May 26, 2011

 

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 (Committee) of the Golden Gate Bridge, Highway and Transportation District (District) was held in the Board Room, Administration Building, Toll Plaza, San Francisco, CA, on Thursday, May 26, 2011, at 10:50 a.m., Chair Stroeh presiding.

Committee Members Present (7): Chair Stroeh; Directors Boro, Cochran, Grosboll and Moylan; Vice Chair Pahre; President Reilly (Ex Officio)
Committee Members Absent (2): Directors Elsbernd and Sobel
Other Directors Present (1): Director Eddie

Staff Present: General Manager Denis Mulligan; District Engineer Ewa Bauer; Auditor-Controller Joseph Wire; District Secretary Janet Tarantino; Attorney David Miller; 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; Executive Assistant to the General Manager Amorette Ko; Assistant Clerk of the Board Lona Franklin

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 Denis Mulligan 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, of PFM, reported that the District’s portfolio is earning almost 2.5%. This is exceptionally good, compared to 2-year Treasury notes, which have been earning less than 1% for approximately one year. She added that the District’s liquid funds are in the California State pool, which shows the highest returns for overnight funds.

She stated that PFM has added corporate securities and now has approximately 20. She noted that corporate profits have been increasing, and that PFM was able to purchase approximately $2.7 million in Caterpillar notes, at a yield of 1.65%. In addition, $3.2 million of the proceeds from maturing commercial paper was invested in Wal-Mart notes, at a yield of 1.72%.

She reported that the United States economy is improving more slowly than previously predicted. The Federal Reserve Board has indicated that the target short-term interest rate will remain at 0% for an extended period. Consumer confidence has increased somewhat, although employment and housing continue to lag. She stated that, although the government believes inflation is low, it is important to remember that the cost of energy and food is rising, and that the Consumer Price Index does not include these two items.

She stated that PFM has continued to purchase securities in the two- to three-year range, because yields are best in this area. The District’s securities are primarily two or three years, or short-term, in order to take advantage of the steep yield curve.

Staff recommended and the Committee concurred by motion made and seconded by Directors STROEH/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.
The Board of Directors has no commitments and/or expenditures to ratify for the period April 1, 2011 through April 30, 2011;
  b.
Ratify investments made by the Auditor-Controller during the period April 12, 2011, through May 16, 2011, as follows:
     
Security
Purchase Date
Maturity Date
Original Cost
Percent Yield
Bank of America Corp.,
Commercial Paper
04/18/11
05/18/11
1,934,725.87
0.17
Wal Mart Stores, Inc., Corp Notes
04/18/11
04/15/14
3,216,292.50
1.72
Nordea North America, Inc.,
Commercial Paper
05/03/11
07/29/11
3,998,066.67
0.20
     
  c.
Authorize the Auditor-Controller to re-invest, within the established policy of the Board, investments maturing between May 17, 2011, and June 13, 2011, as well as the investment of all other funds not required to cover expenditures that may become available; and,
 

d.

Accept the Investment Reports for April 2011, as prepared by PFM.

Action by the Board at its meeting of May 27, 2011 – Resolution
CONSENT CALENDAR

     
 
AYES (8): Chair Stroeh; Directors Boro, Cochran, Eddie, Grosboll and Moylan; Vice Chair Pahre; President Reilly (Ex Officio)
NOES (0): None
ABSENT (2): Directors Elsbernd and Sobel
     
2.

Authorize Budget Adjustment(s) and/or Transfer(s)

     
  a.

Authorize Budget Transfers Relative to the FY 10/11 Operating Budget

In a memorandum to Committee, Auditor-Controller Joseph Wire and General Manager Denis Mulligan reported on staff’s recommendation to authorize Operating Budget transfers of $2.9 million, or 1.7% of total FY 10/11 Operating Budget Expenses.

The staff report stated that, in accordance with policies of the District, budget transfers greater than $50,000.00, which are made across different Divisions or across different line items within the same Division, are subject to the approval of the Board. There are no net additional expenses added to the FY 10/11 District Operating Budget, as a result of the recommended transfers. The staff report stated that four categories of increased expense in the Operating Budget must be addressed, namely: Professional Services, Maintenance and Dry-Docking, Fringe Benefits (Workers’ Compensation and Medical Benefits) and Fuel. A copy of the staff report is available in the Office of the District Secretary and on the District’s web site.

At the meeting, Mr. Wire briefly summarized the staff report, stating that the requested transfers are for the FY 10/11 Budget. He indicated that areas of price increases include professional services and line of credit expenses. In addition, credit card fees have increased, and the District has seen an increase in the number of transactions, especially FasTrak® transactions. He added that, in recent months, the Ferry Transit Division has required several actions. In addition, the District’s Workers’ Compensation claims have increased compared to prior years, and the cost of fuel has been significantly higher. Mr. Wire reported that the overall FY 10/11 Budget will not be changed by the recommended transfers, but that the accounts in which funds are located will change.

Discussion ensued, including the following inquiries:

  • Director Cochran made the following inquiries:
    • He inquired as to whether the District maintains a yearly contract for fuel purchases at a certain price. In response, Mr. Wire stated that the District’s contract price is based on the daily rate, so that the District must pay the current price as of the day of delivery.
    • He inquired as to whether, under its contract, the District must pay 100% of any increase in the price of fuel. Mr. Wire responded affirmatively.

Staff recommended and the Committee concurred by motion made and seconded by Directors COCHRAN/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 authorize budget transfers relative to the FY 10/11 Operating Budget, as follows:

    a.
Transfer $1,070,000.00 from the Bridge Division Debt Service to Bridge Division Workers’ Compensation, Bridge Division Bank Services, Bus Transit Division Workers’ Compensation, and Ferry Transit Division Fuel; and,
    b.

Transfer $1,830,000.00 from Bridge Division, Bus Transit Division and District Division Salary to Bus Transit Division Consulting Fees, Bus Transit Division Fuel, Ferry Transit Division Workers’ Compensation, Ferry Transit Division Dry-Docking and Maintenance and District Division Medical Expense

Action by the Board at its meeting of May 27, 2011 – Resolution
NON-CONSENT CALENDAR

       
    AYES (8): Chair Stroeh; Directors Boro, Cochran, Eddie, Grosboll and Moylan; Vice Chair Pahre; President Reilly (Ex Officio)
NOES (0): None
ABSENT (2): Directors Elsbernd and Sobel
       
3. Authorize Actions Related to Grant Programs
       
  a.

There were no “Actions Related to Grant Programs” to discuss.

     
4.

Approve an Amendment to Rule XI, Investment Policy, of the Rules of the Board

In a memorandum to Committee, Auditor-Controller Joseph Wire and General Manager Denis Mulligan reported on staff’s recommendation to approve an amendment to Rule XI, Investment Policy, of the Rules of the Board (Rules).

The staff report stated that the District’s investments are guided by the District’s Investment Policy, which Policy is published in the Rules to govern its proceedings pursuant to the Streets and Highways Code and the District’s Resolution No. 20, dated April 10, 1929, as amended.

The staff report also stated that the District was advised by its Investment Advisor, Pacific Financial Management, Inc., (PFM), that specific language contained in Rule XI, Investment Policy, of the Rules, under the following Sections, should be amended to reflect current California law on public investments, as summarized below:

    A. Introduction
    Add language for further clarification.
       
    C. Prudence
   
Revise the standard of prudence to be used by investment officials from the “prudent person” standard to the “prudent investor” standard, as described in California Government Code Section 53600.3, for the investment of public funds.
       
    E. Delegation of Authority
   
Clarify that delegation of investment management authority by the Board to the Auditor-Controller is for a one-year period, subject to annual Board review and renewal, as provided for in California Government Code Section 53607.
       
    I. Permitted Investment
   
Standardize the language relating to the minimum credit rating requirements in Paragraph 2. Bankers’ Acceptances, and Paragraph 3. Negotiable Certificates of Deposit. This revised language reflects the language currently found in California Government Code Section 53601.
       
 

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. Wire stated that the investment policy is brought before the Board annually for review. Minor changes are required to mirror current California law on Special District investments as detailed in the staff report. He pointed out that authority can no longer be delegated to the Auditor-Controller for longer than one year.

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 (Board) of the Golden Gate Bridge, Highway and Transportation District (District) approve amendments to RULE XI., INVESTMENT POLICY, of the Rules of the Board, under Section A., Introduction, Section C., Prudence, Section E., Delegation of Authority and Section I., Permitted Investment, of the Rules of the Board, as set forth below:

    A. Introduction
   
(Replace the second paragraph in its entirety with the following.)
         “The investment policies and practices of the Golden Gate Bridge, Highway & Transportation District are based on state law and prudent money management. All general funds will be invested in accordance with the District’s Investment Policy and shall be consistent with the provisions of Article 2 of Chapter 4 of the California Government Code (commencing with Section 53600). The investment of bond or note proceeds will be governed by the provisions of the relevant bond documents. (Res. 01-148, 9/14/01).”
       
    C. Prudence
   

(Replace the second paragraph in its entirety with the following.)

        “The standard of prudence to be used by investment officials shall be the “prudent investor” standard and shall be applied in the context of managing an overall portfolio. All persons investing, reinvesting, purchasing, acquiring, exchanging, selling and managing public funds shall act with care, skill, prudence and diligence under the circumstances then prevailing, including, but not limited to, the general economic conditions and anticipated needs of the District, that a prudent person acting in a like capacity and familiarity with those matters would use in the conduct of funds of a like character and with like aims, to safeguard the principal and maintain the liquidity needs of the District.”

       
    E. Delegation of Authority
   

(Replace this section in its entirety with the following.)

        “The management and oversight responsibility for the Investment Program is hereby delegated for a one-year period to the Auditor-Controller who shall monitor and review all investments for consistency with this Investment Policy and provide monthly reports of investment transactions to the Board. The Board shall review, and may renew the delegation of authority to the Auditor-Controller on an annual basis. No person may engage in an investment transaction except as provided under the limits of this policy. The Board may delegate the day-to-day investment decision making and execution authority to an investment advisor. The advisor shall follow the policy and such other written instructions as are provided.”

       
    I. Permitted Investment Instruments
       
      2. Bankers’ Acceptance
     

(Replace this subsection in its entirety with the following.)

        “The District may invest in bankers’ acceptances issued by domestic or foreign banks, which are eligible for purchase by the Federal Reserve System, the short-term paper of which is rated in the highest category by a nationally recognized statistical rating organization (NRSRO).”

       
      3. Negotiable Certificates of Deposit
     

(Replace this subsection in its entirety with the following.)

        “The District may invest in negotiable certificates of deposit or deposit notes issued by a nationally or state chartered bank or a state or federal savings and loan association or by state-licensed branch of a foreign bank; provided that that the senior debt obligations of the issuing institution are rated in one of the two highest categories by a NRSRO,” and,

     
 

amend the Rules of the Board accordingly.

Action by the Board at its meeting of May 27, 2011 – Resolution
NON-CONSENT CALENDAR

   
 
AYES (8): Chair Stroeh; Directors Boro, Cochran, Eddie, Grosboll and Moylan; Vice Chair Pahre; President Reilly (Ex Officio)
NOES (0): None
ABSENT (2): Directors Elsbernd and Sobel
     
5.

Annual Review of the District’s 457 Deferred Compensation Program

In a memorandum to Committee, Auditor-Controller Joseph Wire and General Manager Denis Mulligan provided an annual review of the District’s 457 Deferred Compensation Program (Plan). The report stated that, in February 2010, the District successfully transitioned the administration of its Plan from two providers to a sole provider, ICMA Retirement Corporation (ICMA. By doing so, the District’s five key objectives were achieved: 1) Reduction of overall fees; 2) Elimination of deferred sales charges and other contingent fees; 3) Evaluation of fund options and performance; 4) Simplification of administration; and, 5) Enhancement of services.

The staff report stated that, on March 21, 2011, District staff, led by SST Benefits Consulting & Insurance Services, Inc., the District’s Deferred Compensation Consultant, conducted an annual review of the Plan’s investment fund performance and of ICMA as the Plan’s service provider. Both were found to be satisfactory. There has been no amendment and/or change to the administration of the Plan and Policy Statement. As of December 31, 2010, the Plan was in full compliance with its Investment Policy Statement. The staff report provided detailed fund statistics, as well as information regarding Plan asset allocation, Plan fund performance, and Plan fees and charges.

The staff report provided a table of asset allocation as of December 31, 2010, for the $44.4 million total assets in the Plan. In addition, individual fund performance for all funds in the Plan was provided in Exhibit B to the staff report.

The staff report stated that Plan expenses are paid by the participants, not by the District. There are no administrative fees with ICMA. The District receives payments annually from ICMA to cover certain administrative and educational costs. 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. Wire briefly summarized the staff report, stating that the District’s Plan has been in place for over 25 years. It is paid for by fees that employees incur when they participate.

He reported that ICMA is now the District’s sole provider, having been the successful bidder last year. Overall, investments are reasonably conservative, with fund choices being made by participants; and fund performance is stable, earning 3%. He further stated that the District also has a series of mutual funds that are monitored by staff and a consultant. He indicated that, if a given fund does not meet or exceed the designated benchmark for two of three measurable periods, the District places it on its “Watch List.” Currently, 3 funds are on that list. Should a fund underperform, the District can request information about other funds to replace the one performing poorly.

Discussion ensued, including the following comments and inquiries:

  • Director Stroeh inquired as to whether any District funds were deposited through ICMA. Mr. Wire responded negatively.
  • Director Grosboll made the following inquiries:
    • He inquired as to how mutual funds are selected to go into the Plan. In response, Mr. Wire stated that ICMA develops a list of funds from which participants choose, and the investment managers negotiate with those funds on the District’s behalf. The District monitors them for a combination of low fees and high performance.
    • He inquired as to whether the decision to change funds, based on the “Watch List,” would be a decision made by participants. In response, Mr. Wire stated that District staff would have the ability to request a change consistent with the terms of its contract with ICMA.
    • He commented that the District’s ability to make changes to funds is limited by the fact that participants must be allowed to choose the funds into which they place their investments.
    • He inquired as to whether the District receives reports on fund performance. Mr. Wire responded affirmatively.
     
6.

Discussion and Possible Action Relative to the Adoption of the FY 11/12 Operating and Capital Budgets

In a memorandum to Committee, Auditor-Controller Joseph Wire and General Manager Denis Mulligan reported on staff’s recommendation to approve the FY 11/12 Proposed Operating and Capital Budgets. 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. Wire stated that the staff report for this meeting is the same as the one for the May 12, 2011, Finance-Auditing Committee meeting, with one additional page at the end of the report which includes answers prepared by staff of the questions asked of Committee members in attendance at the May 12th meeting of the Finance-Auditing Committee. At the meeting, Mr. Wire summarized the information on this page, and a copy of this Summary is attached to these minutes.

Discussion ensued, including the following comments and inquiries:

  • Director Stroeh inquired as to the specific Capital projects that are expected to make up the $450-$500 million in Capital spending over the next ten years. In response, Mr. Wire stated that details of the Capital Plan appear in the FY 11/12 Proposed Budget, Appendix D, pages 153 to 155.
  • Director Grosboll inquired as to when the Seismic Retrofit Project is expected to be complete. In response, Ms. Bauer stated that it is scheduled to be completed within approximately four to five years.

The Committee members present concurred that action relative to the “Adoption of the FY 11/12 Operating and Capital Budgets,” will take place at the Board of Directors Meeting of June 9, 2011.

     
     
     
     
7.

Monthly Review of Golden Gate Bridge Traffic/Tolls and Bus and Ferry Transit Patronage/Fares (for Ten Months Ending April 2011)

In a memorandum to Committee, Auditor-Controller Joseph Wire and General Manager Denis Mulligan provided a schedule comparing categories of Bridge traffic, as well as a monthly review of Bridge traffic, tolls, transit patronage and fares, for ten months ending April 2011. Copies of the reports are available in the Office of the District Secretary and on the District’s web site.

Action by the Board – None Required

     
8. Monthly Review of Financial Statements for Ten Months Ending April 2011
     
  a.

Statement of Revenue and Expenses

In a memorandum to Committee, Auditor-Controller Joseph Wire and General Manager Denis Mulligan provided financial statements entitled, Statement of Operating Revenues and Expenses. Copies of the reports are 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, Director of Capital and Grant Programs Gayle Prior, Auditor-Controller Joseph Wire and General Manager Denis Mulligan provided financial statements entitled, Statement of Capital Programs and Expenditures. Copies of the reports are available in the Office of the District Secretary and on the District’s web site.

Action by the Board – None Required

     
9.

Closed Session

Attorney David Miller, at the request of Chair Stroeh, stated that the Committee would convene in Closed Session, to discuss the following matters, listed on the Agenda as Item Nos. 9.a. and 9.b.:

     
    Conference with Legal Counsel – Pending Litigation
“Pursuant to Government Code Section 54956.9(a)
“Report of Athens Administrators, Inc.
    "a. Ernest L. Johnson vs. Golden Gate Bridge, Highway and Transportation District
    "b. Gale Wheaton 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 Miller reported that the Committee had met in Closed Session, as permitted by the Brown Act, to discuss the matters listed under Closed Session, outlined above. He reported that Item No. 9.a. will be referred to the Board of Directors for disposition at the regularly scheduled meeting of June 10, 2011. He also reported that, with regard to Item No. 9.b., instructions have been given to the Workers’ Compensation claims administrator for disposition of that matter.
       
10.

Public Comment

There was no public comment on items not on the agenda.

 


11.

Adjournment

All business having been concluded, the meeting was adjourned at 9:55 p.m.

   
   

 

Respectfully submitted,

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