.870 --> 01:30:00.770
Chelsea Ritchie, Baker Tilly: Yeah, you know, I think it really is
dependent on the back and forth that we have with the city. Obviously,
like I mentioned, there's a lot of comments for us to discuss with them,
and so given, their cadence, that's kind of gonna be… that will be the
deciding factor.
839
01:30:01.430 --> 01:30:02.460
Speaker 1 (Quinlan Conf Room): Excellent.
840
01:30:03.070 --> 01:30:16.900
Chelsea Ritchie, Baker Tilly: But moving on, so the citywide internal
control review, we have kicked that off, and, you know, mind you, this
internal audit status report was as of January 16th.
841
01:30:16.900 --> 01:30:41.059
Chelsea Ritchie, Baker Tilly: And last week, we were really busy with
client, or with, city, staff on interviews in this area. I think we had
over a dozen interviews in this area. So, we have really gotten in deep
and hoping to finish off those interviews, provide preliminary
observations, and then areas that we want to dig a little deeper in.
842
01:30:41.060 --> 01:30:50.079
Chelsea Ritchie, Baker Tilly: we will test some high-risk controls in
those areas. So, excited to send you all that report.
843
01:30:50.080 --> 01:31:03.570
Chelsea Ritchie, Baker Tilly: You know, this is a big… this is a big one,
so I'm thinking probably, maybe not next… this next, meeting, but the
following meeting, that would be really probably an appropriate time of
when we would have that draft to you all.
844
01:31:05.230 --> 01:31:17.209
Chelsea Ritchie, Baker Tilly: And then, of course, we have our ongoing
internal audit services, which includes the fraud, waste, and abuse
hotline, as well as our validation continuation.
845
01:31:17.390 --> 01:31:34.540
Chelsea Ritchie, Baker Tilly: So last time that I spoke with you all, you
had asked for some other, statistics, so I wanted to walk through, you
know, it was kind of a… it was a quiet quarter, which is a good, good
thing. We only received one, complaint.
846
01:31:34.540 --> 01:31:44.210
Chelsea Ritchie, Baker Tilly: And it was in the compliance and ethics
realm. We have referred it to the appropriate city officials, and it is
currently open.
847
01:31:44.700 --> 01:31:53.339
Chelsea Ritchie, Baker Tilly: So that brings us to, 39 reports in total.
We have 8 reports that remain open.
848
01:31:53.410 --> 01:32:07.559
Chelsea Ritchie, Baker Tilly: And what you asked me last time to provide
you all with not only the days outstanding, but the last time that I
followed up. So, I followed up with the majority of these, complaints.
849
01:32:07.560 --> 01:32:16.390
Chelsea Ritchie, Baker Tilly: in December, and we have, because of that
follow-up, we were able to close, I think, one or two complaints.
850
01:32:16.390 --> 01:32:21.469
Chelsea Ritchie, Baker Tilly: And then you will see that there was that
last report that was added, and that was
851
01:32:21.470 --> 01:32:35.619
Chelsea Ritchie, Baker Tilly: on, the 13th of December. So, you know,
like, I will continue to follow up with these, and, you know, report
these statistics to you. Do you have any questions on the fraud, waste,
and abuse before I go to validation reporting?
852
01:32:38.660 --> 01:32:44.289
Speaker 1 (Quinlan Conf Room): My comment is, thank you very much for
putting the date in there, that's the first thing I looked at. Good!
853
01:32:44.790 --> 01:32:59.179
Speaker 1 (Quinlan Conf Room): puzzled over it, but a recent date is
probably the best we as an audit committee came home for. There's not
much more we can do, right? We've explored this, and so thank you for
putting it on there. It means you've done some follow-up that
854
01:32:59.590 --> 01:33:00.939
Speaker 1 (Quinlan Conf Room): is ongoing.
855
01:33:01.070 --> 01:33:09.240
Chelsea Ritchie, Baker Tilly: Absolutely. Absolutely, and I'm committed
to it. We'll continue to have those, dates of when we've reached out to
city officials.
856
01:33:10.130 --> 01:33:15.720
Speaker 3 (Quinlan Conf Room): Hi, I'm glad… last column added, I do have
some
857
01:33:15.790 --> 01:33:32.020
Speaker 3 (Quinlan Conf Room): continuing concerns about, some of the
open reports here. And then because an investigation costs money, and if
some of these, reports are,
858
01:33:32.570 --> 01:33:47.079
Speaker 3 (Quinlan Conf Room): have to deal with, top management, you
would then, I would guess, like, I don't know what the policy is,
underlying on this, the fraud, waste, and abuse hotline for,
859
01:33:47.130 --> 01:34:05.459
Speaker 3 (Quinlan Conf Room): who gets… who… who gets to see that
information, and who gets to make the decision about whether an
investigation is going to happen or not. I believe that's the… would go
to the city attorney, but there's a kind of, like, a hidden cost, which
is the investigation cost to,
860
01:34:05.580 --> 01:34:09.909
Speaker 3 (Quinlan Conf Room): higher… another attorney, I would assume,
to…
861
01:34:10.050 --> 01:34:18.210
Speaker 3 (Quinlan Conf Room): do… do an investigation. So there… is it
clearly written in the…
862
01:34:18.740 --> 01:34:21.130
Speaker 3 (Quinlan Conf Room): For the Fraud, Waste, and abuse hotline.
863
01:34:21.450 --> 01:34:28.310
Speaker 3 (Quinlan Conf Room): Or somewhere, is there a policy written
for what happens when
864
01:34:28.440 --> 01:34:33.260
Speaker 3 (Quinlan Conf Room): Like a decision tree for what happens if
the city attorney
865
01:34:33.620 --> 01:34:50.420
Speaker 3 (Quinlan Conf Room): the subject of a complaint, or, I think
the original contract had the, the, Director of Administrative Services,
had a, has a role in, in, in handling these.
866
01:34:51.190 --> 01:34:55.759
Speaker 3 (Quinlan Conf Room): So I thought… I'd like to know more about
that kind of information.
867
01:34:56.120 --> 01:35:09.129
Chelsea Ritchie, Baker Tilly: Yeah, absolutely. I can send you over the
policy. It is on the city's website as well, but I can… we can send over
the policies just so you all have, you know, it… it…
868
01:35:09.140 --> 01:35:21.139
Chelsea Ritchie, Baker Tilly: easily available. I… I do… there is… and I,
you know, obviously don't have it at the top of my head, but I know that
there is a line of, you know, if… if a complaint was
869
01:35:21.600 --> 01:35:45.540
Chelsea Ritchie, Baker Tilly: you know, for the city attorney, who we
would go about, you know, if we would have to go… we've, you know, had in
past… in past with other clients as well, you know, spoken to, the mayor,
but there is a certain dynamic of who we provide those, complaints to.
Obviously, if it's about the city attorney, we wouldn't send it to the
city attorney.
870
01:35:45.640 --> 01:35:54.820
Chelsea Ritchie, Baker Tilly: But I, you know, can provide that language
to you all, and then if you want more discussion on it next time, I would
be happy to discuss it with you at that time.
871
01:35:56.200 --> 01:36:03.470
Speaker 1 (Quinlan Conf Room): You know, we could take a policy that
there's just days outstanding, and it's so long that we want city manager
to.
872
01:36:04.280 --> 01:36:05.810
Quinlan Conf Room: Contact the mayor.
873
01:36:06.280 --> 01:36:09.220
Speaker 1 (Quinlan Conf Room): Or some… I was just talking out loud.
874
01:36:09.225 --> 01:36:18.844
Speaker 3 (Quinlan Conf Room): networks. One of the issues is that, like,
I think an investigation, maybe depending on how thorough it is, you
know, $30,000 to $40,000 of…
875
01:36:18.845 --> 01:36:33.535
Speaker 3 (Quinlan Conf Room): piece, and then you've got 8 of them
there. That starts getting into, you know, it's a whole work program
item. One question came to mind also is that, are we making sure that we
have the… some kind of scheduled
876
01:36:33.535 --> 01:36:51.295
Speaker 3 (Quinlan Conf Room): retraining on the frontline, a refresher,
because there… when… when we originally started, there was a training,
and it was… it was, I believe it was live on Zoom, but now it's available
as a recording, and is there any kind of…
877
01:36:51.845 --> 01:36:55.065
Speaker 3 (Quinlan Conf Room): Requirement for us to have those
refreshers.
878
01:36:57.910 --> 01:37:17.330
Speaker 2 (Quinlan Conf Room): I can check with HR. I know there's a
packet or a list of recordings that new staff needs to watch when they
come… when they're onboarded. I'm not sure if this is one of those
requirements. We can have that conversation with Baker Tilly and see what
the… the frequency in which they… we should
879
01:37:17.330 --> 01:37:24.480
Speaker 2 (Quinlan Conf Room): be requiring staff to see this, very
similar to what IT is doing every month. We have a refresher.
880
01:37:24.480 --> 01:37:31.669
Speaker 2 (Quinlan Conf Room): don't click on that website or that email,
what to look out for, so maybe it's something that we can kind of
incorporate into that.
881
01:37:31.670 --> 01:37:44.330
Speaker 2 (Quinlan Conf Room): That practice, or that frequency. So,
requiring all staff to, every two years, revisit this, and you'll have a
check mark, or some sort of a certificate that you're familiar with the
process.
882
01:37:44.530 --> 01:37:45.170
Speaker 2 (Quinlan Conf Room): But…
883
01:37:45.170 --> 01:37:56.070
Speaker 1 (Quinlan Conf Room): My instinct, rather than making a motion
and then sending it to City Council saying, you know, like, XYZ, is maybe
this could be done informally, Chelsea, on your next follow-up.
884
01:37:56.320 --> 01:38:07.999
Speaker 1 (Quinlan Conf Room): you could be saying that we really like
what the internal auditors are doing, but we're just stuck here as a
committee and seeing these 634 days outstanding. We don't have any way of
885
01:38:08.780 --> 01:38:21.699
Speaker 1 (Quinlan Conf Room): Adding to the conversation, so our next
thought was that we would bring the city manager involved, but this could
be done maybe through you, in your update inquiry next time you do that.
886
01:38:22.510 --> 01:38:45.950
Chelsea Ritchie, Baker Tilly: Absolutely, you know, this is something
that Baker Tilly does ask, and, you know, the reason when I preface that
I'm asking is because the Audit Committee is very curious and concerned
about these days outstanding, so I do believe that, you know, city
officials are aware, and I will continue to relay that message, but, you
know, I think
887
01:38:46.350 --> 01:38:51.599
Chelsea Ritchie, Baker Tilly: It would also, you know, mean something if
committee members
888
01:38:51.600 --> 01:39:09.609
Chelsea Ritchie, Baker Tilly: went to city manager or, you know, the city
attorney's office, and, you know, can also relay these concerns as well.
That this is something that the city, you know, that the audit committee
is looking at, and is very concerned, you know, and wanting to do their
due diligence in this area.
889
01:39:10.740 --> 01:39:24.279
Speaker 1 (Quinlan Conf Room): Fair enough. We've got informal methods of
communication. That is perfect advice. I do think maybe next time we see
this is 3 months from now, and if we still have a lot of things
outstanding, we…
890
01:39:24.900 --> 01:39:27.110
Quinlan Conf Room: Probably should consider another step.
891
01:39:27.870 --> 01:39:34.100
Speaker 3 (Quinlan Conf Room): there should be some way for an item to be
removed from the list. Right. And I don't know if that means…
892
01:39:35.390 --> 01:39:43.740
Speaker 3 (Quinlan Conf Room): goes to Council, you're gonna talk about
the whole situation, then determine if there's a will to…
893
01:39:43.850 --> 01:39:51.880
Speaker 3 (Quinlan Conf Room): Right. …move on or not, and… but… Yeah,
that's… it's… That could be the.
894
01:39:51.885 --> 01:39:56.675
Speaker 1 (Quinlan Conf Room): discussion that the city manager and city
council have with
895
01:39:57.355 --> 01:40:00.265
Speaker 1 (Quinlan Conf Room): Informally, members of this committee
should.
896
01:40:00.265 --> 01:40:03.464
Speaker 3 (Quinlan Conf Room): It doesn't look good to have this
contingent on here.
897
01:40:03.470 --> 01:40:14.610
Speaker 1 (Quinlan Conf Room): And we keep seeing it. So you've done what
we asked, Chelsea, and that's very… don't get us wrong, we appreciate
what you've done, but maybe now we can think about what more we can do.
Sounds very good.
898
01:40:14.650 --> 01:40:15.980
Chelsea Ritchie, Baker Tilly: Absolutely.
899
01:40:16.830 --> 01:40:20.419
Speaker 1 (Quinlan Conf Room): Okay, fraud, everything's good on that
report? Okay.
900
01:40:20.770 --> 01:40:28.940
Chelsea Ritchie, Baker Tilly: Yes, and Jonathan, if you want to talk
about, you know, this is something that we do offer, if we can help with
training, you know, I would say even
901
01:40:29.230 --> 01:40:40.890
Chelsea Ritchie, Baker Tilly: Because of, you know, the possible
ramifications of fraud, waste, and abuse, looking at this at a at least
annual basis, an hour training is something, you know, we have other
clients that do.
902
01:40:41.790 --> 01:40:44.900
Chelsea Ritchie, Baker Tilly: So let me know if you're… if you want to
discuss more.
903
01:40:45.580 --> 01:40:52.630
Chelsea Ritchie, Baker Tilly: But I will talk, so there was two, two
different, or I guess two…
904
01:40:52.630 --> 01:41:14.940
Chelsea Ritchie, Baker Tilly: validation recommendations that we were
able to close, which is great news this quarter. One was around the
Enterprise Leadership Assessment, and the other was around the library
expansion construction audit. So if you look at page 2 of that report, it
will tell you those exact findings.
905
01:41:14.940 --> 01:41:21.839
Chelsea Ritchie, Baker Tilly: And what… how we were able to determine
that those two, those two Recommendations had been closed.
906
01:41:23.940 --> 01:41:24.720
Speaker 1 (Quinlan Conf Room): Great.
907
01:41:26.010 --> 01:41:28.800
Chelsea Ritchie, Baker Tilly: Any questions on the audit validation
piece?
908
01:41:31.130 --> 01:41:32.310
Speaker 1 (Quinlan Conf Room): I think we're good.
909
01:41:34.220 --> 01:41:36.959
Chelsea Ritchie, Baker Tilly: Alright, well that is all I have, then.
910
01:41:37.920 --> 01:41:52.520
Speaker 1 (Quinlan Conf Room): Fantastic. I know in our work plan, we've
got, as always, every quarter to talk with you, so we may have more to
say next time, but thank you very much. Appreciate your professionalism
and the great progress occurring. Thanks for hanging out.
911
01:41:52.520 --> 01:41:54.399
Chelsea Ritchie, Baker Tilly: Absolutely. Thank you all.
912
01:41:54.820 --> 01:41:55.580
Speaker 1 (Quinlan Conf Room): Bye.
913
01:41:56.260 --> 01:42:03.129
Speaker 1 (Quinlan Conf Room): So, I hereby, as chair, accept the report,
which is, what our… our, action item was.
914
01:42:03.440 --> 01:42:13.439
Speaker 1 (Quinlan Conf Room): So, now we're at… well, you know what? I
forgot to ask about public comment, so I can still ask. Lindsay, did we
have one on this previous con… the internal audit one?
915
01:42:13.700 --> 01:42:21.279
Speaker 1 (Quinlan Conf Room): I have no public… Okay, so I did ask
eventually, and I've also accepted it, so that's good. Now, we're jumping
in order.
916
01:42:21.450 --> 01:42:28.240
Speaker 1 (Quinlan Conf Room): from 6 to 8, when I just… that was 7 or
something that we're not going to do.
917
01:42:28.390 --> 01:42:33.730
Speaker 1 (Quinlan Conf Room): But number 8 is our proposed audit work
plan, which…
918
01:42:33.830 --> 01:42:37.540
Speaker 1 (Quinlan Conf Room): Back in the day when we didn't have this,
it was a lot worse, so…
919
01:42:38.320 --> 01:42:42.020
Speaker 1 (Quinlan Conf Room): But, now that we have consent calendars,
and we've got all kinds of other things going on.
920
01:42:42.765 --> 01:42:46.625
Speaker 5 (Quinlan Conf Room): Google, any comments on… This for the
staff.
921
01:42:46.625 --> 01:42:48.024
Speaker 1 (Quinlan Conf Room): Yeah, so…
922
01:42:48.025 --> 01:42:55.775
Speaker 2 (Quinlan Conf Room): So, we, as you can see, there's a few red
items on here that weren't, discussed at our last meeting in December.
923
01:42:55.825 --> 01:43:08.094
Speaker 2 (Quinlan Conf Room): One being the investment policy that we
have today. We have included the audit committee roles and
responsibilities onto the April 27th meeting to discuss that for Council
direction.
924
01:43:08.175 --> 01:43:20.105
Speaker 2 (Quinlan Conf Room): Two things that may be included in here
should, if they are ready, are the two audits, internal audit, reports,
one for the grant management and the other one's for the cash flow
policy.
925
01:43:20.285 --> 01:43:27.415
Speaker 2 (Quinlan Conf Room): But apart from that, we do have our
routine items, so, which would include the minutes and the two quarterly
reports.
926
01:43:27.505 --> 01:43:46.705
Speaker 2 (Quinlan Conf Room): And, our internal audit update. In
addition to those, we'll have… we'll be proposing an internal audit work
program. So this is, to discuss what, what types of projects or, the,
Baker TILE will be, pursuing next fiscal year.
927
01:43:46.865 --> 01:43:53.455
Speaker 2 (Quinlan Conf Room): And that'll kind of set the tone as far as
what the price will be, and then based off that, we'll bake it into the,
the budget.
928
01:43:53.765 --> 01:43:54.785
Speaker 2 (Quinlan Conf Room): I would say basically.
929
01:43:54.785 --> 01:44:13.824
Speaker 1 (Quinlan Conf Room): but all the meaty items that we could
discuss, we should continue with the consent items, probably the same
ones we had, even though the Treasurer's report's a significant report. I
think we could pull it if there's something major on it or whatever, but
let's put that as consent, so we've got some time to address these other
meaty issues, if that's okay with everybody.
930
01:44:15.545 --> 01:44:19.005
Speaker 1 (Quinlan Conf Room): Go ahead, Mayor. Separate,
931
01:44:19.010 --> 01:44:25.570
Speaker 3 (Quinlan Conf Room): kind of, issue. One of the things that
I've noticed in the budget that
932
01:44:25.880 --> 01:44:30.799
Speaker 3 (Quinlan Conf Room): that, one, we work on budget format, but I
don't see anybody
933
01:44:30.910 --> 01:44:35.170
Speaker 3 (Quinlan Conf Room): Spot check on the budget,
934
01:44:35.860 --> 01:44:44.439
Speaker 3 (Quinlan Conf Room): units themselves, and I'll give the… Yeah.
The library…
935
01:44:44.870 --> 01:44:49.779
Speaker 3 (Quinlan Conf Room): Oh, gosh. There was, there was money put
aside for library and open.
936
01:44:50.390 --> 01:44:57.220
Speaker 3 (Quinlan Conf Room): how the county was providing that funding.
So we still had a, like, a…
937
01:44:57.420 --> 01:45:19.089
Speaker 3 (Quinlan Conf Room): Budget items. Yeah, a budget item for it,
but it was, like, $600,000 being allocated for expanded hours. It was a
couple years ago, and it was something that somebody told me that, no,
you don't have to pay for that, it shouldn't be in your budget, it's
covered outside, and so it then got removed, reduced down, something like
that. So.
938
01:45:19.250 --> 01:45:35.830
Speaker 3 (Quinlan Conf Room): I would like that there would be a
mechanism where someone other than myself would be, essentially auditing
those parts, and to see if they're… do some spot checking, and to see if
some of the budget,
939
01:45:35.900 --> 01:45:42.950
Speaker 3 (Quinlan Conf Room): items are… are a little off. And, or if
there's a…
940
01:45:44.270 --> 01:45:57.589
Speaker 3 (Quinlan Conf Room): that the number of hours isn't correct, or
some… just some auditing it. And, also with, issue with… there's a
separation of our,
941
01:45:58.020 --> 01:46:07.209
Speaker 3 (Quinlan Conf Room): our… our facilities. You've got, like,
facilities maintenance, and… and then you've got another section up for
the facilities. It…
942
01:46:08.190 --> 01:46:15.639
Speaker 3 (Quinlan Conf Room): I think there might be a clearer way that
those can be done. So if you look in the budget, you'll… you'll maybe
see,
943
01:46:16.000 --> 01:46:27.440
Speaker 3 (Quinlan Conf Room): like, Blackberry Farms show up in a couple
different places. One is an enterprise fund, one is a, like, a
maintenance thing, then it shows up as maybe other facilities, and it's…
944
01:46:27.680 --> 01:46:32.259
Speaker 3 (Quinlan Conf Room): It's unclear, if that's, like, the best
way it should be.
945
01:46:32.420 --> 01:46:42.309
Speaker 3 (Quinlan Conf Room): So, I'll… offline, I'll come up with some
better examples, but the bottom line is, who could be that person that
would be doing the audit of
946
01:46:42.450 --> 01:46:45.979
Speaker 3 (Quinlan Conf Room): Of, the actual budget numbers.
947
01:46:46.850 --> 01:46:52.889
Speaker 1 (Quinlan Conf Room): There's a… that's a great… I'm so glad
we're bringing that up at this point, because, again.
948
01:46:53.000 --> 01:47:08.429
Speaker 1 (Quinlan Conf Room): there's layers of people that can be
involved to do that. Staff is one. But internal audit is really where I
wanted to hopefully could save some time and have a meaty discussion on…
that's an item. If we could put enough
949
01:47:08.540 --> 01:47:13.069
Speaker 1 (Quinlan Conf Room): guidance around it. It's a good topic, in
my mind, for internal audits.
950
01:47:13.070 --> 01:47:29.660
Speaker 1 (Quinlan Conf Room): But we have to be able to think about,
over the next 3 months or so, possibly in the budgeting process going on,
you guys would be able to put some of the thoughts into, like,
guideposts. Like, one example for the $600,000 in the library would be we
could put some materiality item
951
01:47:29.660 --> 01:47:44.000
Speaker 1 (Quinlan Conf Room): say anything over 500,000 or something,
they do something with, they look at in some way, or whatever, we can
define it. But I think this is a great one for internal audit. All we
need to do is put our minds together. How do we
952
01:47:44.000 --> 01:47:54.139
Speaker 1 (Quinlan Conf Room): structured so they can do a project, and
the internal audit maybe can think about it before we have our meeting
next quarter. Unfortunately, we released Lindsay, probably, but
953
01:47:54.140 --> 01:48:17.820
Speaker 1 (Quinlan Conf Room): I'm sure she's got lots of comments,
because Baker Tilly just did that, a massive format discussion, so
they've got all kinds of experts we know in-house that could do
something. Like, benchmarking against other cities might be an example of
how they do it. How do they… anyway, I throw this out because this is
exactly where I see us setting the stage for what internal audit does.
954
01:48:17.820 --> 01:48:19.260
Speaker 1 (Quinlan Conf Room): Now, that requires budget.
955
01:48:19.470 --> 01:48:24.840
Speaker 1 (Quinlan Conf Room): But I think we've got a budget for a
demand for it.
956
01:48:24.845 --> 01:48:38.165
Speaker 3 (Quinlan Conf Room): it saves us in the long run, especially
finding things that… Exactly. Now, this is too bloated here. And I had
thought that the budget had gotten kind of bloated because of our prior,
957
01:48:38.295 --> 01:48:54.004
Speaker 3 (Quinlan Conf Room): financial condition, and that it has
needed to be ratcheted back, because there's no incentive to remove,
like, with library hours, there's no incentive to remove that, because
you've got this huge budget, and then you can park that money away in
reserves. Right.
958
01:48:54.005 --> 01:49:02.675
Speaker 3 (Quinlan Conf Room): Contracts is another component that's
fairly easy to verify. Are they saying in the budget for each section
that they have
959
01:49:02.685 --> 01:49:19.055
Speaker 3 (Quinlan Conf Room): $1.5 million in contracts, but if you
actually go look at the number of contracts that they're paying on,
they're only paying, you know, $400,000, and that number is excessively
bloated. This happened with Safe Routes to School, actually, with regards
to
960
01:49:19.055 --> 01:49:29.295
Speaker 3 (Quinlan Conf Room): Not with… not so much with the contracts,
but with the revenue that they were reporting, and I could look in
OpenGov and say, no, you only got $200,000, you're telling me you got
$400,000.
961
01:49:29.485 --> 01:49:42.085
Speaker 3 (Quinlan Conf Room): Why do you believe that you're… I
remembered you were looking that up. And they, they did find it. Well,
they went out and asked for it and got it after the fact. Okay. To get it
to close to 400.
962
01:49:42.085 --> 01:49:44.515
Speaker 1 (Quinlan Conf Room): way to approach this sometimes, and
Hongya, you've…
963
01:49:44.515 --> 01:49:48.865
Speaker 4 (Quinlan Conf Room): We could do so in spots.
964
01:49:48.865 --> 01:50:05.365
Speaker 1 (Quinlan Conf Room): we could suggest 3 or 4 things, and then
based on what they find in those areas, it can be expanded or contracted.
So instead of trying to solve the whole problem of the world, we don't
know what the problems of the world are, but maybe you can put your
thought to thinking about this, because you've got a lot of…
965
01:50:05.365 --> 01:50:16.135
Speaker 4 (Quinlan Conf Room): It's like a variance analysis of, here's
what we budgeted, here's how we actually… how much we actually spend. And
you can kind of, like, set a threshold of, like, percentage to spend,
like.
966
01:50:16.135 --> 01:50:27.084
Speaker 4 (Quinlan Conf Room): percentage spent through the budget in
terms of the… and also in dollar terms, and then we can kind of, like,
come up with this… with a guideline of, like, hey, we should go back and
revisit these items. More explanation? Yeah.
967
01:50:27.085 --> 01:50:28.645
Speaker 1 (Quinlan Conf Room): There we go. And then also.
968
01:50:28.645 --> 01:50:36.825
Speaker 3 (Quinlan Conf Room): also a look on is… was… do we agree with
where this was attributed to in the budget? It was something that really
belonged over, and…
969
01:50:37.015 --> 01:50:42.434
Speaker 3 (Quinlan Conf Room): I don't know, Parks and Rec, did it end up
over in this other part, perhaps? Right, the internal.
970
01:50:42.440 --> 01:50:49.580
Speaker 1 (Quinlan Conf Room): That's really good at that. For our city
staff, we don't want to leave you up. Does this make sense, in terms of…
It does.
971
01:50:49.585 --> 01:51:01.304
Speaker 2 (Quinlan Conf Room): And some of this actually gets back to
what, I understand what you're getting at as far as there's… it being
bloated, but, how some of these, budget units are separated.
972
01:51:01.305 --> 01:51:18.315
Speaker 2 (Quinlan Conf Room): kind of gets back to wanting to drill down
into the detail, right? I want to see what's Blackberry Farm, what's
their summer programs versus what is their golf course versus what is
just ongoing costs, right? And so, and part of what Baker Tilly had
proposed in their review is.
973
01:51:18.315 --> 01:51:21.315
Speaker 2 (Quinlan Conf Room): You're breaking it down too fine, and
then…
974
01:51:21.505 --> 01:51:39.225
Speaker 2 (Quinlan Conf Room): And so, you need to start consolidating
some of this stuff, some of these budget units, and then that's how you
report out. I 100% understand, well, then you're starting to hide some of
the detail. Well, then it gets back to the departments, like, well, you
know what, you've consistently only came up to about 70% of your budget.
975
01:51:39.225 --> 01:51:53.284
Speaker 2 (Quinlan Conf Room): what are you doing with the other 30%? At
which point, we need to start telling them, no, you're bloating the
budget, you need to start… we're about to take something to Council where
there's this possible tax ballot measure on this. Is there really a need
for it?
976
01:51:53.285 --> 01:52:11.264
Speaker 2 (Quinlan Conf Room): Right? And so now it's… it becomes the
conversation. Is it bloated, or is it… we're just carrying over some of
these expenses year over year, because that is the… that there's a
project on the… on the line. So then it becomes an analysis. Is there a
reason why we're not spending that 70%, or is it being carried over, or…
977
01:52:11.265 --> 01:52:30.344
Speaker 2 (Quinlan Conf Room): So it's not just a, well, you know what,
you have $300,000 left in your budget. Why was it there, or was it
carried over? So it becomes a more of a, an exercise with all the
departments, making sure that they're budgeting correctly, and if it's…
they're, they, they're…
978
01:52:31.045 --> 01:52:38.654
Speaker 2 (Quinlan Conf Room): leaking in some sort of, contingency, or,
like, a variance, contingency into the bugs. Well, no, you know what?
979
01:52:38.655 --> 01:52:52.344
Speaker 2 (Quinlan Conf Room): you're gonna have to go to Council if
something comes up, an emergency, and sometimes there's a benefit, right?
If it's nominal, well, okay, you can make a little bit of variance into
your budget, or if it really is something that, you know what, we are
980
01:52:52.475 --> 01:53:08.324
Speaker 2 (Quinlan Conf Room): we have a vacancy to fill that vacancy, we
need to get a contractor to come out and perform that job, and the
vacancy savings won't be covered. Go back to Council, ask for that
budget, and we can manage it that way. So it becomes as, like, alright,
well, how much do we want to let the departments
981
01:53:08.325 --> 01:53:14.475
Speaker 2 (Quinlan Conf Room): have a little bit of leeway, and how much
do we want them to go back to Council frequently to ask for more money
when needed?
982
01:53:14.725 --> 01:53:15.275
Speaker 2 (Quinlan Conf Room): So maybe…
983
01:53:15.275 --> 01:53:21.595
Speaker 1 (Quinlan Conf Room): You, Jonathan, could have a behind-the-
scenes convo with Lindsey and Chelsea.
984
01:53:21.925 --> 01:53:38.074
Speaker 1 (Quinlan Conf Room): Lindsey sitting next to me there, the
internal audit group, and then we can have a robust discussion. I think
that's really the function of the audit committee, is to have that kind
of guidance, and, you know, variance analysis could easily be a project
they could come up with.
985
01:53:38.445 --> 01:53:43.515
Speaker 1 (Quinlan Conf Room): But we need some parameters around it to
make it sensible for them.
986
01:53:43.515 --> 01:53:47.175
Speaker 3 (Quinlan Conf Room): Can we… Who would be…
987
01:53:48.065 --> 01:53:59.744
Speaker 3 (Quinlan Conf Room): if… if I would like to see the, like, the
budget as it's going through, discussed, with, like, a subcommittee, how
can that happen? Because in the past.
988
01:53:59.875 --> 01:54:16.324
Speaker 3 (Quinlan Conf Room): Or maybe that… maybe that is within our
purview, that we can discuss the budget process, because it gets… it gets
really rushed, and we are not really talking about some of the spending
in… at the… at the line item level,
989
01:54:16.355 --> 01:54:30.015
Speaker 3 (Quinlan Conf Room): And we're seeing, you know, page after
page of these special projects that have come through in the past. Is
there… is it within this body's purview to make a recommendation about
990
01:54:30.015 --> 01:54:40.524
Speaker 3 (Quinlan Conf Room): How to have the budget more thoroughly
reviewed by perhaps interested, audit committee members, members of the
public who are following it.
991
01:54:41.190 --> 01:54:53.010
Speaker 2 (Quinlan Conf Room): and have that conversation, with our city
manager and see how we'd be able to bring that, but my initial thought is
to contract with a big utility to have that… them perform that, that
function.
992
01:54:53.010 --> 01:54:55.840
Speaker 1 (Quinlan Conf Room): to get involved with Big Fertility,
because they're…
993
01:54:56.000 --> 01:55:06.270
Speaker 1 (Quinlan Conf Room): They're under the audit committee purview
and the City Council, so you could have a subcommittee that works with
them closely, for example, but there's many variations.
994
01:55:07.370 --> 01:55:12.209
Speaker 1 (Quinlan Conf Room): That would be the way to not have to
address whether it's in our municipal code or not.
995
01:55:12.310 --> 01:55:19.959
Speaker 1 (Quinlan Conf Room): doing it, and it's an approved project,
then we're definitely supervised, right?
996
01:55:20.110 --> 01:55:23.509
Speaker 1 (Quinlan Conf Room): So, that's, I think, the easy, easy way
to…
997
01:55:23.740 --> 01:55:33.989
Speaker 1 (Quinlan Conf Room): we could put something in there, but
again, it's the same problem of how do we get volunteers and qualified
people and everything, so this is… this maybe sets up a process where
998
01:55:34.530 --> 01:55:42.119
Speaker 1 (Quinlan Conf Room): You start to see… I could… you could
easily see 3 or 4 years of different sets of questions that get addressed
under the rubric of
999
01:55:42.320 --> 01:55:45.369
Speaker 1 (Quinlan Conf Room): Internal audit, looking at budgeting
process.
1000
01:55:45.830 --> 01:55:58.300
Speaker 3 (Quinlan Conf Room): It was very informative with that group
that came in to discuss the budget format, the level, the different
levels of understanding, and then also the attitude about should
1001
01:55:58.370 --> 01:56:18.339
Speaker 3 (Quinlan Conf Room): a number of the public, members of the
public, have the same understanding of the budget, or, no, no, we elected
you, it's your job, we don't want to know about that. Right. And yeah,
and I'm more of the, I want as many people educated about this to be able
to weigh in and understand it.
1002
01:56:18.340 --> 01:56:23.290
Speaker 3 (Quinlan Conf Room): It's a different approach towards
governance, and your belief towards, right.
1003
01:56:23.295 --> 01:56:36.424
Speaker 1 (Quinlan Conf Room): Yeah, very informative. Well, I know we're
up against the gun here. I think we got a lot accomplished. Thanks again,
everyone. I accept this work plan as much subject to our discussion, and
I hereby pause adjourned.
1004
01:56:36.625 --> 01:56:38.135
Speaker 1 (Quinlan Conf Room): Thank you.
1005
01:56:38.785 --> 01:56:42.985
Speaker 1 (Quinlan Conf Room): So, what time is it, actually? 5.56, okay,
longer than I anticipated.