Finance and Audit Committee Meeting   6/27/2022

Mr. Warsh, Madam Chair, we have a few items to discuss with the Finance Committee.

Hopefully, we don't necessarily need an action item today, but hopefully we can get some consensus around taking an amendment to our investment policy to the full board at the July 21st meeting.

So that's the main goal for today.

talk about some reporting, and then just wanted to share a few other items towards the end of our meetings.

With that, we will jump right in to the investment of policy amendment.

The first thing I wanted to say is that this is actually going to be very important for us because we've done a really good job

Shana's done a great job getting our revenues actually collected.

And we're going to end, whether we end this year, June 30th, or shortly after June 30th, we will have almost $500 million of cash assets that hopefully we can get our investment manager up and running.

And so these amendments to this policy are actually very

to us and we've anticipated, you'll see later, we've anticipated that we'll have a significant balance to invest for several years as our projects get going and then the spend starts to catch up with the balance that we've collected.

So very important work we're doing here today.

So I guess this slide, really today we're going to look at three different amendments to the investment policy.

The first is to incorporate

in a little more detail than originally was added to the investment policy, but to incorporate environmental, social, and governance, put actually in the policy a process that requires us to do certain functions related to that to make sure that our investments actually create those principles.

The other two items are actually items that are allowed in the Congo-Virginia Investment Act, which we're required to follow.

And so they're really amendments from the original policy that were just overlooked.

One is to add a category of investments, authorized investments called supernationals.

And then the other amendment would be to change the

So with that being said, let's jump in and we'll look at the environmental, social and governance.

And this is actually, and I'm not going to sit here and read this, but I will give you all a moment.

This is the actual amendment that we're looking to add to the policy.

I know we sent out a red line version.

and before there was some language that referred to wherever practical we will incorporate the principles of ESG within our investment decisions.

And the board wanted us to have a little more teeth than that sort of broad statement.

And so this is what we're proposing to replace that statement with.

I will say our policy, this proposal has more

has more teeth to it than we looked at, gosh, probably over 20 different policies.

And this has more teeth to it than almost all of them.

So we're kind of on the cutting edge as far as actually incorporating some real meat into the principle.

The other Virginia authorities that we looked at, they actually didn't have this even in their policies.

So we're actually

Mr. Pittard, Mr. Bassett is going to join right now.

Excuse me?

Okay.

I am.

I can hear you, yes.

Can you guys hear me now?

They're talking.

This is John Delander.

There you go.

So the second point I wanted to make here contemplating this revision is we didn't want to make this revision to the policy still somewhat general in nature because every investment manager that

This entity will work as time goes forward.

I'm sure all spring will do a great job, but if we do move to a different investment manager and even all spring themselves, the actual ESG work they do in that arena is going to evolve over time.

So we tried to make this policy generic in nature so it could apply into the future and also if we have a different investment manager.

That being said, the detailed application with respect to Allspring, which is our investment manager, we are going to go through that here with y'all today.

And what we feel is that falls under the reporting category of our investment policy.

And it's something that we would work out with you as the finance committee.

And so we'll detail it today and hopefully get agreement on how the actual detail working

All support ESG policies works within our investment policy and as far as reporting back to the board.

So with that, I'm once again, I'm not going to read this.

Essentially, we're we're saying we want to stay at a high level, we want to stay above average from an ESG scoring on any investment that we make.

So once

average investment.

We want at least minimum the average, nothing below average.

We don't want to purchase any security below average.

And then our average of all our investments in corporate notes, commercial paper, corporate bonds, we want to be above average.

So with that, you know, we have Frank Marchione and we have Jonathan Buena-Vintera on board with us from Allspring.

Great.

Thank you very much, Steve and everybody else there.

Thank you for allowing us to join this meeting.

Really appreciate it.

I think some of you may know, I've attended maybe one or two of these before virtually, but I've been working with Steve and Shannon for more than a year on this project and very excited to hopefully get started soon.

I know we're in the kind of final stretch, if you will.

My name is Frank Marchione, as Steve mentioned.

I'm the Client Advisor, sort of Business Development Guide, Allspring Global Investments.

I've been working with, like I said, Steve and Shannon for quite a while on this thing.

I'm not going to steal Jonathan's thunder, but Jonathan Buenaventura is the portfolio manager who has been assigned to the account.

He will be the person who actually, on a day-to-day basis, executes the trades on behalf of VPRA for the portfolio.

So, I am in the Garden State of New Jersey.

Jonathan works in San Francisco.

However, he's on the East Coast himself right now.

but was able to join.

So I think I'll just go ahead and get started, and I'm sure John will have some insight on this as well.

But as Steve mentioned, All Spring Global Investments has, we have a proprietary ESG framework, if you will, called ESG IQ.

And what's not on this page, and I'll just say it quickly, is we are also signatories of the United Nations Socially Responsible Investment premise, which is pretty much signed on by almost all major investment managers with a commitment to

You know, continually pursue the highest standards in socially responsible investing, which includes ESG, of course.

So anyhow, we have this proprietary process where we assign, where we're trying to identify and mitigate any kind of investment risks that are inherent in any sort of ESG related issues that might occur.

And ESG, of course, has different components to environmental, social and governance.

and we have this very, very large team of proprietary analysts who analyze all of our securities that may be considered for investment in a portfolio.

And on top of that, they also apply some ESG methodology.

How we do this is we take a look at the world.

There are many purveyors out there, many large purveyors out there of ESG sort of ratings, metrics, so on and so forth, you know, S&P, MSCI, others.

There's no real kind of standard in the marketplace yet.

So there's a wide range of different kind of ratings and scales and opinions.

We take every single bit of that and we assimilate that into one side, sort of a quantitative approach that everybody else is saying.

Our research analysts then, through all of their hard work and due diligence, do a qualitative assessment.

We have proprietary algorithms that are actually patent pending that bring all of that together and combine into an ESG IQ score.

The ESGIQ score ranges from 1 to 5, 5 being the best, and then within each one of those rating categories, there's either a plus, a stable, or a minus that shows direction, if you will, on which way that rating is gravitating based on our assessment.

We take this very, very seriously.

We believe this is a critically important investment tool.

We have seen significant ESG risks impact the price of bonds, even over the last few years, let's say, with Volkswagen with their diesel sort of scandal, Pacific Gas and Electric with some of the wildfires out west.

I'm sure Jonathan's much more apprised of that as I am.

But we want to mitigate those risks on behalf of our clients.

And that's very, very important to us.

And as you probably are aware, ESG investing is gaining prominence everywhere in the world.

This is one of the few times when the United States is probably lagging in terms of leadership in an investment thesis, but we indeed are fully on board.

We have a proprietary system, and we certainly are delighted to embed that into the investment portfolio for VPRA.

And John, I don't know if you have anything to add to that, and I'm going to stop talking for a second.

Yeah, thanks for that, Frank.

Hopefully you guys can hear me.

Yeah, so once again, Jonathan Buenaventura.

I've been with Allspring for about, since its inception.

I'm not sure if you guys know the full story, but we were spun out of Wells Fargo Asset Management and before that we were Wells Capital.

So we do have not just, we're talking ESG here, but we definitely have history and experience basically in doing investment management type business for

companies such as Virginia Passenger Rail.

I'm a manager as well as on other similar type portfolios and similar type mandates.

But just to go back to what Frank was saying, ESG by the nature of our company.

I mean the name Allspring was sort of created to sort of look at that this was going to be a big part of our identity and a big part of how we like to talk about investing differently, investing thoughtfully.

and like Frank said, it isn't just...

You know, we're not just there for the label of it, just to sort of go with what's popular.

We honestly believe that these metrics of ESG, of environmental, of social, of governance, also have a material impact on how investment decisions should and should not be made.

So, very much on board with making that part of how I would invest for the portfolio, as well as being in concert with the Finance Committee and those we work with at Virginia

passenger rail as well as anyone else who has any sort of questions.

So Frank or Jonathan, would one of y'all just touch on, those are the last two bullets there, just a little bit of

Okay.

Yeah, Steve, sure.

First of all, just to make it clear, what we're talking about is the U.S. fixed income markets, first of all, right?

And so our analysts look at

the issuers of bonds in the United States.

That's a subset of the entire investment universe, if you will.

Thousands and thousands and thousands of companies have issued stock.

However, a very relatively small percentage of those actually issue debt.

We're only really looking at the universe of those who issue bonds in the public and institutionally private markets, and we're going to analyze those.

Right out of the gate, there's almost this self-selection, if you will.

You know, our team is not going to analyze every single company out there because that would be sort of a waste of time on their behalf.

We're only going to look at the issuers of, you know, large issuers of public and private debt that would be considered for our portfolios.

And so with that being said, then if you look at the world of fixed income, you know, you tend to note that, first of all, you know, a lot of it is dominated by government entities, right, either at the federal level or at the municipal and local level.

So you have that factor involved.

And then after that, a significant amount of debt is issued in the, I'll call it the financial markets, if you will.

You know, large banks, brokerages, those kind of companies right there.

And then a much smaller subset of the fixed income market are issuers of what we call industrials, which is kind of a silly name because they're really just everything non-financial, let's say, on the corporate side.

And so because of that, the distribution, if you will,

of our ESG IQ scores is reflective of that market, where the majority of them are going to be in the 3, 4, and 5 rating categories just because of the nature of the business of most of the fixed income market issuers out there, as well as all of the government entities, which, as you might expect, tend to have a relatively high ESG IQ score.

So that's the way, you know, we're going to look at the market based on what's practical and what's actually being issued out there.

And so that's kind of how things fall out.

So I'm John, I don't know if you want to add anything to that, but those are, you know, thanks for the overall, um, basically what Frank said is right.

You know, a lot of what we're looking at.

you know because of the range of it a lot of them will be rated a certain way because that's sort of what would be eligible for investment for the policy or for the portfolio and but just kind of

you know with a high level in terms of how this ESGI key score like Frank said there's a lot that kind of goes into it but you know we look at every we look at each sector you know a lot of the sectors that Frank had mentioned but even within the sectors each particular company particular issuer is given its own score based on what happens in that sector so and and particularly when you get into things like social or governance how that particular company is structured how their board is structured a lot of those things are what get

put into the algorithm that comes out with the single ESG IQ score.

So it's not even just on a sector basis, but within the sector, how is this particular issue we're doing?

So I just want to follow up.

So you're basically saying that, and maybe the two questions, you actually do score companies that just issue common stock.

Your ESG scoring would also apply in that arena, correct?

Not for us, but generically at Allspring.

Well, in the case of IBM, they are a decent debt insurer as well, so they should potentially have a score as well.

Actually, I'll be honest, I think, like Frank said, this is primarily on fixed income, but

In general, I would say most of the common stock that you would think of, any of sort of the S&P 500, they were probably scored, but I think it's more of a factor that our sort of this analysis is based, it started from our fixed income analysis and their ability to look at companies and balance sheets and all that as well.

But I think

on an equity basis, they can benefit as well because a lot of that does kind of come out as well.

I would have to look at the entire universe, but I feel like most of them should be covered, Frank.

No, yeah, certainly that, you know, what we were discussing this whole time is fixed income investing because that's what we do and that's what we're talking about when we have a VPRA.

But, yeah, we do certainly have ESG framework and analysis for issuers of common stock.

and effectively they would have the same rating as a fixed income.

If you're a company that does business a certain way, it doesn't matter if you're issuing stock or issuing bonds, you are behaving or in a certain business or doing things in a certain way.

So, yes, it would carry an ESG rating that would apply to both the common stock as well as the bonds.

We're only looking on our side at how ESG is applied to the fixed income markets, since that's what we do here on this behalf.

So everything I mentioned in terms of the distribution of ratings and all of that really only applies to the bond market, which is, as I mentioned, is relatively self-selecting because only a minority of entities out there actually issue debt that we would be interested in buying.

And that's what impacts the distribution of ratings on the ESG scale that we're talking about.

And that's going to be even more deeply relevant based on the overall investment policy constraints that we're discussing here, whether it's double A and above corporate bonds or even single A and above corporate bonds.

You then have now narrowed the universe even further in terms of the kind of issuers that we would be just seeing in the market, just playing out what's available to buy.

And I know, of course, John's far more qualified to discuss that than I am, but so again,

You answered my second question.

I just wanted to make sure that everyone understood there was a lot bigger universe of ESG scores, but we're only going to be playing in a smaller field there because of one,

investment policy seeks to keep principal first, liquidity second, and then return.

So by our nature of what we're allowed to invest in, that field is limited.

And I don't know, I want to read the fourth bullet, just so everyone knows, they score from one to five, five being that you're very good on the ESG scale, one being that you score not so well.

and then there is no 1.1 or 1.5, it's 1, 2, 3, 4, or 5.

That's correct.

It's let's say 3, there's a 3, there's also a 3 minus and a 3 plus, almost like bonds are rated.

Like you can buy a bond that's double A and it may have a double A plus or a double A minus.

And that's the plus or the minus is directional, right?

Whereas the score itself is sort of where it is today, right?

So I kind of monopolized a little bit of the time.

Can we go, though, Steve, to the next slide?

Because I think the next slide really shows what we are absolutely going to allow and what we absolutely want to allow.

So this was, as I was saying, the detail that I really want the Finance Committee, Shannon, myself, working with y'all as we start working with all spring back, but actually

This is how we, the detail of how we're going to implement this ESG principle with Allspring.

So the way we look at it is we would, and I'll start maybe at the bottom right, we look at it, we will not invest in any corporate bonds, no commercial paper that have a rating of one or two.

So if there's an ESG score of one or two related to

Those three types of investments we will steer clear.

And then of the remaining populations of 3, 4s and 5s with the all spring scoring, we would maintain an average of 3.5 or higher.

Now that average, obviously we don't get an investment portfolio all in one moment.

So we look at the average over a quarter,

to allow time, one, to get invested to begin with.

And then if for some reason we're at a 3.3, then we would report we're at a 3.3 at the end of a quarter, and then we'd be working to get back to that 3.5 or higher.

So that's, I think that's a pretty straightforward way to use their methodology.

And then once again, as I said, we started this, we're kind of, from our research, we're kind of out

leading edge of incorporating these principles into our investment policy.

With that, I really want to open the floor because we're moving on to our second item after this, so I really want to open the floor for discussion.

This one's for you, Steve.

So when we did the procurement for our banking services, we included investment management services in there in that same procurement.

And then what's happened is, as Jonathan referenced, there was a divestiture of all spring.

And then we've been working through that really probably since December.

Working through the language of them being divested and then working through the contract that we originally signed with Wells Fargo.

Yeah, I'll toss in, Wells Fargo Asset Management existed for 40 or 50 years.

And we've been doing this kind of investing for three or four decades on behalf of institutional clients.

Yeah, when we started this whole thing, and I actually participated in the RFP process, the procurement process, when we were still all Wells Fargo and fortunate enough to come through that, effectively winning the banking contract.

Then subsequent to that, Wells Fargo made a strategic decision to divest the entirety of the asset management business into an independent company, keeping in mind, though, that they still own almost 10 percent of Allspring.

There's clearly a financial incentive for Wells Fargo to continue to provide us with resources as well as

and we have preferential or exclusive treatment around some of our investment products for their clients.

And yeah, that transaction was officially consummated on November 1st, 2021.

We, you know, became Allspring Global Investments.

But you know, that's a new company, but not a new company, if you know what I mean.

It's like a startup that has been in business 40 years, right?

So we have this, you know, we have the luxury of all the people came over.

We have not had any sort of issues with losing portfolio managers or research analysts or anything.

I mean, we're all on board.

I don't know if you remember, it's been a while, we've done so much here, but we took quite a while doing this procurement because we work through the Department of Treasury because also this investment piece was included and we wanted to make sure

Not being my background, wanted to make sure we stayed within bounds.

So it actually probably, my recollection, I think it took us almost three months to just get the scope of work together and put this out.

And then we ended up, we actually ended up with two, two institutions putting in bids.

Hey Steve, can you hear me?

Yeah, hey, this is Jay Bissette.

I'm just sorry I wasn't at the beginning.

Who is actually on this call?

Jay, it's a little quiet on your line.

I don't know.

I'm down in North Carolina at a family member's home, so it would be that the

Internet connection is not great, but I can see everybody.

I'm hearing everything, so that's good.

I don't have him on there.

I'm not sure.

We have Chair Jen DeRuel, and then we also have DJ, myself,

Oh, you know, I think there are a bunch of us that are here in Richmond in the conference room and so we don't show up separately.

Yeah, there is a conference room name, but that's right.

OK, got it.

That helps.

OK, cool.

Yeah, I really appreciate the

the work that's gone into this and the effort, learning about ESG.

To reiterate what my original interest was is all around the background of climate change and fossil fuel companies.

I think the conversation evolved into ESG, which is very interesting to me and perfectly legitimate area of

Pursuit, my specific interest in passenger rail is moving toward electrification and helping this country and the world move beyond the threat posed by fossil fuels and greenhouse gases.

That is the backdrop of my question and questions.

Back to the specific issue of fossil fuel companies.

Your proprietary system and algorithm is really at the heart of this and your own rating system so that we would be above average on each investment and on the whole portfolio.

Sorry, my mic was off.

Yeah, well, as we mentioned earlier, we're looking at a number of different factors.

But importantly, we're looking within each sector on a relative basis of how companies are managed, how they perform, where they're making their investments, where their future investments are being made, so on and so forth.

So I can't tell you that just because a company is drilling for oil that they're automatically going to be a one or two.

That's just the nature of how this thing is scored.

Some of the integrated oils, if you will, actually score quite high because of the projection of where they are going in the future versus where they are today.

However, we've talked about this with staff is that we also have investors out there who want specific prohibitions around certain kinds of sectors in the marketplace.

We're delighted to entertain those concepts as well for this portfolio, and I know John can discuss this in greater detail.

about how that would or wouldn't really impact the investment performance of the portfolio if you did that.

Yeah, yeah.

Excellent.

And actually, Jay, so in honesty, the way that sort of ESG environmental concerns actually first started getting adopted for myself and for the firm as well with portfolios was we would put

and so on.

The industry as well as ESG and the approach is gone is sort of what Frank went into is that that was seen as a little too broad and that within each sector, you know, you could have certain ones that, yes, they are in any producer now, but they have demonstrated

you know, that they are transitioning, that they're looking, okay, you know, we are cognizant of where things are going here, and their trend line is going in a much more sort of positive or supportive way, and that in a way, if we were sort of quote-unquote not supporting them,

It would be sort of hindering their effects to kind of go forward, but once again we can have that discussion.

We can still do sort of energy or fossil fuel or however fine-tuned we want to do restrictions to be, but you know the short answer is

Like Frank said, it's not like an energy producer, a particular one will be a one or two because they are an energy producer.

They might be a little higher, but because they're looking to do quote unquote better, or their trend line is much better on those factors, they might actually score a little on the higher side.

But I'm sorry that was a long answer.

The answer is we can be even more restrictive or the framework itself could actually be

My understanding is that right now there are close to $40 trillion of investment money that are kept out of the fossil fuel industry by anywhere up to 1,500 different institutions, increasingly universities and cities and faith-based organizations and all.

It's a growing trend.

Obviously, when I was a kid, it was apartheid, and that had a pretty significant effect on that reality in South Africa.

I guess I'm interested in and appreciative of fossil fuel companies that are truly making the transition because in many ways, they are best positioned to help or very well positioned to help

I expect that they actually create different kinds of companies and investment opportunities within their larger umbrella to allow some of that investment to occur.

It is not just Exxon or it is not just Chevron that you can be a little more discerning

in targeting investments and not write them off completely, but support their positive actions.

In the scheme of things, this is more symbolic than it is anything else because we are not one of these huge retirement plans or huge investors, but we do have a public sector

and we're mission-driven.

I see VPRA as a mission-driven organization, and therefore, its investment policy should, to the degree possible, reflect on that mission.

I'll ask it in a somewhat different way.

When I read the slides and I saw the language and I appreciate at some level the general nature of it, at another level, I am more comfortable with an additional phrase or clause that clause out the fossil fuel or the worst of the fossil fuel investment options.

and you've just said that that's possible, that you do that for others.

Well, Jay, first of all, you did an excellent job of summing up the way we sort of see the world in terms of ESG, including the whole climate energy fossil fuel issue, meaning

There are companies, enlargements out there, that are making a legitimate effort to transition their business away from the traditional integrated oils to different kinds of energy that will be supportive of all the climate measures that exist out there.

You don't want to just kind of break them off.

You don't want to just cut investment off from those guys because they will not be able to transition into this

for a more favorable business proposition, if you will, that is supportive of all the climate change issues.

And so it's possible to say, hey, we'll just write some more language in the investment policy that will definitely take out the ne'er-do-wells, the ones we really don't want.

But actually, the ESG score that we have really kind of already does that, right?

I mean, because the only way a company that's an energy company can have

A relatively high ESG score on our behalf is because they are moving in that direction.

That's already embedded in the ESG score.

Now, like we said, we can entertain language, additional language that will be either as practical as possible or even if it's symbolic, but those issues are already embedded into our ESG score.

I just want to make that clear because we're seeing the world very similar to the way you

In fact, I was going to ask you, maybe you could have my job someday, because you're out there telling the exact same story that we're trying to tell, and it was very well done.

But again, I just want to reiterate something that if we exclude certain whatever they are, sectors, subsectors of the marketplace, given the other investment policy considerations we're discussing, meaning whether it's single-aid above or double-aid above,

The predominance, and John can discuss this in greater detail than I can, of issuers in those higher credit rating spaces tend to be dominated by companies that already have a very high ESG score that aren't anywhere near the energy sector.

Your portfolio is going to be populated by a lot of financial names, obviously a lot of government names, even some taxable municipal issuer, so on and so forth.

and they're completely away from the energy world.

Your portfolio, even if we had no ESG scoring whatsoever, would be dominated by those issuers.

Dominated, right?

And so we're kind of almost bumping ourselves into a high ESG score that will exclude those issuers anyhow.

But I just wanted you to be aware of that from a practical investment standpoint.

We're already moving in that direction just based on the investment policy itself.

If you told us that we were allowed to invest in like triple B rate securities or something like that, that'd be a different discussion because that's where all the sort of non-financial names issue debt.

And that's where you're going to start to run into companies that have either a questionable or a sketchy outlook on the energy, ESG, fossil fuel, et cetera, et cetera, et cetera.

So I just wanted to make those comments to you so you understood there's a universe of issuers out there that

Yeah, and just to add what Frank said, our industry or where we're going to be able to invest because of the credit ratings and stuff will actually put us in sort of a more favorable situation.

But I'm also sympathetic that, Jay, that you wanted to say you want this policy to reflect

that's where what VPRA's kind of stance is and I'll say that I haven't quite seen that particular language but I would just kind of top of my head something along the lines of you know we understand that you know something about a climate change future about being more environmentally responsible on those sides of it and that this framework has that kind of in mind.

It just gets tricky where you know I'll be honest like historically it would say something like

you know, fossil fuel companies.

We've even had ones where it specifically identified this company, you know, we do not want to invest.

And I have seen that.

That's not necessarily a recommendation.

I don't think that's even kind of what it seems like you want to get into as well.

But, you know, it might be at the table for another time.

I'm not quite as poetic about or quite have the language ability to frame that.

But I am

I think what you're trying to get is you want VPRA and you want this policy to stand as this is what we are supportive of and this is what we want our portfolio to be reflective of.

Well, it is an option.

I appreciate the discussion about the proposal being put forward will, by definition, exclude most of the potential investments that I would be most concerned about investing in anyway.

I appreciate that, and that is probably a very important point to make.

As we go forward, maybe after the meeting, it would be worth

Steve helping me with you to facilitate whether or not there is some additional language that could be proposed, could be considered by the board.

I don't know if there would be majority support for it or not, but I would continue to explore trying to create language that might pass muster with the majority of the board that would a little bit strengthen

this proposal.

Another way to strengthen it, obviously, is to change from 3.5 to 4.

Say we are only going to invest in not the average or just above average, but a little higher up the scale.

Once again, we talked about how the ESG scores are based on the sector.

I am thinking

Just increasing the average score wouldn't necessarily take out maybe all those names as well.

I think that's why it's that sort of side discussion about how can we kind of make that language reflect that.

think just changing the average score will affect that.

And we actually, then you might start hampering us with, you know, then we might attack, because remember the ISG score isn't just the environmental, so we might end up, you know, there might be some financial companies that now would kind of get put out, but

So what I'm trying to say is just changing it, I don't think would achieve the same aims that you're going for.

Fair enough.

That's fair enough.

I'll end with just commenting that in my view, and it may not be five years down the road, it may be a little further, some of these companies that I'm referring to that currently are valued in the market,

Many of their assets are going to be stranded.

Otherwise, the worst of climate change will have occurred.

Their stranded assets can't use them, and if they do, we're all in really bad shape.

Oh, and absolutely.

I agree with you and I'll even tell you, I think you're saying that it'll be more forceful is absolutely true.

And I want to tell you when I'm on calls with these companies and I'm actually on sort of ESG calls with the chevrons and the shells and the other analysts are all very, very vocal.

And these companies also understand that if they are not changing, the market is already looking at, if you aren't changing, and these assets are stranded,

you're going to be in trouble.

And that is getting reflected not even just on an ESG basis, but their flat out kind of credit ratings and scores and evaluation as well.

If your business is primarily being driven by this type that's not very quote unquote environmentally thoughtful,

you're going to be in trouble.

If you're not making these transitions, you will be in trouble.

Thank you.

I've talked too much, so I'll pass on to somebody else.

So, I just wanted to, you know, we cut out for a few

for maybe a minute when y'all first started talking.

And so a couple of things.

First, I don't know if y'all talked about scores of oil and gas companies.

If you mentioned a one or a two company and a four or five company, I don't know if y'all got into that.

I know in some of our discussions you had mentioned there's oil and gas companies that are scores of ones and there's others that are four or five and you had

it indicated it's because they're taking the steps to try to move away.

Steve, you just completely summed it up.

That's exactly what we were talking about.

Okay.

So I just wanted to say that.

And then the second thing I wanted to say was, you know, Mr. Prasett, you know, Gaye, I heard you.

And so

I heard what you said the last committee meeting, and I think as we put this together, the thought, at least from my direction, to bring to y'all was to leave it more of a broad-based policy versus making individual social or environmental or governance type issues and embedding them in the policies.

but to me I view it as certainly the board has that prerogative and I think that's what can be brought up and discussed at the board meeting.

I do worry, you know, I worry a little bit that we could get, because I agree with your issue here on oil companies personally, but I do worry could we get to the board meeting and next thing you know we're talking about

gun makers and anybody related to that industry or we move to some other governance or social issue.

So that does concern me.

Steve, I appreciate that.

And I absolutely understand what you're saying and appreciate it.

And we'll think about that and we'll probably

initiated an offline conversation with you and DJ to see whether or not an alternative phrasing is put forward.

How's that?

It's DJ.

That works for me.

Steve, I have a question before I move on from this.

I mean, it's important to understand what our investment policy focuses on, but operationally, are we moving to

another way of propulsion for the trains?

Are we sticking with diesel fuel?

Are we thinking we'd go electric?

And if we did go electric, what would power that, right?

So I think we're going, and Mike or DJ can jump in, but I think we're going to like a hybrid type of locomotive.

But within Virginia, I don't want to say it will never be electrified service.

because that's an absolute, but I think we're a long way off from that and a lot of funding off from that.

So let me start and then Mike can correct me.

We are going to be receiving, Amtrak is procuring on our behalf, two train sets that are dual-mode locomotives.

So they will have one locomotive that provides electric service north of Washington and then diesel service south of Washington.

The current method for providing electrification for trains is overhead catenary.

And when we did Transforming Rail in Virginia, the deal with CSS, they said, we absolutely positively have no deal if you put the catenary up there, because even though we will have passenger only dedicated right of way, they want, and I agree with them actually, they want the tracks to be interoperable.

So in case of something that happens on their track, they can run freight on the passenger track.

We want the same thing.

If there's a problem on the passenger track, we want to be able to use their freight track to run around again only in emergencies.

The challenge is that the current method again of electrification is the overhead catenary and CSX with the precision railroading, they want to be able to run double stacks and the catenary at the current levels doesn't provide for that.

That being said, the new locomotives, even in diesel mode, are much more efficient than the current diesel locomotives and the GHG, the greenhouse gas emissions, are much lower.

So it continues to head in the right direction.

The industry as a whole and the Association of American Railroads and the FRA, the TTCI, the transportation technology folks, they continue to look for alternate forms of fuel, whether it's biodiesel, whether it's battery,

Batteries are used throughout the world, shorter distances, lower speeds, but it continues to evolve.

Our goal as an industry, and that's a big goal, is to reduce the emissions as much as we can.

to find alternate proposal.

But if you look at the next decade, I don't see a significant change in the next decade.

I think we talked about it at one of the previous board meetings.

They have tests overseas where they have battery chargers in the right of way so the batteries continue to charge themselves.

The battery technology will continue to evolve.

That being said, battery disposal issues are another concern for the environment.

So that's a long-winded and not very concise way of saying

We all want emissions to go down.

Well, I just wanted to add to that that this report of the last board meeting, we might have forgotten the stat, but the new fleet will have 95% fewer emissions than the current fleet.

So it is going to be much, much like a newer generation car is much more better for the environment than car 20 years ago, where you could see the Belgian smoke and how you can't

It's a clean diesel.

Definitely, very much so.

Okay, other questions.

Yeah, round numbers.

And Amtrak is, Amtrak is re-fleeting.

In addition to the difficulty of the interoperability with the canary system, we have a very narrow 100 foot wide corridor from Washington DC to Richmond in which to build our four track.

If you're adding the canary system, you're going to be expanding that.

We're already facing some difficulties.

It's going to be tight getting tracks in without the canary system.

So there would be a lot more, property taking is probably up and down the line if we had to move to a catenary system.

And speed, you're not going to get much speed, you're not going to get hardly any speed benefits from, because of the curves, and also the cost added is going to be hugely significant when you add a catenary system, in addition to laying a third and fourth track, adding a catenary system, putting aside the right of way cost,

And just closing this out, the other thing that we can't forget is that our supportive passenger rail is designed to get folks off of the highway into the trains.

And 100 people on a train have, and I can't put the numbers, but it has significantly less emissions than 100 people in 50 cars, whatever the number is, that was 100 folks.

So getting folks off the highways, putting them on trains reduces emissions just on its own.

Well, not exactly.

The State of Amtrak Intercity Passenger Rail Committee is a committee that includes all of the different states that contract with Amtrak for operations.

And when Amtrak said they want to go out and procure more fleet, they took that committee and together they worked on, hey, what's important to you in Maine?

What's important to your kids?

And look, you're not going to make everybody happy.

but it was a very good collaboration of the states to determine the product that Amtrak went out and procured and in turn Siemens and a number of companies bid on and Siemens won.

So yes, Amtrak's procuring it.

Okay, I'm trying to remember Jeremy's power point on this.

of the last meeting.

But it's an electric overhead catenary between DC, Union Station, and Boston?

That's correct.

I should note that you may have

We in North Carolina received a $15 million grant from the FRA for Richmond and Raleigh.

The one segment in Virginia that could be possible to electrify, I'm not saying we will because, again, some of the factors we talked about could weigh in, is the corridor that we will be creating from Ridgeway, North Carolina, about eight or nine miles into North Carolina, up to the Petersburg area.

So we'll take a look at that during development of the 30% design.

I say we, North Carolina, Amtrak, Virginia.

So where there are possibilities in Virginia, we'll take a look at that.

I don't want people to come away thinking that we don't want to electrify.

That's another reason these dual-motor locomotives are going to be so good, because if we do go down that path, when the locomotive gets there, the engineer hits buttons.

and the diesel shuts down and the category the pantograph which is called which brings you from the wire to the engine goes up seamless on the current fleet we wouldn't have that same in the current fleet

You've got to have an engine change coming south.

When you get to DC, they take your electric engine off.

All the power goes off.

The restrooms are locked.

You can't buy any food.

And you're there for probably 45, 50 minutes as they put the diesel engine on.

So if there's no more discussion on that ESG portion of the amendment,

I think Jay, you said you'd get back to DJ.

At the end of this, I'd like to get at least the members of the Finance Committee, I think we need a formal vote, but at least I'd like to have some idea if y'all are in support of what we're proposing today.

But that being said, moving on, I'm gonna let Shannon take you through the other two amendments.

So as Steve already mentioned in the beginning, the next few amendments we're going to suggest are in compliance with the Investment of Public Funds Act.

In addition to being compliant with the Code of Virginia, we also did some benchmarking amongst peers looking at other authorities, commissions, a couple of counties, as well as the local government pool extended maturity to determine if these changes kind of align with our peer group.

Are we kind of stepping outside the norm?

Are we kind of just going along with the same

and the same stream as others.

So the first one that we would like to bring into the policy is US-denominated supranational agency bonds.

I had never heard of these before either.

They are four specific investments, and I'll go ahead and read them off real quick.

So it's the investment in International Bank for Reconstruction and Development, Asian Development Bank, African Development Bank, and then Export Development Canada Bonds.

all of these requiring two AAA ratings between S&P, Moody's, or Fitch.

So essentially what the banks are doing is they're going to loan money to international companies that meet a specific requirement.

And then those loans are patched up and then sold off as bonds.

So four out of our six peer groups also do investments in these types of supernationals.

We reached out to Treasury just to confirm because it is kind of a not a very known investment that at least we were aware of as far as fixed income.

and we are marrying exactly what they have in LGBEM.

So we're really consistent with what everyone else is doing.

It is in the code, has a really strong effective yield and will really help with our investment portfolio diversification here.

I have a couple, probably because again, this is foreign to me.

On its face, this Export Development Canada Bond,

Doesn't look like a supranational bond.

It looks like one country's bond.

Right.

So I'm not clear on that.

And then secondly, there's all sorts of other development banks.

Why are none of the other ones on there?

European or World Bank, IMF, things like that.

And why is one not a supranational?

I might defer partially to Frank and Jonathan for this.

I will note that these are the ones, per the code, how the code is interpreted by Treasury, what they determine that's allowed.

So that's how we landed with these four specific ones, by reaching out to Treasury, and they were the ones that pointed us to these.

Okay, yeah, so just, you know, really quickly, and that's an excellent question as well.

At its heart, you know, part of why Expert Development Canada shows up, and it's primarily Canadian, is that, you know, typically the whole sort of sector is known as Sovereign Supernational Agency, SSAs, and that, you know, in this case, it's these particular names,

And it's these particular names because from what Shannon and what all of them have been doing in terms of the research and looking at what the different peer groups are doing, these are the particular names that these peer groups have sort of approved for their policies as well.

And that's sort of the short answer as to why those names got there.

Would we recommend, you know, with the World Banks and the others as well?

I mean, in general, my other policies we do.

You know, we do look at those as well.

We look at it as that sort of sovereign supranational agency type sector.

So it could work as well.

With that being said, you know, these particular names, you know, they're pretty frequent issuers in the market and we can get involved in them as well.

And the other thing to look at about supranationals is,

The reason it does that, in general, it isn't even just because their reach is international, it's because their contributors are international.

It's a lot of the US, a lot of European nations, Asian nations as well.

And when you can dial into particular agencies, we can even see what is the makeup, how much is the US sort of contributing to World Bank or IBRD or any of these as well.

The other interesting thing about the sector is that in many ways they were kind of the first sort of green or ESG type bonds because a lot of the lending and stuff that they're doing, you know, particularly Asia Development Bank, African Development Bank are these sort of big projects, infrastructure projects in developing countries and that's sort of what was kind of the synthesis for a lot of these agencies as well.

But yeah, so the short answer is

We're at these names because that's just sort of where the peers are and there's a sort of a desire to not, especially since this is relatively new, to not push it too hard as well.

But there definitely, if there's an interest, we can look into looking at the other agencies as well or even potentially making this sort of a more general amendment.

No, that's, you know, importantly, I think, as Jonathan mentioned, this

This sector is generally looked at more broadly to include sovereigns, supernationals, and agencies.

And I think that's how the Export Development Canada Bond.

And just to give you an example of what got into this here, and just to give you an example of that, most policies that we see that allow a broad brush of sovereigns, supernationals, and agencies with a minimum credit rating

would also include other sovereign issuers, like literally the government of Germany or Sweden or France.

They're all very highly rated.

They issue in the US because they want access to the US markets.

And they are definitely relevant investments.

And I want to note, as Shannon mentioned on the slide and said out loud, is it increases portfolio diversification.

Very important.

I mean, diversification we take exceedingly serious because it meets your primary objectives of capital preservation and liquidity.

and while all of the fixed income markets in the U.S. are positively correlated, they're not 100% correlated, right?

So it provides an extra level of diversification to include some level of this sector.

Getting started here, we think it's a great first step.

As everybody becomes, I don't know, more experienced and comfortable with this type of investment, perhaps somewhere down the road, we could talk about expanding it.

But for right now, this will be just a good first step to get into the sector to provide that very highly rated

And I'm just going to add to this that really I'm just reiterating what Shannon said, and I said it earlier when we were talking about the RFP and when we went out to get investment management banking services, we spent a lot of time working with the Department of Treasury to make sure we were in compliance with the State's Investment Act.

From my reading, I think Shannon's reading,

and from talking with the Department of Treasury, these are the four types of bonds that we're allowed to invest in.

The reason we did not have the original policy is when we start talking about SSAs.

I think my recollection is Shannon, E.J., myself, we all three were a little bit unknowing of what they were.

And we took the very conservative route to say, let's leave that out.

And now we've had

A few more months, eight months, nine months of working with Allspring, working with the Department of Treasury.

Well, I see the first three in the code.

I didn't see Export Development Canada bought into there.

Maybe it's

sovereign governments and companies fully guaranteed by such sovereign governments?

Is that how it came to because it's not listed in the code like the other three are?

Yeah, just Canada somehow.

That's the only sovereign bond recognized by the Treasury of Virginia?

So when we reached out, when we were talking, so you're talking about 4512, I take it.

So that's the one that they had pointed to, specifically the Canada bonds.

And that's how they were applying it in their EM portfolio.

One in the world.

One day.

Well, it sounds like we can reach back out.

Yeah.

I mean, once again, I think it's probably best to say, because I mean, when I said Shannon and DJ and I were talking about this before I was, I was a little bit more, whatever it was, eight, nine months ago, I was like, yeah, let's do this.

And I think we need to

Get back to our principles of, you know, maintaining principle as number one option and then liquidity and then return.

And so it's an option that four of our peers utilize.

I think almost, I really believe it's five, but it wasn't in their policy, but I think they actually are like Port Authority, NVTA.

So our peers are doing this.

I think it gives us another tool

Well, might we look and see, what I took from discussion we just had is that there's other AAA rated US denominated sovereign supranational agency bonds in the world that may be beneficial, right?

I guess my question seems almost random, these four.

We can continue to work with Treasury, too, because it could be that something falls in that last category down the road.

So we'll continue.

And I think, Shannon, you're kind of making something from reading the Investment Act carefully, and the same sort of question I think, Patty, you're getting at.

We had the same sort of question that it's almost like the code has these very specific items, but it was probably, and I'm

I don't know, but it was very well written 10 years ago.

And no one has gone back to the General Assembly to say, hey, look, we need to broaden our horizon here and maybe rely more on those AAA ratings.

Yeah.

I was the expert back in Canada.

All right, so the next change we want to bring to the Finance Committee relates to corporate notes.

So again, in compliance with the code, we would like to change our bond rating from AA to A.

In the code, there is a specific provision that allows you to do this if you have an investment manager.

So because we obviously have offspring coming aboard, this is what we would like to do.

If it's just going to be Steve and I making investments, they're going to hold you to AA.

So because we have an investment manager, we'd like to do this.

As you can see, it's going to expand the number of companies we can invest in.

It's going to add 766 possible companies to buy corporate notes and also increasing our effective yield.

With that, there is going to be some additional default risk that comes with a lower rating.

Yeah, Shannon, thanks.

I'll kind of hop in here at the beginning and just to kind of preface this a little bit is that I've been in this business, sadly, for really a whole lot longer than I'd like to admit.

With that being said, when I first started in the business many, many moons ago, if you looked at that pie chart there, it would be dominated by AA and AAA rated entities because companies at that time thought, well, they really wanted to have a super high credit rating.

They had cheap cost of capital.

And this is when interest rates were much higher, even than they are now.

But the market has gravitated over that time period to kind of what you see.

We have been in

on a relative basis, a persistently low interest rate environment.

Companies found that they had far more financial flexibility to do, you know, mergers and acquisitions and other sort of corporate finance deals and still get relatively inexpensive funding by gravitating down into lower credit ratings, still investment grade.

So we're not talking about junk debt or anything, just gravitating down to the lower investments.

And that pie chart continually changes over time, you know, where you see that almost half of the

Half of the investment grade issuers out there in this space are triple B rated.

With that kind of backdrop, looking then at where we are in this universe is, obviously, being able to invest in single A rated companies provides a much, much greater universe of entities, far more ability to diversify the portfolio.

As Shannon mentioned, does that come with some additional risk?

Yes, but keep in mind that even a single A rated bond has to

be downgraded all the way through the triple B categories to get to that sort of junk debt level, which is where the real price issues happen in a security.

Now, as I mentioned earlier when we were talking about ESG, we have an enormous team of proprietary credit research analysts here at Allspring who do nothing but all day analyze all the securities that are either in our client portfolios or be considered for our client portfolios.

And I know Jonathan can speak to this, but these people provide us with a tremendous amount of safety and security and input for everything that we do.

And because of that, historically, we have sidestepped pretty much every major event that's happened in the marketplace relative to downgrades of bonds.

It's hard to even express how much of a good night's sleep that whole team gives everybody, right?

And so we have a tremendous amount of resources dedicated to this effort.

We have hundreds and hundreds of billions of dollars of portfolios that we manage where capital preservation and liquidity are the first two objectives.

And we take that very, very seriously on our client's behalf.

So again, this is a change that still keeps you in a very, very high grade.

It increases your diversification.

It provides you with a

opportunity to, after meeting your primary objectives of capital preservation and liquidity, to provide some enhanced return potential to the portfolio.

And so, this is something that we indeed would strongly recommend on your behalf.

And I know, John, I love to talk, but I need to shut up.

Yeah, we might have a problem because we both like to talk a lot, but Frank did a great job there and I think this is a great chart here that most people first go to, okay, we go a little bit to single A or a little lower in credit rating.

Yeah, you do get the enhanced yield, but the one thing that Frank and Shannon mentioned that I think is most important is

You're increasing your diversification, that it's almost kind of counterintuitive, but on an expected risk, expected return basis.

You're enhancing the portfolio's overall quote-unquote safety and diversity by allowing this, and that

You know, I haven't been around as long as Frank, but probably longer also than I would like to admit.

I haven't seen a, knock on wood, I haven't seen a default of any security in my whole life, particularly anything that was at least started A or better.

And a lot of that is, yes, you have that buffer of all the way through Triple B, even arguably through a lot of Double B as well, before a given name is kind of considered default.

Obviously there are these

You know, we could talk about the global financial crisis, we could talk about, I mean, we all went through and are still kind of going through the pandemic and what that did to a lot of credit.

But even then, a lot of times those names kind of, they just came back.

You know, you can obviously have pricing concerns and all of that, but in terms of a full default, I haven't seen one.

Now, you know, and then like Frank said,

We are monitoring our entire portfolios on a real-time basis if there are any sort of credit rating changes.

But on top of that, we have very good fixed income analyst teams that look at each of definitely the different sectors, definitely different industry, but even the particular names that we are invested in.

And we have very frequent discussions with them, just frequent updates on all of the names as well.

so that they're looking at sort of the trend lines.

What is happening in this industry, in this sector, in this particular name?

Is there going to be an impact on it on a credit basis, on a potential return of capital type basis?

And when we start seeing that, we're already potentially getting out of names that could be an issue.

So that's why I say I haven't seen a default because

Hey, John, just for everybody's edification, maybe just, I don't know,

Well, so the big issuers, as we've alluded to, a lot of them are the financial companies.

A lot of what Frank was saying is that the industry has changed because a lot of the companies didn't see a need to maintain a certain credit rating because they were still getting good funding.

But the companies that are trying to maintain it are the ones where their credit rating and their ability to find funding is part of their industry.

And the short answer is that's a lot of financial companies.

So single name names would be sort of the big financial companies you think of, you know, the JP Morgan's, the Morgan Stanley's of the world as well.

Those are kind of the big ones.

And then you do.

Yeah.

So I think that's my short answer there is think kind of like the big financial companies and sort of household names that you're thinking of.

The industrials, you know, they tend to be a little bit on the lower side.

A lot of them are kind of triple B, but you will see a lot of tech companies that are A and much better.

You know, Apple is a double A, almost triple A name, but you know, and Google, Amazon, these are, are kind of high A, double A names.

So that's sort of where the industry falls there.

It's one thing, and I think you got close to saying it, we have to be a qualified public entity to invest a single A and meet that definition, whatever it is.

Correct.

That's for being able to do the A.

We have to have an outside investment manager because you don't want to be making those decisions.

I think some of our peers, just so you know,

Some of our peers also, the LGIP, the Extended Maturity, Port Authority, HR TAC, so this isn't something we're doing in isolation.

No, I was just going to say I appreciate the context of similar organizations to ours doing this and I think it's a great idea, fully supportive.

That rounds out the changes that we're hoping to push through in the amendment update.

We're going to talk quickly about how this is going to take shape as we launch our relationship with all spring and hopefully the coming weeks here.

We have really three different investment vehicles.

We have the LGIP EM, which we've referenced before.

Our investment here is really going to be held at about $30 million due to concentration risk in this portfolio.

So they have about $340 million, and they would like us not to step up above that 10% concentration.

So we're just going to hold steady at $30 million invested here.

Next is going to be our LGIP.

So LGIP is going to turn into our short-term cash needs.

Investment Vehicles.

So the NAV on LJP is one to one.

So it's highly, highly liquid, preserves our principles.

So we're going to do 90 day cash flow projections and that's what's going to be retained in our LGIP.

We're starting out with a 90 day cash flow projection just because obviously we're working in QuickBooks.

There's a lot of unknowns as we get better at doing our cash needs forecast.

We're hoping to ratchet this down and making sure that we're comfortable as we do it, doing look back analysis, making sure we actually can project this kind of spot on as we move forward.

and then last is going to be everything else hopefully is going to be with Allspring, making sure we have a good cadence with them so that we can align our maturity with long term cash needs and having a redemption schedule.

As Steve mentioned, we're going to be sitting on some cash for a while.

So we're going to try and make our money, make some big moves for us for the time being until we really enter construction with a lot of projects when we start drawing down on those funds.

And that kind of leads me into the next slide where we talk about where the portfolio mix is going to sit roughly over the next two years.

So this is just a

Maximum five-year maturity on any single investment, but a portfolio and average maximum of two years.

So, and I think we think to start with, we can be closer to that two years.

And I think as we go forward, we're obviously going to get more adjusted time delivery of our funds.

It's going to round out our discussion on the investment policy.

Just one inquiry.

Looking back at the, and this I should have spotted the first time I saw it, there's like a Wikipedia glossary of terms.

I don't understand why it's there, especially since some of the terms conflict with terms defined earlier, like commercial paper and corporate notes and

Maybe we should review the glossary.

No, I just understand the purpose of it, especially when some terms are defined differently, like commercial papers defined up front and then commercial papers defined like a Wikipedia version like, know your investments in this fact section, right?

And same with like municipal obligation, it's defined precisely how we use it as VPRA up front.

And then these are it is kind of like

broker, a person or firm acting as an agent for buyers and sellers.

Some of these terms, I don't know why they're defined.

And I still don't understand why they're confined in a way that conflicts with how they were precisely defined earlier.

Yeah.

Maybe take out the ones that are precisely defined earlier.

Yeah.

Frank and Jonathan, thank you so much for joining.

Oh, no problem.

It was dumping here in upstate New York, so I wasn't going anywhere anyway.

But definitely, and I'll let Frank follow as well, appreciate the opportunity to come and talk to all of you.

Once again, we are a resource, we are an extension of your team, so any questions and things that come up, don't hesitate.

Yeah.

Hey, John.

Thanks.

And again, to Shannon and Steve, thank you very much for including us.

Everybody else, thank you very much for listening to us babble on and on and on about these investment issues, but we are super excited to get started on this project in a formal way.

Looking forward to working with you guys for a very, very long time.

And again, thank you very much for the endorsement of our investment solutions.

You guys have a great rest of your day.

Thank you.

So hopefully we can breeze through these last couple sections here.

Executive Directors Reporting Discussion.

So we wanted to bring up the April Executive Directors Report and just get Patty and Jim and anyone else just to get some comments, feedback you guys have been receiving for about a year now, any suggestions that you have.

So we'll kind of just go through the slides.

And then at the end of that section, obviously, as we're getting into an actual investment strategy with Allspring, we're going to be changing the reporting for our various investment platforms.

So we're going to kind of pitch to you how that's going to look as we move forward in our Executive Directors Report.

So

Kicking us off here.

So this is going to be the April Executive Director's Report.

So the financial updates really in large part is just a big budget to actual.

So we have our annual, our amended budget and the pro rata budget, actuals for the year, and then the variance throughout and our main categories of our budget operations, capital projects, and then grants.

So this is a summary table we typically look at.

I think where you have a very large variance, there ought to be a footnote explaining capital and operating grants 97%.

Yeah, specifically.

If you're on page 18, see operational report on capital grants for variance explanation.

It's not in this section, so that's actually pushing you guys back up to the operational report.

Some of the grants are discussed.

We're just driving it.

I love how it comes out precisely on the first day of the month.

Can I ask one question on F-14?

I should know the answer.

You've probably told us 10 times.

Federal credits apply to train operation expense.

So we are getting Amtrak, the federal dollars, that essentially what happens is they apply it to the contract and state service that we get, but we don't ever touch the money.

So we're not getting federal dollars.

So they're just going to reduce the amount of money we owe them.

So in essence, it's reducing our train operating expense.

So in order to show the true cost of operating these trains, we've backed it out.

Because we will not get that.

After FY23, we completely run out of it.

So we want to show the true cost of running these trains right now.

The COVID relief fund.

OK. And we're just, the way we get them, we don't actually get the federal dollars.

They just lower the expenses that they're billing to.

Amtrak will get it.

So we're trying to establish some baselines of cost and recovery.

So we're looking at it with the credits and without the credits.

The reality is we're getting the credits.

So this is going to be our operations budget, and this includes all of the routes in total.

So we've aggregated them here in the slide and then

This is something we pushed through with the amendment where we actually are drilling down and showing each of the routes, doing a budget for each of the routes and comparing them here.

Some of the big differences, you'll see the driving factors of the overall operations are discussed on the previous house.

So there is some analysis that we've been starting to implement there.

I'm going to drill down into the admin budget because obviously the $6.6 million is made up a lot of different things.

So we're kind of doing a snapshot of what's going on in that budget, anything that may be of concern.

And then moving on to the capital projects and capital grants.

Patty, to your point, we do point above for any variances here.

It's not discussed in here.

And to Jim's point, perhaps there should be some sort of a connector between the two that we are kind of bringing it together in my view.

Or there's a section where, Michael, that you kind of go through all the projects.

And maybe we need to figure out a way to tie this

And that intro and the curves tie it all together a little better.

I think that's what I'm hearing.

And we're just looking for feedback.

I know this month's report is almost done.

And so it could be a month or so.

I'm impressed that you're tracking all this stuff.

Don't tell us that.

Sorry, they don't have a choice.

So after the projects, we jump into our dedicated revenue source just to make sure that we're bringing in what we're expected to bring in based on revenue estimates.

And we'll continue to do this because we think it's important to tell the board where we sit with our Commonwealth Rail Fund.

And we're moving into our cash and investments.

So I'm going to just breeze through these two slides because obviously this is going to change drastically as we move into the All Spring Investment Portfolio.

So on the plan investment reporting slide, we kind of mocked up in our heads how this is going to go.

However, we need to really get what the All Spring reporting looks like in order to determine what these graphs or the illustrations will come out.

So they're really going to be attached to our leading principles.

First is obviously maintaining our principles.

So one of the depictions that will put in executive director support going forward will be the carrying value of LGIP EM and then our offspring portfolio.

I will note that in this category, regular LGIP comes out because it has a one to one navigated liquid.

It's essentially cash, so it won't be reported in this section.

With the detailed analysis for any single holding that has a one percent market value loss, because if we're losing money somewhere, we need to come and be held accountable for what's going on, our intent with it going forward.

So that will be our

our internal threshold for what we need to bring to you guys if anything is taking a hit.

Next we are looking at liquidity.

So what's our investment mix?

What's the average maturity of each portfolio to give everyone a benchmark of what we would need duration wise to pull money out of those investment platforms and then return.

Well, this one will be more of a comparative visualization.

So the monetary return, less management fees.

So all spring, obviously, we're paying them to do our investment management.

So any of the monetary return that we're showing there, we're going to back out the management fees so you can see the true earnings we're bringing in and then comparing the effective yields and then a benchmark comparison.

And as a reminder in the policy, our benchmark is regular LGIP.

So that's what we're going to be comparing it to and making sure that we're beating them.

And then, of course, on a quarterly basis, as we discussed, we'll be bringing in the ESG score and reporting that to the board.

I think I'm really excited about preparing these because I think it'll be really interesting to track this over time.

And I mean, this is really going to guide where we put most of our money.

So we want to, we think Allspring is going to do the best just because fixed income, the rates there are substantially higher than what we're seeing in LGIP, but that could change, right?

Well, what Shane just said six months ago, that wasn't necessarily true.

So say security is downgraded below our set threshold or in our portfolio, the required action is that Steve would email the Finance Committee immediately.

to let you know that there has been a security that's below the required policy rating and then our action, and we will note that the action isn't going to, it's not required that we just have to immediately sell it and take like a loss on something, right?

We need to preserve our principles, so we'll come to you with our plan of what we are going to do with the security, hoping that if it's an immediate drop, a drop to a corporate note, drop to triple B, maybe if we hold on to it for another month, we can get our principle back.

So, it's going to be very contingent upon the situation, but you will be notified promptly, and that's in accordance with the investment.

And then similarly for ESG, if we have an ESG, a quarterly rating that maybe something drops to a two or a one within our portfolio, or perhaps maybe we don't meet that 3.5 average ESG score, we will report that in our monthly executive director's report and also our plan remedy for it, maintaining that we want to make sure that principle is preserved through that process.

We put the quarterly in, Steve and Archie did this very well, so we put the quarterly measurement in because essentially when we start funding our portfolio in general, so corporate notes, so say they buy a corporate note at a three, at that moment our ESG rating would be at three, but immediately after they may buy a forward to kind of make our average be 3.5, so the ins and outs of the portfolio could make an instantaneous

rating of a 3 rather than our 3.5.

So how often does it, is it rated at time of transaction?

It would be at the time of transaction.

So I don't think what we're saying is we would look at it at the end of each quarter rather than one set point time.

So as Shannon just said,

If we start out buying two or three threes, then the end of the quarter, we would need to have invested in some fives to get that average to 3.5.

And the same thing on the backside.

Because we're starting, that's going to happen.

But on the backside, when maturities occur or we get out of a certain investment, there's the same possibility that you could get out of a five.

And now your average goes down to a 3.4, we want to look at it over

Exactly.

At the end of every quarter, we will look at the average, and if the average is below 3.5, then we will come up with a plan of action

which could be there was a rating downgrade, but it's still got a plus.

So indicating that in the next three to six months, it should go back up and then the ESG score I'm talking about.

And so if that's the case, we made the action, maybe stand pat and hopefully in the next quarter, it moves back up.

It could be resale, it's down to a two minus, maybe

But separate from our investment strategy, just to the Allspring algorithm, is this a rating that changes daily?

I mean, how does it work?

I don't want to say for sure, but I think, I don't know whether it's daily, but they're constantly looking at it.

Is it every day they rescore?

Is it monthly?

I think when we talk about this quarterly, it's us doing that.

It's us saying at the end of a quarter, we're going to look at all the scores and do an average.

So for clarity, you're talking about the 1, 2, 3, 4, or 5 rating?

Right, right.

My understanding was that was monthly.

They issued it monthly.

I thought it was, I just don't know.

It seems like it might be like a triggering event.

Maybe they get a new board member and then they would look at the governance again.

Could we find out?

Yeah, let me send a note.

Because if it's just something that would determine how we would react to it, right?

So I had a few items, but I'll try to be brief.

So obviously, y'all heard we've been working with Allspring to bring them on to be our investment manager.

We just honestly, their divestiture from Wells Fargo, we were very fortunate while that happened because it caused a delay in getting that set up and going in.

And it's a very impressive question at the last board meeting.

rates have gone up significantly.

And therefore, for us, because we have a large balance, it's actually going to be very beneficial for us.

So hopefully, though, the custodian is the last piece of that arrangement.

We've got to finish their contract.

And I think we're done with that.

We just need them to finish their registration, the State Corporation Commission.

And then we'll be moving forward.

I think

I really hope this week will be busy.

I've been hoping for a while.

Other thing, year-end is here, so our audit, not anticipating any issues.

We have the audit firm coming in tomorrow for the entrance conference.

We did, you know, obviously have the lease here for this fine office, and then on top of that, last year we had a large and tangible asset.

and as the transactions with CSX and now Norfolk Southern are progressing, actually categorizing those.

We caught it as an intangible last year, but now we got to start moving back to rail, bridges, ballast, et cetera.

And that's going to be a little bit of a complicated matter.

A lot of it deals with the contracts actually themselves and when title and conveyance

The assets comes to VPRA.

Another item, Norfolk Southern Financial Close.

We're hoping tomorrow or Wednesday or Thursday, but hoping this week to close the V-Line transaction out in Christiansburg with Norfolk Southern.

Another item, and this is Jim, why I was saying you were so impressive.

You asked about interest rate risk on our financings at VRE.

has concluded their financing and it did come in less than what we were projecting due to the significant change in rates in the last 30 days.

So it's about around $15 million difference at the pay go and the actual debt proceeds and we're getting less.

And we hope to, I think they're settling maybe Thursday

Correct.

That was VRE's contribution.

They took their dedicated...

They had some gas tax funds as dedicated in a fund and they pledged them and they pledged half of the $15 million a year they get to a long-term financing.

plans the other half to give us PAYGO over 10 years.

And the last thing I was going to say, we mentioned QuickBooks.

I heard that dirty word at some point in this meeting.

We're in the middle of a procurement to actually get an ERP system that I think will have lots of benefits for my group, but this whole entity can help us get our policies and procedures

We're formalized and actually working through a system as opposed to a lot of things we're having to do in a manual way, using some routing through a system, but it will actually bring us out of the dark ages, so to speak.

And we're in the process of actually looking at systems right now in the procurement.

And then hopefully, I would say by the end of July, I hope we've made a selection and we're working

close to final negotiations on my contract.

That was all I had.

I don't know if there are any other questions that anyone has for us.

Glad to entertain them.

You're absolutely right.

Both ceremonially and officially.

That's good.

Just one question.

I think maybe this is what you're talking about.

I'm having trouble hearing today.

So we factored that in and I think, you know, don't quote me, but I think it was around $20 million impact over six years.

There's still possibility of a federal gas tax holiday, but that won't impact us.

That won't impact VPRA's budget.

I guess if there are no more questions during the meeting.

Once again, before we do that, I just want to make sure we go to the full board meeting.

I know, Jen, you're here.

Patty and Jim.

Jay.

Okay, Jay's still here.

So we go, I want to make sure that what we are going to bring forward

I know, Jay, you have your issue and you're going to talk with DJ and I, but I don't, you know, I want to make sure before we close this out that there's nothing here that I don't know.

Can I suggest this as a way to move forward?

During this week, I mean in the next days, because I know you've got to get a board package out to the full board for the meeting in July.

If you and I and maybe Jen just talk and if we can come up with some language to amend what's there, essentially keeping intact the essence of what was put forward.

If we do come up with that, we could forward it to the board members that are here in attendance today and see if

their support or opposition for that.

And if not, then you fall back on what you have proposed today.

Right, more exactly that, the sector piece.

Well, other than that, I would make a motion if it's in order that the Finance Committee recommends that we proceed.

And that's what I just want to make sure we're on good grounds with y'all before we adjourn the meeting.

I guess we're the only two, right?

They gave a thumbs up.

We're the three surviving members of the Finance Committee.

All right.

Well, I thank you all much for coming up today and putting up with our long winter.

Very good.