May 12, 2011

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, CA, on Thursday, May 12, 2011, at 10:15 a.m., Chair Stroeh presiding.

Committee Members Present (9): Chair Stroeh; Vice Chair Pahre; Directors Boro, Cochran, Elsbernd, Grosboll, Moylan and Sobel; President Reilly (Ex Officio)
Committee Members Absent (0): None
Other Directors Present (2): Directors Eddie and Renée

Committee of the Whole Members Present (11): Directors Boro, Cochran, Elsbernd, Moylan, Pahre, Renée, Sobel and Stroeh; Second Vice President Grosboll; First Vice President Eddie; President Reilly (Ex Officio)
Committee of the Whole Members Absent (7): Directors Brown, Campos, Chu, Mar, Rabbitt, Snyder and Theriault

[Note: On this date, there was one vacancy on the Board of Directors.]

Staff Present: General Manager Denis Mulligan; District Engineer Ewa Bauer; Auditor-Controller Joseph Wire; District Secretary Janet Tarantino; Attorney Madeline Chun; Deputy General Manager/Bridge Division Kary Witt; Deputy General Manager/Bus Transit Division Teri Mantony; Deputy General Manager/Ferry Transit Division Jim Swindler; Public Affairs Director Mary Currie; Assistant Clerk of the Board Lona Franklin

Visitors Present: None

There were no Budget adjustment(s) or transfer(s) to discuss.

Authorize Actions Related to Grant Programs

There were no actions related to grant programs to discuss.

Initial Presentation of the Draft FY 11/12 Operating and Capital Budgets

In a memorandum to Committee, Auditor-Controller Joseph Wire and General Manager Denis Mulligan provided a summary of the development process and a general overview of the proposed draft FY 11/12 Operating and Capital Budgets (FY 11/12 Budget), which contain District goals, projects and accomplishments; changes to the reserve structure; changes to the Table of Organization; and, a 1.0% negotiated salary increase for Amalgamated Transit Union (ATU) employees, effective March 1, 2012. At the meeting, Mr. Wire introduced his finance staff, thanking them for their efforts in the development of the Budget.

The report provided an overview of the proposed FY 11/12 Budget, which includes:

• Operating Budget revenues of $166.8 million;
• Operating Budget expenditures of $173.1 million;
• Capital Budget revenues of $51.9 million;
• Capital Budget expenditures of $65.4 million; and,
• District reserves of $6.3 million to be used to fund the FY 11/12 Operating Budget; and,
• District reserves of $13.5 million to be used to fund the FY 11/12 Capital Budget.

The report also included background summary information regarding the proposed FY 11/12 Budget, providing details on the Operating Budget, the Capital Budget and the use of District reserves. A copy of the report, including a copy of the proposed FY 11/12 Budget, is available in the Office of the District Secretary.

At the meeting, Mr. Wire provided an overview of the proposed FY 11/12 Budget, noting that this meeting will provide an opportunity for discussion by the Committee. Mr. Wire then guided the Committee members through the FY 11/12 Budget document, focusing on an overview of the District’s current financial situation, Operating Budget revenues and expenses, and the Capital Budget. He reported that the proposed FY 11/12 Budget includes changes to the District reserve structure and the Table of Organization, as well as one previously negotiated increase for ATU employees. If meetings with the Union Coalition are completed then any negotiated increases can be added. He stated that 60% of the Operating Budget revenues are based on tolls. An increase was put in place in 2008. During the first year following an increase, higher revenues are realized then, during the last couple years, revenues decline.

He stated that the Government Finance Officers Association of the United States and Canada (GFOA) presented a Distinguished Budget Presentation Award to the District for its annual budget for the fiscal year beginning July 1, 2010. In order to receive this award, a government unit must publish a budget document that meets program criteria as a policy document, an operations guide, a financial plan and a communications device. He added that, if the District earns an award for the proposed FY 11/12 Budget, it will be its sixth award.

He reported that the General Manager’s report begins on Page 6 and includes, on Page 7, a budget summary of the proposed FY 11/12 Budget, as well as a bulleted list of FY 10/11 Projects that have been completed or are currently underway. Also included, beginning on Page 12, is a synopsis of the budget planning and development process, which provides an understanding of how the Budget is prepared and the steps required to complete it. He stated that the budget process for the proposed FY 11/12 Budget is in the last phase at this time.

Mr. Wire directed attention to the graphical overview of the proposed FY 11/12 Budget on Page 17, stating that $238.5 million is the total of revenues and expenses. He stated that the District can expect to end FY 11/12 with a small surplus, as shown on Page 20. He also reported that the District expects to end FY 10/11 with $124 million in reserves, as shown on the chart, which is higher than FY 09/10 due to scheduling of capital projects.

Regarding the impact of the proposed FY 11/12 Budget on District reserves, discussed on Page 21, Mr. Wire pointed out that operating expenses are projected to be $6.3 million greater than projected operating revenue. After the budget is passed a new projection will be done and, if necessary, the Financial Plan for Achieving Long-Term Financial Stability (Plan), can be updated to address any long-term deficit. The chart on Page 22 shows projected reserves and unallocated reserves. Mr. Wire stated that the projected reserves curve slopes downward due to implementation of capital projects. The unallocated reserves curve also slopes downward, showing how funds will be allocated.

Regarding the Commercial Paper Program (CCP) referenced on Page 23, the proposed FY 11/12 Budget provides for $61 million to remain outstanding throughout FY 11/12 and does not provide for further borrowing. In addition, the proposed FY 11/12 Budget fully funds the maintenance of the CCP, including arrangements to market the commercial paper and to provide the District a line of credit. Total CCP costs as a percentage of the total commercial paper notes outstanding are summarized in the table. Total CPP costs for FY 10/11 are shown at 1.47%, with the projected costs for FY 11/12 shown at 3.38%.

Mr. Wire stated that a list of Plan initiatives that were implemented in FY 10/11 appears on Pages 24 and 25, with initiatives proposed for implementation in FY 11/12 shown on Pages 25 and 26. He emphasized the significance of both lists, stating that completed initiatives can be incorporated into projections.

The Operating Budget summary appears on Page 30 and shows the sources of District funding as well as areas of expenditure in the proposed FY 11/12 Budget. Page 32 shows operating revenues and assumptions. Mr. Wire stated that transit fare revenue is expected to increase, noting that the District has seen an increase in transit ridership, some of which is likely due to increased fuel prices. He added that receipts from concessions have been decreasing. The District expects concessions to be assumed by the Golden Gate National Recreation Area. Following that change, concessions would no longer be included in the District’s budget.

Concerning the District’s Operating Expenses, discussed on Pages 34 through 38, Mr. Wire noted that the District is reducing its expenses. However, if a salary increase is negotiated with the Union Coalition, expenses will be greater than presented in the budget. Fuel costs have been rising, and additional funds have been included in the projected FY 11/12 Budget to cover those costs.

The District’s Table of Organization, shown on Page 39, anticipates approximately 30 fewer employees for FY 11/12. He summarized the organizational changes that are planned, stating that the changes are listed on Pages 39 and 40.

The Capital Program Summary begins on Page 41 showing capital projects planned for FY 11/12 that will have significant impacts on operations as well as a financial impact on operating revenue and expense. The sources of Capital Budget funds are detailed on Page 44, with federal funds making up 75%, state/other funds 6% and District funds 19%. In addition, projects currently scheduled for FY 12/13 are listed on Page 45. This budget requests that the General Manager’s authority to move individual projects from the future year’s project list to the current year’s budget, pending availability of staff resources, be continued each year.

Mr. Wire concluded that the proposed FY 11/12 Budget would be revisited by the Finance-Auditing Committee at its meeting scheduled for May 26, 2011. At that time staff will answer any questions that cannot be answered at this Committee meeting.

Discussion ensued, including the following:

• Director Grosboll made the following inquiries:
  • He inquired as to whether there has been an expectation for what the District considers an appropriate level of total reserves. In response, Mr. Wire stated that the District has not, historically, stated its expectation in this regard. He stated that, knowing the District’s planned expenditures over the next ten years allows projections to be made regarding expected grants and the District’s contributions. He inquired as to whether the $75 million payment the District must make for the California Department of Transportation’s Doyle Drive Reconstruction Project will be a single payment. Mr. Wire responded affirmatively.
  • He inquired as to the number of employees covered by the proposed FY 11/12 Budget compared to the number covered by the FY 10/11 Budget. In response, Mr. Wire stated that the District expects approximately 30 fewer employees for FY 11/12 compared to the prior year.

• President Reilly inquired as to the number of reserve accounts the District maintains. In response, Mr. Wire noted that the District has several types of reserves, with Page 143 showing a list of the reserves the District maintains. He briefly explained the table and how to understand it.

• Director Boro made the following comments and inquiries:
  • He inquired as to how funds are added to District reserves. In response, Mr. Wire stated that, each year, if the budget is balanced, the District can add funds to capital reserve. Should the District be unable to balance its Operating Budget, the capital contribution would be smaller as a result.
  • He commented that, when staff discusses the proposed FY 11/12 budget at the next Finance-Auditing Committee/Committee of the Whole meeting, the Committee should be provided with details regarding the balance in the Seismic Retrofit Project, the balance of federal funds remaining, the amount required for the Project and the timeframe within which the funds will be needed. In addition, he requested information about a sustainable level of transit subsidy for upcoming years, and plans to fund it. In response, Mr. Wire stated that staff will provide information on the former and that the latter can be discussed when the Board takes up the financial plan.
  • He commented that the budget presentation was outstanding and thanked Mr. Wire and his staff for thorough and excellent work.

• Director Sobel made the following comments:
  • He commented that how Board decisions increase spending could be tracked so that the Board can avoid inadvertently increasing the District’s deficit.
  • He commented that this budget presentation was excellent, being readable, comprehensive and comprehensible, and thanked staff for their work in preparing and presenting it.

• Director Stroeh made the following inquiries:
  • He inquired as to whether other Bridge Division projects will be similar in size to the Golden Gate Bridge Seismic Retrofit Project (Project). In response, Mr. Wire stated that other non-seismic Bridge Division projects make up 2/3 of the cost of the Bridge Division Capital Project cost.
  • He inquired as to whether staff could review this information for the next five- and ten-year periods. In response, Mr. Wire stated staff would do that.
  • He inquired as to whether the FY 12/13 Capital Budget Project List on Page 45 represents projects that are planned as opposed to those that are desired. In response, Mr. Wire stated that it represents project planning but that staffing levels will have the greatest impact on the capital projects that can be completed.

Action by the Board at its meeting of May 13, 2011 – None Required

Closed Session

Attorney Madeline Chun, at the request of Chair Stroeh, stated that the Finance-Auditing Committee would convene in closed session, as permitted by the Brown Act, to discuss the following items, listed on the Agenda as Item No. 4.a:

      “4.a.  Conference with Legal Counsel – Pending Litigation
               Pursuant to Government Code Section 54956.9(a)
               Report of Athens Administrators, Inc.
               Michael A. Fletcher vs. Golden Gate Bridge, Highway and Transportation District”

After closed session, Chair Stroeh called the meeting to order in open session with a quorum present. Attorney Chun reported that appropriate instructions had been given to staff for disposition of this matter.

Public Comment

There was no public comment.

Adjournment

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