HomeMy WebLinkAboutBUDGET & FINANCE AGENDA 11-17-08
Central Contra Costa Sanitary District
5019 Imhoff Place, Martlllez, CA 94553-4392 (925) 228-9500 . wwwcentlalsan org
BUDGET AND FINANCE COMMITTEE
Chair McGill
Member Nejedly
Monday, November 17, 2008
3:00 p.m.
Executive Conference Room
5019 Imhoff Place
Martinez, California
INFORMATION FOR THE PUBLIC
ADDRESSING THE COMMITTEE ON AN ITEM ON THE AGENDA
Anyone wishing to address the Committee on an item listed on the agenda will be heard when the
Committee Chair calls for comments from the audience. The Chair may specify the number of minutes
each person will be permitted to speak based on the number of persons wishing to speak and the time
available. After the public has commented, the item is closed to further public comment and brought to the
Committee for discussion. There is no further comment permitted from the audience unless invited by the
Committee.
ADDRESSING THE COMMITTEE ON AN ITEM NOT ON THE AGENDA
In accordance with state law, the Committee is prohibited from discussing items not calendared on the
agenda. You may address the Committee on any items not listed on the agenda, and which are within their
jurisdiction, under PUBLIC COMMENTS. Matters brought up which are not on the agenda may be
referred to staff for action or calendared on a future agenda.
AGENDA REPORTS
Supporting materials on Committee agenda items are available for public review at the Reception, 5019
Imhoff Place, Martinez. Reports or information relating to agenda items distributed within 72 hours of the
meeting to a majority of the Committee are also available for public inspection at the Reception. During
the meeting, information and supporting materials are available in the Conference Room.
AMERICANS WITH DISABILITIES ACT
In accordance with the Americans With Disabilities Act and Califomia Law, it is the policy of the Central
Contra Costa Sanitary District to offer its public meetings in a manner that is readily accessible to
everyone, including those with disabilities. If you are disabled and require special accommodations to
participate, please contact the Secretary of the District at least 48 hours in advance of the meeting at (925)
229-7303.
A
t., Recycled Paper
Budget and Finance Committee
November 17, 2008
Page 2
1. CALL MEETING TO ORDER
2. PUBLIC COMMENTS
3. OLD BUSINESS
a. Contra Costa Lawsuit Regarding Bid Rigging
*b. Outstanding Expenditure Questions
4. CLAIMS MANAGEMENT
*a. Review Outstanding Claims
5. REPORTS/ANNOUNCEMENTS
a. GASB 45 Trust
*b. Review draft CAFR and related position paper
*c. Update on AIG
6. REVIEW EXPENDITURES (Item 4.a. in Board Binder)
7. ADJOURNMENT
*
Attachment
3. b.
Central Contra Costa Sanitary District
November 14, 2008
TO:
BOARD BUDGET AND FINANCE COMMITTEE
FROM:
RANDALL MUSGRAVES
DEBBIE RATCLIFF
SUBJECT:
November 3, 2008 Finance Committee Meeting
There were several outstanding questions from the last Board Budget and Finance
Committee meeting which required additional staff research. The questions and
answers are provided below:
1. Based on the Position Paper to revise Table 1 of the 2008-2009 Capital
Improvement Budget, will the Capital Improvement Budget Financial
Statement be updated to reflect this increase?
Yes, staff will go back and update the CIB estimate for the current fiscal year on
the Capital Improvement Budget Financial Statements.
2. Are there any outstanding insurance premium payments that will be paid
out of the Self Insurance Fund for this fiscal year?
No, all insurance premiums have been paid for this fiscal year.
3. What are the ratings for Toyota and GE Capital commercial paper that the
District is invested in?
GE Capital has an S & P rating of A 1 + and a Moody's rating of P1.
Toyota has the same ratings. Both have a stable outlook and these are the
highest ratings that can be given.
4. 172863- Northland Control Systems- What location at the District are the
alarms monitored?
Northland Control Systems monitors the panic buttons at the Front Desk, Permit
Counter and Human Resources. When the alarm is activated, the call goes to
Northland and they dispatch the police. The District pays a quarterly fee for this
service.
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Central Contra Costa Sanitary District
BOARD OF DIRECTORS 5 . '0
POSITION PAPER .
Board Meeting Date: December 4, 2008
No.:
i\ORAFT
Type of Action: APPROVE FINANCIAL REPORT
Subject: APPROVE THE COMPREHENSIVE ANNUAL FINANCIAL REPORT AS OF
JUNE 30, 2008 FOR SUBMISSION TO THE GOVERNMENT FINANCE OFFICERS
ASSOCIATION.
Submitted By:
Debbie Ratcliff, Controller
Initiating Dept.lDiv.:
Finance & Accounting
REVIEWED AND RECOMMENDED FOR BOARD ACTION:
#~
James M. Kelly,
General Manager
R. Musgraves
ISSUE: Board approval is requested to submit a Comprehensive Annual Financial
Report (CAFR) to the Government Finance Officers Association of United States and
Canada (GFOA) for review.
RECOMMENDATION: Review and approve the June 30,2008 CAFR for GFOA
submission.
FINANCIAL IMPACTS: There is an application fee for submission of a CAFR for
review based on total revenues of the entity applying. The District fee is $480 based on
this sliding fee schedule.
AL TERNA TIVES/CONSIDERA TIONS: None for the current year.
BACKGROUND: The GFOA is a professional association of state/provincial and local
finance officers in the United States and Canada, and has served the public finance
profession since 1906. The association's members are dedicated to the sound
management of government financial resources and the GFOA provides input to the
Governmental Accounting Standards Board (GASB). The GFOA sponsors the
Certificate of Achievement for Excellence in Financial Reporting Program.
The Finance and Accounting Division has prepared the District's CAFR as of June 30,
2008. The District was awarded a Certificate of Achievement for Excellence in
Financial Reporting by the GFOA for reports submitted for the 2000-2007 fiscal years.
The Certificate of Achievement is the highest form of recognition for excellence in state
and local government financial reporting. In order to be awarded a Certificate of
Achievement, a government must publish an easily readable and efficiently organized
comprehensive annual financial report. The CAFR includes ten years of historical
financial and statistical data. This report must satisfy both generally accepted
accounting principles and applicable legal requirements.
N:\AOMINSUP\AOMIN\POSPAPER\CAFR 12-04-08.doc
Page 1 of 2
POSITION PAPER
Board Meeting Date: December 4, 2008
Subject APPROVE THE COMPREHENSIVE ANNUAL FINANCIAL REPORT AS OF
JUNE 30, 2008 FOR SUBMISSION TO THE GOVERNMENT FINANCE OFFICERS
ASSOCIATION.
A Certificate of Achievement is valid for a period of one year only. We believe our
current comprehensive financial report continues to meet the Certificate of Achievement
Program's requirements and we are asking approval to submit it to the GFOA to
determine its eligibility for another certificate.
The Board Finance Committee reviewed a draft of the June 30, 2008 CAFR in detail on
November 17, 2008 and had no recommended changes.
RECOMMENDED BOARD ACTION: Approve the CAFR for submission to the GFOA.
N:\AOMINSUP\AOMIN\POSPAPER\CAFR 12-04-08.doc
Page 2 of 2
'tt::;'. "
comprehensive ~
Annual Financial
Report
For the Fiscal Year ended
June 3D, 2DDB
Central Contra Costa Sanitary District
5019 Imhoff Place, Martinez, CA 94553
.5.b.
___,_ _,~~_~.",..__.,..,____,~.,."._,~,.,"_<..,,~,>",_..__...._._._..___".,__'''.. ..." .<_., _... _0 ~.._.." ..,,__, _ '._.. ..._.M.-",,,,,'__'H__ ._ _",_. __..,__,__..._.___M'___~
.
CENTRAL CONTRA COSTA SANITARY DISTRICT
MARTINEZ, CALIFORNIA
COMPREHENSIVE ANNUAL FINANCIAL REPORT
FOR THE YEAR ENDED JUNE 30, 2008
Prepared By:
Finance & Accounting Division
CENTRAL CONTRA COSTA SANITARY DISTRICT
Comprehensive Annual Financial Report
Table of Contents
For the Year Ended June 30, 2008
INTRODUCTORY SECTION:
Letter of Transmittal.......... ........... ........... ....... ................. ..... .................................. i
Board of Directors ............. ...................... ....... ................. ..... ............................. . ..vii
Mission Statement ...... ...... .................................................................................. viii
Organization Chart........ ...................................................... ................ ................. ix
Map of Service Area ....................................... ................. ..................................... x
Certificate of Achievement..... ................................................. ............................. xi
FINANCIAL SECTION:
I ndependent Auditors' Report ...... ........................................... ...... ........... ............. 1
Management's Discussion and Analysis.. ..................................... ........................2
Basic Financial Statements
Statement of Net Assets.. ..................... ............... ......................................7
Statement of Revenues, Expenses and Changes in Net Assets................ 8
Statement of Cash Flows........................................................................... 9
Notes to Financial Statements - The accompanying notes are an integral
part of the basic financial statements .....................................................10
Supplementary Information
Combining Schedule of Statement of Net Assets..................................... 29
Combining Schedule of Statement of Revenues, Expenses and
Changes in Net Assets...... ....... .......... ....................................................30
Schedule of Running Expenses - Comparison of Budget and Actual
Expenses by Department ............................. .............. .... ........................31
Running Expense - Schedule of Supplemental Net Assets Analysis .......32
STATISTICAL SECTION (Unaudited):
Changes in Net Assets and Statement of Net Assets -
Last Six Fiscal years......... ........ .................. .................................................. S-1
Revenue by Type - Last Ten Fiscal Years.. .............. ............... ......................... S-2
Operating Expenses by Type - Last Ten Fiscal Years ...................................... S-3
Major Revenue Base and Rates - Historical and Current Fees -
Last Ten Fiscal years...................... ...................... ... ..................................... S-4
Sewer Service Charge - List of Ten Largest Customers-
Last Six Fiscal years................ .............................................. ....................... S-5
Assessed and Estimated Actual Valuation of Taxable Property-
Last Ten Fiscal Years .................................................................................... S-6
Property Tax and Sewer Service Charge Fees Levied and Collected -
Last Ten Fiscal years....... ............... .................... ........ .... .............................. S-6
.. _ _______,_.__,.~._____._~__~__~__."_._.__.__,.._._...._.^_..._k.._~_.~____.___.__.,___...~_._~.._._.___._.___-_.._______>_._.,._____
Summary of Debt Service - Type, Debt Service Coverage, Debt Ratio -
Last Ten Fiscal years.... ............... ............................................... .................. S-7
Demographic and Economic Data - Population Served -
Last Ten Calendar years................................................................. .............. S-8
List of Ten Largest Employers in Contra Costa County -
Last Year and Nine Years Ago........ ......................................................... ...... S-8
Demographic and Economic Statistics - Contra Costa County -
Last Ten Fiscal years............................................................ ........................ S-9
Full-time Equivalent Employees by Department - Last Ten Fiscal years........ S-1 0
Number of Retirees and Surviving Spouses - Last Ten Fiscal years.............. S-10
Capital Asset and Operating Statistics - Last Ten Calendar or Fiscal Years.. S-11
Miscellaneous Statistics.................................................................................. S-11
Central Contra Costa Sanitary District
Introductory
Section
,
t
.
November 13, 2008
Central Contra Costa Sanitary District Ratepayers and
The Honorable Board of Directors,
Martinez, California:
State law requires that every general-purpose local government publish within six
months of the close of each fiscal year a complete set of audited financial statements.
This report is published to fulfill that requirement for the fiscal year ended June 30,
2008.
Management of Central Contra Costa Sanitary District assumes full responsibility for the
completeness and reliability of the information in these financial statements, based upon
a comprehensive system of internal controls that is established for this purpose.
Because the cost of internal control should not exceed anticipated benefits, the
objective is to provide reasonable, rather than absolute, assurance that the financial
statements are free of any material misstatements.
Cropper Accountancy Corporation has issued an unqualified ("clean") opinion on the
Central Contra Costa Sanitary District's financial statements for the year ended June
30, 2008. The independent auditor's report is located at the front of the financial section
of this report.
Management's Discussion and Analysis report (MD&A) immediately follows the
independent auditor's report and provides a narrative introduction, overview, and
analysis of the basic financial statements. The MD&A complements this letter of
transmittal and should be read in conjunction with it.
PROFILE OF THE GOVERNMENT
History and Services Provided
The District was established in 1946 under the Sanitary District Act of 1923 and is
located about 30 miles east of San Francisco. The District builds, operates and
maintains the facilities required to collect and process wastewater for approximately
317,000 residents of Danville, Lafayette, Martinez, Moraga, Orinda, Pleasant Hill, San
Ramon, Walnut Creek and some of the unincorporated communities within Central
Contra Costa County. The District also treats wastewater for 135,000 residents of the
Cities of Concord and Clayton under a 1974 contract with the City of Concord.
The District is committed to protecting the public health and preserving the environment
while minimizing facility and operating costs. The District has approximately 1 ,500
miles of sewer pipeline, ranging in size from 6 inches to 120 inches in diameter, and 18
sewage-pumping stations in the District's sewage collection system. The District is the
sole provider of wastewater service within the District limits (see map of service area).
Residents make up the largest segment of the District's customer base representing
approximately 80% of the Sewer Service Charge revenue. The District's treatment
capacity has grown from 4.5 million gallons per day (mgd) initiated in 1948 to 53.8 mgd
currently. Bonds, state grants, federal grants, and pay-as-you-go resources of the
District have financed expansions.
The District also provides an alternative source of water for irrigation by producing high
quality recycled water. Recycled water can safely be used on freeway landscaping,
street medians, golf courses, athletic fields, parks, playgrounds, schoolyards and multi-
family residential common areas.
In addition to its wastewater responsibility, the District also teamed with Mountain View
Sanitary District and other local governments to build and operate the first permanent
Household Hazardous Waste (HHW) Collection Facility in Contra Costa County. The
HHW Collection Facility is located adjacent to the District's wastewater treatment plant
and seeks to keep pollutants out of the sewer system, making this facility an important
part of our Pollution Prevention Program.
Oroanization. Accountina and Budaetarv Controls
A 5-member Board of Directors governs the District. Board members are elected on a
non-partisan basis and serve a four-year term. The Board appoints the General
Manager, who in accordance with policies established by the Board of Directors,
manages District affairs. The District employs 259 regular employees organized in four
departments led by Department Directors responsible for their budgets and expenses.
The four departments are: Administrative, Engineering, Operations, and Collection
Systems.
The District uses an enterprise fund to account for the operations of the District, which is
run in a manner similar to private industry. The District currently has one enterprise
fund which is comprised of four internal sub-funds:
· Running Expense - accounts for the general operations of the District.
Substantially all operating revenues and expenses are accounted for in this fund
(also referred to as Operations & Maintenance or O&M).
· Sewer Construction - accounts for non-operating revenues that are to be used for
acquisition or construction of plant, property, and equipment (also referred to as the
Capital Fund).
· Self-Insurance - accounts for interest earnings on cash balances in this sub-fund
and cash allocations from other funds, as well as costs of insurance premiums and
claims not covered by the District's insurance policies.
ii
· Debt Service Fund - accounts for activity associated with the payment of the
District's long term bonds and loans.
Each year, the Board adopts the following six budgets: Staffing Plan, Capital
Improvement, Operations and Maintenance, Equipment, Self-Insurance, and Debt-
Service. The Board Finance Committee reviews disbursements prior to each regular
Board meeting, and disbursements are then approved by the full Board. Monthly
financial statements are issued to management and the Board. A detailed mid-year and
annual budget analysis are prepared and presented to the Board. District management
is accountable for variances and adhering to budget constraints. The District also has
several documented financial policies that are reviewed and updated as appropriate.
ASSESSING THE DISTRICT'S ECONOMIC CONDITION
Local Economv and Outlook
The current economic news is bleak and unprecedented. Bank failures abound, both in
the U.S. and abroad. The government has responded with a $700 billion bail-out, but
investor confidence still appears to be weak. According to the Wall Street journal, the
stock market plunged 21 % in the seven day period beginning October 1, 2008, and 39%
comparing October 2008 to October 2007. Oil prices and energy costs have risen, with
gasoline reaching a high of $4.50 per gallon in recent months, followed by some cost
relief. Home prices have fallen, mainly due to the glut of foreclosed homes due to the
sub-prime mortgage crisis. Consumer demand is down and retailers are already
predicting a slow holiday season.
According to the Legislative Analyst's Office (LAO), the current situation and outlook for
California are similar to the nation as a whole. California faces a huge budget deficit
and the overall economic picture of California shows signs of a softening economy with
revenue receipts trailing estimates. Unemployment rates are increasing and problems
with the housing market continue. Housing is a key variable in California. The
problems created by the sub-prime loans are peaking. Approximately 150,000 variable
rate loans will reset by the end of 2008 and only about 70,000 homes will reset in 2009.
Per the UCLA forecast, housing prices have yet to hit bottom in many parts of the
country and the state, and probably won't begin appreciating in value until next year or
2010. The California economy is expected to muddle along this year and next, with
recovery depending in part on a bottoming out of the slide in housing prices. It is
anticipated that California will experience a no growth economy. Growth should resume
at somewhere near normal levels in 2010, after a flat 2009. There is a lot of debate
going on about the state of the economy and an underlying assumption of the California
portion of the UCLA forecast is that the financial system will not freeze up.
On a positive note, the District anticipates growth in Dougherty Valley and reuse of the
Concord Navel Weapons Station for housing that the District will serve. There is also
an increased need for recycled water within Contra Costa County for urban land uses
due to below average rainfall, very low snowmelt runoff, and the largest court ordered
Hi
water transfer restrictions in state history. The timing of growth will depend on economic
conditions.
Fortunately, the District's primary operating revenues are sewer service charge from
District customers and the City of Concord. The District also receives a portion of the
one-percent property tax levied by the Contra Costa County. The District is fortunate to
participate in the California's alternative method of apportionment called the Teeter
Plan. Under the Teeter plan the County advances the full amount of property tax and
other levies to the District based on the tax levy rather than the actual tax collections by
the County. The County assumes the risk of delinquencies and in turn retains the
penalties and accrued interest. Even though homeowners are bailing on their property
tax bills, given the current housing melt down, the County still anticipates collecting the
taxes. Growth is anticipated to be flat for at least two years.
The District has an excellent reputation in all areas of public service, which include
finance, collection, treatment, training, safety, technology, capital projects, construction
and customer service. The Central Contra Costa Sanitary District has balanced
revenue sources, adequate reserves, and a low debt obligation, which will enable the
District to meet the demands of future budgets. CCCSD reviews its rate and other
charges annually. The District can increase its Sewer Service Charge rates when
needed to make up revenue shortfalls by providing public notice to all customers,
holding a Public Hearing, and obtaining approval by the Board of Directors.
LonQ Term Financial PlanninQ
District management analyzes and updates their strategic plan annually, with the four
main goals being: providing exceptional customer service, maintaining full regulatory
compliance, maintaining responsible rates, and continuing to be a high performance
organization. Strategies to achieve each of the goals are developed, as well as metrics
to evaluate success.
The District performs a 10-year long-term cash flow forecast each year shortly before
the budget process begins. The main economic factors usually considered in long
range forecasting are: the impact of state legislation and mandates, regulatory
compliance, GASB requirements, negotiated salary increases and employee benefits
including significant increases in retirement and health care costs, energy costs and
interpreting the energy market, and housing growth.
Maior Initiatives
The District's vision it to be a high performance organization that provides exceptional
customer service and full regulatory compliance at responsible rates. Full regulatory
compliance is provided through exceptional operation of our collection system and
treatment facilities as well as through continued investment in our infrastructure. Our
current capital plan has an emphasis on collection system renovation in order to fix
deteriorating pipes and pumping stations before they can contribute to a sewer system
overflow. Both at the State and Federal level, regulations addressing sewer system
overflows and public notification have become increasingly stringent over the last
iv
several years. Collection system operations will be enhanced by the planned
construction of a new administration/crew/warehouse building which is being designed
to be LEED certified and will incorporate many green design features. LEED
represents "Leadership in Energy and Environmental Design", which is administered by
the U.S. Green Building Council.
Our current capital plan is also addressing treatment plant reliability through design and
construction of three necessary projects. The standby power project, will provide new
engine generators to ensure that adequate power is available to run the plant in the
event of a utility power outage. A second project, the wet weather improvement project,
will ensure that extreme wet weather flows that overwhelm the capacity of the plant
outfall and holding ponds can be discharged to Walnut Creek. A third project, the solids
handling improvements project, will ensure that sludge can be hauled to proper disposal
in the event of a failure of our incineration system.
The District has received Platinum and Gold awards from the National Association of
Clean Water Agencies (NACWA) for ten straight years in recognition of 100 percent
compliance with our National Pollutant Discharge Elimination (NPDES) permit.
Recently, the U.S. Environmental Protection Agency selected the District as the second
place winner of the 2008 Operations and Maintenance Excellence Awards in the
category of Large Secondary Treatment Plant.
AWARDS AND ACKNOWLEDGEMENTS
The Government Finance Officers Association of the United States and Canada
(GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to
the Central Contra Costa Sanitary District for its CAFR for the fiscal year ended June
30, 2007. This was the eighth consecutive year that the District has achieved this
prestigious award. In order to be awarded a Certificate of Achievement, a government
must publish an easily readable and efficiently organized comprehensive annual
financial report. This report must satisfy both generally accepted accounting principles
and applicable legal requirements.
A Certificate of Achievement is valid for a period of one year only. We believe that our
current CAFR continues to meet the program's requirements and we are submitting it to
the GFOA to determine its eligibility for another certificate.
This report could not have been accomplished without the dedication and commitment
provided by District staff. I would like to express my appreciation to the following
employees who assisted in its preparation:
· The Finance and Accounting staff who compiled the information contained in this
document with a special thanks to Thea Vassallo, Accountant, and Colette Curtis-
Brown, Finance Administrator.
v
· The Reproduction and Graphics Team who creatively and professionally prepared
this finished document.
· Engineering and Operations staff who provided much of the statistical information
included in this document.
· The District's Board of Directors and Management Team for their support in
preparing this document as well as their day-to-day support in conducting the
financial operations of the District in a prudent and responsible manner.
Respectfully submitted,
//
Deborah Ratcli
Controller
vi
CENTRAL CONTRA COSTA SANITARY DISTRICT
BOARD OF DIRECTORS
June 30, 2008
Gerald R. Lucey .............................................. President
Barbara D. Hockett ........................... President Pro-Tern
Michael R. McGill............................................... Member
Mario M. Menesini.............................................. Member
James A. Nejedly ............................................... Member
vii
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Central Contra Costa Sanitary District
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OUR MISSION
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To protect the public health and the
environment by:
· Collecting and treating wastewater
· Recycling high quality water
· Promoting pollution prevention
OUR VISION
-:Y~
Be a high performance organization
that provides exceptional customer
service and full regulatory compliance
at responsible rates.
OUR VALUES
-:Y~
We will achieve our goals by valuing:
· Each other
· Ethics and integrity
· A healthy and safe environment
· Community relationships
· The meeting of commitments
· All aspects of diversity
0021-10/08 . . :::.~.
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CCCSD Pumping Stations
1. Martinez
2. Fairview
3. Maltby
4. Clyde
5. BatesAvenue
6. Concord Industrial
7. Buchanan Field L.S.1
8. Buchanan Field L.S.2
9. Sleepy Hollow
Wastewater collection and treatment and
HHW collection for 317,384 people
Wastewater treatment and HHW collection for
134,560 residents in Concord and Clayton by
contract
.
HHW collection service only
CCCSD's Headquarters Office Building
treatment plant, and HHW Collection Facility
located in Martinez
CCCSD's Collection System Operations
Department (sewer maintenance) located in
Walnut Creek
.
x
10. Wagner Ranch School
11. Acacia
12. Flush Kleen
13. Lower Orinda
14. Bates Blvd.-Orinda
15. Orinda Cross roads
16. Via Robles
17. Moraga
18. Larwin
M Concord North Metering
Certificate of
Achievement
for Excellence
in Financial
Reporting
Presented to
Central Contra Costa
Sanitary District, California
For its Comprehensive Annual
Financial Report
for the Fiscal Year Ended
June 30, 2007
A Certificate of Achievement for Excellence in Financial
Reporting is presented by the Government Finance Officers
Association of the United States and Canada to
government units and public employee retirement
systems whose comprehensive annual financial
reports (CAFRs) achieve the highest
standards in government accounting
and financial reporting.
~ ~. ax
President
~/~
Executive Director
xi
Central Contra Costa Sanitary District
Financial
Section
r
I
.
Cropper Accountancy Corporation
Certified Public Accountants
2977 Ygnacio Valley Road, #460
Walnut Creek, California 94598
Tel: (925) 932-3860
Fax: (925) 932-3862
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Central Contra Costa Sanitary District
Martinez, California
We have audited the accompanying financial statements of the Central Contra Costa Sanitary District as
of and for the years ended June 30, 2008 and 2007, as listed in the table of contents. These basic
financial statements are the responsibility of the District's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of
America and the State Controller's Audit Requirements for California Special Districts. Those
standards require that we plan and perform the audit to obtain a reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audit provides a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the
financial position of the Central Contra Costa Sanitary District as of June 30, 2008 and 2007, and the
results of its operations and its cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States of America, as well as accounting systems prescribed
by the State Controller's office for special districts.
The Management's Discussion and Analysis is not a required part of the basic financial statements but is
supplemental information required by the Government Accounting Standards Board. We have applied
certain limited procedures, which consisted principally of inquiries of management regarding the
methods of measurement and presentation of the required supplementary information. However, we did
not audit this information and express no opinion on it.
Our audit was performed for the purpose of forming an opinion on the financial statements taken as a
whole. The financial information listed as supplementary information in the table of contents is
presented for purposes of additional analysis and is not a required part of the basic financial statements.
Such information has been subjected to the auditing procedures applied in the audit of the basic financial
statements taken as a whole.
The introductory and statistical sections, as listed in the table of contents, have not been audited by us
and accordingly, we do not express an opinion on them.
tuf't- Ate. C4A...Jr~ &pct'Ith~
CROPPER ACCOUNTANCY CORPORATION
September 12, 2008
Central Contra Costa Sanitary District
5019 1Illl1Off Pld((' Martinez CA 94553-4392 1925) 228 9500 . wwwccntlalSilnolg
MANAGEMENT'S DISCUSSION AND ANALYSIS
This section of the District's annual financial report presents an analysis of the District's financial
performance during the fiscal year ended June 30, 2008. This information is presented in conjunction
with the audited financial statements, which follow this report.
FINANCIAL HIGHLIGHTS
The District's 2007-08 financial highlights are listed below. These results are discussed in more detail
later in the report.
. The District's total ending net assets increased by $17.9 million or 3.06% in 2007-08 when
compared to fiscal year 2006-07
. Total revenues were $82.2 million in 2007-08 compared to $79.7 million in 2006-07
. Total 2007-08 expenses were $75.0 million compared to $71.1 million in 2006-07
. Capital Contributions decreased from $12.4 million in 2006-07 to $10.7 million in 2007-08
OVERVIEW OF THE FINANCIAL STATEMENTS
This annual report includes the management's discussion and analysis report, the independent auditor's
report and the basic financial statements of the District. The financial statements also include notes that
explain information in the financial statements in more detail.
REOUIRED FINANCIAL STATEMENTS
The Financial Statements of the District report information utilizing methods similar to those used by
private sector companies. These statements offer short and long-term financial information about its
activities.
. Statement of net assets - reports the District's current financial resources (short-term spendable
resources) with capital assets and long-term obligations
. Statement of revenues, expenses and changes in net assets - reports the District's operating
and non-operating revenues by major source along with operating and non-operating expenses
and capital contributions
. Statement of cash flows - reports the District's cash flows from operating activities, investing,
capital and noncapital financing activities
2
A
"., Recycled Paper
STATEMENT OF NET ASSETS
The following table shows the condensed statement of net assets of the Central Contra Costa Sanitary
District for the past two years:
Condensed Statement of Net Assets
Fiscal Year
Fiscal Year
Dollar
Percent
2007-2008 2006-2007 Chanl!e Change
Current Assets $ 86,373,020 $ 80,148,191 $ 6,224,829 7.77%
Capital Assets 560,288,889 543,622,261 16,666,628 3.07%
Other Non-current Assets 5,219,183 5,506,090 (286,907) -5.21%
Total Assets 651.881.092 629.276.542 22.604.550 3.59%
Current Liabilities 19,261,007 12,278,750 6,982,257 56.86%
Non-Current Liabilities 31,009,990 33,261,915 (2,251,925) -6.77%
Total Liabilities 50.270.997 45.540 665 4.730.332 10.39%
Invested in Capital Assets,
Net of Related Debt 532,375,068 513,580,658 18,794,410 3.66%
Restricted - Debt Service 3,185,416 3,216,163 (30,747) -0.96%
Unrestricted 66,049,611 66,939,056 (889,445) -1.33%
Total Net Assets $ 601.610,095 $ 583,735.877 $ 17.874.218 3.06%
The total net assets of the District increased to $601.6 million in 2007-08, a $17.9 million increase from
2006-2007. The increase in net assets is the result of net income of $7.2 million and capital
contributions of $1 0.7 million (shown in the next table).
By far the largest portion of the District's net assets (88.5% percent) reflects its investment in capital
assets (e.g. land, buildings, machinery, equipment, and sewer line infrastructure), less any related debt
used to acquire those assets that is still outstanding. The District uses these capital assets to provide
services to its ratepayers; consequently, these assets are not available for future spending. Although the
District's investment in its capital assets is reported net of debt, it should be noted that the resources
needed to repay this debt must be provided from other sources, since the capital assets themselves
cannot be used to liquidate these liabilities. There is currently $3.2 million restricted for debt service.
The remaining balance of unrestricted net assets ($66.0 million) may be used to meet the District's
ongoing obligations to its ratepayers and creditors.
This space intentionally left blank
3
REVIEW OF REVENUES. EXPENSES. AND CHANGES IN NET ASSETS
The following table shows the condensed statement of revenues, expenses, and changes in net assets for
the Central Contra Costa Sanitary District:
Condensed Statement of Revenues, Expenses, and Changes in Net Assets
Fiscal Year Fiscal Year
200 2008 2006-2007
Dollar
Ch
Percent
Ch
7- anl!e an2e
Sewer Service Char~es (SSC) $ 48,414,017 $ 44,100,883 $ 4,313,134 9.78%
Other Service Charges and misc. 1,465,569 1,657,238 (191,669) -11.57%
Total Operatin2 Revenue 49.879.586 45.758.121 4.121.465 9.01%
Customer Contributions (SSe) 14,970,637 15,945,915 (975,278) -6.12%
Property Tax 12,254,168 11,762,731 491,437 4.18%
Pennit & Inspection Fees 1,335,160 1,615,308 (280,148) -17.34%
All Other 3,771,438 4,574,156 (802,718) -17.55%
Total Non-Operatin2 Revenues 32.331.403 33.898.110 (1,566.707) -4.62%
Total Revenues 82.210.989 79.656.231 2.554.758 3.21010
Total Labor and Benefits 37,312,472 34,678,665 2,633,807 7.59%
Chemicals & Utilities 7,223,877 7,024,986 198,891 2.83%
Repairs and Maintenance 2,985,670 3,254,643 (268,973) -8.26%
Professional, LeJ!;al and Outside Services 2,613,658 2,298,712 314,946 13.70%
Materials & Supplies 1,728,963 1,734,504 (5,541) -0.32%
Haulin~ and Disposal 877 ,885 850,439 27,446 3.23%
Self-Insurance Expense 916,639 519,284 397,355 76.52%
All Other 1,247,298 1,444,082 (196,784) -13.63%
Depreciation Expense 18,615,747 17,714,714 901,033 5.09%
Total Ooerating Expenses 73,522,209 69,520,029 4,002.180 5.76%
Non-Operating Expense - Interest
Expense 1,518.142 1.609.104 (90.962) -5.65%
Total Exoenses 75.040.351 71,129,133 3.911.218 5.50%
Income (Loss) Before Capital
Contributions 7 170.638 8.527.098 (1.356.460) -15.91%
Contributed Sewer Lines 1,444,420 3,521,704 (2,077,284) -58.99%
Capital Contributions - Connection Fees 9,259,160 8,917,658 341,502 3.83%
Total Capital Contributions 10.703.580 12,439.362 (1.735.782) -13.95%
Chaol!e in Net Assets 17.874.218 20.966.460 (3.092.242) -14.75%
Beeinninl! Net Assets 583.735.877 562.769.417 20.966.460 3.73%
Endin2 Net Assets S 601.610.095 S 583.735.877 S 17.874,218 3.06%
In 2007-08, operating revenues increased by $4.1 million or 9.0%; non-operating revenue decreased by
$1.6 million or -4.6%. The change in total revenue resulted in an increase of $2.6 million or 3.2%. The
SSC rate increased in 2007-08 by 3.7%, and the Sewer Service allocation between operating and non-
operating revenue changed in 2007-08, reflecting a $4.3 million increase in sse Operating Revenue and
the $1.0 million decrease in non-operating revenue. Property Tax revenue had a modest $500,000
increase due to a 4% growth to the tax base, in spite of the sub-prime mortgage crisis. In 2007-08,
permit and inspection fees decreased in the struggling economy, and lower interest earnings on District
investments resulted in a $1.1 million revenue decrease compared to 2006-07.
4
In 2007-08, operating expenses increased by $4.0 million or 5.8%. This is mainly due to increases in
total labor, depreciation expense, increased self-insurance claims, technical services, chemical, and
utility costs. The District booked the second annual GASB 45 liability accrual in the amount of $2.8
million, which is included in employee benefits. Depreciation expense increased by $900,000,
reflecting new capital additions. Non-Operating Expense, which is made up of debt service interest
expense decreased slightly as more principal was paid off. Total 2007-08 income before capital
contributions decreased from $8.5 million in 2006-07 to $7.2 million in 2007-08 for a net decrease of
$1.4 million or -15.9%.
Capital contributions in 2007-08 were $10.7 million compared to $12.4 million in 2006-2007, resulting
in a decrease of $1.7 million or -14.0%. This was mainly due to less contributed sewer lines and
connection fees increased due to one-time revenues in spite of housing construction slowing in general.
The total change in net assets increased from $583.7 million in 2006-07 to $601.6 million in 2007-08.
CAPITAL ASSETS
As of ~une 30, 2008, the District's investment in capital assets totaled $560.4 million, which is an
increase of $16.8 million or 3.08% over the capital asset balance of $543.6 million at June 30, 2007.
Capital assets include the District's entire major infrastructure including wastewater treatment facilities,
sewers, land, buildings, pumping stations, vehicles, and furniture and equipment exceeding our
capitalization policy limit of $5,000, net of depreciation. A comparison of the District's capital assets
over the past two fiscal years is presented below:
Fiscal Year
Fiscal Year
Dollar
Percent
C .
aoital Assets 2007-2008 2006-2007 Chan2e Chan2e
Land $ 17,114,720 $ 17,114,720 $ - 0.00%
Sewap;e Collection System 242,806,977 226,796,748 16,010,229 7.06%
Contributed Sewer Lines 145,596,316 144,151,897 1,444,419 1.00%
Outfall Sewers 8,518,443 8,518,443 - 0.00%
Sewae:e Treatment Plant 264,327,208 255,008,296 9,318,912 3.65%
Recycled Water Infrastructure 11,936,662 11,726,507 210,155 1.79%
Pumpinp; Stations 51,632,331 50,082,876 1,549,455 3.09%
Buildine:s 19,987,656 19,537,601 450,055 2.30%
Furniture & EauiDment 13,730,782 12,951,529 779,253 6.02%
Motor Vehicles 5,224,941 4,575,910 649,031 14.18%
Construction In Prou;ress 28,515,814 24,536,196 3,979,618 16.22%
Subtotal 809.391.850 775.000.723 34.391.127 4.44%
Less Accumulated Depreciation 249,002,961 231,378,462 17,624,499 7.62%
Total Capital Assets (net of depreciation) $ 560.388.889 $ 543.622.261 $ 16.766.628 3.08%
The major reasons for the increase of $16.8 million in capital assets, net of depreciation, are:
· Sewer pipe ongoing renovations, pumping station improvements, and contributed sewer lines
($19 million)
· Treatment plant infrastructure renovations, upgrades, equipment, and improvements ($9.3
million)
· Construction In Progress increased by $4.0 million due to increased project activity
· Buildings, Recycled Water Infrastructure, Furniture & Equipment, and Motor Vehicles ($2.1
million)
5
. These increases are offset by an increase in accumulated depreciation due to our increasing
capital asset value and its associated depreciation expense (-$17.6 million)
See Note #4 in the audited financial statements.
DEBT ADMINISTRATION
The District has the following outstanding debt as of June 30, 2008:
1998 Revenue Refunding Bonds
2002 Revenue Bonds
Water Reclamation Loan Contract
$
12,292,648
14,220,000
1,629,250
28,141,898
$
See Note #6 in the audited financial statements.
ECONOMIC AND OTHER FACTORS
Changes in the state budget have a significant impact on the District. The State currently faces a huge
budget deficit. Previous California budget deficits were partially remedied by shifting a portion of local
property tax to the state in 2004-05 and 2005-06. The tax shift ended in 2006-07, and the voters passed
Proposition lA that mandates the State repay any future property tax that it borrows. Still, there were
several proposals made in the 2008-09 budget process that could either allow for borrowing special
district property tax, or eliminating it by shifting it to other government programs. It is probable that our
property tax income will be eliminated by some means in the future.
Regulatory requirements are becoming more stringent, causing the District to spend more on
compliance, both for operations and maintenance costs and capital projects. Interest rates remain low,
and this negatively impacts interest earnings. The future state of the economy, and the impact to the
District, is in question at this time due to large drops in the stock market and failing investment
companies.
In addition to making efforts to reduce spending and improve process efficiencies, the District has the
ability to raise the Sewer Service Charge to meet our long-term commitments.
FINANCIAL CONTACT
The financial report is designed to provide our customers and creditors with a general overview of the
District's fmances and to demonstrate the District's accountability for the money it receives. If you
have questions about this report or need additional financial information, contact: Controller, Central
Contra Costa Sanitary District, 5019 Imhoff Place, Martinez, CA 94553.
6
FINANCIAL STATEMENTS
CENTRAL CONlRA COSTA SANITARY DISTRICT
Statement of Net Assets
June 30, 2008 and 2007
2008 2007
ASSETS
Current Assets
Cash and investments available for operations $ 66,665,766 $ 63,865,052
Accounts receivable 17,002,243 13,907,341
Interest receivable 340,273 61,207
Parts and supplies 1,612,059 1,543,018
Prepaid expenses 652,679 771,573
Total Current Assets 86,273,020 80,148,191
Noncurrent Assets
Restricted cash and investments 3,696,773 3,569,117
Land, property, plant and equipment, net of accumulated depreciation 531,773,075 519,086,064
Construction in progress 28,515,814 24,536,197
Contractual assessment district receivable 1,394,333 1,678,216
Revenue bond issuance costs, net of amortization 228,077 258,757
Total Noncurrent Assets 565,608,072 549,128,351
Total Assets 651,881,092 629,276,542
LIABILITIES
Current Liabilities
Accounts payable and accrued expenses 8,673,582 5,143,848
Interest payable 419,656 440,824
Current portion of refunding revenue bonds 2,300,000 2,210,000
Current portion of water reclamation loan contract 144,759 141,090
Current portion of accrued compensated absences 790,000
Liability for uninsured claims 629,820 629,820
Other postemployment benefits 5,990,813 3,157,887
Refundable deposits 312,377 555,281
Total Current Liabilities 19,261,007 12,278,750
Noncurrent Liabilities
Revenue bonds, net of current portion 24,212,648 26,320,020
Accrued compensated absences, net of current portion 5,312,851 5,312,645
Water reclamation loan contract, net of current portion 1,484,491 1,629,250
Total Noncurrent Liabilities 31,009,990 33,261,915
Total Liabilities 50,270,997 45,540,665
NET ASSETS
Invested in capital assets, net of related debt 532,375,068 513,580,658
Restricted for debt service 3,185,416 3,216,163
Unrestricted 66,049,611 66,939,056
Total Net Assets $ 601,610,095 $ 583,735,877
The accompanying notes are an integral part of the fmancial statements
7
CENTRAL CONTRA COSTA SANITARY DISTRICT
Statement of Revenues, Expenses, and Changes in Net Assets
Years Ended June 30, 2008 and 2007
2008 2007
OPERA TING REVENUE
Sewer service charges (SSe) $ 40,207,157 $ 35,057,668
Service charges - City of Concord 8,206,860 9,043,215
Other service charges 869,589 793,395
Miscellaneous charges 595,980 863,843
Total operating revenue 49,879,586 45,758,121
OPERATING EXPENSES
Sewage collection and pumping stations 10,905,468 10,332,732
Sewage treatment 22,054,203 21,438,368
Engineering 6,332,830 5,472,707
Administrative and general 15,613,961 14,561,508
Depreciation 18,615,747 17,714,714
Total operating expenses 73,522,209 69,520,029
OPERATING LOSS (23,642,623) (23,761,908)
NON-OPERATING REVENUES (EXPENSES)
Taxes 12,254,168 11,762,731
City of Concord cash contributions to capital costs 5,336,273 3,435,512
Customer cash contributions to capital cost (SSC) 9,634,364 12,510,403
Permit and inspection fees 1,335,160 1,615,308
Interest earnings 2,527,621 3,257,773
Interest expense (1,518,142) (1,609,104)
Other income (expense) 1,243,817 1,316,383
Total non-operating revenues (expenses) 30,813,261 32,289,006
Income before contributions and transfers 7,170,638 8,527,098
Contributed sewer lines 1,444,420 3,521,704
Capital contributions - connection fees 9,259,160 8,917,658
CHANGE IN NET ASSETS 17,874,218 20,966,460
Total Net Assets - Beginning 583,735,877 562,769,417
Total Net Assets - Ending $ 601,610,095 $ 583,735,877
The accompanying notes are an integral part of the financial statements
8
CENTRAL CONTRA COSTA SANITARY DISTRICT
Statement of Cash Flows
Years Ended June 30, 2008 and 2007
2008 2007
Cash Flows From Operating Activities:
Receipts from customers and users $ 46,825,663 $ 41,606,988
Payments to suppliers (7,360,135) (11,878,232)
Payments to employees and related benefits (40,326,309) (34,004,606)
Net cash provided by (used in) operating activities (860,781) (4,275,850)
Cash Flows From Noncapital Financing Activities:
Receipt of taxes 12,254,168 11,762,731
Inspectionlpennit fees and other non-operating income 2,578,977 2,931,692
Net cash provided by (used in) non capital 14,833,145 14,694,423
and related financing activities
Cash Flows From Capital And Related Financing Activities:
Capital contributions 14,970,637 15,945,915
Connection fees 9,259,160 8,917,658
Acquisition and construction of capital assets (33,855,254) (39,768,810)
Principal paid on bonds (2,158,462) (2,079,887)
Interest paid on bonds (1,508,630) (1,793,559)
Net cash provided by (used in) capital and related financing activities (13,292,549) (18,778,683)
Cash Flows From Investing Activities
Interest received 2,248,555 3,961,292
Net decrease in cash and cash equivalents 2,928,370 (4,398,818)
Cash and cash equivalents, July 1 67,434,169 71,832,987
Cash and Cash equivalents, June 30 $ 70,362,539 $ 67,434,169
Reconciliation of operating loss to net cash provided
(used) by operating activities
Operating gain (loss) (23,642,623) (23,761,908)
Adjustment to reconcile operating income to net cash provided
(used) by operating activities:
Depreciation expense 18,615,747 17,714,714
Net book value on capital assets retired 17,299 142,652
(Increase) decrease in:
Accounts receivable (2,811,019) (2,493,895)
Parts and supplies (69,041) 19,001
Prepaid expenses 118,895 443,538
Increase (decrease) in:
Accounts payable and accrued expenses 3,529,733 428,269
Refundable deposits (242,904) (38,935)
Other postemployment benefits 2,832,926 3,157,887
Accrued compensated absences 790,206 112,827
Net cash provided by (used in) operating activities $ (860,781) $ (4,275,850)
Noncash investing, capital, and financing activities
Contributions of capital assets $ 1,444,420 $ 3,521,704
End of Period:
Unrestricted cash and equivalents $ 66,665,766 63,865,052
Restricted cash and equivalents 3,696,773 3,569,117
$ 70,362,539 $ 67,434,169
The accompanying notes are an integral part of the financial statements
9
_.__._-,----~_. ._-._.,",...........~_._~"...._...^-_...."."-"'--'"<
NOTES TO THE FINANCIAL STATEMENTS
CENTRAL CONTRA COSTA SANITARY DISTRICT
Notes to Financial Statements
Years Ended June 30, 2008 and 2007
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Reporting Entity
The Central Contra Costa Sanitary District, a special district and a public entity established under the
Sanitary District Act of 1923, provides sewer service for the incorporated and unincorporated areas under
its jurisdiction. A Board of Directors comprised of five elected members governs the District.
As required by accounting principles generally accepted in the United States of America, these basic
financial statements present Central Contra Costa Sanitary District and its component unit. The
component unit discussed in the following paragraph is blended in the District's reporting entity because
of the significance of its operational or financial relationship with the District.
Blended Component Unit - Component units are legally separate organizations for which the District is
financially accountable. Component units may also include organizations that are fiscally dependent on
the District, in that the District approves their budget, the issuance of their debt or the levying of their
taxes. In addition, component units are other legally separate organizations for which the District is not
financially accountable but the nature and significance of the organization's relationship with the District
is such that exclusion would cause the District's financial statements to be misleading or incomplete. For
financial reporting purposes, the component unit discussed below is reported in the District's financial
statements because of the significance of its relationship with the District. The component unit, although
a legally separate entity, is reported in the financial statements using the blended presentation method as
if it were part of the District's operations because the Governing Board of the component unit is
essentially the same as of governing board of the District and because its purpose is to finance facilities
to be used for the direct benefit of the District. The Central Contra Costa Sanitary District Facilities
Financing Authority was organized solely for the purpose of providing financial assistance to the District
by acquiring, constructing, improving and financing various facilities, land and equipment purchases,
and by leasing or selling certain facilities, land and equipment for the use, benefit and enjoyment of the
public served by the District. The Corporation has no members and the Board of Directors of the
Corporation consists of the same persons who are serving as the Board of Directors of the District. There
are no separate basic financial statements prepared for the Corporation.
Basis of Accounting
The District's financial statements are prepared on the accrual basis in accordance with accounting
principles generally accepted in the United States of America as promulgated by the Government
Accounting Standards Board (GASB). In addition, the District applies all applicable Financial
Accounting Standards Board (FASB) pronouncements issued on or before November 30, 1989, unless
those pronouncements conflict with or contradict GASB pronouncements.
The District is a proprietary entity; it uses. an enterprise fund format to report its activities for financial
statement purposes. Enterprise funds are used to account for operations that are financed and operated in
a manner similar to private business enterprises, where the intent of the governing body is that the cost
and expenses, including depreciation, of providing goods or services to its customers be financed or
recovered primarily through user charges; or where the governing body has decided that periodic
determination of revenues earned, expense incurred, and net income is appropriate for capital
maintenance, public policy, management control, accountability, or other purposes.
10
CENTRAL CONTRA COSTA SANITARY DISTRICT
Notes to Financial Statements
Years Ended June 30, 2008 and 2007
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Enterprise funds are used to account for activities similar to those in the private sector, where the
proper matching of revenues and costs is important and the full accrual basis of accounting is
required. With this measurement focus, all ass~ts and liabilities of the enterprise are recorded on its
statement of net assets, all revenues are recognized when earned and all expenses, including
depreciation, are recognized when incurred.
Enterprise funds distinguish operating revenues and expenses from non-operating items. Operating
revenues and expenses generally result from providing services and producing and delivering goods
in connection with an enterprise fund's principal ongoing operations. The principal operating
revenues of the District are charges to customers for services. Operating expenses for the District
include the costs of sales and services, administrative expenses, and depreciation on capital assets.
All revenues and expenses not meeting this definition are reported as non-operating revenues and
expenses.
For internal operating purposes, the District's Board of Directors has established four separate sub-
funds, each of which includes a separate self-balancing set of accounts and a separate Board
approved budget for revenues and expenses. These sub-funds are combined into the single
enterprise fund presented in the accompanying financial statements. The nature and purpose of these
sub-funds are as follows:
Running Expense
Running expense accounts for the general operations of the District. Substantially all operating
revenues and expenses are accounted for in this sub-fund.
Sewer Construction
Sewer construction accounts for non-operating revenues, which are to be used for acquisition or
construction of plant, property and equipment.
Self Insurance
Self insurance accounts for interest earnings on cash balances in this sub-fund and cash
allocations from other sub-funds, as well as for costs of insurance premiums and claims not
covered by the District's insurance coverage.
Debt Service
Debt service accounts for activity associated with the payment of the District's long term bonds
and loans.
That portion of the District's net assets which is allocable to each of these sub-funds has been shown
separately in the accompanying financial statements.
The District's Board of Directors adopts annual budgets on a basis consistent with accounting
principles generally accepted in the United States of America.
11
CENTRAL CONTRA COSTA SANITARY DISTRICT
Notes to Financial Statements
Years Ended June 30, 2008 and 2007
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Investments
Investments held at June 30, 2008, with original maturities greater than one year are stated at fair
value. Fair value is estimated based on quoted market prices at year-end. All investments not
required to be reported at fair value are stated at cost or amortized cost.
Prepaids
Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as
prepaid items in the financial statements.
Bank Escrow Deposit
An escrow agreement was formed between the District and the National Park Service for the Right
of Way through the John Muir National Historic Site, in lieu of issuing a bond. The current Right of
Way Permit is 10 years, but is renewable and must remain in effect so long as there is sewerage
running through the area; therefore it is unlikely that the escrow funds will ever be released to the
District. These funds are restricted cash in the financial statements. See note 2.
Parts and Supplies
Parts and supplies are valued at average cost and are used primarily for internal purposes.
Property. Plant. and Equipment
Purchased capital assets are stated at historical cost. Capital assets contributed to the District are
stated at estimated fair value at the time of contribution. The capitalization threshold for capital
assets is $5,000. Expenditures, which materially increase the value or life of a capital assets are
capitalized and depreciated over the remaining useful life of the asset.
Depreciation of exhaustible capital assets has been provided using the straight-line method as
follows:
Years
Sewage Collection Facilities
Sewage Treatment Plant and Pumping Plants
Buildings
Furniture and Equipment
Motor Vehides
75
40
50
5 -15
6 -15
12
CENTRAL CONTRA COSTA SANITARY DISTRICT
Notes to Financial Statements
Years Ended June 30, 2008 and 2007
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Defined Contribution Retirement Plans
District employees may defer a portion of their compensation under a District sponsored Deferred
Compensation Plan created in accordance with Internal Revenue Code Section 457. Under this Plan,
participants are not taxed on the deferred portion of their compensation until it is distributed to them;
distributions may be made only at termination, retirement, death, or in an emergency as defined by
the Plan. The District does not make contributions to the plan.
On August 20, 1997, the provisions of the Internal Revenue Code covering section 457 were
amended to require existing plans to establish trusts for assets of plans so that they would not be
subject to the right of general creditors. The District amended its plan during the fiscal year ended
June 30, 1999 to meet this requirement. Consequently, at June 30, 2008, the plans assets are held in
trust for the exclusive benefit of the participants and are not included in the District's financial
statements.
The District also contributes to a money purchase plan created in accordance with Internal Revenue
Code section 401(a). Contributions to the plan are made in accordance with a memorandum of
understanding stating that in lieu of making payments to Social Security, the District contributes to
the 401 (a) Plan an amount equal to that which would have been contributed to Social Security on
behalf of its employees as long as the District is not required to participate in Social Security. The
assets are held in trust and are not recorded on the books of the District. The District contributed
$1,391,089 to the plan during the year ended June 30, 2008.
Property Taxes
Property tax revenue is recognized in the fiscal year for which the tax is levied. The County of
Contra Costa levies, bills and collects property taxes for the District; all material amounts are
collected by June 30.
General County taxes collected are the same as the amount levied since the County participates in
California's alternative method of apportionment called the Teeter Plan. The Teeter Plan as
provided in Section 4701 at seq. of the State of Revenue and Taxation Code establishes a mechanism
for the county to advance the full amount of property tax and other levies to taxing agencies based
on the tax levy, rather than on the basis of actual tax collections. Although this system is a simpler
method to administer, the County assumes the risk of delinquencies. The County in return retains
the penalties and accrued interest thereon.
Secured Property tax bills are mailed once a year during the month of October on the current secured
tax roll, to the owner of the property as of the lien date (January 1). Payments can be made in two
installments, and are due on November 1 and February 1. Delinquent accounts are assessed a
penalty of 10 percent. Accounts, which remain unpaid on June 30, are charged an additional 1 Y2
percent per month. Unsecured property tax is due on July 1 and becomes delinquent on August 31.
The penalty percentage rates are the same as secured property tax.
13
CENTRAL CONTRA COSTA SANITARY DISTRICT
Notes to Finandal Statements
Years Ended June 30, 2008 and 2007
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Compensated Absences
The liability for vested vacation, compensatory time, and sick pay is recorded as an expense when
earned. District employees have a vested interest in 100 percent of accrued vacation time and 85
percent of accrued sick time for employees hired before May 1, 1985. Employees hired after May 1,
1985 have a vested interest in up to 40 percent of their sick time, based upon length of employment
with the District.
The accrued compensated absences increased to $6,102,851 from $5,312,645 in fiscal 2008. The
current portion of the non-current liability to be used within the next year is estimated by
management to be approximately $790,000.
Statement of Cash Flows
For purposes of the statement of cash flows, all highly liquid investments, including restricted assets,
with maturities of three months or less when purchased, are considered to be cash equivalents.
Included therein are petty cash, bank accounts, and the State of California Local Agency Investment
Fund (LAIF). Restricted assets are debt service amounts maintained by fiduciaries and not available
for general expenses.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted
in the United States of America requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the
date of the fmancial statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
New Accounting Pronouncements
In April 2004, GASB issued GASB No. 43, Financial Reporting/or Postemployment Benefit Plans
Other Than Pension Plans. This Statement provides guidance on how to report OPEB plans that
qualify as a trust or agency funds or as fiduciary component units of either a participating employer,
a plan sponsor, a public employee retirement system (CalPERS, or other administering entity). The
requirements for this statement are effective for fiscal periods beginning after December 15, 2006
provided GASB 45 is also implemented. The District will implement this standard in conjunction
with GASB 45.
In July 2004, GASB issued GASBS No. 45, Accounting and Financial Reporting by Employers for
Postemployment Benefits Other Than Pensions. This Statement requires local governmental
employers who provide other postemployment benefits (OPEB) as part of the total compensation
offered to employees to recognize the expense and related liabilities (assets) in the government-wide
financial statements of net assets and activities. This Statement establishes standards for the
measurement, recognition, and display ofOPEB expense/expenditures and related liabilities (assets),
14
CENTRAL CONTRA COSTA SANITARY DISTRICT
Notes to Financial Statements
Years Ended June 30, 2008 and 2007
1. DescriDtion of District and Summary ofSi2Dificant Accountine: Policies (continued)
New Accounting Pronouncements (continued)
note disclosures, and, if. applicable, required supplementary information (RSI) in the financial
reports of State and local governmental employers.
Current financial reporting practices for OPEB are generally based on pay-as-you-go financing
approaches. Current financial reporting practices fail to measure or recognize the cost of OPEB
during the periods when employees render the services, or to provide relevant information about
OPEB obligations and the extent to which progress is being made in funding those obligations.
The District is required to implement the provisions of this Statement for the fiscal year ended June
30, 2009 (effective for fiscal years beginning after December 31, 2007). See note 10 for additional
information.
In November of 2006, GASB issued GASBS No. 49. Accounting and Financial Reporting Pollution
Remediation Obligations. The District is required to implement the provisions of this Statement for
the fiscal year ended June 30, 2009 (effective for periods beginning after December 15, 2007). This
standard addresses current or potential detrimental effects of existing pollution by participating in
pollution remediation activities such as site assessments and cleanups. The scope of the document
excludes pollution prevention or control obligations with respect to current operations, and future
pollution remediation activities that are required upon retirement of an asset, such as a landfill closure.
This statement may have a material effect on the financial statements of the District.
In May of 2007, GASB issued GASBS No. 50, Pension Disclosures - an amendment of GASB
Statements No. 25 and No. 27. The District is required to implement the provisions of this Statement
for the fiscal year ended June 30, 2008 (effective for periods beginning after June 15, 2007). This
Statement aligns more closely the financial reporting requirements for pensions with those for other
postemployment benefits (OPEB) and, in doing so, enhances information disclosed in notes to
financial statements or presented as required supplementary information (RSI) by pension plans and by
employers that provide pension benefits.
The reporting changes required by the Statement amend applicable note disclosure and RSI
requirements of Statements No. 25, Financial Reporting for Defined Benefit Pension Plans and Note
Disclosuresfor Defined Contribution Plans, and No. 27, Accountingfor Pensions by State and Local
Governmental Employers, to conform with requirements of Statements No. 43, Financial Reporting
for Postemployment Benefit Plans Other Than Pension Plans, and No. 45, Accounting and Financial
Reporting by Employers for Postemployment Benefits Other Than Pensions. We do not expect this
statement to have a material effect on the fmancial statements of the District.
In June of 2007, GASB issued GASBS No. 51. Accounting and Financial Reporting for Intangible
Assets. The District is required to implement the provisions of this Statement for the fiscal year ended
June 30, 2010 (effective for periods beginning after June 15,2009; for governments classified as phase
15
CENTRAL CONTRA COSTA SANITARY DISTRICT
Notes to Financial Statements
Years Ended June 30, 2008 and 2007
1. Descriotion of District and Summa", of Simificant Accountine: Policies (continued)
New Accounting Pronouncements (continued)
2 under GASBS No. 34, retroactive reporting is required for intangible assets acquired in fiscal years
ended after June 30, 1980). This Statement requires that all intangible assets not specifically excluded
by its scope provisions be classified as capital assets. Governments possess many different types of
assets that may be considered intangible assets, including easements, water rights, patents, trademarks,
and computer software. Intangible assets, and more specifically easements, are referred to in the
description of capital assets in Statement No. 34, Basic Financial Statements - and Management's
Discussion and Analysis -for State and Local Governments. This reference has created questions as
to whether and when intangible assets should be considered capital assets for financial reporting
purposes. The implementation of the provisions of this standard may have a material effect on the
financial statements of the District.
In November of 2007, GASB issued GASBS No. 52. Land and Other Real Estate Held as
Investments by Endowments. The District is required to implement the provisions of this Statement for
the fiscal year ending June 30, 2009 (effective for periods beginning after June 15, 2008). This
Statement requires endowments to report their land and other real estate investments at fair value and
governments to report the changes in fair value as investment income and to disclose the methods
and significant assumptions employed to determine fair value, and other information that they
currently present for other investments reported at fair value. Endowments exist to invest resources
for the purpose of generating income. Other entities that exist for similar purposes-pension and
other postemployment benefit plans, external investment pools, and Internal Revenue Code Section
457 deferred compensation plans-however, report land and other real estate held as investments at
their fair value. We do not expect this statement to have a material effect on the fmancial statements
of the District.
In June of 2008, GASB issued GASBS No. 53. Accounting and Financial Reporting for Derivative
Instruments. This Statement requires governments to measure derivative instruments at fair value in
their economic resources measurement focus fmancial statements. Derivative instruments are often
complex financial arrangements used by governments to manage specific risks or to make
investments. By entering into these arrangements, governments receive and make payments based
on market prices without actually entering into the related financial or commodity transactions.
Derivative instruments associated with changing financial and commodity prices result in changing
cash flows and fair values that can be used as effective risk management or investment tools.
Derivative instruments, however, can also expose governments to significant risks and liabilities.
Common types of derivative instruments used by governments include interest rate and commodity
swaps, interest rate locks, options (caps, floors, and collars), forward contracts, and future contracts.
The District is required to implement the provisions of the Statement for the fiscal year ending June
30, 2010 (effective for periods beginning after June 15, 2009), which should allow users of the
financial statements to more fully understand the District's resources available to provide services.
The District does not currently hold such instruments which would be classified as derivatives other
than a minor amount held through the State Investment Pool and eal Trust.
16
CENTRAL CONTRA COSTA SANITARY DISTRICT
Notes to Financial Statements
Years Ended June 30, 2008 and 2007
2. CASH AND CASH EOUIV ALENTS
Summary of Investments
Investments as of June 30, 2008 are classified in the accompanying financial statements as follows:
Cash and investments available for operations
Cash in escrow-in lieu of surety bond
Restricted cash and investments
Total Deposits and Investments
$ 66,665,766
100,000 *
3,596,773
$ 70,362,539
* See note 1 - Bank Escrow Deposit
General Authorizations
Limitations as they relate to interest rate risk, credit risk, and concentration of credit risk are
indicated in the schedules below:
Authorized Investment Type
U.S. Treasury Obligations
Banker's Acceptance
Commercial Paper (1)
Collateralized Certificates of Deposit
County Pooled Investment Funds
Local Agency Investment Fund (LAIF)
Maximum
Remaining
Maturity
1 year
180
270
1 year (2)
N/A
N/A
Maximum
Percentage
of Portfolio
None
40%
25%
30%
None
None
Maximum
Investment
In One Issuer
None
15%
15%
15%
None
None
(1) Prime quality; limited to corporations with assets over $500,000,000
(2) Prior approval of the Board of Directors must be obtained to acquire maturities beyond one year
17
CENTRAL CONTRA COSTA SANITARY DISTRICT
Notes to Financial Statements
Years Ended June 30, 2008 and 2007
2. CASH AND CASH EOUIV ALENTS (continued)
Authorized Under Debt Agreements
Maximum Maximum Maximum
Remaining Percentage Investment
Maturity ofPortfoJio In One Issuer
None None None
None None None
None None None
None None None
None None None
None None None
None None None
None None None
None None None
270 Days None None
180 Days None None
None None None
None None None
(1) Rated highest short-term rating by S&P and Moody's
Interest Rate Risk
Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of
an investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its
fair value to changes in market interest rates. The District manages exposure to interest rate risk by
purchasing a combination of shorter term and longer term investments and by timing cash flows
from maturities so that a portion of the portfolio is maturing or coming close to maturity evenly over
time as necessary to provide the cash flow and liquidity needed for operations.
The District's investments at year end with the exception of the U.S. Treasuries below are held in
external investment pools which are liquid investments.
Information about the sensitivity of the fair values of the District's investments to market interest
rate fluctuation is provided by the following schedule that shows the distribution of the District's
investment by maturity:
Investment Type
Treasury Bills and obligations
Fair Value
$3,596,773
Maturity
12/26/08
Total
$ 3,596,773
18
CENTRAL CONTRA COSTA SANITARY DISTRICT
Notes to Financial Statements
Years Ended June 30, 2008 and 2007
2. CASH AND CASH EOUIV ALENTS (continued)
Credit Risk
Credit risk is the risk that an issue of an investment will not fulfill its obligation to the holder of the
investment. This is measured by the assignment of a rating by a nationally recognized statistical
rating organization. Presented below is the minimum rating by the California Government Code, the
Districts' investment policy, or debt agreements, and the actual rating as of the year-end for each
investment type.
Not
Minimum Required Rating as of Year End
Fair Legal To Be AAA Unrated
Investment Type Value Rating Rated
Cash $ 1,265,766 A $1,265,766
Treasuries 3,596,773 A $3,596,773
CalTrust 29,000,000 N/A $29,000,000
State Investment
Pool 36,500,000 N/A 36,500,000
Total $70,362,539 $1,265,766 $3,596,773 $65,500,000
Concentration of Credit Risk
During the current fiscal year the District invested exclusively in U.S. Treasuries, CalTrust (a
County Joint Powers Agency Authority) and State Investment Pool, which are not limited by the
California Government Code or District Investment Policy.
Investments in County Treasury - The District is considered to be a voluntary participant in an
external investment pool. The fair value of the District's investment in the pool is reported in the
accounting financial statements at amounts based upon the District's pro-rata share of the fair value
provided by the County Treasurer for the entire portfolio (in relation to amortized cost of that
portfolio). The balance available for withdrawal is based on the accounting records maintained by
the County Treasurer, which is recorded on the amortized cost basis.
Investment in the State Investment Pool - The District is a voluntary participant in the Local Agency
Investment Fund (LAIF) that is regulated by California government code Section 16429 under the
oversight of the Treasurer of the State of California. The fair value of the District's investment in
the pool is reported in the accompanying fmancial statement at amounts based upon the District's
pro-rata share of the fair value provided by LAIF for the entire LAIF portfolio (in relation to the
amortized cost of that portfolio). The balance available for withdrawal is based on the accounting
records maintained by LAIF, which is recorded on the amortized costs basis.
19
CENTRAL CONTRA COSTA SANITARY DISTRICT
Notes to Financial Statements
Years Ended June 30, 2008 and 2007
2. CASH AND CASH EOUIV ALENTS (continued)
Custodial Credit Risk - Investments
Custodial risk for investments is the risk that, in the event of the failure of the counterparty (e.g. the
broker-dealer) to a transaction, a government will not be able to recover the value of its investment
or collateral Securities that are in the possession of another party. The California Government Code
does not contain legal or policy requirements that would limit the exposure to custodial credit risk.
The District's policy is to use the services of the Treasurer's Office of the County of Contra Costa,
which will transact the District's investment decisions in compliance with the requirements of the
District's policy. The County Treasurer's Office will execute the District's investments through
such brokers, dealers, and fInancial institutions as are approved by the County Treasurer, and
through the State Treasurer's Office for investment in the Local Agency Investment Fund.
3. ACCOUNTS RECEIVABLE
At June 30, 2008, accounts receivable are comprised of the following:
City of Concord (see Note 8)
Household Hazardous Waste Partners
All other
$ 15,899,114
623,761
479,368
$ 17,002,243
Total accounts receivable
This space intentionally left blank.
20
21
CENTRAL CONTRA COSTA SANITARY DISTRICT
Notes to Financial Statements
Years Ended June 30, 2008 and 2007
5. CONTRACTUAL ASSESSMENT DISTRICTS
The District established the Contractual Assessment District (CAD) program to help homeowners
finance the cost of connecting to the District. The construction costs associated with the project
within the program are capitalized and depreciated. Individual homeowners are assessed an amount
equal to their share of the construction costs and connection fee. The assessments plus interest are
generally payable over 10 years. At year-end, the receivable balance was $1,394,333.
6. LONG-TERM DEBT
Revenue Bonds - 2002
In May 2002, the District issued $16,565,000 of Revenue Installment Certificates for Wastewater
Facilities Improvements, with interest rates ranging from 4.0 to 5.0%. The bonds are secured by a
pledge of revenue. Principal payments are due annually on September 1, commencing in fiscal year
2005, and interest is payable semi-annually on September 1 and March 1 of each year.
Refunding: Revenue Bonds - 1998 & 1994 Defeased Debt
In September 1998, the District issued $25,335,000 of Refunding Revenue Bonds with interest rates
ranging from 3.5 and 4.7%. The Bonds are secured by a pledge of revenue. Principal payments are
due annually on September 1, and interest is payable semi-annually on September 1 and March 1.
The District issued the 1998 Refunding Revenue Bonds to advance refund the 1994 Revenue
Installment Certificates, which had interest rates of 5.25 to 6.25%. The net proceeds were deposited
in an escrow fund to service and redeem the 1994 debt. As a result, the advance refunding met the
requirements of an in-substance debt defeasance, and the outstanding balance of the 1994 debt was
removed from the District's accounts. The 1994 issue no longer has an outstanding balance.
The excess of the amount required to be deposited into the escrow fund over the net carrying amount
of the 1994 debt resulted in a deferred loss. The deferred loss is reported as reduction of the new
debt and is being amortized over the IS-year term of the new debt.
Summary
The changes in the District's long-term obligations during the year consisted of the following:
Balance Deferred Balance Due in
July 1. 2007 Cost Deductions June 30. 2008 One Year
General obligation bonds $28,530,020 $ 192,628 $ 2,210,000 $26,512,648 $ 2,300,000
Water Reclamation Loan 1.770.340 141.090 1.629.250 144.759
$30.300.360 $ 192.628 $ 2.351.090 $ 28.141.898 $ 2.444.759
22
CENTRAL CONTRA COSTA SANITARY DISTRICT
Notes to Financial Statements
Years Ended June 30, 2008 and 2007
6. LONG-TERM DEBT (continued)
Debt Service Requirements
The 2002 and 1998 Revenue Bonds debt service requirements are as follows:
Amount representing interest
Principal outstanding
Less: Unamortized deferred loss on refunding year end
2002 1998
Debt Service Debt Service
Requirement Requirement Total
$ 1,271,061 $ 2,216,178 $ 3,487,239
1,265,261 2,216,478 3,481,739
1,263,561 2,222,341 3,485,902
1,265,762 2,217,429 3,483,191
1,266,391 2,216,648 3,483,039
6,332,714 4,440,595 10,773,309
7,617,525 7,617,525
20,282,275 15,529,669 35,811,944
(6,062,275) (2,209,669) (8,271,944)
14,220,000 13,320,000 27,540,000
(1,027,352) (1,027,352)
14,220,000 12,292,648 26,512,648
(635,000) (1,665,000) (2,300,000)
$ 13,585,000 $ 10,627,648 $ 24,212,648
Fiscal Year
Ending June 30, 2007
2009
2010
2011
2012
2013
2014 - 2018
2019 -2024
Total
Short-term portion of revenue bonds
Long-term portion of revenue bonds
Water Reclamation Loan Contract
The District has entered into a contract with the State of California State Water Resources Control
Board (the Board), where the Board advanced to the District $2,916,872 for design and construction
costs for projects related to recycled water treatment programs.
23
CENTRAL CONTRA COSTA SANITARY DISTRICT
Notes to Financial Statements
Years Ended June 30, 2008 and 2007
6. LONG-TERM DEBT (continued)
Water Reclamation Loan Contract (continued)
The District must repay advances from the Board over a 20-year period beginning March 31, 1999,
with an interest rate of 2.60%. Debt service requirements are as follows:
Less: Current portion of Water Reclamation Loan Contract
Debt.
Service
Requirements
$ 187,119
187,119
187,119
187,119
187,119
935,598
1,871,193
(241,943)
1,629,250
(144,759)
$ 1,484,491
Years
2009
2010
2011
2012
2013
2014 - 2018
Total
Amount representing interest
Long term portion of Water Reclamation Loan Contract
Local Improvement District Bonds
Within the District's boundaries, there exist several Improvement Districts, which were formed for
the sole purpose of fmancing sewer system improvements. The District has no oversight
responsibility for these Districts and is not liable for repayment of any bonds issued to finance
these local improvement districts. Contra Costa County acts as the agent for the property owners
in these districts in collecting assessments, forwarding collections to bondholders, and initiating
foreclosure procedures, if appropriate. The outstandm.g balance on these bonds was $100,000 at
June 30, 2008.
7. RISK MANAGEMENT
The District is exposed to various risks of loss related to torts: theft of, damage to, and destruction of
assets; errors and omissions; injuries to employees; and natural disaster. The District joined with
other entities to form the California Sanitation Risk Management Authority (CSRMA), a public
entity risk pool currently operating as a common risk management and insurance program for the
member entities. The purpose of CSRMA is to spread the adverse effects of losses among the
member entities and to purchase excess insurance as a group, thereby reducing its cost. Through
CSRMA, the District purchases property insurance and workers' compensation insurance.
24
CENTRAL CONTRA COSTA SANITARY DISTRICT
Notes to Financial Statements
Years Ended June 30, 2008 and 2007
7. RISK MANAGEMENT (continued)
Insurance Coverage
The District's insurance coverage is as follows:
Type of Insurance Coverage
All-Risk Property
Fire
Boiler & Machinery
(Shared Limits per Occurrence)
Liability
Errors and Omissions
Employment Practices Liability
Employment Practices Liability
General Liability
Auto Liability
Pollution (General Aggregate)
General Liability
(Occurrence)
Pollution (Legal Liability
Aggregate) (Claims Made)
Workers' Compensation
Excess Workers' Compensation
Fiduciary Liability
Liability for Uninsured Claims
Insurer
Public Entity Property Insurance
Program (PEPIP)
PEPIP
Insurance Company of the State of
Pennsylvania (AIG)
AIG
Admiral Insurance Company
AIG
AIG
American International Specialty
Lines Insurance Co.
American International Specialty
Lines Insurance Co
CSRMA
National Union Fire Insurance
Company (statutory)
Nation Union Fire Ins. Com
Limits
$505,541,991
$100,000,000
$ 15,000,000
$ 15,000,000
$ 1,000,000
$ 15,000,000
$ 15,000,000
$ 5,000,000
$ 10,000,000
$ 750,000
$ 50,000,000
$ 1,000,000
Self Insured
Deductible Per
Occurrence
$ 250,000
$ 250,000
$ 500,000
$ 1,000,000
$ 15,000
$ 500,000
$ 500,000
$ 5,000
$ 50,000
$ 750,000
$ 5,000
The Governmental Accounting Standards Board (GASB) requires state and local governments to
record their liability for uninsured claims in their financial statements.
The District's uninsured claims activity and exposure relates primarily to its general and automobile
liability program. The District records its estimated liability for uninsured claims in this area based
on the results of periodic actuarial evaluations. The actuarial evaluations are typically performed
every two years. For intervening years, the liability for uninsured claims is reviewed for adequacy
based on claims activity during the intervening period.
25
CENTRAL CONTRA COSTA SANITARY DISTRICT
Notes to Financial Statements
Years Ended June 30, 2008 and 2007
7. RISK MANAGEMENT (continued)
Liability for Uninsured Claims (continued)
For the fiscal year ended June 30, 2008, 2007, and 2006, settlements have not exceeded insurance
coverage. Changes in the District's estimated liability for uninsured claims for fiscal years 2008,
2007, and 2006 are summarized as follows:
2008 2007 2006
Beginning balance $ 629,820 $ 881,500 $ 881,500
Provisions for claims incurred in the current
year and changes in the liability for
uninsured - claims incurred in prior years 387,095 (208,667) 198,292
Claims and claim adjustment expenses paid (387,095) (43,013) (198,292)
Ending balance $ 629,820 $ 629,820 $ 881,500
8. AGREEMENT WITH THE CITY OF CONCORD
In 1974, the District and the City of Concord (the City) entered into a cost-sharing agreement under
which the District became responsible for providing sewage treatment facilities and services to the
City. Under this agreement, the City pays a service charge for its share of operating, maintenance
and administrative costs and makes a contribution for its share of facilities capital costs expended.
Service charges and contributions to capital costs from the City totaled $8,206,860 and $5,336,273
respectively, for the year ended June 30, 2008.
9. PENSION PLAN
Plan Description
Substantially, all District full-time employees are required to participate in the Contra Costa County
Employees' Retirement Association (CCCERA), a cost-sharing multiple-employer public employee
deferred benefit retirement plan (Plan), governed by the County Employee's Retirement Law of
1937, as amended. The latest available actuarial and financial information for the Plan is for the
year ended December 31, 2007. The Contra Costa Employees' Retirement Association issues a
publicly available financial report that includes financial statements and supplemental information of
the Plan. That report is available by writing to Contra Costa County Employees' Retirement
Association, 1355 Willow Way, Suite 221, Concord, CA 94520-5728 or calling (925) 521-3960.
The Plan provides for retirement, disability, and death and survivor benefits. Annual cost of living
(COL) adjustments to retirement allowances can be granted by the Retirement Board as provided by
State statutes. Service retirements are based on age, length of service and final average salary.
Subject to vested status, employees can withdraw contributions plus interest credited, or leave them
as a deferred retirement when they terminate, or transfer to a reciprocal retirement system.
26
CENTRAL CONTRA COST A SANITARY DISTRICT
Notes to Financial Statements
Years Ended June 30, 2008 and 2007
9. PENSION PLAN (continued)
Plan Contribution Requirement
The Plan requires employees to pay one-half of the basic retirement benefit and one-half future CO L
costs. However, the District has paid the employee's basic contributions in accordance with the
Memorandum of Understanding (MOD). The contribution requirement and payment from the
District for the plan year ended June 30, 2008 and 2007 was as follows:
2008
2007
2006
Covered payroll for fiscal years ended June 30
$ 22,503,704
$ 21,504,951
$ 20,687,905
Employer contributions to pension
Employee contributions to pension
Total Contributions
8,757,705
892,488
$ 9,650,193
8,045,860
861,387
$ 8,907,247
7,202,912
812,220
$ 8,014,132
These contributions represented approximately 43%, 41 % and 39% of covered payroll for the fiscal
years ended June 30, 2008, 2007 and 2006, respectively, and were equal to the District's required
contributions and the employee's basic contributions for each year.
This space intentionally left blank
27
CENTRAL CONTRA COSTA SANITARY DISTRICT
Notes to Financial Statements
Years Ended June 30, 2008 and 2007
10. POST EMPLOYMENT HEALTH CARE BENEFITS
The District provides certain health care and life insurance benefits for retired employees. These
benefits are provided for in negotiated employment agreements, commonly referred to as
Memorandums of Understanding, which cover substantially all employees who reach normal
retirement age while working for the District. These benefits, and similar benefits for active
employees, are provided through a health maintenance organization and an insurance company
whose premiums are based on the benefits paid during the year. The District recognizes the cost of
providing those benefits by expensing the annual insurance premiums, which were $2,167,074 for
the 178 eligible retirees for the year ended June 30, 2008.
The Government Accounting Standards Board (GASB) published Statement 45 in 2004 with an
effective date of fiscal year ending June 30, 2009 for the District. Statement 45 requires a minimum
expense called the Annual Required Contribution (ARC) equal to the actuarial normal cost plus
amortization of the Unfunded Actuarial Accrued Liability (UAAL) over 30 years (or less) as a level
percentage of increasing payroll.
An actuarial study was performed by the District as of June 30, 2007. The 2007 study estimated the
District's Actuarial Accrued Liability (AAL) to be $68,447,956 based on an expected 5% discount
rate. The Annual Required Contribution (ARC) is estimated to be $6,224,478 over a 30 year period.
The District set aside $2,832,926 and $3,157,887 or $5,990,813 in 2008 and 2007, respectively, to
comply with GASBS No. 45. The District is required to implement GASBS No. 45 by June 30,
2009.
11. COMMITMENTS AND CONTINGENCIES
Commitments and contingencies, undeterminable in amount, include normal recurring pending
claims and litigation. In the opinion of management, based upon discussion with legal counsel, there
is no pending litigation which is likely to have a material adverse effect on the financial position of
the District.
Claims and losses are recorded when they are reasonably probable of being incurred and the amount
is estimable. Insurance proceeds and settlements are recorded when received.
The District has purchase commitments relating to construction projects at June 30, 2008 of
$38,363,997.
28
SUPPLEMENTARY INFORMATION
CENTRAL CONTRA COSTA SANITARY DISTRICT
COMBINING SCHEDULE OF STATEMENT OF NET ASSETS
AS OF JUNE 30, 2008
The accompanying notes are an integral part of the financial statements
29
.w___________~____...___.___._...~.______,____.,.___,_.._.~
CENTRAL CONTRA COSTA SANITARY DISTRICT
COMBINING SCHEDULE OF STATEMENT OF REVENUES, EXPENSES
AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED JUNE 30, 2008
Running Sewer Self Debt
Expense Constroction Insurance Service Elimination Total
Operating Revenues
Sewer Service Charges (SSC) $ 40,207,157 $ $ $ S $ 40,207,157
Service charges - City of Concord 8,206,860 8,206,860
Other service charges 869,589 869,589
Miscellaneous charges 595,980 595,980
Total operating revenues 49,879,586 49,879,586
Operating Expenses
Sewage collection and pumping stations 10,905,468 10,905,468
Sewage treatment 22,054,203 22,054,203
Engineering 6,332,830 6,332,830
Administrative and general 15,828,965 916,639 (1,131,643) 15,613,961
Depreciation 18,615,747 18,615,747
Total operating expenses 73,737,213 916,639 (1,131,643) 73,522,209
Operating Loss (23,857,627) (916,639) 1,131,643 (23,642,623)
Non-Operating Revenues (Expenses):
Taxes 8,502,204 3,751,964 12,254,168
City of Concord cash contributions to capital
costs 5,336,273 5,336,273
Customer cash contributions to capital cost
(SSC) 9,634,364 9,634,364
Permit and inspection fees 981,557 353,603 1,335,160
Interest earnings 741,038 1,509,802 159,503 117,278 2,527,621
Interest expense (1,518,142) (1,518,142)
Other income (expense) 534,643 709,174 1,131,643 (1,131,643) 1,243,817
Total non-operating revenues (expenses) 2,257,238 26,045,420 1,291,146 2,351,100 (1,131,643) 30,813,261
Income (loss) before contributions and
transfers (21,600,389) 26,045,420 374,507 2,351,100 7,170,638
Contributed sewer lines 1,444,420 1,444,420
Capital contributions - connection fees 9,259,160 9,259,160
Transfers 34,201,858 (31,850,758) (2,351,100)
Change in Net Assets 14,045,889 3,453,822 374,507 17,874,218
Total Net Assets - Beginning 538,999,870 41,988,031 2,747,976 583,735,877
Total Net Assets - Ending S 553,045,759 S 45,441,853 S 3,122,483 $ S S 601,610,095
The accompanying notes are an integral part of the financial statements
30
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CENTRAL CONTRA COSTA SANITARY DISTRICT
Running Expense
Schedule of Supplemental Net Assets Analysis
June 30, 2008
Prior Year Balance $ 9,767,747
2007 - 2008 Revenue $ 52,136,824
2007 - 2008 Expense (73,737,213)
Add Back Depreciation Expense 18,615,747 (2,984,642)
Net Assets Attributed to General Operations 6,783,105
All Other Net Assets 546,262,654
Running Expense Net Assets $ 553,045,759
The accompanying notes are an integral part of the fmancial statements
32
Central Contra Costa Sanitary District
Statistical
Section
r
,
.
Central Contra Costa Sanitary District
Statistical Section
T able of Contents
Financial Trends
These schedules contain trend information to help the reader understand how the
District's financial performance has changed over time.
Changes is Net Assets and Statement of Net Assets -
Last Six Fiscal Years... ..... ........ ...................................................................... S-1
Revenue by Type - Last Ten Fiscal Years ...... ........................... ................. ...... S-2
Operating Expenses by Type - Last Ten Fiscal Years ..................................... S-3
Revenue Capacity
These schedules contain information to help the reader assess the District's most
significant revenue sources.
Major Revenue Base and Rates - Historical and Current Fees -
Last Ten Fiscal Years .................. ........... ........................................................ S-4
Sewer Service Charge - List of Ten Largest Customers -
Last Six Fiscal Years. ............... ...... ............... ................................................. S-5
Assessed and Estimated Actual Valuation of Taxable Property-
Last Ten Fiscal Years.. ..... ..... ...... ......... ...................... ................. ................... S-6
Property Tax and Sewer Service Charge Fees Levied and Collected -
Last Ten Fiscal Years ......... ......... ............................... ........ ............................ S-6
Debt Capacity
This schedule contains information to help the reader assess the affordability of the
District's current levels of outstanding debt and the District's ability to issue additional
debt in the future.
Summary of Debt Service - Type, Debt Service Coverage, Debt Ratio -
Last Ten Fiscal Years .................................... ................................................. S-7
Demographic and Economic Information
This schedule offers demographic and economic indicators to help the reader
understand the environment within which the District's financial activities take place.
Demographic and Economic Data - Population Served -
Last Ten Calendar Years .............. .............. ................................................... S-8
List of Ten Largest Employers in Contra Costa County -
Last Year and Nine Years Ago ..... .... .......... .......................... .......................... S-8
Demographic and Economic Statistics - Contra Costa County-
Last Ten Fiscal years..................... ................................. ............................... S-9
Operating Information
These schedules contain service and infrastructure data to help the reader understand
how the information in the District's financial report relates to the services the District
provides and the activities it performs.
Full-time Equivalent Employees by Department - Last Ten Fiscal years........ S-10
Number of Retirees and Surviving Spouses - Last Ten Fiscal years.............. S-10
Capital Asset and Operating Statistics - Last Ten Calendar or Fiscal Years.. S-11
Miscellaneous Statistics................ ................................. ........... ...................... S-11
Sources: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual
financial reports for the relevant year. The District implemented GASS Statement 34 in the 2002-2003 fiscal year;
schedules presented include information beginning in that year.
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S.c.
Update on AIG
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A.I.G. Secures $150 Billion Assistance Package - NYTimes.com
,
Page 1 of 4
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November 11, 2008
A.I.G. Secures $150 Billion Assistance Package
By MARYWlLlJAMs..wALSH
The American International Group said on Monday that it lost almost $25 billion in the third quarter and had
secured a new $150 billion government assistance package intended to stem the bleeding from its complex
financial contracts.
A central component of the new package will be to get the most tainted assets out of the company, in an effort
to stop the collateral calls that have been rapidly draining A.I.G.'s cash. A.I.G.'s trading partners in these
financial contracts will largely be made whole in the process.
Since mid-September, when A.I.G. suddenly came to the brink of collapse, its problems have become steadily
bigger and costlier to fix. Originally, the Federal Reserve rushed in with an $85 billion line of credit. When
that proved inadequate, the Fed added a $38 billion supplementary lending facility, and A.I.G. recently
qualified to sell $21 billion of commercial paper to the Fed.
"These terms are not sustainable," Edward M. Liddy, the insurance executive brought in to lead A.I.G.
through the crisis, told securities analysts in a conference call Monday, referring to the high interest rates on
the original loans.
The company has reported $38 billion in losses this year, wiping out the company's total reported earnings
for the preceding three years.
The new assistance package reduces the original $85 billion loan to about $60 billion, lowers the interest rate
and gives A.I.G. five years, instead of two, to pay it off. The government will also use money from its Troubled
Asset Relief Program to buy $40 billion of preferred shares in A.I.G.
Another important feature will be government investments of about $50 billion to create special-purpose
entities to relieve the company of its most tainted assets.
About $30 billion of the government money will be used to buy complex debt securities that were insured by
A.I.G. and about $20 billion more will be used to buy securities backed by home loans.
A.I.G.'s counterparties - financial institutions in the United States and Europe - have not borne significant
losses on the financial contracts that led A.I.G. to the brink, and the new program suggests they will not.
"We're funding somebody on the other side" of A.I.G.'s derivatives contracts, said Lynn E. Turner, a former
chief accountant with the Securities and Exchange Commission who has been critical of the way the insurer's
crisis has been handled. Even though a large amount of public money is being extended, neither A.I.G. nor
the federal government has been willing to provide the names of the company's biggest counterparties, or
http://www.nytimes.com/2008/11 1 11 Ibusinessl 11 insure.html? _ r= 1 &sq=aig&st=cse&oref... 11/13/2008
A.1.V. :Secures $150 Billion Assistance Package - NYTimes.com
Page 2 of 4
their amount of exposure.
"We've had way too many things here that nobody knows anything about," said Mr. Turner, who is on the
Treasury's Advisory Committee on the Auditing Profession. "That's why no one has faith in the capital
markets."
Another critic said that A.I.G. would still have to contend with other financial contracts that were not
addressed in the rescue but that might deteriorate in the future. "I think it will help, but 1 don't think it will
solve the whole problem," Donn Vickrey, founder of Gradient Analytics, an independent securities research
firm, said of the latest plan.
Mr. Vickrey noted that A.I.G. had insured several different types of debt securities, and the type now being
dealt with was the first to go bad because it was linked to subprime debt. "As the economy deteriorates, 1
would expect the other debt lines to incur more losses," he said.
The Treasury official overseeing the government's financial relief said that revising the A.I.G. rescue plan was
a one-shot deal that would be accompanied by stringent conditions to protect taxpayers.
Neel Kashkari, assistant secretary of the Treasury, said the move was "necessary to maintain the stability of
the financial system."
At the heart of AI.G.'s troubles are a type of derivative called ~r~.dit.::::Q~f;:t,:!Jlt~w:;:t,p..~. They are essentially a kind
of insurance that A.I.G. wrote on complex securities, known as collateralized debt obligations, sold in recent
years to financial institutions. By issuing the swaps, AI.G. was promising to pay these institutions _ AI.G.'s
counterparties - if the debt securities defaulted.
AI.G. wrote a large book of business on the thinking that such defaults were unlikely. As the economy has
soured, though, some of the securities have weakened and shown signs of failure.
The insurance contracts have also proved crushingly expensive for A.I.G. because they included provisions
requiring it to post collateral under certain circumstances, showing that it could afford to keep its promises.
For instance, a downgrading of A. I. G.'s own creditworthiness could prompt a big collateral call.
That is what happened to AI.G. in mid-September. It was suddenly required to come up with more than $10
billion in collateral, pushing the company to the brink. Much of the original $85 billion line of credit from the
Fed has been spent fulfilling collateral calls.
Although AI.G. wrote its insurance contracts on more than $400 billion of various types of complex debt
securities, only about $70 billion worth ofthe securities are thought to be at imminent peril of default. AI.G.
refers to this batch of securities as multisector C.D.O.'s, because they combine a number of different types of
debt.
Under the new plan, AI.G. and the government will together create a new special-purpose entity to buy up
the multisector C.D.O.'s. The C.D.O.'s will be quarantined in a place where it no longer matters much
whether their value rises or falls, because A.I.G.'s own balance sheet will not be affected.
http://www.nytimes.coml2008/ll/lllbusiness/llinsure.html?J=I&sq=aig&st=cse&oref... 11/13/2008
~fU.lJ. ~ecures :liDU Billion Assistance Package - NYTimes.com
Page 3 of 4
Also, because A.I.G.'s counterparties will no longer own the multisector C.D.O.'s, the company will not have
to provide insurance coverage against default anymore. When the insurer cancels the troublesome insurance
contracts, it will put an end to the collateral calls that have depleted its cash so severely.
The special-purpose entity will be financed with $S billion from AI.G. and $30 billion from the federal
government. The entity will buy securities with a fair value of about $70 billion. The counterparties, which in
aggregate had already pried about half that amount out of AI.G., will be allowed to keep the collateral as well,
people familiar with the planning said.
That will leave AI.G. with losses of about $30 billion that it has already taken on its multisector C.D.O.
insurance program, said Andrew Kligerman, a securities analyst at UBS.
"That's permanent," Mr. Kligerman said. "They're never going to get that $30 billion back," because the
assets are being sent into quarantine.
But because A.I.G. and the government will be jointly holding the tainted assets in the' special-purpose entity,
he said, AI.G. will share any income with the government. The government is the senior partner in the
special purpose entity and will receive an interest rate of the three-month Libor plus 1 percentage point and
will be entitled to be repaid for its investment first. AI.G. will receive Libor plus 3 percentage points.
In exchange for the emergency loan, the Fed has received a warrant entitling it to a 79.9 percent stake in
A.I.G. The new package does not change that.
Mr. Liddy said he believed that AI.G. was "on the road to recovery," although the turnaround would still take
time, he said. Even with the help of the government, he said, AI.G.'s success would still depend on whether
world financial markets came back to normal. He declined to say how long the process would take, or how
long it would take the special-purpose entity to be formed and make its purchases.
While AI.G. recovers, Mr. Liddy said, it will be paying market rates of interest on all loans from the federal
government. "It is not exactly a bailout," he said.
AI.G.'s third-quarter report suggested that its core insurance business was also coming under pressure as the
economy weakened. While about $7 billion of its quarterly losses, on a pretax basis, were connected with the
insurance coverage AI.G. sold on other institutions' assets, a bigger share of the losses, about $18 billion,
were incurred because the assets in AI.G.'s investment portfolios had fallen in value.
Of that total amount, losses of a little less than $12 billion were on investments made under AI.G.'s securities
lending program, which is handled mostly by its life insurance subsidiaries. AI.G. had previously been given
a $38 billion credit facility from the Fed to support its securities lending activity, but said on Monday that
that facility would be extinguished under the new program.
Instead, the government will invest $20 billion in AI.G. to create a second special-purpose entity to hold
other tainted investments, often backed by residential home loans, from its securities lending program. AI.G.
will invest $1 billion in that entity.
http://www.nytimes.coml200S/11l1Ilbusiness/llinsure.html?J=1&sq=aig&st=cse&oref... 11113/2008
A.l.V. Secures $15U Billion Assistance Package - NYTimes.com
Page 4 of-4
Mr. Liddy also said that A.I.G. had experienced a loss in its property and casualty business because of claims
from Hurricanes Gustav and Ike, but said A.I.G.'s exposure was in line with that of the rest of the industry.
Copvrloht 2008 The New York Times Comoanv
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http://www.nytimes.com/2008/l1/l1/business/llinsure.html?_Fl&sq=aig&st=cse&oref... 11/13/2008
J:SreaKmgvIews.com - tor Kegulators, A.l.U. Is ExhIbIt A - N YTimes.com
Page 1 of2
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November 11, 2008
BR.l<:AKINGVIEWS.COM
For Regulators, A.I.G. Is Exhibit A
For Regulators, A.I.G. Is Exhibit A
The American International Group has become a money pit for the United States government. The insurance
giant's new $150 billion bailout is bigger and looks easier on A.I.G. than its previous two facilities, in
aggregate $123 billion, from theE~deral Re~JVe. The package is better defined than before, but the increased
potential burden on taxpayers is embarrassing for the Fed and the Treasury. It underlines the need for
regulation that catches any group that's too big to fail.
In structural terms, A.I.G.'s Bailout 2.0 looks like an improvement. It aims to solve the company's main
problem - the cash bleeding from its $400 billion credit-default swap portfolio - by unwinding the worst of
the instruments completely in a kind of "bad bank" separate from A.I.G.'s insurance businesses. It's doing
something similar with a collection of dodgy mortgage-backed securities. In addition, the Treasury will invest
$40 billion in preferred securities under its Troubled Asset Relief Program, and the New York Fed will
replace its existing $85 billion credit facility with a new $60 billion loan with a much lower interest rate.
This should all help keep A.I.G. afloat while also bringing an end to the collateral calls that have caused a
huge outflow of cash. It should also buy the insurance giant time to sell some of its assets. However, the plan
amounts to burdening taxpayers with all of A.I.G.'s losses while still leaving shareholders and even
management with a slice of any upside.
That seems too generous, but the Fed's earlier strategy to protect taxpayers was always wishful thinking.
A.I.G.'s size and market significance meant it had the government over a barrel. The insurer's finance
operations had grown far too big to fail, while operating in large part in the cracks between different
regulators' territories.
If the Fed and the Treasury have now done enough to stabilize the situation, that offsets some of the
embarrassment of having to bailout their own initial bailout. Longer term, regulations need to capture any
company that becomes too significant to the financial system. Rewriting the currently inadequate rulebook is
an important task for President-elect 13J!rn~K-Q.l>ama. A.I.G. makes for a persuasive Exhibit A.
Santander's U-Turn
They say Spain is different, but its biggest bank may not be so different after all. Like many of its European
peers, Santander has pulled a U-turn on capital. Days after its chief executive, Alfredo Saenz, said the bank
didn't need more capital, Santander has begun raising 7.2 billion euros (about $9.2 billion) with a deeply
discounted rights issue.
http://www.nytimes.com/2008/11/11/business/11views.html?sq=aig&st=cse&scp=9&pag...l1/1312008
~-----~-~_.._--~_.,_.._--,..._._--~~-------"-~.,-,._.,.__..__.._"..._._.._,-----,---"",~-,._-
l:SreakmgvIews.com - For Regulators, A.l.G. Is Exhibit A - NYTimes.com
Page 2 of2
The about-face reflects the increasing nervousness of investors about the bank's capitalization. Santander's
core Tier 1 capital ratio, a measure of the strength of its capital, stood at 6.3 percent at the end of September,
but was expected to drop below 6 percent as the bank absorbed its recent glut of acquisitions.
Santander could have increased its capital organically by retaining profits over time. That may have been
adequate by yesterday's standards, particularly for a retail bank with minimal exposure to toxic subprime
housing assets. But the goalposts have moved, and Santander woke up late to the sentiment shift. The rights
issue will take the ratio up to a more comfortable 7 percent.
Turnabouts can dent confidence and make investors suspicious. Santander insists it has no skeletons rattling
about in its closet. Nor is it planning any further acquisitions, it says. But shareholders are now likely to be
more skeptical about taking what management says at face value.
Santander, which recently acquired Sovereign Bancorp, is issuing the shares at a steep 46 percent discount.
Still, the bank looks to be a cut above its peers. It isn't tapping the government for the capital. Its dividend
looks safe through 2009. Its do-it-yourself approach is also on more shareholder-friendly terms than other
recent bank transactions. Credit Suisse diluted existing shareholders and issued expensive preference shares
to investors from the Middle East. Barclays did the same at an even steeper price.
What's more, by finally relenting to the market's demand that it raise more capital, Santander has piled the
pressure on other refuseniks. Deutsche Bank, BBV A of Spain and Italian institutions are looking increasingly
stubborn in holding out. Like Santander, they all claim to be different. But toughing it out in the face of
investor skepticism is looking like a untenable strategy.
LAUREN SILVA and FIONA MAHARG-BRAVO
For more independentfinancial commentary and analysis, visit www.brgakingvieU!.!M:_QD1.
Copvriaht 2008 The New York Times Company
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Unbelievable Words From AI.G. - Floyd Norris Blog - NYTimes.com
Page 2 of 14
noyd Norris
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November 10,2008,11:56 am
Unbelievable Words From A.I.G.
Why do people insist on saying things that are obviously untrue?
Edward M. Liddy, the chief executive of AI.G., says the latest bailout is just a normal transaction.
"It is not exactly a bailout," he said in a conference call this morning.
"The terms of the relation are commercial in nature," he said, adding that everything was being done at
"market interest rates."
Does he want us to believe that there was anyone in the private sector that would have financed AI.G.
on these terms? Does he really think we will believe there is anyone in the private sector who would
have financed this company on any terms?
It is sad to see that the plan is for A.I.G. to stay in business forever. This is a company that should be
wound down. Instead, it appears that the government will remain an investor for years and years,
helping one insurance company compete with others that are not government-subsidized.
It appears that the government may end up with a lot of dubious paper, since it has limited AI.G.'s risk
in purchasing some dubious collateralized debt obligations that the company insured. AI.G. seems to
think the owners of those C.D.O.'s will sell them at a discount, but when asked why they would do that
- given the insurance - there was no real answer. This plan could flop in the market.
AI.G. executives insist the company is maintaining a strong underwriting discipline in writing
insurance, and dismiss as sour grapes the complaints heard from some competitors that it is keeping
business by cutting premium rates.
It is especially appalling to hear AI.G. executives bragging about "strong balance sheets" at the
company's insurance subsidiaries. This is a company that is in business only because it got more than
$100 billion of government cash, and that has consistently underestimated its problems.
Mr. Liddy says the government will make a good profit when all is done. It would be good if he is right,
but the real lesson of this announcement is that the government will throw more money at A.I.G. - and
charge less for it - if things keep getting worse. Will this be the last cash injection? Don't bet on it.
One more observation related to AI.G.: If you have not read Gretchen Morgenson's excellent report on
how Merrill Lynch collapsed, you should do so.
Here is one paragraph:
http://norris.blogs.nytimes.com/2008/1l/10/unbelievable-words-from-aig/?scp=6&sq=aig. .. 11/13/2008
Unbelievable Words From A.I.G. - Floyd Norris Blog - NYTimes.com
Page 3 of 14
For years, Merrill had paid A.I.G. to insure its C.D.a. stakes to limit potential damage from
defaults. But at the end of2005, A.I.G. suddenly said it had had enough, citing concerns
about overly aggressive home lending. Merrill couldn't find an adequate replacement to
insure itself. Rather than slow down, however, Merrill's C.D.a. factory continued to hum
and the firm's unhedged mortgage bets grew, its filings show.
We now know that it took a really bad risk for A.I.G. to worry. You have to wonder why the Merrill
management could not see the problem.
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AIG, bailout
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1. 1. November 10,2008 12:10 pm Link
It's pot-limit poker and the US is all in with AIG.
- Paul
2. 2. November 10,2008 12:21 pm Link
Unbelievable words?
"Clarence Thomas is the most qualified man in America to be a Supreme Court Justice." Bush I)
"Mission accomplished." (Bush 2)
"Heckuva job, Brownie. " (ditto)
"Obama has played the race cared from the bottom of the deck." (McCain Campaign
spokesperson)
"Is Sarah Palin qualified to be President? Absolutely!" (John McCain)
http://norris.blogs.nytimes.com/2008111/10/unbelievable-words-from-aig/?scp=6&sq=aig. .. 11/13/2008
Some G.M. Retirees Are in a Health Care Squeeze - NYTimes.com
Page 1 of3
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November 10, 2008
Some G.M. Retirees Are in a Health Care Squeeze
By NICK BUNKLEY
DETROIT - G~ner<!l Motors is living on borrowed time, spending more than $2 billion in cash a month and
lobbying for a government bailout to keep it out of bankruptcy.
And for about 100,000 of its white-collar retirees, time is about to run out on G~~,t's gold-plated medical
benefits.
To conserve its dwindling cash reserves, G.M. is eliminating lifetime health care coverage for its legions of
retirees at the end of this year, leaving people like Ken Hewitt to fend for themselves in deciding how to cover
their doctor's bills and prescription drug costs.
"Everybody felt like they were set for life," said Mr. Hewitt, 81, who retired from the former Chevrolet
Engineering Center in 1982 and lives north of Detroit. "It's been difficult, but the information they've given
us has been beneficial. Still, when you get to be our age, it's tough to make any big changes like that."
G.M. has had little choice this year but to make deep cuts wherever it can, including benefits that were long
considered sacred.
The move was announced in July as part of a package of broad cutbacks to increase the company's liquidity,
including a 20 percent reduction in payroll for salaried workers and suspension of G.M.'s annual stock
dividend of $1 a share.
But even these and other measures have not been enough to stabilize the company's finances, as the auto
industry suffers from a weakening economy and tight credit that makes it hard for shoppers to get loans.
On Friday, G.M. warned that it might run short of cash by mid-2009, and it is asking for federal help with
greater urgency.
G.M. has estimated that eliminating the white-collar retiree medical benefits, in addition to pay and staffing
cuts in its current white-collar work force, will save the company about $1.5 billion annually. Union contracts
prevent the company from revoking coverage for former factory workers. Ford and Chrysler already have cut
health coverage for salaried retirees.
In fact, paying the cost of hospital stays, surgeries and expensive drugs for retirees, a group now larger than
G.M.'s active work force, is a major reason the company's financial woes are so great. G.M. says it spent $4.6
billion in 2007 on health care for its one million employees and retirees and their dependents.
Many retirees say they are aware of the burden these costs represent to the company, so they do not blame
http://www.nytimes.com/2008/11/10/business/10gm.html? J=1 &oref=slogin&ref=busine... 11/10/2008
Some G.M. Retirees Are in a Health Care Squeeze - NYTimes.com
Page 2 of3
G.M. for cutting them off. Even so, they lament the demise of such a valuable perk.
"If the company goes out of business, we'll lose everything anyway," said Richard J. Moore, 70, who held
management positions at G.M. plants in New York and Illinois before retiring in 1991 to suburban Phoenix.
"You can't survive by giving away everything."
G.M.'s decision to halt health care benefits for salaried retirees at age 65 means that nationwide, former
engineers, plant managers and executives are anxiously trying to decipher various combinations of M!ldicare
and other insurance plans.
For months they have been poring over stacks of brochures and sitting through sometimes-baffling sales
pitches ahead of an enrollment window that opens this month and ends Dec. 31. Because G.M. told them it
would cover their health care for life, few studied up on Medicare and other coverage options as they
approached retirement.
"Some ofthese people have been on G.M.'s plan for 40 or 50 years, and now all ofthis is thrown at them,"
said Jack Dickinson, a G.M. retiree who runs the Web site OverTheHillCarPeople.com. "People are highly
upset, confused and totally lost. The Medicare system is very hard for older people to tackle."
Eliminating that confusion has been a major undertaking. G.M. scheduled 150 informational meetings in
cities where its retirees are concentrated and hired a company called Extend Health to answer questions and
help with Medicare enrollment. A company in Tennessee, My Part D USA, which provides personalized
comparisons of different plans, has met with groups of G.M. retirees and is working with
OverTheHillCarPeople.com to ease the transition.
"These people have never had to deal with Medicare at all," said Karyn Blake of My Part D USA, a Detroit-
area native whose uncles owned Cadillac and Oldsmobile dealerships. "They're hearing different things from
different salespeople, and they're totally overwhelmed. I think they kind of feel abandoned."
Many G.M. retirees have simply turned to one another for help, by getting together with former co-workers
who live down the street, sharing information on Internet message boards, or discussing the issue at
meetings of the numerous G.M. retiree clubs in Michigan, Florida and other states.
"It's nothing that we ever had to think about before," Barbara Spencer, 77, who worked in payroll for Buick
and retired in 1988. On Thursday, she attended a meeting of the Buick retirees club to discuss health care
options. "You don't want to make a mistake," she added.
To help retirees pay for their new coverage, G.M. is raising monthly pension payments by $300, which
typically means $240 or $255 after taxes.
The cost of replacement coverage varies, depending on a person's needs. Some find that they can get
adequate benefits for about the same amount as their pension increase, but others must now find several
hundred dollars more in their monthly budget.
"Anyone that thinks they can go out and replace insurance that you had with General Motors for $255 and
http://www.nytimes.com/2008/Il 1 1 O/businessll Ogm.html? J= 1 &oref=slogin&ref=busine... 11/10/2008
:Some U.M. Retirees Are in a Health Care Squeeze - NYTimes.com
Page 3 of3
get the same kind of coverage, I'd like to sell them a bridge in Wisconsin somewhere," said Mr. Dickinson, 65,
whose irritation with G.M.'s move is apparent in the headline "G.M. Robs Their Elderly Retirees" on his Web
site atop information about the changeover.
In recent months, he said, the number of visitors to the site has doubled and its membership - for a one-
time $25 fee - has grown rapidly, keeping him and a small team of volunteers busy for many hours each day.
Mr. Dickinson said G.M., regardless of its financial woes, was ignoring the steadfast loyalty that its retirees
showed to the company by exclusively buying its vehicles and toiling there for decades.
"Many of these people had other jobs offered to them," he said. "In 34 years with General Motors, I had many
opportunities to go in other directions that were much more lucrative, but the promise of health care and
pension for life was something that I had to consider."
None, though, can look at the uncertainty confronting those who work for G.M., Ford and Chrysler today-
along with the thousands whose jobs were eliminated - and feel they are the only ones being squeezed.
"I just hope they can recover and come back," said Kenneth Shear Jr., 70, a former plant supervisor who
retired in 1992 and now lives in Summerfield, Fla., in a community with a handful of other G.M. retirees. Mr.
Shear was billed $52 to get a pacemaker several years ago, a $148,000 procedure, and never had to pay a
health care bill in 31 years at G.M.
"I used to tell some of the guys that worked for me that this job is not going to be available to your kids," he
said. "I'm glad I had my career when I did."
CODyrlaht 2008 The New York Times Company
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http://www.nytimes.com/2008/11/1 O/business/1 Ogm.html? _r= 1 &oref=slogin&ref=busine... 11/10/2008
VP-;CO LOtummst - Aner W., Le Deluge - NYTimes.com
Page 1 of2
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October 19, 2008
OP-ED COLUMNIST
After W., Le Deluge
By MAUREEN DOwn
It is the best of times, it is the worst of times.
The best of times because W.'s long Reign of Error is about to end.
The worst of times because, well, you know why.
In this season of darkness, as Charles Dickens described an earlier mob scene, I'm feeling as vengeful and
bloodthirsty as Madame Defarge sharpening her knitting needles at the guillotine.
I even felt a little thrill go up my leg, as Chris Matthews would put it, when I heard that the Lehman Brothers
C.E.O., Richard Fuld, got punched in the company gym after it was announced that the firm was going under.
I can't wait to see the tumbrels rumble up and down Wall Street picking up the heedless and greedy financial
aristocracy that plundered and sundered free-market capitalism.
Just when we thought executives of A.I.G., the insurance giant bailed out by taxpayers for $123 billion, had
been shamed into stopping their post-bailout Marie Antoinette spa treatments, luxury sports suites, Vegas
and California posh resort retreats, we were dumbfounded to learn that some A.I.G. execs were cavorting at a
lavish shooting party at a British country manor.
London's News of the World sent undercover reporters to hunt down the feckless financiers on their $86,000
partridge hunt as they tromped through the countryside in tweed knickers, and then later as they "slurped
fine wine" and feasted on pigeon breast and halibut.
The paper reported that the A.I.G. revelers stayed at Plumber Manor - not the ancestral home of Joe the
Plumber, a 17th-century country house in Dorset - and spent $17,500 for food and rooms. The private jet to
get there cost another $17,500, and the limos added up to $8,000 more.
In an astonishing let-them-eat-cake moment, the A.I.G. big shot Sebastian Preil held court at the bar and told
an undercover reporter, "The recession will go on until about 2011, but the shooting was great today and we
are relaxing fine."
There were at least three New Yorkers bagging birds - Jeffrey Malkovsky, a senior director at A.I.G.'s
Manhattan office, Hilary James, the general manager of the Bristol Plaza Hotel, and her friend, John
Roberts, an A.I.G. adviser.
Who are these looters of our loot? The New York Times should follow up the excellent Portraits of Grief it did
http://www.nytimes.com/2008/1 011 9/opinionll 9dowd.html?sq=aig, maureen dowd&st=c... 11/10/2008
Op-Ed Columnist - After W., Le Deluge - NYTimes.com
. Page (2 of2
after 9/11 with Portraits of Greed.
Payback doesn't have to go as far as the French Revolution. The grifters shafting us don't have to shed blood,
but they do have to give the money back. As far as these self-serving corporate con men and short-selling
traders are concerned, off with their headsets.
John McCain wasted his last-chance debate Wednesday by trying to stir up faux class rage against Barack
Obama with Joe the Unvetted Plumber instead of tapping into the real class rage the country feels over
bailing out ungrateful financiers who gambled away the life savings of working people.
'Tis a far, far better thing that New York's attorney general, Andrew Cuomo, did when he demanded that
A.I.G.'s former executives who were trying to abscond with many millions in severance payments, bonuses
and golden parachutes surrender the swag. He set a good example for the feds, who slapped Mr. Fuld in the
face with a subpoena.
Cuomo got A.I.G. to instantly reverse itself and cancel 160 conferences and other events that would have cost
more than $8 million, as well as give up information on compensation, bonuses and other payments to
determine whether they were fitting. (How could they be?)
"We stopped a $10 million severance payment to Stephen Bensinger, the chief financial officer," Cuomo told
me Friday. "Just look at the words chief financial officer. There's a phenomenon when senior management
sees the corporation deteriorating and they concoct a version of looting the company to take care of
themselves."
Even Cuomo, who has been locked in battle with A.I.G. for a long time, was stunned when he learned of the
British hunting folly. At first he thought it could not be true.
"That was our partridge hunting trip," he said. "The partridge paid the ultimate price, but the taxpayer came
close."
He is using a state "claw back" law, which he says allows him to recover contracts and rescind payments if
there was unjust compensation.
Great. Now can he find the $123 billion lost by A.I.G. that we now have to plug with taxpayers' money?
Let's hope that if Barack Obama becomes president, the first thing he does is keep his promise to make the
junketeers come to Washington (preferably by bus or carpooling) and write the U.S. Treasury a check, after
which he will fire them on the spot.
Heads must roll.
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http://www.nytimes.com/2008/1 0/19/opinion/19dowd.html?sq=aig, maureen dowd&st=c... 11/1 0/2008
AOl p>>money & finance
http://money .aol.com/news/articles/ _a/bbdp/government-provides-more-aid-to-aig/242451 ?icid=1 00214...
Government Provides More Aid to AIG
CHARLOTTE, N.C. (Nov. 10) - American
International Group Inc., once the world's
largest insurer before being hit hard by
the meltdown in the credit markets, said
Monday that continued financial market
turmoil resulted in a steep third-quarter
loss.
The results come as the U.S. government
also Monday announced a restructuring
of a bailout plan for the troubled insurer,
boosting aid to the company to around
$150 billion.
Shares of AIG jumped 46 cents, or 22
percent, to $2.57 in morning trading, after
trading at $2.84 earlier in the session.
New York-based AIG said it lost $24.47
billion, or $9.05 per share, after a profit of
$3.09 billion, or $1.19 per share, a year
ago. Revenue declined 97 percent to
$898 million from $29.84 billion in the
third quarter 2007.
"This is the largest quarterly loss we've
ever reported," Chief Financial Officer
David Herzog told investors on a
conference call.
"No one really knew what the losses were
going to be, everyone knew that they
were going to be horrible," said
CreditSights analyst Rob Haines.
And even with the additional help from the
Federal Reserve and the Treasury
Department, "AIG is still a troubled
company," he said.
The latest results include $7.05 billion in
unrealized losses at AIG Financial
Products, the source of credit-default
swaps, and pre-tax losses of $18.31
billion tied to the declining value of AIG's
investment portfolio.
AIG's general insurance business swung
to a loss on $1.39 billion in catastrophe
losses, primarily related to hurricanes
Gustav and Ike, falling investment income
and increased losses at United Guaranty
Corp.
General insurance net premiums dipped
nearly 1 percent to $11.73 billion, while
total net premiums earned edged up 2.6
percent to $11.73 billion.
Life-insurance and retirement-services
profits were more than halved by weak
partnership and mutual-fund results.
Adjusted to exclude certain items,
operating losses totaled $9.24 billion, or
$3.42 per share, versus a profit of $3.49
billion, or $1.35 per share, last year.
The results fell short of estimates.
Analysts surveyed by Thomson Reuters,
on average, forecast a loss estimate of 90
cents per share on revenue of $18 billion.
"Reported earnings are not indicative of
1
http://money.aol.com/news/articles/_a/bbdp/government-provides-more-aid-to-aig/242451 ?icid= 100214...
the underlying core earnings power of our
insurance businesses, which remain
solidly capitalized," said AIG President
and Chief Executive Edward Liddy in a
statement. "Retention of our customers
remains strong and reflects the support
and loyalty of our long-term partners,
intermediaries and sponsors."
The government's new financial
assistance to AIG includes pouring $40
billion into the company in return for
partial ownership.
The Fed earlier this year said it would
offer two loans totaling $123 billion to
AIG. The insurance company was later
allowed to access another $20.9 billion
through the Fed's "commercial paper"
program. Through that program, the Fed
is buying mounds of companies' short-
term debt often used for crucial day-to-
day expenses, such as payrolls and
supplies.
Monday's restructuring provides AIG with
easier terms on the Fed loans. The new
package reduces the interest rate AIG will
pay and extends loan terms to five years
from two years, reducing the need for AIG
to sell off business lines and other assets
at firesale prices in order to repay the
government.
The action Monday was taken as it
became increasingly clear that the
original financial lifeline thrown to AIG
would not be sufficient to stabilize the
teetering company.
In early October, AIG said it would sell
certain business units to payoff the initial
$85 billion Fed loan.
The company on Monday had no new
announcement on what AIG will look like
when it emerges from its financial crisis or
what assets are for sale, Liddy told
investors on a conference call.
"We are absolutely spot on consistent
with where we were back in the beginning
of October," he said. "The announcement
of today gives us more flexibility and more
time. We have great confidence in our
ability to sell these remarkable assets."
Like other insurers, AIG has been
slammed by deterioration in the credit
markets amid concerns that complex,
structured investments it insures will
increasingly default. Its problems did not
come from its traditional insurance
subsidiaries, but instead from its financial
services operations, and primarily its
insurance of mortgage-backed securities
and other risky debt against default.
If AIG couldn't make good on its promise
to pay back soured debt, investors feared
the consequences would pose a threat to
the U.S. financial system, which led to the
government bailout.
AIG's traditional insurance subsidiaries,
however, have widely been viewed as
safe. AIG operates an insurance and
financial services businesses ranging
from property, casualty, auto and life
insurance to annuity and investment
services.
2
fi.1.U, May vel More III tlallout - N YTimes.com
Page 1 of3
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November 10, 2008
A.I.G. May Get More in Bailout
By AN.DREWRQSSSmrKIN and MARYWl..LLl.A.M--5_W..ALSH
The Bush administration was overhauling its rescue of the American International Groun on Sunday night,
according to people involved in the deal, amid signs that the interest on its current credit line of more than
$100 billion was putting too much strain on the ailing insurer.
The Treasury Department and the Fe.d.1!r..lli Re~.1!IT~ were near a deal to abandon the initial bJljLQJ!tpJan and
invest another $40 billion in the company, these people said. The government created an $85 billion
emergency credit line in September to keep AI.G. from toppling and added $38 billion more in early October
when it became clear that the original amount was not enough.
When the restructured deal is complete, taxpayers will have invested and lent a total of $150 billion to A.I.G.,
the most the government has ever directed to a single private enterprise. It is a stark reversal of the
government's assurance that its earlier moves had stabilized AI.G.
The revised deal, which may be announced as early as Monday morning, is likely to intensify the debate in
Washington over why some companies should be saved by the government while others are left to wither.
The money would come from the $700 billion that Congress authorized the Treasury to use to shore up
financial companies. Just this weekend, Democratic leaders in Congress called on the Bush administration to
drop its opposition to using some of that money to rescue Detroit automakers.
The government's original emergency line of credit, while saving AI.G. from bankruptcy for a time, now
appears to have accelerated the company's problems. That short-term loan came with a high interest rate-
about 14 percent - which forced the company into a fire sale of its assets and reduced its ability to pay back
the loan, putting its future in jeopardy.
The new deal would make the government a long-term investor in AI.G., something that Treasury Secretary
Henry M. Paulson Jr. had said he hoped to avoid. As part of the revamping, the government would lower the
loan amount to $60 billion from $85 billion, lengthen the payment schedule to five years from two years, and
lower the interest rate.
At the same time, the government, using part of the $700 billion fund, would buy $40 billion in preferred
shares in AI.G. In return, A.I.G. would pay a 10 percent interest rate on those shares, similar to the interest
rate that banks agreed to pay last month when they received cash injections.
The government is also planning to spend an additional $30 billion to help AI.G. buy up a type of securities
called "collateralized debt obligations" that the company had agreed to insure against default. As the insurer
ofthose securities, AI.G. has been forced to put up large amounts of cash as collateral as the global economy
http://www.nytimes.com/2008/11/1 O/business/economy /1 Oaig.html?sq=aig&st=cse&adx... 11 110/2008
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A.I.G. May Get More in Bailout - NYTimes.com
Page 2 of3
has soured and the securities seemed increasingly likely to default.
Indeed, these securities, worth hundreds of billions of dollars, are held by institutional investors around the
world, a fact that government officials have cited to justify saving the company using taxpayer money.
The new arrangement calls for A.I.G. to put the securities into a new entity, effectively removing them from
the company's balance sheet. A.I.G. would contribute $5 billion to the new entity, which would buy $70
billion of the securities at 50 cents on the dollar, or $35 billion. The remaining $30 billion ofthe purchase
price would come from the government.
Finally, the government would invest another $20 billion in A.I.G. to help the company buy residential
mortgage-backed securities that it also insured, and similarly place them into another entity off the
company's balance sheet.
The goal of both programs is to create separate entities to buy and hold the most toxic assets AJ.G. had
promised to insure, so that if their value continues to fall A.I.G. would not have to account for those losses.
The company has argued that the securities' falling value does not necessarily mean it has suffered a financial
loss.
Once A.I.G. buys the securities back from its trading partners, it will no longer have to provide cash as
collateral under the terms of its insurance contracts - and collateral has been eating up more of A.I.G.'s cash
than anything else since the broad financial crisis began.
A spokeswoman for the Fed declined to comment. A spokeswoman for the Treasury did not return a call for
comment. A spokesman for A.I.G. declined to comment.
A.I.G. negotiated the original $85 billion revolving credit line with the Federal Reserve after its efforts to
raise money from private lenders failed in the panic of mid-September. The amount that it needed ballooned
in just a few days, as counterparties to A.I.G.'s insurance on complex debt securities laid claim to whatever
collateral they could get.
People briefed on the negotiations said the $85 billion was thought at the time to be the maximum amount
that AJ.G. would need, including a little extra for a cushion. The interest rate was set at the three-month
Libor plus 8.5 percent, which currently works out to around 14 percent. (Libor, or London interbank offered
rate, is a commonly used index that tracks the rates banks charge when they lend to each other.) In exchange
for making the loan, the Fed was promised a 79.9 percent stake in A.I.G.
The $40 billion of preferred shares will not change the size ofthe government's stake in A.I.G., people briefed
on the plans said.
Edward Liddy, the insurance executive brought in to lead the company out of the crisis, initially said he
believed the Fed money would be like water pouring into a bathtub - a lot might be needed at first, but
eventually the tub would be filled and the faucet could be turned off.
Since then, A.I.G. turned out to need more money than expected, and it has not been able to sell subsidiaries
http://www.nytimes.com/2008/ll/l Olbusiness/economy 11 Oaig.html?sq=aig&st=cse&adx... 11/10/2008
A.1.G. May Get More in Bailout - NYTimes.com
Page 3 of3
quickly enough to pay down the loan as required.
Even as the government works to solidify A.I.G.'s finances, elected officials have been demanding a fuller
accounting of the company's business practices and executive pay structure. In October, the New York
attorney general, Andt~w M.CuoI!l.Q, reached an agreement forcing A.I.G. to freeze payments to former
executives.
"I find it hard to conceive of situation that you could justify a performance bonus for management that
virtually bankrupted the company," Mr. Cuomo said after the agreement was made.
That agreement followed the revelation, in a hearing convened by Representative Henry A. Waxman,
Democrat of California, that the former head of A.I.G.'s troubled financial products unit, Joseph J. Cassano,
had been put on a retainer of $1 million a month after being dismissed in February.
Mr. Waxman, as well as Senator Ch~rles E. Grassley, Republican of Iowa, have demanded that A.I.G. provide
a more detailed accounting of its credit derivatives business.
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http://www.nytimes.com/2008/11/1 Olbusiness/economy 11 Oaig.html ?sq=aig&st=cse&adx... 11/1012008
A.I.G. Rescue Grows to Billion - Mergers, Acquisitions, Venture Capital, Hedge Funds --... Page 1 of3
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AJ.G. Rescue Grows to $150 Billion
NOVEMBER 10, 2008, 6:48 AM
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The Bush administration revised its rescue of the American International
Group, raising the total amount to $150 billion, amid signs that the interest
on its current credit line of more than $100 billion was putting too much
strain on the ailing insurer.
The Treasury Department and the Federal Reserve said early Monday that they are
abandoning the initial bailout plan and invest another $40 billion in the company. The
government created an $85 billion emergency credit line in September to keep AI.G.
from toppling and added $38 billion more in early October when it became clear that the
original amount was not enough.
The company also said that it lost $24.47 billion in the third quarter. The results - a
stark reversal from what it reported a year ago - include $18.31 billion in pretax losses
tied to AI.G.'s investment portfolio. Excluding one-time items, the insurer's operating
losses amounted to $3.42 a share, vastly outstripping t!:teaYemge.analYst~timatedJQ!>s
of 90 cents a share.
After the revised bailout, taxpayers will have invested and lent a total of $150 billion to
AI.G., the most the government has ever direded to a single private enterprise, The
Times said. It is a stark reversal of the government's assurance that its earlier moves had
stabilized A.I.G.
'''This innovative solution enhances AIG's liquidity position," Edward Liddy, A.I.G.'s chief
executive, said in a statement. "At the same time, American taxpayers will be fairly
compensated for funds lent to AIG, and they will capture the majority of any appreciation
in the value of the securities involved in the program in the years ahead."
The revised deal is likely to intensify the debate in Washington over why some companies
should be saved by the government while others are left to wither, The Times noted.
1be money is coming from the $700 billion that Congress authorized the Treasury to use
to shore up financial companies, the report said. Just this weekend, Democratic leaders
in Congress called on the Bush administration to drop its opposition to using some of
that money to rescue Detroit automakers.
The government's original emergency line of credit, while saving A.l.G. from bankruptcy
for a time, now appears to have accelerated the company's problems. 111at short-term
loan came with a high interest rate - about 14 percent - which forced the company into
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Fed Officials Speak Out on
NewA.I.G, Rescue
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11110/2008
A.I.G. Re~cue Grows to Billion - Mergers, Acquisitions, Venture Capital, Hedge Funds --... Page 2 of 3
a fire sale of its assets and reduced its ability to pay back the loan, putting its future in
jeopardy.
The new deal will make the government a long-term investor in AI.G., something that
Treasury Secretary Henry M. Paulson .Jr. had said he hoped to avoid. As part of the
revamping, the government will lower the loan amount to $60 billion from $85 billion,
lengthen the payment schedule to five years from two years, and lower the interest rate.
At the same time, the government, using part of the $700 billion fund, will buy $40
billion in preferred shares in A.I.G. In return, A.I.G. will pay a 10 percent interest rate on
those shares, similar to the interest rate that banks agreed to pay last month when they
received cash injections, The Times said.
The government is also planning to spend an additional $30 billion to help AI.G. buy up
a type of securities called "collateralized debt obligations" that the company had agreed to
insure against default, according to the newspaper. A"> the insurer of those securities,
AI.G. has been forced to put up large amounts of cash as collateral as the global economy
has soured and the securities seemed increasingly likely to default.
Indeed, these securities, worth hundreds of billions of dollars, are held by institutional
investors around the world, a fact that government officials have cited to justify saving
the company using taxpayer money.
The new arrangement calls for A.I.G. to put the securities into a new entity, effectively
removing them ti'om the company's balance sheet, The Times reported. A.I.G. will
contribute $5 billion to the new entity, which would buy $70 billion of the securities at 50
cents on the dollar, or $35 billion, The Times said. The remaining $30 billion of the
purchase price will come from the government.
Finally, the government ,vill invest another $20 billion in AJ.G. to help the company buy
residential mortgage-backed securities that it also insured, and similarly place them into
another entity off the company's balance sheet.
The goal of both programs is to create separate entities to buy and hold the most toxic
assets A.I.G. had promised to insure, so that if their value continues to fall AJ.G. would
not have to account for those losses. The company has argued that the securities' falling
value does not necessarily mean it has suffered a financial loss.
Once AI.G. buys the securities back from its trading partners, it will no longer have to
provide cash as collateral under the terms of its insurance contracts - and collateral has
been eating up more of AI.G.'s cash than anything else since the broad tinancial crisis
began.
A.I.G. negotiated the original $85 billion revolving credit line with the Federal Reserve
after its efforts to raise money from private lenders failed in the panic of mid-September.
The amount that it needed ballooned in just a few days, as counterparties to AI.G.'s
insurance on complex debt securities laid claim to whatever collateral they could get.
People briefed on the negotiations told The Times the $85 billion was thought at the time
to be the maximum amount that A.I.G. would need, including a little extra for a cushion.
The interest rate was set at the three-month Libor plus 8.5 percent, which currently
works out to around 14 percent. (Libor, or London interbank offered rate, is a commonly
used index that tracks the rates banks charge when they lend to each other.) In exchange
for making the loan, the Fed was promised a 79.9 percent stake in A.I.G.
The $40 billion of preferred shares will not change the size of the government's stake in
AI.G., The Times aid, citing people briefed on the plans.
Mr. Liddy, an insurance industry veteran brought in to lead the company out of the crisis,
initially said he believed the Fed money would be like water pouring into a bathtub - a
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A.I.G. Rescue Grows to Billion - Mergers, Acquisitions, Venture Capital, Hedge Funds --... Page 3 of3
lot might be needed at first, but eventually the tub would be filled and the faucet could be
turned off.
Since then, A.I.G. turned out to need more money than expected, and it has not been able
to sell subsidiaries quickly enough to pay down the loan as required.
Even as the government works to solidify A.l.G.'s finances, elected officials have been
demanding a fuller accounting ofthe company's business practices and executive pay
structure. In October, the New York attorney general, Andrew M. Cuomo, reached an
agreement forcing A.I.G. to freeze payments to former executives.
"I find it hard to conceive of situation that you could justify a performance bonus for
management that virtually bankrupted the company," Mr. Cuomo said after the
agreement was made.
That agreement followed the revelation, in a hearing convened by Representative Henry
A. Waxman, Democrat of California, that the former head of A.I.G.'s troubled financial
products unit, ,Joseph ,J. Cassano, had been put on a retainer of $1 million a month after
being dismissed in February.
Mr. Waxman, as well as Senator Charles E. Grassley, Republican ofIowa, have demanded
that A.I.G. provide a more detailed accounting of its credit derivatives business.
Go to A.I.G./Treasury /Federal Reserve Press Release via Business Wire ))
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11/1 0/2008
lJ,.S. Provides More Aid to Big Insurer - NYTimes.com
Page 1 of 4
miff Ne\tJ lork lime,
, nytllTles.com
Pllt,NTER.f"RIENDt..Y FO""4"".
SPCHiORED ''1
November 11, 2008
U .8. Provides More Aid to Big Insurer
By AN.uRE.WJ~QSlL5-o.RKIN and MARYWILLIAMS-WAl.S.H
The federai government announced on Monday an overhaul of its bailout of the insurance giant American
International Group, saying it would purchase $40 billion of the company's stock, after signs that the initial
bailout was putting too much strain on the company.
In a joint statement, the ~.deral Reserv~ and the Treasury said the move was necessary "in order to keep the
company strong and facilitate its ability to complete its restructuring process successfully." The new
measures, they said, would help the company and promote market stability while protecting the interests of
the federal government and taxpayers.
The revised bailout came as A.I.G. reported a loss Monday of $24.47 billion, or $9.05 a share in the third
quarter, after a profit of $3.09 billion, or $1.19 a share, a year ago. The results included pretax losses of
$18.31 billion from the declining value of AI.G.'s investments.
In the revised bailout, the Treasury Department will use the Troubled Asset Relief Program, the $700 billion
financial system rescue plan, to buy $40 billion of newly issued AI.G. preferred shares.
The government created an $85 billion emergency credit line in September to keep A.I.G. from toppling and
added $38 billion more in early October when it became clear that the original amount was not enough. As
part of the revision, the Federal Reserve said it would reduce that credit line to $60 billion.
When the reorganized deal is complete, taxpayers will have invested and lent a total of $150 billion to AI.G.,
the most the government has ever directed to a single private enterprise. It is a stark reversal of the
government's assurance that its earlier moves had stemmed the bleeding at AI.G. But Fed officials said the
$40 billion investment would allow them to reduce their exposure to $112 billion from $152 billion, and
improve the condition of the collateral of its loan. The revised deal will probably intensify the debate in
Washington over why some companies should be saved while others are left to wither.
Congress had authorized the Treasury to use the $700 billion to shore up financial companies. But just this
weekend, Democratic leaders in Congress called on the Bush administration to drop its opposition to using
some of that money to rescue Detroit automakers.
The government's original emergency line of credit, while saving AI.G. from seeking bankruptcy protection
for a time, now appears to have accelerated the company's problems. The government's original short-term
loan came with a high interest rate - about 14 percent - which forced the company into a fire sale of its
assets and reduced its ability to pay back the loan, putting its future in jeopardy.
The Fed said Monday that it would reduce the interest rate on that credit facility to three-month Libor plus 3
http://www.nytimes.com/2008/l1/11 /business/economy/ll aig.html? J= 1 &hp=&oref=slo... 11/10/2008
U.S. Provides More Aid to Big Insurer - NYTimes.com
Page 2 of 4
percentage points from the current rate of three-month Libor plus 8.50 points. Libor, the London interbank
offered rate, is a commonly used index that tracks the rates banks charge when they lend to one another. The
fee on undrawn funds will be reduced to 0.75 point from the current rate of 8.5 points.
Federal Reserve officials said they have held discussions with A.I.G. management since they struck the
original deal in mid-September. At the time, the government did not have the authority to make direct
investments in financial companies. Now that they do, they believe that the approach is a more prudent way
of stabilizing the company.
The new deal makes the government a long-term investor in A.I.G., something that Treasury Secretary Henry
M. Paulson Jr. had said he hoped to avoid.
The government will also spend $30 billion to help A.I.G. buy up a type of security called collateralized debt
obligations that the company had agreed to insure against default. The securities are now held by
institutional investors.
As their insurer, A.I.G has been forced to put up large amounts of cash as collateral as the global economy has
soured and the securities seemed increasingly likely to default.
The new arrangement calls for A.I.G. to put the securities into a new entity, effectively removing them from
the company's balance sheet.
A.I.G. would contribute $5 billion to the entity, which would buy $70 billion of the securities at 50 cents on
the dollar, or $35 billion. The remaining $30 billion of the purchase price would come from the government.
Finally, the government will invest another $22.5 billion in A.I.G. to help the company buy residential
mortgage-backed securities that it also insured, and similarly place them into another entity off the
company's balance sheet. A.I.G. will put up $1 billion itself.
The goal of both programs is to create separate entities to buy and hold the most toxic assets A.I.G. had
promised to insure, so that if their value continues to fall A.I.G. will not have to include those losses in its
bottom line. The company has argued that the securities' falling value does not necessarily mean it has
suffered a financial loss.
Once A.I.G. buys the securities back from its trading partners, it will no longer have to provide cash as
collateral under the terms of its insurance contracts - and collateral has been eating up more of A.I.G.'s cash
than anything else since the broad fi~:ULl!C.iaLcdl'l~ began.
A.I.G. negotiated the original $85 billion revolving credit line with the Federal Reserve after its efforts to
raise money from private lenders failed in the panic of mid-September. The amount that it needed ballooned
in a few days, as counterparties to A.I.G.'s insurance on complex debt securities laid claim to whatever
collateral they could get.
People briefed on the negotiations said before the announcement Monday that the $85 billion was thought at
the time to be the maximum amount that A.I.G. would need, including a little extra for a cushion. In
http://www.nytimes.com/20081l1/11/business/economy/ 11 aig.html? J= 1 &hp=&oref=slo... 11/10/2008
y.S. Provides More Aid to Big Insurer - NYTimes.com
Page 3 of 4
exchange for making the loan, the Fed was promised a 79.9 percent stake in A.I.G..
The Fed and the Treasury Department said Monday that the federal government "intends to exit its support
of A.I.G. over time in a disciplined manner consistent with maximizing the value of its investments and
promoting financial stability."
Edward Liddy, the insurance executive brought in to lead the company out of the crisis, initially said he
believed the Fed money would be like water pouring into a bathtub - a lot might be needed at first, but
eventually the tub would be filled and the faucet could be turned off.
Since then, AI.G. has needed more money than expected, and it has not been able to sell subsidiaries quickly
enough to pay down the loan as required.
In addition to the $85 billion Fed loan and the $38 billion special lending facility, AI.G. recently said it had
been granted access to the Fed's commercial-paper program, which is available to all companies that issued
commercial paper before the credit markets seized up. AI.G. can borrow up to $20.9 billion under the
program.
On Sunday night, Mr. Paulson briefed a representative of President-elect Barack Obama's transition team on
the revised plan, according to senior Treasury officials, who spoke on condition of anonymity. The officials
said the $40 billion A.I.G. investment is separate from the $250 billion the Treasury has earmarked for
buying stakes in banks.
That leaves the Treasury $60 billion to work with, as the first allotment of the $700 billion program was
$350 billion. The officials said they had chosen to freeze the A.I.G. bonus pool, rather than eliminate bonuses
altogether, because the company needed the flexibility to retain its existing management.
The officials also said they had heard from insurers and companies in other industries about possible capital
injections, and that they did not rule out making such investments. But they said that AI.G., as a systemically
important company, was clearly a special case.
Even as the government works to solidify AI.G.'s finances, elected officials have been demanding a fuller
accounting of the company's business practices and executive pay structure. The arrangement announced
Monday requires that AI.G. limit executive pay and perks and freeze the size of the annual bonus pool for the
top 70 company executives. In October, the New York State attorney general, Andrew M. Cuomo, reached an
agreement forcing A.I.G. to freeze payments to former executives.
"I find it hard to conceive of a situation that you could justify a performance bonus for management that
virtually bankrupted the company," Mr. Cuomo said after the agreement was made.
The move followed the revelation, in a congressional hearing convened by Representative Henry Waxman,
that the former head of AI.G.'s troubled financial products unit, Joseph Cassano, had been put on a retainer
of $1 million a month after being dismissed in February.
Mr. Waxman and Senator Chalte_LGIfJ,S_sJex have demanded that AI.G. provide a more detailed accounting of
http://www.nytimes.com/2008/II/lI /business/economy/II aig.html? J= 1 &hp=&oref=slo... II/l 0/2008
U.S. Provides More Aid to Big Insurer - NYTimes.com
Page 4 of 4
its credit derivatives business.
David Jolly and Eric Dash contributed.
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http:/ /www.nytimes.com/2008/11/1l/business/economy/11aig.html?_F 1 &hp=&oref=slo... 11/10/2008
Skeptics Rail at Expanded A.I.G. Bailout - Mergers, Acquisitions, Venture Capital, Hedg... Page 1 of2
!lJt ~l'\lJ york rtmtt
Monday, November 10, 2008
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Skeptics Rail at Expanded A.I.G. Bailout
NOVEMBER 10. 200S. s:02 AM
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lI'; 0 0 000 The government's original $85 billion bailout loan to American
. O' International Group generated quite a bit of controversy when it was
.'0 announced bank in September. So it was hardly surprising that on Monday,
when the giant insurer unveiled a
~vised rescue package consisting of $150 billion in loans and equity investments,
bloggers had pointed commentary on this latest development.
One of the earliest and strongest reactions came from Yves Smith, wliting on his Naked
Capitalism blog. He argued that A.I.G. was being "coddled for no reason whatsoever" and
asserted that, no matter what the Federal Reserve might say in its press release, the new
terms "make the deal worse for the taxpayer" in every respect.
Mr. Smith took issue with the government's apparent decision to back down on some of
the more punitive measures it took in the first bailout package - the interest rates have
now been lowered, for example. He wrote:
AIG should have no rights at this point. Zero. Zip. Nada. The government
already on the hook for an open-ended liability. Yet the Fed is treating AIG as
a party that has rights and is negotiating with them, as opposed to dictating
terms. This is staggering.
Among other changes, the government wil1 be buying $40 bi1lion in preferred stock from
A.I.G. under the new plan. It will also provide about $30 billion for A.I.G. to buy some of
the col1ateralized debt obligations underl}ing its troubled credit default swap positions.
In its press rdease on Monday, the Federal Reserve stated that the revised rescue
package was good for taxpayers. It wrote:
"These new measures establish a 1110re durable capital structure, resolve liquidity issues,
facilitate AIG's execution of its plan to sel1 certain of its businesses in an orderly manner,
prol11ote market stability, and protect the interests of the U.S. government and
taxpayers," the statement said.
But Joe Weiscnthal, writing on the Clustcrstoek blog, suggested that the "whole thing is
being spun to make it sound like something other than just throwing more money onto
the fire."
Aft!'r it was n'vealed that a unit of A.lo(~. might be owrwhelmed by credit default swaps
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Sizing Up A.l.G.'s New
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Clear\' Names New Partner...
and Counsel
Fed Officials Speak Out on
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11/1 0/2008
Skeptics Rail at Expanded A.I.O. Bailout - Mergers, Acquisitions, Venture Capital, Hedg... Page 2 of2
- which protect counterparties in the event that certain securities default - the
government stepped in with a $85 billion package to stabilize the company. It was widely
believed that the global markets could be thrown into chaos if A.I.G. were to fail.
But. as The New York Times repOlted Monday, the terms of the initial bailout "now seem
to be putting too much strain on the ailing insurer." Questions have already been raised
among some analysts about how A.I.G.'s financial ho1c- gill so_mJ!!;h];Jj~r so fast.
Edward Liddy, installed as A.I.G.'s new chief executive after the first bailout plan, said in
ast<ltel'nent Monday that the company's goal "is to repay taxpayers in full with interest,
and emerge as a focused global insurer that will create meaningful value for taxpayers
and other stakeholders."
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11/10/2008
Op-Ed Columnist - After W., Le Deluge - NYTimes.com
Page 1 of2
'J,t New lork.&mtl
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PRiNHR.PRIENIH.Y FllIIMA1.
SP<l"SOREO Iff
October 19, 2008
OP-ED COLUMNIST
After W., Le Deluge
By MAUREEN DOwn
It is the best of times, it is the worst of times.
The best of times because W.'s long Reign of Error is about to end.
The worst of times because, well, you know why.
In this season of darkness, as Charles Dickens described an earlier mob scene, I'm feeling as vengeful and
bloodthirsty as Madame Defarge sharpening her knitting needles at the guillotine.
I even felt a little thrill go up my leg, as Chris Matthews would put it, when I heard that the Lehman Brothers
C.E.O., Richard Fuld, got punched in the company gym after it was announced that the firm was going under.
I can't wait to see the tumbrels rumble up and down Wall Street picking up the heedless and greedy financial
aristocracy that plundered and sundered free-market capitalism.
Just when we thought executives of AI.G., the insurance giant bailed out by taxpayers for $123 billion, had
been shamed into stopping their post-bailout Marie Antoinette spa treatments, luxury sports suites, Vegas
and California posh resort retreats, we were dumbfounded to learn that some AI.G. execs were cavorting at a
lavish shooting party at a British country manor.
London's News ofthe World sent undercover reporters to hunt down the feckless financiers on their $86,000
partridge hunt as they tromped through the countryside in tweed knickers, and then later as they "slurped
fine wine" and feasted on pigeon breast and halibut.
The paper reported that the AI.G. revelers stayed at Plumber Manor - not the ancestral home of Joe the
Plumber, a 17th-century country house in Dorset - and spent $17,500 for food and rooms. The private jet to
get there cost another $17,500, and the limos added up to $8,000 more.
In an astonishing let-them-eat-cake moment, the AI.G. big shot Sebastian Preil held court at the bar and told
an undercover reporter, "The recession will go on until about 2011, but the shooting was great today and we
are relaxing fine."
There were at least three New Yorkers bagging birds - Jeffrey Malkovsky, a senior director at A.I.G.'s
Manhattan office, Hilary James, the general manager of the Bristol Plaza Hotel, and her friend, John
Roberts, an AI.G. adviser.
Who are these looters of our loot? The New York Times should follow up the excellent Portraits of Grief it did
http://www.nytimes.com/2008/10/19/opinion/19dowd.html?sq=aig.maureendowd&st=c...l1/1 0/2008
Transit Agencies Seek Aid in Avoiding A.LG. Fees - NYTimes.com
Page 1 of2
~J,e Ntt.,lork"l1lWI
nytm16s.C()f\')
Pl1UNT"ER"fRIENOlY FORMAt.
SPOHs.eREO BY
November 5, 2008
Transit Agencies Seek Aid in Avoiding A.I.G. Fees
By D,'NI~LEY BROWNING
The troubles of the American International Group are causing headaches for dozens of municipal transit
authorities, which want the federal government to help them avoid multimillion-dollar early-termination fees
for tax shelters linked to the troubled insurance giant.
The authorities are asking the government to assume AI.G.'s role in scores of tax shelters, even though the
Internal Revenue Service considers the transactions abusive. They also want the government to help them
avoid billions of dollars in payments caused by the downgrading of AI.G.'s credit rating.
The deals are guaranteed by AI.G., which was rescued by the government in September. But a prominent
trade group that represents major transit authorities in the United States, including agencies in Chicago, Los
Angeles, San Francisco and New York, has asked the government to back them instead.
Doing so, the authorities say, would allow them to avoid paying about $4 billion in early-termination fees to
AI.G., other insurance companies and banks involved in the deals. The banks say they are owed the money
because A.I.G.'s credit ratings have been downgraded.
The tax shelters, known as Lilo and Silo, have been under intense scrutiny from the I.R.S. in recent years.
They flourished from the late 1990S through 2003, and cost the Treasury an estimated $34 billion in unpaid
federal taxes.
The I.R.S. banned a version of Lilo in 1999 and again in 2002, and then banned Silo in 2004. The agency says
it has never considered them valid for tax deductions, meaning that the banks and insurers, and not the
transit authorities, which are exempt from paying taxes, are the ones who got into tax trouble.
The shelters revolve around long-term lease-back arrangements. In the deals, corporations bought
infrastructure like subways and bridges from municipal authorities and then leased them back to the
authorities. The corporations got big tax breaks, and the authorities got enhanced cash flow.
From 1988 to 2003, dozens of transit authorities in 25 large cities did 87 Lilo and Silo deals worth more than
$16 billion, according to the Federal Transit Administration.
Lilo is short for lease-injlease-out, and Silo is short for sale-injlease-out.
Over the years, about 45 corporations bought more than 1,000 of the shelters, according to the I.R.S. Last
August, the agency offered buyers a final chance settle up or face back taxes, fines, penalties and potential
litigation.
http://www.nytimes.com/2008/11/05/business/05tax.html?_r= 1 &sq=aig&st=cse&oref=slo... 11/6/2008
Transit Agencies Seek Aid in Avoiding A.I.G. Fees - NYTimes.com
Page 2 of2
A spokesman for the Treasury said Tuesday that the department "is aware of the situation."
But on Oct. 22, the American Public Transportation Association, a leading trade group, sent a letter to the
Transportation Department asking it to urge Treasury Secretary Henry M. Paulson Jr. and Ben S. Bernanke,
the Federal Reserve chairman, to replace A.I.G.'s role in the deal with the federal government. Several
prominent Congressional Democrats have also urged the change.
A.I.G. played a crucial role in the transactions by acting as a guarantor.
The Washington Metropolitan Area Transit Authority, for example, bought 16 Lilos, 14 of them with A.I.G.
providing guarantees, according to Carol Kissal, the authority's chief financial officer.
In a 2002 deal, done through a Cayman Islands subsidiary of an A.I.G. unit, the Washington authority sold 16
railroad cars to a Belgian bank, KBC Bank NY, which then leased them back through a Delaware trust. A.I.G.
guaranteed the credit lines for the deal.
But the transaction carries $435 million in early-termination fees to various banks, including $43 million to
KBC.
CODvriaht 2008 The New York Times ComDanv
Privacy Policv I Search I Corrections I
First Look I trn!I! I Contact Us I Work for Us I S~e MaD
http://www.nytimes.com/2008/11/05/business/05tax.html?_r= 1 &sq=aig&st=cse&oref=slo... 11/612008
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AJ.G. Borrows Another $20.9 Billion From the Fed
OCTOBER 30, 20oa, 5:22 PM
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II American International Group has found another place to borrow
billions of dollars from the government: the Federal Reserve's commercial
paper program,
1be distressed insurance company disclosed lbursday afternoon that it was bOITowing
up to $20.9 billion from the Fed's program, under which the central bank is buying
companies' short-term debt in an effort to unfreeze the market for commercial paper.
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A.I.G. already has access to two government credit lines totaling $122.8 billion in order to
avoid collapse, and the company's borrowing from the commercial paper program
enabled it to reduce its debt under those lines. LATEST DEALBOOK HEADLINES
In a filing with the Securities and Exchange Commission, A.I.G. said four of its affiliates
had exchanged commercial paper for cash from the Federal Reserve Bank of New York. It
said in the filing that it would use the proceeds to refinance its outstanding commercial
paper, as well as pay down its initial credit line of $85 billion.
The Fed said A.I.G. reduced its debt under the two existing credit lines to $83.5 billion,
from $90.3 billion a week ago, by using cash from the commercial paper program,
Bloomberg News reports.
With the latest loans of up to $20.9 billion from the Fed, the insurer's borrowing now
totals as much as $104-4 billion.
An ALG. spokesman, Nicholas Ashooh, told Bloomberg that the terms of the commercial
paper program were better than those for the original $85 billion credit line, which has a
higher interest rate.
"They're paying off a Fed loan with another kind of goVt'rnment subsidy - it's like using
one credit card to payoff another credit card," Robert Haines, an analyst at the research
firm CreditSights, told Bloomberg. "If they make progress paying off debts over time, I
don't think it'll be viewed as necessarily a bad thing."
AI.G. is rapidly I'Unning through the $122.8 billion made available by the Fed. Last week,
A.l.G.'s chi{.f executive, Edward M. Liddy, said the company might need to borrow even
mono monl'Y.
This enormous nced for cash has raised questions about how a company claiming to be
solvent in September could have developed such a big hole by October. Some analysts say
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http://dealbook.blogs.nytimes.com/2008/ 10/3 0/aig-borrows-another-209-billion- from-the...
10/31/2008
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that at least part of the shortfall must have been there all along, hidden by irregular
accounting.
Go to S.E,C. FilingfromA.I,Q.))
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7 comments so far...
1. October
30th,
2008
6:27 pm
2. October
30th,
2008
7:11 pm
3. October
30th,
2008
7:34 pm
4. October
30th,
2008
7:56 pm
5. October
31st,
2008
6:38 am
6. October
31st,
2008
10:26 am
7. October
31st,
2008
11=48 am
AIG apetite for bailout money can be described only by GLUTfONY
These guys are trying toleave us homeless, peniless, jobless and hopeless.
Have a nice stay in St. Regis California
- Posted by hadarmen
AIG stock was the big gainer on Tuesday. The stock went from over a
dollar to over 2 dollars. Not exactly a good sign for the soundness ofthe
stock market.
- Posted by bob sallamack
Lets see...Federal dollars pay for banks to buy other banks.
AIG needs to "borrow" more hundreds of billions.
The Bush administration engineered this and Obama is the communist?
The Republican version of redistributing the wealth.
- Posted by JC MacKinnon
Where is my bail out? Maybe it got sent out in the form fraudulent
rebates?
Nice work all!
- Posted by Money for nothin~
How many billions will AIG need if the auto manufacturers go belly up if
Ii!' ole Lehmans does this to them? You see Mr President it's like this .....
- Posted by Alan Smith
Time for personal drastic action. This bailout and obscene bonus
payments to the Wall Street types will continue and fiscally responsible
americans will be hosed by low low rates of interest on their saving to
subsides them.
Time to remove all my money from the banks and investment firms and
either buy gold or stuff it my matress.
Saver are being severly punished for being purdent and those that weren't
are being rewarded.
The world is truly upside down.
- Posted by Tom Gemelli
AIG should be rewarded for making such good use of government
programs.
Can we give all AIG executives an extra bonus this Christmas?
-. Posted bv Dave
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GMAC Mav Become a
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New Credit Line Highlights A.I.G.'s Swift Decline
OCTOBER 31,2008,8:50 AM
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. The American International Group's lInnQI,!.!1l,:eIDe1.lt ThursdllY that it
could now borrow up to $20.9 billion under the Federal Reserve's new
commercial pllper program, raising its maximum available credit from the
Fed to $144 billion under three different programs, underscores the
company's bewilderingly rapid decline, The New York Times's Mary Williams Walsh
writes.
When it suddenly fllced a cash crisis in mid-September, the original estimate of the
amount it needed was just $20 billion. A few days later, the Fed stepped forward with its
$85 billion credit line. And now, the stunning size of that original bailout has grown by
almost 70 percent.
A.I.G:s cash needs could grow even further. Much of the cash it needs is being used to
meet collateral calls from its derivatives counterparties, and the precise collateral triggers
and amounts are not public infonnation. In general, the derivative contracts cost A.I.G.
more as the real estate markets decline. The company's financial products division did a
lot of business in that type of derivative. called credit-default swaps.
By the same token, if real estate prices rebounded, A.I.G. has said, it could call some of
the collateral back.
In addition to a $85 billion credit line from the Fed, which carries a much higher interest
rate, and the $20.9 billion commercial paper program, A.I.G. has a $38 billion facility
from the Fed that provides liquidity for the company's securities-lending business. A.I.G.
said on Thursday that it was currently using about $18 billion of this facility.
By tapping the newcst source of money from the Fed, A.I.G. was able to reduce the
amount it had borrowed under the original $85 billion line of crcdit, sllid a spokesman,
.Joe Norton. He said the company had currently drawn down $65.5 billion from that loan,
compared with about $72 billion a week ago.
The Fed extended the original $85 billion line of crcdit at a steep price. On the part of the
loan that A.I.G. draws down, it must pay an interest rate of 8.5 percentage points over the
three-month Libor, an index rate for inter-blink lending. On the unused pOltion. A.LG.
must pay a fixed rate of 8.5 percent. In addition, the Fed added a 2 percent commitment
fee to the total balance when it started the loan.
Mr, ~orton said A.LG. had incurred interest and fees of about $331 million so far. The
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l'1C:;VV L-IC,UIL LIll\:", l11e,lUI0llL~ .rl...l.\J.~ LJVVIJ.L L/\...o\...oUll\...o - lVJ.\"'<lO\...ol~, ['l..\.t'iUl")JL1VJJ~, v v.1U..Ulv ""--up!"... .l. \.46""'.... V.l.....
Fed also took a majority stake in A.I.G. in exchange for the bailout, angering
~hareholders, who were almost completely wiped out. Debt
The commercial paper program is much cheaper. The interest rate changes every day, but DEALBOOK NEWS BY INDUSTRY
in the four days since the Fed started the program, the highest rate was just 3.89 percent.
A.l.G. is not the only participant. The Fed offered the program to all issuers of
commercial paper in the nation to restart the stalled credit markets.
Mr. Norton said A.I.G. would use the newest source offullds for working capital, to
refinauce exbting commercial paper, and to make voluntary prepayments on the $85
billion loan. He said that such voluntary prepayments would not reduce the total amount
of the credit line available. If, by contrast, A.l.G. sold business assets and used the
procc('ds to pay down the loan, Mr. NOlton said, the $85 billion balance would be
reduced accordingly.
GotQ^,.1id~Jr.olIl:rhG N.c.~ XQxkT.iJ:nc~'!.
1 comments so far...
I. October
31st,
2008
10:37 alll
I feel the time may be right to let AIG go the way of Bear Stearns and
Lehman Brothers. Either it finds a buyer or goes under. The management
have only themselves to blame.
- Posted by London
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October 31, 2008
Fed Adds $21 Billion to Loans for A.I.G.
By MARX WlLLlAMS_WALSH
The American International Group said Thursday that it had been given access to the Eederal Reserve's new
c..Qmmercial paper program, allowing it to reduce its reliance on a costlier emergency loan from the Fed.
The company said it would be able to borrow up to $20.9 billion under the new program, raising its
maximum available credit from the Fed to $144 billion under three different programs. The credit includes
an earlier emergency loan of $85 billion from the Fed that carries a much higher interest rate.
A.I.G.'s big borrowings underscore the company's bewilderingly rapid decline. When it suddenly faced a cash
crisis in mid-September, the original estimate of the amount it needed was just $20 billion. A few days later,
the Fed stepped forward with its $85 billion credit line. And now, the stunning size of that original bailout
has grown by almost 70 percent.
A.I.G.'s cash needs could grow even further. Much of the cash it needs is being used to meet collateral calls
from its derivatiyes counterparties, and the precise collateral triggers and amounts are not public
information. In general, the derivative contracts cost A.I.G. more as the real estate markets decline. The
company's financial products division did a lot of business in that type of derivative, called credit-default
swaps.
By the same token, ifreal estate prices rebounded, A.I.G. has said, it could call some of the collateral back.
In addition to the $85 billion credit line and the $20.9 billion commercial paper program, A.I.G. has a $38
billion facility from the Fed that provides liquidity for the company's securities-lending business. A.I.G. said
on Thursday that it was currently using about $18 billion of this facility.
By tapping the newest source of money from the Fed, A.I.G. was able to reduce the amount it had borrowed
under the original $85 billion line of credit, said a spokesman, Joe Norton. He said the company had
currently drawn down $65.5 billion from that loan, compared with about $72 billion a week ago.
The Fed extended the original $85 billion line of credit at a steep price. On the part of the loan that A.I.G.
draws down, it must pay an interest rate of 8.5 percentage points over the three-month Libor, an index rate
for inter-bank lending. On the unused portion, A.I.G. must pay a fixed rate of 8.5 percent. In addition, the
Fed added a 2 percent commitment fee to the total balance when it started the loan.
Mr. Norton said A.I.G. had incurred interest and fees of about $331 million so far. The Fed also took a
majority stake in A.I.G. in exchange for the bailout, angering shareholders, who were almost completely
wiped out.
hup:! /www.nytimes.com/2008/1 0/31/business/31 aig.html? J= I &sq=aig&st=cse&oref=s1... 10/31/2008
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The commercial paper program is much cheaper. The interest rate changes every day, but in the four days
since the Fed started the program, the highest rate was just 3.89 percent.
A.I.G. is not the only participant. The Fed offered the program to all issuers of commercial paper in the
nation to restart the stalled credit markets.
Mr. Norton said A.I.G. would use the newest source of funds for working capital, to refinance existing
commercial paper, and to make voluntary prepayments on the $85 billion loan. He said that such voluntary
prepayments would not reduce the total amount of the credit line available. If, by contrast, A.I.G. sold
business assets and used the proceeds to pay down the loan, Mr. Norton said, the $85 billion balance would
be reduced accordingly.
CODvriQht 2008 The New York Times ComDany
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A.l.G. Fraud Scheme Cost Investors Million, Judge Finds - Mergers, Acquisitions, Ventur... Page 1 of2
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A.I.G. Fraud Scheme Cost Investors $544 Million,
Judge Finds
NOVEMBER 4, 2008. 6:27 AM
Link to Thl.
E-mail thl.
TOPICS Legal
INDUSTRJIlS Financial Services
. A financial manipulation scheme cost American International Group
inve&tors at least $544 million, a judge has estimated, a finding that could
mean the five former executives convicted in the fraud will face lengthy
prison terms when sentenced,
The case is unrelated to A,I.G:s mortgage-related losses that led to a near collapse of the
company in September and an $85 billion emergency line of credit from the Federal
Reserve.
Four former executives at General Re, It unit of Warren E. Buffett's Berkshire
Hathaway, and one former A,I.G. cxecutive were found guilty by a federal jury in
Connecticut in February of fraud and conspiracy. The charges stemmed from a
reinsurance deal in 2000 that prosecutors said misled investors about AI.G:,s financial
condition,
A sentencing date has not yet been set, but thc judge's written ruling on Friday on the size
of the investors'losses means that each defendant is expet-ted to face stringent sentencing
guidelines when their penalties are determined.
In economic crimes, victims' financial losses are central in calculating sentencing
guidelines for defendants. The judge's finding that the fraud had more than 250 victims
also ratchets up the potential prison time each defendant may face.
Federal sentencing guidelines are advisory for judges, who can depart from them if they
choose.
Based on the judge's calculations, the sentencing guidelines in the case likely will be
"through the roof,' said Douglas Berman, a law professor at Ohio State University and
expert in white-collar sentencing matters.
"We're looking at a suggested guideline range of at least decades' of prison time for each
defendant, he said. "There is a separate question of whether the judge will consider it
necessary and appropriate to impose a prison scntencc that is so long, palticularly
bccause these are first-time offenders.'
Convit-1:ed at trial were General Re's former chief executive Ronald Ferguson, former
chief financial officer Elizabeth Monrad, former assistant general counsel Robert
Graham, former senior vice president Christopher Garand, and AIG former viee president
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http://dealbook. blogs.nytimes.com/2008/11/04/aig- fraud-scheme-cost -investors-544-millio... 11/4/2008
A.I.G. Fraud Scheme Cost Investors Million, Judge Finds - Mergers, Acquisitions, Ventur... Page 2 of 2
of reinsurance Christian Milton.
Prosecutors, in CO\llt papers, have sought "substantial" prison terms. Defense lawyers
have pleaded for leniency.
At the center oCthe case was a finite reinsurance transaction that prosecutors said
allowed AlG to improperly boost loss reserves by $500 million in 2000 and 2001,
artificially bolstering its share price.
Tn estimating the investor losses, U.s. District Judge Christopher Droney rejected
calculations by a government expert that they could be as high as $1.4 billion. The judge
concluded that the same expert, using a different methodology, made a "reasonable
estimate" oflosses between $544 million and $597 million.
Go to Article from Reuters via The New York Times ,.
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AIG's Aircraft Lessor OK'd For Fed Funding Facility - NYTimes.com
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AIG's Aircraft Lessor OK'd For Fed Funding Facility
By REUTERS
Pllblis.hed: OctOOOf 3.1,2008
Filed at 5:17 p.m. ET
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NEW YORK (Reuters) - American
lnternational Group Inc's <AIG.N>
aircraft leasing unit has been approved
to participate in the U.s. Federal Reserve's G9mmerdaLpapeI funding
facility .
"'~ REUTERS
"'~Jl(..1 fOOLl
-
International Lease Finance Corp, in a filing with the U,S, SeclJritigs andE1c:ch.ange
CQP1l.nission, said it was approved to issue up to $5.7 billion of commercial paper.
As of October 30 it had issued about $1. 7 billion, and plans to use proceeds to repay
certain intercompany loans from AIG.
Insurer AIG on Thursday said four affiliates had applied to take part in the commercial
paper facility.
ILFC's commercial paper will be due January 28, and has a lending rate of 2.78 percent.
The company said it expects to refinance the commercial paper when it matures, subject
to the terms and conditions of the funding facility.
AIG -- crippled by bad mortgage bets-- is scrambling to sell off parts of its business to
repay a $85 billion government loan.
As part of that, the company plans to sell off ILFC, one of its most profitable units.
(Reporting by Lilla Zuill; editing by Carol Bishopric)
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