defending city council members. they were barred from entering the securities market. they did a series of private placements that cost them on the borrowing side of things, and, as john indicated, for the first time, staff members -- the sec imposed fines and penalties on staff members, again, ramping up in connection with my earlier comments, ramping up the pressure. there was a recent "wall street journal" article maybe two weeks ago with the sec indicated that for the first time that it was going to start proceeding negligence claims versus simply -- i think before, they had pretty aggressively gone after intentional or reckless behavior, but now, they have set up for the first time they are going to go after negligent behavior. my take from that is back -- is that the public sector is an

easier target than the private sector. we have less resources to bring to bear to defend ourselves, and, quite frankly, it was just not politically tolerable. i say that to say that we need to be politically mindful here, and we are trying to develop a delivered a process to make sure nothing happens. let's go quickly through the official statement. again, the official statement is a document by which the sfmta will solicit investors to lend money. it will reflect the official statements about the payment date interest rates call provisions, sources of repayment, the financial position of the mta and its operational constraints. it will also identify financial challenges that the mta faces. here is the big take away -- bad information is not bad. i think investors appreciate

that all entities, all organizations face financial challenges, labor issues, fuel constraints, whatever. what they want to know is how are you managing? they want statements that prove that you are managing your fiscal challenges. so this is the document, however, that in the chain of documents that you will receive -- you will get an indenture, a purchase contract, resolutions to review, but the official statement is the document that you should spend quite a bit of time on reviewing. next slide. so the guiding principles -- no misleading statements or omissions. pretty self-explanatory. we get into this debate a lot about whether this is a marketing document or a pre- litigation defense-oriented document. in my view, it can serve both purposes in addition to your

financial statements, and i do not know what other reports that the sfmta produces, but this will become a centerpiece to the investment market but also to your constituents about your activities and how well you are managing your challenges. finally, i would like to say in this regard, it is,sfmta -- it is the sfmta's document. this is your story. in reviewing it, make sure that it tells the tale that you want to reflect. basically, the document should contain actual, verifiable information in a clear and understandable manner. i think that is the key point. observation one -- the sec and investors have exquisite 20/20

hindsight. that means that that fact that you -- well, we do not need to talk about that, that will be the key thing that a claim is made that should have been disclosed. we want to disclose everything without, obviously, burdening somebody in a blizzard of information. then, our decision point on whether to disclose or not to disclose -- well, look at observation one. remember, the sec can impose civil penalties and make recommendations to the doj. i did not mean to overemphasize that, but i do not mean to minimize it, either. my experience in san diego tells me that decent people that were trying to do the wrong thing had their careers ended by simply a

lack of attention. i have been trying to carry that message here, and we will see how it goes. in any event, this is the official statement. material information is what we will include. the investor is the centerpiece of this. we will tell our story. we will tell a story about what we are financing, risk factors associated with that. obviously, you could have a fall-off in mta revenues, but the big risk factor is seismic -- a calamity event. that is the real big one, at which held that, and our disclosure there runs across -- you know, is consistent across all of our enterprises to the city. so financial information, litigation. so what we would like you to do in reviewing the official statement is to the extent that

you have knowledge in your capacity as board members about a particular area, per ruse that area and make sure it comports with your understanding of events. so if it is always in trouble about whether you have to read the whole document, the document will be 100 or so pages, and, no, our guidance is you only have to read the relevant portions of that document, so we can -- we will walk you through -- when we approved a bond issue, we will walk you through the official statement, pointing out to the areas where we think board members might have a particular expertise. said the basic increase that should be laid out in your staff report and that you should be able to answer for yourself after reviewing the staff report and the official statement is -- what is the purpose of the bond issue?

what is the source payment of the bonds? what are the risks that the source of payment may be insufficient? are there any factors that could propose a material risk to the issuer's financial position? those are fundamental questions that every board member should be able to answer, and we want to create a record in the approval process that we have walked through those basic questions. those questions are kind of the floor and would probably regret any challenge of negligence or recklessness. and then here are other questions that you might ask, and this is just the starting point. there may be others. this is not an attempt to create an exhaustive list, but these are a start point. as well, we will agree to provide continuing disclosure to bondholders. that is, over the life of a bond

issue, we will agree to provide financial and operational data on an annual basis. at some level, you can rely on staff in that, but that is a piece of the process here. so here's the question that ultimately comes up -- "can i just rely and you folks?" that is the staff. in other words, you have not reviewed the documents presented to you. the answer is yes, you can rely on staff, but your alliance has to be reasonable. ok? and so one way of laying a foundation for reasonable reliance is to conduct some level of oversight -- either annually or every other year, to

make sure that the disclosure process is the row, is efficient, has maintained some level of internal controls, that your professionals are experienced in expertise and that there is a process that occurs for evaluating the work of professionals. so if you will put in place an oversight function, i think then, at least, you are in a better position of relying on staff, as i think you are entitled to do. one of the efficiencies here is that the sec has not made clear the extent to which a board member can discharge its responsibility, so they will never say that you have to read the whole document. they will not tell you specifically what you need to do because it is kind of a facts and circumstances test, so we struggle with the precise guidance, but i do think that if

you conduct be said oversight, have sonali throughout how rigorous process is -- if you conduct decent oversight, understanding foundational questions, and with respect to red flags, if you get a briefing on a significant issue, it is in the bond approval process. where did you folks describe that and outlined that? it is a red flag type of issue? the other thing is -- are there things that we may not know about as staff that you know about as board members that you should bring to our attention? that is the other area that you are solely responsible for, those things that you might have gotten a briefing on that, quite

frankly, we would not know about. with that, i think i would end the context, primary offerings, secondary market disclosure which your board will probably not touch on -- as a policy matter, you could, but i would not advise it -- and then communications likely to reach investors. that is statements by you about the m.t.a.'s financial position you need to take some care with. with that, we will close, and should you have any questions, we are available to answer. director nolan: thank you. any questions? are you sufficiently scared? >> i will read through this, and i read through it earlier. a quick question for mr. blake. in orange county as well as san diego, both of those incidents,

a lot of that was on the whole derivatives market. you stated earlier, the sec issued a couple of weeks ago some new rules and regulations. is it possible that you could distribute those to the board? i think it is important in light of this because derivatives are still used in the market and underwriters use them that they understand how the market works. >> we can do that. i will tell you now back the city, with the exception of the airport, is a very conservative bond issuer. i think the issue that will come before you will be a fixed rate issue. no bells, no whistles. there will be no derivative products. we can certainly do that, but again, i think that your board is not authorizing the tea. you need derivative product. i think, without speaking out of turn, there would be a whole

level of education that would have to occur before this board and before the board of supervisors before the general fund department would be permitted to issue a derivative product. right now, that is not on the table for any general fund departments, and i think for the sfmta. i can still provide that, but i can also give you the assurance that there is no policy direction to go in that -- you know, to use those products. >> talking about underwriters, will it be limited to a u.s. broker-dealers? >> yes, we just elected a four- member group from the city's school of underwriters. they are all u.s.-based firms.

>> i was just going to add that when we did our due diligence meetings, we talk to the treasurer. so thank you. director nolan: thank you. other members of the board? director reiskin: i just wanted to add that when the voters empower the agency with the authority to issue debt, i think they gave the agency a very important tool to help manage these significant capital needs that we have. with that important tool, very important responsibilities, and the intent was not to scare everybody about fines and imprisonment but to let folks know that it is a very the "can you trust your staff?" question that was put out there, i just wanted to let you know that as was reference, there are

a number of other boards and commissions that have executed this authority. it is not something that is new to the city. ms. bose and i have counterparts in those departments that are well versed in this and are working with some of the same excellent guidance and support from mr. blake's team and others. while it is an important responsibility, one that we all need to take very seriously, i just want you to know the you have our assurance that what we will be bringing to you will be coming with all of those same kind of resources and expertise. also, as mr. blake indicated in a very conservative manner, the one thing that people are really concerned about is will we be

able to pay it back. what we're talking about is that service that would be on the order of 1% of the revenues of the agency, so not only with the instruments be very conservative, the amount of debt that we would be proposing to you -- very small relative to the resources of the agency. i do want to thank ms. bose and mr. blake for the presentation. we do think it is important that the board's fully understands the responsibilities that we would be undertaking. >> you approved the debt policy at the last meeting which very much constrains what we can and cannot do. i too was very clear on the parameters of debt, said that as further assurance that we will be very financially disciplined as we embark on this. director heinicke: my only question is procedure. i think this is clear, but at

the beginning, you said we were on the verge of issuing debt. we are on the verge of considering whether to issue debt. >> that was the direction we believe we received at the last board meeting, but before we can issue debt, you have to approve the document. the board of supervisors has to approve the documents, so that is where we believe we are at this point in the process. director heinicke: ok, so, then these are important questions to ask, and i will ask a few more. we're talking of that debt issuance for the parking garage. with talk about the other capital project that we talked about before. it is your understanding that we have told you all to issue this debt but simply review the documents going out? is that where we are procedurally? >> i believe we think we have the authority to proceed with issuing $100 million in new money and a refund existing

debt, $100 million to be split between transit -- director heinicke: that is sort of the refinancing part of it. >> what i took away from our last presentation was we were given authority to refund the $15 million of existing bonds and issue a new money piece for $100 million -- $50 million for transit and $50 million for parking. director heinicke: maybe that is the way the resolution read. my understanding is that was the direction we ask you to go in, but i believe there were questions about exactly what we're talking about for policy reasons. i do not think there was any question that the agency would be able to repay this debt. i appreciate the presentation very much. we look forward to getting the statements, but that is not the issue. my question is not about that. i understood the presentation today and am comfortable with staff presentations on our ability to repay, but as i

understood the last discussion, there were still some remaining policy questions about some parts of the new debt and particularly how we were going to repay that out of what streams we were going to repay that. i may have just misunderstood. i am sorry i did, but i think directors ramos, brinkman, and i engaged in questions about that, so i wanted to make sure we were all on the same page. >> subsequent to the last meeting, we sent a little more substantive information. there are more actions that will be coming to the board in order to move the process forward, in -- including next year's budget. >> i think you are speaking to the issue of the subsidization

between parking -- >> the way i understand it is we are doing two things -- refinancing existing debt in great borrowing climate. great, let's do that. no question. the second piece is $100 million, which is, as you say, essentially going to pay for two different pieces. i think the question, which goes exactly to our restock and remains to be answered, or perhaps i just missed something, is how are we going to fund those streams? there was a stated preference that it is one thing for us to be subsidizing transit and another thing for us to be subsidizing parking garages at the same level. a question to me is not so much whether we should go ahead with the debt issuance -- i think it was explained to us clearly that even with the situation of the parking garages, those are our

assets. we have a duty to maintain a safe and reliable structure, and i want to do that. the question is how we will be repaying those. >> let me answer that -- each garage is going to get a portion of the debt service from an accounting perspective, and the transit fares will pay for the transit from an accounting perspective. even though we are pulling all the money, each garage will have a percent allocated, said that peace will be paid by the garage revenues. director heinicke: thank you. director nolan: other members of the board? thank you very much. appreciate your presentation. look forward to hearing more about it in the coming months. weeks? >> is there any member of the public -- there has been no indication that a member of the

public wishes to address you on this matter. >> the projectionist to be before your december 6. also have to go to the recreation and park commission on december 17, and the board of supervisors in early january. hopefully, we will get approval. our plan is to issue the debt in the september, february, march area. ashley and visiting the commission tomorrow to talk about it. -- actually, i am visiting the recreation and park commission tomorrow to talk about it. director nolan: that you very much. >> seeing the members of the public who wish to address you, moving on to item 12, presentation and discussion regarding directors and officers liability coverage. >> we wanted to bring this in front of you because directors

and officers have this coverage to protect them from liability in bond issuance is paired with us this afternoon is the deputy director of risk management. she will walk through a presentation with you and hopefully, at the end of the presentation, you will give us some guidance on the procurement of coverage, if you are so inclined. director nolan: ok, thank you. good afternoon. >> good afternoon. congratulations on your position. i guess it is a program that we are near halloween. that was kind of a scary presentation, at least from my perspective. i went to law school, it almost became like a business law class for me over here. that potential exposure is really why i am here, to discuss potential hedge against that kind of personal exposure. so, i am going to go through

this. ok. first, i think the first question is basically answered -- why consider the insurance? it is a projection for board members and officials acting in the scope of their duties. issuing debt is one of those course and scope of their duties. i know that mark and sean talk about the sec not initiating actions against individual board members, but i think i heard a dot-dot-dot yet in that. going to go over a couple of things really briefly, so if you have any questions, please feel free to ask. what does directors' and officers' insurance covers? it is a liability type of insurance. it covers defense cost in the event that you suffer losses. it will be as a result of

alleged wrongful acts committed acting in your capacity as a director but also for officials acting in their official capacity with the organization. there is a note about public officials liability insurance. this covers debt that will be packaged together that would include both directors of the board as well as officers of the organization. appropriately director reiskin's point about other agencies in the city working on this particular issue, and i know they are very much in close contact with their counterparts in other organizations, these are other departments that have public official policy liability coverage, and you can see what those limits are, and i think retention was dropped off with a couple of those.

this is just a note for you to notice this. these would be notable enhancements we would make to the policy to make sure. for example, the first point is that dno policies do not typically cover standard claims that are the result of bond issuance, basically. we would make sure that that would be included. there is also -- allows the choice of counsel so that the policy would include choice of counsel as well as reimbursement by the carrier for defense costs. it would also include punitive exemplary multiple damages, so kind of extensive damages against the organizations. those are things that are typically excluded, so those are things we would recommend to be included in a potential package

for coverage. the notable exclusions part -- this kind of makes sense. if you have done anything really bad like insider trading or if you have done some sort of criminal malicious act, if there was an action of muni against a director, that would not include defense costs, obviously. breach of contract exclusions' also would apply in this kind of policy. i just give you those as kind of a summary so if you want to go into more detail, feel free. you can ask us. and we have so far put out to the marketplace a couple of different package options. one would be with a $15 million limit with $150,000 retention, and for your edification, you probably know this, but a deductible is a little bit different from a retention. you do not get any resistance from the retention peer you burn

through that $150,000, and then you get that insurance company. the premium range for $15 million limit policy would be $140,000 to $180,000. ok. i told you this was short and sweet. i think at this point, we're going to do -- >> just to give you a sense of what the coverage is, they all have coverage in the $10 million of $15 million range, and that is what we are proposing for you. if i were to make my recommendation, i would probably suggest a $10 million range for us because our bonsais is not as large as some of the other agencies, and that would result in about a $100,000 premium annually, but i do think it is

important for us to place this coverage for the board and the agency's protection. director nolan: members of the board? director heinicke: couple of questions. were the folks in san diego and new jersey covered by -- >> that is a good question. i will try to find that out. i was going to ask mark, and he kind of slipped out. director heinicke: i want to make sure that the recommendation we have for our policy here for $10 million -- when it says dno and public official, i assume that would cover our staff were anything that might be included there? >> that is correct. director heinicke: that raises a question -- i mean, part of this is -- you know, you have insurance policies to protect your staff and make sure you are able to get qualified financial people in the markets and someone might want to come in