October 23, 2008

REPORT OF THE FINANCE-AUDITING COMMITTEE/
COMMITTEE OF THE WHOLE

 

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

Honorable Members:

A meeting of the Finance-Auditing Committee/Committee of the Whole was held in the Board Room, Administration Building, Toll Plaza, San Francisco, California, on Thursday, October 23, 2008, at 10:00 a.m., Chair Stroeh presiding.

Committee Members Present (8): Chair Stroeh; Vice Chair Pahre; Directors Boro, Cochran, Eddie, Grosboll and Reilly; President Moylan (Ex Officio)
Committee Members Absent (0): None
Other Directors Present (2): Directors Kerns and Newhouse Segal

Committee of the Whole Members Present (10): Directors Cochran, Eddie, Grosboll, Kerns, Newhouse Segal, Pahre, Reilly and Stroeh; First Vice President Boro; President Moylan
Committee of the Whole Members Absent (9): Directors Brown, Dufty, Hernández, McGlashan, McGoldrick, Sanders, Sandoval and Sobel; Second Vice President Ammiano

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 General Manager, Administration Z. Wayne Johnson; Public Affairs Director Mary C. Currie; Executive Assistant to the General Manager Amorette Ko; Assistant Clerk of the Board Karen B. Engbretson

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 26 public entities in the State of California, including the County of San Mateo, suffered financial losses from funds that had been invested in Lehman Brothers or Washington Mutual Bank. She noted that the District did not have any funds invested in Lehman Brothers or any of the other troubled financial institutions, and that the District’s portfolio is very safe. She stated that the District’s portfolio may begin to feel impacts from the global financial crisis in the near future, since yields on invested funds are falling. She noted that yields for Two-Year U.S. Treasury Notes are currently trading at only 1.48%. She further stated that a few weeks ago, U.S. Treasury Notes were earning 0%, but people continued to invest in these securities because they are considered so safe in a volatile market. She noted that during this volatile time, the Portfolio Manager has invested funds in more liquid investments such as federal agency securities, rather than commercial paper.

Ms. Jones discussed how the recent U.S. Government financial bailout affects the District’s portfolio, noting that the federal agency securities in the portfolio now have the explicit commitment of the U.S. Government to support those agencies. She further stated that every one of the securities in the District’s portfolio is either part of the U.S. Government protection plan, or has had capital infused into it by the U.S. Government.

Discussion ensued, including the following:

  • Director Boro inquired as to the difference between the Federal Home Loan Bank (FHLB) and the two troubled Government-Sponsored Enterprises, Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). In response, Ms. Jones explained that all three of the agencies are in the business of making money available to promote mortgages. However, Fannie Mae and Freddie Mac took their pools of mortgages and made them into securities, which they then sold to investors, particularly large funds. When problems arose with the mortgages, then those mortgage-backed pools also had problems. She further stated that the FHLB does not securitize any of the pools of mortgages, but simply provides money directly to the member banks of the FHLB system. The FHLB is just a lender, and it has no mortgage-backed securities as part of its portfolio.
  • Chair Stroeh inquired if there is an end in sight to the current financial crisis. In response, Ms. Jones stated that there is starting to be some improvement in the market, and that with all the government interventions in place, there is more trust and liquidity in the market now. She noted that at the height of the credit crisis, banks had stopped lending money to other banks, corporations could not even issue commercial paper and there was very little liquidity in the market. She predicted that housing prices will hit rock bottom eventually and then people will start to purchase houses again. Now that the U.S. Government is guaranteeing new mortgages through Fannie Mae and Freddie Mac, the credit freeze will loosen and people will be able to get the mortgages they need. She further stated that it will likely take one more year before the economy improves, and that the Gross Domestic Product index will grow at a very slow rate. Although it is clear that the country is in a recession, there are measures now in place to keep the country from going into a depression.
  • Director Grosboll inquired as to why PFM did not choose to invest any of its clients’ funds in Lehman Brothers. In response, Ms. Jones stated that more than two years ago, the PFM Credit Committee determined that Lehman Brothers was a very risky investment, and the company was dropped off of PFM’s list of investments. She also stated that similar determinations were made with respect to other troubled financial institutions, such as Washington Mutual, Bear Stearns and Sallie Mae.

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

     
  a.
Ratify commitments and/or expenditures for the period August 1, 2008, through September 30, 2008, totaling $98,817.00;
     
  b.
Ratify investments made by the Auditor-Controller during the period August 12, 2008, through October 13, 2008, as follows;
     
Security

Purchase

Date

Maturity

Date

Original Cost

Percent

Yield

HSBC Finance Corp. Commercial Paper
08/15/08
10/15/08
3,315,273.08
2.62
Dexia Delaware LLC Commercial Paper
08/21/08
11/10/08
7,204,488.13
2.81
HSBC Finance Corp Commercial Paper
08/21/08
10/15/08
3,635,780.21
2.56
FHLB Disc Note
08/25/08
08/27/08
199,977.78
2.00
Toronto Dominion Certificate of Deposit
08/25/08
10/15/08
5,280,000.00
2.53
Wells Fargo Financial Global Notes
08/27/08
04/18/12
5,117,650.00
5.40
FHLB Disc Note
08/29/08
10/01/08
5,587,092.79
2.32
FHLB Disc Note
09/18/08
10/22/08
6,284,392.01
2.12
FHLB Disc Note
10/01/08
12/22/08
5,594,506.25
2.38
     
  c.
Authorize the Auditor-Controller to re-invest, within the established policy of the Board, investments maturing between September 9, 2008, and November 10, 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 August and September 2008 prepared by PFM.

Action by the Board at its meeting of November 21, 2008 – Resolution
CONSENT CALENDAR

     
 
AYES (10): Directors Cochran, Eddie, Grosboll, Kerns, Newhouse Segal, Pahre, Reilly and Stroeh; First Vice President Boro; President Moylan
NOES (0): None
     
2.

Authorize a Budget Increase in the FY 08/09 Ferry Transit Division Capital Budget Relative to Contract No. 2008-FT-8, Larkspur Ferry Terminal Parking and Access Improvements (Phase I) with Ghilotti Bros., Inc.

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 change orders associated with Contract No. 2008-FT-8, Larkspur Ferry Terminal Parking and Access Improvements (Phase I). The report stated that Change Order Nos. 3 and 4 to Contract No. 2008-FT-8 are recommended to be executed, in order to compensate the Contractor for extra work associated with: (1) removing and reconstructing 330 lineal feet of concrete curb and sidewalk and repairing the bike path at Area 3 of the project site; and, (2) furnishing and installing a new edge drain system along the south edge of Area 4, instead of in the middle of the area, and paving the entire area with one slope from north to south, in order to meet Americans with Disabilities Act (ADA) standards.

In addition to the above-described change orders, various other change orders are required to enhance public access, landscaping, irrigation and site work, the total cost of which is estimated at approximately $100,000. The above changes to the project will also require additional staff effort and a corresponding increase of $25,000 to the District Staff Labor budget for the project. It is recommended that a capital budget increase in the FY 08/09 Ferry Transit Division Capital Budget in the amount of $200,000 be authorized, to be funded with $160,000 of Federal Transit Administration grant funds and $40,000 from District Reserves. 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 PAHRE/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 08/09 Ferry Transit Division Capital Budget, in the amount of $200,000, to be funded with $160,000 of Federal Transit Administration grant funds and $40,000 from District Reserves, relative to the execution of Change Order Nos. 3 and 4 to Contract No. 2008-FT-8, Larkspur Ferry Terminal Parking and Access Improvements (Phase I), to Ghilotti Bros., Inc.

Action by the Board
Refer to the Building and Operating Committee Meeting of October 23, 2008

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

     
3.

Authorize Execution of a Professional Services Agreement with SST Benefits Consulting & Insurance Services, Inc., Relative to Request for Proposals No. 2009 D-5, Deferred Compensation (IRC Section 457) Consultant Services

In a report to Committee, Financial Management Business Process Manager Alice Ng, Auditor-Controller Joseph M. Wire and General Manager Celia Kupersmith provided a report on staff’s recommendation to authorize execution of a Professional Services Agreement with SST Benefits Consulting & Insurance Services, Inc., relative to Request for Proposals (RFP) No. 2009 D-5, Deferred Compensation (IRC Section 457) Consultant Services. The report stated that the District offers an Internal Revenue Code (IRC) Section 457 Deferred Compensation Plan (457 Plan) as a benefit to its employees, and has maintained long-standing relationships with two deferred compensation plan providers.

The report also stated that in order to facilitate the District’s compliance with its fiduciary duties and to continually seek ways to improve its 457 Plan and to reduce costs to the plan participants, on August 26, 2008, staff issued RFP No. 2009-D-5. This RFP was issued to seek deferred compensation plan consultant services with the following scope of work: (1) evaluate and make recommendations to improve the District’s current plan structure, including recordkeeping, investments and administration; (2) conduct a plan provider/vendor search including fee negotiations and investment selection; (3) assist in transition issues (if necessary); and, (4) perform annual plan and investment reviews and ongoing consultation as needed.

The Office of the District Secretary received four proposals by the deadline date of September 23, 2008. An Evaluation Committee, comprised of District staff, evaluated the proposals according to the criteria set forth in the RFP, as follows: (1) proposal understanding and approach; (2) qualifications and experience of the firm; (3) qualifications and experience of staff assigned to the project; and, (4) fee structure. The report also stated that the Evaluation Committee subsequently interviewed three firms, with the final determination that SST Benefits Consulting & Insurance Services, Inc., (SST) was best qualified to provide these services for the District. The report indicated that along with the interviews, the Evaluation Committee conducted reference checks with public agencies for which SST had performed similar services. These public agencies confirmed SST’s understanding of the scope of services outlined in the RFP, as well as SST’s history of advising plans of best practices and successfully negotiating reductions in plan fees and administrative fees paid by participants.

The report noted that SST received the highest ranking for its strong public sector focus with deferred compensation strategies, having provided investment analysis and consulting services for combined plans with assets over $4 billion. The lead consultant from SST assigned to the District has over 26 years of public sector defined contribution consulting experience, and the two other members of the SST team have a combined 48 years of experience. The report further noted that, recognizing that education is the cornerstone of defined contribution plan management, SST will conduct a six-hour educational program (“457 University”), at no additional cost to the District, for employees, including Board members, who are fiduciaries of the 457 Plan.

It is recommended that a Professional Services Agreement be executed with SST in the amount of $66,400, for a five-year term, to provide consultation services relative to the District’s 457 Plan. Upon execution of the Professional Services Agreement, SST will conduct a thorough review of the District’s current plan and will make recommendations to improve the District’s current plan structure, including recordkeeping, investments and administration. SST will then develop an RFP for a 457 Plan provider no later than January 2009. Staff will report back to the Board with SST’s findings and recommendations from the provider search in March 2009. 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. Wire summarized the staff report, noting that a 457 Plan, available only to governmental agencies, is similar to 401(k) plans that are offered in the private sector. He described how the market for 457 Plans has changed over the past two decades, which changes are indicative of how the nation has moved away from using defined benefit plans like the District’s California Public Employees Retirement System (CalPERS) pension plan to defined contribution plans. He further noted that the District’s goal in seeking the services of a deferred compensation consultant is to reduce the fees, which fees are charged to the plan participants.

Discussion ensued, including the following:

  • Director Pahre inquired as to whether the District will be seeking one or two deferred compensation plan providers. In response, Mr. Wire stated that the current practice in the public sector is to have only one deferred compensation plan provider, which is a more cost-effective course of action.
  • Director Cochran inquired as to whether plan participants would be able to transfer funds between plans, without penalty. In response, Mr. Wire answered in the affirmative, noting that if an employee leaves the District, they can roll over the funds into a 401(k) plan, or remain in the District’s 457 Plan.
  • Director Newhouse Segal inquired as to whether it would be permissible for the Board members to be apprised of the names of the principals of the deferred compensation plan providers who respond to the RFP. In response, Attorney Miller stated that, in the context of the District’s procurement process, the names of principals of companies submitting proposals for an RFP are public information, and that it would be permissible to provide such information to members of the Board of Directors.

Staff recommended and the Committee concurred by motion made and seconded by Directors BORO/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 execution of a Professional Services Agreement with SST Benefits Consulting & Insurance Services, Inc., Los Altos, CA, relative to Request for Proposals No. 2009-D-5, Deferred Compensation (IRC Section 457) Consultant Services, in the amount of $66,400, for a five-year term, effective November 17, 2008; with the understanding that requisite funds (100% District) are available in the FY 08/09 District Division Operating Budget, 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 October 24, 2008 – Resolution
NON-CONSENT CALENDAR

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

     
4.

Authorize Execution of an Amendment to Contract No. 2005-D-6, Revenue Collection, with Securitas Security Services USA, Inc., Relative to an Extension of the Contract Term

In a memorandum to Committee, Security and Emergency Management Specialist Lisa Locati, Deputy General Manager, Bridge Division Kary Witt and General Manager Celia Kupersmith reported on staff’s recommendation to execute a second amendment to Contract No. 2005-D-6, with Securitas Security Services USA, Inc., (Securitas) to extend the term of the contract for an additional 18 months. The report stated that in May 2005, the District entered into a contract with Securitas for revenue collection services. These services involve picking up and transporting Bus and Ferry transit revenue to the District’s Vault at the Golden Gate Bridge Toll Plaza, using a vehicle provided by the District. The contract was for a two-year term, with an option to extend the term for a successive one-year term. The District exercised the one-year option, and this option year expired on April 30, 2008.

The report also stated that on February 19, 2008, the District issued a Request for Proposals (RFP) No. 2008-MD-4, Revenue Collection. No proposals were received by the Office of the District Secretary by the deadline date of March 18, 2008. The report noted that Securitas, the incumbent, did not submit a proposal because it is no longer interested in providing this type of transportation security services, preferring instead to focus on its core business of security guard services. Although Securitas was not interested in responding to the RFP, it was willing to continue to provide its services at the current rates, for up to an additional six months in order to help the District avoid interruption of this critical service. The Board of Directors, by Resolution No. 2008-033 at its April 10, 2008, meeting, authorized execution of an amendment to Contract No. 2005-D-6 for a contract term extension not to exceed six months, from May 1, 2008, to October 31, 2008.

The report further stated that staff is currently evaluating options for revenue collection services on a long-term basis, and this analysis is expected to be completed within six months. In the meantime, it is necessary to ensure that there is no interruption in the provision of these services; therefore, it is recommended that a second amendment to Contract No. 2005-D-6 be authorized, in order for Securitas to provide revenue collection services for an additional 18 months under the same terms as its original contract with a cost adjustment of up to five percent on May 1, 2009. A copy of the report is available in Office the District Secretary and on the District’s web site.

At the meeting, Kary Witt summarized the staff report.

Discussion ensued, including the following:

  • Director Grosboll inquired as to how other public agencies similar to the District handle revenue collection. In response, Mr. Wire stated that larger agencies perform revenue collection services in-house, while other agencies hire outside firms to provide such services. Mr. Wire noted that as the District moves toward cashless payment technology, such as TransLink® and FasTrak®, there will be less of a need for revenue collection services, but at the present time, it is a vital service.

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 execution of a second amendment to Contract No. 2005-D-6, Revenue Collection, with Securitas Security Services USA, Inc., Sacramento, CA, in an amount not to exceed $78,953, for a contract extension not to exceed 18 months, effective November 1, 2008, to April 30, 2010, subject to a cost adjustment of up to five percent on May 1, 2009; with the understanding that requisite funds are available in the FY 08/09 Bus Transit and Ferry Transit Division Operating Budgets, and that requisite funds for the remainder of the 18-month extension will be included in the FY 09/10 Bus Transit and Ferry Transit Division Operating Budgets.

Action by the Board at its meeting of October 24, 2008 – Resolution
NON-CONSENT CALENDAR

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

     
5.

Review of Golden Gate Bridge Traffic/Tolls and Bus and Ferry Transit Patronage/Fares for Two and Three Months Ending August 31, 2008, and September 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 two and three months ending August 31, 2008, and September 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

     
6.
Review of Financial Statements for Two and Three Months Ending August 31, 2008, and September 30, 2008
     
  a.

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 Two and Three Months Ending August 31, 2008, and September 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 Two and Three Months Ending August 31, 2008, and September 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

   
7.

FY 08/09 First Quarterly Report on Authorized Budget Adjustments and Budget Transfers

In a memorandum to Committee, Auditor-Controller Joseph Wire and General Manager Celia Kupersmith provided a report summarizing budget adjustments and budget transfers authorized by the Board of Directors during the three-month period from July 1, 2008, through September 30, 2008. A copy of the report, including attached charts outlining applicable budget adjustments and transfers, is available in the Office of the District Secretary.

Action by the Board – None Required

     
8.

FY 08/09 First Quarterly Report on Contracts and Change Orders/Contract Amendments Executed Under the General Manager’s Authority

In a memorandum to Committee, Auditor-Controller Joseph Wire and General Manager Celia Kupersmith provided a report summarizing all contracts and change orders executed under the General Manager’s procurement authority, as set forth in the Rules of the Board, during the three-month period from July 1, 2008, through September 30, 2008. A copy of the report, including attached charts outlining applicable contracts and change orders, is available in the Office of the District Secretary.

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 11:25 a.m.

     

 

 

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