March 22, 2007
(For Board: April 13, 2007)

 

REPORT OF THE FINANCE-AUDITING COMMITTEE/
COMMITTEE OF THE WHOLE

 

Honorable Board of Directors
Golden Gate Bridge, Highway
  and Transportation District

Honorable Members:

A meeting of the Finance-Auditing Committee/Committee of the Whole was held in the Board Room, Administration Building, Toll Plaza, San Francisco, California, on Thursday, March 22, 2007, at 10:30 a.m., Chair Stroeh presiding.

Committee Members Present (8): Chair Stroeh; Directors Boro, Cochran, Eddie, Grosboll, Middlebrook and Reilly; President Moylan (Ex Officio)
Committee Members Absent (1): Vice Chair Pahre
Other Directors Present (2): Directors Hernández and Martini

Committee of the Whole Members Present (10): Directors Cochran, Eddie, Grosboll, Hernández, Martini, Middlebrook, Reilly and Stroeh; First Vice President Boro; President Moylan
Committee of the Whole Members Absent (9): Directors Brown, Dufty, Kerns, McGlashan, McGoldrick, Newhouse Segal, Pahre and Sandoval; Second Vice President Ammiano

Staff Present: General Manager Celia G. Kupersmith; District Engineer Denis Mulligan; Auditor-Controller Joseph M. Wire; Secretary of the District Janet S. Tarantino; Attorney Patrick Miyaki; Deputy General Manager/Bridge Division Kary H. Witt; Deputy General Manager/Bus Division Susan C. Chiaroni; Deputy General Manager/Ferry Division James P. Swindler; Director of Risk Management and Safety William L. Stafford; Executive Assistant to the General Manager Amorette Ko; Assistant Clerk of the Board Karen B. Engbretson

Visitors Present: Nancy Jones, Public Financial Management; Gregory J. Wessel and Frederick E. Robinson, Marsh Risk and Insurance Services

     
1. Ratify Actions by the Auditor-Controller
     
 

In a memorandum to Committee, Auditor-Controller Joseph Wire and General Manager Celia Kupersmith outlined commitments, disbursements and investments made on behalf of the District. The report also included a copy of the District’s Investment Report from PFM Asset Management LLC (PFM). A copy of the staff report, with attachments, is available in the Office of the District Secretary and on the District’s web site.

At the meeting, Nancy Jones described the latest economic news and current interest rates for the District’s portfolio. Ms. Jones highlighted charts contained in PFM’s memorandum showing the effect of the recent stock market correction on U.S. Treasury securities. She stated that the District’s Portfolio Manager had sold $5 million worth of corporate Commercial Paper securities when interest rates peaked in February 2007 and invested those funds into federal agency five-year securities just prior to the dramatic drop in interest rates associated with the stock market correction. She noted how the rise in delinquencies of sub-prime mortgages has negatively affected the economy. She also described the connection between stock prices and bond prices, noting that immediately following the stock market correction, increased demand for safe investments led to a rally in U.S. Treasury securities, which caused yields to fall sharply.

Ms. Jones distributed a handout to the Committee comparing recent statements made by the Federal Reserve Bank Open Market Committee, noting that at its March 21, 2007, meeting, the Federal Reserve decided to keep interest rates steady at 5.25%, amid growing concerns about inflation. The District’s Portfolio Manager believes that interest rates will start to fall at some point in 2007 and is therefore continuing to extend the District’s portfolio into longer-term securities.

Discussion ensued, including the following:

  • Director Martini inquired as to how the volatility in interest rates affects the District’s portfolio over time. In response, Ms. Jones stated that while interest rates appear to be reacting more quickly to economic news in the short-term, interest rates for Two-Year U.S. Treasury notes, when averaged over a one-year period, remain within a small range of percentage points.

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

RECOMMENDATION

The Finance-Auditing Committee recommends that the Board of Directors authorize the following actions by the Auditor-Controller:

     
  a.
Ratify commitments and/or expenditures for the period February 1, 2007, through February 28, 2007, totaling $59,074.00;
   
  b.
Ratify investments made by the Auditor-Controller during the period February 13, 2007, through March 12, 2007, as follows;
     
SECURITY

PURCHASE

DATE

MATURITY

DATE

ORIGINAL

COST

PERCENT

YIELD

UBS Finance Delaware, LLC Commercial Paper
02/28/07
04/16/07
7,862,735.56
5.29
Societe Generale NA Commercial Paper
03/01/07
04/02/07
8,826,694.82
5.26
Dexia Delaware, LLC Commercial Paper
03/01/07
04/02/07
5,867,542.40
5.26
       
  c.
Authorize the Auditor-Controller to re-invest, within the established policy of the Board, investments maturing between March 13, 2007, and April 16, 2007, as well as the investment of all other funds not required to cover expenditures that may become available; and,
       
  d.

Accept the Investment Report for February 2007 prepared by Public Financial Management.

Action by the Board - Resolution
CONSENT CALENDAR

       
 
AYES (10): Directors Cochran, Eddie, Grosboll, Hernández, Martini, Middlebrook, Reilly and Stroeh; First Vice President Boro; President Moylan
NOES (0): None
       
2.
Approve Actions Relative to the Filing of Federal Transit Administration Grant Applications and the Execution of Related Agreements for Federal Transportation Assistance
       
 

In a memorandum to Committee, Capital and Grant Programs Manager Gayle S. Prior, Auditor-Controller Joseph Wire and General Manager Celia Kupersmith provided staff’s recommendation to approve actions relative to the filing of Federal Transit Administration (FTA) grant applications and the execution of related agreements for federal transportation assistance. The report stated that the District receives various types of federal grant funds authorized by Title 49 U.S.C. Chapter 53, Title 23 U.S.C. and other federal statutes, through grant applications and agreements with the FTA, the operating administration of the United States Department of Transportation. Generally, these funds are programmed by the Metropolitan Transportation Commission (MTC), as the designated recipient of FTA funds in the San Francisco Bay Area, and are secured directly by the District through its annual FTA Urbanized Area Formula Program grant application.

The report also stated that the FTA requires grantees to designate, by way of Board Resolution, the title of the officials authorized to execute and file grant applications and execute related agreements for federal assistance, as well as the title of the official authorized to execute and file required annual certifications and assurances, as well as other compliance documents.

The report further stated that the Board of Directors, by Resolution No. 2001-019 on January 26, 2001, adopted a one-time resolution that authorized the General Manager as the designated official to execute and file FTA grant applications and identified the President of the Board of Directors as the designated official to execute FTA grant and cooperative agreements. In addition, Resolution No. 2001-019 designated the General Manager as the official authorized to execute and file required FTA certifications and assurances and other grant-related compliance documents, as required by the FTA. For FTA timing and compliance purposes, staff recommends that Resolution No. 2001-019 be superseded by a new resolution that would also authorize representatives designated by the General Manager and the President of the Board of Directors to execute documents on their behalf.


The report noted that as a part of normal business process, staff will continue to present annual items outlining the District’s FTA grant application and program of projects for approval by the Finance-Auditing Committee and the Board of Directors. A copy of the staff 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, noting that the proposed action is a broadening of grant application signing authority, rather than a specific grant application.

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

RECOMMENDATION

The Finance-Auditing Committee recommends the Board of Directors approve the following actions relative to the filing of Federal Transit Administration (FTA) grant applications and the execution of related agreements for federal transportation assistance:

  a.
Authorize the General Manager or her designee to execute and file grant applications with FTA for federal assistance;
 

b.

Authorize the President of the Board of Directors or his designee to execute grant and cooperative agreements with FTA;
  c.
Authorize the General Manager or her designee to execute and file annual certifications and assurances and other documents FTA requires before awarding a federal assistance grant or cooperative agreement; and,
  d.

Amend Resolution No. 2001-019.

Action by the Board - Resolution
NON-CONSENT CALENDAR

       
 
AYES (10): Directors Cochran, Eddie, Grosboll, Hernández, Martini, Middlebrook, Reilly and Stroeh; First Vice President Boro; President Moylan
NOES (0): None
       
3. Approve Renewal of the Property Insurance Program
       
 

In a memorandum to Committee, Director of Risk Management and Safety William Stafford, Deputy General Manager/Administration and Development Teri Mantony, Auditor-Controller Joseph Wire and General Manager Celia Kupersmith reported on the annual renewal of the Property Insurance Program, which renews on April 8, 2007. The report stated that the Property Insurance Program is comprised of the District Buildings and Facilities policy, Boiler & Machinery policy and the newly established Bridge Self-Insurance Loss Reserve.

The report stated that as of the date of this Committee meeting, Marsh Risk & Insurance Services (Marsh), the District’s Insurance Advisor, had not yet received competitive or final quotes for earthquake and flood coverage for the District Buildings and Facilities policy. Therefore, Marsh recommends delaying a decision to renew this portion of the Property Insurance Program until all quotes have been received and all policy structure options have been explored. Since there are no scheduled meetings of the Finance-Auditing Committee or the Board of Directors after March 23, 2007, and before the renewal deadline date of April 8, 2007, staff is recommending that the General Manager be authorized to complete the renewal process for the District Buildings and Facilities policy for the Property Insurance Program. As of the date of this meeting, Marsh had received a single quote for earthquake and flood coverage at limits of $20 million, with the current terms and conditions, for a premium of $755,000 for the District Buildings and Facilities policy. This single quote represents a 40 percent increase over the expiring premium of $539,223. The report noted that the primary reason for the significant premium increases is due to the growing reluctance of insurance carriers to increase their exposure in earthquake zones. In addition, a new earthquake software modeling system, currently used by carriers to determine price, was released in June 2006, after the last renewal of the Property Insurance Program. Marsh is hoping to receive additional final quotes in the range of $600,000 to $650,000, prior to the renewal date of April 8, 2007.

The report described the recommendation for renewal of the Boiler & Machinery policy with the incumbent carrier, stating that this policy covers losses from explosion of boilers and steam pressure vehicles, as well as accidental breakdown of boilers and other mechanical or electrical equipment. The recommended renewal mirrors the existing coverage limits of $1 million per accident and a deductible of $1,000 per accident, for a premium of $2,663, representing an 8.5 percent decrease over the expiring premium of $2,911.

The report further described the District’s Bridge Self-Insurance Loss Reserve (Reserve), which Reserve was established on April 8, 2006, at the time of the 2006 Property Insurance Program renewal, due to the high cost for the renewal of the Bridge Physical Damage and Loss of Use policy. The District has requested Marsh to obtain quotes for this coverage, to determine whether the District should continue funding the Reserve or consider transferring these risks to an insurance carrier. Marsh received a quote from ACE, the carrier that had provided Bridge Physical Damage and Loss of Use coverage in the past, for a premium of $700,000. While this premium is significantly lower than the $1.3 million premium quoted in 2006, the waiting period for Loss of Use coverage was increased from 30 days to 90 days. Therefore, staff recommends that the District continue funding the Reserve, since the transfer of risk to a carrier is not a cost-effective option at this time.

Two staff reports were provided to the Committee relative to renewal of the Property Insurance Program. The first staff report, issued March 16, 2007, included a letter from Marsh dated March 15, 2007, which provided Marsh’s recommendations for renewal of the Property Insurance Program. The second, revised staff report, issued March 21, 2007, included a letter from Marsh dated March 20, 2007, which provided an update on the status of the District Buildings and Facilities policy included in the Property Insurance Program. Copies of both staff reports are available in the Office of the District Secretary and on the District’s web site.

At the meeting, William Stafford summarized the staff report, and Gregory Wessel and Frederick Robinson, Marsh Insurance Advisors, joined Mr. Stafford at the Board table to be available to the Committee to answer any questions.

Discussion ensued, including the following:

  • Director Middlebrook noted the significant increase in the waiting period from 30 days to 90 days as quoted by ACE for the Loss of Use policy, and inquired as to whether such an increase would have any bearing on the amount of funds that the District sets aside for the Restricted Bridge Self-Insurance Loss Reserve. In response, Mr. Stafford stated that the long-range plan for building up the Restricted Bridge Self-Insurance Loss Reserve will accommodate changes in the property insurance marketplace, such increases in the waiting period.
  • Director Grosboll inquired as to why only one insurance carrier provided a quote for Bridge Physical Damage and Loss of Use policy. In response, Frederick Robinson explained that there are very few insurance carriers in the property insurance market that are willing to write a policy for the Golden Gate Bridge, due to the risks of terrorist attack and earthquake.

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

RECOMMENDATION

The Finance-Auditing Committee recommends that the Board of Directors approve the following actions relative to the renewal of the Property Insurance Program:

       
  a.
Authorize the General Manager to bind the coverage for the renewal of the District Buildings and Facilities policy, with the panel of carriers as recommended by the District’s Insurance Advisor, providing “all risk” coverage for all land-based District facilities, except the Bridge itself, in case of fire, flood and earthquake, with a limit of liability of $20 million per flood and earthquake occurrence, with a limit of liability of $45 million per fire occurrence and a deductible of $250,000 each loss for fire, including 5% of value for flood and earthquake, at a premium not to exceed $755,000, for a one-year term, effective April 8, 2007, through April 7, 2008; with the understanding that requisite funds are available in the FY 06/07 Bridge, Bus, Ferry and District Division Operating Budgets and that requisite funds will be budgeted in the appropriate division operating budgets for FY 07/08;
       
  b.
Renew the Boiler and Machinery policy with Hartford Steam Boiler Company, providing coverage for the breakdown of equipment, including all boilers, fired storage water heaters, fired coil water heaters, electric steam generators, sandblasting equipment and all metal unfired pressure vessels used as air tanks, which objects require city and state inspection and certification, with a limit of liability of $1 million per accident and a deductible of $1,000 per accident, at a premium of $2,663, for a one-year term, effective April 8, 2007, through April 7, 2008; with the understanding that requisite funds are available in the FY 06/07 Bridge, Bus, Ferry and District Division Operating Budgets and that requisite funds will be budgeted in the appropriate division operating budgets for FY 07/08; and,
       
  c.

Allocate monies to the Restricted Bridge Self-Insurance Loss Reserve in the amount of $1,300,000 for FY 07/08, with the understanding that this Reserve is to be used in the event of catastrophic damage to the Golden Gate Bridge or the sustained loss of toll revenue; and, with the further understanding that requisite funds are available in the FY 07/08 Bridge Division Operating Budget.

Action by the Board – Resolution
NON-CONSENT CALENDAR

       
 
AYES (10): Directors Cochran, Eddie, Grosboll, Hernández, Martini, Middlebrook, Reilly and Stroeh; First Vice President Boro; President Moylan
NOES (0): None
       
4.
Receive the Independent Auditor’s Engagement Letters as Submitted by Macias Gini & O’Connell LLP for the FY 06/07 Financial Audit and the FY 05/06 Supplemental Retirement Plan
       
 

In a memorandum to Committee, Auditor-Controller Joseph Wire and General Manager Celia Kupersmith provided staff’s recommendation to receive the Independent Auditor’s Engagement Letters, as submitted by Macias Gini & O’Connell LLP (Macias) for the FY 06/07 Financial Audit and the FY 05/06 Supplemental Retirement Plan. The report stated that in the Engagement Letters, which were attached to the report, the Independent Auditor reconfirms their understanding of services provided to the District, to ensure compliance with the Governmental Accounting Standards Board (GASB) regulations.

The report also stated that the Independent Auditor will provide the following services in addition to auditing the basic financial statements of the District for FY 06/07:

  • Submit documentation that will include the Schedule of Expenditures of Federal Awards which will not be audited, but will be subject to “in-relation-to” procedures applied during the audit of financial statements;
  • Audit the National Transit Database Report and the Transportation Development Act Compliance Report;
  • Submit the Management Discussion and Analysis required by the GASB; and,
  • Audit the District’s FY 06/07 Supplemental Retirement Plan.

The report noted that a separate engagement letter is attached for the FY 05/06 Supplemental Retirement Plan, as this was not a part of the original contract for auditing services. A copy of the staff report, with attachments, 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, noting that the two Engagement Letters are routine documents submitted each year by the Independent Auditor.

Discussion ensued, including the following:

  • Director Grosboll made the following inquiries:
  • He inquired regarding the hourly rate charged by the Independent Auditor. In response, Mr. Wire stated that the District’s contract with Macias is based on a “not to exceed” total contract price, rather than based on a specific hourly rate.
  • He inquired as to whether the contract price charged by Macias has competitive rates. In response, Mr. Wire stated that staff feels comfortable with the prices charged by Macias. Celia Kupersmith added that the District will be issuing a Request for Proposals in FY 07/08 for Independent Auditor services upon expiration of the current contract with Macias.
  • Director Boro made the following comments and inquiries:
    • He inquired as to whether the District has hired a staff person who is responsible for monitoring internal controls. In response, Mr. Wire answered in the affirmative, noting that the District has hired a Business Process Analyst who is responsible for such monitoring.
    • He inquired regarding the audit of routine internal processes such as payroll and purchasing. In response, Mr. Wire stated that staff would prepare a report regarding audits for a future Committee meeting.

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

RECOMMENDATION

The Finance-Auditing Committee recommends the Board of Directors receive the Independent Auditor’s Engagement Letters as submitted by Macias Gini & O’Connell LLP for the FY 06/07 Financial Audit and the FY 05/06 Supplemental Retirement Plan.

Action by the Board - Resolution
NON-CONSENT CALENDAR

       
5. Status Report on the District’s Investment Policy
       
 

In a memorandum to Committee, Auditor-Controller Joseph Wire and General Manager Celia Kupersmith provided a status report on the Investment Policy. The report stated that the State of California Government Code no longer requires public agencies to annually submit their investment policy to their governing body for approval. Despite this change in California law, staff feels it to be a prudent practice to have the Board annually review the District’s investment policy, whether or not changes have been made to it during a given year. If changes are necessary during a given year, staff will recommend that the Board formally approve any changes. This past year, there were no changes required to be made to the Investment policy. A copy of the staff report, with the attached Investment Policy, is available in the Office of the District Secretary and on the District’s web site.

Action by the Board – None Required

       
6.
Review of Golden Gate Bridge Traffic/Tolls and Bus and Ferry Transit Patronage/Fares for Eight Months Ending February 28, 2007
       
 

In a memorandum to Committee, Auditor-Controller Joseph Wire and General Manager Celia Kupersmith provided a schedule comparing categories of Bridge traffic, as well as a monthly review of Bridge traffic and tolls and transit patronage and fares, for eight months ending February 28, 2007. A copy of the report is available in the Office of the District Secretary and on the District’s web site.

Discussion ensued, including the following:

  • Director Martini noted that the schedule of transit patronage and fares, included with the staff report, showed that ferry patronage was 14.4 percent higher than budgeted, but that ferry fares were only 0.5 percent higher than budgeted. He inquired as to the reason for the discrepancy. In response, Mr. Wire stated that staff would examine its budget modeling to determine any discrepancy and report said finding to the Board at a future date.

Action by the Board – None Required

       
7. Review of Financial Statements for Eight Months Ending February 28, 2007
       
  a. Statement of Revenue and Expenses
       
   

In a memorandum to Committee, Auditor-Controller Joseph Wire and General Manager Celia Kupersmith provided a financial statement entitled, Statement of Revenues and Expenses for Eight Months Ending February 28, 2007. 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

       
  b. Statement of Capital Programs and Expenditures
       
   

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 Eight Months Ending February 28, 2007. 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

   
8. Public Comment
   
 

There was no public comment.

   
9. Adjournment
   
 

All business having been concluded, the meeting was adjourned at 11:00 a.m.

   

 

Respectfully submitted,

/s/ J. Dietrich Stroeh, Chair
Finance-Auditing Committee