001Okay, the meeting is live stream. We can start. Aaron, >> thank you. Good morning everyone. Thanks again for joining us today for our finance and audit committee meeting. The finance and audit committee meeting um comes together on a monthly basis to review the board's policy. Uh specifically uh there's a list of policies around uh 2.4, for, but there are are are others that the board has given to the finance and audit committee in order to ensure that the superintendent is doing what the board wants them to do. And so as part of that today we have uh our HR team and we also have our outside U firm who helps with our investments to go over uh their portions of the policies um and to give their presentations. What we ask of the members is
002that you are um pulling up our notes file uh to being able to take notes on the applicable uh sections and that explain what the policy is and the superintendent's interpretation of that policy so that uh we're able to to dig in and ask any questions as Tim and Darren uh present and then as our our team uh our investment team presents, please feel free to ask questions and if at the end of the presentations there are additional items that are needing to be requested, please let us know. um let let the presenters know so that they have time u to be able to respond either to your questions if they can at the time or they'll be able to go back and provide information and we'll and we'll get it back to you through
003Carolina. So with that uh I believe Carolina that um Tim and Darren are first. So >> yes they are. Uh, so Tim, I will turn it over to you and welcome to the Finance and Audit Committee. >> Thank you so much, Aaron, for for the wonderful welcome and um I appreciate um um the committee's time um to really listening really listening to our hiring practices and um some of the details we have around benefits and compensation. And so I'll go ahead and kick us off um um 2.6 six um monitoring report related to hiring. Um the first one is the superintendent shall not promise or imply permanent or guaranteed employment and use a legal recruitment, hiring, evaluation, promotion, termination and other practices. Um so we interpret the promise and imply permanent or guaranteed employment to
004mean that our district policies are our master agreements are practices that we have um amongst um um our team and um what we do in schools and as a district um are um do do not promise our guaranteed employment. Um, and so, um, I'm going to break down, um, the different groups as it relates to, um, some of our practices that we have with our administrative staff, our classified staff, um, and, um, our guest teachers, um, and substitutes and, and and most importantly, our certified teachers um, throughout the district um, and really kind of define some of those in scope and in um, just how we how we entertain it. um within our daily practices for hiring. So um I'm happy to um is I I'm not sure. This is my first committee meeting of
005this of this ma nature. I don't know. Do I need to present um any information for you to see visually or are you guys okay with just me verbally going over this information? >> Mr. Griffin, I did include couple documents into the uh folder for our members. I can definitely share um some if you would like me to. >> No, if they if they have it in front of them, I I think I think I can just go over it. So, thank you so much. >> All right. >> So, some some of the highlevel highlights um for our administrative staff. Um they're all classified yeartoear. So, from a July 1st to June 30th basis and um contracts are renewed on an annual basis. And so, um, every administrator understands and knows that their contract is
006year-to-year and, um, we have, um, performance reviews within that process to be able to, um, support. >> Hey Tim, I'm sorry to interrupt. Um, just as I'm taking notes, I like to document because, you know, oftentimes I can see who we're talking to. I don't always know what your roles are and I like to document that for the FAC notes. Can you and Darren just quickly give us an overview of kind of your title uh and then your scope of responsibilities generally? I'd like to just put that in our notes. >> Thank you. Thank you for that prompt. Um um first of all, my name is um Tim Griffin. I serve in the role of chief human resource officer here in Adams 12. So I um supervise the entire um department and um overall um
007I have a very um talented and and dedicated team. But overall, I super supervise all the functions in terms of employment, hiring, um benefits, compensation, um for our district. Um and so, um that is my role. Darren, I'll let you go ahead and introduce yourself. Sure. Um I'm probably a familiar face, but uh I'm Darren Everett. I'm the HR operations director. I handle all the operational aspects of HR. So, uh employee services, uh benefits, compensation, um HIS functions, u all kind of fall under my role. >> Perfect. That's helpful. Thanks. And Tim, I Googled you real quick. Were you formerly, you know, working in the schools as a principal and stuff? You were you were formerly a principal in some of our schools, right? >> I was. So, I I am um new to HR.
008I've been in Adams 12 for um this is my 22nd year um in Adams 12. So, I'm a former teacher. Um I've taught at um Rocky Top um um a former principal. Um I've been in the system at Silver Hills, Meridian, um Glacier Peak more, you know, for the longest time period. Um but I also um was a principal at Rocky Top most recently. And so I've only been in HR for two years and um um I'm I'm enjoying and um and and learning through this engaging opportunity, but um yes, I have a long history in the district. >> Well, congratulations and uh I don't know if it's a if it should be congratulations or not that you're now in a in a you know central office role as opposed to out in the field
009with students, but uh thank you. >> Well, thank you for your kind words. All right. So, I'll I'll um I'll continue um just with the kind of just jumping down um just the um just really some of the details about our hiring practices. Um so for for certified staff um the state statute really outlines the details in terms of our employment contracts. And so >> Mr. Oh Mr. Yeah. Are you still there? Tim for the rest of us. Okay. >> Yeah. >> Oh, >> I don't know if anyone else is experiencing this, but with the AWS issues they've had this week, it's happening a lot on the calls I'm on. >> Oh, >> ill. Wow. >> Yeah. Like, don't try to book on uh any airline right now. I think a lot of the airlines
010were affected, too. >> Oh, we did lose Mr. Griffin. Okay, just a second. Darren, should I go check real quick? I can walk over there if you want me to. It's just uh two door >> right next door. Yeah. >> Yeah. Hold on one second. >> It totally just went off. That's That is crazy. Okay. Yeah, he's uh working to get back in right now. So, >> thank you. >> Sure. Mr. Griffin, can you hear us? >> Yes, I can hear you. >> Okay, good. Sorry. [laughter] >> Um, one of the joys of being, um, you know, in our office is, um, that, you know, from time to time, um, we we jump off the network. And so, um, I apologize for that disruption. Um, and already disjointed a little bit, but I'll try to
011jump back in. So, I believe I was just speaking about certified um ju just non-probationary and probationary status as a district. Um once once a teacher becomes non non-probationary, so that's three years of successful service within um within our district. Um then um by state law um the TEKA law, Colorado teacher employment compensation and dismissal act. Um, teachers who obtain non-probationary status under TETA are subject to dismissal only on statuary grounds that are determined and enumerated by the the TETA process. And so um we we have um specific um rationale and protocols related to staff reduction um that are identified within the U master agreement. And um we have strict hiring protocols and dismissal procedures that are um that are in place for our classified staff as defined in article 9 within our master agreement.
012um that highly um for just for our our support staff throughout the schools and throughout the ESC um that really talk about hiring guidelines, substitute temporary employment appointments, um reduction in force, administrative transfers. So, um, all of the I I just all all of all of those policies and practices are identified and part of our job in HR is just to make sure that there's appropriate training. I think I'm still up. >> Yeah. Yeah, you're good. >> Thank you. Thank you. I got my screen jumping all over the place. um that we communicate the the right the right policies and procedures and that um our our teams, our administrators, our leaders, and our managers throughout the district um are all aware of our policies and we're able to support those. So, I want to pause
013there before I continue to just see if there's any questions or um any need for further detail as I just kind of went over at a high level. >> Just as a a point of interest for me, uh you know, after the three years whenever they become, you know, fully in, what are some rationale for cause for the missile dismissal? >> Yeah. So um TETA actually highlights and and and modifies those. So um you know um inappropriate conduct with a student um you know negl neglig negligence on the job, theft um just you know just those high level things. But it's it's actually enumerated um pretty in detailed um what those things are um in terms of what would constitute um reasons for separation at that point. >> Okay. Thank you. >> Thank you. >>
014Hey Tim, this is probably a little bit of a left field question and I'm I'm guessing it's not much of a concern, but you know, I I do some work with other institutions at the higher education level and there are pretty significant impacts to them with some of the changes in immigration policy and and visa issues. Uh I assume we don't have a lot of staff on visas. Um you know, and that would present any problems for us. >> That's a great question. um we have not um and I'll just I'll talk about it in pretty transparent um in in a very transparent way. We we have not really engaged in that um H1 visa process um to to seek employment and um you know the times you know we are it's pretty relevant that
015we're we're in a teaching shortage and many districts have engaged in that process to you know create diversity candidates. We have been behind the mark within our district in terms of experiences the challenge experiencing the challenges from the shortage. Um it's hit us within the past three years. Um but before that we hadn't had that experience. So we didn't go down that path before. Um just because we didn't really experience it the the the market shortage within our buildings and in our our you know in our applicants. we're experiencing now, but we we have not we have not gone that road of really seeking candidates through um you know through certifications through H1B1. >> Yeah, that's super helpful. I guess you know a follow on question. Um >> yeah, >> obviously there's a lot of
016uh noise in media these days and obviously the administration's taken a unique stance on DEI programs. Has that been a concern for us at all? Is there any worry about any existing or ongoing programs that might draw unwanted attention? >> Yeah. No, our all all of the programs and and our our practice here within the district, we we we support we support inclusion. We support um for for all of our of all of our staff members. And so in terms we have not received, excuse me, not all our staff members, all of our um race and ethnicities as it relates to our students and to our staff members here as a district. And um we we continue to um ensure that we empower everyone to be successful and um all of our policies and our
017practices support that. So, we have not received any um criticism to this point um of of our initiatives and the way that we implement our policies. >> That's super helpful. Thank you. >> And sorry, just one more question. I know in the past as we've looked at certain roles, I think a couple years ago, we had a real shortage of uh bus drivers and and some folks in the transportation group. I think we had a special training program to train up our own drivers. Are there any roles as you guys look at today that you think are particularly at risk or or we have a shortage of to to staff? And I know because of the, you know, changes in tax base, we've also had to reduce staff in certain areas. Are there any areas
018that you are are particularly concerned about from both either ability to recruit and retain or or compensation maybe off of market? >> We are. So, um Darren's going to talk a little bit about market here in a second so he can give you kind of more of a color context about um a market, but we we are um under market for many of our positions across all employee groups. So when we're talking about [clears throat] administratively, when we're talking about certified our teachers and our educators and classified positions, particularly in transportation, um you know, there there is some um work that we need to do to get employees on market and that is the general design behind the you know um 5B and um the mill levy override because um to get us in a
019place that we where we can be competitive and obviously that has an effect on recruitment. Um obviously that has an effect on retention and um we we are trying to stay competitive within the pack and that's the drive behind that whole initiative. Um in particular um some of the areas that we're really looking I'll start with classified um we we have always had a a struggle in terms of our special programs within special education and the the the specialized um support with our paraprofessionals in in that setting. And so we continue to show a high vacancy rate for that. Right now we're showing 18 vacancies in that position, five within the title schools. And um our special programs include um special services for um severe needs um you know our autism program that we have
020um um that we our structured learning support and then also our effective needs programs. And so the pair of professionals that directly work with students and really provide support to those programs, those are hard vacancies to fill and uh it's hard to retain. It's it's very hard work um um um for you know and and and not consistent hours. Um it varies and so though that continues to be a struggle for us. Um you identify transportation. Um transportation again um that's one of those areas that um that doesn't have consistent hours in between and one of the things um we we have had a hard time finding drivers and drivers aids um to be able to fill those positions. So we we are showing high vacancies in that in that rate and consistently um we're
021we're trying to find um support within our peak and base our before and after school programs. Um that that that is something that we're always seeking qualified individuals to be able to support us in that space. So that you know that's just a general overview of where we're struggling within the classified job space. um special education for teachers. Um that's you know that's where we need um you know to find qualified applicants that are able to provide the needed support to our most needy um our most you know group our our most delicate and neediest group as a stu as a student base. Um it's it's hard to find professionals qualified professionals um that want to stay and maintain and commit to that to that work. Um so that that definitely continues to be um
022a struggle for us. So those are just high level some of the areas that we are looking at in and in and where we're trying to maintain um you know high levels of retention and um really find diverse ways to recruit in those spaces. >> That's helpful. Thanks. >> I have one follow-on question to that. When you say it's hard to find and keep these qualified teachers for special ed specifically, are they leaving for other districts or are other districts around us having similar problems? >> Great question. Um, so I think it's a univers universal problem in special education. The general teacher shortage is all centered around we're seeing less numbers even enroll in in in colleges and and professional programs to go into the work. And that is um I guess that's overemphasized in
023the area of special education. We don't have a lot of people that are enrolling in programs and come out qualified. So um our you know our approach as as a district as a HR team is we've had to go um find alternative ways like what are ways that we can look at pair of professionals that are successful and and support them going through alternative learning programs. and um we we've had to find other ways to be able to go into that and be able to um find qualified candidates. So there's there's just not a lot of people with the expertise to go into those those areas. And yes, we have seen some data that would support that. Um, you know, sometimes at the end of the year, we've seen a lot of transition um of
024our um of our qualified educators that sometimes are going to other districts for additional money and um so it's both and and um just a challenging puzzle for us to continue to try to work through. >> Okay. Thank you. >> Thank you. >> Hey Tim, uh I'm sorry you're getting bombarded with questions. I'm pretty new to the group, but >> Okay. >> Uh, has Adams historically been paying below the median or however you want to say it for school districts or is this a fairly recent development? Uh, and if it's a recent development, what is the cause for that? >> Yeah. Well, um so so no and and I w to I want to generally answer your question, but I think Darren will be able to give um just a lot of highlights um in
025terms of like kind of giving, you know, the ups and downs of our our market compensation. So some of that will be addressed when he's able to go over um the next the next section of our presentation. But um just to answer your question, no in Adams 12, we have not always been where we're at right now. We're representing, you know, 14 out of 15 in compar comparative districts. And um I always hear Chris explain it, you know, better than I'm capable of explaining it, but um it it you know, it you know, we are a funding balance and the the funding model for education um is is um very complicated and it has a lot of different factors. And um when we're in in mill funding, when we're 14 out of 15, um it
026has put us in the spot that it's it's challenging to keep up with the increases um and the resources that are available in surrounding districts. So um that's that's the high level answer to your question, but um um Darren will be able to get get into some more details about what that looks like. >> Okay. Thank you. Hey Rob, Robert, I would just say this is my third year on the FAC and for the last two years it's it's looked very similar. >> Yeah. Okay. [snorts] >> So I can just jump in to address this like specifically if that's okay, Tim Kim. Um so yeah, so we have done a couple different salary schedule restructures over maybe the past 10 years. um all in that uh hope to kind of keep us in the middle
027to top of the pack. Um so as of maybe three years ago, three or four years ago, we were really high in starting salary in our salary schedule, but really the the issue has been since then is we don't have this we haven't had the same amount of money to put into the salary schedules to keep them at market. So, we're just falling behind, especially this past year was, you know, pretty bleak. So, and we're just falling behind uh districts that do have money to put in those schedules. Um so, we're hoping, like Tim mentioned earlier, with the mil levy, um we can do another restructure of that schedule to try to get us back up um to the middle of the pack or better if they know if we can. So, >> yep. So
028I I think at at this point I think it's a good transition point for us to go. But overall for our hiring practices um we have had no findings or judgments from any quarter agency for unlawful hiring practices. And I I I do think that's um accredited to like our our practices, our training and um the way that we really monitor and work directly with our managers and our supervisors throughout the district. So, with that with that being said, I'm happy to answer more questions, but I I think this is a good point to just um uh transfer over into um Darren's part to really kind of talk about compensation benefits. >> Hey Tim, just before you leave, I just look there for the documentation of our notes here. The matter of practice in terms
029of how you guys extend offers, right? I mean, the hiring manager, you know, I assume just has to go through HR. So, there's just multiple control points on any offer that's issued, right? So, you know, hiring manager can't unilaterally make a decision and then extend an offer. It's got to go through, you know, HR and his review of comp and, you know, so maybe just give us a quick two minute on how the offers actually go out and we'll just document that for our our notes. >> Thank you, Michael. So, um our I'll just go through our hiring processes. So, um again, as as a district, we are um we have um ongoing contracts with um two of our employee unions. um and one DTEA um really represents the structure of all of our um
030our certified educators and then we work with um CSEA for all our um our classified um non-exempt positions um are in that um but um all of our support positions throughout the district. So, um you know, we we work in collaboration um through um really working through those master agreements and contracts to be able to um uniform and make sure that our hiring practices are are communicated, documented, and to um to to go into detail to to our process. Um it really starts I'm just going to jump back to my document. So, I'm going over it. So jobs are posted on the district website and then once they're approved um it goes through a multiple um department approval between HR finance and the the department manager for funding and um the positions are posted for
031a minimum of four days for classified um 3 to five days for certified depending on the time of year there you know there there are times when the cycle is moving a little bit faster so in the When positions are popping up in other districts and within our district, we do allow for a shorter time frame and that is agreed upon, you know, with our um throughout through with our master agreement. Um 10 days are recommended for administrative positions um or we go through um it's unfilled uh uh excuse me um open until filled um type of positions that we typically don't receive a lot of response or applications to. Um in terms of uh screening the applicants, um currently right now we have a practice that the hiring manager um they screen applicants and
032they they they do what's best for their department and um they get back um to us about um qualifications. And so we check qualifications, certifications as a HR team um once they're um screened at the building or at the department level. After um those screenings, they're scheduled for interviews and um and in our certified space, schools interview um students uh excuse me, interview applicants and then send it back to us as a HR team for us to verify um qualifications, state certifications, licenses, and then um once they once they receive that recommendation from the building level, they receive the recommendation for hire from our HR our team once that goes through and then we begin to build um uh the understanding of salary and those agreements and contract agreements as it goes through. Um that's
033that's just a highle overview of what that looks like. I hope that answers your question. >> Yep, that's helpful. Thanks. >> Hey team, um we were scheduled Thank you, Mr. Griffin. We were scheduled to have Brett Parson and nine. Brett, are you on already? Are you still on on the call? >> Yes, I am. >> Okay. Um, what are your thoughts? Because I know Darren, you were not able to go over 2.63. Should we schedule another time? Brett, are you still okay going maybe a little bit later or should we start right at 9 with >> Um, yeah. I I'm at a conference and I need to get to the booth uh relatively quick, but I can shorten mine a little bit. So, feel free to go ahead with the agenda. Um and then I'll
034just I'll shorten what I have a little bit uh after after the next group's done. >> Okay. Darren, would you >> Yeah, I think we can be quick with Darren's stuff because I think we covered a lot of the stuff when Tim was speaking. I think Darren >> Darren just went through my stuff quickly. Yeah. >> Yeah. I think just as you go through your stuff, I think one of the main questions we have as we always review that roster that's Carolina shared in the drives that you know for the positions that are either above the 10% or below the 10%. >> Just knowing kind of the circumstances around that so we can document that because those are technically right out of policy so we can document those. >> Uh um so so yeah. So
035and and Tim can uh fill in the blanks here. Um, typically we try to recommend reclasses for anything that's less than 5% under market. Um, that gives us a little space with that 10%. Um, so we, you know, when we get the surveys in the spring for both administrators and classified employees, uh, we did send those recommendations to cabinet. Um, my un well, it's not my understanding reclasses are on pause right now. So, I think they will be addressed at some point. I'm hoping they will be, but um right now we haven't reclassed anything on that list. Um there's a couple exceptions. One would be the special education coordinator position. They had a calendar changes this year. So, that was one that we did address just to to compensate them for the additional days. Um
036the only other uh increases that we've made are to our school leadership. Um we did like a one-time internal equity adjustment and we were finding some positions where you know years in the role um just just weren't equitable um between uh principal and AP staff. Um so those are really the only adjustments that we made. the rest of it. Like I said, we're just waiting. I believe it's for a male levy resolved, but Tim can speak to that. Um, but we're hoping to address that at some point, possibly with the midyear uh reclass >> again. Yes. that I I'll just, you know, jump in is that, you know, we've been very conservative about um allocating, you know, um additional reclasses and and and elevation within a system without the ability to be able to do
037it in an equitable manner. And so yes, we are um you know that that is the goal and the intent of the mill levy override to get us in the place that we can um take care of um equity gaps and um positions below the market within our system. So I'll stop there with the effort of trying to be quick. >> Great. And um and Tim, just correct me if I'm wrong, but I I want to come full circle on employment contracts and employment offers for for the committee so that you're aware. Every um board meeting or every um a board meeting that has a consent agenda includes a report from TIM [snorts] that is uh labeled as personnel actions. in that those personnel actions include resignations and terminations, transfers and reassignments, employment and leaves
038of absence. So anytime there is an offer of an employment, it just be aware that it does go to the board. So, um I just want to make sure that you know I think Mike back to your question is we do go full circle on any offer that it does not just uh end with with Tim's role um but it does then get approved by the board. So the [clears throat] board is also a a component uh piece I think and as a component piece and a check on uh 2.62 62 on a monthly basis. >> Thank you. Thank you, Erin, for clarifying that. Um, yes, that that is that is accurate and um I omitted that in my explanation about our verification practices. So, thank you Aaron for um plugging that back in. >>
039Thanks. Uh Darren, Tim, thank you both so much for your time. And as we uh continue our work this morning, if we have any follow-up questions and either Carolina or I will will stop by with any additional questions. So, I appreciate your time. Thanks so much for for being here today. >> All right. Thank you. >> Thank you. Y >> now we'll uh turn to uh my friend uh Brett Parsons. I've known Brett for um I've known Gina for 150 years and I've known Brett for about half of that time. So probably about 75 years. Um and and as Brett said, he is in a conference. I believe you're in Fort Worth. Is that correct, Brett? Uh so Brett is at the Association of School Business Officials conference which is also where Gina is. Gina
040is um actually is uh continues her role in ASBO International as well. What Brett is coming here to talk about today is compliance with uh district policy or board policy related to our investment strategy. We do outsource our investment advisor role. Uh we don't take on the treasury function or the investment function here, but we do hire um we we do hire we put out an RFP and then hire uh investment advisors to work on the district's behalf. What I will also say is that um [clears throat] Brett's work in the contract is not only limited to the district's uh the board's policy, but by incorporation in the board's policy, we are limited by state statute and the investments that are the allowable investments um for a school district and and Brett will will touch
041on that as well. So, just [clears throat] know that that Brett's kind of talking about uh two things. One is compliance, of course, with board policy and behind that uh compliance with with state law. So, Brett, I'm going to turn it over to you. And I missed this prompt last time, so I will do it this time. Brett, if you could just give a quick intro intro of yourself and then uh continue with the presentation. >> We'll do. Thank you very much, Erin, for the introduction. Well, good morning everyone. My name is Brett Parsons. I work for PTMA Financial Solutions. Uh specifically, um I live in Northern Colorado. Uh we run a local government investment pool called Ko Trust. Uh been around for 40 years. Um so I'm a relationship manager for them. Also a
042relationship manager for a number of separately managed accounts like we have with Adams 12 here. Uh so as Aaron said, I've known Aaron and Gina oh for at least a decade now. I've lived in Colorado for going on 11 years. I'm a recovering school business official. Uh so my first career was uh budget director and CFO at a handful of school districts and I uh been in the private sector doing local government investment advising for almost three years now. Uh specifically I hold a series 65 and a series 7 license through FINRA. Um and uh and do work on behalf of uh constituents across the state. Um so with that I've got two two items to share real fast. So I've got an economic update. I'm going to try to go through that pretty quick
043uh recognizing it's a um definitely a period of elevated uncertainty relative to the economic outlook and then I'll do a short kind of portfolio review and hit on a couple of those high points around allowable investments, what we're investing in um and that kind of stuff. So, I'm not a Zoom expert so let me get my screen shared here and can everybody see that? Uh >> yes, thank you Brad. >> Perfect. Okay. All right. So, just kind of hopping in looking at the eco update first. A couple of themes here. You know, pressures on the Fed. Uh we've had a lot of talk about the Fed, their function over the last several years. Uh to be to be honest, that u dynamic has definitely escalated here in 2025 uh with the Trump administration and desire
044for lower rates. Uh as of late, um we just heard about it from the previous group. Uh definitely some struggles some troubles in the labor market both broadly uh nationwide um and then you heard about you know local level concerns as well and then I can't believe we're uh we're still talking about it what feels like 3 four years in now uh but inflation continues to be a concern and then now we have the tariff situation which is really bleeding over into that inflation conversation again. So a couple of these slides I'll be pretty quick on a couple I'll dive in a little more. So we share this slide. All this is is an index. It measures the overall level of financial stress in uh the US money, bond and equity markets. So this is
045a metricbased index where anything above zero is considered to be um on the positive level. Anything below zero would be negative. So looking at it metrically makes perfect sense. You know 20 uh 2020 2021 everything's good. 2022, 2023, uh the height of the inflation uh uprising. Things have been relatively good as of late. And then when you get into 2025, you can see the big dip uh in April and May, that was the uh that was uh when Liberation Day was announced and the start of the the trade war and the tariff situation. And as of late, uh things have been trending slightly downward again. More specifically looking at GDP, um this has been all over all over this year. So thinking back we had liberation day in April. So for Q1 that ultimately led
046to negative GDP for that quarter. Uh and that was tied to front running when you when you have the net export component of GDP. So all these importers they went and bought uh goods primarily brought them in before the implementation of the tariffs ultimately led to negative GDP. And then in Q2 uh we've had several upward revisions to this number since it originally came out this summer. started off at 3.1% uh ultimately as of the the last release it's up to 3.8%. And the question now really becomes we had negative Q1, very positive Q3. What starts, excuse me, Q2? Uh the question becomes where does third quarter end up? Um that number is um unfortunately I think delayed uh due to the government shutdown. One of the items that is uh that is impacted or
047one of the reports that is impacted by the shutdown. Uh but I've seen numbers out there looking at private estimates that range from the low end of around 1.3% up to around 3% on the high end. So third quarter GDP is expected to be positive again which that'll be the first quote real number that is not swayed positively or negatively by the uh the front running uh and the tariff situation. But even when we get Q3 numbers, we are almost done with October. We've got the government shutdown which we expect to bleed over to GDP uh possibly substantially. Um and so Q4 uh definitely uh will kind of be up in the air as well uh as we go forward. Consumer confidence is a number we've been looking at a lot uh for the last
048year or two. Um consumer spending uh makes up um twothirds approximately uh GDP. Um so in the US when consumer sentiment sour people start holding on to cash spending less all those things. Um ultimately it has a trickle down effect. Uh and we showed this because we had the big dip this spring at liberation day. Consumer confidence roughly came back to equilibrium over the over the summer. uh and then as of late has been trending downward again as as uh families uh and households start to feel um less optimistic about their their future financial outlook. Another similar index uh this is a survey called a manufacturing um and the services um report uh and the thing to take away from this chart really is anything over that blue line is positive below is negative. But
049the takeaway here is these two lines are not equally weighted. In the US, the service industry makes up over 80% of the economy. Uh we're not nearly as reliant on manufacturing as we used to be. Um so the orange line is going to be a much more heavy weight than the blue line. But regardless, the services sector here as of late has definitely been back in equilibrium territory and we're hitting a lot of or we're seeing a lot of data points that say that spending and what's keeping the economy afloat is not evenly distributed across the population. So seeing a lot of data points that certain certain households, families with wealth, etc. are propping up the economy to an extent. And then a lot of the the lower income folks in the country are really
050feeling the pinch of everything that's been happening over the last year. Then hopping into inflation, the Fed's, you know, mandate uh has a dual mandate, both price stability and full employment. And on the price stability side, the Fed's target is 2% inflation year-over-year. So if you look back to 2023, 2024, um you know, the Fed had the narrative, uh you know, higher for longer, keep the rates elevated, and monetary policy restrictive uh to get inflation back to that target. and they historically were making slow progress over the last several years uh until this summer. And then inflation, we're now in four months of inflation uptick and unfortunately the September number is also delayed due to the government shutdown. But regardless, the question here is inflation, excuse me, uh tariffs um are inflationary in the in
051the context of when you replace the tariff in effect, it generally increases the price of a good one time. So, it's a reset in the price and then going forward, um it should just be regular inflation again. But what we have what we've really seen and I think the data shows is with the on again offagain constant variation of tariff rates since April depending on what's happening who we're talking about and all that there's just so much uncertainty that you can't really disagregate the data to find out if the recent uptick in inflation is uh transitory um or if it's going to be more persistent in nature and with the with the trade war kind of depending on the day or the week uh kind of still being waged. Um I think it's going to
052take more time uh to see what the trickle down effect of the tariff trade war is on longerterm inflation. Uh bright spot in or until recently a bright spot in the whole recovery postcoid has been labor market uh participation. Um until recently unemployment's been very low and then the jobs numbers. Uh so as of late we see we've seen unemployment tick take up a little bit up to 4.3%. Still very low by historical norms. Um and if you go back longer than this chart uh unemployment in the the low 4% range historically is a very low number. Uh if you go back to the 2000s the 90s etc. So on the unemployment side we're not seeing any sort of big layoff or situation like that yet. But on the job creation side that dynamic has
053changed very rapidly. So just to recap the last the last couple of weeks or excuse me last couple of months May June May and June numbers were positive and expected to uh remain so uh August number uh excuse me July estimate was also very strong in early August they released very very significant updates downward revision updates to both the May and June number ultimately May came in at 19,000 jobs June was negative July missed the estimate and Then in early September when the August numbers came out, uh 22,000 new jobs uh also significantly missed the survey estimate. So we're seeing definite weakness [clears throat] in the labor market right now. Um you know, businesses have so much uncertainty around the state of the economy, tariffs, all that kind of stuff. Uh consumer sentiment, uh that
054hiring has definitely definitely started to wne. This is a number another another data point that um the September number should have already been out and it is not. uh also due to the government shutdown. But if you just go and look at private uh private providers of jobs numbers, we've seen everything to some negative estimates u so negative jobs uh for the month of September. And even the numbers that are positive uh they're they're really aligned with an August number, maybe 20,000 30,000 new jobs across the country in the month of September. And where this ultimately leads is the federal open open market committee uh meeting is next week. So there's two left this year, last week of September and another in December. And they're running blind. So they don't have recent inflation data. They
055don't have recent jobs data. And they're about to make a decision uh on monetary policy and rates uh starting uh next week. So what this chart shows is the estimate for cuts at the upcoming meetings and then what the implied Fed fund overnight rate is. So to spend just a sec discussing that the current target rate is 4 to 4.25%. And as of now both the Fed estimates of market uh excuse me the Fed estimates of rate cuts for the rest of this year are very very highly correlated to the market based probabilities based on the Fed fund future contracts of rate cuts. So, just to take this away and kind of walk through the chart, both the markets and the Fed are really uh discussing pricing in and thinking there's going to be a
056rate cut next week. So, that would bring the target rate down to 3.75 to 4%. Additionally, the markets and the Fed currently are in alignment for another rate cut in December. So, two rate cuts and a rate cut is 25 basis points or 0.25%. Um, so expecting two rate cuts by the end of the year and then looking into 2025. According to the most recent Fed dot plot at the September meeting, the uh the Fed is expecting there to be one rate cut in 2026 and the markets are currently pricing in two rate cuts in 2026. One in March followed by another in June. The big takeaway for the district I think long term is that the terminal rate, so that's the rate that that's the rate where rates end up where they're neither restrictive
057to economic growth um nor so loose they allow inflation to run away. Both the market and the Fed is expecting that number uh to fall somewhere um in the three the low threes or the high twos going forward. >> Yes, sir. Hey Brett, just a I'm probably jumping ahead a little bit, but I know you're restricted on time. Uh on the on the investment portfolio that we maintain, I mean, obviously most of our funding is coming in on an annual basis, but I think our bond investment money is probably more at risk with market fluctuations. given kind of the impacts or the potential impacts of our our latest big beautiful bill and the fiscal impacts of that um how concentrated are investments um from a you know geographic perspective do we have investments other than
058are we entirely exposed to US economic circumstances or are any of our investments more distributed overseas >> I'll have to look at it uh I'll pull it up here in a sec um no so so to my knowledge I don't think there's any overseas bond bonds in the portfolio right now. I'll double check and see. Uh what we've been working on as of late is actually in the same context but slightly different. Um most of our clients are heavily exposed to treasuries and agencies. Um, and as of late, especially with the national debt situation and all that, particularly in this portfolio, we've been tried we've been trying to add in more corporate bond offerings to um to to pick up a little bit of yield relative to what corporates pay relative to treasuries. Um, and
059then ultimately, um, at this point in time, it's it's I guess it's a little bit sad to say you probably don't want to have a 100% treasury portfolio either. Um just given just given kind of some of the uncertainty uh and longer term outlook of US debt policy. >> Yeah. >> Um I'll give me let me finish getting through this one and I'll pull the holdings in a sec. But I don't top my head we don't have any any overseas holdings. >> So take so takeaway here rates short-term rates are expected to be headed down. >> Um the yield curve is still U-shaped. This is money market. So this is this is short term. So I'll go to the the longer term. So uh the yield curve is still U-shaped. So the front end of
060the curve out to 2 to 3 years is still downward sloping and then from 3 years out to 30 is upward sloping. So all things considered, it should take several more rate cuts uh before we have a true upward sloping yield curve. Um and this is this has really informed our investment decisions in several of the portfolios over the last year because you're always you're always fighting the the the outlook of hey on the short end we can keep funds in collo trust money market fund etc and earn more right now. the risk being if the Fed cuts rates more rapidly than anticipated, you know, h should we have bought, you know, one, two, and threeear bonds to lock in that yield, guarantee it from the budgeting perspective and all that. Um, so we've got
061we've got several um several slides around that. I'll go ahead and share real fast to have a sec to walk through those. It'll make a little more sense when you see these. Okay. So, we have four portfolios in the severely managed account um with the district. And the one that's going to make the most sense relative to what you're talking about is going to be the operating portfolio. So this is where we have uh the actual securities. So treasuries, agencies, all that kind of stuff held in here. Uh and this is going to be the longerterm funds not required on an annual basis relative to cash flow uh that can be invested longer than that. So talking looping in both Erin's uh question about state statute and all that just throw out a couple of
062examples here. So you have your investment policy and then state statute sets the overarching uh you know rules for what you can invest in. So for instance, you can't buy a corporate bond with a maturity longer than three years from day of settlement. So generally speaking, when you think about duration, you would expect this to be uh to look like a standard distribution to kind of go up, peak at that 2 to three year mark and then kind of head down. And in your case, you see that the 3 to four year has a little bit less exposure than the four to five. And the reason why is both local investment policy and state statute. So, I mentioned we've been trying to pick up some additional corporate exposure, which will change the pie chart in
063the top right to increase that corporate portion. Simultaneously, we have three-year limitations under statute and investment policy on the corporate side. So, that's pushing up the two to threeyear uh bar there in the lower middle where we're buying those. And then when we're buying treasuries, we're buying those in that four to 5year window because that's where rates are higher and you want to lock in yield for as long as possible um on on those securities headed out. Um so this is what we're seeing right now. Uh a little over 46 million invested in these securities. U we bought several corporate bonds the last week or two. Uh Apple is the most recent name I remember that we did. Um and credit spreads are very tight uh to to be fair. um credit spreads for a
064lot of these items um a lot of these securities are roughly 10 basis points over comparable treasuries in that 2 to threeyear range. So a good example on any given day is if you look at this right here you look at the top middle the cash and fixed income summary the goal would be to have all the funds invested in fixed income but on any given on any given day we can have a maturity come in. So option one would be you can always buy a treasury any given day. Um, so you can buy a treasury um, subject to market conditions that day, but in this particular I think this was dated 9:30. So right before 9:30, we had a approximately a $1 million maturity come in. And sometimes the money sits here for a
065day or two to give the portfolio managers time to watch the market wait for an approved credit offering uh, come up with a spread that's worthwhile. So for instance on the Apple bond we did the other day I think it was 17 basis points over uh over comparable treasuries uh the day that we executed. Um so that's a good point there. Uh and just to talk about briefly about the credit side uh and your your exposure question. Um we have an in-house credit team that has and maintains an approved list of credit offerings we're allowed to trade in. So just because state statute says you can do double A this and you can do all these things, ours, our our internal selection is much more restrictive than what statute says. So just because something has
066an S&P or a Moody rating of say double A, that doesn't automatically mean it's on our list. Um so we have an approved list of approximately 200 to 250 issuers. Um and I know on the short end of that, the commercial paper side, we do have international exposure for sure. uh some foreign banks uh some foreign some foreign companies and all that. Um and on the actual corporate bond in this portfolio, I would actually have to to pull it up and look. Um so in the essence of time, I want to be respectful. Is it okay if is it okay if I follow with Aaron offline about what the actual holdings are uh and let him >> Yeah. Yeah. Yeah. Just just a general question for you. I mean you mentioned the tightness of >>
067I think it's a great question. Uh and the pie chart in the top right is exactly what I'm discussing. Uh we have seen due due to limited corporate offerings and tight credit spreads um agencies are trading below treasuries. So why are you going to buy an agency uh with a with inherently a lower uh underlying credit rating for lack of a better term compared to a treasury? Um taxable munis same thing. Um they're just few and far between. Um so we're we're exceedingly becoming more and more um uh localized across a lot of our portfolios just in US government treasuries. Uh and as of late uh where possible we've been trying to create to increase that corporate exposure more taxable mini exposure we're available um just to kind of keep this pie chart having some
068diversification across across asset class. >> Just just one more question for you Brett. You mentioned the tightness of the credit spreads between treasuries and corporates. Do you think that's more of an indication of confidence and strength at corporates or lack of confidence in maybe more risk in treasuries? >> I think it could go either way. So, so, so to elevate that question, I mean, just look at the equity market right now. So, so, so consumer sentiment is der, everybody's not feeling good. Uh, state and local government bud budgets are strained. The federal government continues to run a massive $2 trillion annual deficit and the equity markets at all-time highs. Uh, really boyed by, you know, lifted up by, you know, the Magnificent 7, the tech side and all that. Um I would say I think
069generally speaking there's a lot of confidence in the corporate side right now from the fixed income investor. Uh both both what we see at work and then if you just talked you know retirees individuals um people have a optimistic outlook of you know Apple, Amazon, Walmart um these kind of things. Uh and and I would say at least anecdotally um you don't feel that the average person on the street has a abundance of confidence uh in the long long-term outlook, you know, of the the US government financial situation. >> Yep, that's helpful. Thanks. >> Yeah. >> Hey Brad, I have one one quick question. Um I thought you had mentioned there's a three-year uh limit on corporate maturities. >> Yes. >> Why why is I again I'm new. Uh why what's the reason for that?
070So it's in state statute and I think the general uh the general reasoning and this is a 40 50 whatever year old statute. I think the general reasoning would be the government historically treasuries always had a AAA rating and they were expected to hold that forever until they they've all been downgraded by the three major rating agencies. Well, I think the three-year uh the three-year limit on corporate is just to reduce risk because the outlook of a business of a business's financial situation and balance sheet um could change substantially in three years. It could change more substantially in five years. So, I think it's just to reduce risk of of underlying security having a potential default uh relative to like changing business conditions etc. >> Okay. >> And and I well I will say I
071guess point out so since there's something in the group here. So the overarching premise of uh public fund investing is number one preservation of principle, number two maintaining adequate liquidity and number three is yield. Um so when we do when we do all this that's that's the order that we follow. Um and generally speaking most local governments are a buy and hold investor. So we're not actively buying buying and trading these fixed income securities on a regular basis unless something changes. Uh generally that would be like if there was a downgrade in a corporate bond, we would have the opportunity or potentially sell that before uh before maturity. But generally speaking, we want to buy high quality safe securities for our clients, hold them to maturity. That allows the client to lock in lock in
072yield. It makes budgeting easier and makes you less uh less uh subject to uh interest rate risk um throughout various monetary policy changes. >> Okay. Thank you. That makes sense. Um so that's the main portfolio for the operating. Uh the other three uh we have the bond redemption which is just where the debt service uh debt service property taxes come into uh make the semiannual payments of debt service. Uh given the current rate outlook uh as well as the uh cash flow. So when these payments are due relative to when the mill levy set and the revenues come in these funds are all in collo trust money market fund right now. And then the other two portfolios uh still open. There's a tiny balance remaining in the 2018 bond. This year should be wrapped up
073uh and be out the door soon. And the last thing with uh with up three minutes over. So the last thing I wanted to mention is the 2025 bond proceed uh account. So uh met with Gina and Aaron um late winter early spring when the district closed on the bonds and all that. And given the rate outlook relative to the time horizon, these funds were also kept uh were also kept in collo trust. Uh but same as the the conversation before, you're balancing a higher rate on the f the front end versus locking in for what's relatively short term, say one or two for a project of this nature with how quick the district planned to move. Uh and this far thus far that's definitely worked out uh in the district's favor. So for comparison,
074I pulled these numbers on March 1st, which is approximately uh the time uh everybody the district closed. The KO Trust overnight rate was 4.45%. If we would have bought one-year treasuries uh on March 1st, uh a one-year Treasury was 4.08 and a 2-year Treasury was 3.99. Well, here we are. Um yesterday, October 22nd, call a trust overnight rate was 4.25. Um so, if you're kind of comparing, you know, it's a bird in the hand to in the bush. Um so all things considered I think we made the right decision there because here we are uh basically 10 months uh no eight months after the bond sale um the overnight rate um is still almost 25 basis points higher than what we would have averaged uh just doing some sort of a 1 to twoyear uh
075treasury ladder um and given the uncertain cash flows with how uh school district projects go uh I know from experience um uh we decided to keep that in college trust and thus far and given their the rate outlook for the rest of this year as Well, I think that was uh definitely in the district's favor. So, with that, I'm sorry that I went four minutes over here. Uh but I want to open the floor uh see if there's any other questions. Uh and also, I I didn't mention mentioned earlier. Um uh thanks for the opportunity to come this morning and to speak to the group. Uh and thanks for your business. It's a pleasure getting to work with you guys. >> And quick follow on to to the last um to [clears throat] the last
076account that we have. IRS um rules um yield restrict meaning uh after a certain amount of time so after a 2-year period if the bond proceeds remain unspent any unspent bond proceeds we would then be yield restricted um in order yield restricted to an arbitrage rate and I think that arbitrage I'll have to double check that arbitrage rate um but it's in the high threes and so we know that at some point in time we would be yield restricted. At the same you know further to that is um liquidity is a main function which allows for some flexibility with our construction team in order to prioritize projects knowing which projects we're going to do at any particular point in time and and that provides the level of of liquidity that we need. Mike, you have
077a question. >> Just last question for Brett. Uh, you mentioned that there is a statute that restricts the time frame or the maturity horizon for corporates. Is there also a cap on the percentage of the portfolio that can sit in corporates outside of US treasuries or agencies? >> That's generally in the local district policy uh not in state statute and I don't have yours memorized off the top of my head. So, do you >> do we have one? >> Yeah. >> Do we have a limit? >> Yes. and and so I'll walk through those. I I'll make sure you have have the policy and there is um >> and and I'll pull up I'll pull up the statute but the um the corporate securities are limited to I believe it's um 50% of the book
078value of our investment portfolio unless >> 50 5015 50. >> Oh, okay. >> Yeah. 5 unless the board authorizes a different amount. >> So, there is a lot of local control that is in the statute yet there's certainly a lot of guard rails. >> Yeah, thank you for both those points there and especially the arbitrage yield. I forgot to mention that. And then uh we would not we'd be a 5% limitation on any single issuers um >> um notes. So Apple for example or whomever we would not be able to have more than 5% of our portfolio in a single issuers uh single corporate issuers um bonds. >> Great. >> Thanks Brett. >> Thanks everyone. It's a pleasure to meet you. Have a great day. >> Thank you. [clears throat] >> Okay. Great. Uh thank
079you everyone for joining us today and uh this will end u the public component of the finance and audit committee. The finance and audit committee will now retire to continue working on its report uh annual report for the board. So let's