June 11, 2009

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, June 11, 2009, at 10:00 a.m., Chair Stroeh presiding.

Committee Members Present (7): Chair Stroeh; Vice Chair Pahre; Directors Cochran, Eddie, Elsbernd, Moylan and Sobel

Committee Members Absent (2): Director Grosboll; President Boro (Ex Officio)

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/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 and Development Z.W. Johnson; Risk Management and Safety Director William Stafford; Human Resources Director Harvey Pye; Executive Assistant to the General Manager Amorette Ko; Assistant Clerk of the Board Patsy Whala

Visitors Present: Steve A. Ratto and John H. Bell, Mercer Health & Benefits, LLC

         
1.

Authorize the Filing of Applications for Federal Transit Administration Sections 5307 and 5309 and Surface Transportation Programs Funding for Various Transit Capital Projects, Committing the Necessary Local Match and Assuring Completion of the Projects

In a memorandum to Committee, Capital and Grant Programs Manager Gayle Prior, Auditor-Controller Joseph Wire and General Manager Celia Kupersmith reported on staff’s recommendation to authorize the filing of applications relative to the Federal Transit Administration Sections 5307 and 5309 and Surface Transportation Programs funding to support various capital projects, commit the necessary local match and assure completion of the projects. The report stated that the Federal Urbanized Area Formula Program (Section 5307), the Federal Fixed Guideway Modernization Program (Section 5309) and the Surface Transportation Program (STP) funds will be programmed by the Metropolitan Transportation Commission (MTC), to include the following projects: 1) Replacement Buses; 2) Replacement of Paratransit Vans; 3) Ferry Main Propulsion; 4) Ferry Major Components; 5) Ferry Dredging; 6) Ferry Fixed Guideway Connectors; 7) San Francisco Bus Lot Modifications; and, 8) Facilities Rehabilitation. The program of projects is described in detail in Attachment A of the staff report.

The report stated that the MTC, in partnership with County Congestion Management Agencies and local transit operators, has developed a multi-modal approach to programming these funds to high-priority transit, bicycle, pedestrian and roadway projects. Once funds are programmed by MTC, individual project sponsors must secure funds through grant application and execution of a grant funding agreement with the FTA.

The report further stated that there is up to $91,886,038.00 in Federal capital funds for FY 09/10, 10/11 and 11/12, to support implementation of District transit capital projects, and requires a District local match. These transit projects are all included in the District’s FY 09/10 Capital Budget and the District’s 10-year Capital Plan. 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 comments and inquiries:

  • In response to an inquiry from Director Cochran regarding the replacement of buses, Mr. Wire stated that funds from the Section 5307 program are to be used for replacement vehicles. Further, Mr. Wire stated that since the downsizing of Golden Gate Transit bus service, there is no need to replace these buses, and the District will reprogram the funds to support other District transit-related projects.

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 the General Manager, or her designee, to file applications for Fiscal Years 09/10, 10/11 and 11/12 Federal Transit Administration Sections 5307 and 5309 and Surface Transportation Programs funding to support various capital projects, commit the necessary local match and assure completion of the projects.

Action by the Board at its meeting of June 12, 2009 - Resolution
NON-CONSENT CALENDAR

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

         
2.

Authorize the District's Use of the California Department of Transportation's Expedited Payment Procedures Process for the Golden Gate Bridge Seismic Retrofit Project

In a memorandum to Committee, Auditor-Controller Joseph Wire and General Manager Celia Kupersmith reported on staff’s recommendation to authorize the District’s use of the California State Department of Transportation’s (Caltrans) “Alternative Construction Progress Payment Procedures” for the Golden Gate Bridge Seismic Retrofit Project.

The report stated that Caltrans has developed expedited payment procedures designed to assist local agencies with cash management issues associated with large construction projects. One of these procedures, the “Alternative Construction Progress Payment Procedure,” allows a local agency implementing a large grant-funded construction project, such as the Golden Gate Bridge Seismic Retrofit Project, to request that Caltrans pre-pay the monthly construction contract costs associated with a project based upon a cash-flow estimate. The report noted that monthly payments to the construction contractors could reach as high as $4 million, which is a significant amount of funds to have liquid at any given point in time. The report also noted that, under this procedure, monthly pre-payments are reconciled with actual contract costs the following month and appropriate financial adjustments are made.

The report also stated that grant funds are normally invoiced in arrears and paid within 25 days of invoice. Use of the expedited payment system will result in a cost savings by serving to avoid lost interest that would have been incurred during the lag-time between contractor payment and grant reimbursement. It is recommended that the District implement Caltrans’ progress payment procedures.

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 District’s use of the California State Department of Transportation’s “Alternative Construction Progress Payment Procedures” for the Golden Gate Bridge Seismic Retrofit Project to ensure that sufficient cash is available to pay monthly contractor invoices.

Action by the Board at its meeting of June 12, 2009 - Resolution
NON-CONSENT CALENDAR

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

         
3.

Status Report on the Renewal of the Liability Insurance Program

In a memorandum to Committee, Risk Management and Safety Director William L. Stafford, Auditor-Controller Joseph Wire and General Manager Celia Kupersmith provided a status report on the annual renewal of the District’s Liability Insurance Program, which renews on July 1, 2009. The report included recommended options for the following elements of the Liability Insurance Program:

  a.
Excess General and Automobile Liability Insurance Program;
  b.
Excess Workers’ Compensation and Employers’ Liability Insurance Program;
  c.
Other Public Employee Benefits (OPEB) Fiduciary Liability;
  d.
Public Officials’ Liability Insurance Program;
  e.
Public Employees’ Faithful Performance Bond and Comprehensive Dishonesty, Destruction and Disappearance Bond (Crime/Fidelity Bond); and,
  f.
Environmental Pollution Insurance.
         
 

The report stated that the FY 09/10 Liability Insurance Program renewal represents the first year with the District’s new Insurance Broker, Wells Fargo Insurance Services, Inc. (WFIS). WFIS has several key transportation accounts, including the Bay Area Rapid Transit, the San Mateo County Transit and the Metropolitan Transportation Commission. Because of these relations, the District is benefiting from expanded market to the carrier community this year.

The report contained detailed information relative to the renewal recommendations, alternative options, overall insurance market condition and specifics on the premium cost and coverage limits, noting some of the significant changes in the Liability Insurance Program. The report noted the goals of the FY 09/10 Liability Insurance Program include : maintaining overall premium levels at or near current levels; recommending the elimination of Railroad Protective Liability; exploring the premium impact of lowering the self-insured retention; and, recommending the purchase of Environmental Pollution Liability Coverage. The report stated that, with the District’s excellent loss history, premiums are expected to remain unchanged, with the possibility of some minimal increase, based on current terms and conditions. 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 briefly summarized the staff report, stating that the transition from Marsh to WFIS has been very successful, noting that the WFIS team understands the District’s needs and has experience in representing other notable transit agencies. Also, Ms. Kupersmith described the history of the District’s ownership of the Northwestern Pacific Railroad Right-of-Way along the 101 Corridor and how the ownership was transferred to Sonoma-Marin Area Rail Transit, with the exception of approximately one-eighth of mile, located in San Rafael.

Action by the Board at its meeting of June 12, 2009 – None Required

         
4.

Status Report and Possible Action on the Renewal of the Health and Benefit Insurance Plans

In a memorandum to Committee, Deputy General Manager/Administration & Development Z.W. Johnson, Auditor-Controller Joseph Wire and General Manager Celia Kupersmith provided a report on the renewal of the Health and Benefit Insurance Plans, effective July 1, 2009, including the following policies:

  a. Medical Stop-Loss Coverage with Blue Shield of California;
  b. Kaiser Foundation Health Plan;
  c. Blue Shield of California PPO Plan;
  d. Blue Shield of California HMO Plan;
  e. CVS Caremark Prescription Drug Plan;
  f. OptumHealth Behavioral Solutions;
  g. Vision Service Plan of California;
  h. Delta Dental Plan of California; and,
  i. Group Life, Accidental Death & Dismemberment and Dependent Life Plan.
     
 

The report stated that, according to Mercer National Survey of Employer-Sponsored Health Plans, employers expected an average cost increase of about 6% for active employee populations only in 2009. The District’s health benefits are anticipated to increase 11% for FY 09/10, which is a 1% increase from last year, and includes both active and retired employees.

The District’s Health and Welfare Benefits Broker, Mercer Health & Benefit, LLC, (Mercer) worked closely with the carriers and were able to reduce costs, as well as negotiate new contracts for the FY 09/10 Plan year, including the following:

  • Blue Shield – negotiated an annual savings of $45,000.00, for the following types of coverage:
    • PPO resulted in an administrative fee savings of $15,000.00;
    • HMO resulted in a reduction of premium rates from 11.6% to 9.5%, corresponding to a savings of $28,000.00; and,
    • Stop-Loss resulted in a settlement of claims savings of $2,000.

The report noted that the District’s objective is to secure competitive renewal costs with no changes to current benefits, while at the same time continuing to promote a strategy of wellness, such as Health Risk Assessment, including health screenings for blood pressure and cholesterol testing.

The report also stated that, based upon the combined risk and forecast, the Medical Stop-Loss policy (Stop-Loss) premium increased by 35%. The report noted that, due to the District's aging population, the District is faced with increasing surgical and other aggressive treatment costs. Staff has determined that the Stop-Loss annual renewal premium of $424,000.00 is appropriate given the known large claim risk and future liability.

The report included a chart that compared the percentage of increase in costs of the various plans from FY 08/09 to FY 09/10. The total estimate of $23,553,000.00 million has been included as part of the proposed FY 09/10 budget in the benefits and postemployment categories in each of the four divisions. The report further stated that the broker costs are not included in the premium amounts, and that broker commissions are credited back to the District. 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. Johnson introduced Steve Ratto and John Bell, representatives from Mercer, who provided an overview of the District’s Health and Benefit Insurance Plans renewals.

Discussion ensued, including the following comments and inquiries:

  • Director Pahre requested that Messrs. Ratto and Bell analyze large claims to determine if these types of claims can be assigned to different policies, other than the Stop-Loss coverage, in order to help lower the costs. In response, Mr. Ratto stated that they will look into the matter and report back to the Committee.
  • In response to a question from Director Newhouse Segal, Mr. Bell provided the particulars of the District’s Stop-Loss coverage.
  • Director Cochran requested a breakdown of medical costs per employee. In response, Mr. Ratto provided the specific details of the Stop-Loss coverage and stated that the costs average out to be approximately $1,000 per month.
  • Director Elsbernd suggested that the District consider advertising a formal Request for Proposals for health plan providers, which could create competition and possibly drive down costs. In response, Ms. Kupersmith stated that the current labor contracts specify that Blue Shield Preferred Provider and Kaiser Permanente are the health plan providers, although current District policy states that new employees are only allowed to enroll in an HMO for the first three years of employment.

Staff recommended and the Committee concurred by motion made and seconded by Directors ELSERND/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 Health and Benefit Insurance Plans, for a one-year term, effective July 1, 2009 through June 30, 2010, as follows:

  a. Medical Stop-Loss Coverage with Blue Shield of California, including a deductible of $175,000.00, at an estimated cost of $424,000.00;
  b. Kaiser Foundation Health Plan, at an estimated cost of $5,141,000.00;
  c. Blue Shield of California PPO Plan, on a self-funded basis, at an estimated cost of $8,832,000.00;
  d. Blue Shield of California HMO Plan, at an estimated cost of $1,511,000.00;
  e. CVS Caremark Prescription Drug Plan, at an estimated cost of $4,728,000.00;
 

f.

OptumHealth Behavioral Solutions, in the amount of $36,000.00;
  g. Vision Service Plan of California, on a self-funded basis, in the amount of $252,000.00;
  h. Delta Dental Plan of California, on a self-funded basis, in the amount of $2,531,000.00; and,
  i. Group Life, Accidental Death & Dismemberment and Dependent Life Plan with Minnesota Life, in the amount of $98,000.00;
   
 

with the understanding that requisite funds are available in the FY 09/10 Bridge, Bus, Ferry and District Divisions’ Operating Budgets.

Action by the Board at its meeting of June 26, 2009 - Resolution
NON-CONSENT CALENDAR

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

         
5.

Approve Actions Relative to the Renewal of the Commercial Paper Line of Credit Agreement with JP Morgan Chase Bank

In a memorandum to Committee, Auditor-Controller Joseph Wire and General Manager Celia Kupersmith reported on staff’s recommendation to approve actions relative to the renewal of the Line of Credit Agreement (Agreement) with JPMorgan Chase Bank, National Association (JP Morgan), in accordance with the terms of the District’s Commercial Paper Program (CP Program) to assure creditors that there are sufficient funds to repay principal and interest in full upon each maturity date in the event that the remarketing agents cannot find new investors to “roll-over” the CP Program notes in a timely fashion.

The report stated that JP Morgan was originally selected to satisfy the CP Program’s liquidity requirement, noting that JP Morgan is a world leader in providing financial liquidity agreements for public sector entities like the District. The report provided the details of the previous Agreements, stating that the proposed 364-day renewal would take effect on July 6, 2009, and run through July 5, 2010, at a cost of 1.305%, or an annual cost of approximately $995,000.00. The report also stated that, as has been done with each year of the CP Program, the District’s financial advisor, Public Financial Management, Inc. (PFM), surveys current market conditions and the results of recent credit Request for Payment put out by similar public entities to determine the market rate. The report noted that the information is used by the Auditor-Controller to negotiate terms with JP Morgan.

The report also stated that the current environment for bank liquidity and lines of credit remains very challenging and extremely costly. The financial institutions that provide these services have been reduced in number due to the troubles impacting those institutions and their diminished balance sheets. Due to the scarcity in interest from potential facility providers, Staff, the Attorney and PFM believe that the proposed renewal of the Agreement and conforming amendments is the most cost-effective alternative. The report noted that requisite funds are available in the FY 09/10 Operating Budget to absorb the $745,000.00 increase in costs for this renewal.

At the meeting, Mr. Wire summarized the staff report and stated that the Line of Credit Agreement is essentially the insurance that is provided to Commercial Paper holders that ensures the District will make interest payments in a timely manner. Mr. Wire also stated that, due to the world economic situation, there are very few firms providing this type of service, resulting in an increase in the renewal costs. He noted that the overall cost of the Program is lower due to the District’s good rating.

  • Director Newhouse Segal inquired as to whether the Patriot Act language contained in the Agreement involved issues such as giving access to records. In response, Mr. Miller stated that the language does not refer to the District’s security, but rather is JP Morgan’s obligation to comply with the Patriot Act.

Directors SOBEL/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 actions relative to the renewal of the Line of Credit Agreement (Agreement) with JPMorgan Chase Bank, National Association (JP Morgan), for the Commercial Paper Program, as follows:

  A.

Authorize execution of a 364-day extension of the Agreement with JP Morgan, at the cost of 1.305%, or an approximate annual fee of $995,000.00, for the period of July 6, 2009 to July 5, 2010;

  B.
Approve conforming amendments to the Agreement with JP Morgan, as follows:
   
1.
Amend Section 1.01 to reflect the change in defined terms for the:
   
a.
Base rate as the higher of: i) JP Morgan’s prime rate, plus 1.5% per annum; ii) Fed funds, plus 2% per annum; or, iii) 8.5% per annum; and,
   
b.
Bank rate, in the event of a default, as the base rate, plus 3% per annum;
   
2.
Amend Section 2.06 to reflect all fees associated with the Agreement:
   
a.
Commitment fee of 1.305% per annum, subject to 20 basis point increases in the event of each downgrade in the District’s credit rating, and a 1.25% per annum increase to the Commitment Fee for the duration of any Event of Default or withdrawal/suspension of the District’s credit rating;
   
b.
$500.00 per drawing fee; and,
   
c.
An early termination fee equivalent to the remaining unpaid, undrawn commitment fee should the District terminate the Agreement by replacing JP Morgan with an Alternate Provider. There will be no termination fee should the District terminate the Agreement due to JP Morgan’s short-term rating, falling below level of “P-1” by Moody’s, below “A-1” by S&P or below “F-1” by Fitch;
  C.
Amend Section 5.06 to reflect certain requirements in disclosure of information;
  D.
Amend Section 7.02 to add legal stipulations defining governing law and waiver of jury trial; and,
  E.
Amend Article VII to add Sections 7.12 and 7.13, regarding the U.S.A. Patriot Act and possible assignment to Federal Reserve Bank, respectively.
 

Action by the Board at its meeting of June 12, 2009 - Resolution
NON-CONSENT CALENDAR

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

         
6.

Public Comment

There was no public comment.

         
7.

Adjournment

All business having been concluded, the meeting was adjourned at 10:35 a.m.

   

 

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