May 22, 2008

REPORT OF THE FINANCE-AUDITING COMMITTEE

 

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

Honorable Members:

A meeting of the Finance-Auditing Committee was held in the Board Room, Administration Building, Toll Plaza, San Francisco, California, on Thursday, May 22, 2008, at 10:20 a.m., Chair Stroeh presiding.

Committee Members Present (7): Chair Stroeh; Directors Boro, Cochran, Eddie, Grosboll and Reilly; President Moylan (Ex Officio)

Committee Members Absent (1): Vice Chair Pahre

Other Directors Present (1): Director Newhouse Segal

Staff Present: General Manager Celia G. Kupersmith; District Engineer Denis J. Mulligan; Auditor-Controller Joseph M. Wire; Secretary of the District Janet S. Tarantino; Attorney David J. Miller; Deputy General Manager/Bridge Division Kary H. Witt; Deputy General Manager/Bus Division Teri W. Mantony; Deputy General Manager/Ferry Division James P. Swindler; Deputy District Engineer Ewa Z. Bauer; Grant and Capital Programs Manager Gayle S. Prior; Assistant Clerk of the Board Karen B. Engbretson; Executive Assistant to the General Manager Amorette Ko

Visitors Present: Nancy Jones, PFM Asset Management LLC

     
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 stated that consumer confidence has fallen to the lowest level in several decades. She also stated that the Federal Reserve Bank has, for the third time in a row, reduced their economic growth forecast, which is now in the 0.32% to 1.2% range. She noted that it is difficult to determine whether or not the economy is in a recession, because it requires a measure of two quarters of negative economic growth to declare that a recession is in progress.

Ms. Jones also stated that the financial markets are still under stress, and that many portfolio managers believe that there is more bad news on the horizon. She stated that leading economists think that the Federal Reserve will hold interest rates at their current levels when they next meet on June 24, 2008, and that they may do so at their August 2008 meeting as well. She noted that this kind of stable interest rate environment is good for the District’s portfolio, and that the District’s Portfolio Manager has been able to purchase longer-term, callable federal agency securities with higher yields. She further noted that federal agency securities are trading very well right now, and that those are the types of securities that will be targeted for the portfolio.

Discussion ensued, including the following:

  • Director Grosboll inquired as to why it is preferable to purchase longer-term securities at this time. In response, Ms. Jones explained that the yields for short-term securities are currently in the 2% range, whereas some of the 2-year, 3-year and 4-year federal agency securities are getting yields of between 3.5% and 4%. She stated that it is a balancing act to ensure that the District’s portfolio will be healthy, whether interest rates increase or decrease.

Staff recommended and the Committee concurred by motion made and seconded by Directors EDDIE/REILLY 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 April 1, 2008, through April 30, 2008, totaling $250,706.00;
     
  b. Ratify investments made by the Auditor-Controller during the period April 15, 2008, through May 12, 2008, as follows;
     
SECURITY

PURCHASE

DATE

MATURITY

DATE

ORIGINAL

COST

PERCENT

YIELD

Dexia Credit Local NY, Certificate of Deposit
04/21/08
07/17/08
2,999,633.48
2.88
HSBC USA, INC., Commercial Paper
04/21/08
07/21/08
3,042,841.75
2.88
FHLB TAP Bonds
04/30/08
03/09/12
4,995,150.00
3.53
BNP Paribas (NY) Certificate of Deposit
05/05/08
05/30/08
4,300,000.00
2.53
BNP Paribas Finance, Inc., Commercial Paper
05/05/08
08/04/08
1,405,521.47
2.67
UBS Finance Delaware Commercial Paper
05/05/08
08/04/08
6,951,163.33
2.78
Calyon North America, Inc., Commercial Paper
05/07/08
08/05/08
6,979,776.56
2.59
FHLB Disc Note
05/07/08
06/04/08
4,992,358.33
1.97
         
  c.
Authorize the Auditor-Controller to re-invest, within the established policy of the Board, investments maturing between May 13, 2008, and June 16, 2008, 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 April 2008 prepared by PFM.

Action by the Board at its meeting of June 13, 2008 – Resolution
CONSENT CALENDAR

         
  AYES (7): Chair Stroeh; Directors Boro, Cochran, Eddie, Grosboll, and Reilly; President Moylan (Ex Officio)
NOES (0): None
ABSENT (1): Vice Chair Pahre
         
2.

Authorize Budget Transfers in the FY 07/08 Operating Budget

In a memorandum to Committee, Auditor-Controller Joseph Wire and General Manager Celia Kupersmith reported on staff’s recommendation to approve budget transfers in the FY 07/08 Operating Budget for several line items that have incurred higher expenses than budgeted, including bus and ferry fuel, benefit expenses and legal expenses. The report stated that the most significant increases occurred with fuel expenses for the Bus Transit and Ferry Transit Divisions. For these line items, staff budgeted $2.20 per gallon, but this cost is expected to increase to $2.80 per gallon by the end of the fiscal year. It is anticipated that the Bus Transit Division will need an additional $1,000,000, and the Ferry Transit Division an additional $800,000, to absorb this increase in fuel costs. The report noted that the proposed FY 08/09 Operating Budget reflects a $3.00 average per gallon fuel cost.

The report also stated that the Bus Transit Division’s budget for Benefit Expenses needs to increase by $200,000, due to increased medical payments. In addition, the Bridge Division’s budget for Legal Expenses needs to increase by $600,000, due to unanticipated, one-time additional litigation costs. The report also noted that the District’s overall operating budget will not reflect a net increase. All of these budget transfers will be absorbed within each of the respective operating division’s budget, except for the transfers of $400,000 for Bus Transit Division Fuel and Related Taxes, and $550,000 for Ferry Transit Division Fuel and Related Taxes. These amounts will be transferred from the Bridge Division’s Commercial Paper Interest Expense line item, in which a $950,000 savings is projected by the end of the fiscal year.

The report further stated that staff recommends authorizing the above-described transfers, totaling $2,600,000, in the FY 07/08 Operating Budget to pay for these higher than budgeted expenses. A copy of the report is available in Office the District Secretary and on the District’s web site.

At the meeting, Joseph Wire summarized the staff report, noting that the price of fuel has escalated significantly since the FY 07/08 Operating Budget was prepared last year.

Staff recommended and the Committee concurred by motion made and seconded by Directors COCHRAN/EDDIE 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 budget transfers relative to the FY 07/08 Operating Budget:

  a.
A transfer in the amount of $1,000,000 to Bus Fuel and Related Taxes to be funded by $400,000 from Bridge Interest Expense and by $600,000 from Bus Professional Services;
  b.
A transfer in the amount of $800,000 to Ferry Fuel and Related Taxes to be funded by $250,000 from Ferry Professional Services and by $550,000 from Bridge Interest Expense;
  c.

A transfer in the amount of $200,000 to Bus Benefit Expenses from Bus Professional Services; and,

  d.

A transfer in the amount of $600,000 to Bridge Legal Expenses from Bridge Interest Expense.

Action by the Board at its meeting of May 23, 2008 – Resolution
NON-CONSENT CALENDAR

         
  AYES (7): Chair Stroeh; Directors Boro, Cochran, Eddie, Grosboll, and Reilly; President Moylan (Ex Officio)
NOES (0): None
ABSENT (1): Vice Chair Pahre
         
3.

Authorize a Budget Increase in the FY 07/08 Bus Transit Division Capital Budget Relative to the Award of Contract No. 2008-BT-2, San Rafael District Administration Building HVAC Improvements

In a report to Committee, Deputy District Engineer Ewa Bauer, District Engineer Denis Mulligan and General Manager Celia Kupersmith provided staff’s recommendation for the Committee’s concurrence with a budget increase relative to the award of Contract No. 2008-BT-2, San Rafael District Administration Building HVAC Improvements. The report stated that this project is included in the FY 07/08 Bus Transit Division Capital Budget in the amount of $500,000 and is 100% District funded. A capital budget increase in the amount of $380,000, to be funded from District Reserves, is required to fully fund this project for the total project budget of $880,000. 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 COCHRAN/EDDIE 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 $380,000, to be funded from District Reserves, for a total project budget of $880,000.

Action by the Board
Refer to the Building and Operating Committee Meeting of May 22, 2008

AYES (7): Chair Stroeh; Directors Boro, Cochran, Eddie, Grosboll, and Reilly; President Moylan (Ex Officio)
NOES (0): None
ABSENT (1): Vice Chair Pahre

         
4.

Approve Actions Relative to the Filing of a Grant Application with the U.S. Department of Homeland Security for FY 06/07

In a memorandum to Committee, Capital and Grant Programs Manager Gayle S. Prior, Auditor-Controller Joseph Wire and General Manager Celia Kupersmith reported on staff’s recommendation to approve actions relative to the filing of an application for the FY 06/07 Transit Security Grant Program administered by the U.S. Department of Homeland Security (DHS). The report stated that in March 2007 and in December 2007, the District filed applications with the DHS for FY 06/07 Transit Security Grant Program (TSGP) funds in the amount of $841,503, to support implementation of the following new transit security capital projects:

  1. Ferry Security Shelter and Additional Enhanced Security and Preparedness ($318,503);
  2. San Rafael Bus Facility Security ($521,000).

The report also stated that the Governor’s Office of Homeland Security (OHS) has been designated as the State’s administrative agency and is responsible for administering the TSGP funds for the State of California on behalf of the DHS. The report noted that the OHS requires project applicants to adopt a resolution appointing individuals or positions to act on behalf of the applicant and its governing body, and to provide related certifications and assurances for TSGP grant applications. The report further stated that staff recommends approving the actions necessary to secure TSGP funds to support the above-listed security capital projects. A copy of the staff report is available in the Office of the District Secretary and on the District’s web site.

Discussion ensued, including the following:

  • Director Boro inquired as to the status of the Transportation Security Administration’s (TSA’s) program for screening ferry passengers using advanced explosives detection technology, which program was tested on Golden Gate Ferry vessels in August 2005. In response, Ms. Kupersmith stated that the TSA is still in the testing phase of the passenger screening program, and that it has not yet been formally rolled out or made available to transit agencies.

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

RECOMMENDATION

The Finance-Auditing Committee recommends the Board of Directors authorize the General Manager or her designee to execute any necessary actions, including related certifications and assurances, relative to the filing of a grant application with the U.S. Department of Homeland Security, for FY 06/07 Transit Security Grant Program funds, in the amount of $841,503, to support transit security capital projects.

Action by the Board at its meeting of May 23, 2008 – Resolution
NON-CONSENT CALENDAR

AYES (7): Chair Stroeh; Directors Boro, Cochran, Eddie, Grosboll and Reilly; President Moylan (Ex Officio)
NOES (0): None
ABSENT (1): Vice Chair Pahre

         
5.

Approve Actions Relative to the Renewal of the Line of Credit Agreement with JP Morgan Chase Bank, National Association, for the Commercial Paper Program

In a memorandum to Committee, Financial Management and Business Process Manager Alice Ng, Auditor-Controller Joseph Wire and General Manager Celia Kupersmith provided staff’s recommendation to approve actions relative to the Line of Credit Agreement (Agreement) with JP Morgan Chase Bank, National Association (JP Morgan), for the Commercial Paper Program (Program). The report described the background regarding the Program, which began on July 12, 2000, with the issuance of $61 million in commercial paper notes to fund the District’s share of the Golden Gate Bridge Seismic Retrofit Project and the Main Cable Restoration Project.

The report also stated that the terms of the Program require that a Line of Credit Agreement (Agreement) be put in place for the entire 30-year duration of the program, to assure creditors that sufficient funds are available to repay principal and interest in full upon each maturity date. The report noted that when the Program began in 2000, JP Morgan was originally selected as the vendor for the Agreement because it is a world leader in providing financial liquidity agreements for public sector entities like the District.

The report stated that the District’s last Agreement with JP Morgan was renewed in 2005 for a term of three years through July 6, 2008, at a cost of 20 basis points per year. The proposed renewal would take effect on July 7, 2008, and run through July 5, 2009, at a cost of 32.5 basis points per year. Consistent with past practice with the Program, staff consulted with the District’s Investment Advisor, Public Financial Management, Inc. (PFM), to survey current market conditions for the Agreement. This year’s renewal occurs during very challenging market conditions, largely due to the current credit crisis, which has increased the demand for credit instruments such as line of credit agreements, thereby exhausting the capacity of banks to provide such instruments. These market conditions have driven up the cost of line of credit agreements, including the District’s Agreement. Although the District has the option of establishing a new Agreement with a different vendor, such a course of action would entail additional transaction costs between $75,000 and $100,000. Therefore, staff recommends renewal of the Agreement with JP Morgan as the most cost-effective solution for the District. By limiting the Agreement to a one-year term, it will allow staff to revisit the line of credit market in July 2009 at which time the market may normalize.

The report further stated that the original Agreement needs to be amended to reflect escalating point increases in the event of downgrades in the District’s credit rating. This amendment will not have an impact unless the District is downgraded three times during the Agreement period. The Agreement also needs to be amended to allow for a tighter window of notice for future Agreement extensions. Lastly, the Agreement needs to be amended to update certain bank contact information. Staff further recommends that these conforming amendments to the Agreement also be authorized. 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 Agreement is essentially buying the backing of a highly rated financial institution to support the District’s outstanding debt in the Program. He further noted that the renewal fee of 32.5 basis points for the proposed Agreement equates to approximately $250,000, and represents about a 60 percent increase over the fee for the previous Agreement. He stated that one year from now, it is assumed that the current credit crunch will have been alleviated somewhat, and that in spring of 2009, staff will go out into the financial marketplace again to seek an agreement at more affordable rates.

Discussion ensued, including the following:

  • Director Grosboll inquired regarding the drawbacks of the District opting not to renew the Program’s Agreement. In response, Mr. Wire stated that the practical impact would be that the District would pay significantly higher costs for the Program, and might even have difficulty in keeping the District’s commercial paper in the marketplace. He noted that it is a universally accepted practice for high-grade commercial paper, like the District’s, to be backed by a financial institution such as JP Morgan. He further noted that the District would also risk losing its high bond ratings of AA- and A+, and therefore be an unattractive investment for mainstream investment companies.
  • Chair Stroeh inquired as to the amount of the Line of Credit fee that the District paid last year for the Program, and Mr. Wire replied that last year the District paid approximately $160,000 for the same service from JP Morgan.

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 Line of Credit Agreement (Agreement) with JP Morgan Chase Bank, National Association (JP Morgan), for the Commercial Paper Program:

  a.

Authorize execution of a 364-day extension of the Agreement with JP Morgan, at the cost of thirty-two and a half basis points, or an approximate annual fee of $250,000, for the term from July 7, 2008, to July 5, 2009; and,

  b.

Approve the following conforming amendments to the Agreement with JP Morgan:

    (1)

Amend Section 2.06 to reflect an increase in the commitment fee and corresponding escalating point increases in the event of downgrades in the District’s credit rating, relative to the 364-day extension period;

    (2)

Amend Section 2.10 to reflect a tighter window of notice required by the District to notify JP Morgan of the District’s request for extension to not more than 60 days nor less than 30 days prior to the then current stated expiration date of the Agreement; and,

    (3)

Amend Section 7.08 and Exhibits B and C to update certain JP Morgan contact information;

 

with the understanding that requisite funds are available in the proposed FY 08/09 District Division Operating Budget.

Action by the Board at its meeting of May 23, 2008 – Resolution
NON-CONSENT CALENDAR

AYES (7): Chair Stroeh; Directors Boro, Cochran, Eddie, Grosboll and Reilly; President Moylan (Ex Officio)
NOES (0): None
ABSENT (1): Vice Chair Pahre

         
6.

Approve Adoption of the FY 07/08 Operating and Capital Budgets

In a memorandum to Committee, Auditor-Controller Joseph Wire and General Manager Celia Kupersmith provided a summary of the development process and a general overview of the proposed draft FY 08/09 Operating and Capital Budget (FY 08/09 Budget), which contains District workplans; goals and objectives; a negotiated 3% pay increase for the Labor Coalition and Amalgamated Transit Union represented employeesand a 3% pay increase for non-represented employees; changes to the Reserve Structure; and, changes to the Table of Organization. The report stated that the proposed FY 08/09 Budget is a policy document that serves as an implementation tool for the Board’s policy directions that were developed in its long-term Strategic Financial Plan.

The report provided an overview of the proposed FY 08/09 Budget, which includes:

  • Operating Budget revenues of $155.2 million;
  • Operating Budget expenditures of $164.2 million;
  • Capital Budget revenues of $23.7 million;
  • Capital Budget expenditures of $32.1 million; and,
  • District reserves are budgeted to be used to fund the FY 08/09 Operating Budget shortfall of $9 million and District share of the Capital Budget of $8.4 million.

The report also included background summary information regarding the proposed FY 08/09 Budget, providing details on the Operating Budget, the Capital Budget and the use of reserves. A copy of the report, including a copy of the proposed FY 08/09 Budget, is available in the Office of the District Secretary.

At the meeting, Joseph Wire provided an overview of the proposed FY 08/09 Budget, noting that this meeting will provide an opportunity for a discussion of the proposed FY 08/09 Budget, which is scheduled for adoption at the June 13, 2008, meeting of the Board of Directors. Mr. Wire then proceeded to guide the Committee members through the FY 08/09 Budget (Budget) document, focusing on an overview of the District’s current financial situation, Operating Budget revenues and expenses and the Capital Budget. He noted that the FY 08/09 Budget reflects decisions that were made by the Board during the previous fiscal year.

Mr. Wire described the proposed FY 08/09 Budget as shown on page 15 of the Budget document presented to the Committee. He stated that the Operating Budget is expected to be $9 million in deficit in FY 08/09, larger than the deficit was in FY 07/08, and slightly larger than staff had projected. He also stated that the Capital Budget is $8 million in deficit, to be funded by $8 million in District Reserves. He noted that it is the District’s intention that the Operating Budget is used to raise money to put into Reserves in order to pay for capital expenditures. He further stated that it is not the District’s intention to have the Operating Budget remain in deficit for any period of time, and that the proposed toll increase will effectively eliminate that deficit for the Five-Year Projection period.

Mr. Wire then described the status of the District Reserves, as shown in the chart on page 16 of the Budget document. He stated that the total Reserves available for capital and operating expenses have increased to the highest point in the past twenty years, due to continued annual capital contributions of $9 million to the Reserves and slower than expected spending on capital projects. He noted that in past years, all of the funds in the Reserves had been encumbered, but this is no longer the case. He stated that at this point, it would take approximately two years to encumber all of the funds in the Reserves.

Mr. Wire highlighted a new chart on page 19 of the Budget document, which showed the expenses incurred by the District over the past five years to maintain the Commercial Paper Program (Program). He noted that in FY 07/08, these costs, which include the average annual interest rate combined with Line of Credit fees, rating agency fees, dealer costs and various bank fees, amounted to 3.19%. In the proposed FY 08/09 Budget, these costs are projected to increase to 5.86%. He also stated that the District is continuing to make interest-only payments on the outstanding Program debt of $61 million until the Seismic Retrofit Project is completed, as was directed by the Board. He noted that each year staff reviews whether or not it would be prudent to start making payments on the principal ahead of the scheduled plan, and staff determined to continue interest-only payments in the FY 08/09 Budget due to a budgetary requirement in the Indenture.

Mr. Wire described the Strategic Planning Process, stating that the proposed FY 08/09 Budget continues the selected deficit reduction strategies discussed at the November 9, 2007, Strategic Planning Workshop. He noted, however, that the FY 08/09 Budget does not include any potential revenues that may be earned from the proposed toll increase, on which the Board has not yet taken formal action. He then explained how the FY 08/09 projected budget compares to the proposed FY 08/09 Budget. He noted that the proposed FY 08/09 Operating Budget of $164.2 million is approximately $2.3 million more than was projected, which is almost entirely due to a new actuarially determined contribution for Other Post-Employment Benefits (OPEB) that was not known at the time of the original projection.

Mr. Wire described the categories of operating revenues contained in the proposed FY 08/09 Budget, and as shown on page 25 of the Budget document. He highlighted pie charts that answer the following questions: (1) Where will the money come from to operate the District in FY 08/09; and, (2) Where will the money go to operate the District in FY 08/09. Mr. Wire described the operating revenue budget assumptions for the proposed FY 08/09 Budget, as shown on page 29 of the Budget document, noting that the overall revenue base is expected to remain flat in FY 08/09. He described the status of State Operating Income, which is projected to increase by $2.1 million in the proposed FY 08/09 Budget. He noted, however, that there may be a significant impact on the District’s operating revenues from the recently announced proposal by Governor Schwarzenegger to take funding away from the State Transit Assistance (STA) program in an attempt to balance the California State Budget. If this happens, it would reduce the District’s operating revenues by $2 million, which would increase the operating deficit to $11 million. He further stated that the District has joined other transit operators in the state to express opposition to this proposed elimination of STA funding.

Mr. Wire described the categories of operating expenses, as outlined in the Budget document beginning on page 31. He noted that over $100 million of the $164.2 million FY 08/09 Operating Budget is used for employee salaries and fringe benefits. He highlighted the changes to operating expenses, and explained the expected increases in various categories of expenses, as shown on page 32 of the Budget document. He highlighted the four most significant changes to expenses: (1) Labor and Fringe Benefits; (2) Fuel and Related Taxes; (3) Debt Service/Interest Expense; and, (4) Depreciation. He noted that the increase in expenses for Labor and Fringe Benefits was minimized by Overhead Cost Allocation Program, by which the state and federal government allows the District to shift more of its capital labor costs to the Capital Budget. As a result of charging capital labor expenses directly to the capital projects, the Operating Budget was reduced.

Mr. Wire briefly described the changes to the Table of Organization in the proposed FY 08/09 Budget, as outlined on pages 36-37 of the Budget document. He also summarized the proposed FY 08/09 Capital Budget, which contains 38 continuing projects and 21 new projects, to be funded with $8.4 million in District funds (26%) and $23.7 million in federal, state and local grant funds (74%). The District’s 10-Year Capital Program was described in further detail in the appendices to the Budget document.

In conclusion, Mr. Wire summarized briefly the proposed capital expenditures in the FY 08/09 Budget for each of the operating divisions, as outlined on pages 39 to 41 of the Budget document. He noted that staff has attempted to create the lowest possible Capital Budget that would allow the maximum amount of projects to get started in FY 08/09. He stated that although there is a large number of these capital projects, most of them have relatively small project budgets. He further noted that when the FY 08/09 Budget document is finalized at the end of FY 07/08, the final FY 08/09 Capital Budget will be updated to reflect which capital projects have actually ended by that time and which capital projects will be carried over into FY 08/09.

Discussion ensued, including the following:

  • Chair Stroeh inquired as to whether the District Reserves set aside for capital projects could be used for emergencies. In response, Mr. Wire answered in the affirmative, noting that if a need arose to use funds from the Reserves for emergency purposes, then the capital project for which the funds had been allocated would need to be delayed until the funds could be replaced in the Reserves.
  • Director Boro made the following comments and inquires:
    • He inquired as to whether the Golden Gate Bridge Seismic Retrofit Project is fully funded. In response, Mr. Wire explained that the Seismic Retrofit Phase IIIA (North Anchorage Housing and North Pylon) is fully funded, using a combination of federal funds along with regional and state earmarks, but that Phase IIIB (Main Suspension Span, Main Towers, South Tower Pier and Fender) is only partially funded at this time.
    • He commented that it was very prudent several years ago that the District began making annual contributions to the Capital Budget from the Operating Budget in order to build up the Reserves. He noted that when the Seismic Retrofit Project began in 1997, there was an assumption that the entire project would be funded by 80% federal and 20% District funds. He stated that now, with current trends to eliminate federal earmarks and reduce federal funding, the percentages are closer to 50% federal and 50% District funds.
    • He referred to the pie chart on page 27 of the Budget document, and inquired as to how the amounts listed as “Patron Contribution” translates to the amount of farebox recovery. In response, Mr. Wire explained that the chart does not accurately reflect the amount of farebox recovery because it only lists patron fare revenue for Golden Gate Transit regional bus service, not for Marin local bus service, which is included in the amount for “Other Revenue.”
    • He suggested that next fall, the District review the bus patronage numbers for the most popular bus routes, and plan to have available additional service on those routes to avoid leaving people behind at bus stops. In response, Ms. Kupersmith stated that staff will ensure that the largest capacity buses are used on the bus routes with the highest number of passengers.
  • Director Grosboll made the following inquiries:
    • He inquired as to how to explain to the public that even though the District’s Reserves are at historically high levels, the District still needs to increase the tolls. In response, Mr. Wire explained that in approximately two years all of the funds presently in the Reserves will be allocated to capital projects. He stated that the public could be educated on the fact that in the District’s 10-Year Capital Plan, there are pressing capital needs such as the South Tower and Main Cable rehabilitation projects, as well as the need to purchase new buses.
    • He referred to the pie chart on page 25 of the Budget document, which depicts the relative percentage of District revenues that go to operate the various operating divisions. He inquired as to whether the combined percentage of 62% for the Bus Transit and Ferry Transit Divisions has increased over the past few years. In response, Mr. Wire explained that every year the share of District revenues needed to operate the Transit Divisions increases slightly. He noted that the majority of the District workforce is in the Transit Divisions, especially the Bus Transit Division, and that every year, the Transit Divisions’ operating needs tend to use more and more of the operating budget.
  • Director Cochran made the following inquiries:
    • He inquired regarding the $7.5 million in Museum Reserves that had been set aside several years ago. In response, Mr. Wire explained that in 2003, during the worst of the District’s financial crisis, the Board took action to use the funds in the Museum Reserves for emergency financial needs. He noted that the Board has the option of taking action in the future to restore the Museum Reserves.
    • In response to his inquiry regarding the Marin Transit’s farebox recovery rate, Mr. Wire stated that Marin Transit’s rate tends to be within one to two percentage points of the District farebox recovery rate for regional bus service.
    • He inquired regarding the impact on the District’s budget if the Governor is successful in taking funding away from the STA program. In response, Ms. Kupersmith stated that the impact would be lessened because staff was conservative in estimating the amount of STA funds the District would receive in FY 08/09. She noted that the biggest argument against eliminating STA funding is that transit operators across the state are experiencing increased ridership due to increased gasoline prices, and that transit funding needs to increase, not decrease. She further noted that there is talk of placing a statewide initiative on the ballot to prevent the State of California from using transit funding for other purposes in the state general fund.
  • Director Eddie commented that an interesting feature of the District’s Capital Plan is that the District saves funds for future capital projects, whereas the usual practice of public agencies is to spend money on a capital project, and then raise the money later through issuing bonds to replace the monies in the budget. He stated that it is a much more prudent course of action to anticipate future capital needs and set aside the monies for those projects. Attorney Miller noted that maintaining capital reserves is in keeping with the District’s Enabling Legislation, which directs the General Manager and the Auditor-Controller to report to the Board of Directors the amount at which tolls need to be set in order to pay for operating expenses, as well as for repairs and maintenance of capital assets.
  • President Moylan inquired as to whether there would be a need to use the Reserves to pay for the Moveable Median Barrier project. In response, Ms. Kupersmith replied that the Moveable Median Barrier project is already fully funded through a $20 million allocation from the Metropolitan Transportation Commission and the District’s local match, which is included in the FY 08/09 Capital Budget. She noted that RFP No. 2008-B-5, Environmental Studies & Preliminary Design for a Moveable Median Barrier on the Golden Gate Bridge, will be issued in June 2008.
  • Director Reilly made the following inquiries:
    • She inquired regarding the District’s farebox recovery goals. In response, Mr. Wire explained that several years ago the Board of Directors set a farebox recovery goal for bus of 25% and 40% for ferry. He noted that currently the farebox recovery rates are approximately 40% for ferry service and 22% to 23% for bus service. Ms. Kupersmith stated that in 2006 when the Five-Year Fare Program was under discussion, it was determined that the District’s farebox recovery rate was too low, so the Five-Year Fare Program was adopted to increase fares at a higher rate of 5% each year, rather than by using the Consumer Price Index. She noted that the District has raised fares each year for the past 11 years, whereas most transit agencies only raise fares every six or seven years.
    • She requested that staff revisit the District’s transit farebox recovery goals, compare them to those of other Bay Area transit agencies, and report back to the Board of Directors.
  • Chair Stroeh commended staff for the excellent presentation of the FY 08/09 Budget, which has significantly improved over the years into a very readable, easy-to-understand document.

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 adoption of the FY 08/09 Operating and Capital Budgets, including the following related actions:

  a.

District workplans, goals and objectives, as contained in the Budget document;

  b.
Negotiated 3% pay increase for the Coalition represented employees and 3% pay increase for non-represented employees, effective July 1, 2007;
  c.
Changes to the Reserve Structure; and,
  d.

Changes to the Table of Organization.

Action by the Board at its meeting of June 13, 2008 – Resolution
NON-CONSENT CALENDAR

         
7.

Review of Golden Gate Bridge Traffic/Tolls and Bus and Ferry Transit Patronage/Fares for Ten Months Ending April 30, 2008

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 ten months ending April 30, 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

         
8.
Review of Financial Statements for Ten Months Ending April 30, 2008
         
  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 Ten Months Ending April 30, 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

         
  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 Ten Months Ending April 30, 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

         
9.

Public Comment

There was no public comment.

         
10.

Adjournment

All business having been concluded, the meeting was adjourned at 11:40 a.m.

         

Respectfully submitted,

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