future c.o.p.'s in the capital plan, but also understand the issue about the lease revenue bonds. maybe mr. blake can talk about -- we are the only jurisdiction here. maybe a perspective on that? by voter, by initiative? i would love to get your thoughts and general on the implications of what if we were not to have that restriction, not only in terms of ease of operations, but in terms of cost of debt? >> sure. i recall there was a change in the 1970's or 1980's that changed this restriction in san francisco you do not have elsewhere. i think more tools and the tool

kit are always hopeful in this world. i think as the city, over the last 10 years, we have been going forward to the voters with different charter amendments. we have committed ourselves to ability to issue revenue bonds, and the voters are increasing their bonds for most of our government. so, the public utilities commission has the ability to issue bonds without a vote of the people or a series of ballot initiatives over the last 10 years. when the open space fund was reopened for rec and park, that included the ability to issue bonds for that revenue steam -- revenue stream. most recently, the libraries -- prop a, the ability to issue

revenue bonds. we have selectively been looking to add these tools back. we're looking at the cost benefit periods in -- were looking at the cost benefit. it will be very modest. they are fairly interchangeable from our way of looking at the world. again, more tools are helpful. we're looking to broaden our ability to use the tools and the way every other jurisdiction and the state does. >> so, because we are a frequent and sophisticated issuer, we

initialize 40 to 60 basis points. san francisco -- if anything, we are on the lower ends. people like, investors like san francisco. we have been fortunate enough that we do not see much differential between credit. it allows us, by not going to the voters, it allows us more flexibility in timing. the market knowing that you have to allow for time to good the voters to get approval -- with c.o.p., q improperly time when it is a good time to enter the market so ultimately, you get a lower bond cost. there is a differential. in most instances, if it is voter approved, it likely gets a ronger rating.

another city has a 3-tier rating structure. c.o.p.'s are non-voter approved. my colleague mentioned the open space fund. it is almost a part of the tax gao bonds. it is higher than lease revenue bonds. if we were to say that lease revenue bonds were able to be issued without the voters, not much of a difference really? >> we do have a process where we do have voter approval. [unintelligible]

in the last instance, it was a 65-71 vote. it was rated differently than the other c.o.p.'s before you. supervisor farrell: thank you. >> i apologize, supervisors. i found an error that will change the analysis. the $590 million is total debt service. that is going to change the analysis. we will revise that. supervisor farrell: ok. supervisor chiu: thank youchiu -- supervisor chiu: thank you. supervisor farrell: i guess next is the mayor's budget office. i think the two things i wanted to briefly touch upon -- historical practices in city

hall, how we approach things. the notion of capital expenditures, not looking to the future in this november. the commitment to stay here. but also, a discussion of how we are approaching. there are a number of big-ticket items. this is real dollars compared to where we have now -- what we have now. how do we evaluate going to the voters when it might not be a popular thing to do, jailhouse or otherwise, versus the issuance of c.o.p.? i would love to hear a little bit more. >> insurer. two good questions. i am happy to follow up. maintenance versus capital. i think there are a couple of

answers to that. there is of course the legal question about which types of expenditures are opprobrious, which types -- are appropriate, which types of stores. i think one of the things that is worth pointing out -- of the last several years, we have gotten much more sophisticated as the city and in our planning about how we approach the interaction between our cash and spending. through the capital plan, we have started to really have a lot more nuanced discussion about the trade-offs and using cash expenditures. the biggest example, of course, is how we have funded streets

over the past couple of years. i would probably not want to make the argument that a long- term financial strategy is to use general fund debt for streets. i think there are instances where it is a reasonable approach. in the capital plan, there is a greater need for the types of products eligible for debt, financing and the types of projects that are really cash on the types of expenditures like facilities maintenance. that need is great enough, that we would probably all like to be in a position with cash, but even our 10-year capital plan, we are phasing in to meet that goal. we are a ways away from that

goal. we're happy to meet those renewal needs with cash in a given a budget year. i think there is a trade-off of how we mix that with inappropriate level of cash spending to maximize the benefits we're getting -- and opprobrious level of cash the need to maximize the benefits for getting from our cash expenditures. i think the biggest question, the elephant in the room, for our capital plan for our budget, capital budget is of course the jail at the hall of justice. we absolutely need to do something. it is the top priority for years now in the capital plan. it is a significant cost.

we've had a lot of discussions in the capital planning commitment -- committee and elsewhere of how we're going to approach that. there is a very good argument to make that the appropriate way to do that is through a gao bond. the reality is, with the voters in san francisco, gao bonds have not done well with jails. we tried it with the san bruno jail. i think there is a question in front of us. how do we approach that? do we try a general obligation bonds? do we move forward given the timeline to get out of the hall of justice? right now, the capital plan -- we're moving forward with c.o.p.'s.

it is a policy question that will have to be closed in the very near future it would be a significant gao bond and a significant debt service payments that would impact us. supervisor farrell: in terms of the hall of justice, just as an example -- we do not want to upgrade the facility randomly. there are reasons why we want to do that. maybe we could articulate that a little bit more. we're going to wrap up. obviously when voters say, we have non-voters approved debt. i thought they would actually understand that.

after voters rejected a bond measure, i think there is even more scrutiny. i think what is left in the dust -- the reasons. i went to give you an opportunity to talk specifically about this. there are real, substantial reasons about it. >> absolutely. as i said, it has been the number-one priority for these 10-year capital plans for some time. right now, we have a situation where we have of a deficient building housing prisoners in our jails. if we were to have a major earthquake, that building would likely -- or it is possible -- the building would become unusable. then we would be in a situation more we would have to make internal accommodations for those prisoners. it is a large jail. we would be left with a time with no facility where we would

have to reconstruct or construct a new facility in the aftermath of an earthquake. from a planning perspective, not replacing the hall of justice is generally viewed by the city as a large risk financially, but in terms of not having an alternative place to house prisoners, and also to force ourselves into a situation where we have to rebuild for an earthquake and not in preparation for an earthquake. on the question about voter approval of bonds, there are a couple of nuances for that question. when we asked voters to approve the gao bond, we are asking them, do you want to do this project? and another question is are you willing to make a marginal increase a senior property tax rate to pay for it? when voters declined to approve

a gao bond, i think there are two ways to interpret the results. one is, i don't want the project. the other is, yes, i want the project, but i do not want to pay for it out of my existing taxes. we do not necessarily get a clearer assessment of which category their response falls into. i think that being said, is our responsibility to communicate to the voters cases in which we absolutely have no -- we have a very significant legal or financial reason we need to complete these projects and in cases where it does fall to the city, i think we have to clearly communicate about what that means to have been. if we are unable to secure gao

bond support, we need to look at that. supervisor farrell: do we ever articulate as a policy matter, as a policy matter the city and county has decided this is something we need to do and this is not approved, our borrowing expenses will go up five x, because we're going to have to use c.o.p.'s, and that is what you are also voting on? >> yes. ben is reminding me he was part of the conversation on san bruno, and i think that is something we can probably do better. it is also a complicated message when you're talking about communication about a bond measure that most people are not spending a significant amount of time on. " we've tried to do as part of

the capital plan is to do a better job -- what we have tried to do as part of a capital plan is to do a better job communicating, to look at the capital plan, to be more up front about some of the analysis about the trade-offs, what the costs are through her a gao bond, what the costs are if we do nothing. i take your point. we could do a better job in this case is about been very explicit what the trade-offs are for gao bonds versus c.o.p. >> on this question, the case study of the jail going forward, i think it might be the case of the jail -- the san bruno jail, where at the jail provided frankly unconstitutional living

conditions for inmates. so, we had a federal order pending against the city. we were near receivership, frankly, on this question. we went to the voters with the general obligation bonds to replace the jail. i think it was made clear that's absent voters approving, this would go into our borrowing budget and cause other problems. shortly thereafter, the city issued certificates of -- to rebuild the jail, because we had to. we may find ourselves in that exact situation going forward with a much larger jail. the most -- our largest jail is the one in our most seismically-on state building. it is the most daunting financial challenge the mayor

and the board will be making in the coming years. decision time on that is probably the next 18 months. supervisor farrell: right now, given the spread of 45 to 60 basis points, these are real numbers. i look forward to looking at this to make sure that is clearly articulate going forward. thank you. you know -- do you have any questions? i want to thank everyone for participating. everyone in the city attorney's office, our budgets analysts, the mayor's office for coming up. the issuance of our debt structure, but in particular non-voter approved debt is something people have not focused on in the past, but when you see the numbers, they do have real concerns.

for me, the take away is the least revenue bond may not be the most pressing thing. i think the two issues going forward -- in terms of how do we limit c.o.p.'s from a financial point of view for things that are not for ongoing maintenance and repairs? i am not sure if it is a huge priority for me. how do we go forward with that? we will work on that in the coming weeks here. also, how do we as a city grapple with on a policy level going to voters and having them generically reject the bond measure? i think it is something where there are instances where we feel it is very necessary from a legal point of view that we do this, have an open and

transparent dialogue about what we do that. in particular, when it comes to legal obligations, the difference in cost the city is going to occur and the real penalties the city is going to occur on those. i look forward to that discussion. i want to thank everyone for participating. i appreciate that. chair campos, we're pretty much wrapped up. maybe we can ask for public comment. the one thing i would ask that we keep it open when we talk about the ratios of san francisco compared to other jurisdictions. why don't i make a motion to continue this item, so we can hear from the budget analyst, to make sure we have a grip on rescind as a city compared to other -- ripon where we stand as a city compared to other

jurisdictions? supervisor campos: that is to the call of the chair. before that, i would like to open it up to public comment. if there is any member of the public would like to speak, please come up. thank you. >> hi. good afternoon, supervisors. my name is george wooding. i'm not a financial expert. i think more about what neighbors think. i will try to be brief. first, c.o.p.'s seem just like debt to me. i've heard everyone explain it. i have read about it.

i have studied it. it seems like a big runaround to prop 13. that is the first thing. i think sentences go has to be more careful about -- i think san francisco has to be more careful c.o.p. pfunding. politicians need to become more responsible. c.o.p. money should be spent on capital improvements, not maintenance projects. due to the higher finance cost in the drain on the general fund, we should send a message about financing long-term programs. i want to speak briefly about how neighbors feel about road repair. this is an example of a terrible financial wasted for several reasons. citizen tax dollars are already supposed to pay for road

repairs. we already paid for it. second, we feel is ill advised to use 20 years of long-term debt to pay for short-term readiness. and understand what the gentleman said earlier about roads and the difference of sweeping the road, but to us, that is a meanness factor. third, it costs $83.4 million dollars -- {chime} supervisor campos: thank you very much. next speaker, please? >> good afternoon. my name is douglas. i have lived in san francisco for 59 years. i would like to thank supervisor

farrell for having this hearing. i think it is long overdue. even with my college education, some of my folks back east overwhelm me when they talk about financial subjects like this. basically i rely on their interpretations rather than my own knowledge. one thing that bothers me -- when i looked at th item, there was only one sponsor. if i remember correctly, there are supposed to be to other supervisors who have the reputation -- two other supervisors to have the reputation of being fiscal watchdogs. i would like to pose the question for the record whether the two of them are in support or whether they have no opinion on the hearing? i think hearing from them would make all of us more comfortable about this budget. one of the things that has

interest me -- interested me lately is the general economic theory that is unproven. a lot of people refer to it as "voodoo economics." my own take is the manipulation of the accepted economic principles for some questionable future use. of course, that could be interpreted all kinds of different ways. during today's presentation, the statement that c.o.p. debt per capita is the highest for san francisco -- i saw the figure of the second city. that is pretty noteworthy. a thing that is something that needs to be explained. i would also like to mention that even though -- [chime] supervisor campos: thank you very much. next speaker?

is there any other member of the public would like to speak? seeing none, public comment is closed. supervisor farrell, i want to thank you for bringing this item for work. this is a great discussion. i want to thank you and your staff for all the work you put into this item. i look forward to getting additional information, and i hope that people watching and here in the audience found it as informative as we did. >> i would like to say thank you to everyone who participated. with that, i will make a motion for a continuance to the call of the chair. supervisor campos: we will make that motion without objection. why don't we do this? we will take a short recess and we will come back to the couple items that remain. thank you.