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. 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, Nancy Jones distributed a handout to the Committee with charts that depicted the latest economic news and interest rates for the District’s investment portfolio. She stated that the current credit market crisis is unprecedented in the past fifty years, and has led to multi-million dollar losses by major brokerages, banks and insurance companies. She also stated that because of the current market volatility, the District’s Portfolio Manager has not been buying any corporate securities lately. She noted that as investors flock to safe investments, such as U.S. Treasury Notes, the increase in demand causes an increase in prices and an associated drop in yields. She displayed a chart showing that yields for Two-Year U.S. Treasury Notes have fallen dramatically to a current low of 2.07%.

Ms. Jones reported that several public agencies nationwide have suffered losses because of the high percentage of “problem” securities, such as Structured Investment Vehicles, Asset-Backed Commercial Paper or securities related to sub-prime mortgages. She noted that the District’s portfolio is very safe, because the District does not own any of these types of securities. She also displayed a series of charts depicting an economic slowdown in progress, with the Gross Domestic Product indicator showing the slowest growth in the economy in five years. She noted that inflationary indicators remain elevated, and that concerns about lingering inflation, slowing economic growth and further interest rate cuts by the Federal Reserve Bank have caused a steepening of the U.S. Treasury Yield Curve. She explained that when yields for U.S. Treasury Notes are higher in the 5- to 10-year range than in the 3- to 6-month range, it is an indication that investors are beginning to worry about inflation.

Ms. Jones described the latest actions by the Federal Reserve Bank Open Market Committee (Federal Reserve), which has lowered rates by 40% over the past four months in an unprecedented manner. She stated that leading economists predict that when the Federal Reserve next meets on March 18, 2008, it is expected to lower interest rates again by one-half percent to 2.5%. In conclusion, Ms. Jones displayed pie charts that emphasized the strength and diversification of the District’s Portfolio, noting that all of the securities in the Portfolio have very high credit ratings.

Discussion ensued, including the following:

• Director Boro inquired regarding the Port Authority of New York’s attempts to finance its Tax-Exempt Bonds. In response, Ms. Jones explained how the downturn in the economy has impacted the municipal bond market. She stated that the Port Authority’s bonds are called “Auction-Rate Securities,” which are 30-year investment vehicles with rates that reset periodically. When there are not enough buyers in the bond market for the Auction-Rate Securities, they are considered to have failed, and the public agency that issued them is required to pay a penalty rate ranging from 10 to 20 percent. She further stated that the majority of investors who purchase Auction-Rate Securities do so for increased liquidity, but if the bonds cannot be sold, then the investors cannot get the liquidity that they need.

• Chair Stroeh made the following inquiries:
  • He inquired as to general direction of the economy. In response, Ms. Jones stated that there will probably be quite a bit of economic hardship over the next year before there is an upswing in the economy. She further stated that perhaps the economy might start to turn around in the third or fourth quarter of this year, but most indicators show that the downturn is likely to continue for quite some time. She noted that the credit crisis is even affecting portions of the market traditionally considered safe, such as municipal bonds insurers.
  • He inquired as to the status of the recent sale of Infrastructure Bonds by the State of California. In response, Ms. Jones stated that she would research the question and report back to the Finance-Auditing Committee.

• Celia Kupersmith described a proposal by the Metropolitan Transportation Commission (MTC) to issue bonds for the reconstruction of Doyle Drive that would be backed by some form of tolling. She inquired if Ms. Jones had any insight as to the stability and status of all of MTC’s current bond measures, in light of the fact that the District may become involved with MTC with respect to Doyle Drive. In response, Ms. Jones stated that she would research the question and report back to the General Manager.

Staff recommended and the Committee concurred by motion made and seconded by Directors COCHRAN/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 authorize the following actions by the Auditor-Controller:

PURCHASE

DATE

MATURITY

DATE

ORIGINAL

COST

PERCENT

YIELD

Accept the Investment Report for January 2008 prepared by Public Financial Management.

Action by the Board - Resolution
CONSENT CALENDAR

Authorize Budget Increase in the FY 07/08 Bus Transit Division Capital Budget Relative to the Award of Contract No. 2008-BT-3, Fare Collection System, to GFI Genfare, a Unit of SPX Corporation

In a memorandum to Committee, Auditor-Controller Joseph Wire and General Manager Celia Kupersmith reported on staff’s recommendation to authorize a budget increase in the FY 07/08 Bus Transit Division Capital Budget relative to Contract No. 2008-BT-3, Fare Collection System.

The report stated that this project is included in the FY 07/08 Bus Transit Division Capital Budget at a total cost of $2,800,000, and is funded with $2,240,000 Federal Transit Administration (FTA) grant funds and $560,000 District Funds (80% Federal, 20% District). A capital budget increase in the amount of $250,000, to be funded with $200,000 FTA grant funds and $50,000 from District reserves, is required to fully fund this project at the proposed budget of $3,050,000. 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 the Board of Directors authorize a budget increase in the FY 07/08 Bus Transit Division Capital Budget, in the amount of $250,000, to be funded with $200,000 in grant funds and $50,000 from District Reserves, relative to Contract No. 2008-BT-3, Fare Collection System.

Action by the Board at its meeting of February 22, 2008 – Resolution
NON-CONSENT CALENDAR

AYES (6): Chair Stroeh; Vice Chair Pahre; Directors Boro, Cochran and Middlebrook; President Moylan (Ex Officio)
NOES (0): None
ABSENT (3): Directors Eddie, Grosboll and Reilly

Approve Renewal of the Marine Insurance Program

In a memorandum to Committee, Director of Risk Management and Safety William Stafford, Auditor-Controller Joseph Wire and General Manager Celia Kupersmith reported on the annual renewal of the Marine Insurance Program, which renews on February 28, 2008.

The report stated that the Marine Insurance Program is comprised of Hull and Machinery/Protection and Indemnity Insurance, Vessel Pollution Insurance and Excess Marine Liability Insurance (including Terminal Operator’s Legal Liability and Excess Protection and Indemnity insurance), as well as the Terrorism Risk Insurance Act (TRIA) endorsements for the five layers of Excess Marine Liability insurance. The report stated that the Marine Insurance Program provides coverage in amounts equal to the approximate replacement costs of the ferry vessels, with primary Protection & Indemnity limits of $1 million. The current limit of liability for the Excess Protection and Indemnity Insurance and Marine Liability Insurance is $100 million.

The report described the current market conditions in the Marine Insurance class of insurance, noting that following two years of dramatic premium decreases of approximately 35 percent for Hull & Machinery/Protection & Indemnity insurance, the market still remains competitive, particularly for accounts with a favorable loss history, such as the District’s Ferry Division. However, declines in premiums have moderated significantly for Excess Marine Liability insurance.

The report also stated that the District’s Hull & Machinery/Protection & Indemnity loss experience has continued to improve in the Ferry Division, due to actively controlling hazards and mitigating areas of potential risk. The report noted that the number and severity of hull and machinery damage claims, as well as the amounts paid for crew injuries, has been dramatically reduced.

The report also included a letter from the District’s Insurance Advisor, Marsh Risk and Insurance Services (Marsh), dated February 12, 2008, which provided Marsh’s recommendations for renewal of the Marine Insurance Program, and also included exhibits that provided the schedule of insured vessels and values for 2008, the five-year premium and loss history, marketing results and a comparison of 2008 renewal options. The report noted that the recommended renewal options include terrorism exclusions, and that the District must purchase separate terrorism insurance endorsements offered in accordance with TRIA.

Staff is recommending that the District renew the Hull and Machinery/Protection and Indemnity Insurance policy with St. Paul/Travelers, renew the Excess Marine Liability policy with Starr Marine and various underwriters, renew the Vessel Pollution Liability policy with Great American Insurance Co. and approve TRIA endorsements for the above policies for the Marine Insurance Program for a total premium of $362,678. A copy of the report is available in Office the District Secretary and on the District’s web site.

At the meeting, William Stafford summarized the staff report and introduced Gregory Wessel and Scott Lamb, Marsh Insurance Advisors, to the Committee. Mr. Stafford noted that this year’s renewal of the Marine Insurance Program represented an overall decrease of 2% over the 2007 premium. He noted that the replacement value of the M.S. Marin increased because of the extensive renovation of the vessel that was undertaken in 2007, but that this increase in value did not affect the premium significantly. He also noted that in the last five years, there have been no claims that have reached the deductible of $350,000.

Discussion ensued, including the following:

• Director Cochran made the following inquiries and comments:
  • He inquired as to whether or not there had been any claims under the deductible level of $350,000. In response, Mr. Stafford stated that the District has not had any such claims under the Hull and Machinery policy, but that there have been just a few Jones Act cases that fall under the Protection and Indemnity Insurance policy.
  • He requested a report on the aggregate amount of Jones Act cases that are settled under the Protection and Indemnity Insurance policy.

• Director Pahre suggested that the Ferry Transit Division staff be formally recognized for the significant progress in reducing losses and claims. In response, Ms. Kupersmith stated that such recognition is definitely deserved by the employees of all three operating divisions, and that it would be appropriate to schedule a recognition event after the completion of the other insurance policy renewals. She further stated that it is important that the Board of Directors is aware of the impact of employees’ safe working practices.

• Director Newhouse Segal inquired regarding past losses and claims in the Ferry Transit Division. In response, Ms. Kupersmith described physical improvements that were made to landside and vessel structures, new training and certification programs and other efforts that successfully reduced losses. Mr. Stafford added that certain improvements to infrastructure, such as replacing the aging fuel piping at the Larkspur Ferry Terminal with new stainless steel pipe, has also contributed to the favorable loss history.

• Chair Stroeh offered his congratulations to staff for their imaginative efforts over the past 10 years to reduce overall costs at the District.

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 approve renewal of the Marine Insurance Program, as follows:

with the understanding that requisite funds are available in the FY 07/08 Ferry Transit Division Operating Budget and that requisite funds will be included in the FY 08/09 Ferry Transit Division Operating Budget.

Action by the Board at its meeting of February 22, 2008 – Resolution
NON-CONSENT CALENDAR

AYES (6): Chair Stroeh; Vice Chair Pahre; Directors Boro, Cochran and Middlebrook; President Moylan (Ex Officio)
NOES (0): None
ABSENT (3): Directors Eddie, Grosboll and Reilly

Approve Public Officials Fiduciary Liability Insurance Program for OPEB (Other Post-Employment Benefits) Retirement Investment Trust Board Members

In a memorandum to Committee, Director of Risk Management and Safety William Stafford, Auditor-Controller Joseph Wire and General Manager Celia Kupersmith reported on staff’s recommendation to approve the Public Officials Fiduciary Liability Insurance Program for the District’s Other Post-Employment Benefit (OPEB) Retirement Investment Trust Board members. The report provided background information regarding previous actions taken by the Board of Directors to create the OPEB Retirement Investment Trust Board (Trust Board) and set up the District’s OPEB Trust for the purpose of funding retiree health care and OPEB liabilities.

The report also stated that the OPEB Public Officials Fiduciary Liability Program is new and was brought about by the creation of the Trust Board, comprised of the members of the Finance-Auditing Committee, with the Auditor-Controller serving as an ex officio member in a non-voting capacity. The Trust Board is responsible for oversight of OPEB Trust assets and direction of asset management, including evaluating the performance of the Trust Administrator/Investment Advisor, reviewing and setting the investment policy and periodically reviewing investment performance. The purpose of the OPEB Public Officials Fiduciary Liability Program is to fulfill the Board’s direction to provide the members of the Trust Board legal defense and indemnity protection by the District for acts or omissions taken within the scope of the these duties and responsibilities.

The report also described the marketing efforts undertaken by the District’s Insurance Advisor, Marsh Risk and Insurance Services (Marsh). Since there are a limited number of insurance carriers willing to write Public Officials Fiduciary Liability policies, Marsh requested quotes from two carriers, Chubb Insurance and AIG. The report stated that quotes were requested for a policy with a $2 million limit and either a $25,000 deductible or no deductible. The report also stated that the quotes received from Chubb Insurance were significantly less than those received from AIG, and that staff recommends approval of the purchase of a Labor Management Trust Fiduciary Liability policy from Chubb, at a premium of $2,400, effective March 1, 2008. 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 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 approve the purchase of a Labor Management Trust Fiduciary Liability policy with Chubb Insurance relative to the Public Officials Fiduciary Liability Insurance Program for OPEB (Other Post-Employment Benefits) Retirement Investment Trust Board members, in the amount of $2,400, effective March 1, 2008; with the understanding that requisite funds are available in the FY 07/08 District Division Operating Budget.

Action by the Board at its meeting of February 22, 2008 – Resolution
NON-CONSENT CALENDAR

AYES (6): Chair Stroeh; Vice Chair Pahre; Directors Boro, Cochran and Middlebrook; President Moylan (Ex Officio)
NOES (0): None
ABSENT (3): Directors Eddie, Grosboll and Reilly

Review of Golden Gate Bridge Traffic/Tolls and Bus and Ferry Transit Patronage/Fares for Seven Months Ending January 31, 2008

In a memorandum to Committee, Auditor-Controller Joseph Wire and General Manager Celia Kupersmith provided a schedule comparing categories of Bridge traffic for seven months ending January 31, 2008. 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 Seven Months Ending January 31, 2008. 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 Seven Months Ending January 31, 2008. 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

During Public Comment, Director Boro provided a report on meetings held on February 7, and February 14, 2008, with a group of representatives from the City and County of San Francisco, MTC, Caltrans, the San Francisco County Transportation Authority, Marin and Sonoma Counties and the District to discuss funding of Doyle Drive and the recently awarded Urban Partnership Program grant. Director Boro noted that since the February 14th meeting, the funding gap for the reconstruction of Doyle Drive has been reduced from approximately $460 million to approximately $160 million, due to new sources of funding that have been located.

Director Boro provided a brief overview of the recent meeting with Mayor Newsom and explained that at the meetings, the North Bay representatives (Director Kerns, Director McGlashan and himself) and President Moylan offered to bring a resolution to the Board in March that would call for implementation of congestion tolling on the Bridge in order to meet a key requirement of the grant. He stated that the group would continue to meet to discuss funding of the remaining shortfall on Doyle Drive. Several clarifying questions were asked by the Board members and it was made clear that the March 13 agenda report and accompanying resolution would provide details that will allow the Board the opportunity to make an informed decision about the potential for implementing congestion tolling on the Bridge in an effort to save the grant.

8

Adjournment

All business having been concluded, the meeting was adjourned at 10:55 a.m.