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“Fee Letter” refers to that certain letter agreement, dated July 2, 2010, between JPMorgan and the District regarding fees and expenses, together with all amendments, modifications and supplements thereto;

“Related Documents” means the Notes, the Indenture, the Ordinance, each Dealer Agreement, the Fee Letter and the Issuing and Payment Agent Agreement;

Section 2.02(c) is amended to reflect an extension of the term loan period to 4 years with 16 quarterly payments;

Section 2.06 is amended to reflect all fees as set forth in the Fee Letter relating to the Agreement, as follows:

Commitment fee is decreased to 0.78% per annum, subject a 10 bps increase in the event of a first downgrade in the District’s credit rating, 15 bps for the second downgrade, and 30 bps for any downgrades thereafter; and subject to a 1.25% per annum increase for the duration of any Event of Default or withdrawal/suspension of the District’s credit rating;

An early termination fee equivalent to the remaining unpaid undrawn commitment fee should the District terminate the Agreement by replacing JPMorgan with an Alternate Provider. There will be no termination fee should the District terminate the agreement due to JPMorgan’s short-term rating falling below “P-1” by Moody’s, below “A-1” by S&P, or below “F1” by Fitch;

A $500 per drawing fee, capped at $5,000 per annum;

Interest for past due payments at Bank Rate plus 2%.

Authorize execution of a 364-day extension of the Agreement with JPMorgan, at the cost of 0.78%, or an approximate annual fee of $595,000.00, for the period of July 2, 2010, to July 1, 2011; and,

Fee Letter” refers to that certain letter agreement, dated July 2, 2010, between JPMorgan and the District regarding fees and expenses, together with all amendments, modifications and supplements thereto;

“Related Documents” means the Notes, the Indenture, the Ordinance, each Dealer Agreement, the Fee Letter and the Issuing and Payment Agent Agreement;

Commitment fee is decreased to 0.78% per annum, subject a 10 basis points (bps) increase in the event of a first downgrade in the District’s credit rating, 15 bps for the second downgrade, and 30 bps for any downgrades thereafter; and subject to a 1.25% per annum increase for the duration of any Event of Default or withdrawal/suspension of the District’s credit rating;

An early termination fee equivalent to the remaining unpaid undrawn commitment fee should the District terminate the Agreement by replacing JPMorgan with an Alternate Provider. There will be no termination fee should the District terminate the agreement due to JPMorgan’s short-term rating falling below “P-1” by Moody’s, below “A-1” by S&P, or below “F1” by Fitch;

A $500 per drawing fee, capped at $5,000 per annum;

A project budget decrease in the amount of $87,700.00 (100% FTA) will be used to fund future capital projects. The total project budget in the amount of $232,300.00 will be funded with $60,986.00 FTA grant funds and $171,314.00 PTMISEA grant funds. 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 that the Board of Directors approve actions relative to Contract No. 2010-FT-13, San Francisco Ferry Terminal Restrooms Accessibility Modifications, as follows:

The FY 10/11 Budget is a policy document that identifies the strategic direction and priorities of the Board of Directors for the budget year. The Proposed Budget is the implementation tool for the Board’s policy directions and initiatives that were developed in its long-term Strategic Financial Plan (SFP), adopted by the Board at its Special Meeting of October 30, 2009. It carries out the stated mission of the District within the bounds of that SFP. The proposed FY 10/11 budget includes:

The staff report is summarized in detail in the Minutes of the May 28, 2010 meeting of the Finance-Auditing Committee. A copy of the staff report is available from the Office of the District Secretary and on the District’s web site. A copy of the FY 10/11 Proposed Budget document is available from the Office of the District Secretary.

At the meeting, Joseph Wire provided an overview of the FY 10/11 Proposed Budget, noting that this meeting will provide an opportunity for discussion of the Proposed Budget, which is scheduled for adoption at the June 25, 2010, meeting of the Board of Directors. Mr. Wire then guided the Committee members through the Proposed Budget document, focusing on the District’s current financial situation, Operating Budget revenues and expenses and the Capital Budget. He noted that the Proposed Budget reflects decisions made by the Board during the previous fiscal year. Mr. Wire introduced and thanked the following employees, who have worked on preparing the Proposed Budget: Jennifer Mennucci, Joanne Leone, Richard Driscoll, Juan Cerda, Alice Ng, Gayle Prior, Jennifer L. Raupach and Jeff Dion. He noted that the information they work with comes from District staff and that producing the Proposed Budget document is a team effort. He discussed the process used to develop the Proposed Budget and noted that this one-year budget ties into the long-term planning process.

Capital Budget

Mr. Wire discussed transit system funding (p. 19), stating that State Transit Assistance (STA) funds, which were not distributed last year, will be available for FY 10/11. He stated that a graph appears on page 20 which depicts reserve funds available for capital projects, showing that over $100 million has been set aside. The reserves that are available will be allocated by the 10-year Capital Plan (which appears in Appendix E). He noted that the FY 10/11 Proposed Budget projects that total spending from reserves will be $19.9 million, made up of operating expenses projected to be $8.2 million greater than projected operating revenue, and $11.7 million in capital reserves necessary to fund the District’s share of the capital projects scheduled for FY 10/11. He stated that a great deal of focus has been put on the 10-year Capital Plan. Staff is looking closely at projects that could qualify for additional grant funding. Due to provisions that add to capital reserves, the reserves available for capital and operating are projected to increase slightly in FY 10/11. Appendix A of the Proposed Budget provides additional details in this regard. With reference to pages 23 and 24, Mr. Wire stated that the Proposed Budget acts on four SFP Initiatives. Expenses will be reduced over the next 10 years. The District will reduce two Bridge Officer positions based on traffic need. In addition, administrative expenses (overhead) are being reduced. More investigation will take place over the next year to further reduce overhead and reduce the need for staff. Examples can be found on page 24. Pages 25 and 26 provide clarification of how the Proposed Budget relates to projections.

Operating Budget

Mr. Wire stated that 60% of Operating Budget revenue comes from the Bridge tolls, and that nearly two-thirds of Operating Expenses are from transit. Referring to operating revenues (p. 29), Mr. Wire stated that traffic is projected to increase slightly from its lowest level. While tolls have been increased, revenue from tolls will increase slightly. Revenue from transit fares is expected to decrease because fewer passengers are anticipated, especially on regional routes. In addition, the transition to TransLink® will result in reduced revenues because TransLink® provides a discount which affects fare revenue. STA funding is projected to be $4.4 million in FY 10/11, compared to being minimal in FY 09/10. However, Marin County Transit District has experienced bus service reductions, with a net decrease of contract revenue to the District of $530,000.00. In addition, interest rate income from investments is expected to be lower, as investments mature and opportunities to re-invest at the same high rates is unavailable. Mr. Wire described changes to expenses for the Proposed Budget compared to FY 09/10 estimated actual expenses, as shown on pages 32 and 33. The Table at the bottom of page 33 shows a 5.4% increase for the FY 10/11 Proposed Operating Budget. Of that, 2% is for salary and benefit increases and 2.1% is for fuel, debt service and capital contributions. That combination of increased expenses accounts for 90% of the budget increase. Mr. Wire noted that the Proposed Budget is a tight one. The 1.75% salary increase for Coalition employees was previously negotiated. The ATU contract will be renegotiated at the end of February 2011, and a new contract will be in place by March. A proposed 1.75% pay raise for non-represented employees, effective January 2011, is part of the Board action.

Table of Organization

Mr. Wire directed attention to the Table on page 37, stating that by the end of June 2010 the District’s employees are expected to number 839, with a decrease to 831 by June 30, 2011. These positions are included in the list which appears on page 37. They are four Bridge Officers, one Assistant Vault Officer, one Vault Officer, one Unix Administrator, one Engineering Technician, one Dispatcher and one Financial Management Analyst. He stated that two new part-time positions (part-time Dispatcher and part-time Budget & Program Analyst) will be added, and one position (Operations Superintendent) will be reclassified.

Capital Program Summary

Mr. Wire discussed significant projects impacting operations, stating that the Capital Program focuses on completion of continuing projects and advancement of new projects required to maintain existing operations and meet the financial constraints of the District. He stated that the District’s desire is to use capital funds toward greater efficiency. Examples appear on page 39.

Mr. Wire stated that, with approval of the FY 10/11 Proposed Budget, staff recommends that the Board of Directors grant the General Manager authorization to move projects from the FY 11/12 list to FY 10/11, pending the availability of funding and staff resources. This would allow the General Manager flexibility to move FY 11/12 projects forward once the FY 10/11 projects are completed. The proposed FY 11/12 Capital Budget project list is provided on page 43.

Mr. Wire stated that the balance of the chapters cover each of the District’s Divisions separately. Following are appendices with clarifying information. He stated that the Proposed Budget will come before the Board for additional discussion and action on June 25, 2010, with implementation on July 1, 2010.

In response to Committee members’ requests following the May 28, 2010 meeting of the Finance-Auditing Committee, Mr. Wire provided the following information:

• Regarding the amount represented by a 1% increase to the employer contribution to the PERS pension, Mr. Wire stated that a 1% increase in PERS pension equals approximately $400,000.00.

• Regarding how the District will fund its required $75 million contribution to Doyle Drive in 2014, Mr. Wire stated that with the adopted FY 09/10 Budget, the District established a Doyle Drive contribution of $75 million in the reserves to be funded over 10 years. In FY 13/14, the District will pay the total amount of $75 million. $37.5 million will come from District reserves that will have been set aside for this purpose, and the remaining balance of $37.5 million will be funded out of other District reserves which will be re-funded (paid back) over the following five years (FY 14/15 through FY 18/19) from District operations.

• Regarding how the District will fund the Golden Gate Bridge Seismic Retrofit Project, Mr. Wire stated that this Project is ongoing. The Initial Design Phase, Phase I Construction, Phase II Design and Phase II Construction have all been completed at a cost of $274 million with federal, state and District funds. Phase III Design and Phase IIIA Construction are ongoing and fully funded at $160 million with federal and District funds. The District continues to seek grant funding to fully fund Phase IIIB at $226 million. Approximately $55 million in federal grants have been secured for Phase IIIB. However, the District needs a total of $170 million to complete the funding of this phase of the project; $166 million of this can come through federal grants, with the remaining $4 million from state or District funds. He added that the District must provide matching funds, which may be available from the State of California. He stated that Phase IIIB is hoped to be put into place in approximately two years. Mr. Mulligan added that the Honorable Speaker of the U.S. House of Representatives Nancy Pelosi has requested approximately $116 million in funding for the District.

Discussion ensued, including the following:

• Director Stroeh made the following comments and inquiries:
  • He inquired as to whether the capital projects for FY 11/12, which appear on page 43, are included in the Proposed Budget. In response, Mr. Wire stated that they are in the Capital Plan. He stated that the District will benefit from the efficiency provided by being able to begin projects in FY 10/11 if that proves appropriate.
  • He directed staff to provide the Committee with suggestions as to the sources from which $75 million for the District’s obligation for Doyle Drive could be funded.
  • He commented that it is remarkable that the costs for the Seismic Retrofit Project have not risen more dramatically in the ten years since the project was undertaken. He stated that it is a credit to the District that costs have been controlled and the Project has transpired quietly, with little impact upon the public.
  • He complimented and thanked staff for providing an easily understandable Proposed Budget document.

• Director Grosboll made the following comments and inquiries:
  • He requested clarification of the three-year comparison Table on page 18. In response, Mr. Wire stated that the amounts shown in this Table are expected to be expended this year. Doyle Drive is not included because the District is seeking to raise the necessary funding, but it does not require payment for approximately four years.
  • He requested clarification of the meaning of “setting aside funds” as it relates to this Proposed Budget. In response, Mr. Wire stated that it means the funds will be put into the District’s reserves. These are funds that are not spent. The District must be prepared to pay the $75 million obligation for Doyle Drive which could potentially become a cash flow issue; however, it is not payable until 2014, four years from now.
  • He inquired as to whether funding for Doyle Drive factors significantly into the recommendation to freeze employee wages. In response, Mr. Wire stated that there are many reasons why employee wages have been frozen. Costs have risen overall, among them, the costs of employee benefits.
  • He inquired as to the reason the Toll Subsidy has decreased from 48% in FY 09/10 to a projected 43% in 10/11. In response, Mr. Wire stated that the toll subsidy is the amount that remains after funding the Bridge. Reserves must also be paid from tolls. Thus, the total amount of Toll Subsidy increases to 50%. The District’s policy has been not to constrain the transit system based on reserves.
  • He inquired as to the District’s expectation that it will receive $4.4 million in STA funding in FY 10/11. In response, Mr. Wire stated that, last year the State of California’s budget was such that no STA funds were distributed. However, the District expects to receive STA funds this year, with a slightly lower amount expected to be received next year.
  • He inquired as to whether the Proposed Budget includes a reduction in salaries due to the reduction in Bridge Officer positions. Mr. Wire responded affirmatively, stating that the position reductions shown in the Proposed Budget are included in the calculations. He added that two additional positions are expected to become vacant later in 2010. Those positions will not be filled (based on this budget).
  • He inquired as to whether the overall budget includes layoffs. In response, Mr. Wire stated that there will be one layoff of a non-represented employee.
  • He inquired as to whether STA funds that are expected to be received from the State of California will be reduced as a result of the situation with Bay Area Rapid Transit (BART) and the Oakland Airport. In response, Mr. Mulligan stated that the funds freed up are capital funds and these STA funds are operating funds.

• Director Cochran made the following comments and inquiries:
  • He inquired as to the reason that the $7.5 million to be put aside for Doyle Drive each year does not appear in the list of restricted reserves shown in Appendix A on page 139. In response, Mr. Wire stated that discussion had taken place as to whether to establish a separate reserve account for Doyle Drive. It is a policy decision for the Board to make if they would like a special reserve.
  • He inquired as to the possibility that the District would be able to receive grant funding for other projects from the Metropolitan Transportation Commission. In response, Mr. Wire stated that such funding may be possible, as the reconstruction of Doyle Drive and the District’s commitment is generally seen as giving back to the community.
  • He commented that not separating the Doyle Drive reserves from other reserves makes it appear as if more reserves are available for use than there actually are. In response, Mr. Wire stated that an additional chart will be created that will show how quickly the funds will be allocated by the 10-year Capital Plan.

• Director Snyder made the following comments and inquiries:
  • He inquired as to whether the statement on page 21 that states that transfers to reserves will result in a net reserve increase of only $1.5 million indicates that the District requires an additional $6 million. In response, Mr. Wire stated that additional funds or savings in expenses in this amount are required, which is the reason that tolls have been raised and commute bus changes made. He stated that other Initiatives from the SFP will be brought forward later in 2010, with the hope that the budget deficit will become zero.
  • He inquired as to whether a reduction in the TransLink® discounts would be implemented within this budget. In response, Mr. Wire stated that it will come before the Board for action later this calendar year. It must go through a Public Outreach Program and the regular channels of Committee recommendation before being presented to the Board for approval.
  • He inquired as to whether the change in STA funding from zero in FY 09/10 to several million dollars for FY 10/11 is due to the Doyle Drive Project. In response, Mr. Wire stated that the State of California did not distribute STA funds last year. However, they will be able to distribute STA funds this year according to their regular formula. He stated that the District’s understanding is that the state will be able to distribute STA funds for the upcoming two years. However, if budget problems for the state prove serious enough, this could change. Ms. Mantony added that the District expects to receive a check for these monies in July 2010.
  • He inquired as to the reason a salary increase for ATU is not included in the FY 10/11 budget. In response, Mr. Wire stated that the contract will be renegotiated in February, with a new contract in place by March 2011. If a new salary increase is negotiated, it will be added into the budget at that time.

• Director Sobel made the following comments and inquiries:
  • He stated that the Proposed Budget presented to the Finance-Auditing Committee is transparent. He stated that reserves should be equally transparent. In response, Mr. Wire stated that the format of the presentation can be changed such that the information on the allocation of the reserves appears in closer proximity to allow better comparison.
  • He commented that farebox recovery is projected to decrease by 3% and inquired as to whether that is a general trend. Mr. Wire stated that the actual percentage decrease is influenced by changes in ridership and other funding. It is decreasing by approximately $500,000.00, which includes the last year of the 5-Year Annual Transit Fare Increase Program. A new fare increase will be planned to come before the Board for approval next year.

• Director Eddie commented that he is very happy with the progress of the Seismic Retrofit Project. He stated that the public is largely unaware of the amount of work that has been accomplished, and that the District is now nearing the final phases of the Project. He stated that, had the Project been funded with toll revenue only, the cost of crossing the Golden Gate Bridge would have been enormous. He noted that other bridges across the United States are not as far along in retrofitting.

Action by the Board - None Required

$ 249,000

$ 251,000

1

$ 2,409,000

$ 2,545,000

6

$ 98,000

$ 98,000

0

$ 415,000

$ 477,000

15

$ 5,370,000

$ 6,337,000

18

$ 8,810,000

$ 9,827,000

12

$ 1,685,000

$ 1,937,000

15

$ 4,406,000

$ 4,438,000

1

$ 34,000

$ 34,000

0

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

At the meeting, Mr. Johnson stated that action on renewal of health and benefits insurance plans would be taken by the Board of Directors at its June 25, 2010, meeting. He provided a print-out of a PowerPoint presentation entitled “2010-2011 Overview of Golden Gate Bridge, Highway & Transportation District Employee Benefits Program.”

The PowerPoint presentation stated that, currently, the District provides employees 3 choices of health insurance, with Blue Shield and Kaiser being HMO’s and Blue Shield PPO being a self-insured plan administered by Blue Shield. In addition, the District offers an Employee Assistance Program (EAP); self-insured dental insurance administered by Delta Dental; self-insured vision insurance administered by Vision Service Plan; basic and term life insurance; dependent care and medical reimbursement flexible spending accounts; and, deferred compensation. The presentation also included a summary of enrollment in health plans as of April 2010, demographics of District participants enrolled in the Blue Shield PPO plan, estimated trends for 2010 and projected costs. A copy of the PowerPoint presentation is available from the Office of the District Secretary and on the District’s web site.

Steve Ratto, of Mercer Health and Benefits, LLC, summarized the PowerPoint presentation, directing attention to the fact that active members number 824 and retirees 711, a nearly equal split. He stated that there are approximately twice as many employees insured as dependents. He also noted that primary enrollees in the Blue Shield PPO plan have an average age of over 60.

Discussion ensued, including the following comments and inquiries:

• Director Grosboll inquired as to the average age of active employees only. In response, Mr. Ratto stated their average age is approximately 54.

• Director Stroeh inquired as to whether rates shown in the presentation include the changes required by the federal government. In response, Mr. Ratto stated that they do.

• Director Sobel made the following inquiries:
  • He inquired as to whether the cost increase percentages will change as the population continues to age. In response, Mr. Ratto stated that they would. He added that more wellness programs are being implemented to offset the aging process as well as better education being provided to help people understand how to maintain their health.
  • He inquired as to whether premium increases could be kept to a minimum by implementing such programs. Mr. Ratto responded affirmatively. Mr. Johnson added that the District is looking into options regarding how health benefits are delivered that may help to control costs.

• Director Cochran inquired as to whether information similar to that shown in the PowerPoint for Blue Shield PPO is available for Blue Shield HMO and Kaiser. In response, Mr. Ratto stated that the data are not as readily available, but could be compiled and provided to the Board.

Action by the Board – None Required