Finance and Audit Committee Meeting   11/27/2023

Thank you, sir.

So we got a lot to go through today.

Yeah, please, everybody jump in when you have questions.

Welcome, everyone.

I appreciate joining today right after the holiday.

So we already performed that in here, but we would remind everybody that's viewing online to be aware of their surroundings and make sure that they have a plan of exit and other safety items thought out up front.

Okay, number three on the agenda, approval of the meeting minutes from our

July 11th Finance Committee meeting.

Thank you and a second.

Hello?

and so Ms. Dorsch.

So I'm calling a roll call.

Yes, ma'am.

Thank you.

Ms. Bulova.

Here.

Or, aye.

Okay.

Item four, audit committee communication.

Thank you.

Thank you.

And obviously, Steve said at the very beginning, you have a lot to do.

So I'm going to be as brief as possible and give you back as much of your time of your day.

but under the audit standards, you may have had these presentations at other entities before, we are required to make certain communications from the auditor side to the auditee side at the end of each audit.

And they are standard communications regardless of what type of entity you are, complexity, size, newness, oldness, so forth.

So there are going to be things I'm going to say that are going to be not applicable to you, but because they are required across all the standards,

then I'm required to positively affirm that to you each time.

So you don't just assume if I don't talk to it that I either forgot it or it wasn't relevant and so forth.

So if we could go to the next slide, please.

The agenda is pretty much set by, again, by the standards, these common areas.

And you're going to see some things here that are going to be like uncorrected, some words that sound ominous.

Well, those are the language that the standards requires to use.

and I'll point those out to you and point them out whether or not they are applicable or not.

But we're going to go through the results of the audit, some internal control communications, corrected and uncorrected misstatements, and then several slides on just multiple areas of standards communications.

Ending up with the very last slide, just to give you an idea that there are always constantly changes happening in the general government audit standards, I mean, accounting standards.

environment.

And so I always like when I have an opportunity like those like yourself to let you know what those changes are coming in in the near future.

Next slide, please.

We are a team of who you see here, but there are other people on our team, but these are the key components of our team that served the authority this year.

I serve as a service partner for all services provided to you from my firm.

On every one of our jobs, we have a second partner, a quality review partner that reviews our testing and also reviews the financial statements for at a higher level.

Sometimes, as you can imagine, if you're working on hundreds and hundreds and hundreds of hours of an audit, you can kind of get down in the weeds sometimes.

And his job is to help us make sure that we don't get too far or stay too far down in the weeds and that we're looking at everything from the right perspective.

Mike is my Reinhard, my returning senior manager, and Brooke Bishop is my senior.

Mike is not here today.

I told him I would handle it, and Brooke is not here because she just about a month ago had a baby.

Little baby girl.

So I told her, don't worry about it, I'll cover the meeting.

Next slide, please.

Okay, most important slide of our discussion.

We have audited your statements, and we found that we should have unmodified opinion, which is a fancy term for clean.

You know, what you want to hear from your auditor, that statements are fairly presented in all material respects in accordance with General Accepted Accounting principles.

Also because of the nature of some of your funding, there was other standards that we had to perform some compliance procedures over, both government auditing standards, and then also the state has a specifications book for authorities boards and commissions that we had to perform some limited procedures on each year and report back to them if we have any findings to report.

With regards to the overall audit, we did report one material weakness in financial reporting, and I'll talk more about that on a later slide, but it has to do with the recognition of revenue versus deferring it from one year to another.

I just hit the button thinking I was in control.

Next slide, please.

I should have all stayed at the very beginning.

I try to make my slide decks useful for people that aren't here.

So this is an example of me putting in the definition of what a deficiency is, what a control is from the audit standards that we audit under.

Again, it's verbatim out of the standards and it's here basically as a reference point

for people that haven't attended one of these sessions before, and also that are not here, but they want to understand what was discussed and what were the outcomes of that overall discussion.

Next slide, please.

OK, now let's draw it down a little bit more.

We have three different areas in our profession that we may cite control systems for.

Deficiency, which is a very minor thing, but something you should know.

A significant deficiency, which is not

and so on.

weakness relates to what we have here is a corrective misstatement.

We've determined during the year working with finance that the deferral of certain revenues in the prior years did not coincide exactly how GAAP is for governments.

And so it required you to reverse that deferral and bring it into income.

And so what that's called in our business, restating the beginning balances so that you have the earliest financial statement

column that is presented shows the numbers that have been corrected.

And on the uncorrected misstatement area, we had nothing to report there.

We had no other items where we thought you really needed to make a change in order to be in a course with generally accepted accounting principles.

Next slide, please.

And should I wait for this person, whoever's coming in?

Go keep going.

Okay.

Getting into what I call my, we're all

Yeah, we're all of an age where we probably know who the Partridge family was.

This is my Partridge family slide with all the bright colors, like the feathers used to have on their bus back in the sitcom time.

I'm required to talk to you on these four areas because, again, the standards believe that they are important enough for those charged with governance because you're not there 24-7.

You're not involved in every conversation, involved in every email chain.

And so one key thing I was required to let you know is if there are changes made to the policies for accounting and reporting,

Your changes that were made were not driven by you, they were driven by changes in the accounting profession.

And so this year, just like last year, when you had to talk about leases, this year you had to implement the requirements for basically what I call the cloudy stuff.

It's in essence exactly like leases, but it's for your subscription based arrangements that you have, whether it be Microsoft Azure or something like that, where you've gotten into a, in essence, a lease that needs to be make sure that you're recording it properly, reporting it properly.

Then also GASB Statement 100 put out some further clarification guidance on when there are changes in policies and or error corrections from prior years, again, to try and make sure that entities across the US are doing things consistently and comparably.

Next slide, please.

It was just background noise.

Sure, sure.

Because

Related party transactions can be either proper or improper, frankly.

The standards want us as auditors to make sure we understand who your relationships are with and do they make sense.

And so we look at the relationships that you have.

We look at the reasons for those relationships.

Do they make sense?

Are they part of what would make sense for a proper business model for your type of entity?

are they at arm's length transactions and so forth.

And so as our looking through our stuff, our testing and so forth, we found nothing that we thought needed to be reported back to you that you wouldn't already know about who your related party's relationships and transactions are with.

Next slide, please.

If you were at an entity that had unusual and uncommon transactions happening during the year, again, because the standards don't assume you're part of every knowledge chain of

messages and so forth that we would have to tell you if we knew of any significant unusual transaction that had happened during for the authority during the year and we're not aware of any of those that would be outside of what your normal transaction would be in what you are charged with doing as an authority going forward so but again I'm required to positively affirm that to you that there was nothing that we that looked like it was outside in the normal course of business nothing that would I would think would be again unusual or different significant

from what you are charged with doing with your charter, in essence, and your plan for the future.

Next slide, please.

Unless you are running a lemonade stand, every set of financial statements is going to have some kind of estimate.

Not everything in a financial statement can be tied to a canceled check or to a signed invoice or to a contract and so forth.

So there are estimates made, and I'm required to let you know that we look at those estimates each year because, as you can imagine,

This is a perfect example of entities where the standard is the same for a government versus an IBM.

There might be instances where an IBM wants to change some estimates, get the numbers in a certain direction.

And if they're doing that without support and without a reason for it, then we would be required to look hard at that to make sure that we think our audit opinion is right and also to make you aware of that.

So nothing like that happens here.

But again, I'm required to pause you for a minute.

And you have the standard estimates you would have

for your type of density.

Depreciation expense is an estimate.

You're estimating useful lives and so forth.

OPEB and pension, it's key throughout Virginia, well, actually throughout the industry.

Those are estimates that, you know, they're done by an outside actuary.

They're not done by you.

So we look at those to make sure that they are comparable with prior year.

We make sure that you're not estimating a return on an investment of 20% when everybody else in the world thinks it's six and so forth.

So, but we saw nothing like that happen here.

The estimates were consistent, comparable.

not only with yourself, but also with your peers throughout the Commonwealth.

Next slide, please.

We don't do this for you, but I'm not allowed to ignore it.

If we were ever to perform non-attest services for you, and this is common for governments where they have federal funding, and there's a non-attest service that we have to do each year for those governments to help them provide information up to the federal website that can then be

use for the feds to budget and manage and so forth.

So we have to basically say, yes, the numbers have been sent up by us, do agree to the financial statements and so forth.

So it doesn't happen to you here, but if there were not a test services, I would have to make you aware of those.

Also, just very, very important slide in here on the right hand side.

I give you three, five, five, six pieces of paper with my letterhead on it in your big document.

But

If I wasn't independent, those pieces of paper would be useless to you.

So I'm required to make sure that my team, my firm, everybody that works throughout our firm, maybe people that service us, that they're independent of you.

Because, and that's also, it's very important to remember that that means in reality.

So if my wife was your controller, I would not be able to be your auditor, but also in perception.

If my distant niece was your AP clerk,

or something, somebody could say, well, geez, Robin and the related, so he can't be independent.

Whereas I very actually could be because she's so distant and we don't have any, maybe we're not even full blood with each, maybe a cousin of a cousin type thing.

So, but again, if those independence matters ever arose, then we could be called into question as to whether or not those piece of paper I give to you are worthless or not.

And so I have to positively affirm to you each year,

that we're not aware of any transactions, personnel, and matters where we are not independent of the authority.

Next slide, please.

Now, we're going to get into a couple silos here with some ominous words, but they are dictated by the standards.

And I have clients where, I'll say the first one or the second column here, I have clients where this page goes for three pages because I have difficulties getting information from them.

I have difficulties getting them to reply back to me, provide me information, and so forth.

That didn't happen here.

It's a testament to the quality of your staff there, but I'm required to positively affirm you that did not happen.

Same thing with disagreements.

I've had clients where they have disagreed with how they're interpreting something and so forth, and we just couldn't get to a resolution.

And so I would have to report that in my report, and I would report that to you, charge of governance, if that occurred.

It did not happen here, but again, I can't be silent on it and have you assume that did not happen without positively affirming it.

If I ever had to go outside, we did this last year with valuation work, if I had to go outside my core engagement team for some help, say maybe my client has a new pension plan and I want to get somebody outside my team to check the, kick the tires on their new actuary to make sure that he or she or that firm is reputable and knows what they're doing and so forth, I'd have to let you know that I went outside my core team

for that consultation and why I did that.

Did not happen here, but I'm making you aware of that.

And far right, this is a, if you've heard me say this before, this is really, really important for the overall standards because the representation letter is a letter from you to me, from the client to the auditor, representing certain, they're very straightforward matters.

Generally, it's between 40 and 45 items, and it's things like,

for example, that you signed an engagement letter with me and hired me to do the audit, that they are your financial statements.

They're not mine.

They are managers' financial statements.

You told me about all legal matters.

If you had a, maybe you had a federal grantor come in and check things out and you tell me about that.

If you were ever not able to, and this literally is very boring and literally is probably 97% the same ones across every audit firm going.

So we're not asking for really off the wall things to be representative to us.

But if I ever had a client that said, I can't represent to you on this item or that item or this other item, I'd have to pause and have to understand, OK, why is there a very reasonable, legitimate answer or is there something that you can't represent to me that would impact my overall opinion of your financial statements?

And therefore, I'm not getting all the information I need to to render my opinion.

So did not happen here.

only had happened a couple of times in my 35 plus years, generally because of some unusual transaction that the representation just needed to be rewarded or was out of context and so forth, but did not happen here with the authority.

Next slide, please.

Management consultations, if this happens, never happened in the government, but I know of colleagues who've had it happen in commercial worlds, and we call it shopping the opinion.

If for some reason management at my client didn't like what I was saying and went down the street to CPA Firm A, didn't like the answer they got there, went down the street to C, D, on down the line, they finally found one that they got the answer they wanted, then they would go with them.

I would obviously not be your auditor anymore, but I'd be required to make you aware that, you know, in essence, I saw a shopping of the opinion and those Church of Governors might want to understand if there was a reason for that that is legitimate or was it

Something that wasn't legitimate, frankly, the opposite side.

We talked during the year.

Steve will call me, others will call me for an organization.

Maybe they've read an article on something, want some clarification.

Maybe they or again, I go back to pensions and so forth.

I've had clients who've called and asked my help to understand.

They may try a new benefit for their OPEB and so forth.

So these these conversations happen in normal course of business.

They are my answers or lack thereof.

are not something that impacts whether or not I'm still hired as your auditor.

So, I mean, they're all above board.

They're all above table.

And so, but I'm required to let you know that we do have conversations throughout the year on various matters, and some of them are purely accounting, and some of them are operational, maybe asking, you know, do I have a peer that has a similar type of operation or similar type of asset group and so forth?

The last two of my columns look ominous, don't they?

They've got some bad words in there.

Fraud, illegal acts, going concern.

Again, because the standards are

across the board, and not just for government-related, I'd be required to let you know if I ever found any fraud.

Now, we are not hired to do fraud unless you hire me specifically to do fraud.

I've had clients call and say, Rob, something's not right here.

I need you to have a special group come in here and take a look at this.

We're hired to be professionally skeptical, is what the standards say.

And that means, as we're doing our testing, just keep our minds open.

I've lost track.

Many gray hairs ago, I caught a million-dollar fraud in the city of Richmond.

It's all in the newspaper, so I'm not telling anything out of school.

because we were testing capital asset activities.

And the person, who actually was Chief of Staff for the City Council, created at least four fictitious companies, ABCs such and such, XYZ such and such, submitted fake invoices and got paid.

How do I find it?

Being skeptical.

We're going through our sample of activities.

This person misspelled the word debris on every invoice that he did, all the same way,

and it just kind of struck out as you're kind of weird.

You know, it's one of those things you audit long enough, some things just pop out to you.

So we were skeptical.

So we went down the rabbit hole and did again eventually found a million dollars that he had squirreled away in various places.

The nice part of that story is that they were able to get almost all the money back because he was an official in the city council.

He was bonded.

But again, they did not hire me to come in.

They didn't say we think something's going on.

Rob, come in.

but I was required to be professionally skeptical and I was.

And then going concern, it really doesn't relate to governments unless they were created like an authority that was created for bond purposes and then that bond is finally paid off and then that authority will go away.

If I was ever aware of something that made me think that you would not survive for 12 months past your financial statement date, I'd be required to tell you.

Now, frankly, I would imagine if we ever got to that point, you would already know about that because it would be something that would be, you know, dramatic, something going on cash flow wise or something that,

that causes you to have debt covenant issues and so forth.

So I don't imagine ever in government that it would ever be me telling you what's going on, that you would probably be coming to me saying, hey, Rob, we got something going on.

We need to figure out how to account for this, how to report for it, and so forth.

Next slide, please.

This slide is just letting you know it's actually verbatim from my audit opinion I give you.

I'm just trying to make you aware that there are things around your whole package

that I do not do audit work on, but I do check it and make sure it makes sense.

And so, for example, your management discussion analysis, I do not give an opinion on what you say in there about how your year was and so forth.

I check the numbers, make sure they agree back to the financial statements, I make sure they make sense, make sure I calculate it right, and so forth, but I give no opinion.

And then also there's other areas, depending on what size entity you are, what size complexity of financial statements you have, there are other things like a transmittal letter or a statistical section and so forth, where those information is part of the overall package

but is not something I audit.

Again, I just want to make you aware of these are right out of my opinion.

Most of the time, people probably only go through the first three or four paragraphs of my opinion.

That's where it tells you things are up or things are down from an opinion perspective.

And they don't make it back to the second or third page.

But I want to make you aware that this information is in your financial statements and what my level of assurance to you is required.

That's required under the audit standards.

Next slide, please.

And just to let you know, there are some changes coming.

This one's really not going to be relevant to you, but I want to make you aware that it is out there and also point out a little nuance.

This was actually required new guidance, requirements I actually should say, for both fiscal year, this year and next year.

They kind of split it up.

Certain paragraphs were applicable for this year and certain paragraphs are applicable for next year.

Really relating to the ones for next year is really relating to the instruments, which in Virginia most entities are not allowed to play with.

and so forth.

Next slide, please.

Then we also have requirements, consistency, comparability requirements.

The first time they did something in compensated absence, vacation to sick pay, other benefits and so forth, the first time to really give out guidance on this was, I think I was about five years out of college, so we're talking mid-90s.

Things have changed a lot since then, haven't they?

Benefit package that we use,

the terms we use, the length of benefits and so forth.

So GASB realized they needed to do a refresh.

And so they're giving out some new requirements, new guidance on how to incur the obligation in your financial statements and in your reporting and disclosures and so forth.

Shouldn't be overly onerous for most entities.

Next slide, please.

and that was really my required communications up until those last two slides, which aren't required, but I always like to let you know if there's something changing in your environment that could impact you going forward for reporting purposes and so forth.

Let's proceed.

Good idea.

So before we let Bonnie, who, by the way, I haven't introduced her, she's our director of accounting operations.

I don't think she's presented with the finance committee, so welcoming her.

But I did want to talk about this first slide for a moment.

Rob had addressed that we had a restatement and we, all three of us, Shannon,

You can add me to that list.

Excuse me?

Yeah, so there was a lot of discussion when this came to light.

And as Rob mentioned, during the FY22 audit, I'll just say I had an error in interpretation

of accounting standards.

And that's the way we put the financials together.

When we were looking at things this year, we took a look at those deferred revenues and that were sitting as a liability.

And, you know, this is sort of the technical detail, but basically, essentially, we came to the conclusion that we should have been following GASB standards and the way we handled

This item in the prior year in FY22 was following FASB standards, which is slightly different.

The approach we took last year, we viewed at the time as being more conservative and matching revenues and expenses, but unfortunately it didn't quite follow the standards that we were required to follow.

So, long and short of it is

We booked these revenues we received as a liability because we felt we had an obligation to fulfill certain requirements.

When we reexamined it, those requirements weren't specified enough to dictate recording them as a liability.

Instead, we went back and ran those through revenue in FY22.

ended up showing its restricted net position.

The chart here shows the net impact.

So anyway, going forward, we will do a better job of documenting when we have to make these types of decisions and making sure we put all those documented files together and work with our auditors to make sure we're all on the same page and it's all documented.

So with that, I wanted to open the floor

I know I sent an email to the Finance Committee about this.

Mr. Church talked about it.

I just spoke on it.

There's a slide here.

But I want to open the floor if there are any questions.

I don't want the Finance Committee to be left wondering.

And if not, then we will proceed with Bonnie taking us through this year's financials and

Going over some of the fun stuff, huh?

All right, so hopefully, if there are no questions, we'll go ahead and talk about the statements.

And hopefully everybody had a chance to read this riveting 59-page document that is our annual financial report.

I believe Steve emailed it out at the beginning of October to everyone.

If you don't have it, you can access it on the web.

It is available on our website.

But if you would like an email copy, I can email it to you too.

Just let me know.

You already advanced.

Thanks.

So first is our statement of net position, which is just a fancy term for balance sheet.

So this just gives you a picture of our assets and liabilities and our resulting net position.

So fun stuff.

We definitely ended the year with $1.3 billion in assets.

Just over 1.3 is 1.36, which is an increase from last year, which is great.

Our liquidity continues to improve pretty significantly.

Last year, we had a quick ratio of about 2.9.

Now it's 15.1.

And that's really significantly because of that $125 million payment we made to CSX.

You can see our current liabilities were reduced by about $104 million overall.

So that helps contribute to that.

With less liabilities, we've got a whole lot more cash.

Our cash equivalents increased by 36% and our investments by over 300%, which

That helped contribute to some additional net investment revenue that we didn't have in FY22.

And as I mentioned, that last installment payment was done.

So that intangible asset has been mostly moved off.

and has been accounted for as rail infrastructure or land.

We still have a piece of the I-95 corridor as part of that original CSX agreement for $525 million that we have until the end of this year to figure out what the deeds of confirmation are before we can actually move that stuff out of Intangible and into an actual fixed asset.

So that's kind of the fun stuff for the balance sheet.

Are there any questions about this slide or about the balance sheet in general?

Next slide, please.

So then our statement of revenues, expenses, and changes in net position, which is a fancy term for income statements.

So FY 23 was pretty good.

Our operating income from passenger rail services covered about 72% of the combined train operating expenses and hour costs.

That's a decrease from last year, about 9%, but we were operating two additional trainings last year, so we kind of anticipated we were going to have some additional expenses, right?

We brought in about $455 million in revenues between our Commonwealth sources and our funding partners, so that helped a lot and obviously contributed to our cash.

and taking advantage of those favorable interest rate environment over the past year.

The FBNA team works really closely with the accounting team to understand what our cash needs are so that we can make sure we are holding as much as possible in investments and we can help contribute some revenue to the organization at that ungodly percentage of 3,419%.

I think Steve and I calculated that percentage like four times each to make sure we weren't wrong, but that is an accurate percentage.

I know.

It's great, right?

FT&A, they kicked some tail this year.

All right.

Any questions about this slide or our income statement in general?

Excellent.

Next slide, please.

So this is just a breakdown of essentially our major sources of revenue.

You guys know, I'm sure, that Commonwealth Rail Fund continues to be our major source.

That's a little bit higher this year than it will be next year because of that special allocation that we've been getting over the course of time and next year that's not.

I'm sure Shannon has already shared with you guys that that's going to decrease over the next year.

And then tied for second is other commonwealth of Virginia contributions and contributions from our funding partners like Amtrak and VRE and then our operating revenues from our passenger rail services and there's there's finances contribution to the organization all four percent rights

We're helping out.

Any questions about our sources of revenue or the financial statements in general?

Cause I know you all read every single page of them, right?

John's smiling at me like, no.

All right.

Yeah.

I just wanted to say, I think one of the things that we don't necessarily link

these strong financials too, is we've had really good, on our procurements, our large scale construction procurements.

I think y'all heard from us that we've had a really good response.

And I think, you know, I've said this several times here and to different groups, but instead of being aspirational that we're hoping to do a lot of big capital projects, we actually have a good solid financial base.

And I think hopefully that's helping attract some of those

different construction companies to put in bids on these projects because we have been fortunate there.

The other thing I wanted to point out too was on our Amtrak train operations, the 72% compared to the 81 the prior year, we're a growing company, so we're still getting our administrative costs.

We put in an ERP system, so there's cost involved in getting the backbone up and running.

But I do want to say that, you know, Director Stadler has from the day, I think first day or second day he was here, we talked about having a strong cost recovery for our underlying passenger operations and he's embraced that.

And I do think 72%, you know, we're doing really well there and this year ridership continues to grow.

And I think we've addressed our revenue issues that

with Amtrak and they've been very, actually I'll say it, they've been really good partners working through that.

Steve, one question.

Sir.

One of the comments on this pie chart that's up there right now, if I remember what they said, what Bonnie said,

It's in the EDR report.

I want to say it was

It's explicit in the EDR report.

I can't.

So John, if you look there, we do highlight it.

We knew it was coming.

There was on the top allocation that we got in the first three years that stopped this year.

It's 158 million.

That's right.

The number that we're expecting.

And maybe you remember this, maybe you don't, but when they implemented the 2020 transportation initiative, there was

three years of stepping into implementing all the fees and therefore the end allocations did not go into effect until 2024.

There was some leeway to allow the different modes of transportation, the CTB, to basically make certain allocations.

I don't know.

Yeah, I agree with this, TJ.

That's my sense.

Okay.

We may, a year, two years from now, try to seek, they call it a loan from the Virginia Transportation Infrastructure Bank, which would be approved by the CTV.

But even that, that's just in Steve's head right now.

So we haven't even really approached that with the secretary's office.

Thank you.

Any other questions?

What's next?

Yes, I'm going to just give a slight preface here.

We've been talking about maybe making a change with our investment manager for the past six months.

And anyway, I just wanted to give a little history that when we procured these investment management services, the old

ones.

It was basically an add-on to our banking services contract.

So we really put, you know, because there was three of us here, we were trying to do things as effectively as we could.

And we put two different sets of services together.

And so anyway, that's how we ended up

where we were.

And then the end result was we didn't quite get the management that was as active as we wanted.

It was more, or at least it felt to us as more passive.

And so we felt the time was right.

Y'all, we just talked about all the cash and investments we have.

We talked about interest rates have gone up quite a bit.

No one, at least I don't know what's going to happen with interest rates coming up.

So we thought the time was right to put this back out

and get a firm on that would actually be more hands-on with us and more actively managing portfolio.

So that's how we got here.

We finished that procurement and we've selected Meter Public Funds.

And I've invited them to give a short introduction themselves and their firm.

And you will be hearing from Eileen Stanek and Jason Szabo.

Well, thank you.

Thank you, Steve.

And thank you to all the members of the committee here for, yes, this opportunity for us to help fulfill the needs of the authority.

So as Steve mentioned, I'm Eileen Stanek with Meter Public Funds, Regional Director Advisory Services.

What that means is I work with select clients directly providing investment services, serving as that liaison.

between the client and our investment team and other resources.

So I'm the primary contact for the authority.

I've been working with public entities now for 20 years.

It has been very rewarding to know that I'm helping to make a difference for each of my clients and the firm's clients as they look to meet their objectives above and beyond investments.

Thanks, Eileen, and good afternoon.

So as Eileen mentioned, name is Jason Szabo, serve as the director of fixed income.

In that capacity, oversee our strategy development, ultimately the implementation, then oversee our credit team.

And my role expands beyond those direct responsibilities, including

I'm part, a member of our investment committee.

I'm a chair of our credit committee, also a part of our best execution and trading execution committee.

So part of a number of different oversight capacities.

I've been in the investment management industry for now 15 years and can almost say, but not quite, been at meter for almost a decade at this point.

If we could slip to the next slide, please.

So just to provide a brief overview of Meter as a firm, next year we will be celebrating our 50th anniversary.

So as an investment firm we do provide services in addition to public funds, but public funds is really the largest component of Meter investment management.

Back in 1990 we recognized a need in the marketplace for

public entities to have independent investment advice.

And that in essence was the genesis of the meter public funds.

And we have continued providing those services.

Now we do the math over 30 years.

And today we are one of the largest providers, independent providers of investment advice to public entities in the country.

We're headquartered here in Dublin, Ohio,

have a team and a staff that works with clients across the country.

And we are happy to be at a point where we have more than 350 public entity clients.

So helping a lot of folks, happy to have added the authority to that list.

And we do, this includes assets of over $48 billion of assets under advisement.

So this growth that we have experienced over this past 30 plus years really has been a function of what we feel sets us apart.

We have a team approach as exhibited here today with myself and Jason Szabo on the call.

Behind us, we each have numerous staff in Jason's point on the trading desk and the like.

From my standpoint, we also have a full operations team as well as legal and compliance as well.

We also provide, and I think what really sets us apart is providing this customized solution for our clients.

We like to get very involved in what is going on within our clients' organizations and put that into the mix as we develop an investment strategy.

So if we can flip to the next slide, please,

We do provide a very comprehensive suite of services to our clients, which we would provide, of course, to the authority as enumerated here.

As you may notice, we are not a broker and that we do not sell investment securities, and we are really more than just an investment manager who would just invest funds to meet your objectives.

Building on that, as I had mentioned, we think that this cash flow review, which is a critical part of the customization, is really key to our services.

So we are in the process of working with Steve and his team to understand really the components that drive the cash flow of the authority.

To Bonnie's point, I did look at 94 pages of the

But yeah, that just kind of gives you an idea of, yes, we do get into the weeds from that standpoint because we know that

At the end of the day, a big component of the investment process is not just investing the funds properly, but also determining what's that proper balance between cash and investments, because we can't control what happens with market interest rates.

We all know that.

But we can control how much is dedicated to an investment portfolio,

and within that portfolio, how long can those funds be invested?

And we think those are two really critical components that are very important to this whole process.

Also, as a public entity, we understand the importance truly of being in compliance with your investment policy and state code.

Clearly, as we listened here to the

the audit firm talk about that importance of being independent from their perspective.

From our perspective, it is also important that we are a fiduciary to our clients.

And that is where being registered with the Securities and Exchange Commission provides us with that legal responsibility to each of our clients.

We also have invested all the necessary

and to the necessary systems to ensure that we can meet this meeting compliance, keeping the portfolio in compliance with policy as well as state code.

So that from an audit perspective, we want to ensure that there would never be an audit notation about the investment portfolio.

Of course, though, you hired us,

for, additionally, executing and developing the investment strategy.

And with that, I will turn that piece over to Jason.

Thanks, Eileen, and we'll walk through really a high-level view of the overall process as we look at the portfolio management framework.

And it really starts with portfolio construction.

And to keep it somewhat brief and less technical, within the fixed income universe, there's really three ways to structure a portfolio.

You could have what is called a bullet portfolio, where you take 100% of your portfolio and invest it, let's say, in a three-year maturity.

Or you could take a barbell approach,

which takes half your portfolio invested on the short part of the yield curve and then the other half at the longer end of the yield curve.

and then there's the last part, which is a ladder portfolio.

And as Eileen alluded to, our vast experience dealing with many different entity types in the public funds universe across the country, our view is the ladder portfolio is best suited to ultimately achieve the three primary objectives, that preservation of principle, that ladder portfolio is structured to have maturities across the yield curve, so inherently has diversification benefits,

Next, we have the liquidity mandate, so having regular maturities within the portfolio is constantly on top of the cash flow planning, is delivering additional sources of liquidity as the portfolio ages over time.

And then lastly, on the yield side.

with a positive slope curve, being able to invest on the short end to meet liquidity and preservation of principle, we're also able to take advantage of higher yields that the longer term maturities provide.

And then really as we look at on the objective side is yield is certainly important and certainly being a third at meter, we certainly take an additional step and weave in a really a risk management approach

as we go through this entire process.

So in addition to focusing on that yield, we want to manage the risk and have some oversight into how we're implementing the strategy within these portfolios.

So we have very targeted position sizes, so as we're looking across the maturity spectrum, we're very mindful of diversification and ensuring we have a number of positions within the portfolio to manage liquidity and the preservation of principles of diversification.

Then as we move a little bit over to the asset class side of the house,

From our vantage point, we think it's most appropriate to always look at every entity type's total investable universe across every asset class.

We want to make sure that we're using or at least evaluating all the permissible asset classes, taking a scope of what's the historical spread and yield relationships in developing a strategic asset allocation.

Then as the markets are evolving and are certainly dynamic over time, as the Fed policy changing,

The different points we are in the business cycle will move in between the different asset classes to make sure we're constantly mindful of the risk management approach but also finding yield enhancing opportunities to take advantage of asset classes that may be cheaper given a certain part of the business cycle that we might be in.

Then we move over to the last two segments of the overall process and look at the security selection and trade execution.

This is where we really get in the weeds on the trade execution side.

So as we're looking at all these different asset classes and develop that strategic asset allocation,

We really want to get into the bond math about the security specific valuation metrics and whether that's looking at nominal spreads or option adjusted spreads or looking at the volatility which is just changes in interest rates that have impacts over callable securities and non-callable securities.

The point is we really are getting into getting into the weeds of the math and making sure we're finding the best value that we can for every portfolio

and not just taking whatever bond that's out there and plugging it into the material distribution, we want to find the best opportunity set we possibly can find in every given point of the economic cycle.

And then on top of, within that approach is making sure that we're evaluating the primary market.

So when issuers are coming to the marketplace to raise funds, we're evaluating that opportunity set and also within the secondary market where bonds are trading on a continuous basis, we're comparing the relative value between those two options.

but you know the most importantly for us from a process and a philosophical approach is this isn't a set it for getter process where we just all the we invest the portfolio and we just wait till the next maturity come comes due then look for reinvestment opportunities that's not our approach our approach is to is a continued evaluation of what's available in the marketplace what's dynamically changing with the economics what's changing with asset classes are there any

yield or income enhancing swaps that we could deploy within a portfolio to be more active in trying to ultimately deliver higher income and higher positive outcomes for clients.

Then as we look to the last part from a trade execution, this is where a number of individuals on the trading staff are really from, again, a firm and philosophical approach is we have access to about 44 direct broker dealers

and then we look from a technology standpoint there's a number of different tools that provide other trading venues for electronic trading and the really the goal behind having 44 and an additional source from electronic trading standpoint is we want to create a environment where our trading desk and our portfolio managers are able to look at all the various options on a given day within the marketplace so that we can find again the best option we can

and looking at all the possible avenues which we can add yield.

Then also really important is we want to create competition.

So we want to get as many dealers involved to offer a particular security so that we could drive the price lower ultimately for the benefit of the authority and ultimately have a higher income opportunity set.

Then the last piece I'll touch on is really I think we take a lot of pride in within meter and certainly within a public fund space is the technology front.

So the firm is constantly evaluating our technology stack and making sure that we're on the cutting edge and looking at as many resources we possibly can to help, again, achieve those objectives in the investment policy.

So we have Bloomberg, which is an incredible expense for really market research.

This is where the primary

tool that market data is disseminated through.

So as these economic releases are happening, we're able to get that in real time.

You have a lot of independent research.

This is where a lot of trading is taking place in the fixed income universe.

Then on top of that, we use Market Access, which is another platform for electronic trading.

But the last piece I'll touch on, it's really important from a process perspective, is Charles River.

And this is the system where we use our portfolio management and training is done.

But more importantly, because I, again, I want to really hit on the risk management side.

So as Eileen alluded to earlier in the conversation is, yes, we have independent teams all throughout the organization that has a lot of oversight on what we're doing and how we're going about those processes.

So we have a pre and post training compliance monitoring tool within our portfolio management system.

where every time we have a client onboarded, we have an independent team looking at the investment policy, making sure they are taking all the guidelines and rules that are embedded in there, coding them in within our portfolio management and trading software.

So as we're trading and looking at opportunities in real time, the system is evaluating all the characteristics of the bonds we're looking to add to the portfolio and ensuring that they're in compliance with investment policy, the state statute, and also any internal risk management rules that we have

here at the firm and making sure that they're in compliance with the portfolio before we go and even execute that in the marketplace.

So really some cutting edge technology to, again, ensure risk management is first and foremost embedded in the process.

And ultimately, compliance is a key part of overall philosophy and how we're going about managing the portfolios across the firm, but specifically for the authority.

Thank you.

So basically, as we know, as Steve had mentioned, we were just brought on board here last month.

So our onboarding process, our getting started approach

from an engagement standpoint, of course, was putting in place the necessary agreements and the like, gaining access to the custody account where the existing securities were held, getting everything set up within our internal systems and to Jason's point, establishing those compliance rules that will then allow us to start to actively trade

The current portfolio.

We have had a meeting with Steve and team talking through some observations that we had on the investment policy.

So I know that that will be forthcoming as we look to incorporate some updates to the investment policy, again, to align it with

our interpretation of state code, as well as ensuring that there's the necessary flexibility within that policy to maximize the investment program.

So we know we have a tough act to follow here with 3,419% increase in interest income, but recognizing that last year that the authority earned $20 million in interest income,

One of our objectives would be how can we ensure that income is repeatable and sustainable over the years.

This is where the cash flow analysis will come into play.

We have also had a first meeting to walk through the model that the FP&A group has proposed.

So starting to get an understanding truly of the cash inflows and outflows expected of the authority so that we can then compile a recommendation for discussion with Steve and his team in regards to moving forward with the actual investment of the funds and the like.

So with that, I will pause and entertain if there's any questions.

Yes.

In addition, I have an assistant

Gabe Phillips, who serves as a backup to me, gets involved with some of the details at times.

So Gabe will also be someone who you may see as well.

And then I do report to Jason Headings, who I know Jason Headings would also be a contact that would be available.

And Jason had come out to the interview in person.

I was on vacation.

OK, great.

Well, we're looking forward to working with you.

Us as well.

I'm going to second that, Sharon, that I think our team is very excited and we feel confident that this is going to be a good relationship.

We are looking to come to this committee in early January to take a look at that investment policy and some slight tweaks.

And then hopefully we can get agreement there and then take it to the full board meeting later in January.

Thanks for having us.

Do we have to read the next slide?

No.

We all know it.

All right.

Yes.

I know we're cutting close sometimes so I'm going to try and get through this quickly and concisely.

So we're going to go through four slides here.

We are going to talk about the budget process changes and then we're also going to kind of give you a preview of the management reserve balance changes that you're going to see at the December 6 board meeting.

So starting with the, sorry too many, the changes to the budget process.

So this is the fourth time that we've come through this cycle for

for doing the VPRA budget.

And we've devised a different plan this year to make sure that we meet our deadlines, but also have the best data available within our budget.

So this first slide here is depicting the changes in the document itself.

So as you guys are aware, we do have to submit our capital budget to the CTB by February 1st.

However, the VPRA board can approve our budget just before the next fiscal year starts.

So we've decided to kind of separate these two documents.

We're going to take a capital budget, which is going to consist of the capital projects and the capital and operating grants.

And this is going to be the document that comes to you all, the finance committee in January, and then approved by the full board that same month.

In that, it's important to note that in order to do all of the uses and sources prioritization, we do have to know the operation.

So we're going to do an estimate

but the actual operations is not going to be locked in until much closer to the beginning of that fiscal year.

So you can see in that VPRA budget column, that's when we're going to have the full budget that comes to the board holistically to be approved later in a timeline.

So this will kind of add some more context when we look at this slide.

So the dark blue coincides with the capital budget.

So we're working on this aggregation now.

This is going to be brought to the Finance Committee on the 12th of January.

approved at the January 23rd board meeting and that goes off to the CTB in February hoping that it gets approved in March.

So that's going to really consist of the capital budget.

During that same time frame we are going to continue to be refining the operations budget giving us a lot more intel on what the operations with Amtrak is looking like, what does our staffing look like,

Getting us kind of closer to when that next fiscal year starts, allowing for better data.

It's important to note that we may decide to change some of the capital projects as well.

Say we reach a good milestone, or maybe we get some positive news on a grant award.

We will put that in as well.

You'll note that the CTB may have already approved the budget, so we will take any changes that we deem significant back to the CTB in that timeframe, but

Hoping that it doesn't.

The CTB will hold as of March and then we'll come through with the full VPRA budget in the May timeframe.

I know that we're kind of deciding whether or not we'll be doing a finance committee or one-on-ones, but there will be briefings of the all-inclusive VPRA budget and getting that approved at the June 4th VPRA board meeting.

And then that would be the adopted FY25 budget.

So.

Just a big change that will help kind of just refine the budget process and add a lot more clarity into primarily the operations budget that we want to institute this year.

Can I answer any questions on this piece of the budget update?

Hearing none, we can continue on and catch up more time on the management reserve balance.

So this is the first time

Since we adopted the policy that we're kind of doing the update on the management serve balance.

So it captures two quarters of updates.

So FY 23 Q4 and then FY 24 Q1.

This was distributed in the last month's EDR.

It will be coming to the board on December 6th to actually get approved.

As you guys will recall, any of these changes have to actually go through board approval.

So what you're going to see is all the changes to the sources that have occurred in the last six months.

So the first one being PAYGO,

and then we've got about $33 million of operating kind of related revenue increases, so CRF, surplus in our operations, and then obviously our big grant award that we got for the bypass project.

That resulted in an overall increase of about $146 million of sources that we did not previously have in our financial plan.

All of us, this ends up in the management reserve.

It's important to note

VPRA staff, we really have the discretion to kind of rewire the sources, but we are unable to adjust budgets.

So while there's more funding, we can't come in and change anything.

We can't say, oh, this, this money is going to go to fund Long Bridge.

That's board only discretion.

So we are able to update the amount sitting in the management reserve and adjust the sources.

And through that, what we have resulted in is that a majority of this management reserve is unconstrained.

It's VPRA fund.

There's no strings attached.

We can put it anywhere.

But through this process, there also is a portion that is the Amtrak capital contribution that has to be put specifically on a project in that capital contribution agreement.

And there's 10 projects to find there.

So lots of changes, but this is kind of what went into the sausage making.

And then the end result that is coming to the board is that we were going to be asking you guys to approve the changes to the management reserve at a total balance of that $269.4 million.

I think the key that we wanted to go over here is that at this time we don't want to take any of this money and put it on a project.

We're going through the financial planning exercise.

We're going to have a lot of changes coming with estimates as we lock in at 30%.

We might have more news from the federal government.

There's a lot of kind of ins and outs that we want to be able to account for.

So our recommendation is that the board approves it at this balance, and then we figure out what the right level will be as we do the FY 25 financial planning exercise.

So this is just kind of a snapshot of what you guys are going to be seeing in a week or so.

So can we answer any questions on this?

So Shannon, let me just add, and you should never go backwards in slides after five o'clock in a meeting, but if you take that one slide, I promise I'll be brief.

Shannon said on the right-hand side under management reserve that we have VPRA fund unconstrained

$229 million that we can do whatever we want with.

And when she says that, she means the board.

So this is not something that Steve and I, after this meeting, are going to run around and say, OK, where do we put this?

I just wanted to make sure there was no misconception that unconstrained means without board approval because it does not.

Correct.

Any questions on this before we wrap up the open session here?

Give it over to Patty.

Shannon, I just have one question here.

For the goal 291.9, is that based on metrics we approved a few months ago?

Yeah, so it's going to be essentially any unspent budget of 24 plus all future year spends for the capital and operations.

So it's defined in the policy how we calculate that.

It's just that exact calculation that we will have to update each time.

And if you've got thoughts or changes to how we present the reserve, we're happy to talk about those because we want this to be as meaningful for you all as possible.

We're continuing to try to be as transparent, no surprises as we can.

And I'm just going to hit the five percent.

It is the word goal, I think is important.

It's not it's not in the policy or requirement.

It's

a goal that when we do our financial planning, which is constant, we're constantly doing that planning and reiterating the planning.

This is a goal that y'all have said, hey, 5% is a number that you should be thinking about.

It could be that we allocate those funds to cover up, to cover that shortfall.

And maybe we stick with a hundred million when we get to our capital budget.

Understood.

Thank you.

Any other questions?

Patty, before we adjourn, DJ, can somebody put together an agenda of what we're going to have

Sure, we have that and I can send it to you.

That'd be great, thank you.

That was a really good question because it sounds like we've got a whole lot.

Yeah, it's a big meeting, there's no doubt.

Ready to read the magic words?

Yes.

I move that the Board convene in a closed session pursuant to section 2.2-3711A7 of the Code of Virginia for the purpose of discussing and considering prospective candidates for employment and the performance of VPRA employees and independent contractors.

and that the VPRA Chief Financial Officer and other necessary VPRA staff attend the closed session.

Yes.

Okay.

Yes, sir.

Thank you.

We need a roll call.

Yes, ma'am.

Ms. Dorsch?

Aye.

Ms. Bolivar?

Aye.

Thank you.

So anybody that is not on the board needs to leave, please.

That will mean signing out.

Is he mute or is he there?

Very good.

Madam Chairman, I would make the following statement and then ask if each member of the board could attest to their agreement with the following.

To the best of my knowledge during the closed meeting, the only matters heard, discussed, or considered were those matters lawfully exempted from open meeting requirements under the Virginia Freedom of Information Act and only those public business matters as were identified in the motion by which the closed meeting was convened.

Aye.

Ms. Bulova?

Aye.

Mr. Watkins?

Aye.

Okay, any further business?

Okay, then we're adjourned.

Thank you all.

Thank you.

Thank you all.

Have a great weekend.

You win the six.