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HomeMy WebLinkAbout2025-10-21 Finance Committee Summary MinutesFINANCE COMMITTEE SUMMARY MINUTES Page 1 of 12 Regular Meeting October 21, 2025 The Finance Committee of the City of Palo Alto met on this date in the Community Meeting Room and by virtual teleconference at 5:30 P.M. Present In-Person: Reckdahl, Lythcott-Haims, Burt (Chair) Present Remotely: None Absent: None Call to Order Chair Burt called the meeting to order. The clerk called the roll. Public Comment There were no requests to speak. Agenda Items 1. Review Risk Management and Insurance Program, Including Funding Status of the General Liability Fund and Recommend the City Council Approve Amendments in the FY 2026 General Liability Fund Budget; CEQA Status - Not a Project Assistant Director David Ramberg said this topic was a referral from Council to dive deeper into programs and bring awareness to the recent steep increase in insurance costs. Assistant Director Ramberg gave a brief overview of the City’s Risk Management Program, the insurance premium outlook, and the strategic response. The City ran a comprehensive risk management program to protect City employees, property, and public funds. The City funded the General Liability Insurance Fund at an 85 percent confidence level, the top recommended range, but faced higher-than-average risks being a full-service City. The City had been a member of the ACCEL risk pool since 1986. The collective approach provided broader protection and long-term savings compared to purchasing insurance independently. Alliant had been the administrator of SUMMARY MINUTES Page 2 of 12 Finance Committee Meeting Summary Minutes: 10/21/2025 the ACCEL pool for 25 years. ACCEL was a mid-sized JPA that covered over $1.7B of California City payroll. Senior Management Analyst Kelly Poggetti explained that, for FY2026, the City obtained a total of $65M of layered liability coverage, which was the highest limit available. A chart showed the layered structure. The first layer was self-insurance of $1M. The second layer was sharing $9M through the ACCEL risk pool. The third layer was commercial excess insurance of $55M. The City maintained a broad range of insurance coverages designed to protect City operations from exposures typically faced by public entities. A chart showed the various coverage types and amounts, including $1.25B for property insurance and $2M in cyber liability. The City insured the first $1M in damage for earthquake insurance rather than purchasing a separate commercial policy. There were 5 components regarding how insurance coverage translated into annual premiums: payroll, claims history, claims rate, reserve levels, and market conditions. Claims history and claims rates had been favorable to the City. The low frequency/low severity claims, with some years having zero claims, showed strong safety practices and effective risk management. The City’s claims rate was low at 0.80-0.86, which was 15 to 20 percent better than the national standard and earned the City a discount on premiums. The 3 main components that affected premiums for FY2026 were payroll, market conditions, and reserve levels. There was a 20 percent payroll increase from FY2025-FY2026 due to efforts to fill vacancies. Factors that impacted the market conditions were a hard insurance market, diminished insurer capacity, and major lawsuit verdicts. Since 2017, the City’s reserve level had remained at 85 percent. The ACCEL board raised reserve levels given recent claims among members, which helped the pool maintain financial stability but increased costs. Council Member Reckdahl clarified that 15 percent of the time, the claims will exceed what the City had reserved. Assistant City Manager Kiely Nose confirmed the City was funding 85 percent of the City’s liability or risk. Senior Management Analyst Poggetti noted that all components resulted in an estimated 30 percent increase in excess liability premiums for FY2026. A slide showed the proposed funding adjustments to offset the General Liability Insurance Fund variance of $1.5M. Assistant Director Ramberg proposed reallocating about $600,000 within the fund and drawing upon the fund balance of approximately $900,000, which would result in an ending fund balance of $1.2M. Council Member Reckdahl asked what it meant to reallocate the balance. Assistant Director Ramberg explained that within the fund, there were other areas budgeted for. There was the ability to draw upon some of the other budget areas where there were one- time savings. SUMMARY MINUTES Page 3 of 12 Finance Committee Meeting Summary Minutes: 10/21/2025 A slide showed a graph of the projected Excess Liability Insurance costs, which were projected to reach over $9M by FY2028. Increases of about 20 percent will be built into the long-range financial forecast over the next few fiscal years to accommodate the increases. Staff recommended the finance committee review the report and recommend the City Council amend Fiscal Year 2026 Budget Appropriation for the General Liability Fund within the Mid-Year Report. Public Comment: None. Council Member Reckdahl asked how the 85 percent confidence was calculated and how to calculate the right number using that percentage. Council Member Reckdahl asked if the rates were driven by payroll only or other things such as number of buildings, square footage, population, etc. Senior Vice President Conor Boughey explained that the City provided loss data to the actuary who reviewed it, compared it to industry data, came up with loss projections, and then provided guidance between what was expected to occur and confidence levels above that. A city would typically hope to achieve an 80 percent confidence level funding, meaning 8 out of 10 years the City would be over-funded. The overfunding can offset 2 years of a budget shortfall. If funding was over 80 percent, there would be a positive fund balance. Rates the City will charge based on payroll were provided for different confidence levels. Payroll was used as a measure of growth. Payroll and employee concentration were used to analyze and review for excess liability and work comp. Total insured values was used to analyze and review for property. Council Member Lythcott-Haims asked if the City was being taxed due to having more employees even though there were fewer claims. Senior Vice President Boughey explained the City was in a high payroll area but low claims were expected for the region, which resulted in a greater deposit into an account that became loss sensitive due to the retrospectively rated pricing formula. The City’s pricing was a deposit that was a hold to see what claims will develop. The final price will be seen 4 years later. There will be a 35 percent discount off the upfront price if there are no claims. In other cities where employees were paid less but there were greater claims, the go-in premium was be less but that city will be assessed for more cost. Typically for Palo Alto, there will be a high deposit and a refund available. Chair Burt asked if the rate was based on the Ex-Mod and if the Ex-Mod will go up due to having large claims over last couple years. Chair Burt wondered if there was a pattern in the root cause for the increase in claims and if the causes, payout amounts, or number of claims have changed. Chair Burt queried if tort reform was in the legislative priorities and wanted to add it if not. Chair Burt asked if the League of Cities was involved. Chair Burt wondered why more cities were not part of the same pool, what those cities do, and why. Chair Burt referenced slide 8 and asked if claims history impacted cost only through the Ex-Mod. SUMMARY MINUTES Page 4 of 12 Finance Committee Meeting Summary Minutes: 10/21/2025 Senior Vice President Boughey explained that the premium was the payroll multiplied by the Ex-Mod multiplied by rate. The Ex-Mod will not increase because everyone was having large claims. The rate of large losses in California had increased for everyone over the last 4 years. The most common areas of a claim in excess of $1M were dangerous conditions of public property, auto liability, and law enforcement liability. Bodily injury to third parties occurred in those claims. Medical cost inflation, cost of living, cost of lifetime care plan, etc., had increased and the plaintiff’s counsel had been aggressive against public entities. Senior Vice President Boughey had a presentation to councils about the need for tort reform, however there was no municipal body with the necessary budget to take on the plaintiff’s bar in Sacramento. Senior Vice President Boughey believed the League of Cities was starting to discuss tort reform. When ACCEL was founded, all members took a $1M deductible. All 13 cities in ACCEL had risk managers. To be part of the group, a city was required to have a comprehensive risk management program and take a high retention. Other pools such as Plan JPIA or Bay Cities catered to small cities with a lower deductible. There was a large state-wide pool called PRISM, which was a very large, diverse group. Senior Vice President Boughey confirmed that claims history impacted the cost and explained there was a formula in which the claim amount will be split by members of the pool but whoever had the claim will take on the largest portion. If a member of ACCEL had multiple unexpected claims, that member may no longer have a positive balance available to withdraw from and the pool may require money back, which was called the retrospective rating calculation. This year, the City received an invoice for the first time. Assistant City Clerk Christine Prior said tort reform was not in the guidelines but will be included. It will go to the Policy & Services Committee in November and to Council for approval in January. Assistant City Manager Nose clarified that tort reform will be brought up to the Policy and Services Committee as something to consider. Council Member Reckdahl asked how big the tail could be regarding the 85 percent confidence level. Council Member Reckdahl wondered what will happen if the City spent more than expected in any given year. Slide 6 was brought up. Council Member Reckdahl asked if the pool or excess insurance layer was more efficient and if the pool will increase beyond the $10M. Council Member Reckdahl queried if the $1M retention should be changed and if there was anything the City could do to reduce the chance of having large claims. Senior Vice President Boughey said the tail was very long for worker’s compensation. For liability, all claims were typically received within 2 years; if they were large, they typically resolved within 5 to 6 years. For property, claims were typically resolved within 18 months to 2 years. Senior Vice President Boughey explained that actuaries looked at the City’s loss history, the worst and best years, etc., and came up with probabilities. Senior Vice President Boughey stated it was unlikely the City would go over 85 percent and if so, the City could borrow from the accrued fund balance. The City would either be able to keep a positive balance at 85 SUMMARY MINUTES Page 5 of 12 Finance Committee Meeting Summary Minutes: 10/21/2025 percent or will need to increase the confidence level if the balance was declining. ACCEL was at funding at a 90 percent confidence level. Senior Vice President Boughey reiterated that if the City did not have claims, the pool premium would be returned. Senior Vice President Boughey explained how ACCEL invested funds and that any investment income received would be returned to the member who drove the income. ACCEL was starting to prepare the pool to increase to $15M, then to $20M, and then to $25M. Senior Vice President Boughey noted there was no reason to request increases in retentions among members, however if the City were presented a quote with a higher retention, it would be attractive. Senior Vice President Boughey suggested the City focus on de-escalation training for law enforcement to protect against large claims. Senior Vice President Boughey encouraged design immunity due to the City’s dangerous conditions claims. Chief Assistant City Attorney Caio Arellano explained that design immunity was a key strategy that agencies used to limit dangerous condition liability. Chief Assistant City Attorney Arellano opined Palo Alto was doing well in terms of design immunity and record keeping. Chair Burt asked if there had been a systematic analysis done regarding what the significant claims were, what the trends were, and ways to anticipate additional sources of risk. Chair Burt felt the challenge was to create a culture that looks for and proactively responds to risks before the risks have been actualized. Chair Burt wanted to look at the City’s claims under $1M as well and be informed by other agencies’ experiences. Chair Burt wondered if the culture of “do not make work for fellow workers” had changed. Council Member Lythcott-Haims asked if the plaintiff’s bar was incentivized to settle claims as high as possible given the City was within the ACCEL pool. Council Member Lythcott-Haims felt the City was advertising the capacity to pay. Chief Assistant City Attorney Arellano was not aware of any systematic analysis. The 2 large claims tendered to ACCEL over the last 2 years involved catastrophic personal injuries and were the first of that nature and severity that the City had seen in a long time. Senior Vice President Boughey suggested the City ensure all police officers were trained on the vehicle pursuit policy annually. Senior Vice President Boughey stated there were case examples where the settlement went over the policy limit and cited the billion-dollar settlements in the Los Angeles Unified School District. Cities were required to declare policy limits. Assistant City Manager Nose explained that staff had been tracking claims and looking at experience with ACCEL and was working to instill a culture of safety. Council Member Reckdahl asked what the process was for integrating lessons learned in other cities and how that information would get to individual employees. Senior Vice President Boughey noted the City had a litigation manager through ACCEL that worked with the City Attorney to give guidance. ACCEL was a supportive party to the City. SUMMARY MINUTES Page 6 of 12 Finance Committee Meeting Summary Minutes: 10/21/2025 Director Sandra Blanch explained that the information about claims in other cities in which Palo Alto had a similar risk would be brought to the relevant City department. Chief Assistant City Attorney Arellano noted there was a dedicated attorney who managed the litigation portfolio, monitored the stable of outside counsel retained for tort defense, and monitored the development in municipal tort litigation. Chief Assistant City Attorney Arellano explained the battleground for claims was in the existing statutory immunities. Developments in the law were monitored closely and when there were takeaways, it was brought to the clients’ attention, in which related policies were asked about and actionable steps were given to avoid potential exposure. Council Member Lythcott-Haims opined the cyber liability limit was inadequate. Council Member Lythcott-Haims asked what a parametric earthquake policy was. Senior Vice President Boughey recommended the City buy more cyber liability coverage and was willing to provide benchmarking data. Senior Vice President Boughey felt the City was exposed on earthquakes and recommended purchasing a policy or having an internal CAT fund. A parametric earthquake policy offered a quick payout based on pre-agreed upon terms. Director Blanch explained that a parametric earthquake policy was a new line of insurance that ACCEL had been looking at in the last year. The cost of insurance was high but was being discussed. Chair Burt asked if the earthquake policy would be through ACCEL. Chair Burt questioned if there was a City position comparable to a Chief Safety Officer. Chair Burt referenced slide 11 and queried how the variance amount was known for FY2026. Chair Burt clarified that an adjustment would need to be made annually around this time of year. Chair Burt noted the estimated ending fund balance was less than the year’s funding adjustment and wanted to ensure the fund balance was adequate. Chair Burt cited graph 1 on slide 12 in the staff report. Chair Burt asked what the most recent long-term financial forecast had projected for costs in FY2027 and FY2028. Chair Burt wondered if the projected costs for FY2027 and FY2028 were ready to be incorporated into the long-range forecast and clarified it will affect the forecast but there was uncertainty as to how much. Chair Burt asked when the next long-range financial forecast would be given. Chair Burt wondered if there were circumstances in which the City could experience an increased liability due to throttled e-bikes and reckless behavior by private citizens. Senior Vice President Boughey said an earthquake policy could go through ACCEL and JPAs almost always offered a better price if the City was willing to share the risk with other municipalities. Cyber liability would be purchased by the City. That policy was not frequently discussed publicly. Senior Vice President Boughey said California was a difficult state for the City to defend itself in, noted joint and several liability, and cited the City of Carlsbad’s recent state of emergency declaration over e-bikes. SUMMARY MINUTES Page 7 of 12 Finance Committee Meeting Summary Minutes: 10/21/2025 Director Blanch noted there was a safety officer for Utilities. Fire and Police had training officers that reviewed exposures, calls, improvements, etc. The rest of the City relied on supervisors to report risks or new exposures and conduct inspections on a case-by-case basis. Director Lauren Lai said that slide 11 referred to FY2025-FY2026 and the starting fund balance was as of June 30, 2025. The premium was finalized in June by the pool board but did not make it on time for the budget adoption, so the premium affected the current fiscal year. Adjustments had typically been insignificant and absorbed within the budget. Director Lai said this was the first year in a while where the adjustment had been of this magnitude. There will be a significant jump in the long-range financial forecast. The City will work with ACCEL regarding the reliability of the forecasted projections. The City needed to find ways to offset the expenses and determine if the projected increases will be the near-term reality. There was not the level of growth required in the long-range expenditures to fund the projected increases. The next long-range financial forecast will be in December. Assistant City Manager Nose said the fund was an internal service fund. All the other city funds paid into that based on an actuarial study that identified the pro rata share. The City had control over the sources coming in and could make adjustments as necessary. Assistant Director Ramberg said in the current long-range financial forecast, a 5 percent increase was projected for each year through FY2028. Chair Burt moved to attach 5 recommendations for Council to endorse. Chair Burt acknowledged the products of the systematic review could be confidential. Due to the increase in risk level, Chair Burt wanted the City to hold itself to a higher standard. Chair Burt assumed if Council endorsed the motion, the matters would return to the Finance Committee. Chair Burt stated there were reforms in 2021 regarding law enforcement training and the policies were implemented well. Council Member Lythcott-Haims wanted input from staff on the scope of the proposed actions and encouraged the City to raise the bar. Director Lai stated that if the Committee agreed to the proposal regarding the fiscal impact, it would be part of the mid-year adjustment. Director Lai said the risk team could evaluate additional coverages, balance the additional cost, and bring that back as part of the budget development. Director Lai was concerned about having public, in-depth conversations regarding risk, claims, programs, and gaps. Director Lai suggested that point 5 come as part of the budget development. Assistant City Manager Nose emphasized that the requests would impact capacities and noted there were other fiscal priorities and constraints. Chief Assistant City Attorney Arellano said the City Attorney’s office was willing to look into claims patterns. SUMMARY MINUTES Page 8 of 12 Finance Committee Meeting Summary Minutes: 10/21/2025 Council Member Reckdahl thought extra safety positions could save money in the long run. MOTION: Chair Burt moved, seconded by Council Member Lythcott-Haims, to recommend the City Council amend Fiscal Year 2026 Budget Appropriation for the General Liability Fund within the Mid-Year Report with the following referrals to staff: 1. Evaluate increased liability insurance for cybersecurity and earthquake 2. Add tort reform to proposed 2026 legislative guidelines 3. Request that staff conduct systematic claims analysis and mitigation strategy 4. Request staff update the City Council on risk management and safety policies 5. Evaluate adequacy of senior safety positions throughout the organization MOTION PASSED: 3-0 2. Investment Advisory Services Overview Assistant Director Christine Paras stated that Council approved the transition of investment management to a specialized firm in the 2026 adopted budget. The contract with Chandler Asset Management was approved by Council in June. The Committee wanted more information and discussion on what the transition to a specialized firm would look like. Council Member Lythcott-Haims noted this transition was big and the Finance Committee was not consulted beforehand. Senior Relationship Manager Neil Murthy gave a brief background of the firm, which provided customized investment programs tailored to a client’s investment policies within the confines of California code. The firm was a fiduciary to the City and must put City interests first when making decisions on the investment portfolio. There were $42.4B assets under management as of June 30, 2025, 88 percent of which were public agencies. The firm worked with over 165 public agencies within California and managed funds for ACCEL. Senior Portfolio Strategist Carlos Oblites developed the strategy for the City. There were 53 employees at the firm, which also managed 5 of the 13 cities in ACCEL. A slide showed the breakdown of the investment team. The firm was organized into committees. A slide showed the team that worked with the City. The initial steps to building the investment program were to review the investment policy, analyze cash flow, develop a portfolio strategy, and then actively manage investments. A statistical analysis was conducted with collaboration from staff to give an overview of how the City used its money. The cash flow analysis identified funds that were needed for immediate liquidity. It was recommended to bifurcate the investment program between funds needed for short-term SUMMARY MINUTES Page 9 of 12 Finance Committee Meeting Summary Minutes: 10/21/2025 needs versus longer-term funds not immediately needed. It was proposed to utilize a combination of LAIF and LGIP solutions for shorter-term cash and implement a total return strategy for longer-term funds. It was recommended to revisit banking and custodial arrangements to eliminate immediate transfer of payments and maturing funds and establish bank and custodian sweeps. Senior Portfolio Strategist Oblites noted the investment advisor will never have access to the City’s funds. A slide showed the City’s investment program as of August 31, 2025, with a market value of $541M. The yield was 2.46 percent, which was low. Council Member Reckdahl asked how the City got below the current yield curve. Council Member Reckdahl queried what taxes the City paid on earned interest and if there was a credit risk if municipal bonds yielded above treasury. Council Member Reckdahl asked why callables were a loss. Senior Portfolio Strategist Oblites explained the City got below the current yield curve due to the practice of holding monies to maturity. The City’s credit quality was strong but the City maintained an outsized exposure to municipal obligations. Small issue holdings totaled over one-eighth of the portfolio. Senior Portfolio Strategist Oblites clarified the City was not a taxpayer and there was credit risk with everything, including the Treasury. The yield could vary depending on market circumstances, how much the municipal market was issuing, what the federal reserve was doing, and/or fiscal policy. It was observed that federal agency callables comprised nearly 60 percent of federal agency holdings. The City’s longest maturity extended 9.6 years. The large municipal exposure and small issue exposure decreased liquidity. The proposed action was to gradually increase diversification and replace small exposures with benchmark size issuances of $100M or greater. The federal agency callable exposure made cash flows uncertain. The proposed action was to limit federal agency callables and let them run off the portfolio. Callables were a loss because the City will lose money compared to the book value. The holdings that lasted longer than 5 years exhibited an outsized sensitivity to changes in interest rates. The proposed action was to reduce purchases in securities longer than 5 years. The current yield was 2.46 percent, which reflected rates available during the pandemic. The proposed action was to implement a total return strategy with the ability to sell before maturity while balancing the safety of the principal. Staff had approved a strategy in which the majority of funds in the managed portfolio will range between 1 and 5 years and average 2.5 years in duration. Staff will review and approve any sales before maturity prior to the execution of the sale. Reinvestments will occur within City policy and California Government Code parameters. The firm will review the City’s investment policy and discuss with staff. Council will review and approve changes to the investment policy during the annual investment policy review and adoption process, set to occur in spring 2026. A slide showed the firm’s Short Term Bond composite, in which 43.8 percent of the average portfolio was comprised of treasuries. Palo Alto held 0.82 percent in treasuries. Treasuries were SUMMARY MINUTES Page 10 of 12 Finance Committee Meeting Summary Minutes: 10/21/2025 considered safer and more liquid than federal agencies. The firm wanted to utilize asset classes allowed by code, such as ABS and CMO. Council Member Lythcott-Haims asked how much would be lost by putting off the investment policy amendment until spring 2026. Council Member Lythcott-Haims wondered why the firm did not take on the City’s Section 115 trust. Council Member Lythcott-Haims queried what the net cost of the contract with the firm was given the internal savings and how much the move to the firm will improve the yield. Senior Portfolio Strategist Oblites believed the City would be better off amending the investment policy sooner. Senior Portfolio Strategist Oblites advised focusing on the firm’s current portfolio before revisiting the Section 115 trust. Director Lauren Lai stated the firm had access to institutional brokers and buyers, which meant the cost of transactions was lower than it was for the City. The firm had access to platforms and outlets the City did not. Director Lai said City staff needed to oversee and manage the firm and was still evaluating the staffing issue for FY2026. City staff was looking at ASD as an organization. Director Lai said there will be more information on that in the future. Director Lai noted the City’s portfolio was at about 2.4 percent and neighboring jurisdictions that the firm managed were close to 4 percent. Assistant City Manager Kiely Nose mentioned an audit the City did about 5 years ago on investment services. The audit found a significant key person risk because it was done in-house by single individuals. Retaining an outside investment firm was a recommendation in the Baker Tilly audit that Council approved. Council Member Reckdahl asked what range of time horizons were seen in the different pockets of money the City had. Council Member Reckdahl confirmed that shorter-term investments within the state pool will change value. Council Member Reckdahl queried what LAIF holds and if it was subsidized. Council Member Reckdahl wondered if the firm was worried about an unexpected, impactful event. Council Member Reckdahl asked if the average of 43 percent in the U.S. Treasury was because of a worry about flight to safety. Council Member Reckdahl questioned how much turnover there was in a typical year when looking at other clients’ portfolios in a steady state. Council Member Reckdahl noted that most holdings would be between 1 and 5 years and asked if that would be uniform or if the firm would look at the yield curve and act accordingly. Council Member Reckdahl liked that there were more corporates on the sector allocation. Council Member Reckdahl queried if the firm stayed away from Freddie and Fannie due to recent talks of privatization and what agencies the firm used. Council Member Reckdahl questioned if Freddie Ks were callable. Council Member Reckdahl wanted clarification on asset-backed securities. Senior Portfolio Strategist Oblites explained that the firm looked at anything that was needed for 1 year or less and advised City staff to segregate those funds and keep them in short-term investments, such as local agency investment funds (LAIF). LAIF were not an obligation to the SUMMARY MINUTES Page 11 of 12 Finance Committee Meeting Summary Minutes: 10/21/2025 State. LAIF held securities, treasuries, sometimes agencies, and some corporates. The expense of LAIF to the City was small because it charged a percentage of earnings rather than assets managed. LAIF were part of a greater program called PMIA. There was a subsidy on the yield basis. Senior Portfolio Strategist Oblites said that while the firm could not mitigate all risk, the portfolios were built with safety as the top goal as mandated by code. The amount in treasuries on average for 1 to 5 year short bond portfolios was a deliberate positioning based on analysis. It was between 33 percent and 45 percent depending on the client. The reason was because when times were volatile, investors moved toward safety. Senior Portfolio Strategist Oblites confirmed there was not much turnover in a typical year; Sunnyvale had 3 to 4 trades a month. Senior Portfolio Strategist Oblites referenced page 15 and explained the term structure was dynamic based on the anticipated yield curve. Tools like the horizon analysis model were used. California government code allowed the City to purchase up to 30 percent of an investment program in corporate securities. Palo Alto limited corporate securities to an AA grade or higher, whereas 56 to 60 percent of the investment grade world was grade A. The firm believed the privatization of Freddie and Fannie will not be a big event. The firm tended not to buy Freddie and Fannie due to having less liquidity than a 3-year treasury for only a few additional basis points. Federal agency issuance had diminished significantly. The firm will purchase federal agency issuances if it was a good value for the portfolio, including Freddie Mac, Fannie Mae, Federal Home Loan Banks, Tennessee Valley Authority, etc. The firm found value in the highest credit quality federal agency mortgage-backed securities called Freddie Ks, but the City did not allow those in the portfolio. Freddie Ks were CMOs and were not callable. From a legal standpoint, the City was allowed to treat CMOs as federal agencies from a compliance perspective in investment policy. Senior Portfolio Strategist Oblites explained asset-backed securities and said the firm only looked at the most liquid AAA tranches. Chair Burt asked why staff must wait until next spring to update the investment policy. Chair Burt queried how long it will take to get to the firm’s standard rate of return. Council Member Lythcott-Haims asked why updating the investment policy will not be talked about at the mid-year budget adjustment. Director Lai said the investment policy was typically an item within the June budget adoption but staff proposed to bring it forward closer to February, which was typically mid-year. Senior Portfolio Strategist Oblites wanted to see the portfolio fall in line within the next 9 months. Public Comment: None. NO ACTION TAKEN SUMMARY MINUTES Page 12 of 12 Finance Committee Meeting Summary Minutes: 10/21/2025 Future Meetings and Agendas The November 4 meeting will have items relating to the Regional Water Quality Control Plant, the updated CIP plan, and the fourth amendment to the Green Waste Contract. The second November meeting will have an update on major revenues, tax items, and utility items. Adjournment: The meeting was adjourned 8:10 P.M.