we requires contract crors to provide domestic partner benefits, health care and ensure that contractors are using green products to protect our environment. all these things cost money and is the right thing to do more. this employs more people on construction projects and leverage more money to our programs. local high has ancillary benefits in our economy. i want to add that there is a real hunger out there in san francisco. there is a real hunger, and it is not a recent hunger. it is a hunger around for decades, people wanting to have greater access, wanting to have greater opportunities. if the construction trade or in other industries. last night i saw this poster, which to me was inspiring. it says help build san

francisco, and it is encouraging people to find places to apply for work. it has two committee members, a pastor who is carpet, lynn noel yum and soft tile workerer, and a construction laborer, both of whom are looking for work, both of whom are encouraging others to find work in our public works projects. but also looking at what our hunger here in the city, defined opportunities as needed, and also recognizing that we are building. we are putting people to work. we are building new buildings, new subway lines, new sewer system plants, now monuments of our human ingenuity. it is time we did the right thing and made local hire mandatory. we have many people part of the recitation today.

in particular we have rodriguez, from the office of economic development, who will share first on this presentation. mr. rodriguez, if you want to come forward. we will be hear after mr. rodriguez, from mr. egan from the office of economic impact part of the controller's office. then we will go on to the report from the budget analyst, mr. harvey rose. i also want to thank john white, george, and buck from the city attorney's office for their major work and heavy lifting on crafting this very denies and complicated piece of legislation. it is stronger for your effort and work with the many shareholders to make it happen. thank you very much. mr. rodriguez? >> thank you. i am director of city build, office of economic work force development. a lot of what i was planning to address were some of the amendments that we worked with

the supervisor on. i do appreciate that a lot of the challenges associated with looking at all of the different aspects associate with local hire trying to make the legislation workable on the ground. our office has to work with community groups and contractors doing public work, and the awarding and contracting department, our position has been to try to find a workable solution so that local hire actually works on the ground. i congratulate the supervisor for taking many of the amendments that the city offered. there are a few items that we would still like to see some additional changes. we've talked to the supervisor about thinking of beginning at 20% rather than 25%. we've talked about some technical clean-up language associated with the baking of hours concept. we also are spreegged with some of the ideas that -- intrigued

with some of the ideas that the controller's office has with respect to enhancing opportunities for contractors to look at promoting the pipeline of the program. so ultimately a lot of the mendments that the supervisor spoke to were items i was going to cover. our office is here to answer any technical questions that the board and the supervisors may have. thank you. supervisor avalos: thank you, mr. rodriguez. just to reemphasize as well, this has been an ordinance that has been a work in progress. certainly we introduced something a month ago. we have amendments that we reintroduced last tuesday, and i would say that it still is a work in progress. that is just the complicated nature of trying to work with multiple sources of information, multiple shareholders that have a real tern about making this policy

work. next up we have the controller's office, mr. egan and controller ben rosenfield we share. >> good afternoon. ben rosenfield of the controller office. i thought i would mears some of our key findings that we issued earlier today. we find that the legislation before you here today does have positive net benefits to the local economy. that is really the result of two things. it is the result of increased employment and wages in the private sector, partiallyoff set by higher construction costs. the result of this is an estimate of a net cost per job created of approximately $18,000. we find that the economic benefit from this legislation could be greater if two inefficiencies in the current legislation are corrected that would result in reduced costs

for the city or a lower cost increase on construction that would result in a lower cost per job created. generally speaking, those are our findings. we have proposed possible fixes to the two inefficiencies we see, and mr. egan can walk you through the findings and proposals. supervisor avalos: thank you. mr. egan? >> good after noonch, supervisors. ted egan. i would like to share with you our economic report. >> i think that mic isn't on. >> is this the mic i want? >> you just need to get closer. >> how is this? great. if we could turn on the presentation. . thank you very much. the major elements of the legislation as we've seen it, and these contain some of the aspects that most affect its economic impact, it applies to

all city if you saided public works projects that have not already been advertised going forward. it requires 25% of hours worked by local residents, and that escalates by 5% a year to 50%. that requirement is arm separate requirement for each individual trade. it is not a requirement for 50% of all hours. it is 50% of all hours for each trade. 50% of apprentice hours must be worked by residents in the first year. any out of state workers who are brought in to work are exempt from the requirement. as i said, it requires each trade individually. the city is required to pay innocentive bonuses to exceed the requirement, and contractors who cannot or do meet the requirement have two options. they can pay lick tated damages or sponsor others.

our analysis largely focuses on the option of paying liquidated damages. the reason for that is because that is spelled out clearly in the legislation. what a contractor's choice is regarding sponsor apprentices is not clearly specified. one could envision a scenario in which a contractor might prefer to pay damages, tuckly if those costs can be pass on to the city. before i go into detail, i would like to summarize our key conclusions. this is a report that summarizes essentially the key economic effects we think the legislation will have both as it has been proposed and amended, and also with the mitigations that we recommended in our report. let me first describe what type of analysis these numbers come from. we have looked at the capital plan, which is a 10-year document that contains the city's projected capital

spending, and looked at those projects that would be covered by this legislation, legislation that involves state or federal spending would not be covered. that is a significant portion of the plan. approximately 2/3 of the capital plan spending would not be covered. within the amount that is covered, we looked at what are the occupations that contractors would need to hire in order to complete the work that is called for in the capital plan? we looked at how much of that work would be mandated to be undertaken by city workers at a 50% target. so this is a number that is a year six or seven when we get to the 50% target number. it is not an initial number. i would agree with supervisor avalos' comments that the economic issues we see with the legislation don't materialize in the early years.

the targets in the early years are quite manageable. the unemployment in the construction industry right now is quite high, and we thick that the city could bear the cost in the short-term without great difficulty. it is in the years when it ramps up to 50% and we don't have confidence that the simply of local workers will ramp up, the issue of the appropriateness of that target for every trade comes up. this is talking about a typical year of capital plan spending in the new few years. at a 50% target, given the residents, the people who we know live in san francisco now or who we believe live in san francisco now in each trade. in that typical year, this legislation with create 335 or 336 construction jobs for san francisco workers. that will pump into the economy

an additional $27 million of spending, which represents the wages and salaries of those workers who would otherwise be unemployed. so this legislation will be effective as creating jobs for construction workers who are currently unemployed, and that will represent an injection of money into the city's economy that will have a positive economic impact. we believe for reasons that i will go into in a few minutes that this will increase the city's contracting costs to the tune of about $9 million. supervisor avalos: that is annual? >> that is an annual number, as is the $27 million. supervisor avalos: and this chart here is based on 50%, knowing that we have our three-year review period where we can make adjustments. some trades might not get there , decisioned we make along the way based on the information we get. >> that is a fair point. the scheduleed 50% is in the

legislation. the periodic review by oed and the controller's office basically generates recommendations that may be less than 50%. but the board of supervisors would have to vote to lower local hire requirements, based on that legislation, which would cost jobs. one might argue that is a very challenging thing for any board to do. not to preclude that as an opportunity, but that seems to be a high bar and cobsquent doesn't seem unreasonable to look at from our point of issue, what is the worst-case scenario at the 50% requirement. supervisor avalos: supervisors elsbernd? supervisor elsbernd: help me put the money in scope. what would be the total dollar amount? >> of the covered promise, it is about $950 million. so we are talking about roughly a 1% increase of construction

costs due from this legislation. as i will go into, the higher contracting costs essentially will be due to the fact that we believe contractors will inflate their bids because they will have to raise the salaries that offer locals. we project that they will have to raise their labor costs and raise the salaries that they pay to local workers. in some trades, not at trades, but the in some trades the legislation calls to hire more people than live in san francisco or unemployed in san francisco at some years in the future. the net effect in terms of spending is about an $18 million boost. the $27 million of additional wage standing and the $9 million of additional cost to the city spending.

we feel the net is worth about 14 jobs. when you consider the direct and indirect jobs, the multiplier effect jobs, the cost per job to the city is about $18,000. with the mitt gations we have raised in our report, we believe that number can be lowers to about $6,000. and the city's cost could be lowered without harming the economic impact in the job creation in any way. in fact, making the economic impact more because you don't have to pay for some of the labor costs. that is what is slide is preventing. we endeavor to provide numbers behind what we say. i don't want to oversell the precision of any of these numbers. a lot of these projections involves looking forward 10

years, and there is a great deal of uncertainty. but i do think, echoing mr. rosenfield, there are three things clear. one is that it has a positive economic impact as it is written on spending and jobs in san francisco. two, that it is inefficient in a couple of key ways, and that if those inefficiencies were mitigated and removed, the cost to the city would be less and the economic impact book higher. with that summary in place, i will go through the meat of our report and discuss how we arrived at these conclusions. when we look at the legislation for how it affects the economy, it is really, like a lot of pieces of legislation, it has some benefits and some costs. it is about the net effect. it certainly benefits the economy when unemployed local residents have jobs. that increases spending in neighborhoods, and that ripples

throughout the economy. to the extent, however, that the legislation increases construction costs, that has a negative impact on the economy. the city must reduce its spending in other areas, on general fund projects. for bond-funded projects, the city have to make due with less scope, less public works created, or it will have to get the money somewhere. the extent to which construction costs are inflated is a bad thing. supervisor avalos: when you say how much -- how much are they being inplayeded on a year by year basis? we are putting in about $1. billion a year, and we are saying our costs are inflailted by what amount? >> we actually think it is about $930 million of covered

projects. so it is about a 1% cost inflation, if that puts it in context. supervisor avalos: would you call that significant? 1% out of $983,000 doesn't 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