sound very significant to me? >> supervisor, the adjectives are not something that i can add a lot of value forchairpers. >> the policies can be designed in such a way to maximize the benefits and to minimize the costs. i think that is the only point i would like to make their. on that score, a think the legislation as currently written has a couple of features that might benefit from a closer look. because it establishes an across the board requirement that terminates at 50% for every individual trade, it is not taking into consideration the fact that there are some trades where there are many residents who live in san francisco who are qualified to do the work, and in other trades there are very few san francisco residents who are qualified. frankly, it takes a lot of time to become qualified to do the work. this is a slide that shows the

mismatch between supply and demand for each of the major trades we examined as part of this legislation. for some of the trades, like painters, teamsters, laborers, and carpenters, there is an excess supply of unemployed workers given what the capital plan is calling for. and one can imagine that that will not be a challenge for the industry to meet. their occupations like operators, on the other hand, where virtually no one in san francisco is qualified to do the work. contractors are nevertheless required to hire local residents. one of the things they can do if there is a shortage is try to hire people away who are already working. we heard that the construction industry unemployment rate could be as high as 40%. our information from 2009 says it is 20%. even if it is 40%, that means most people in the construction industry are working. if you need to get those people, you will simply pay them higher

wages to pull them away from the work that are currently doing. that does not create a job, but it potentially inflates costs. if the target is to create jobs for people who are unemployed at a minimum cost, to consider how many people are unemployed in the occupation you are making the mandate for -- as written, the legislation currently does not do that. another important feature of the legislation which can be mitigated is that every project, every individual construction project, has to meet the target. what that means is since it is unlikely that any project will meet the target exactly that some targets will be -- some projects will be over the target, will meet the target comfortably, and the city as legislation is currently written will be paying those contractors a bonus for exceeding the target, and that is adding the cost to the city. the other projects will owe the city money in penalties. for reasons i will talk about in the second, we do not believe

the contract will bear the cost of that penalty. with live contractors will pass those penalty costs on to the city in the form of higher bids. if every project is either above and the city pays bonuses, or below and the city pays inflicted contract in costs, the city is basically paying on every project. this is a chart showing you can hit a 30% target on an industry- wide basis and still have penalties for some projects, bonuses for the other, even if the industry as a whole is comfortably able to make it. there is an important difference between making an industrywide average -- say, during the year, up 30%, 40%, 50% local hire -- versus every product and contractor has to make it every time. that could be a big difference, we believe. to get to modeling the economic impact, if the local resident labor is already available, if

there are unemployed people in the trade are qualified and ready to work, contractors could encourage unions or otherwise supply resident labor at little additional cost to themselves or to the city, and no lost productivity. that is the sweet spot we are looking for. when the resident labor supply is low, they just do not live in san francisco, the qualified workers, or most are already employed somewhere else at prevailing wages, contractors will be forced to offer higher wages to attract local labor. if they are not available at all, there will have to pay penalties. in either case, contractors as a group will face the same labor market, the same penalty structure. they are unlikely to compete with one another to observe those costs. they are more likely to pass those costs on to the city in the form of higher bids. it is the lack of match between supply and demand, not the requirement itself, that leads to potential cost inflation for

the city. chairperson avalos: how much of that analysis-specific piece did you consider some of the flexibility we have given contractors to bank hours, to count workers who are working on non-funded projects that they can count towards funded projects? >> reconsidered each of those -- we considered each of those elements of flexibility. with respect to the ability to bank hours, it is limited to a city built graduates. they represent 5% of construction workers in san francisco. it is not a big pool of workers in which the bank of all our options open. -- bankable our options are open -- bankable hour options are open. chairperson avalos: it is a number the office of workers' and development has. it is not narrowed down to city build workers.

we can address that at a later time. if it is a somewhat wider pool of workers that can count for bankable hours, it does offer greater incentive that is not monetary. >> it does. i am not an attorney. it is based on my reading that it is limited to city built workers. that would severely constrain the value of that incentive. the exclusion for special traits is another element of flexibility. -- for specialty trades is another element of flexibility. right now, that is narrowed to [unintelligible] there is significant flexibility about sponsoring apprentices. i alluded to that earlier. it is so open in the legislation that you can sponsor very few apprentices and avoid local hire requirement. that changes the entire tonner of the legislation. -- entire tenor of the

legislation. if the bar for crating apprentices is extremely high, contractors do not take that option. that is a big unknown. the legislation as written is left up to os. to answer questions at a high level, we looked at these opportunities for flexibility, and this is what we are recommending nevertheless. supervisor mirkarimi: just a few questions. in reading your analysis, was there any assessment whatsoever about the growing trend of public-private partnerships in construction with foreign investment in the construction also leading to the infusion of jobs to companies outside of san francisco or outside the state of california? >> to human construction jobs? -- do you mean construction jobs? let me make sure i understand.

are you asking if public-private projects lead to a greater reliance on out-of-state contractors? we did not consider that. we highlighted or initially somewhat concerned about the exclusion for out of state workers, which could potentially give out of state contractors a competitive advantage. it is a u.s. constitutional issue that we could not apply local hire requirements to out of state workers. because san francisco is relatively far from many other out-of-state contractors, and because information provided to us from oed suggested out of state workers represent a very small share -- chairperson avalos: it is less than 1%. >> we did not try to model that. and the trend that leads to greater advantage to out of state for global contractors, or contractors who are easily able to tap into a non-local labor

force -- and the trend of creates an additional source -- any trend creates an additional source of costs. creating local jobs does not increase the city's costs. if you think about the seesaw on this, the extent to which local or california-based workers and san francisco-based workers lose work because out of state workers gain it, that is a net loss to the job benefits side of the legislation. what would really happen is they would be chosen because they would be making a lower bid to the city than a california-based contractor promising local labor. that is how the would affect the economy. -- that is how that would affect the economy. we project what would happen then is that when the local hire requirement raised to a point where they affect contractor behavior -- at any stage,

contractors facing local hire requirements will try to find unemployed workers in each trade to meet those requirements. we think those costs are relatively small, but given the got -- given the job creation. it is not hard to hire people looking for work. given a 50% requirement, given what we know about the trade supply now, contractors will be forced to pay additional wages to hire people away from jobs that already have to meet the requirement, because the city has local hire requirements, the private-sector does not. those contractors will inflate costs to meet the quota. given what we know about supply and about projected demand, about $2.80 million of costs will be contractors passing through penalties because the level of mandated demand exceeds both the number of unemployed and unemployed who live in the city.

as i said earlier, that does represent only about 1% of the city's projected cost. one may or may not find that to be significant. the cost will also be lower in the early years because unemployment is now high and labor is widely available. this legislation does not expire. it continues into the future. we have at least a 10-year horizon in our analysis. i should also say this estimate is somewhat conservative for a couple of additional reasons. it assumes that no contractor exceeds the target and is eligible for bonuses or incentives from the city. that represents nothing of the projected higher city costs in our analysis. it also excludes contractor losses in productivity that might occur if local hire requirements require contractors to break up their score cruz, which could take place it in some projects -- break up their core crews, which could take

place in some projects. to get to the economic impact. we believe this will create jobs to the multiplier effect associated with additional spending from those who are currently unemployed. that will create around 40 jobs a year. because the city will have to reduce costs, there is a net decline of 25 jobs. the net-net is 15 jobs. the target is 350 net jobs. the net cost to the city is good in penalty payments is about $6.50 million. the total cost per job to the city is about $18,000. just to conclude, our assessment of the legislation as written raises contracting costs by about $9 million age your work written 350 jobs in -- 900 -- $9 million a year while creating 350 jobs. most city expenses associated with inflicted contractor bids -- and i should say that we did

knopf -- with inflated contractor bids -- and i should say we did not go into the analysis of the controller report. in some cases, local supply is insufficient to meet the requirements of the legislation. contractors will pass that on to the city. chairperson avalos: the net benefit you said was how much? $17 million? >> yes, in spending. supervisor elsbernd: the $9.30 million, the 1% number based on the $934 million, that is at the 50% local higher number. -- local hire number. $934 million is what we hope to do. realistically speaking, the capital plan -- maybe the first couple of years, we hit our goal, but we are not going to

prospectively for a while. kim still assume the same 1% cost? -- can we still assume the same 1% cost? >> we believe it was killed and nearly. the city's costs will be proportionate. -- we believe it will scale linear lee. -- linearly. the less demand from city projects, the less you run up against supply constraints from any trade. the lower the number, the city cost will go down more than that. we believe there are four items that could dramatically or significantly reduced -- i use that word on my own -- the negative impact associated with this legislation. that would be replacing the across the board 50% mandatory requirement with a trade deficit requirement that reflects supply and demand of the city the

availability of the trade. second, continually assess the progress and amount of time it would take to get to a 50% mandatory requirement. third, allow contractors that exceed local hire requirements to transfer their additional credit hours within a given trade to other contractors. this will allow the same local hiring targets to be met on an industry-wide basis and not a project by project basis, and gets away from a situation in which we are either receiving accounting for penalties or paying bonuses on every project. if we do that, we can eliminate incentive payments. the ability to transfer credit hours would create a private- sector incentives to advance local hiring, and also reduce the city's costs. i have a little bit more detail on each of these points, if you'll bear with me. as i have said, there are several trades where we believe the supply cannot support a 50%

local requirements. these include traits like operators, brick masons, and plasterers, among others. there are others including carpenters and printers which are less impacted and can stay within the scheduled mandate, provided the schedules are industry-wide and not project- by-project. we would recommend iowa -- recommend an amendment to the review that would exempt the trades currently impacted from the automatic escalation to 50%. let the reviews set those -- recommend those targets and not have the legislation set in stone 50% higher requirements for those pieces of legislation. the review by oed and the controller would look at every trade and how long it would take to progress to 50%. the goal of 50% would be in the legislation, but there would not be a set in stone requirement

that 50% be required for every trade within six years unless the board asks affirmatively. supervisor mirkarimi: what happens then if the standard policy by some of those trades in trying to seek those qualified comes from the pool with in san francisco, but do not then find that pool of necessary work in san francisco? tennessee did elsewhere in the bay area, or wherever they may pull it? -- they will seek it elsewhere in the bay area, or wherever they may pull it? >> over the long term, if wages are inflicted, more people will want to work in construction in san francisco, and more qualified jury-level workers will move to the city just to qualify as resident workers and me that. that is not something that we have tried to model because it is a complicated question of how people will move. clearly --

chairperson avalos: in some cases, it will be people moving back to san francisco. >> it will be people moving back because the city is paying them to move back. that may not be ideal policy. chairperson avalos: they could also have roots here and communities here the rejoin as well. >> that is true as well. even without that, people will be attracted by the higher wages that will occur. we believe that this wording of the review process will ensure that the city stays on the track that i believe the legislation intended to stay on, which is making sure that we are increasing the local supply of local resident san francisco trade workers to advance to%, but to do it in a way that does not -- to advance to the% -- 50%, but do it in a way that does not burden the city with additional contract and costs. this creates an incentive for contractors to meet the local

hiring requirement, whatever your it is. if they exceed the requirement by 1000 hours for a given trait, they could sell those hours to a contractor that cannot. but that really means is that the private sector will be funding -- will be paying bonuses itself to the contractors that are good at local hiring, and penalizing contractors who are bad and local hiring. i believe this can be contained, if you do it on a trade-specific basis, as the amended language we have suggested here would do. my final slide is that if we allow that private transfer of additional credit hours to essentially let the private sector fund the incentive and much of the penalty structure of the legislation, the city can eliminate its own incentive payments and further cut the city's costs. i will not go into my model assumptions for that. that concludes my report, supervisors. if you have any questions, i will be happy to take them.

chairperson avalos: any other questions for mr. egan? i appreciate your work on this and the recommendations to provided us. this is a work in progress, something for consideration. i cannot say i am totally comfortable with everything you have presented in terms of the analysis. i think the recommendations are sound based on that analysis and worked our consideration. thank you. before going to public comment, why don't we hear from the budget analyst? mr. rose? >> mr. chairman and members of the committee, as shown on page 6 of our report -- actually, it is on page 7. there is a table two, which estimated the proposed ordinance would result in a cost of

607,000. that is one time costs for needed equipment and surplus. ongoing administrative costs of $1,650,597. those costs would be incurred by both the office of economic and work-force development and the county clerk's office. on the top of page 8 of our report, we point out that the office of economic and workforce development estimates they would need at least five full-time positions to implement and administer the ordinance. we state on page 10 of our report that the financial requirements regarding the estimated potential cost to the city for contractors and sub- contractor incentives cannot be fairly estimated at this time. that is, what the costs would be

to the city for that. finally, on page 13 of our report, our recommendation is, given the proposal would result in an estimated additional $607,991 in additional one time costs and an ongoing annual cost of $1,655,907, much of which would require general fund monies in the first year, and given the impact to the city that mr. egan has mentioned and the potential impacts, we consider approval of this ordinance to be a policy matter for the board of supervisors. chairperson avalos: thank you, mr. rose. colleagues, if we can go on to public comment, unless there are questions for any city staff? and then we can talk about what we want to do in terms of moving this along and things to consider as we move it forward. i have a number of cards that we can go on to for public comment.

i will read them and people can come up when they hear their name called. it would be great if you would line up in the center aisle. bob alvarado, mindy keener, ramon hernandez, glenn mccellan, eric brooks, jason lemew. two minutes per person. >> i am the executive officer of the northern california carpenters. i want to go through this. should i use the -- i got this note that says a legislative digest -- and to speak in general terms and have you and your staff go to the specific ordinance? just a couple of comments. on page 2, bullets no. 5 and 6, it is a local hiring requirement

with a mandatory produce a patient of 25%. there is additional language which says no less than 12.5% of project work hours in each trade performed by disadvantaged workers. then you have total hours where it says no less than 25% of all project work hours within each trade performed by disadvantaged workers. it is very difficult even for the union, let alone a contractor, to determine who is a disadvantaged worker and who is not. that is a city function in the recruitment and assessment coming through, for example, in this case, city built. city build does that assessment. right now, to put it frankly, 100% of the folks that come through city build our disadvantage. but i put in this language in the -- by putting this language in the ordinance, at the end of the job, when you have an 8% to

10% retention and staff goes to the work hours and an employer misses a disadvantaged worker which he does not know if he has or not, he is subject to penalties, which is withholding of his retention or just writing a check. i think that is a function of the city side on recruitment and assessment, but not on the construction side on the job site. chairperson avalos: mr. alavar, tweo minutes per person is what we allotted. i know you had more than that to share. i want to be mindful of all these other people who are going to have two minutes. but i want to extend your time a little bit. we had a conversation this morning that did not get completed. if you could briefly summarize your last points, and then i

will have to endure time. >> ok. we may end up continuing that conversation. i will just say that if you take those recommendations that we have brought forward with your staff, and again just add a couple of things. the economy is bad. we would like to see that 20% come down to 20%. we think that is an achievable goal. understand completely as we go through this ordinance process that a san francisco resident belongs to the city, and not just particular neighborhoods. a san francisco resident is a san francisco resident. i think if you are inclined to implement a lot of the changes that we brought forward, i think it is really something -- i can only speak for the carpenters. i think it is something that we

can make it work, both for the employers, unions, and san francisco residents. thank you. chairperson avalos: think you for coming in today. i appreciate your time. [laughter] [applause] >> mining is mindy kenner. i am a senior job developer in bayview and visitation valley. i have a journeymen and women and apprentice people in my area who are out of work. they are union members. they have been out of work sometimes for years. they are across the trades. they need to work now. we need to push this legislation through. i ask you -- how many people in your neighborhood are out of work? in my neighborhood that i work in, 50% to 60% of the young men and women who come into my office are out of work, have no skills, need the training.

and we need to put these areas to work. this legislation will give us the capacity to put my neighborhood and the people that come in every day, begging for training and jobs, to work. we need to very good faith with mandated local hire. i have too many people who are socially impacted by not going to work, not having any idea of how to access union jobs. this would give them the access that is needed. they deserve it. every san francisco resident has rights to work in their city. thank you. [applause] chairperson avalos: thank you very much. next speaker, please. >> my name is gwynn mcallen. i support local higher because it will reduce workers traveling

long distance. 35% of san franciscans commute by public transit, prepared to 9% in some bay area counties. vehicle miles traveled decrease with the resulting benefit for air quality, congestion, and public health. we need to eat local, shop local, and higher local. [applause] >> good afternoon, supervisors. my name is jason. i have been part of the stakeholder process that informed this ordinance you are considering. in listening to my colleagues, labor, contractors, the city, and the community, i offer my perspective as a homeowner, a member in the community, my training as an economist, my experience in community development over the past decade. i am currently employed with a venture philanthropy organization creating low-income jobs for individuals with barriers to work. i want to urge y