September 11, 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, September 11, 2008, at 11:05 a.m., Chair Stroeh presiding.

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

Committee Members Absent (1): Director Boro

Other Directors Present (1): Director Newhouse Segal

Staff Present: General Manager Celia G. Kupersmith; Auditor-Controller Joseph M. Wire; Secretary of the District Janet S. Tarantino; Attorney David J. Miller; Deputy General Manager/Ferry Division James P. Swindler; Director of Risk Management and Safety William Stafford; Executive Assistant to the General Manager Amorette Ko; Assistant Clerk of the Board Karen B. Engbretson

Visitors Present: Barbara Goodwin, Robin Hendrickson and Rod Socklov, ABD/Wells Fargo Insurance Services, Inc.; Dennis Mulqueeny, Alliant Insurance Services, Inc.

     
1.

Approve Actions Regarding the Execution of Professional Services Agreements Relative to Request for Proposals (RFP) No. 2009-D-1, Insurance Advisor and Brokerage Services

In a memorandum to Committee, Director of Risk Management and Safety William Stafford, Auditor-Controller Joseph Wire and General Manager Celia Kupersmith provided staff’s recommendation to execute professional services agreements relative to Request for Proposals (RFP) No. 2009-D-1, Insurance Advisor and Brokerage Services. The report stated that the District has three distinct insurance programs with different policy renewal dates: the Marine, Property and Liability Insurance Programs, which renew in February, April and June, respectively. The District currently engages the services of Marsh Risk and Insurance Services, Inc. (Marsh), the District’s current Insurance Advisor, to place all lines of insurance. With the upcoming expiration of the professional services agreement with Marsh in November 2008, the District made the decision to structure RFP No. 2009-D-1 with the flexibility to either select different insurance brokers for different insurance programs (a common practice in the insurance industry), or to continue to keep all insurance programs with a single broker.

The report also stated that the District advertised RFP No. 2009-D-1 on June 2, 2008, and received six proposals by the due date of July 11, 2008. The RFP was posted on the District’s web site and 11 potential proposers were notified of the RFP. An Evaluation Committee, composed of District staff, evaluated the proposals using the following criteria: (1) qualifications and experience of firm (25%); (2) qualifications and experience of staff (40%); (3) fee for services (25%); and, (4) comprehensiveness and quality of work plan (10%).

The report also stated that four firms were interviewed by the Evaluation Committee, and based upon the evaluation of both the written proposals and the results of the oral interviews, staff determined that ABD/Wells Fargo Insurance Services, Inc. (ABD), received the highest rating for the Liability Insurance Program. The report noted that ABD offers experience with four major transit agencies in the Bay Area including Bay Area Rapid Transit (BART), San Mateo County Transit (SamTrans), Alameda-Contra Costa Transit (AC Transit) and CalTrain. In addition, ABD has extensive access to domestic and worldwide insurance markets, and has proposed several possible enhancements to the Liability Insurance Program, including such value-added services as claims and loss control services. ABD properly submitted all the required proposal documents and the District finds their fee proposal to be fair and reasonable for the quality services proposed. It is recommended that a Professional Services Agreement be entered into with ABD, in an amount not to exceed $238,700, for the Liability Insurance Program, for a three-year term, with two successive one-year options.

The Evaluation Committee also determined that Alliant Insurance Services, Inc., (Alliant) received the highest rating for the Marine Insurance and Property Insurance Programs. The report noted that Alliant offers experience with a major transit agency, Santa Clara Valley Transit Authority (VTA), as well as with a wide range of public entities. The report noted that in its proposal, Alliant added a separate fee for Marine hull and machinery claims adjusting services, but that even with this additional fee, Alliant still had the lowest Marine Insurance fee of all the proposers. Furthermore, Alliant offers exclusive access to large public entity property insurance pools, which include sophisticated marketing strategies with domestic and London-based insurance carriers. In addition, Alliant proposed several enhancements to the Property Insurance Program, including such value-added services as property valuation tools and catastrophe modeling. Alliant properly submitted all the required proposal documents and the District finds their price proposal to be fair and reasonable for the quality and unique services proposed. It is recommended that a Professional Services Agreement be entered into with Alliant, in an amount not to exceed $257,446, for the Marine Insurance and Property Insurance Programs, for a three-year term, with two successive one-year options, including a claims contingency of $20,000 for Marine claims adjusting services.

A copy of the report is available in the Office of the District Secretary and on the District’s web site.

At the meeting Mr. Stafford summarized the staff report and provided an explanation of the District’s decision to separate the District insurance program and execute agreements with multiple insurance brokers.

Staff recommended and the Committee concurred by motion made and seconded by Directors GROSBOLL/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 Request for Proposals No. 2009-D-1, Insurance Advisor and Brokerage Services:

  1. Authorize execution of a Professional Services Agreement with ABD/Wells Fargo Insurance Services, Redwood City, CA, in an amount not to exceed $238,700, for the Liability Insurance Program, effective November 8, 2008, for a three-year term, with two successive one-year options, subject to the approval of the General Manager or her designee; and,
  2. Authorize execution of a Professional Services Agreement with Alliant Insurance Services, Inc., San Francisco, CA, in an amount not to exceed $257,446, for the Marine Insurance and the Property Insurance Programs, including a claims contingency of $20,000 for Marine claims adjusting services, effective November 8, 2008, for a three-year term, with two successive one-year options, subject to the approval of the General Manager or her designee;

with the understanding that requisite funds are available in the FY 08/09 Operating Budgets for RFP No. 2009-D-1, and with the further understanding that requisite funds for the remaining years of the project will be included in the Operating Budgets for future fiscal years.

Action by the Board at its meeting of September 12, 2008 – Resolution
CONSENT CALENDAR

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

     
2.

Receive the Updated Five- and Ten-Year Financial Projection, As Revised

In a memorandum to Committee, Auditor-Controller Joseph Wire presented a report on the District’s revised financial projection for the ten-year period from FY 09/10 through FY 18/19. The financial projection was first presented to the Finance-Auditing Committee at its meeting of August 21, 2008, and following discussion of this matter by several members of the Committee present at the meeting, staff revised the report regarding the District’s reserve structure and included several possible scenarios for funding the remaining phase of the Seismic Retrofit project.

The revised 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 included a revised line chart showing the amount of reserve funds available for capital projects over the past 20 years, from FY 87/88 to FY 07/08. The chart split out the reserves available for capital projects, which total $99 million in FY 07/08, from the total reserve balance, totaling $117 million. The report noted that the Board of Directors has a current policy to set aside 7.5% of the projected operating expenses for the fiscal year for Operating Reserves and an additional 3.5% of the projected expenses for Emergency Reserves, totaling approximately $18 million for FY 08/09. As these reserves are earmarked and are not intended to be used to cover Capital expenses, only $99 million remains in reserves to cover District funded capital projects.

The report provided revised projection findings, noting that the new projected ten-year deficit of $173 million is approximately $117 million lower than last year’s $290 million estimate. The projected five-year deficit is $35 million, $56 million less than last year’s $91 million estimate (the five-year deficit reported in 2007 was adjusted from $81 million to $91 million to account for an increase in Other Post-Employment Benefits expenses based on a new actuarial study). The report also outlined the reasons for the five-year remaining deficit, as follows: (1) adding a new fifth year, 2014, accounts for $24 million of the deficit; (2) the change in Cost-of-Living Allowance used to inflate expenses in the projection, which accounts for $5 million of the deficit; and, (3) unanticipated changes in expenses, primarily consisting of increases in fuel, salaries and medical expenses, which accounts for $21 million of the deficit, offset by approximately $20 million in transfers of expenses to capital projects.

The report also explained the use of reserves to fund capital projects, noting that the Board of Directors has directed staff to apply all capital project reserves to fund capital projects in the ten-year projection period. However, these funds do not cover the District’s capital funding needs, so additional funds will need to be raised through the capital contribution transfer from the operating budget. The report further explained that the capital contribution need has increased $1 million annually over last year’s projection. The projected ten-year District capital need is estimated at $316 million. After accounting for funds contributed by depreciation, and the use of $99 million in District reserves, the recommended annual capital contribution from District Operations is $100 million, or $10 million annually for the ten-year period. The first $10 million will be included in the FY 09/10 Budget.

The report described the capital program assumptions, noting that grants are generally assumed to fund 80% of major Bridge capital projects, consistent with prior experience. At the request of the Board of Directors, staff provided an analysis of alternative capital revenue assumption scenarios, as follows:

  • With an 80% grant funded assumption, the five-year deficit is $35 million (the current assumption);
  • With a 50% grant funded assumption, the five-year deficit is $90 million or an additional $55 million from 80% base assumption; and,
  • With a 30% grant funded assumption, the five-year deficit is $125 million or an additional $90 million from the 80% base assumption.

The report noted that all of the above-listed scenarios assume using approximately $50 million of the District’s reserves over a five-year period. The report included a chart listing the major Bridge capital projects in the 10-Year Capital Plan.

The report also included supplemental material related to the Ten-Year Financial Projection. The report stated that the District's ten-year projected deficit is made up of two parts: (1) Operating shortfall of $73 million; and, (2) Capital need of $316 million. At the request of the Board of Directors, staff calculated the amount of funds that would be available to the District after two major Bridge projects, the Golden Gate Bridge Seismic Retrofit and the Main Cable Restoration, are fully funded. Staff findings are illustrated in the charts below.

District Capital Need

     

$ Millions
$ 93.0 District contribution to Bridge Seismic and Main Cable projects
$ 223.0 District contribution to all other capital projects
$ 316.0 Total 10-Year District Capital contribution need

Funds Available After Funding Seismic Retrofit and Main Cable Restoration

$ Millions
$ 99.0 Total Capital Project reserves available
$ 115.0 New Reserves available IF the operating deficit of $73 million is closed
$ 214.0 Funds Available

($ 93.0) District Expense for Bridge Seismic and Main Cable Projects
$ 121.0 Reserves remaining to fund the other $223M in Capital projects.

     
 

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 briefly described the changes made to the revised report, and noted that by separating out the elements of the District’s reserves, the amount set aside for Emergency Reserves increases the five-year deficit to $35 million from $30 million, as was reported to the Committee at its August 21, 2008, meeting. Secretary of the District Janet S. Tarantino stated that an action was required of the Committee to receive the revised Five- and Ten-Year Financial Projection.

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

RECOMMENDATION

The Finance-Auditing Committee recommends that the Board of Directors receive the updated Five- and Ten-Year Financial Projection, as revised.

Action by the Board at its meeting of September 12, 2008 – Resolution
CONSENT CALENDAR

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

     
3.

Receive the OPEB Retirement Investment Trust Board’s FY 07/08 Annual Report

In a memorandum to Committee, Auditor-Controller Joseph Wire and General Manager Celia Kupersmith provided staff’s recommendation to receive the OPEB Retirement Investment Trust Board’s (Trust Board) FY 07/08 Annual Report.

Joseph Wire summarized the staff report, describing the monitoring and reporting responsibilities of the Trust Board. He noted that the OPEB Trust is meeting its investment goals, and the investment returns are at the level that was anticipated by the Actuary. He further stated that the OPEB Trust has not suffered as much of a loss as one might have expected, considering the declining market conditions. He noted that investment returns are down by an average of 4.5% over the first eight months of the OPEB Trust’s existence.

Staff recommended and the Committee concurred by motion made and seconded by Directors PAHRE/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 receive the OPEB (Other Post-Employment Benefits) Retirement Investment Trust Board’s FY 07/08 Annual Report.

Action by the Board at its meeting of September 12, 2008 – Resolution
CONSENT CALENDAR

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

     
4.

Public Comment

There was no public comment.

     
5.

Adjournment

All business having been concluded, the meeting was adjourned at 11:15 a.m.

     
     

Respectfully submitted,

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