Receive and file annual report on the securitized tobacco funds and the status of Ceres, Demeter and Pomona funds for fiscal year ended June 30, 2025. (No general fund impact) (Haynes/Sorensen)

Receive and file the Department of Financial Services' annual report on the de-allocation of securitized tobacco funds and the status of the Ceres, Demeter and Pomona funds for fiscal year ended June 30, 2025.

In 2002, Yolo County participated in the Pooled Tobacco Securitization Program administered by the California Statewide Financing Authority ("the Authority"). In accordance with U.S. Treasury regulations, all investments held in connection with the bonds are restricted by a universal cap, which essentially requires that the value of investments equals at least the value of outstanding bonds. After each semi-annual debt service payment (May and November), the bonds and investment holdings are revalued and any excess of investment value over bond value is de-allocated, that is, released back to the County for unrestricted use. In 2003, the Board of Supervisors approved an investment strategy for tobacco settlement receipts securitized in 2002 and directed the Chief Financial Officer (in its role as Auditor-Controller) to make an annual report on the status of the endowment fund ("Demeter") and annuity fund ("Pomona") and recommend necessary adjustments to the investment strategy.

At the November 06, 2018 meeting, upon the Department of Financial Services' recommendation, based on revised long-term projections for the funds, the Board adjusted the investment strategy and the distribution of de-allocated funds (Att. B. Deallocated Funds Flow). In brief, the adjusted strategy called for annual transfers of $225,000 of the de-allocated monies to the former Pomona Fund (now titled the Health & Human Services Emerging Needs Contingency) and make $225,000 available in appropriations to fund such programs as determined by the Board until the year 2043. The balance of de-allocated monies is directed toward the continued buildup of the Demeter Fund so that it can generate a perpetual annuity of $300,000 beginning in year 2043. The Department of Financial Services staff, together with PFM Asset Management (as investment advisor), will continue to review financial models for availability of resources from de-allocated funds and update the Board when conditions change.

A financial summary of fund balances for the Ceres Fund, Pomona Fund (Health & Human Services Emerging Needs Contingency), and Demeter Fund for the fiscal year ending June 30, 2025, is presented in Attachment A (Report on Tobacco Funds). In fiscal year 2024-25, a total of $583,356 was de-allocated from the Ceres Fund. Of this amount, $225,000 was transferred to the Health and Human Services Emerging Needs Contingency, while the remaining $358,356 was retained in the Demeter Fund to grow the endowment. The Health and Human Services Emerging Needs Contingency ended the fiscal year with an unspent balance of $450,000. This balance was subsequently approved by the Board to be used as a budget balancing solution in the 2025-26 Recommended Budget. 

The Department of Financial Services has collaborated with PFM. PFM manages the investment of the Ceres and Demeter funds and reviews future projections of available resources for de-allocation.