when and under what circumstances it's best to issue those kinds of obligations. so once you have the debt policy in place, the next step is really to approach the rating agencies. they are the ones that are going to determine just how credit worthy you are. you see on the left there is a diagram of the ratings scale provided by each of the major credit agencies, moody's, standard & poor's and fitch. the best rating is a.a.a. they have gradeations of a.a., a., and b a.a. which is a low investment grade. basically the rating agencies will -- the higher the rating, the more likelihood that you will pay your bonds on time in the proper amount. so the measure -- they measure risk. they measure risk to the investor that they're going to receive the benefit of the bargain that you told them they

would. through your bond documents. the better the rating, the lower your costs. so one of your objectives is to get the best rating possible. so how are you going to do this? you have to develop a rating strategy. and a rating strategy will pull together all of the elements of your credit. that includes what are your revenue sources what is the level of management involvement in your transactions. management is a very important credit cry tearian these days -- cry tearians these days. and you also want to promote the fact that you've got good coverage. your revenues will be more than what your debt service is as well as provide a cushion to operate your system. and one of the most important things you have going for you is the sent of your system -- essentiality of your program.

most support san francisco as being a transit first city so a lot of your policies are geared towards getting people out of their cars into transit. that's a very, very important credit factor in getting the highest ratings we can. and then as a final component to the whole process of establishing yourself as a credit worthy issuer, this is the bond capacity analysis. and this is going to be a very interim process. we are just undertaking it right now. so we can't tell you what your bonding capacity is because that's going to depend on a whole lot of factors. but basically what we'll be doing is determining what your net bondable revenues are, what's going to be available to be pledged to your debt service . and then how much can you borrow as a function of what your structure is. if you issue 30-year fixed rate bonds, that will give you more capacity then a few short-term

bonds trfment rate will be another factor, as peter was mentioning in terms of what your capacity is. and then what we want to do is look at what your capacity is for various projects. some projects may have a separate revenue stream that you may want to access for that. so it really is going to depend on the nature of the improvement that you are looking to finance. but ultimately you will -- how much you finance and your capacity, you will also be a very important factor in determining what your credit rating will be and what your borrowing cost will be. so right now i'm going to turn it over to vincent. director nolan: one minute. bondable revenues. will we be looked at as the agency as a whole if we're doing a particular sflodge let's say we wanted to do something with -- i don't know what, buying a vehicle. would parking garage revenues and that kind of thing all count? >> well it would depend. so, for example, in parking you may want to have a transaction based solely on parking revenues from the various garages.

there may be other kinds of assets you will be bonded against by system-wide revenues. that's all part of the debt policy that you want to be establishing. central subway, there may be federal grants associated with that. that's going to be the objective. that will be the security, primary security, for that transaction. so it really depends on the asset. the other thing you want to make sure of is that you have enough revenues to operate the system. that's going to be the most important. bonding is one thing. but the question is, how much can you afford to maintain the balance of funding capital as well as operating your programs. director nolan: would it be too simplistic to say -- an example that was used earlier say -- an that was used earlier i think, the $5 million obligation per year that would just be part of the operating revenue going forward? >> that would be debt service line item. that would come off the top.

right. director nolan: thanks. >> vincent? >> hi. vincent mccarley, c.e.o. director nolan: glad you're here. >> thanks for the opportunity. i want to talk about the bond process what will be involved is a number of professional that would be working with you. one of the key items to keep in mind is that the m.t.a. is the most important player of all. they're in a nukelyious of the transaction. and each of the professionals will be working on your behalf in terms of carrying the transaction forward. if you look at this diagram here, if you look to basically 7:00 there, you'll see the financial advisory which is the role that this team will be playing.

also involved will be the underwriter, the entity, which will be selling the bonds to the marketed place, in the investors. other key characters that will be involved will be bond counsel. they will be basically providing opinions that the bonds meet the various tax requirements. also that the various authorities have been in place, and that you actually have legal authority to enter into the specific transaction. another key entity will be disclosure counsel. what's been in the press a lot recently has been transparency in the market. they want to make sure that the information that you convey to potential investors is clear, accurate, and gives an investor a full understanding of the financial picture so they can make an informed decision about whether or not they want to own your bonds or not. as mentioned, there will be the rating agency. and there will be a trustee which basically serves to

collect the debt service on the bond and then pay those out to investors. the bond sale process overview, selecting the team, determining what the project's cost will be, and a timeline for issuing the bonds and also what the time line for the project itself will be. maybe there might be an acquisition period. there may be a construction period. all of that will go into the analysis. the legal framework. there are several different legal structures that a bond issue can take. one can be a lease structure. one can be a revenue structure whereby the chairman asks, can you have a pledge where it's a specific revenue that's pledged the service bonds versus an overall general type of pledge?

marketing. after getting the ratings, we may also look at potential credit enhancement if it's economically viable. it may include a letter of credit or some other form of enhancement to the transaction. there will be outreach to investors in terms of the process for selling the bonds. and basically the greater the outreach and distribution of the bonds the lower interest cost that you'll pay. it's basically supply in demand sort of scenario. administration, even after the bonds are issued there's going to be an ongoing process of administration by your staff, by the trustee, and also what's called continuing disclosure. annually you'll need to make a report to the financial markets indicating updates on the financial status of whatever the revenue pledge is that secures the bond. those are legally required items that you must undertake.

you will get a lot of documents. very thick documents to review as part of the bond issuance process. some of these documents we consider standard because we deal with them every day. for you they'll be likely very new. and you should review them. you should ask questions. you should understand them before approving them. there will be items such as a trust endenture or trust agreement, authorizing resolutions which, again, gives your authority. sometimes there will be delegation of authority to staff for particular items. there will be an official statement. you can think of it similar to in the corporate world of a perspective. the official statement will basically describe the transaction, what the pledge is, and an overall picture of what the m.t.a. exists. there will be a bond purchase agreement which is basically the contract between you and the investment banking firm that would be selling the bond.

if it's a competitive sale, there will be a notice of sale which will dictate the parameters for which this would be received. and as a mentioned, there will be a continuing disclosure requirement. for a hypothetical bond financing schedule we've outlined here -- we would, first of all, want to determine the project and available revenues there to support that project. that includes not only paying the debt service but also the ongoing operations which are very key. there will be a lot of working group meetings with staff, with legal counsel in terms of developing what the financing structure is, what the form of those documents will be, credit packages, as peter indicated, drafts of those documents, and a sit-down with the rating agencies. it may involve one or more of

the board members, your staff in that process. what we've outlined here is roughly a 12-week process for issuing bonds. as mentioned, we're looking at 2011 as possibly the first financing. this, again, gives you an outline of what that process will look like. one of the option that we are considering is the used of sfmric as a financing vehicle. it has been used in the past as financing for some of the rail improvements for the m.t.a. this is basically an outline of basically a lease structure that might be utilized if we opt to utilize sfmric as one of the financing vehicles. the approval process of that would be a request from the m.t.a. board to the sfmric

board indicating what those processes would be. it would come back for approval and ultimately to the board of supervisors and finally to the mayor's approval for issuance. if there are any questions? >> san francisco municipal railway improvement corporation. >> it needs to be created? >> it exists. >> and it's been utilized before. >> rudy is the chairman of the sfmric corporation. director heinicke: that's beyond muni, right? >> no. it's municipal railway. director nolan: director beach? commissioner beach: a couple of questions >> know the sfmta would be a

new bond issuer. do we have any current obligations? >> all of the sfmric has been repaid. the parking authority has outstanding bonds at this point in time. obligations other than the public benefit corporations also related to parking garages. director beach: does that have an impact on our ability to issue bonds since there is outstanding debt? >> yes it does. that would also be a part of the comprehensive finance plan that we would be creating to look at that debt following conjunction with any new proposed issuance. director beach: and can you explain for me what the difference is between a bond and a revenue anticipation note which i know has also been uses to finance transit projects. >> hum hum. it's usually a short-term vehicle whereby you are looking for specific revenues to come in to actually pay those bonds off basically as short-term

financing. where as your longer term or permanent financing would be likely what you would be looking at for the financing for the m.t.a. director beach: and to define short term, under three years? >> usually under three years. and sometimes even much less. director beach: great. thank you. director nolan: members? director heinicke? director heinicke: one question. as you explore the difference between sort of a general obligation bond that we build into our overall debt structure and something that's tide to the revenue stream, bobbeded against the revenue stream, i can see why the general debt structure might be more attractive superficially. do we get better bonding terms, better interest rates, that sort of thing if we tie it to a revenue stream? >> a very good question. it's actually one of the items that your team is going to be wrassling with over the next month. basically to analyze the various revenue streams of the

m.t.a. whether it's more beneficial to pledge a single or combination of revenue streams to secure a bond issue versus the general fund. so i don't want to prematurely answer that question. it is one of the things we will be bringing back to you. director heinicke: and the other question, following up on that. can we bond against the revenue stream created by the project for which we're bonding? >> yes. director nolan: thank you. mr. mccarley? >> and peter will wrap up. director nolan: mr. shellenberger? >> hello again. thank you very much for sitting through fairly technical issue such as finance.

page 26 here will try to put a timeline to implementing what we've just walked through. so if you could turn to the final page, page 26, the first couple of bullets, what we're going to do,en that will be a bit of a recap, staff one is determine what you can afford. the name for that is bonding capacity. how much can awed for on an annual basis? and then within that, based on your annual affordability for the next 20 to 30 years, how much does that allow to you accelerate in terms of projects today? so that third bullet is you need to rationalize your affordability with the projects that you want to accelerate. within your concept of affordability, it's a question of how do you want to spend that money? on which projects? how do you want to define your bonding program, limit yourselves so when you go to the market, you say we've thought about this, we're conservative, we're worthy of a high a, maybe aa rating. due to our affordability levels

so that's your sort of debt affordability to your debt policy. there will be policy outreach. we will be coming back to you, obviously to get direction and feedback. you want to reach out to your constituencies as well. when you have a concept of what you want to do within your internal framework, then you can draft your legal documents that reflect that. your legal documents will have flexibility. they'll in part, be for the benefit of the bond holders and as yourselves. with a sort of plan of finance in hand and a legal structure, we will take that to the credit rating agencies that will happen in march so we're right now looking at debt affordability. we'll come back to you in probably two to three months' time. at that point you can start thinking about if it makes sense. if it does, we start drafting legal documents. here we're saying february. and reaching out to the rating agencies in march. with that we start accessing the markets and marketing your bonds in a strong credit. and we likely access and sell bonds in june or july in 2011.

that's the time frame.-- 2011. are there any further questions? >> i think that it would be helpful for the staff members to send to the board a description of what the municipal railway improvement corp. is and what they have financed in the past. and this was substantial. >> considering all the people, locally in the approval process, this board does not go down 1/2 like the other approach. is there anything else? thank you. >> we are very excited to work with you. >> and this will conclude? >> thank you again for your

attention. there will be much more here as you work through the process involving not only the implications for the agency but your role as the director for the potential investors. the contract that overreliance this, once you enter into this. the sort of the implications for us to talk about as you are working through this but i thank you for your time and attention. >> we appreciate this. >> thank you, gentlemen. >> no member of the public has turned in a speaker card about this, -- >> we will go to the next report. >> thank you very much. members of the board and the public, following a request that was made by the chairman at the last meeting, i have asked the deputy chief to provide a report on the protocol and the vice-

related incidents and hate crimes in this transportation system. we will talk about the investigative process related to hate crimes, explaining the definition and how this is tract in the data base. and we will have an overview of the most recent incidents on the transit system, and in addition, i have told the manager of equal opportunity to prepare for a review of constituent complaints in order to determine the order and frequency and resolution of these incidents within the system. the staff will bring the steel in the next meeting. we take these incidents is very seriously, and all employees are

given harassment training during the course of their employment at the mass transit authority. they are provided free hours of training and periodic follow-ups happens during the mandated annual vehicle transit trainings. the employees including our board members receive harassment training on this annual basis as required by state law. i look forward to returning. the with the analysis of the immediate response and the efforts to prevent them. my would like for chief murphy to give you his briefing. >> i have been with the mass transit authority 11 months. this is my second or third time addressing everybody. i would like to reiterate what he just said. the san francisco police department takes these crimes

very seriously. the san francisco police department has a separate policy and you can view this online. we do not call them hate crimes, this is what they have become. this is based on prejudice. the motivation of the crime is based upon disability and ethnicity, national origin, and to be defined as a hate crime, that has to be the sole motivation before or during the crime. many times these crimes are reported in the news because this was a hispanic against this kind of individual -- and this has been defined differently.

they may not have liked each other at all. you have to find out if the attack was because the individual was from a protected client. we have always taken this very seriously. the general order on this is 14 years old. every police officer in san francisco that is trained and the officers -- these are costly and referred to and we worked very hard at them. the police department has a separate unit and this is the hate crimes unit. we have the inspectors that are specially trained to address these issues. the policy is in, and i gave you the definition of this. the motivation of the crime has to be based on the protected class.

the statistics, basically, they support this. the system is a very safe system. and i spoke to the former leader of the special investigations division, and basically, that could not even give me a number of incidences over the last few years because there were so few. there were a couple of these in a month and this may have been the catalyst to kind of follow the interest in this, and in fact those of the only two of these so far this year. we go through the police reports and we go through them by hand. and there is a different data base that we are able to draw from. when this is generated, not only

is this put through the system, but an officer and sent to the location. they are given a case number. and this is given to the dispatch. the officers that i have putting together the data base are searching not only the police reports, but a surge the most violent crimes that occurred the night before, and they also contact the different investigative eurocom. i am, that the number of hate crime situations that have happened so far are two of them. one incident resulted in the individual who was a juvenile -- the juvenile was placed under arrest. it was because of the system of cameras. this depict the the crime, and

when the hate crime inspector -- when this happened, i offered my services than they were working with her and they have the suspect in custody within a few days. this went very well and basically he pled guilty in juvenile court. the allegations were sustained in juvenile court. the issue of the other case happened on the -- this happens on august 30. this was not recorded until september 3. this may usually cause us problems. but this case is still with the special investigations division. the sergeant has this and i have been in contact with him since this happened.

we're trying to find out this individual's identity. there are several rantings and it seemed like he was mentally unstable. we are still working on this. this is what has happened this year, and the special investigations division does not extrapolate the specific crimes and match them to hate crimes. if you have any questions i would be happy to answer them. and go giants. >> another set of issues that has been brought to my attention, that has -- things that have happened in the system, that are not crimes but our very uncomfortable for people. homophobic things happening on

the bus that are not taken very seriously by the driver or he may be participating. >> i think one of the questions -- what were the reactions of the employees and what actions are they required to take. and in both of these cases, let murphy speak to this. it appears that the employees did what they were supposed to do. talking on the rail system, the operators may be a long way away from the actual occurrence. they are required to immediately identify the control center, a lot -- -- who will communicate with the police department. >> the driver got up and told them to get off of their and that part is good.

>> one thing that i learned about when we talk about the definition of things, central control called me with a crime on board a bus. people were complaining that there were loud kids on the bus. they will be there and there will be done tomorrow and the next day. that's what they do. they may be loud and boisterous among themselves, but this is not a crime. this is probably a nuisance for people, but i think that this is short-lived when you look at the specifics of what happened this year. we have three police reports, three incident reports per day of crimes committed on the mass transit authority property. transit authority property. this includes the bus stops