Finance and Audit Committee Meeting   9/28/2021

The Chair has requested some amendments to the bylaws that were approved last year, and one of those amendments has some financial impact that I just wanted to make sure was discussed at this committee for comment.

We're not looking for you to approve anything now, but we have some watch of comments because if everybody on the full board is okay with the bylaws changes, we will ask for approval on the full board meeting.

The original bylaws that were passed had a following statement.

and I apologize for reading it, but notwithstanding anything herein to the contrary, the Executive Director may not, without first obtaining the written consent of the Board, bind the Authority by entering into any contract, agreement, or arrangement on the Authority's behalf in excess of $2.5 million.

And then there's a lot of language after that.

We found that that isn't entirely clear because we came to you earlier and got approval of a full budget that has very detailed line items.

This year will be more detailed.

And it's not clear whether that really entails written approval or not.

So what we'd like to do with these bylaw changes is to set up a little more detail around the delegations before.

In the material that you have, we have a table.

There are two pages to it.

The first is the delegated authority that we're recommending for budget.

And that deals with spending.

This is what we would ask you to engage in with us with regards to spending on budget items.

And then the second page is on contractor billing.

So this talks about what we can sign with or without your approval and notification.

So looking at the budget table first, which is on page 3 of your material, there are four different budget types.

The first type is operations administration, which in FY22 is $5.2 million.

This is our administrative costs, our payroll, our IT, our space, our contracts, those kinds of things that are not project-related.

Our proposal is that we would be able to redistribute line item budgets, but not increase the total annual budget.

So if we find that we're running ahead on hiring, we can take money from an IT category, for example, and move it to payroll just in order to keep the budget flush.

Obviously if there are any major differences we'd have to come back to the board and we would never move something from a category that would then result in another funding.

But we feel that this gives us within a five million dollar budget the flexibility to manage the day-to-day operations of the authority.

The second line item is operations passenger service.

This is the money that we give to Amtrak and pay them for operating the railroad.

It's split out by the different routes that we have.

What we're proposing is that we redistribute line item budgets from one line item to the other, and if we have to for if we have to pay Amtrak for service disruptions or if there are other costs that were unexpected within the Amtrak budget, we're asking to be able to add budget to line items up to the annual limit of 1.5% of the annual operations budget for all line items.

Anything greater than 1.5%, we'd have to come back to Florida.

Capital Grants are the grants that we give out to other entities to manage projects.

That budget in FY22 is $80 million.

We're proposing that we can modify those line items up to $250,000 per line item of the grant amount or 20% of the grant amount, whichever is less.

And then the annual limit overall for the $80 million budget would be a percent and a half.

Anything above that we would have to get written for approval before we made those changes.

And then finally would be the capital projects.

Those are the big projects that we actually manage ourselves.

That's the $321 million budget.

And for that, we were looking for authority to transfer up to $5 million or 20%, whichever is less of the receiving line item.

Again, that would be a situation where we wouldn't be transferring from a project to fund another one, and then come back and say, hey, the one we transferred from is actually now short on funds.

So we would have full transparency at the end of, before every board meeting, we would present to the board and the finance committee any changes that had been made.

So there would be a full understanding of where the money has moved.

We're just asking to be able to move these without coming to the fourth place.

Any questions on those budget delegations?

I have the detailed budgets with the line items if you have any questions about where the money is now.

But we feel that it's relatively conservative.

Again, it's an ongoing conversation.

You'll be notified every month with our monthly reports and then in person toward any changes.

Very reasonable.

Thank you.

And then the next page is a little more straightforward.

This is what binds us.

These are the authorities for contracting.

I'll go from the bottom up.

Any contract that we sign that is between $250,000 or $5 million, again, assuming it's in the budget, we would just notify you in our monthly report and say, here are the contracts that we signed.

Here's where we found the agency between $250,000 and $5 million.

If there are contracts that we're signing, again, within the approved budget, between $5 million and $50 million, like I've done a couple times in the past, I'd send an email out about a week ahead of time with five business days saying, just for the board's awareness, the full board,

A week from now, we will be announcing a contract that we're signing with CSX or the contractor to do work that, again, is part of the approved budget.

And then anything that's 50 million or greater, we just think it's important to brief the board ahead of time and get board approval 90 days before we execute that contract.

Any questions to DJ about the delegation of authorities?

The next item on the agenda is our Fiscal Year 21 that ended as of June 30th.

and we have an audit update by Ashley Nausbaum.

Hi, thank you.

As you all know, we're in the middle of our audit with Cherry Becker trying to get through the end of the year audit and we thought it might be a good idea just to give a brief, quick, high-level overview of some of our financial statements.

and these are tracked until the audit is finished.

I just want to reiterate that it could change.

These aren't final, so just keep that in mind.

So, the first financial supernova is a statement of net position, and I won't go through every line, so if I skip something, please stop me and ask questions.

But the first line, the cash and cash equivalents,

The majority of our cash is invested with the LGIP at June 30th, about $224 million was, and the remainder of the balance, about $7.8 million was left at Wells Fargo to cover any expenses we have come through.

If we go to our accounts receivable line, that accounts receivable includes about

$9.8 million of Commonwealth rail revenue that related to June that we didn't receive until July, plus about a $10 million credit that Amtrak owes us.

And then if we skip down to the capital assets,

The third capital asset down is obviously the most significant, the $535 million.

And that's made up of the $200 million payment to CSX for the segment one right-of-way.

And it also includes about $6 million of legal and professional fees that we determine where it should be allocated to the purchase.

And it also includes the anticipated payments for segments 2 and 3, the 325 million.

And that leaves us with total assets of 802 million.

If we skip down to our liabilities, they're pretty straightforward.

We have our accounts payable for invoices we had in-house at 630 that we hadn't paid yet, our payroll, our current payroll.

that due to DRPT includes about $1.9 million of administrative expenses where DRPT was helping to set up the VPRA.

And then the $325 million installment purchase, obviously that's the $200 million for segment three that we're gonna hopefully pay off this November and the $125 million for segment two.

that will hopefully pay out next November 2022.

And that brings us down to our net position.

It's a pretty substantial net position.

We have our net investment of capital assets of $225 million and then our unrestricted net position of $241 million for a total net position of $466 million.

Let's jump to the next slide.

This is our statement of revenues and expenses and changes in that position.

If we start with revenues, in the operating section we broke out the passenger ticket revenues from the Amtrak expenses and broke them out between operating capital and marketing, just

I think it gives kind of a clear picture of where the revenues were coming in and where the expenses were going.

That also includes 2.7 million of the VPRAs, just general administrative expenses.

And that left us with a net operating loss of 9.9 million.

But when we compare that to the non-operating revenues and expenses,

The first line, the $320 million includes the initial cash transfer and we got the $302 million from the Commonwealth.

It also includes the $10 million credit load from Amtrak as well as the Staples Mill parking lot that was transferred from DRPT to the VPRA.

Commonwealth Rail Fund are revenues we get every month.

That's for the full year of FY21.

The $74 million in priority transportation plans are for FY20 and prior.

We recently sent an invoice to VDOT for the FY21 funds.

So hopefully, fingers crossed we'll be getting those soon.

And then we had about $18.8 million of capital grant expenditures.

which brings us down to our net position, which equals our statement of net position of $466 million.

I imagine that's been cleared by now.

Good question.

Any other comments, questions to Ashley?

Thank you.

I'll see you guys in the full meeting.

We'll see you at 9-10.

Well, Shannon?

I'm so bored here, you guys.

That's right.

You have the next item, the budget for FY23.

Yes.

So we're going to be walking through our plan for the FY23 budget as well as a possible amendment we may consider pushing through to the FY22 budget.

To kick us off here, we're going to start with the budget timeline.

I apologize, this is PDF'd a little bit funky here.

But we'll just walk through the process.

This is at the higher level, the board level.

So we started the kickoff to the budget process in August in anticipation that we'll need to present the budget to the board on December 14th for comment, and we'll turn around, make any adjustments we need to do, and then we'll present it again in January, January 25th to get approved.

From there, the budget will go to the CTB on February 1st,

presented on the 16th, and then they have until April 15th to provide us comment.

Again, we'll revise the budget and provide the amended budget to both the CTV and the VPRA to be approved in May.

So quite a bit of turnaround on the budget.

In addition to the higher level meetings, we would like to meet back with you all in November before Thanksgiving.

We'll bring that date down a little bit later to get you guys an understanding of what the draft will look like as we're formulating it to make sure that we get your input along the way.

and maybe later on we're going to see if maybe you want to meet in October too, but maybe we'll run through some of our plans for the budget and then we can decide if we would like to do that October meeting as well.

Yeah, they asked us to amend for, if you recall, we came back in May, they wanted us to add some funding for ADA.

That's right, that's right.

I think it was about six, seven million dollars.

So the next five slides here, we're going to talk through some of the plans for our FY23 budget, starting with the concept of cash to accrual.

And the last budget, as we're branching off from the state authority, the state does everything on a cash basis, but now we're moving into an accrual reporting framework.

So we're trying to devise the best plan for our budget going forward.

The primary thing that we're considering is moving to a full accrual basis for monthly reporting.

And our executive director reports will continue to do the budget to actual.

Right now there's three of us in fiscal.

We're operating on QuickBooks rather than a full ERP system so doing full accrual accounting at the end of each month can be incredibly burdensome and the value it would really add to the budget to actual seems like it wouldn't really outweigh the cost it would to do that process.

So we're coming up with this proposed monthly expense accrual check.

Essentially what we're trying to

to prevent is six months down the road we have a budget line item that has no expenses because there has been nothing billed and all of a sudden we get a bill for a million dollars and we're over budget but we didn't know that that's six months leading up to it so hopefully this would kind of help us mitigate that possibility so what we would do is take a population of everything that has a remaining balance of $100,000 or more for POs and then grant agreements and

take that as our population, review that.

Anything that hasn't been invoiced in the last 60 days, we would work with the project manager, the vendor, the grantee to determine how much is outstanding related to service and costs.

And if it exceeds $100,000, we would go ahead and accrue for it so that we're tracking that in our budget on a monthly basis.

Any suggestions on that?

Well, I think it makes sense and minimizes the amount of effort you have to do manually.

And on the other hand, it really is a hundred thousand dollar threshold.

Well I was just wondering when you believe you're going to go to full cruel counting?

It's a wonderful question.

Our goal would definitely be once the ERP system gets up and running because that will be a huge lift.

Yes, so that will be a monthly and the same executive director's report.

We'll have a spreadsheet that every single change that goes through and it will go into that exact process as well.

And that's more like the entire lineup, so the individual budget likely would stay the same.

However, all the overall budget changes would come through.

It would just be another page in that report that we provide to you, right, on a monthly basis.

Forecast versus budget.

Exactly, exactly.

Great question.

So the next three slides, we are obviously going into the budget process, and there's a couple things that we would like to change in the upcoming years, the structural changes to how the budget is presented.

One of them being the Amtrak detail.

Obviously this is the core of our business, really, that's why the Passenger Rail Authority was established, was to really do the passenger service.

So we would like to drop this down a level, so in the prior budget it was higher level for the routes primarily to show the expenses.

This year we would like to drop it down, and I apologize, it's a little blurry, to the individual revenue streams and also the expense slide items by route so that we can get more meaningful data and determine if train service revenue on the Roanoke service end of Century Lynchburg is doing well and what it's tracking against for each of the different milestones we're creating.

So this is what we'd like to do for the Amtrak operating.

We could build it out more.

And if we move through and you guys determine that you want to see a time or a lower level, we can definitely continue to improve this reporting tool.

On the next slide, we're hoping to get a lot of feedback on this one and the next one as well just to determine what we want to see.

So for administrative expenses, I've put together just what was in the prior year budget

and the categories we looked at, and then a potential option that we could do for the current year budget using actuals.

So you could see where the numbers actually fell out if we were to do this.

You as our wealth of knowledge, we would like to hear what you would like to see for administrative expenses to be used as our benchmarks throughout the year.

What have you seen at other entities?

What have you liked to see?

So let me make sure I understand.

It is not necessarily a proposal, it's just more of an example.

It sounds like maybe putting payroll back together.

Some of the other things, so outside services that really could be anything from, I mean when we do an ERP system we'll likely have to have a consultant come in and help us get that put into place, likely that.

when we have KPMG helping with some of the financial models that might fall into that category as well as possibly some feasibility studies.

So we would expect that to likely go up in the budget this year.

IT obviously is going to be just computers and our networks and all the things that go along with that.

Employee cost is one that we would expect probably to pick up this year with travel.

Other employee cost licenses that we'll be getting for different individuals.

So the question I would ask,

You know, I think part of the reason to do, you know, pay attention to categories of expenses is how useful it is for you folks in managing those expenses, right?

Yes, I 100% understand.

And with this, we will likely, in our tracking mechanism, this is what will be recorded out in the Director's Report, we'll have it go down to even the lower level when we're using our spreadsheets to determine, like, when you're looking at other employee costs, it will be travel, it will be licenses, it will be other benefits that we offer to the employees.

Similarly, for fringe benefits, it will get down to the granular level of everyone's health care and what we predict it to be based on

just the number of employees, so we will get that to that level, but for reporting purposes, we'll probably aggregate it that way.

Let me assure you that internally we are tracking it at those levels.

In fact, talking to the painstaking detail level, we just don't want to innovate the committee with details that you all don't find necessary.

I'm immediately putting my IT hat on, going, well, let's see, there's hardware, software, network, and by the way, capital, because that whole ERP, I guess, would be capitalized eventually.

So, yeah, but I'll back off.

I think what would be really useful for the board is what is behind these numbers as part of the budget exercise.

How do we benchmark salaries?

What is our compensation philosophy, for instance?

Are we remaining competitive?

This will be an iterative process as you put it out and someone will want to see something else.

That's why we're hoping to get ahead of it just in case there was anything real particular that somebody wanted to see but no that's perfect and we'll make sure that we come prepared with all the backups so that we can dive into those details at our next meeting.

Okay great.

On the next slide, what we would like to include in

The current year budget is a uses and sources table that would really just be for the current year and it would show, okay, this is what we budgeted for our operating expenses, capital grants, capital projects, and this is how we're going to fund it in the current year.

And the sources of funding kind of aggregating them to a higher level just so it wasn't overly detailed.

So we would have our Commonwealth Rail Fund revenues and this is how they were going to be utilized, VPRA partners, this would be Amtrak and VRE, this is how these funds will be utilized, and then Virginia State funding.

Initial Cash Transfer, PTF funds.

One thing that's not on here that we will end up adding this year based on what we're finding with federal dollars is that we are going to have federal spending in the current year.

So that will be another component we'll add into this year.

I'll just add here, I think last year y'all wanted a little more information on the revenues, so we're trying to give you that, but we also

I'll say this, the allocation of the revenues to particular projects is very fluid for lots of different reasons.

That's why

I don't know, maybe these broader categories is what we thought would be a better approach than rather literally getting into Amtrak funds, VPRA, CRF revenue, FHWA funds, CMAQ funds, rather than going through all of that and then it's sort of held to that versus having the ability to move that funding around.

at the same time I know that I wanted more information.

So I think this sort of gets to that middle ground of providing more information but also not putting a document out there where one of our funding partners thinks that, hey, it was in the budget, we were using our Amtrak money on Decide Again.

We ended up deciding we would need better use on siding A through C. And that's not doing anything inappropriate.

The contract's written that way with Amtrak.

There are 10 qualified investments.

We can move the funding on any of the 10 as long as in total we don't exceed a certain percentage.

I found this really helpful, especially adding the federal column.

Like if you say Amtrak funds, is that federal funds?

Yes, it's federal.

And what if you get COVID relief funding?

There's a lot in there.

How would that be kept?

It's a kind of a counter expense, right?

Yeah, reduce the expenses and increase the revenues flowing back to it.

It was unique the way they did it this year.

Interesting.

They credited the first group of funding credits.

They just credited our bill with expenses.

The second group, they're handing the bill to them.

I don't know, I can't really say whether we put it in federal or maybe in other partner revenue, the VPRA partner column.

I think it's something we have to work through with Amtrak.

Honestly, I guess, as you mentioned, we want to show

In our financials we're going to show the Amtrak revenue and we're going to show the total expense.

The way it's been actually working in years past is we just pay the net amount.

So they just send us a bill for the net amount.

For two or three years from now when we actually want to go out and bond against those revenues, we need to show the history of those revenues and we need to establish this year in our audited financials that those are our revenues.

We've got a little bit of work to do with Amtrak to change the contract to get them to send us those funds, but with DJ here, I'm sure we'll get that done.

And further, I'll say during the

When we're working through the $944 million funding agreement with Amtrak, it was discussed at that time that we would be wanting to receive all of the passenger revenues.

But as part of that whole agreement, it wasn't as important as the agreement itself.

So it was discussed.

They know they've agreed verbally to do it.

We still got to get their finance team to be willing to change the process and

Trust us that we will pay the full expense.

But anyway, as we go through that, I think we'll have more clarity to answer your question where we'll record those credits.

We have a clear understanding train by train how much Virginia passengers are bringing from a revenue point of view.

It helps us with pricing and it helps us as we try to make service changes and schedule changes.

Would it be the first time any state would be bonding against their Amtrak ticket revenues?

To my knowledge, yes.

Initially their senior management agreed.

and then Mike and I started having further calls with their financial team and I think at that point we started the conversation but then the Amtrak agreement kind of morphed into different directions.

It wasn't as important.

I feel confident that they agreed to it.

Getting, we actually put pen to paper, it isn't always as easy.

but I don't think, we worked with, we looked at some other states doing our financials and they record the full revenue amount, so I don't think it's, from an accounting principle standpoint, I think we're on good ground, so it's just a matter of, I think, Amtrak to me, and BJ you can speak to this, they're very, they're just like me, they're very conservative as far as wanting the cash in hand, and so it's a matter of convincing them that

When you flip the switch, we will pay the full expenditure amount, and in fact you can wait to send me the revenue until you get that.

And so I think talking them through that and convincing them that that's the way it will work, anyway, just change for them.

I agree that they're a strong partner and they know why this is important to us.

Well hopefully, you know, going forward it's not going to be a problem every year.

I mean, we'll get through this crisis and then you can work out in writing how it's going to happen when things are normalized.

And that ought to be fairly straightforward and clear to everybody, I think.

It's a one-time change, I agree.

Yeah.

Good question.

We look forward to hearing more about the streamlining the process with Amtrak, recording of the revenues and payment of the expenses.

I think to your point, it's really important to do the accounting part of it correctly as a basis for potential bond issue down the road.

It's really important to, you know, count all the revenues coming in and record all the expenses going out on your books.

On this one, back to the last slide here.

There was a couple of items that were not known at the time that the FY22 budget was approved

The big one obviously being the Western Rail Initiative, where that agreement is moving along nicely, but it's not currently in the budget.

There's been some legal expenditures related to it, so if you look at the last executive director's report, those expenses were in the budget, but there's no budget for it.

So possibly opening up an amendment to push that through and come up with a budget number for FY22 so we can be tracking against it.

and then we started talking about this and we said okay if we open up the budget to do this maybe we take the opportunity to fine-tune some these other two expenses because we have a lot more knowns related to them so administrative expenses obviously we have a lot more information and data about the staffing levels and what that's going to look like so we can definitely fine-tune that number.

and then also Amtrak again.

So they actually got CRRSA funding now that the COVID relief CARES funding has dried up.

Now they have CRRSA funding offsetting much of their expenses.

So we have projected these expenses that are actually going to probably come in a lot less as well.

So we could potentially update that as well.

But it just depends on your appetite for doing this budget amendment.

We would likely do it in the December meeting.

My initial reaction to any sort of budget amendment is once the budget's in place, just the budget and you leave it alone.

On the other hand, provided this is not an annual exercise, or two or three times, because then you start losing track of where you are financially, but these are big items.

And I think as long as the finance committee and the board understand exactly what it is we're adding or changing, I think on a one-time basis, I don't have a real issue with it.

On an ongoing basis, I would have more of an issue.

I completely concur that to me this would be like this year only and really mostly because of Western Rail initiatives.

It's a big number.

It's not in the budget, and as y'all just heard, DJ's delegated authority, you know, everything we do with Western Rail, we're going to have to come back to you because it's not in the budget.

So that whole delegated authority really penned in, you've given him this authority in the budget, and now it's reporting back to you all when we deviate asking for permission.

So, I agree.

I do not want this to be, do not think it should be,

Well, I think the CRRSAA funding as well, that's something else.

American Jobs Plan, wasn't what it was called?

The big, Biden's big bill?

We're watching that and then of course the Chrissy funds were just released and we've got a lot of local projects to apply for those.

Potentially great opportunities coming for us.

Of course great challenges because there's a lot of money that could come out and a lot of demands on labor and it's going to be an interesting focus.

Any questions, comments to Shannon?

Shannon, this was great.

I appreciate the wonderful presentation.

Thank you so much.

Quick question.

We did possibly have the idea of doing an October Finance Committee meeting.

Would you guys like to do that in addition to the one in November to talk about the draft budget maybe, I mean it depends on, I know there will be a lot of meetings this weekend.

If we do wait until November it would be the draft budget and then also the amendments that we would

We'll be happy to.

That's perfect.

That sounds great.

All right, well we've left it fast for last.

Steve, you're the last one on the agenda on investment policy.

Well, thank you, Hussain.

First, before I jump in, I just wanted to thank my team, Ashley and Shannon.

I wanted to get them in front of y'all today so y'all could see the great team that I have.

Hopefully, I think I put it in last month's Director's Report that if y'all need information or are looking for some answers, I want you to feel free to reach out to them or me at any time.

So, thank y'all.

That being said, I guess in June, I don't know if y'all recall, but we talked about the investment policy at the board meeting in June, and I kind of did an outline of what should be in the policy.

We had the Wells Fargo team came there with me, and they spoke briefly.

So anyway, today I'm hopeful that today that we can talk through the investment policy in detail with y'all,

and then take this policy to the Board later today and hopefully get it approved.

So the first thing I'll say on this first line, I'm not going to read every word.

Obviously we want the purpose.

We're going to have large sums of funding and timing that funding up.

Our goal is going to be to try to receive our funds as fast as possible and then

And I will say the history of our rail projects is generally, they tend to lag our estimated timing of the actual capital construction.

So, that being said, we're probably going to have some cash balances

at times.

Exactly.

And my next slide will get into those objectives.

But also, on this slide, I really want to make you all feel comfortable

that this policy is in conformance with the SBDA, Securities for Public Deposits Act, and the Investment of Public Funds Act, so both Code of Virginia stipulated policies on investing in public funds, so it's in compliance with that.

I also had the Department of Treasury review this policy and give me their feedback and

They really didn't have much feedback.

They have one or two small items that I incorporate.

That being said, I want you all to feel comfortable.

This is a very conservative policy.

And I think at the end, the last slide, over time, once we get our feet on the ground and we match the capital expenditure plan up with the funding that we have come in and get a better feel for that timing,

I think this policy, I think we all need to realize will evolve and we may come back to you and ask y'all to potentially alter some items.

But for now, I wanted it to be very conservative.

I think every credit rating is double A or higher.

So that being said, we'll talk about the objectives.

This also delegates authority to my team and I to carry out these activities for y'all as a board.

And then there's also various reporting and benchmarking requirements and the policy.

Next slide, please.

So these are the objectives.

And once again, I'm not going to read each word.

And these are in priority order.

Preservation of capital, safety of the principal is number one.

Maybe meeting our liquidity needs is our second objective.

And then third, obviously, is to try to maximize our return.

And then we got to get feedback back in that June meeting that wherever practical, I had to kind of say that because we're investing in treasuries, securities, there's not really any ESG component to that.

But where we get to corporate bonds, corporate notes, there is some possibility there that we could have that.

ESG principal involved in that type of investing.

I'm glad that you have really mentioned that in the policy that impact investing.

Even if we don't have the opportunity to do that, just as a value proposition, an investment policy is a good

And there may be, you know, if down the road, like, I think in here we have AA for corporate notes, corporate bonds, and that's going to limit us to pretty much the financial sector.

So there may still be a little bit that we could do there, but if we lower that rating to an A rating, then maybe that opens the window up.

But anyway, that's

down the road and as the policy evolves.

So next slide please.

So this slide just lays out the various roles and responsibilities.

Obviously it's the responsibility of the board to adopt the policy and obviously to modify it over time.

The Finance Committee, it's laid out in the policy, y'all are charged with reviewing the actions of myself and my team as far as carrying out the policy and part of that would be having regular meetings and us providing, I think there's quarterly reporting as well as in the director's report we'll be doing monthly reporting also.

And I think

I think we all need to understand that over time, we're doing a director's report today, and a year from now, I expect it's going to look a little different.

We're going to have better data, more data, so I think it's the reporting cycle that's important here.

This also lays out who's charged, the charges for myself, my team, as far as carrying out this policy.

It also gives authority to engage in investment with ISER and get investment.

And I guess if y'all recall, when we did the banking services RFP, we actually included this

is an option in that RFP knowing that we might have balances available and knowing that it might be something we want to do down the road.

To the extent that we do engage external investment advisors, would you anticipate then that they would report to this committee on a

somewhat regular basis.

Yes, and I think I would hope they would want the feedback too.

I think the other thing here is to

Ashley just showed you, I'll call it a balance sheet, a statement of net position.

Used to be balance sheet, that's okay.

Showing my age here.

And it had $235 million roughly of cash and investments, if I'm recalling correctly.

So the question here is, okay, of that $235 million, what are we talking about potentially for an investment manager?

Our benchmark in here is the LGIP fund.

That's where the majority of those funds today are, except what's in our operating area.

We've got a $200 million payment that you heard about staring us in the face in November.

Those funds are staying in LGIP until we need to send them out the door to CSX.

And I think today maybe we're closer to $250 million that's built up.

So we're talking somewhere in the range of $30 million that maybe initially we might be looking to give to an investment manager to apply this policy to and see if they can do better than the LGIP is what this benchmark is.

So anyway, I just thought it was important somewhere in here to talk about that, that I didn't want y'all to leave thinking we were gonna send 200 and some million dollars beyond where y'all had, and I don't know, hopefully y'all remember that you kind of gave me authority to put the funds into LGIP.

So next slide please.

So,

Just diving down a little bit further to say exactly, and hopefully you all got the policy and maybe had a chance to look over it.

So there's a lot of detail of allowable investments in that policy.

But at a real high level, it's basically U.S. short duration fixed income instruments.

That's essentially what we're investing in.

So the credit ratings are double A or higher.

for pretty much you go through the list, that's what you're going to find.

Maximum maturity of five years, we're really looking at probably six months to nine months for the portfolio at this time.

It doesn't mean we won't have a single investment that's five years, but

The weighted average of maturity is going to be closer to six to nine months.

It's just right now in the market that's what makes sense.

And obviously the weighted average surely can exceed two years and that makes just logical at a high level sense that the reason we have these funds is to put them into capital investments, not to put them in the stock market or the fixed income securities to make interest.

And finally, there are concentration limits that limit both the type of investments, so corporate bonds, corporate notes, we can't take overall sector, we can't, I think it's 25% total in that sector, and then within a sector there's also the issuer limit as far as

We won't take that 25% and buy one corporate note of 25%, we're also diversifying from that perspective.

And all of that is to limit our risk of a total portfolio.

about 10 year treasuries up to 1.45%.

And that is essentially our benchmark is the 90 day treasury and the LGIP and so hopefully we can exceed that but we shall see.

So next slide please.

And this just takes what I was just talking about, the last bullet, that concentration risk, and breaks it down.

All this is in the policy, but it just takes you through the different

allowable investment, and we call it sector, and then what's the limit of the total that's allowed for that sector, and then within that, the individual issuer limit.

So once again, all of this is designed to limit our risk and follow those objectives that you stated earlier.

So next slide.

So these are the, I've talked about this a little bit, the benchmarks and the reporting

So I want to once again say I think this policy will evolve, but to begin with we're going to use the Fed's fund rate and the 90-day T-bill rate as our beginning benchmark, and then we're also going to track internally

I think y'all may have seen in the Director's Report that we're talking about the LGIP rate that that pool is at.

And so we're tracking that also because really with the way this policy is set up they're going to be somewhat comparable.

The quarterly report we talked about to the Finance Committee and I envisioned this first year that the Investment Manager Advisor will be part of that.

and then maybe ultimately it becomes annual.

I've been on another board and it became more of an annual thing, but I think us beginning tiptoeing into this, I think it'd be important to have them here and everyone to be comfortable more often this first year.

Monthly reporting, as we talked about, that's going to evolve throughout the year.

I think hopefully we can give you more and more detail in that report and better information

And then the one last thing I did want to mention in the policy, if by chance we get into an instrument and there is a downgrade on that instrument, so if it goes from double A to single A then it's a requirement to notify y'all immediately and then obviously at that point there would be some

discussion on what action we may or may not want to take.

This was the one item that Treasury actually recommended changing.

I think the policy and I can't remember if it also provides the discretion to the CFO to go ahead and take the action and then notify the committee is that one precedes the other.

It seems to me that it might be a

You know, appropriate thing to give you the discretion to act immediately.

That's a great point.

So next slide please.

So this is just, as I've talked about the policy evolving, these are just some of the items that, some of the feedback I got.

I also talked with the investment manager about this policy.

Honestly, I probably tighten stuff more so than adhering to their advice.

But some of this on this slide is a little bit of their advice and I've looked at other investment policies.

So this first item here is like, you know, maybe we could down the road expand the allowable investments and there's something called SSAs

What these really are is foreign government debt and it's all rated through Moody's and S&P and Fitch.

So you're looking at a suite and issuance of debt and we could invest into that.

You know, still apply the same credit ratings, AA, but for now the policy is written USO.

So, and this is just

For y'all to think about and us over time to consider allowing a little more flexibility.

Another item was asset backed securities.

I'm not as, put it on here.

You need to talk about it, but it's essentially these are,

Car loans and credit card loans where they sort of take how mortgages are put together and then sold with the same thing here and you know they peel off the top 10% let's say of those creditors and you can buy into that level but I'm not as enthused with that but I still thought we need to at least discuss it.

And then the credit ratings, that's another area, as I mentioned earlier on the corporate notes, that right now we're pretty much limited to the financial sector, but if we drop that credit rating it will open to an A rating, it would open the door a little bit there.

Also, bond proceeds, there is some

Information in the investment policy.

We issue debt.

We obviously have to manage those proceeds so we don't fall under arbitrage and have to pay the federal government.

Generally, you would have an arbitrage reporting

folks hired annually to do that testing and not to exceed the cost of debt when you're using public funds to fund projects and arbitrage on your investment revenues.

There's a specific reporting requirement to the IRS on an annual basis.

I guess I touched on it.

And the last thing here was just, you know, we're going to obviously get a lot better at knowing when the expenditures are going to occur.

So our capital expenditure plan will get more refined as our agency builds out.

We'll also know better the timing of receipt of funds.

I think I saw an email yesterday, or maybe it was this morning, that Amtrak has been really good.

They're pushing to start their payments to us of their investment in the TRB project.

I think I saw that the first $12.5 million went through yesterday.

They're pushing because their year-end is coming up.

So, and right now I don't need those funds, but once again I like the quicker we receive the better and then I wanted to get that relationship established and I would love it.

So, I was glad to see that.

I know we actually did a lot of this, but there was a lot of work involved in getting set up as a vendor with Amtrak.

It's sort of in the first part of this and then it seems to me maybe we want to, in the objectives of the investment policy, considering the interest, particularly among some segments of the board in ESG investing,

In terms of future considerations, maybe emphasize that again because I suspect what you will hear will be an interest particularly if we look at

credit ratings below AA, that you might also get some interest in excluding certain corporations and corporate bonds from our investment.

Okay, but if we're driving diesel trains and refusing to invest in fossil fuels, is that our strategy?

Well, exactly.

No, no, no.

But it's something I think we need to have because there are some social and governments other than environmental.

I realize we're in the train business and we do consume fossil fuels.

We expand this policy to make a wider range of investments allowable.

Steve, this is the most boring investment policy ever made.

Totally conservative, no risk.

That was a great endorsement.

Did you say presentation or policy?

That's a great endorsement.

Well, what's your plan?

We talk about, you know, Hossain had a good edit, you know, Deb had a very good point, this whole page of changes.

What's the cadence for making changes early on?

I would probably say it will be the spring because it's going to take us a little while just

Like in the RFP with the contract we have with Wells Fargo, they talk about an investment suite option.

So just knowing how everything's worked so far, it'll take a little time just to work through with Wells Fargo how and even administratively to get that up and running.

And then, like I said, I don't want, I want to, I'm going to take a conservative approach, so I don't want to

If anything, I'm going to err to the side of sending less money to them and keep it more in LGIP.

I think it's just a matter of us getting our data reporting up and running where we're comfortable.

I can envision maybe by springtime we can start to have that discussion because we'll have a little bit of history behind us.

To me it's unrestricted and I guess I don't want to say that's an absolute because we issue debt and if we don't, you know, until we use the debt and proceeds, obviously that has to... Yeah, that's subject to arbitrage.

Yeah, any income there has got to tie back.

Everybody, all the other revenues we're getting from our outside partners, I want to say

It's not an absolute, but for the time being they're reimbursing it.

The way we're allocating those sources of revenues, like the priority transportation funds that I think we talked a little bit about earlier that we got and we're trying to build for more of those for FY21.

We're applying those to the right-of-way purchase, so they're in a way, we're viewing them as like reimbursement of expenditures made and we're keeping our VPRA funds and that $302 billion that came in, you know, because they've forced the most flexibility to keeping them as, we're talking about excess funding.

Same thing with Amtrak.

I told y'all they're saying it's $12.50, we have a reporting mechanism with them.

and we have to show them how we spent those funds.

They're allowing us to go back.

We've had some expenditures.

And then when we get to next quarter, we have to show them how we spent the $12.5 million.

And then if we haven't, they're not going to send us another.

They're going to short the next $12.5 million.

So that prevents us from having to say, OK, we've got to keep the Amtrak funds over here.

It's a sizable revenue though potentially in the down the road that could actually cover the operating expenses of the Authority.

Last year,

I don't want to use last year as a benchmark.

It was a partial year, by the way.

I don't know how closely you all read the directives before that.

I've been trying hard to say it's going from .4 to .05.

That doesn't seem like a lot, but it's one-eighth.

And I don't know if you're looking at this year, and we're looking at it and it's getting to be more gray hair, but we're nowhere near that.

But I don't disagree.

A slight change.

It is several million dollars that for us is a big deal.

Any questions, comments to Stephen?

This is not an action item, right?

We're trying to avoid action items for the committee, so it will be for the board later.

Thank you.

This was a really work well done and your insight and feedback from the Treasury as well to come up with a boring policy.

Thank you.

Yes, thank you all.

We really appreciate you all being here.

One more thing I'll say, too, on the budget.

The whole point of today's presentation is really we're trying to elicit you all's feedback.

We're trying to involve you all in the process.

If you all ponder, if you look these over, feel free to reach out to Shannon or myself and ask information.

We'll provide it.

That's the whole goal.

Last year I know we had to do it kind of in a vacuum.

We had to do it really fast.

Thank you.

We have covered the agenda.

Are there any comments, questions, reactions to the meeting this morning?

We talked about that in the spring and it's great to see it.

And we had that last year.

Great.

Final word, DJ, you have assembled a great group of colleagues.

We congratulate you for it.

It's a short period of time to, you know, put the organization together.

I'm sure there's another long way to go, but it was a very impressive presentation of your team.

Thank you.

We're officially adjourned.

We have enough time before the next meeting to take a break.

Thank you, Mr. Chairman.