Staff recommended and the Committee concurred by motion made and seconded by Directors MURRAY/PAHRE to forward the following recommendation to the Board of Directors for its consideration:

MATURITY

DATE

ORIGINAL

COST

PERCENT

YIELD

Dexia Delaware Commercial

Paper

UBS Finance Delaware

Commercial Paper

Morgan Stanley Commercial

Paper

Bank of America NA

Certificate of Deposit

Credit Suisse New York

Certificate of Deposit

General Electric Co.,

Commercial Paper

DEPFA Bank PLC NY,

Certificate of Deposit

Citigroup Funding, Inc.,

Commercial Paper

Deutsche Bank Financial, LLC,

Commercial Paper

Accept the Investment Report for July 2006 prepared by Public Financial Management.

Action by the Board - Resolution
CONSENT CALENDAR

In a memorandum to Committee, Auditor-Controller Joseph Wire and General Manager Celia Kupersmith reported on staff’s recommendation to authorize budget increases in the FY 06/07 Bus and Ferry Divisions’ Operating Budgets relative to State Operating Assistance income.    

• Higher than expected prices for diesel fuel have resulted in a statewide increase of 21% in base State Transit Assistance funds, providing approximately $12.3 million for the Bay Area.
• Funds resulting from the “spillover” provision of state law are projected to double due to skyrocketing fuel costs and a moderate overall state economy.  These “spillover” funds are expected to provide additional $87.6 million to the Bay Area.
• The State of California will be repaying two prior years’ worth of Proposition 42 funds that have been previously suspended, and this payback will increase the Bay Area’s Proposition 42 increment to the base State Transit Assistance funds by $37 million.

The report also stated that the District’s share of the total increase in State Operating Assistance income is $5,175,399.  In accordance with the five-year Agreement with the Marin County Transit District for Marin Local Bus Service, $1,023,452 of the District’s share will be credited back to Marin County to support local transit services, with the remaining $4,151,947 available to support Golden Gate Transit regional bus and ferry services.  The report explained how the funding would be allocated by the Metropolitan Transportation Commission over the next three fiscal years.

The report further stated that it is recommended that the FY 06/07 Operating Budget reflect a total increase in the amount of $2,495,453 for State Operating Assistance income.  This additional funding will increase the Bus Division Operating Budget by $2,194,096 and increase the Ferry Division Operating Budget by $301,357.  A copy of the staff report is available in the Office of the District Secretary and on the District’s web site.

In a memorandum to Committee, Auditor-Controller Joseph Wire presented a report on the District’s financial projection for the ten-year period from FY 07/08 through FY 16/17. The report included the following sections, as well as a detailed narrative on each of these sections: Introduction: What is a Projection? Why is a Projection Essential; Fiscal Strength of the District; Projection Findings; Assumptions; and, Next Steps; as well as the following Appendices: Appendix A, Projection; Appendix B, Assumptions; Appendix C, Ten-Year Capital Plan Projection; Appendix D, Capital Contribution Calculation; and, Appendix E, Reserve Structure.

The report contained a five- and ten-year financial projection of operating and capital project revenues and costs to the District. The projection reflects the maintenance of all current policy decisions, including the current operating service levels, the current capital project schedule and the current revenue assumptions. Future policy decisions to change tolls, fares and/or service levels are not included in this projection.

The report stated that the fiscal strength of the District is best tracked by comparing the level of reserve funds available for operating and capital costs, with the time period necessary for the projected needs of the District to exhaust those resources. Historically, the District has maintained reserve funds for capital projects and operating expense emergencies. The FY 06/07 Operating and Capital Budget is expected to keep the reserves constant throughout the year, but it is anticipated that next year’s FY 07/08 Operating and Capital Budget will encumber all available reserve resources, due to large capital projects that begin in that fiscal year, such as the Main Cable Recoating project. The report noted that it is the policy of the District to have fully funded reserves to cover all its legal liabilities and commercial paper obligations. A full description of how the reserves will be managed for fiscal years FY 06/07 and FY 07/08 is outlined in the report and in Appendix E.

The report further stated that the projected ten-year deficit of $267 million is approximately $28 million less than last year’s $295 million estimate. The projected five-year deficit is $87 million, $2 million less than last year’s $89 million estimate. The report noted that the decision by the Board of Directors, at its meeting of August 11, 2006, to establish a trust for retiree post-employment health benefits, has resulted in less of a decrease in the deficit. This year’s financial projection includes an option to fully fund the first ten years of a 30-year amortization of the cost of retiree post-employment health benefits, in accordance with new Government Accounting Standards Board requirements. The report noted that if the option to fund this new trust were not included, the five-year deficit would be $65 million, which is an 85% reduction from the original $441 million deficit reported in 2002. Information supporting these numbers is included in the staff report and is further detailed in Appendix A. The report also described why the five- and ten-year deficits remain, noting that the operating budget is in deficit and multi-year plans to raise revenues are not yet in place. Once the operating budget is balanced and these multi-year plans are in place, the total deficit will be dramatically reduced or eliminated.

The report also contained a description of operating revenue and expense assumptions that were used to prepare the financial projections, which are listed in detail in Appendix B. Of note, this year’s projection includes changes in expenses due to higher projected commercial paper interest rates, future liability for retiree post-employment health benefits and FasTrak maintenance cost savings.

The report also described the capital program assumptions. The FY 07/08 through FY 16/17 Ten-Year Capital Projection, provided in Appendix C of the staff report, identifies $867 million in capital needs over the next ten years, requiring a District contribution of $220 million. This plan has been structured to systematically maintain and sustain existing Bridge, Bus and Ferry capital investments within existing staff resources. Grants are generally assumed to fund 80% of capital projects and 80% of core Bridge paint and rehabilitation projects, consistent with prior experience. The 80% grant funding assumption will be reviewed each year to reflect current experience. All projects have been reviewed and rated essential for the continued operation of the District, and the timing of each project balances the operational need for the project with the availability of staff resources to complete the project in a timely fashion. Project costs are inflated by 2.7% in the out-years based on the inflation factor used by the California Transportation Commission for the State Transportation Improvement Program.

The report further stated that the District will continue the process of addressing the projected deficit at a special Board of Directors meeting and workshop scheduled for September 8, 2006. The workshop will include education on the potential paths to balance the District’s long-term financial plan the merits of the various options, with the goal to produce a revised Strategic Plan for Achieving Long-Term Financial Stability for consideration by the Board. Staff plans to implement the plan in the years ahead, including incorporating it into the current FY 06/07 Operating and Capital Budget, where appropriate. A copy of the report is available in the Office of the District Secretary and on the District’s web site.

At the meeting, Joseph Wire summarized the staff report, describing the overall financial health of the District, as depicted in the chart on page three of the staff report. He noted that the total amount of reserve funds available for capital and operating has steadily increased over the past three fiscal years. Mr. Wire highlighted the inclusion in the financial projection of the option to fund the trust for retiree post-employment health benefits and how the funding of such a trust will impact the size of the five-year deficit. He further described the assumptions that were used to prepare the financial projection, noting that since the projection does not assume policy changes, the projection is based on current toll revenues. In addition, the projection reflects the Five-Year Fare Program adopted by the Board, but does not include fare revenue increases beyond those five years. In conclusion, Mr. Wire stated that the information presented in the financial projection would be used to continue the process of addressing the projected $87 million deficit during the strategic planning discussions at the Joint Board of Directors Meeting/Workshop on September 8, 2006.

Discussion ensued, including the following:

• President Middlebrook inquired regarding the negative balance of $2,163,500 listed in Appendix E as the amount of reserves available for future capital projects.  In response, Mr. Wire explained that the figure appears as a negative amount because the money has already been allocated to future capital projects, although it will actually take up to five years to spend the entire capital reserves based on the length of time it takes to complete large capital projects.

• Director Grosboll inquired as to whether the District has had an occasion to spend any of the operating or emergency reserves in the past few years.  In response, Mr. Wire explained that the District has not had to use the emergency reserve in the past five years, but has used the operating reserve on two occasions in FY 02/03 and FY 03/04 during the economic recession.  He further stated that the operating reserve is set up to be used in case there is a shortfall in revenues or higher than expected expenses in any particular budget. 

In a memorandum to Committee, Auditor-Controller Joseph Wire and General Manager Celia Kupersmith provided a schedule comparing categories of Bridge traffic for one month ending July 31, 2006. A copy of the report is available in the Office of the District Secretary and on the District’s web site.

Action by the Board – None Required

In a memorandum to Committee, Auditor-Controller Joseph Wire and General Manager Celia Kupersmith provided a financial statement entitled, Statement of Capital Programs and Expenditures for One Month Ending July 31, 2006.  A copy of the report is available in the Office of the District Secretary and on the District’s web site.

Action by the Board – None Required

Attorney David Miller, at the request of Chair Stroeh, stated that the Committee would convene in closed session to discuss a matter of pending workers’ compensation litigation listed on the agenda as Item No. 9.a.1., Christine Kislowski vs. Golden Gate Bridge, Highway and Transportation District (District).

There was no public comment.

All business having been concluded, the meeting was adjourned at 11:25 a.m.