June 7, 2012

 

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 (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, June 7, 2012, at 10:27 a.m., Chair Stroeh presiding.

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

Committee of the Whole Members Present (12): Directors Cochran, Fredericks, Moylan, Pahre, Renée, Sears, Snyder, Sobel and Stroeh; Second Vice President Grosboll; First Vice President Eddie; President Reilly (Ex Officio)
Committee of the Whole Members Absent (7): Directors Arnold, Campos, Chu, Elsbernd, Mar, Rabbitt and Theriault

Staff Present: General Manager Denis Mulligan; Auditor-Controller Joseph Wire; District Engineer Ewa Bauer; Acting Secretary of the District Elizabeth Eells; Attorney Madeline Chun; Deputy General Manager/Administration and Development Kellee Hopper; Director of Risk Management and Safety William Stafford; Executive Assistant to the General Manager Amorette Ko; Assistant Clerk of the Board Lona Franklin

Visitors Present: None

1. Authorize Budget Adjustment(s) and/or Transfer(s)
   
  There were no “Budget Adjustment(s) and/or Transfer(s)” to discuss
     
2. Authorize Actions Related to Grant Programs
     
  There were no “Actions Related to Grant Programs” to discuss.
   
3.

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 approve actions relative to the renewal of the District’s Line of Credit Agreement with JPMorgan Chase Bank, N.A. for the Commercial Paper Program.

     
  a. Background
     
    The Board of Directors (Board) of the Golden Gate Bridge, Highway and Transportation District (District), by Resolution Nos. 99-223, 2000-038 and 2000-039, authorized the Commercial Paper Program (CP Program), with the requirement that a Line of Credit Agreement (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 (CP Notes) in a timely fashion.
     
  b. Staff Report
     
    The staff report stated that, in order to satisfy its liquidity requirement, the District originally purchased a Line of Credit (LC) from JPMorgan Chase Bank, N.A. (JPMorgan), for a one-year term, at an annual cost of $76,000.00, and the annual cost increased modestly each year to $248,000.00 in 2008 and, in 2009, during the peak of the global credit crisis, the District extended the term of its Agreement with JPMorgan for an additional year, through July 2010, at an annual cost of $995,000.00.

The staff report also stated that the Board, by Resolution No. 2010-048 at its meeting of June 11, 2010, approved renewal of its Agreement with JPMorgan through July 1, 2011, at a cost of 0.78 basis points, or $595,000.00 annually. The following year, the Board, by Resolution No. 2011-055 at its meeting of June 10, 2011, approved renewal of its Agreement with JPMorgan, at a cost of 0.67% per annum, or an approximate annual fee of $511,000.00, for the period of July 2, 2011, through June 29, 2012.

The staff report further 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 (RFPs) 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. For this 2012 renewal, JPMorgan has offered to renew at a lower cost of 0.65% per annum, effective May 31, 2012 through June 30, 2014, at an annual cost of $496,000.00, which is a reduction of $15,000.00 annually from FY 11/12, or a $32,000.00 reduction over the 761-day term.

The staff report stated that staff explored the option of securing a 364-day, 2-year and a 2.5-year facility with JPMorgan, but given that pricing has stabilized from its peak in 2009 and the uncertainty of new banking regulations, which take effect in 2015, staff concluded that a 761-day 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.

     
  c. Presentation of Staff Report
     
    At the meeting, Mr. Wire briefly summarized the staff report, stating that, since 2000, the District has maintained its CP Program with JPMorgan. At the present time, no increase is necessary or expected. The District’s relationship with JPMorgan is insurance for the investors who hold the District’s commercial paper. This line of credit assures them that, if the District becomes unable to pay its debt, JPMorgan will do so.

He observed that the proposal is for a two-year Agreement, which will provide the best rate for the District. With the added security of insured commercial paper, the investors who buy them will accept less interest on their investment.

Mr. Wire also observed that costs associated with this CP Program are lower for the District if JPMorgan is retained, because start-up costs, such as preparing legal documentation that would be required to change servicers, would be approximately $200,000.00 to $400,000.00. In addition, Mr. Wire noted that the District’s commercial paper trades very well with JPMorgan.

Mr. Wire reported that changes are expected in the banking sector in approximately 2015 that will require banks to hold more capital. Rates will rise as a result, but the District’s Agreement will already be in place, protecting the District from initial increases. It is hoped that the District will have an opportunity to negotiate a new line of credit before the increased rates take effect.

     
  d. Recommendation by the Committee
     
    Staff recommended and the Committee concurred by motion made and seconded by Directors COCHRAN/STROEH to forward the following recommendation to the Board of Directors for its consideration:

RECOMMENDATION

The Finance-Auditing Committee/Committee of the Whole recommends that the Board of Directors authorize the execution of an extension to the Commercial Paper Line of Credit Agreement (Agreement) with JPMorgan Chase Bank, N.A., at a cost of 0.65% per annum, or approximately $496,000.00 annually, for a total cost of approximately $1,048,000.00, for the period of May 31, 2012, through June 30, 2014; and, amends Section 5.06(a) of the Agreement to reflect the requirement for certain quarterly financial reporting.

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

Action by the Board at its Meeting of June 8, 2012 – Resolution

     
4. 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 reported on the status of the District’s renewal of its Liability Insurance Program.

Liability Insurance Program

The staff report stated that the Liability Insurance Program, which renews on July 1, 2012, is comprised of:

  • Excess Liability Insurance;
  • Excess Workers’ Compensation & Employers Liability Insurance;
  • OPEB Fiduciary Liability Insurance;
  • Public Officials and Employment Practices Liability Insurance;
  • Crime Insurance; and,
  • Environmental Pollution Insurance (currently on three-year policy).
     
  a.

Liability Insurance Market Conditions

The report described liability insurance market conditions, stating that the FY 12/13 Liability Insurance Program renewal represents the fourth year that the District’s casualty insurance broker, Wells Fargo Insurance Services (WFIS), has marketed the District’s program.

The staff report further stated that new carriers specializing in public entities have entered the market in recent years and are focusing on the public entities that have good loss experience and strong risk management/safety programs.

Significant changes in the District’s Excess Liability Insurance made in FY 09/10 were lowering the self-insured retention (SIR) from $3 million to $2 million with the defense cost inside of the SIR, instead of outside the SIR.

Also in FY 2009, the District initiated coverage of a three-year Environmental Pollution Insurance coverage, which will expire in FY 2012.

The report also stated that the District continues to have an excellent loss history with the insurance carriers in the Liability Insurance Program. Clients with favorable loss history and strong risk management controls, such as the District, are expected to receive only minimal price increases, and may receive premium decreases in certain lines of coverage.

     
  b. Umbrella Liability Insurance Program
     
    The staff report stated that the limits for the District’s Excess Liability Program are set at $110 million for General and Bus Fleet Liability. Currently, the District has a $2 million SIR on the Excess Liability Program. The current premium for the District’s Excess Liability Program is $1,071,358.00.
     
  c. Excess Workers’ Compensation Program

The staff report stated that Excess Workers’ Compensation policy currently provides a $25 million limit after a retention of $1 million per Workers’ Compensation occurrence/case.

     
  d. Public Official and Employment Practices Liability

The staff report stated that this policy covers Public Officials and Employment Practices liabilities up to $5 million each occurrence/annual aggregate and a SIR of $100,000.00 each claim.

     
  e. Crime/Fidelity Bond

The staff report stated that Crime Insurance consists of a $1 million limit for Employee Dishonesty with a $25,000.00 deductible.

     
  f. OPEB Fiduciary Liability

The staff report stated that the OPEB (Other Post-Employment Benefits) Fiduciary program was created in response to the District’s creation of the OPEB Trust Board to oversee the assets and liabilities of the OPEB Trust.

     
  g. Environmental Pollution Liability

The staff report stated that the District has numerous environmental exposures, including underground and above ground fuel storage, sewage, storm water run-off and water treatment discharge. The District’s environmental risks are generally well-controlled and are frequently audited by local, regional, State and Federal agencies. It is anticipated that the District will receive competitive quotes for a three-year pollution liability coverage.

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

At the meeting, Mr. Stafford briefly summarized the staff report, stating that status reports are provided to the Board because the insurance industry has been in flux for the past several years. He indicated that, overall, property and liability insurance premiums have come down slightly in the recent past. Specifically, new carriers have entered the market, bringing with them more competitive rates. In addition, the District is considered a desirable risk for liability insurance.

He further reported that the company that carried the District’s excess Workers’ Compensation Insurance last year left the market. Generally, that market is in turmoil and a rate increase can be expected.

Action by the Board at its Meeting of June 8, 2012 – None Required

     
5. 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 reported on the status of the District’s renewal of its Property Insurance Program.

Property Insurance Program

The staff report stated that the Property Insurance Program, which renews on July 1, 2012, is comprised of:

  • District Facilities Insurance; and,
  • Bridge Self Insurance Loss Reserve.
     
  a. Property Insurance Market Conditions

The staff report stated 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 increase. In FY 11/12 rates increased moderately, at approximately 10%. The rates for 2012 are likely to increase, particularly for catastrophic exposures such as earthquake, flood and wind.

The staff report further stated that indications are that the District’s property insurance broker, Alliant Insurance Services, has received a slight rate and premium increase from underwriter Lexington for the FY 2012 renewal, reportedly due to the District’s loss prevention efforts and favorable loss history. The District’s Property Insurance Program coverage, conditions and terms are expected to remain relatively unchanged for FY 12/13.

     
  b. District Facilities Program

The District’s Facilities program currently has a limit of $125 million for All Risks of Physical Loss or Damage coverage including All Risk, excluding earthquake and flood. The flood and earthquake limits are $20 million and the Facilities Program has a $250,000.00 deductible.

     
  c. Bridge Self-Insurance Loss Reserve

The Bridge Self-Insurance Loss Reserve is a District-managed fund which would pay for a loss due to Bridge physical damage and/or loss of revenue, and was established due to the high cost of the insurance and the lack of coverage and limits afforded by the policy. It was established with strict rules of governance, to be available for losses exceeding $10 million. Currently, the Self-Insurance Loss Reserve represents approximately $8.3 million in District reserves.

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

At the meeting, Mr. Stafford briefly summarized the staff report, stating that higher premiums are expected for FY 12/13. He stated that much of the property insurance industry is tied to disaster insurance, and many disasters happened last year. He indicated that brokers have indicated an increase of approximately 2%. He concluded by stating that the District is considered a desirable risk for property insurance.

Discussion ensued, including the following inquiry:

  • Director Sobel inquired as to whether the District, in negotiating with insurance carriers, recognizes that those carriers may have done data mining to determine the specifications and prices the District is seeking. In response, Mr. Stafford stated that the insurance companies are technologically educated and wise in conducting business to their own advantage, so it is likely that they research their prospective customers prior to offering them a proposal. Mr. Wire added that, despite any data mining done by insurance companies prior to their offering a given premium, they will not be able to see the amount spent by the District for any given type of insurance, because the District rolls all insurance premiums into a single line item. He indicated, however, that staff is well aware of the tactics employed by insurance companies and are being very careful in their negotiations.

Action by the Board at its Meeting of June 8, 2012 – None Required

     
6. Adoption of the FY 12/13 Operating and Capital Budgets

In a report to Committee, Auditor-Controller Joseph Wire and General Manager Denis Mulligan reported on staff’s recommendation to approve the Fiscal Year (FY) 12/13 Operating and Capital Budgets.

The staff report stated that the Budget document is the implementation tool for the Board’s policy directives and initiatives that were developed in its long-term Strategic Financial Planning process. The proposed FY 12/13 Budget includes Operating Budget revenues of $172.5 million, Operating Budget expenditures of $176.9 million, Capital Budget revenues of $44.2 million and Capital Budget expenditures of $53.3 million. District Reserves of $4.4 million will be used to fund the FY 12/13 Operating Budget, and Reserves of $9.1 million will fund the FY 12/13 Capital Budget.

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 some changes have been made since the Finance-Auditing Committee/Committee of the Whole Meeting of May 10, 2012. He indicated that supplemental material that answers those questions is now available within the Proposed Budget Book. He noted that changes have been made to Pages 41-44 and to Page 135, eliminating and correcting position changes to the Engineering Department.

In addition, he reported that, on May 10, 2012, the Board had requested that a current Financial Plan for Achieving Long-Term Financial Security (Plan) be provided. That Plan has been updated to show the status of projects as of May 2012 and is included as an attachment to the staff report. Mr. Wire briefly discussed the items listed thereon.

Discussion ensued, including the following inquiries:

  • Second Vice President Grosboll made the following inquiries:
    • He inquired as to whether the District is eliminating positions and, if so, whether meet-and-confer session have been held with the respective unions. In response, Mr. Wire stated that only one position currently held by an active employee is being eliminated, and that position is non-represented.
    • He inquired as to whether three painter positions and one painter supervisor position are being eliminated. In response, Mr. Wire stated that the positions being eliminated are currently vacant, and the Deputy General Manager/Bridge Division has contacted the union in this regard. Mr. Mulligan added that based upon operational needs, staff recommends that the number of painter positions be decreased and that the number of ironworker positions be increased. The work on the access scaffolding requires proportionally slightly more ironworkers and slightly fewer painters than has historically been necessary.
  • Director Snyder inquired as to whether capital projects that were included in FY 11/12 Budget, but not implemented, will be included in the FY 12/13 Budget. In response, Mr. Wire stated that, generally speaking, projects that are partially complete or as yet not begun will roll over to appear in the following year’s budget. He concluded by stating that the Board has granted the General Manager the authority to roll over projects from year to year, as necessary.
  • Director Cochran made the following inquiries:
    • He inquired as to whether, with all electronic tolling on the horizon, a smaller increase in Bridge tolls than previously planned may be possible. Mr. Wire responded affirmatively, and concluded by stating that, without all electronic tolling, the District would be unable to consider a smaller increase.
    • He inquired as to the estimated savings to be realized with the implementation of all electronic tolling. In response, Mr. Wire stated that the latest assessment of expected savings is between $10 million and $16 million. He concluded by stating that he will provide more detailed information to the Board in the near future.

Staff recommended and the Committee concurred by motion made and seconded by Directors PAHRE/REILLY to forward the following recommendation to the Board of Directors for its consideration:

RECOMMENDATION

The Finance-Auditing Committee/Committee of the Whole recommends that the Board of Directors approve adoption of the FY 12/13 Operating and Capital Budgets, as follows:

     
  a.

Approve the following items as contained in the Budget:

  1. District Goals, Projects and Accomplishments;
  2. Changes to the Reserve Structure;
  3. Changes to the Table of Organization; and,
  4. A 1.0% negotiated salary increase for Amalgamated Transit Union employees (Bus Operators), effective September 1, 2012, through March 1, 2013; and,
  b.

Approve the following items not currently included in the Proposed Budget but which will be included in the Adopted Budget:

  1. Adds a cost-of-living adjustment of 2% for non-represented employees, effective July 1, 2012, in the amount of $462,700 to the Operating Budget;
  2. Authorizes any Board-approved actions through June 30, 2012, that have a fiscal impact to the FY 12/13 Capital and/or Operating Budget;
  3. Authorizes the General Manager to carry over any incomplete projects in the FY 11/12 Capital Budget to the FY 12/13 Capital Budget;
  4. Authorizes the General Manager to move capital projects from the FY 13/14 list to the FY 12/13 Budget, as funding and staff resources become available in FY 12/13; and,
  5. Amends the FY 12/13 Proposed Budget Book pages 41-44 and Page 135, eliminating and correcting position changes to the Engineering Department.

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

Action by the Board at its Meeting of June 8, 2012 – Resolution

       
7.

Public Comment

There was no public comment.

       
8.

Adjournment

All business having been concluded, the meeting was adjourned at 10:54 a.m.

       

 

Respectfully submitted,

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