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 distributed a handout to the Committee with charts depicting the current market conditions in the aftermath of the sub-prime mortgage situation. She stated that the credit crisis has caused a “flight to quality” among worried investors, resulting in a rush to buy government securities, such as three-month U.S. Treasury Notes. The increasing demand for Treasuries caused prices for this type of securities to increase, which in turn caused yields for three-month U.S. Treasury Notes to fall from about 5% to 3.18% in the space of one day. She emphasized that the problems with the sub-prime mortgage market have not affected the District’s portfolio, since the District does not own any of the mortgage-backed securities; but rather, the District owns federal agency notes that are direct-obligation securities. She further stated that given the current volatility of the market, the District’s Portfolio Manager is not making any long-term investments at this time.

Ms. Jones also reported that the Federal Reserve Bank continues to be concerned about inflation, and recently decreased the discount window rate, the rate at which the Federal Reserve Bank loans money to commercial banks. She noted that the “flight to quality” has created an unexpected opportunity for the portion of the District’s portfolio that is invested in the Local Agency Investment Fund (LAIF), in that high-quality Commercial Paper has been trading at the highest rates in over a year, in the range of 5.35% to 5.6%.

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:

Accept the Investment Report for July 2007 prepared by PFM.

Action by the Board - Resolution
CONSENT CALENDAR

Approve Actions Relative to the Execution of a GASB 43 Qualifying IRS Section 115 Trust for Purposes of Funding Future GASB 45 Retiree Healthcare and Other Post-Employment Liabilities

In a memorandum to Committee, Business Process Analyst Alice Ng, Auditor-Controller Joseph Wire and General Manager Celia Kupersmith provided staff’s recommendation to approve actions relative to the establishment of a Governmental Accounting Standards Board Statement 43 (GASB 43) Qualifying IRS Section 115 Trust (Trust) for the purposes of funding Governmental Accounting Standards Board Statement 45 (GASB 45) retiree healthcare and other post-employment benefit (OPEB) liabilities. At the August 9, 2007, meeting of the Finance-Auditing Committee, this matter had been continued to the August 23, 2007, meeting of the Committee for further discussion and possible recommendation.

The report was substantially similar to the report presented to the Committee at its August 9th meeting, with the addition of an Executive Summary (a report that had been requested of staff by the Committee) and an excerpt from the minutes of the August 9th meeting. The report summarized actions previously taken by the Board of Directors relative to the Trust: 1) Resolution No. 2006-066, dated August 11, 2006, to investigate options for creating a trust to fund retiree health care and other post-employment liabilities; and, 2) Resolution No. 2007-030, dated April 13, 2007, to execute a Professional Services Agreement with PFM Asset Management LLC (PFM) to serve as Trust Administrator and Investment Advisor. The report noted that the District is required to comply with GASB 43 and GASB 45 by June 30, 2008.

The report outlined details regarding the following three recommended actions:

1. Authorize the execution of the OPEB Trust Agreement (Trust Agreement) between the District, PFM (as Trust Administrator) and U.S. Bank National Association (as Trustee and Custodian);
2. Approve the Charter for the creation of the OPEB Retirement Investment Trust Board (Trust Board) to oversee the investment of trust assets; and,
3. Authorize the transfer of $3.5 million to the Trust from reserves as the first step in partially pre-funding the Trust.

The report further described the next steps after the Board of Directors approves the above three recommended actions, as follows:

1. Convene a meeting of the Trust Board and at that meeting to recommend adoption of: 1) the Bylaws of the Trust Board; and, 2) the Trust Agreement's Investment Policy Statement;
2. Obtain a new OPEB actuarial valuation in the fall of 2007; and,
3. Fully fund the remaining amounts needed for the Annual Required Contribution for FY 07/08.

The report included the following attachments:

Attachment 1:  Agenda Item No. 4 from the Finance-Auditing Committee Meeting of July 27, 2006;
Attachment 2:  Golden Gate Bridge, Highway and Transportation District OPEB Trust Agreement
Attachment 3:  Charter of the OPEB Retirement Investment Board of the Golden Gate Bridge, Highway and Transportation District OPEB Trust

A copy of the 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 and acknowledged the contributions of those members of his staff who worked on this project: Business Process Analyst Alice Ng, the project manager for the GASB 43 trust, V. James Link, Jr., of PFM Advisors, the Trust Administrator for the GASB 43 trust and Attorney Madeline Chun.

Discussion ensued, including the following:

• Director Cochran inquired how the Trust Board, as comprised of the membership of the Finance-Auditing Committee, would handle circumstances in which the Finance-Auditing Committee becomes a Committee of the Whole. In response, Attorney Miller stated that the Trust Board will be a separate entity made up solely of Finance-Auditing Committee members. Other Directors would be welcome to attend as a matter of interest to hear what transpires, but as a legal matter, if a Trust Board meeting is held on the same day as a Finance-Auditing Committee meeting, the District’s Committee of the Whole structure would not pertain, nor would it be appropriate for non-members sitting at the table to deal with issues that fall within the exclusive province of the Trust Board.

• Director Newhouse Segal made the following inquiries:
  • She inquired as to whether there would be any additional liability for Trust Board members and what type of legal protection would be provided Trust Board members. In response, Attorney Miller stated that under the Tort Claims Act, Directors are entitled to legal protections for actions and omissions, as well as legal defense and indemnity. In response to the Director’s concerns, Mr. Miller suggested that the following language be added to the portion of the recommendation pertaining to the creation of the Trust Board: “…with the understanding that all who serve on the Trust Board will be provided with legal defense and indemnity protection by the District for any acts or omissions that may occur within the scope of their duties and responsibilities.”
  • She inquired as to the nature of indemnity provided by such legal protection. In response, Mr. Miller replied that the above-described legal protection would provide indemnity within the scope of the activities of the Trust Board, the same level of legal protection afforded to members of the Finance-Auditing Committee and the Board of Directors by statute.
  • She inquired as to whether there would be a need for Trust Board members to purchase additional insurance. In response, Mr. Wire stated that staff is currently researching that question with Marsh Risk and Insurance Services (Marsh), the District’s insurance advisor.

• Director Boro made the following comments and inquiries:
  • He noted that the Golden Gate Transit Amalgamated Retirement Board (ATU Retirement Board) purchases additional insurance for trustees with respect to their fiduciary responsibilities, and he inquired as whether that model could also be used for the Trust Board. In response, Mr. Wire explained that, as currently recommended, the District will indemnify those Directors who are also members of the Trust Board. He further stated that District staff will consult with Marsh as to whether it is necessary for the District to purchase additional insurance or extend its current policies to cover members of the Trust Board.
  • He stated that in his opinion, the Trust Board should meet at a different date, time and location than that of the Finance-Auditing Committee, in order to emphasize the fact that the Trust Board is a separate entity.

• Director Grosboll made the following comments and inquiries:
  • He inquired as to whether the Trust Board would have any employee participants. In response, Mr. Wire confirmed that there are no employee participants in the OPEB Trust, given the limited functions of the Trust Board.
  • He inquired as to whether the Trust Board would still be considered a government entity, and Mr. Wire answered in the affirmative.

• Following a lengthy discussion by the Committee members present regarding the date, time and location of the meetings of the Trust Board, it was determined that the Trust Board would meet off-site, at a date, time and location to be determined.

• Director Pahre commended staff for the excellent work that has been done in preparing for the GASB Trust. In response, Mr. Wire acknowledged the contributions of Alice Ng, the District project manager for the GASB Trust.

• President Moylan recounted his experience with Union meetings, noting that it would be important to hold meetings of the Trust Board at a location separate from the Board Room located in the Administration Building at the Golden Gate Bridge Toll Plaza.

Staff recommended and the Committee concurred by motion made and seconded by Directors COCHRAN/PAHRE 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 execution of the GASB 43 Qualifying IRS Section 115 Trust (Trust) for purposes of funding GASB 45 retiree healthcare and other post-employment benefit (OPEB) liabilities:

1. Authorize the execution of the Golden Gate Bridge, Highway, and Transportation District OPEB Trust Agreement (Trust Agreement) between the District, PFM Asset Management LLC, as Trust Administrator, and U.S. Bank National Association as Trustee and Custodian;
2. Approve the Charter for the creation of the OPEB Retirement Investment Trust Board (Trust Board) to oversee the investment of trust assets, comprised of the membership of the Finance-Auditing Committee, with the Auditor-Controller as an ex officio member, in a non-voting capacity, serving as the liaison with the Trust Board’s consultant; with the understanding that the Trust Board will meet, at a minimum, semi-annually, at a location and time to be determined, and with the further understanding that all who serve on the Trust Board will be provided with legal defense and indemnity protection by the District for any acts or omissions that may occur within the scope of their duties and responsibilities; and,
3. Authorize the transfer of $3.5 million to the OPEB Trust from reserves that the Board previously designated for funding retiree benefit costs, as the first step in partially pre-funding the Trust.

Action by the Board – Resolution
NON-CONSENT CALENDAR

AYES (10): Directors Cochran, Eddie, Grosboll, Middlebrook, Newhouse Segal, Pahre, Reilly and Stroeh; First Vice President Boro; President Moylan
NOES (0): None

Ratify the Action of the General Manager to Award a Contract to ExtraTeam, Inc., Relative to California Multiple Award Schedule (CMAS) Contract Nos. 3-04-70-0861C and 3-05-70-0861D for the Purchase of Data Communications Switches

In a memorandum to Committee, Director of Information Systems Robert Haar, Deputy General Manager/Administration & Development Teri W. Mantony, Auditor-Controller Joseph Wire and General Manager Celia Kupersmith provided staff’s recommendation to ratify the action of the General Manager to award a contract to ExtraTeam, Inc., for the purchase of data communications switches.

The report stated that, as part of the Information System Department’s routine equipment upgrade procedure, staff replaced a portion of the District’s data communications switches, which were 10 years old and had reached the end of their useful life. The report also stated that staff purchased 23 replacement data communications switches through the California Multiple Award Schedule (CMAS), at a cost of $113,923. The report noted that the Board of Directors, by Resolution No. 2007-026 at its April 13, 2007 meeting, authorized a budget transfer in the amount of $65,000 from the FY 06/07 District Division Capital Budget to the FY 06/07 District Division Operating Budget for the purchase of these data communications switches.

The CMAS system is a multiple award schedule based on the Federal General Services Administration model. CMAS offers a wide variety of commodity and information technology products and services at prices that the State of California has assessed to be fair, reasonable and competitive. Public Contract Code section 10298 allows the District to take advantage of the CMAS program and to receive the same volume pricing, generous discounts, extensive selection of items and high-quality service that are available to state agencies. By utilizing the CMAS system, instead of undertaking an independent procurement process, the District has saved considerable time and expense.

The report further stated that in the process of purchasing the switches in June of 2007, staff did not realize that in accordance with the District’s Procurement Manual, Section VII.B., California Award Schedules, all CMAS contracts over $100,000 must be approved by the Board of Directors. When the mistake was discovered, staff determined that the purchase agreement exceeded the General Manager’s purchasing authority limits, and that Board approval would be needed. The report noted that appropriate steps have been taken to ensure that similar mistakes do not happen in the future. A form requiring appropriate signatures for specific dollar limits for all CMAS purchases has been instituted. A copy of the report is available in the Office of the District Secretary and on the District’s web site.

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

RECOMMENDATION

The Finance-Auditing Committee recommends that the Board of Directors ratify the action of the General Manager to award a contract to ExtraTeam, Inc., for the purchase of data communication switches through California Multiple Award Schedule (CMAS) Contract Nos. 3-04-70-0861C and 3-05-70-0861D, with the understanding that requisite funds are available in the FY 06/07 District Division Operating Budget.

Action by the Board – Resolution
NON-CONSENT CALENDAR

AYES (10): Directors Cochran, Eddie, Grosboll, Middlebrook, Newhouse Segal, Pahre, Reilly and Stroeh; First Vice President Boro; President Moylan
NOES (0): None

Discussion Regarding Updates to the Five- and Ten-Year Financial Projection

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 08/09 through FY 17/18. The report included the following sections, as well as a detailed narrative on each of these sections: 1) Introduction; 2) Fiscal Strength of the District; 3) Projection Findings; 4) Assumptions; and, 5) 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 07/08 Operating and Capital Budget is expected to keep the reserves constant throughout the year, but given the projected funding needs for next year’s FY 08/09 Operating and Capital Budget, it is anticipated that all available reserves will be allocated. 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 is outlined in Appendices D and E.

The report further stated that the projected ten-year deficit of $290 million is approximately $23 million higher than last year’s $267 million estimate. The projected five-year deficit is $81 million, $6 million less than last year’s $87 million estimate. 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.

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 $1.1 billion in capital needs over the next ten years, requiring a District contribution of $262 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, including capital 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 special Board of Directors meeting and/or workshop scheduled to take place during the fall or winter months of 2007. The meeting and/or workshop will include education on the potential paths to balance the District’s long-term financial plan, as well as 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 07/08 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, using the analogy of a large ocean liner to describe overall financial direction of the District, which moves in a certain direction based on policy decisions previously made by the Board. He noted that the total amount of reserve funds available for capital and operating has steadily increased over the past few years, and is currently at $102 million. Mr. Wire stated that the Ten-Year Capital Projection assumes that the District will spend $5 million from reserves each year to fund future capital projects. Mr. Wire also acknowledged the contributions of Budget and Program Analyst Joanne Leone, the District staff person responsible for calculating the financial projections.

Action by the Board – None Required

Report by District Engineer Relative to Engineering Department FY 07/08 Goals and Workplans

Denis Mulligan provided a report on the accomplishments, workplans and goals of the Engineering Department, which is responsible for engineering and construction projects for all operating divisions of the District, funded from both the capital and operating budgets. Mr. Mulligan highlighted the Engineering Department’s accomplishments for FY 06/07, as follows:

1. Phase II of the Golden Gate Bridge Seismic Retrofit, South Approach Structures (Phase II Seismic Retrofit project) has reached the milestone of achieving seismic safety, and the project is in its final stages. He also stated that the Phase II Seismic Retrofit project received the 2007 Outstanding Civil Engineering Achievement Award from the American Society of Civil Engineers, and he commended the work of Deputy District Engineer Ewa Bauer and the rest of the Engineering Department staff involved in the project.
2. The Golden Gate Bridge North Approach Security Improvements project was completed, providing increased security at the north end of the Bridge.
3. A new suspended scaffolding system has been installed at the north end of the Bridge, to provide a modern access system for painting and paint removal.
4. Phase I of the Golden Gate Bridge Suicide Deterrent project was completed, concluding with a report, released to the public and the media, outlining the results of wind tunnel testing of generic concepts. In addition, a new project web site for the Golden Gate Bridge Suicide Deterrent project was also launched.
5. The Merchant Road Improvements and Realignment project was completed, with the addition of a new paved employee parking area.
6. The Larkspur Ferry Channel and Turning Basin Dredging project was completed, with approximately one-half million cubic yards of dredge materials disposed of in a cost-effective and environmentally sound fashion.

Mr. Mulligan also highlighted the Engineering Department’s goals for FY 07/08, as follows:

1. Phase IIIA of the Golden Gate Bridge Seismic Retrofit, North Anchorage Housing and North Pylon, is being re-advertised, since bids came in much higher than the District had anticipated. Based on research by Engineering staff and consultants, it was determined that the high bids were due to the complexity of the project, the current boom in public construction work, necessary security measures and restricted access to the job site. The bid documents have been repackaged and submitted for approval to the State of California, Department of Transportation (Caltrans), and it is anticipated that this project will be re-advertised soon. Mr. Mulligan stated that the new engineer’s estimate for the Phase IIIA Seismic Retrofit project is $85 million for construction. He also reported that Caltrans has signed off on a new finance letter that provides an additional $50 million of Highway Replacement and Rehabilitation funds to fund the Phase IIIA Seismic Retrofit project.
2. Phase IIIB of the Golden Gate Bridge Seismic Retrofit, Suspension Bridge, has a preliminary engineer’s estimate of $240 million, which cost includes new anti-terrorism security features that will be incorporated into the design.
3. The Golden Gate Bridge Suicide Deterrent project will move into Phase II, the preliminary engineering and preparation of the draft environmental impact report.
4. The Main Cable Recoating project will be undertaken in order to preserve this integral portion of the Bridge structure.
5. The underground diesel fuel storage tanks at the Santa Rosa Bus Facility will be replaced.
6. The Larkspur Ferry Terminal fuel piping will be replaced with marine-grade stainless steel piping.
7. The Engineering Department will work closely with the Bridge Division to complete the Biennial Bridge Inspection, which will include a detailed, engineer-certified inventory of the conditions of each Bridge component. When it is completed, the inspection report will be submitted to the Federal Highway Administration and Caltrans. In conjunction with the Biennial Bridge Inspection, an underwater inspection of the south and north tower piers of the Golden Gate Bridge will also be undertaken.

Discussion ensued, including the following:

• Chair Stroeh inquired as to the status of the District’s efforts to have the U.S. Army Corps of Engineers (Corps) assume responsibility for dredging of the Larkspur Ferry Channel and Turning Basin. In response, Mr. Mulligan reported that the Water Resources Development Act (WRDA) includes language that calls for the Corps to take on permanent responsibility for the dredging of the Larkspur Ferry Channel, and that the District has recently learned that the WRDA bill has passed through the House and Senate conference committees. He noted that if the bill is signed, it would be important for the District’s long-term financial viability, since the costs for disposing of dredging spoils is escalating due to tightening environmental regulations.

• Director Newhouse Segal inquired regarding what constitutes an engineer-certified inspection. In response, Mr. Mulligan explained that these inspections are performed by certified inspectors, and then a licensed professional engineer reviews, approves and certifies all of the inspection reports accordingly. He noted that the Biennial Bridge Inspection is a crucial process, which creates a report card for the Bridge, which is then used to prioritize the Bridge capital projects in the Ten-Year Capital Plan.

Action by the Board – None Required

Review of Golden Gate Bridge Traffic/Tolls and Bus and Ferry Transit Patronage/Fares for One Month Ending July 31, 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 one month ending July 31, 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

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 One Month Ending July 31, 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

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 One Month Ending July 31, 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

Public Comment

There was no public comment.

Adjournment

All business having been concluded, the meeting was adjourned at 11:35 a.m.