"CONSENT ITEMS" Deal, Ginsberg, Chair Boivin, Cramer, King, Gartland and Chair Monaco

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1 REPORTS A METROPOLITAN AIRPORTS COMMISSION FINANCE & ADMINISTRATION COMMITTEE REGULAR SCHEDULED MEETING Monday,, 9:30 a.m. Room 3048A, Terminal 1-Lindbergh Minneapolis-St. Paul International Airport "CONSENT ITEMS" Call to Order A regular scheduled meeting of the Finance and Administration Committee, having been duly called, was held Monday,, in Room 3048A, Terminal 1-Lindbergh, Minneapolis-St. Paul International Airport. Chair Monaco called the meeting to order at 9:30 a.m. The following were in attendance: Commissioners: Staff: Others: Deal, Ginsberg, Chair Boivin, Cramer, King, Gartland and Chair Monaco R. Schauer, B. Ryks, P. Rasmussen, D. Probst, G. Warren, R. Fuhrmann, E. Valencia, S. Zaczkowski, K. Fisher, A. Sasse, L. Manecke, C. Sekera, M. Grimm, K. Webb, E. Johnson, C. Leqve, P. Hogan, J. Laurent, E. Podnieks, N. Hinchley, C. Bonnema, G. Failor, B. Rief, L. Sorensen H. Moody, Delta Air Lines; G. Nagahama, Jefferies; D. Paauwe, Piper Jaffray; C. Van Leuven, TSA; J. Vande Bosche, D. Johnson, BKD AI A. OPEN FORUM CF 311 The Open Forum is a portion of the Committee meeting where persons are allowed to address the Committee on subjects which are not a part of the meeting agenda. No public comments were received. AII A. REPORTS CF Budget Variance Report - 1 st Quarter 2017 TO THE FULL COMMISSION APPROVAL OF THE BUDGET VARIANCE REPORTS AND AUTHORIZE EXPENDITURES IN THESE CATEGORIES UP TO THE BUDGETED OR FORECASTED BUDGET AMOUNTS. THE MOTION CARRIED BY 2. Budget Variance Report Final Year-End 2016 TO THE FULL COMMISSION APPROVAL OF REVENUES AND EXPENDITURES BY CATEGORIES IN THE FINAL YEAR-END 2016 REPORT. THE MOTION CARRIED BY

2 Page 2 3. Accounts Receivable Summary 4. Investment Portfolio Report 5. Air Carriers Passenger Facilities Report 6. Commission Travel Report/January - March 2017 THE ABOVE REPORTS WERE INFORMATIONAL ONLY; NO COMMITTEE ACTION WAS REQUESTED. AII B. ALLOCATION OF NET REVENUES TO CAPITAL IMPROVEMENT PROGRAM CF 313 Each year since 1978, with the exception of 2001 through 2003, the Commission has transferred and designated funds available in the Operating Fund to the Special Construction Fund. At the conclusion of the 2016 financial audit, Staff determined that the Commission had $74,641,000 in net revenues that are available to be designated by the Commission. Staff s recommendation is to designate $74,641,000 as follows: Special Repair & Auto Rental Construction Relievers Replacement CFC $43,989,494 $770,174 $20,909,407 $8,971,925 The money earmarked for the Reliever Airports and the Repair and Replacement funds are amounts determined by MAC Reliever leases and the Airline Lease Agreement respectively. Based upon the Capital Improvement Program funding plan approved by the Commission in December 2016, staff has identified certain projects to be paid for using the Special Construction Fund for both MSP and Reliever Airport projects during 2017 and early Most of the projects designated for these Special Construction Funds are allocated to various rehabilitation projects in Terminal 1, Terminal 2 and parking facilities. The Auto Rental Customer Facility Charge (CFC) is a new allocation of net revenues this year. In 2016, the Commission approved an increase in the CFC from $3.25 to $5.90. The increase in the CFC is to pay the debt service for the auto rental portion of the new parking facilities being constructed later this year. The CFC amount shown above represents funds collected in 2016 to pay debt service costs (i.e. capitalized interest) during the period of construction in TO THE FULL COMMISSION DESIGNATION OF THE 2016 NET REVENUES IN THE AMOUNT OF $74,641,000 AS FOLLOWS: 1. SPECIAL CONSTRUCTION FUND $43,989, RELIEVER AIRPORT CAPITAL SURCHARGE $ 770, REPAIR AND REPLACEMENT FUND $20,909, AUTO RENTAL CFC $ 8,971,925 THE MOTION CARRIED BY

3 Page 3 AII C. MAC CONTINUOUS AUDIT REPORT TH QUARTER CF 314 A continuous audit process has been implemented by the MAC Internal Audit Department in accordance with the MAC Internal Audit Annual Plan. A report was included in the meeting materials which presented an overview of the current continuous audit process including risk areas considered, associated audit testing and a summary of results for the fourth quarter of TO THE FULL COMMISSION ACCEPTANCE OF THE MAC INTERNAL AUDIT DEPARTMENT CONTINUOUS AUDIT REPORT th QUARTER RESULTS. THE MOTION CARRIED BY AIII A AUDIT AND FINANCIAL STATEMENTS CF 315 Nick Hinchley, Manager - Finance, introduced Joe Vande Bosche and Derek Johnson, BKD, LLP, to present the results of the 2016 Audit. Mr. Vande Bosche reported that the results of the primary audit were very good with a clean (unmodified) audit opinion for He noted that BKD had no proposed audit adjustments and that BKD encountered no difficulties during the course of performing the audit receiving excellent cooperation from MAC staff who were very prepared for the audit. Financial highlights as a result of the audit are as follows: The following programs were reviewed and received an unmodified opinion: Financial Statements and Supplemental Information; Major Federal Awards Program and Passenger Facility Charge Program. The Commission received the prestigious Certificate of Achievement in Financial Reporting award for the 31st consecutive year. No material weaknesses were identified and there were no significant deficiencies in internal controls during the audit. The Commission had one major federal award program that required testing (Airport Improvement Program). No compliance or internal control matters related to this program were identified during the testing. Comparable statistics of other BKD airport clients (Phoenix, San Diego and Denver) was presented. The following highlights were briefly discussed by Mr. Johnson: Assets, Liabilities (exclusive of GASB 68 net pension liability), Revenues, Expenses and Cash Flows from operating activities, as well as other relevant trends. Mr. Vande Bosche reported that the Commission s pension liability increased about $132 million and he briefly discussed the status of the fund and potential impact on the Commission. Discussion followed and Chair Boivin requested that staff consider inviting PERA to make a presentation to the Commission. Chair Monaco thanked BKD for the hard work and cooperative working relationship during this audit.

4 Page 4 COMMISSIONER DEAL MOVED AND COMMISSIONER KING SECONDED TO RECOMMEND TO THE FULL COMMISSION ACCEPTANCE OF THE 2016 FINANCIAL STATEMENTS, SINGLE AUDIT AND PFC AUDIT. THE MOTION CARRIED BY UNANIMOUS VOTE. AIII B BUDGET TARGETS CF 316 Bob Schauer, Director Finance, reported that as part of the process for 2018 Budget Targets, staff has had numerous discussions both internally and with outside consultants. Based on these conversations, staff is not proposing any changes to the 2018 Budget Targets from the previous year s budget targets. Mr. Schauer noted that staff plans to develop new targets for Commission consideration for the 2019 Budget Targets. COMMISSIONER DEAL MOVED AND COMMISSIONER KING SECONDED TO RECOMMEND TO THE FULL COMMISSION ADOPTION OF THE FOLLOWING BUDGET TARGETS FOR 2018: 1. MAINTAIN A COVERAGE RATIO OF 2.4X ON SENIOR GENERAL AIRPORT REVENUE BONDS AND AN OVERALL COVERAGE OF 1.4X. 2. MAINTAIN SIX MONTH RESERVE IN THE OPERATING FUND. 3. THE AIRLINE COST PER ENPLANED PASSENGER WILL BE IN THE LOWER ONE THIRD OF LARGE HUB AIRPORTS. 4. THE BUDGET SHALL HAVE THE FINANCIAL RESOURCES TO OPERATE MAC S SYSTEM OF AIRPORTS, MEET ITS DEBT SERVICE OBLIGATIONS, FUND ITS RESERVES AND THE CAPITAL REQUIREMENTS OF THE COMMISSION. THE MOTION CARRIED BY AIII C. INVESTMENT POLICY REVISIONS AND ADOPTION CF 317 Mr. Schauer presented for Committee review and approval the following proposed revisions to the Commission s Investment Policy: State Law Compliance In 2016, the State of Minnesota notified the Commission that the Commission as a State entity was prohibited from purchasing certain State bonds. As a result, staff created a new section within the Commission s Investment Policy outlining those investments not eligible for purchase by the Commission. In addition, staff did delete (under the Authorized and Suitable Investments section) the reference to Minnesota Housing Finance Agency obligations which is now a prohibited investment.

5 Page 5 Other Revisions Authorized and Suitable Investments During a review of the Commission s Investment Policy, staff noticed a minor difference between Minnesota State Statute 118A.04 (which lists the types of investments that are allowable for public funds) and the Commission s Investment Policy. The original and revised language is as follows: A security which is a revenue obligation of any state or local government which is rated A AA or better by a national bond rating service. Diversification The growth in taxable state and local governmental bonds currently compete on a yield basis with U.S. Government Agency Securities without taking on additional risk and offers further opportunities for diversification. The requested change is to increase the maximum holding percentages on obligations issued by state or local governments from 25% to 50%. Maximum Maturities Staff and the investment managers agreed that changing the maximum maturity limit for the Post-Retirement Healthcare fund from 10 years to an average portfolio life of no greater than 12 years maximum allows the investment managers better flexibility in matching assets with the projected liabilities of the plan. Performance Standards One of the goals in the hiring of an investment manager was to develop a meaningful benchmark for the Post-Retirement Healthcare Fund. Staff requested from both investment managers a recommendation of a benchmark to use in the post-retirement healthcare portfolio. Both firms independently recommended a blended index made up of 60% Bloomberg Barclays Intermediate Government Bonds and 40% Bloomberg Barclays Mortgage Backed Securities. Given the characteristics of the portfolio, staff is in agreement with the benchmark recommended by the investment advisors. In the coming months, staff will be working with the investment managers in developing reports to present to the Commission. The first full quarter end results for these firms will be September 30, 2017 and staff will be including an investment report to the Finance and Administration Committee at the November meeting. COMMISSIONER GINSBERG MOVED AND CHAIR BOIVIN SECONDED TO RECOMMEND TO THE FULL COMMISSION APPROVAL AND ADOPTION OF MAC S INVESTMENT POLICY AS REVISED. THE MOTION CARRIED BY AIII D INFORMATION TECHNOLOGY ADDITIONAL CAPITAL EQUIPMENT 2015 APPROVAL CF 318 At the January 5, 2015 Finance and Administration Committee meeting, staff presented information regarding the reimbursement of internal funds from the approval by the FAA of PFC Application #11. The information included capital equipment to be purchased by MSP Field Maintenance and the Reliever Airports totaling $10 million. In addition, $2.8 million was allocated for IT purchases. The use of these funds has remained undecided since 2015 due to the

6 Page 6 transition of Information Technology leadership. With the appointment of a new CIO in mid-2016, a plan has now been formulated for leveraging the funds. The Information Technology Department is now in position to leverage these funds and is requesting approval to initiate their use in accordance with current MAC purchasing policies. The funds will be leveraged for the following priorities: Enterprise IT Architecture Project Management Office Development and Maturity Evolution Service Orientation and Maturity Evolution Risk Management Activities Exact distribution of funds is currently unknown and depends on multiple variables including existing situational assessments, internal prioritization and timing. MAC IT is requesting to initiate activities to access these funds in concert with current sourcing policies not to exceed the total set aside amount of $2.8 million. CHAIR BOIVIN MOVED AND COMMISSIONER KING SECONDED TO RECOMMEND TO THE FULL COMMISSION AUTHORITY TO EXPEND THE $2.8 MILLION IN FUNDS ALLOCATED FOR INFORMATION TECHNOLOGY TOWARDS THE STRATEGIC PROGRAMS. THE MOTION CARRIED BY AIII E HUMAN RESOURCES POLICY REVISIONS CF 319 Corey Bonnema, Manager Employee Development and Engagement, presented revisions to Human Resource Policies - Tuition Reimbursement and Professional Development and Training: Tuition Reimbursement - Increased tuition and registration expenses MAC employees will be reimbursed from a maximum amount of $3,500 per calendar year to $4,500. Removed reference to certificate programs as an eligible tuition reimbursement expense. Professional Development and Training More clearly defined responsibilities of management and employees related to different professional development and training activities. Language added relative to authorization and payment of occupational licenses and certifications. COMMISSIONER DEAL MOVED AND COMMISSIONER KING SECONDED TO RECOMMEND TO THE FULL COMMISSION APPROVAL OF CHANGES TO THE TUITION REIMBURSEMENT AND PROFESSIONAL DEVELOPMENT AND TRAINING POLICIES CONSISTENT WITH THE STAFF RECOMMENDATION. THE MOTION CARRIED BY

7 Page 7 AIII F. RATIFICATION OF LABOR AGREEMENT WITH LAW ENFORCEMENT LABOR SERVICES, LOCAL 302 POLICE OFFICERS UNIT CF 320 Greg Failor, Labor Relations Manager, presented for Committee review and approval staff s recommendation for ratification of the labor agreement with Law Enforcement Labor Services, Local 302 Police Officers Unit. He noted that there will be no general adjustment to the salary rate schedule in Instead, there will be a new 15+ year wage step added to the wage schedule and a lump sum payment for certain full-time officers. Mr. Failor noted that he worked with MAC Finance to develop the restructured wage scale which will not impact the budget. Overall, total cost to the Commission remains basically the same. He explained the rationale for this wage schedule adjustment noting that MAC police officers at the end of their careers will be more in line with other jurisdictions comparable to the Commission. He reviewed the terms of the 3-year agreement noting that the general wage increase in 2017 for part-time officers is effective December 31, General wage increases for 2018 and 2019 will take place the first full pay period in January of each year. He also reviewed the health insurance benefits, clothing allowance, increased differential for Investigator and Field Training Officer, parental leave benefit, and Health Care Savings Plan employer contribution. Newly hired employees will be able to utilize accrued vacation and sick leave during their probationary period. Discussion followed regarding whether the modified wage schedule could potentially result in recruitment challenges. Mr. Failor responded that the primary objective is to ensure the most experienced officers remain with the Commission. He emphasized that while there is a short term financial sacrifice for the younger officers, the financial benefit is realized in the long term. COMMISSIONER DEAL MOVED AND COMMISSIONER GINSBERG SECONDED TO RECOMMEND TO THE FULL COMMISSION APPROVAL OF THE COLLECTIVE BARGAINING AGREEMENT BETWEEN THE METROPOLITAN AIRPORTS COMMISSION AND LAW ENFORCEMENT LABOR SERVICES, LOCAL #302. THE MOTION CARRIED BY The meeting was adjourned at 10:34 a.m.