June 9, 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, June 9, 2011, at 10:20 a.m., Acting and Vice Chair Pahre presiding.

Committee Members Present (8): Acting and Vice Chair Pahre; Directors Boro, Cochran, Elsbernd, Grosboll, Moylan and Sobel; President Reilly (Ex Officio)
Committee Members Absent (1): Chair Stroeh
Other Directors Present (4): Directors Arnold, Eddie, Renée and Snyder

Committee of the Whole Members Present (12): Directors Arnold, Boro, Cochran, Elsbernd, Moylan, Pahre, Renée, Snyder and Sobel; 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, Stroeh and Theriault

Staff Present: General Manager Denis Mulligan; District Engineer Ewa Bauer; Auditor-Controller Joseph Wire; 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; Director of Risk Management and Safety William Stafford; Public Affairs Director Mary Currie; Assistant Clerk of the Board Lona Franklin; Senior Board Analyst Elizabeth Eells

Visitors Present: John Bell, Mercer, Inc.; Steve Ratto, Mercer, Inc.

Authorize Actions Related to Grant Programs

Authorize Actions Relative to the Application and Award of FY 2010-11 California Transit Security Grant Program Funds

In a memorandum to Committee, Director of Capital and Grant Programs Gayle Prior, Auditor-Controller Joseph Wire and General Manager Denis Mulligan reported on staff’s recommendation to authorize the General Manager or his designees to execute for and on behalf of the District any actions necessary, including executing and submitting related certifications and assurances, grant applications and agreements, relative to the FY 10/11 California Transit Security Grant Program administered by the California Emergency Management Agency (CEMA).

The staff report stated that, in November 2006, California voters approved Proposition 1B, the Highway Safety, Traffic Reduction, Air Quality and Port Security Bond Act of 2006, which provides almost $20 billion in State general obligation bonds for approximately 14 different categories of transportation projects including the Transit Security Grant Program (TSGP), administered by the CEMA. Funds from the TSGP are available to State Transit Assistance eligible agencies, including the District.

The staff report further stated that, as a part of the FY 10/11 California Transit Security Grant Program, California Transit Assistance Fund, Program Guidelines and Application Kit issued by the CEMA, project applicants are required to adopt a resolution appointing individuals or positions to act on behalf of the applicant and its governing body and to provide related certifications and assurances. Attachment A to the staff report provided examples of the necessary documentation. A copy of the staff report, including Attachment A, is available from 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 BORO/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 Denis J. Mulligan, General Manager or Joseph M. Wire, Auditor-Controller or Gayle Prior, Director of Capital and Grant Programs, to execute for and on behalf of the District, any actions necessary, including executing and submitting related certifications and assurances, grant applications and agreements, relative to the FY 10/11 California Transit Security Grant Program administered by the California Emergency Management Agency.

Action by the Board at its meeting of June 24, 2011 – Resolution
NON-CONSENT CALENDAR

Authorize Execution of a Professional Services Agreement with York Risk Services Group, Inc., Relative to Request for Proposals No. 2011-D-2, Third Party Administrator for Workers’ Compensation Program Claims Administration and Ancillary Services

In a memorandum to Committee, Risk Management and Safety Director William Stafford, Auditor-Controller Joseph Wire and General Manager Denis Mulligan reported on staff’s recommendation that the Board of Directors approve actions relative to Request for Proposals No. 2011-D-2, Third Party Administrator for Workers’ Compensation Program Claims Administration and Ancillary Services (RFP No. 2011-D-2).

The staff report stated that the District has engaged the services of a third party administrator (TPA) to adjust Workers’ Compensation claims on the District’s behalf for many years, which includes coordinating medical treatment, paying indemnity payments in a timely manner, using approved cost containment programs, assisting in its structured return-to-work services and providing risk management information on the Workers’ Compensation Program (Program). The staff report further stated that, on April 1, 2011, the District issued RFP No. 2011-D-2, and seven proposals were received by the due date of April 26, 2011, from the following companies: 1) Athens Administrators; 2) CorVel Enterprise Comp, Inc.; 3) Innovative Claims Solutions, Inc.; 4) Intercare Holdings Insurance Services, Inc.; 5) LWP Claims Solutions, Inc.; 6) TRISTAR Risk Management; and, 7) York Risk Services Group, Inc. An Evaluation Committee reviewed the proposals and, applying evaluation criteria set forth in RFP No. 2011-D-2, unanimously determined that York Risk Services Group, Inc. (York) was best qualified to perform the required services.

The staff report stated that the DBE Program Administrator has determined that York is not certified as a DBE and that, therefore, no DBE participation is anticipated during the performance of these services. 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. Stafford stated that the District is currently self-insured for $1 million, making it necessary to adjust claims to injured workers, and that the vendor will interact with injured employees. He stated that RFP No. 2011-D-2 was issued in April 2011, and that seven TPAs responded. He stated that RFP No. 2011-D-2 also included ancillary services, which includes medical bill review. He stated that the District saves significant funds by obtaining the correct billing, adding that the District spends approximately $1 million to $2 million annually on medical bills. He indicated that the ancillary services include nursing care, utilization review and a medical provider network. The Evaluation Committee interviewed four vendors, with York distinguishing itself during the interview, being set apart by exceptional qualifications. He added that York is flexible and user friendly, and their system can interface with the District’s IFAS system. He stated that York provides TPA services to approximately 1,000 public entities in California, 29 of which are transit agencies.

Discussion ensued, including the following comments and inquiries:

• Director Boro made the following comments and inquiries:
  • He inquired as to the length of time the previous TPA, Athens Administrators, Inc. (Athens), was the TPA for the District. In response, Mr. Stafford stated that Athens, was the District’s TPA for five years.
  • He inquired as to the length of time required for the transition from Athens to York. In response, Mr. Stafford stated that the contract would be effective as of July 1, 2011, and the transition would be expected to be complete by approximately mid-July.
  • He commented that the District has some old Workers’ Compensation cases that have not been closed to date, and requested that staff provide the Board with a list of all pending cases, including the nature of the claim and how long it has been pending. In response, Mr. Mulligan stated that a detailed report will be provided.

• Director Pahre made the following comments:
  • She commented that the above-requested report should also include opening and closing balances. In response, Mr. Stafford indicated that such a report has been compiled and can easily be provided to Board members.
  • She commented that, when an organization enters into an agreement with a new third-party administrator, a file review is generally done and information regarding the number of cases that can be closed over the subsequent year is provided.

• Director Grosboll commented that those who are entitled to receive Workers’ Compensation funds should not have to wait to receive them.

• Director Elsbernd inquired as to how the annual value of the proposed agreement compares to the District’s existing agreement. In response, Mr. Stafford indicated that the Professional Services Agreement with York is approximately $200,000.00 lower. He added that other cost saving measures, such as the medical provider network, may increase the savings.

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 approve actions relative to Request for Proposals No. 2011-D-2, Third Party Administrator for Workers’ Compensation Program Claims Administration and Ancillary Services (RFP No. 2011-D-2), as follows:

with the understanding that requisite funds are available in the FY 11/12 District Division Operating Budget, and that future years will be budgeted accordingly.

Action by the Board at its meeting of June 24, 2011 – Resolution
NON-CONSENT CALENDAR

AYES (12): Directors Arnold, Boro, Cochran, Elsbernd, Moylan, Pahre, Renée, Snyder and Sobel; Second Vice President Grosboll; First Vice President Eddie; President Reilly (Ex Officio)
NOES (0): None

Authorize Execution of an Extension to the Commercial Paper Line of Credit Agreement with JPMorgan Chase Bank

In a memorandum to Committee, Auditor-Controller Joseph Wire and General Manager Denis Mulligan reported on staff’s recommendation to authorize execution of a 364-day extension of the Line of Credit Agreement with JPMorgan Chase Bank, N.A. (JPMorgan), relative to the Commercial Paper Program (CP Program).

The staff report stated that the terms of the District’s CP Program require that a Line of Credit Agreement be in place (liquidity requirement) 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 staff report stated that, as has been done with each year of the CP Program, the District’s financial advisor, Public Financial Management, Inc. (PFM), has surveyed current market conditions and the results of recent credit Requests for Proposals (RFP) put out by similar public entities, to determine the market rate and for the District’s Auditor-Controller to use the information to negotiate terms with JPMorgan.

The staff report indicated that staff has explored the option of securing a longer term facility (i.e., 2-year and 3-year) with JPMorgan, but given that pricing has continued to come down from its peak in 2009, staff has concluded that a one-year renewal would be most appropriate. 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 CP Program has been in place since 2000. There are no plans to increase or decrease the outstanding amount. This is a short-term debt instrument, maturing in no more than 270 days by law. Therefore, for the District’s creditors to hold that paper, they need insurance that someone else will pay if the District cannot. He stated that JPMorgan has provided that service to date. The costs are market based. Fees were approximately $200,000.00 in early years, but increased in 2009 to almost $1,000,000.00. He stated that it is now approximately $500,000.00. He stated that, in 2010, the District received bids for more competitive rates, with JPMorgan the most competitive. Given the market and market activity, more banks are becoming involved. JPMorgan is a financially strong bank, which will help the District when its commercial paper is marketed.

Discussion ensued, including the following comments and inquiries:

• Director Pahre made the following inquiries:

• She inquired as to whether the District has ever used this line of credit. Mr. Wire responded negatively.

  She inquired as to whether the Insurance Program is mandated by the CP Indenture. Mr. Wire responded affirmatively.

• Director Sobel inquired as to the degree of negotiation that takes place regarding basis points. In response, Mr. Wire stated that the degree of negotiation depends upon markets and expectations. He stated that, each year, JPMorgan and PFM advise the District as to their market expectations. They also provide the District information about RFPs to which they have responded and the agencies with whom they have been successful. He added that the District’s business is highly desirable because of its financial health. He concluded by stating that it is very unlikely the District will have to use this line of credit.

• Director Grosboll inquired as to whether other transit agencies have CP Programs. In response, Mr. Wire stated that some transit agencies use CP Programs, depending upon their debt portfolios, their banks and the market.

Staff recommended and the Committee concurred by motion made and seconded by Directors SOBEL/REILLY 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 364-day extension of the Line of Credit Agreement with JPMorgan Chase Bank, N.A., for the Commercial Paper Program, at the cost of 0.67%, or an approximate annual fee of $511,000.00, for the period of July 2, 2011 to June 29, 2012.

Action by the Board at its meeting of June 24, 2011 – Resolution
NON-CONSENT CALENDAR

AYES (12): Directors Arnold, Boro, Cochran, Elsbernd, Moylan, Pahre, Renée, Snyder and Sobel; Second Vice President Grosboll; First Vice President Eddie; President Reilly (Ex Officio)
NOES (0): None

Status Report on the Renewal of the Liability Insurance Program

In a memorandum to Committee, Director of Risk Management and Safety William Stafford, Auditor-Controller Joseph Wire and General Manager Denis Mulligan provided a status report on the renewal of the Liability Insurance Program, which renews on July 1, 2011.

The staff report stated that the District’s Liability Insurance Program is comprised of the following:

• Excess General and Automobile Liability Insurance Program;
• Excess Workers’ Compensation and Employers Liability Insurance Program;
• Other Post-Employment Benefits Fiduciary Liability Insurance Program;
• Public Officials and Employment Practices Liability Insurance;
• Public Employees’ Faithful Performance Bond and Comprehensive Dishonesty, Destruction and Disappearance Bond; and,
• Environmental Pollution Insurance (currently on a three-year policy).

The staff report provided details regarding market conditions in the liability insurance market, stating that final marketing results for the District’s Liability Insurance Program are expected on June 13, 2011. In addition, the staff report provided an overview of coverage and premium costs for the Liability Insurance Programs stated above. 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. Stafford stated that the District has experienced no claims against its Liability Insurance Program. He stated that, while the District had expected an increase in premiums, in fact, premiums have decreased by approximately 17%. He noted that the Workers’ Compensation market had losses that originated in the past and that are concluding. He indicated that future premiums for Workers’ Compensation are expected to increase by approximately 10% - 15%.

Action by the Board – None Required

Status Report on the Renewal of the Property Insurance Program

In a memorandum to Committee, Director of Risk Management and Safety William Stafford, Auditor-Controller Joseph Wire and General Manager Denis Mulligan provided a status report on the renewal of the Property Insurance Program, which renews on July 1, 2011.

The staff report stated that the District’s Property Insurance Program is comprised of the following:

• District Facilities Insurance Program; and,
• Bridge Self Insurance Loss Reserve.

The staff report provided details regarding market conditions in the property insurance market, stating that, after several years of significant price increases due to catastrophic losses and the introduction of conservative catastrophe underwriting models, property insurance premiums began to decrease in 2010/2011, with a moderate rate decrease of 10%. The staff report also stated that the rates for 2012 are likely to increase, particularly for catastrophic exposures, such as earthquake, flood and wind. The significance of the increase will be determined, in part, by the up-coming hurricane season. The staff report stated that the District’s property insurance broker, Alliant Insurance Services, indicates a 5% to 10% increase in the District’s Property Insurance Program due to current market conditions. This increase is mitigated by the District’s loss prevention efforts and favorable loss history.

In addition, the staff report provided an overview of coverage and premiums for the District’s Facilities Insurance Program and the Bridge Self-Insurance Loss Reserve. 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. Stafford stated that property insurance markets are much stressed. During the past year, a multitude of high value claims were made, both domestically and internationally. He cited fires in New Zealand and the earthquake in Japan, as examples. He added that the 2011 hurricane season is likely to produce more high value claims. He indicated that currently, the District’s carrier has proposed an 11% increase in premiums. He stated that staff is attempting to negotiate the increase to 10%.

He reported that the Bridge Self-Insurance Loss Reserve represents approximately $6.8 million. It was established to provide funds for losses exceeding $10 million. The goal is to fill the void if the Golden Gate Bridge should be damaged by an event, such as high winds. In FY 10/11, $1.3 million was allocated to the fund, with the understanding that funds in this approximate amount would be allocated to this account each year thereafter. It is anticipated that a similar request for funding will be made for FY 11/12. The FY 11/12 contribution would raise the Self-Insurance Loss Reserve to approximately $8.3 million.

Action by the Board – None Required

Discussion and Possible Action Relative to the Renewal of the Health and Benefit Insurance Plans

In a memorandum to Committee, Director of Human Resources Harvey Pye and General Manager Denis Mulligan reported on staff’s recommendation to approve renewal of the District’s Health and Benefits Insurance Plans, effective July 1, 2011.

The staff report stated that the District expects an estimated renewal cost increase of 7% for a one-year term, beginning July 1, 2011, and provided the costs for individual coverage for the District’s Health and Benefit Insurance Plans (Plans). 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. Pye introduced John Bell and Steve Ratto of Mercer, Inc., the District’s Health and Benefits insurance broker. Mr. Ratto stated that the District has two HMO’s, Blue Shield and Kaiser. It also has a PPO that is self-insured, with Blue Shield administering the Plans and the District paying the claims. He briefly listed the other health insurance instruments offered by the District. He noted that the upper limit on the District’s flexible spending account must be reduced to $2,500.00, by 2013, in accordance with the Patient Protection and Affordable Care Act (PPACA); and, that District staff and Mercer representatives are working together to effect the change. He indicated that the District’s PPO Plan has the largest population. The average age in the Plans is 65 for non-bus employees and 64 for bus drivers. He stated that the proposed renewal rate is a 7% increase overall for FY 11/12.

Discussion ensued, including the following comments and inquiries:

• Director Pahre made the following comments and inquiries:
  • She inquired as to whether one can still purchase service credits through the California Public Employees Retirement System (PERS). In response, Mr. Mulligan stated that, currently, that can still be done.
  • She inquired as to whether copay percentages could change if plan structures change. In response, Mr. Ratto stated that the renewal for the Stop Loss coverage would have to be approved by June 30, 2011. Blue Shield has provided firm, final rates through the end of June. Thereafter, they could change their position on Stop Loss coverage and expose the District to possible higher costs.

• Director Grosboll made the following comments and inquiries:
  • He inquired as to whether the number of employees in the PPO Plan is separated by active and inactive status. In response, Mr. Pye stated that the PPO Plan includes both active and inactive status employees. He added that the average age of active employees is between 52 and 54.
  • He inquired as to whether, in regard to mandated changes to the District’s medical programs for FY 11/12 under the PPACA, the proposals would provide for any adjustment of benefit levels, such as modification of copays. In response, Mr. Mulligan stated that this would be subject to collective bargaining.
  • He inquired as to how non-union employees would be affected. In response, Mr. Pye stated that the District will maintain its grandfathered status under the Patient Protection and Affordable Care Act.
  • He inquired as to whether incremental changes had been considered, as opposed to all changes being made in a single year. Mr. Mulligan responded negatively.
  • He commented that the Board should receive a report on smaller, incremental changes that could be made so that larger changes will not have to be made in a few years.

• Director Snyder inquired as the reason for separating bus drivers into a separate statistical group. In response, Mr. Pye stated that the District typically isolates figures for this group. Mr. Mulligan added that it is prudent to differentiate, because of the Memoranda of Understanding with the unions. He stated that bus drivers are different from others with respect to the PPO Plans.

• Director Elsbernd made the following comments and inquiries:
  • He inquired as to the number of bodies covered by the PPO Plan. In response, Mr. Ratto stated that the statistics include employees, but do not show how many individuals are covered by the Plan.
  • He commented that he had heard Blue Shield may be providing a rebate to its policyholders, and inquired as to whether the District might receive a rebate. In response, Mr. Bell stated that the excess remains to be worked out. If funds were to become available, the District would be informed and would receive those funds. He inquired as to whether changes in the number of enrollees in a particular Plan, whether Blue Shield HMO, Kaiser or Blue Shield PPO, would change costs, and if Blue Shield and Kaiser are basing the District’s costs on the number of enrollees. In response, Mr. Ratto stated that, if the population increases or decreases by 10% or more, re-rating can be done.

Staff recommended and the Committee concurred by motion made and seconded by Directors SOBEL/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 the renewal of the District’s Health and Benefits Insurance Plans, at an estimated renewal cost increase of 7%, as follows:

h.

with the understanding that requisite funds are included in the FY 10/11 Bridge, Bus Transit, Ferry Transit and District Divisions’ Operating Budgets.

Action by the Board at its meeting of June 24, 2011 – Resolution
NON-CONSENT CALENDAR

AYES (12): Directors Arnold, Boro, Cochran, Elsbernd, Moylan, Pahre, Renée, Snyder and Sobel; Second Vice President Grosboll; First Vice President Eddie; President Reilly (Ex Officio)
NOES (0): None

Public Comment

There was no public comment.

Adjournment

All business having been concluded, the meeting was adjourned at 11:05 a.m.