some of our parking garages, our parking garage leases. it is a similar story, where my office will be responsible for reviewing the annual budget every year and approving it. supervisor mirkarimi: because this was a voter-blessed in its creation and interfaced well with the city, have audits tracked this particular direction are unfolding -- or unfolding of the museum's predicament? >> i am not aware of anything by the board of the asian art museum in the past decade. supervisor mirkarimi: how is that, based on process, considering that we go through a healthy rotation of audits usually? >> it is a good question. i would have to get back to you about the last time it was touched on. as you know, the agreement here

requires a consulting review that will take place in the next six months. it will in essence be a performance audit of the organization. the thing i think is important to remember here is that a lot of this is attributable to the financial market changes that happened in 2008. the municipal bond -- markets crashed. the endowment of the foundation, that had been much higher, loses 20% or more of its volume in the market crash. that affected our pension fund, affected our investments as a city, affected a number of other nonprofit institutions. it is within the last two years we have had that loss of the endowment. that is a key part of the problem here. also what happened at that time was the disappearance of municipal bond insurance as an

industry, which happened globally. you may recall at the time the city spent a number of months, and really a year, working our way out of places where we had pieces of our financial arrangements insured by mbia and others. no one before 2008 was anticipating this entire industry would cease to exist. it is those few things. on this transaction, given how they have been structured, when municipal bond insurance no longer existed, it triggered all of these divisions in the form of financing arrangements that no one anticipated would get preferred, such as the collateral-boosting requirement and the need to buy the expensive letter of credit that will keep the deal whole. i do not know that there would have been warning bells we would have seen before 2008, even if we had conducted a complete financial audits. we had several with the

calamitous events all happen in a year that really dramatically deteriorated the financials. supervisor mirkarimi: thank you for the information. i absolutely agree that this is a very important institution that requires all our efforts to make sure that it has a long life and a real healthy place in the field of important museums in san francisco and california. thank you. chairperson chu: i know the director of the asian art museum is here. i wonder if he would like to say a few words. >> good afternoon, chairman chu, supervisor ross mirkarimi. on behalf of the staff of the asian art museum, we are profoundly grateful for the city leadership in restructuring the debt that can allow this

wonderful organization to go forward and improve. since the founding of the museum in 1969, when the museum opened in golden gate park, the museum has provided an educational artistic service to the community. since the museum relocated seven years ago, in 2003, as our controller pointed out, it is still a young museum. it has just been full-fledged for seven years. there are many growing pains, one of which is hard to address, the debt issue that enabled the foundation to help the city to refit the former public library building to offer to the public this wonderful collection and program. without this leadership, the city would not have a helpful

structure that would enable the museum to move forward. we are profoundly grateful. this is a wonderful testament to the city leadership, both from the mayor's side and the board of supervisors. i think everybody has come together to make the structure work. we have confidence with the city leadership that it will indeed work. chairperson chu: thank you. a quick question for you, based on the agreement here. a large part of that is premised upon the foundation being able to have a successful capital fund-raising campaign that generates $20 million over the next three years. what is your sense of that, and how have you been making progress in that regard? >> in the work leading to today, one key milestone will be

a press conference held in the museum on june 6, in which our former mayor gavin newsom, jerry brown, carmen chu, and others spoke after the press conference. there is an overwhelming consensus that under the city leadership when we work together, we have confidence to finding the donors and supporters that will work within the museum's existing structure as well as outside the museum's existing structures. under the city's leadership, i think the foundation does have the confidence to accomplish this fund-raising campaign. with me now is also covered chair of the commission at the foundation.

all of us have been working closely along with the city. any questions i would be happy to further its answer. supervisor kim: is there any comment you would like to make to the presentation already made? >> thank you very much. my name is tony sun. i am a chair of the asian art museum commission. i was elected to this post last september. i anticipated the bond issue coming to you in december, but at that time i thought it would be a negotiation that would be done quietly, because our bonds were fully insured. when i first met the bond insurer, i was surprised to find out they had no intent of making good insurance. the only collect premiums, but

do not pay out liabilities. that made life very difficult for the museum until the city stepped in and help as restructure the bond. i am very grateful for the city leadership. i want to think -- thank ben and his staff for making this happen. i commit that we will be successful in raising the funds. we have three years to do so. with the city's help, it will be a successful capital campaign. chairperson chu: thank you. why don't we open this item up for public comment? i have one speaker card, tomas piccorello. no? are there any other members of the public that wish to speak on this item, item six? seeing none, public comment is closed. as a comment, i do want to think the tremendous effort that was put forward by the controller's

office and the mayor's office with regards to helping to structure this. i think the item before us has a lot of good things. one is the fact that we are going to be able to continue to operate and run our asian art museum for the benefit of san franciscans and visitors to the city. i also think it is a good deal in that we have every party coming to the table to provide a piece of work on the issue. from the j.p. side, we see the bonds are now refinanced with a 30-year fixed rate loan at 4.6, a pretty competitive rate. we terminated a swap that was not working for the city's interest without any cost for the foundation. there was a return of $15 million related to that slot and a forgiving of $20 million of the outstanding debt. that is a good thing to see from j.p.

from the asian art and foundation side, the commitment to raise $20 million over three years and to conduct audits to make sure the budget approvals go through our city department or to our controller's office. this is a good start. on the city side, we spoke about the precedent this might set. i think for anybody looking out for city finances, we are always concerned about what the type of precedent will be that is set by any transaction, and whether or not we continue to become the backer of organizations that might be failing. in this situation, taking a look at the specific and unique charter restrictions and charter requirements of the collection, making sure the city is actually obligated to display this collection, we see that the financial risks here are much

greater, potentially, if we do not step in. we are not only talking about the financial institutions and markets as we go out to bid for future bonds, but also the fact that currently the asian art museum condition supplements our general fund contribution to the rate of $11 million every year. should the asian foundation no longer exist, the city would be obligated to fund another $11 million every single year to create an asian art museum offering. i think that is something that is not to be looked at lightly. i also think that with the insurance agreement in the ability for the board of supervisors and future mayor to be able to weigh in on whether there is a default that occurs is also an important one. when we think about the risk to the city, we know the risk is potentially $11 million in increased operating costs to

fulfil our charter obligations. but should things go south, should there be a default on the loan, the only obligation the city currently has is for the controller to submit a supplemental for us to consider and potentially put money in the budget to make sure repay that loan. there will be many conversations to make sure we never get to that point. but we appreciate all the work that has been put into this. i think this is a very solid deal. >> do we have a motion? supervisor mirkarimi: motion to approve the agreement with recommendation. chairperson chu: without objection. item five, please. >> item 5, hearing to consider the annual review and approval of the board of supervisors'

budget guidelines. >> good afternoon. angela calvio, clerk of the board. i am here to discuss with you the board of supervisors' budget for fiscal year 2011-12. i have included a copy of the packet -- a copy of this power point in the packet for the viewers watching on sfgtv. in preparation of the department's budget, the finance committee will hold two public hearings. today, we will review the annual guidelines and a draft budget. i will come back to the committee in february to review a balanced budget that reflects the direction from the committee and ask for your approval of the proposed budget for some middle at that time. i will then return -- four submittal at that time. i will then ret

chairperson chu: we are back to the regular meeting of the budget and finance committee. we are good to pick up on item five. our clark is making a presentation. >> thank you. i will just continue. in preparation of the budget, the budget and finance committee will hold 2 you "public hearings to review the draft guidelines of the -- will hold two public hearings to review the draft guidelines of the budget. i will ask for your approval to submit the proposed budget to the controller and mayor on february 22. i will return in june to review

any changes that need to be made, with the benefit of the budget analysts review and report. -- budget analyst's review and report. i am sure the mayor's budget director, greg wagner, will make a thorough presentation in the near future. to the next slide, to our current purpose. this hearing is to divide -- is to define guidelines on development of the department's budget. we will have to get into the weeds a little bit. you will review the budget for the current year and historically. we will look at budget trends and workload changes. we will review the presented budget and secure approval of the in your guidelines. -- of the annual guidelines. my objective is to provide for the functions and duties of the

legislative branch of the bridge of government enumerated in the charter and administrative code, the maintenance of the the dislike of record for the -- of the public record. this includes a budget and legislative analysts' services. the board cannot provide other duties to the department and minister, including the sun side ordinance task force, use commission, lafco, and others. now to the budget overview and many different numbers. the current year budget is approximately $10.50 billion -- $10.50 million. this shows the seven divisions in the department and how resources are allocated among them. the board of supervisors is at

$4.80 million. i will not read the whole slide, but you can see the different allocations. i will point out that lafco are in the third year of allowing use of curie forward funds for their operating budget. it is not until march or april that they take out that issue again. when i come back in june, should ask for further funds from the general fund, and will bring an adjusted budget back to you reflecting what they need, if anything at all. looking at the overall budget by line and them, labour is almost 70% of the budget. when you and professional services contracts, the combined 94.4% -- when you add it professional services contract, they combine to 94.4%. reducing the budget is difficult at this point as expenses have already been reduced over the

past few years and are relatively small. labor contracts are already set and have been reduced substantially from prior years. to recent budget reductions -- over three years, the board reduced its budget 5.1%, and 7.5% when relying on the general fund. this reduction is significant, especially considering that at the same time the department fringe benefit costs rose 25%, up by $400,000, from $1.60 million to $2 million. we eliminated the only discretionary program, the office of the legislative analyst, and combined those services with the budget and legislative analyst contract for

a reduced amount. we tried to mimic an enterprise department by raising our own revenue. our sources are aab these and contributions to city-wide memberships. we clerked both the lafco and puc revenue oversight committee. we had citywide labor concessions, a package that equals 4.6%. we downgraded and reassigned positions in the clerk's office to provide more entry-level career ladder positions and reduced costs by shifting resources from the corpse of this to other divisions, like the -- from the park -- from the clerk's office to other divisions, like aab and sunshine. the "low hanging fruit" has

already been taken. the next slide reviews the mayor's instructions. the mayor is projecting a 8 $378 million shortfall next year and is requesting a 2.5% reduction in the current year, and a 10% contingency. the budget instructions serve as a starting point for the mayor's office to work with city departments to balance the overall budget. some departments grew differently under the last decade and have been better able to reduce the others. it is the board's practice to treat these instructions as advisory, applying protection where they can while still being party to the solution to the city would budget deficit. in past years, staff outlined the areas of discretionary and non-discretionary funding -- spending, i should say, in the

board's budget. the target is based on discretionary spending. the board's budget is comprised 84% in non discretionary- spending. that includes board members and their aides, the budget analyst, the clerk of the board, committee and legislative quarks, the assessment appeals board, the sunshine ordinance task force, the youth commission, the annual financial report, and official advertising. the tractor and administrative code requires the above -- the charter and of the mystery to code requires the above services. -- the charter and administrative code requires the above services. our non-discretionary budget resources include those that provide for our core functions,

such as our admin up front, the office intake, the i.t., our payroll, and our personnel. going to the next slide, the department's discretionary general fund allocation is $1.60 million, which is primarily made up of the minister to support, such as what it found in route 224. i already reviewed our i.t. payroll accounting and our computing equipment. the impact of the mayor's budget instructions on our discretionary budget would be 2.5%, $41 thousand. 7.5% would equal one and 23,000. -- 123,000. it has been the board's practice

not to produce a contingency plan up front. due to recent vacancies in the clerk's office, i am sure we would be able to meet the mid- year target of the $41,000 to salary savings. i will discuss options to achieve the reduction target of $123 thousand in a moment. i first want to turn your attention to the workload changes, which impacts resource allocations for next year. the most notable increase is the number of appeals at the assessment appeals board, which has nearly tripled from two years ago. it seems the increase is due to the mortgage crisis, foreclosures, and subsequent decline of property values. it is expected to continue into the budget year. the crux of this is processed and approximately 1500 public records requests annually. this, combined with responsibilities of the sunshine ordinance tax course, has left

the clerk's office -- sunshine ordinance tax force -- taskforce has left the clerk's office underresourced. over the last several years, the board has sought to decrease general fund sources. it more than doubled other sources of revenue. for the budget year, i propose a $71,000 increase on the revenue budget based on current- year actuals, and likely ceqa applications. the volume of planning the surcharges and fees will also increase. this is based on the actual cost of one clerk position, which reflects our agreement with the puc general manager. this is offset slightly on recovery costs of citywide

memberships, based on the mta, puc, and port contributions. the next slide presents the projected salary costs for fiscal year 2011-12. the proposed budget does not include any new positions, position upgrades, or other increases in staff resources. $7.60 million or 4.8% higher than the current year. increases to fringe benefits is what is driving 85% of this change. according to the mayor's budget instructions, the department is to assume that retirement increases are 13.6% to 16.5% of the current salary and that health service, dependent coverage, and dental benefits will increase by 10%. the fringe benefit estimate also includes job-sharing

arrangements, which cost between $10,000.12000 dollars per position for a legislative aide. -- $10,000 and 12 close in dollars per position for a legislative aide. there is also an increase of the temporary salaries at the aab to support demand. this is offset by reductions in temporary salaries in the clar'' -- clerk's office and staff turnover. this next slide presents the projected non-salary costs. the budget proposal increases the non-salary budget by 2.6%. the primary reason is deferred

i.t. licenses for currently own software. it includes the necessity to replace 20 computer monitors that are over seven years old and upgrade software, adobe acrobat, which is also old. in our other current expenses line, we are asking for an increase for new copiers from the citywide rico contract. there are marginal escalations in cost for the same supplies. the only new item is software for newsletters at the request of supervisors so the board can allow for more effective constituent communications. this assumes that lafco will have sufficient carry forward funds. will find out in april or march if that will occur. the board will need to determine if they intend to adjust for

cost-of-living prior to exercising are considering the exercising of the first option on the budget analyst contract. the current contract expires december 31, 2011, but may be extended through december 31, 2013. the budget will be adjusted accordingly, following the board's determination. now, the proposed budget by division. the chart above provides an overview of the preliminary budget proposal by department division, and shows the result on department growth over time. the proposed budget does increase the general fund allocation by $361,000, off 3.1%. more than 80% of this increase is fringe benefits. the proposed budget is still 3.9% lower than the board's general fund budget of three

years ago. notably, we have reviewed the division changes. that also reflects a modest new bit of resources from the aab, and increases the clerk's budget to address equipment and software needs. the next slide reminds the committee of our budget targets. to reduce the budget $123,000, the department has few options not related to salary. i suggest to evaluate the current a vacant positions, which i will read to you. they are not listed on the slide. if there is a need to consider de-funding the lowest priority, i believe that is where we are. we have an administrative deputy position, a committee clerk,