The Peralta Colleges Governing Board
Audit and Finance Committee
Board Room
333 East 8th St., Oakland, California
12 May 2010
5:00 to 7:00 PM
Meeting materials will be posted on the committee website:
http://www.peralta.cc.ca.us/apps/docs.asp?Q=1660
Present: Trustees Withrow, Gulassa, and Riley, Chancellor Harris, Mike Lenahan,
Karolyn van Putten, Joseph Bielanski, Helene Lecar, Heidi White, Thuy Nguyen, Tom
Henry, MaryBeth Benvenutti, Gail Waiters, Sadiq Ikharo, Connie Willis, Wise Allen,
Ron Little, Debbie Budd, Jim Grivich, Linda Berry, Diana Lara, Presidents Elñora Webb
and Robert Adams.
1.
Review proposed policy for the budgeting and cash flow management of the OPEB bond
Trust Fund and payment of debt service by the general fund.
An OPEB bond tactical information sheet was discussed. Trustee Gulassa felt the information presented
was very clear for those not as familiar with the technical information. Trustee Withrow emphasized
that we have to pay for costs overtime for 45 years. A conservative estimate predicts that over 12% of
our future budget would be for health care costs. There is also a health care cost for employees hired
after 2004 from when they retire until Medicare kicks-in. An actuarial study will be conducted this year,
as one is done every two years, and the findings will be brought to the Board. Trustee Withrow was
thanked for his leadership on this most challenging issue. The OPEB structure was predicated upon
COLA, growth, single-digit health benefit increase, and the stock market operating with peaks and
valleys, none of which are happening. Mark Harris shared that we realized a 30% peak this year on the
investment side, but not on the cost side of the equation. Chancellor Harris shared that our increased
health care fees demand a rapid response. The Chancellor asked what other similarly situated retiree
organizations are doing with their health fees obligations. Tom Henry described some options that other
organizations are using during this crisis. It’s a difficult arena to manage since it’s negotiated, but it can
also lead to fiscal instability. A health benefits committee will start to discuss this, and will address a
two-tier plan as a future option.
2.
Review the status of the hiring process for the new CFO.
Dr. Allen is the hiring manager and the committee is interviewing ten finalists next week, and he hopes
to bring a candidate to the next Board meeting.
3.
Review the status of the external audit for fiscal year 2009 and discuss the issues involved
and strategies and timeline to address material and significant deficiencies and
recommendations. (Vice Chancellor Ikharo, Vice Chancellor Allen, Heidi White, AVC
Alton Jelks, Interim CFO Lenahan and Consultant Tom Henry).
The books are not closed yet, but they hope to close them by Friday. There is a plan to address a list of
necessary items by Monday, if there are no surprises. It was asked if a back-up system could be added
Governing Board Audit and Finance Committee Minutes: May 12, 2010
to our current system in the future. A draft audit will be available on June 7th, which will be acceptable
to ACCJC. Heidi has a full crew ready to arrive on Monday to work for the next three weeks. The
auditors and their team and the recovery team were all thanked for their very hard work. Closing the 0809 audit is the first priority, and then they will return to complete the 09-10 audit by December 31st.
Measure A fund audit will occur next June or July, after the District’s full audit is complete. 07-08 was
the last Measure A audit, delivered in about March 2009. The Measure A committee will meet on June
4th. Form 311 will be filed in a timely manner, and will come before the Board.
4.
Review and discuss the proposed Budget for FY 2011. (Consultant Tom Henry, Interim
CFO Lenahan, Vice Chancellor Allen and Chancellor Harris)
A calendar for consideration of the adoption of the next year’s budget was discussed. Broad numbers
can be given to the Planning and Budget committee next Friday. We overspent this year by $6-7
million, and we can’t afford to repeat this. We need to maintain a 5% state recommended reserve and a
spending plan for next year. Trustee Withrow asked if we can separate current health benefit costs from
retiree benefit costs, which is available. The listed dates in August need to be adjusted. A goal is to
have transparency and accuracy in the budget. It was recommended that the District hire an internal
auditor, and the position can be posted soon. Trustee Riley asked if we also need a comptroller position.
Mike Lenahan feels that we need a Director of Budget, and we don’t have enough high-level positions in
the Finance department. The auditors share that we have one-third of the staff in Finance compared to
similar institutions, but we can’t afford to hire new managers. The Chancellor is looking at the Finance,
HR, and IT departments to evaluate staffing needs. IT is now reporting to Mike Lenahan. The
Chancellor shared that we have a budget for three campuses, with 20,000 students and our large
geographical area, with was presented in the McIntyre report. The Department of General Services
(DGS) has cut $1 million from its budget. Trustee Gulassa feels that a spending priority has to be in the
Finance department.
5.
Review and discuss the Budget Variance Report (Burn Rate) for FY 2010. (Consultant Tom
Henry, Interim CFO Lenahan, Vice Chancellor Allen and Chancellor Harris)
There were no reported changes since the last report.
6.
Review and discuss a schedule for the Inspector General to audit the status of the
implementation and operational conformance to Board Policies. (Gail Waiters)
A policy compliance calendar was distributed and discussed. Trustee Gulassa wants Peralta to be a
Board policy (BP) driven agency with administrative procedures (AP) behind them. He asked to
examine needed policies that don’t now exist, review which policies need urgent revisions, and a general
clean-up of the policies. Helene Lecar suggested that a “box score” system could be used at the
meetings for tracking purposes. The committee often wrangles at length on specific words. Other
colleges delegate the function to one person, rather than an entire shared governance committee. Dr.
Ikharo feels that there are too many Board policies, and that a timeline is needed to try to catch-up with
needed APs, under the Chancellor’s direction. The General Counsel oversees helping to develop APs.
Many of the policies can be combined. Trustee Riley suggested that we consider using a consultant firm
to help develop future APs. There are boiler plate policies that can be used, such as from the league.
Diana Lara feels it’s good to have a shared governance process at the policy review committee. One
example of a lacking AP is that we reconcile funds on a regular basis, at least monthly, but that we don’t
have the associated procedures written anywhere.
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Governing Board Audit and Finance Committee Minutes: May 12, 2010
7.
Review and discuss a proposal to close out some or all of the SWAPS that were established
to hedge against interest rate variances associated with the OPEB bonds. (Mark Harris,
Chancellor Harris and Vice Chancellor Allen)
The good news is that there was significant market fluctuation in a positive direction today, on the assets
side of the equation. There is significant volatility in the market which is a problem for our SWAPS.
Mark Harris thinks the Board needs to choose a team and a strategy, to plan for the August 5th traunch
SWAP. Long-term, they need to be empowered to implement a strategy to protect our positions on the
upcoming six SWAP traunchs. Goldman Sachs and Morgan Stanley stocks have gone down, our partner
on the SWAP positions, and they may not see Peralta as a priority. The traunch payments and
repositioning options were discussed. Trustee Withrow feels that the long-term rates hold a potential
future interest, enough for us to hold onto the SWAPs as the economy improves. We would benefit if
interest rates rise. $900,000 may have been placed in a surplus 2009 refunding fund may be used for
this purpose, but it has not been specifically identified in a current fund. The Pineapple Group will
provide ongoing analysis on the market. The committee asked the Chancellor to propose a
recommendation to the full Board on these issues. The committee asked that future documentation on
the OPEB matter be made available. The worst case scenario is that we’d have to pay $2-3 million over
5 years if no action is taken. If Peralta acts before the effective date of August 5th, we can use the other
traunches to reposition the current traunch. At some point, Mark feels that we should stabilize our
position in the SWAP market, and advises that we not play this out in the market over time. Trustee
Withrow concurs with this view. A fixed rate for the bonds could be considered, but it hasn’t been
evaluated yet. An entire re-financing of the bonds would be difficult.
8.
Review and discuss the proposed extension of the Financial Advisor contract with the
Pineapple Group. (Chancellor Harris, Vice Chancellor Allen and Mark Harris)
Mark Harris proposed a two year extension of his contract, and that the Singer firm be retained as an
analyst on the SWAPs. SWAPs mature every 5 years for first 5 SWAPs, and then there are two added
maturity dates in 6 years, and then in 8 years. Mark suggests that Peralta needs consistent advice on all
of these overtime. The contract proposal dates coincide with when each SWAP maturity date. He
requests the Singer Financial Group as a sub-contractor analyst to his group, at an added fee.
Documentation and quarterly reports can be provided in the future. The Chancellor was asked to make a
recommendation to the Board on this matter.
9.
Next meeting: Wednesday, June 9th 5 – 7 p.m.
Respectfully submitted,
Roxanne Epstein
466-7203
repstein@peralta.edu
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