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.

Nancy Jones, Public Financial Management, was not present at the meeting to provide a verbal report on the status of the District’s investment portfolio. Ms. Jones’ written report was included in the Committee packet.

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 authorize the following actions by the Auditor-Controller:

Accept the Investment Report for November 2007 prepared by PFM.

Action by the Board at its meeting of December 14, 2007 – Resolution
CONSENT CALENDAR

Authorize a Budget Increase in the FY 07/08 Operating Budget Relative to the Other Post-Employment Benefits (OPEB) Annual Required Contribution to Reflect the New July 1, 2007, Actuarial Valuation

In a memorandum to Committee, Auditor-Controller Joseph Wire and General Manager Celia Kupersmith provided staff’s recommendation to authorize a budget increase in the amount of $1,900,000 in the FY 07/08 Operating Budget relative to the Annual Required Contribution (ARC) for Other Post-Employment Benefits (OPEB), reflected in the District’s most recent OPEB Actuarial Valuation dated July 1, 2007. The report stated that in June 2007, the Board adopted the FY 07/08 Operating Budget that included full funding of the ARC of $11.6 million based on the actuarial valuation as of July 1, 2005. In accordance with GASB 45, which requires new actuarial valuations every other year, staff has obtained an updated OPEB actuarial valuation as of July 1, 2007. The new valuation estimates the District’s Unfunded Actuarial Accrued Liability to be $152.8 million, which is an increase of $42.2 million from the previous report of $110.5 million.

The report included a table that summarized the changes from the 2005 valuation and the 2007 valuation, with the following explanations:

1. A correction to 2005 understatement of the retiree per capita cost estimate for Caremark prescription benefits, in the amount of $22,922,982;
2. The adjustment factor due to passage of time for two additional years of ARC not funded, in the amount of $14,031,884;
3. The change in the discount rate from 8 percent to 7.75 percent, in the amount of $4,422,489; and,
4. Demographic changes at the District resulting in actuarial assumptions, in the amount of $602,625.

The report stated that with the above-listed changes, totaling $42,279,980, the District’s Unfunded Actuarial Accrued Liability increased from $110,487,278 in 2005 to $152,767,258 in 2007. The report noted that the first three of the above-listed changes, totaling $41.2 million of the $42.3 million increase, are not expected to be recurring; therefore, staff does not anticipate that future actuarial valuations will result in such differences. Future valuations will only be exposed to the changes in the District’s employee/retiree demographic changes affecting actuarial assumptions. The report further stated that the amortization of the revised Unfunded Actuarial Accrued Liability resulted in a revised FY 07/08 ARC of $13.5 million. This is an increase of $1.9 million from the previous valuation of $11.6 million, which was included in the adopted FY 07/08 Operating Budget. Staff recommends that a budget adjustment in the amount of $1,900,000 be authorized in the FY 07/08 Operating Budget, to fund this increase in the OPEB ARC.

The report included the following attachments:
Exhibit 1: Unfunded Actuarial Accrued Liability Table; and,
Exhibit 2: Five-Year Projection of the Annual OPEB Cost and Net OPEB Obligation.

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 and provided additional details regarding the changes in the District’s Unfunded Actuarial Accrued Liability. He stated that the biggest change was due to an error made by the actuary with regard to the amount required to pay for prescription drug benefits for retirees. He also stated that since two years elapsed before setting up the OPEB Trust, there were two additional years of unfunded ARC. Mr. Wire further stated that there was a change in the assumed earnings rate from 8 percent to 7.75 percent, to match the rate used by the State of California, Public Employees Retirement System (CalPERS). He noted that these three changes were one-time-only adjustments, as opposed to demographic changes, which will adjust the actuarial assumptions when they are evaluated every two years.

Discussion ensued, including the following:

• Director Grosboll inquired as to the high amount of the correction regarding Caremark prescription drug costs. In response, Mr. Wire stated that the mistake by the actuary was due to an underestimation of the value of the prescription drug benefits over the lifetime of the eligible retirees.

Staff recommended and the Committee concurred by motion made and seconded by Directors COCHRAN/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 a budget increase in the amount of $1,900,000 in the FY 07/08 Operating Budget, relative to the Annual Required Contribution (ARC) for Other Post-Employment Benefits (OPEB), reflected in the July 1, 2007, OPEB Actuarial Valuation.

Action by the Board at its meeting of December 14, 2007 – Resolution
NON-CONSENT CALENDAR

AYES (8): Chair Stroeh; Vice Chair Pahre; Directors Boro, Cochran, Eddie, Grosboll and Middlebrook; President Moylan (Ex Officio)
NOES (0): None
ABSENT (1): Director Reilly

Authorize the Setting of a Public Hearing Relative to a Proposal to Increase the 2008 Special Event Ferry Fare between the Larkspur Ferry Terminal and AT&T Park

In a memorandum to Committee, Director of Planning Alan Zahradnik, Deputy General Manager/Ferry Division James P. Swindler, Auditor-Controller Joseph Wire and General Manager Celia Kupersmith presented staff’s recommendation to set a public hearing on January 10, 2008, to receive public comment on a proposal to increase the 2008 special event ferry fare between the Larkspur Ferry Terminal and AT&T Park from $7.00 to $7.50, effective March 1, 2008.

The report summarized the District’s fare policy for special event service fares, noting that the District’s policy regarding special event ferry service requires that passenger fares be set at a “break-even” rate that generates sufficient fare revenues to cover the operating costs of providing the service. The report also stated that staff has prepared a cost/revenue analysis of special event ferry service provided for Giants baseball games at AT&T Park, and staff estimates that it will cost approximately $510,000 to operate special event ferry service to eighty Giants’ home games during the 2008 season. Based on the average ridership per ferry trip of 425 passengers, it is recommended that the one-way special event ferry fare be increased by $0.50 to $7.50, in keeping with the “break-even” policy. The report further stated that the proposed increase represents a 7.1 percent fare increase, and that a fare is not required for up to two children, ages 5 and under, per fare-paying adult. The report also noted that no discounts are offered for this special event ferry fare.

Staff recommends that a public hearing be set for 9:00 a.m. on January 10, 2008, prior to the meeting of the Finance-Auditing Committee. A copy of the staff 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/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 authorize the setting of a public hearing on Thursday, January 10, 2008, at 9:00 a.m., in the Board Room, Administration Building, Golden Gate Bridge Toll Plaza, San Francisco, CA, to receive public comment on a proposal to increase the special event ferry fare between the Larkspur Ferry Terminal and AT&T Park from $7.00 to $7.50, effective March 1, 2008, in keeping with the Board of Directors’ policy to set special event fares to generate sufficient passenger revenues to cover the cost of providing the service.

Action by the Board at its meeting of December 14, 2007 – Resolution
NON-CONSENT CALENDAR

AYES (8): Chair Stroeh; Vice Chair Pahre; Directors Boro, Cochran, Eddie, Grosboll and Middlebrook; President Moylan (Ex Officio)
NOES (0): None
ABSENT (1): Director Reilly

Approve Actions Relative to the Award of Contract No. 2008-FT-5, Four Main Diesel Engines for the M.V. Mendocino, to Valley Power Systems North, Inc.

In a memorandum to Committee, Deputy General Manager/Ferry Division James P. Swindler and General Manager Celia Kupersmith presented staff’s recommendation to approve actions relative to the award of Contract No. 2008-FT-5, Four Main Diesel Engines for the M.V. Mendocino. The report stated that the M.V. Mendocino was built in 2001 and has been in operation for just over four years, with approximately 19,000 hours of use. The report also stated that staff applied for and received Carl Moyer Program grant funds in the amount of $1,226,050 to purchase four new Tier 2 ferry engines for the M.V. Mendocino, which engines will be designed and manufactured in accordance with the latest U.S. Environmental Protection Agency (EPA) and California Air Resources Board (CARB) regulations. The report also stated that with installation of the new engines, emissions would be reduced by 45 percent. Additionally, the engine selected by the District is widely used in fast ferry applications throughout the United States and has an excellent reliability record.

The report stated that on October 23, 2007, the District advertised for bids for Contract No. 2008-FT-5, Four Main Diesel Engines for the M.V. Mendocino. On November 27, 2007, a single bid from Valley Power Systems North, Inc., (Valley Power Systems) was received and publicly read by the Secretary of the District. The report also stated that Valley Power Systems is the local authorized Detroit Diesel/MTU dealer of Tier 2 ferry engines.

The report further stated that because only one competitive bid was received for this contract, staff conducted a cost analysis of the sole bid and solicited another quote from a second authorized Detroit Diesel/MTU dealer. Staff has determined that the rates and cost structure of Valley Power Systems’ bid price were justified and reasonable. The report noted that no contract-specific Disadvantaged Business Enterprise (DBE) goal was established for this contract. The DBE Program Administrator has determined that Valley Power Systems has complied with the DBE requirements applicable to this contract, but that no DBE participation is anticipated during the performance of the contract.

Staff recommends that Contract No. 2008-FT-5 be awarded to Valley Power Systems to provide four MTU 12V4000 M60 Tier 2 Marine Diesel Engines, as well as on-site installation, training and oversight services, for a total bid price of $1,171,463, and that a contingency budget in the amount of $95,000 be established. This project is included in the FY 07/08 Ferry Division Capital Budget and is 100% grant funded with Carl Moyer Program and Federal Transit Administration grant funds. A copy of the report is available from the Office of the District Secretary and on the District’s web site.

At the meeting, James Swindler summarized the staff report, providing some background information on the M.V. Mendocino engines. He noted that over the past few years, some operational problems have been experienced with the main engines on the vessel. He also stated that due to their age, the four main engines are also due for a major overhaul, which costs approximately $1 million. He further stated that with the receipt of the Carl Moyer Program grant funds, staff is taking the opportunity to replace the four older engines with new, more environmentally friendly engines, rather than proceed with the major overhaul of the existing engines. He noted that the specifications for Contract No. 2008-FT-5 included specific performance requirements, to ensure that the M.V. Mendocino would operate effectively as a high-speed ferry vessel.

[With the arrival of Director Sandoval, the Committee became a Committee of the Whole.]

Discussion ensued, including the following:

• Chair Stroeh requested general information regarding the Tier 2 engines to be installed in the M.V. Mendocino. In response, Mr. Swindler explained that the M.V. Mendocino presently uses Tier 0 engines, and that the Tier 2 engines are newer engines currently required by EPA and CARB regulations. He stated that with the use of Tier 2 engines, emissions of particulate matter and nitrogen oxide will be reduced by 45 percent

• Celia Kupersmith provided additional information in response to concerns regarding the labor practices of Valley Power Systems, which has been involved in a lengthy labor dispute. She stated that there was a suggestion that the District could simply purchase the four main diesel engines from Valley Power Systems, without using the company’s personnel for installation, training and technical oversight. She stated that if the Committee wishes to proceed in such a manner, a separate company from Seattle, Washington, could be used to perform the installation, training and technical oversight associated with the new engines.

• Chair Stroeh inquired as to whether proceeding in such a manner, as described by Ms. Kupersmith above, would affect the deadlines associated with the Carl Moyer Program grant. In response, Ms. Kupersmith explained that by proceeding with the contract award, using Valley Power Systems as an equipment vendor only, the District would be able to use the Carl Moyer Program grant funds in the current funding cycle and maintain the project timelines.

• Director Hernández made the following comments and inquiries:

  • She inquired regarding the “personnel training” associated with the engine procurement, contained in Item No. 3 of the staff recommendation. In response, Ms. Kupersmith clarified that if the Committee chooses to use Valley Power Systems as an equipment vendor only, that particular component would be provided by the Seattle company.
  • She inquired as to whether there are other authorized Detroit Diesel/MTU dealers in the United States that could supply the Tier 2 engines for the District. In response, Ms. Kupersmith answered in the affirmative, but noted that if the District were to re-bid the contract to seek bids from other vendors, there is a risk that the grant would expire and that the District would have to wait another year before re-applying for the same Carl Moyer Program grant funds. She also noted that given the fact that the existing engines on the M.V. Mendocino are in need of overhauling or replacement soon, the District would need to spend approximately $1 million in District funds to overhaul the engines prior to the start of the Giants baseball season, a time when all vessels in the District fleet are needed in revenue service.
  • She inquired as to where the District placed legal advertisements for Contract No. 2008-FT-5. In response, Secretary of the District Janet Tarantino stated that this bid opportunity had been advertised in the Marin Independent Journal and the Small Business Exchange.
  • She expressed her concerns that this bid opportunity had not been more widely advertised in order to attract more bidders, especially in light of the ongoing labor dispute with Valley Power Systems.
  • She stated that she would vote in opposition to the recommendation.

• Director Grosboll made the following inquiries:
  • He inquired as to whether there is a Tier 3 engine currently available. In response, Ms. Kupersmith stated that the Tier 2 engine is the most advanced engine currently available.
  • He inquired as to how long the M.V. Mendocino will be out of service for the installation of the four new diesel engines. In response, Ms. Kupersmith stated that the vessel will be in dry-dock for approximately six weeks, and that staff would like to have the engine installation coincide with the routine dry-docking for maintenance and U.S. Coast Guard inspection that is scheduled for early spring 2008.
  • He inquired as to whether the employees of the Seattle company with which the District would contract to perform the installation, training and technical oversight are union-represented. In response, Mr. Swindler answered in the affirmative, noting that the International Association of Machinists and Aerospace Workers represent the company’s employees.

• Director Middlebrook inquired as to whether there would be additional costs associated with using workers from the Seattle company to perform the installation, training and technical oversight. In response, Ms. Kupersmith answered in the affirmative.

Director Sandoval stated that he would vote in opposition to the recommendation.

Staff made the following original recommendation:

“The Finance-Auditing Committee recommends that the Board of Directors approve the following actions relative to Contract No. 2008-FT-5, Four Main Diesel Engines for the M.V. Mendocino:

with the understanding that requisite funds (100% Carl Moyer Program and Federal Transit Administration grant funded) have been included in the FY 07/08 Ferry Division Capital Budget.

Following discussion by the Committee of the Whole, a motion was made and seconded by Directors GROSBOLL/COCHRAN to forward the following amended 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 Contract No. 2008-FT-5, Four Main Diesel Engines for the M.V. Mendocino:

1. Approve award of Item #1, Category “A”, of Contract No. 2008-FT-5 to Valley Power Systems North, Inc., San Leandro, CA, to provide four MTU 12V4000 M60 Tier 2 Marine Diesel Engines, in the amount of $1,114,348; and, 
2. Authorize a contingency budget in the amount of $95,000 to cover anticipated sales tax and other miscellaneous costs associated with the engine procurement, excluding personnel training;

with the understanding that requisite funds (100% Carl Moyer Program and Federal Transit Administration grant funded) have been included in the FY 07/08 Ferry Division Capital Budget.

Action by the Board at its meeting of December 14, 2007 – Resolution
NON-CONSENT CALENDAR

AYES (11): Directors Cochran, Dufty, Eddie, Grosboll, McGoldrick, Middlebrook, Pahre, Reilly and Stroeh; First Vice President Boro; President Moylan
NOES (2): Directors Hernández and Sandoval

Review of Golden Gate Bridge Traffic/Tolls and Bus and Ferry Transit Patronage/Fares for Five Months Ending November 30, 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 five months ending November 30, 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 Five Months Ending November 30, 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 Five Months Ending November 30, 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 9:50 a.m.