mmm [sighs] got me on that one...

supervisor chu: supervisor chute regular meeting of the budget and finance committee.

mr. young, are there any announcements? >> please turn off all cell phones and pagers. if you wish to speak during public comment, please fill out a speaker card and submit it to myself. items acted upon it will appear on the board of supervisors agenda on march 1, unless otherwise stated. >> thank you. supervisor chu: item one please. >> item 1. hearing to receive an update from the controller's office on the six month budget status report. >> thank you, chair chu, members of the committee. i am the director of budget analysis. i am pleased to give this update on the six month report.

can we have a laptop on the screen? it is nice to bring a bit of good news in this budget environment. we will see how much more we will be able to get as we go through. our six month report in terms of the bottom line, showed an updated general fund balance of $89.2 million, which is $43 million in improvements from our three month report. if you look at the assumptions the mayor's office had been using in their last shortfall projections, there were already some of these improvements factored into those, so this represents a $14 million improvement from the assumptions in the mayor's office deficit projections, taking into account their midyear savings plans. i want to emphasize as always, with these figures, these are projections and their uncertainty includes basic assumptions about property tax appeals, and there are some of deals.

we do our best to predict what is needed in order to have enough money to pay those appeals. we will update those, that model, we are continuously updating that. there is the potential for a special election in june. we do not know what the cost of that would be. that is not factored into these projections. of course, the state budget is still very much in flux. i am not aware of factors that will affect our current year, but we are still not sure what the state legislature will do. so how do we get to this $89 million number? we started the year with a better than budgeted starting balance from the prior year, about $29 million. this was primarily due to prior year supplemental property tax assessments processed by the assessor's office, better than expected payroll tax and real- estate transfer tax that came in at the end of last year.

and we started with a budgeted reserve of $25 million. what we're looking at now is a revenue surplus of $70.4 million. we will look at the components of that this year. we will not be, as a result -- good news -- withdrawn from the ring into a reserve. we budgeted $32 million to be withdrawn the that when the longer be necessary. ninth and $6 million of net revenue -- supervisor chu: just one second. sfgtv, if you could turn that to full screen projection so that people at home can see. go ahead. >> there are extra copies of this presentation in the kiosk

by the door. supervisor chu: thank you. >> $9.6 million of the goods and revenues used flows through improved transfers to our base lines, including the minister of transportation agency, a library comment and -- the library, in particular. in departmental operations, we have a $30 million we allowed for revenue shortfall that helps to offset the $37.9 million shortfall of departmental operations as we live in large part of that, is the revenue that did not come in. the dirty million dollars was -- $30 million was there to help budget. that is how we get to this $89.2 million. i am not going to talk to each number on this chart. there is much more detail in the

actual report, if your interested. this does to an overview of the city wide revenues. you can see the major surplus is that we are seeing is in property tax, $35 million. we were conservative in budgeting property-tax, which was allowed to see us -- which allowed us to see this good news come in. peril task, conserve the budgeting. we have some updated figures that show not a great improvement in employment, but a small measure of the plummet in the average wage, which allows our projection for the payroll tax to increase. finally, the property transfer tax, partially thanks to the measure passed by the voters in november. certainly we have seen an impact of that and an increased property tax level, the high value transactions, opening up of the property market in san francisco. so we are projecting a fairly conservative from here on out.

we think good results for the first half of the year with the $24 million surplus compared to our budget. that leads to the $70 million in city revenues surplus. the base line transfers i mentioned, these negative numbers on the first part is out and looks to the general fund. 2 the recipient, those are positive numbers. you see muni receiving 6 $4 million extra, receiving an extra million in parking tax, the library, public education fund each getting a little extra benefit from this extra revenues. also, our good property-tax news means better news for the set aside property-tax, and here is the impact of that -$1.3 million to the children's fund, 1.3 to open space and a library funds. we have a note about the children's baseline.

to give as already overfunded in the budget, this does not change the required funding for the children's baseline because we are still within -- less than what was budgeted at the beginning of the year. looking at department all productions, this takes into account plan the department came forward in response to the mayor's request for savings in the current year. of the primary node is public health, you see a large number there, 37.8. that does take into account the revenue shortfall that we considered at the beginning of the year. so that is a large amount of the stimulus, federal, medical assistance funds, other members around the state plan amendments. that is one factor. the extra expenditure in the hospitals was actually balanced by extra revenue at the hospital, as you will be seeing

when you get a supplemental from that department related to cover this shortfall. that is the largest item you will see here. other supplementals we have been told to anticipate at the sheriff's office, which had about $7 million of projected increased salary needs, that is offset by some things on the exempt and that side, which is how we get to the shortfall. public works city administrator shortfalls are related to anticipated litigation expenses. the generosity responsibility, 2.3, we think that will be lower now since this was produced as related to shortfalls in the local courthouse construction fund, which needs to be built in order to cover debt service on courthouse. then you'll see some surplus departments, primarily, salary savings in the human services

agency, savings on programs. but of course, they have revenue shortfalls. that is how we get to that bottom line of 39.7 shortfall. the part mental notes. i mentioned the supplemental requests you will be seeing. -- departmental notes. you will be seeing those related to litigation and general city responsibility. supervisor chu: in terms of the supplemental that we are anticipating coming to the budget committee for the current year, what do we put the value at for the supplementals? >> basically, that is taken into account from the previous page. for example, in public health, we will need to be covering the 14.6 shortfall on their uses side, with extra revenues they

may say to cover their general revenue shortfall. supervisor chu: so for public health, a $14.6 million supplemental that will come through to cover the revenue? >> i am not sure what numbers you will see. we do crafted to show the different needs in public health. there may be different offsetting pieces and transfers in terms of the total dollar amount. the net effect we are showing is basically 14.6 for their overage, for their extra expenditure needs. >supervisor chu: looking at the previous line, $14.6 million, sheriff, 5.1 from general fund, public works, 2.4, city administrators, 100,000 common generosity responsibility, 2.3 from the general fund. correct? >> that general responsibility

will probably come down. supervisor chu: right. >> we do report on other fund. i will briefly mention a few of them. the only other was the potential general fund impact, as i mentioned, local courthouse construction. there is some good news with the building inspection. they are planning to have an operating surplus for the year and be able to increase their fund balance from what it was the prior year. convention facilities bonds has some savings that will also allow the fund to increase. childrens fund, thanks to property-tax, good news. we hope to have some extra amount next. lever preservation fund also has good news things to property-tax primarily. similarly for open space funds. they actually use a considerable amount of their fund balance in the current year. so there is a slight decline from what it ended with in the

prior year, even with the good news. i want to mention also in here, and t a, you have probably heard too much -- much about it. i will not go too much into it. they are having challenges with their trends, actions they need to take to keep their funds in balance. i will not go into detail with that here. and then a note about the public utilities commission water fund. it is worth pointing out that they are way -- well aware of that there has been considerable savings on people's water conservation. that has resulted in a reduction in water revenues. their fund balance shows a sizable decline. i know they are incorporating that into their planning. back to the bottom line, with this not as good news in the current year, if not years with

other supplementals this year, will be available to help with next year's shortfall. of course, that is still a sizable challenge. we are not making a new estimate of next year's shortfall in this report. there is a lot of consideration going on in terms of coming out with the next estimate. we will be working with the mayor's office and with your budget analysts office to produce a joint report. we expect that in march. that will also lead into the new financial five-year plan. i am happy to answer any questions. supervisor chu: with regards to the revenues, in reading the report, there were a couple of things that were interesting. on the hotel tax, a liquid or a billion dollars shy of where we thought we would be in terms of revenues that came in for that. upon reading that, $8 million can be broken down into $6 million because of a proposition to close the hotel loophole which did not pass at the ballot, a significant portion. there was still $2 million on

weakness from hotel tax. is that simply a reflection from hotel business going down or is it simply that it was not as positive as we thought it would be? >> we had a conservative projection for hotel taxes that was slightly before -- below our conservative projection. $2 million at the level of the total hotel tax, which was budgeted at $157 million for this fiscal year, is not a very sizable -- we will watch it month by month -- that is looking at our actual between july and december. just modestly below the rejecting when you take all the other factors, the voter action from november. supervisor chu: with regard to the transfer tax, one of the large components of revenue good news this year was related to increased level of transfer tax that the city saw. what i have heard is that transfer tax is really related

to folks trying to affect share with the sale of property before the increased rates kick in. so i am wondering -- you probably will be updating for the joint report -- will we expect this high level to continue throughout next year, do expect drop off because people may have tried to quickly to effectuate the transactions in this current year before these rates go into effect? >> we are actually having a briefing with local economists on friday to talk about questions just like that. our municipal financial advisory committee. although that may, indeed, have been a factor, our projections in the report is all the good news from the first six months but does not anticipate for the next. there have been things in the paper about a number of large transaction waiting, some potential revival in the

pressure property market, investment money ready for good properties in san francisco. so that could continue to provide good news for the future, but we will be watching it month by month and letting you know our updates as we periodically. supervisor chu: just a quick note on what we can anticipate coming to the budget committee based on the report. what i have gathered is we will see a number of supplementals coming through. i know the department of public works has already submitted their supplemental request for the $2 million. the other ones, do you necessarily have a timeline, maybe the mayor's office, and when they may be introduced? >> i will hand off to the mayors of the >> spirit madam chair, members of the committee. i think probably the time frame we would be looking at is sometime in march. the actual timing will depend -- there are still some factors

that could be moving in these numbers. we want to get them before you early enough so that you can have time to make a decision, but not so early that we will need to make subsequent adjustments. so i think the time when we are hoping for is to be at this committee in march. supervisor chu: one final question. there is a release of reserve that has been requested for about $44 million in salaries. i know that had been submitted across multiple departments. the criteria was to really take a look at where state revenues, federal revenues would have come in, based on the six month report. would you foresee? do we have enough revenue to release the reserve? i know that will be a further conversation, the base and the report. >> what we called the uncertain revenues at a time when we passed the budget, the comptroller issued the revenue letter, and again in the three month report, were primarily

state and federal revenues, most of which were at the part of public health. at this point in the six month report, we made a final assumptions about what is and what is not coming in. we have assumed a chunk of revenue from the state hospital fee will not be coming in, along with some mental health revenues at the health department. so all the revenues that we had previously been considering uncertain are now considered certain in the six month report. so we think we know what we are getting and what we are not getting, all of the potential bad news that we thought might be coming, we have either had our concerns that alleviated, or we have assumed in the six month report, that those revenues are not coming in. so there are no more pieces of their revenue that we are, as of yet, have a high degree of uncertainty. supervisor chu: thank you.

supervisor mirkarimi? supervisor mirkarimi: you answered a few of the questions i was going to ask. i am curious, based on recent reporting on how foreclosures have delayed the impact -- have a delayed impact, especially in san francisco, are those showing up in these figures, with regard to the impact be realized before us, or are those impacts that will also be delayed in the presentation figures a few months from now? >> the appeals we are factoring in were filed through january 14, -- really, september was the deadline last year to give people pause 2010 appeals. as of january 2010, they get their notice and an appeal through september. so we have a full listing of those. we know what has been decided,

what is pending. based on where we think the market was, we have an idea of how much to set aside. so the impact of any sort of foreclosure is now, changes in for their property value will be felt in future years with the volume of appeals we will get next year. so we are reserving manipur feels that might be submitted later. we will be reevaluating that. in our budget planning, we will try to think about how much to budget for those kinds of appeals. that gets into the modeling of what we think will happen to the property market. so we will continue to look at that. that is why we have these financial advisers that we are meeting with on friday. we will decide whether that is substantial enough to increase or whether or not we need to reduce the expected appeals we allowed for next year's budget supervisor mirkarimi. supervisor mirkarimi: is it

bundled in the concept that properties that for clothes are all appealed? >> people have the right to say if -- if the foreclosures are reflective or cause a loss of production value, we are aware that others would be aware of where it for close deal was -- the very fact that you have foreclosure does that mean that you can successfully appeal your property tax. supervisor mirkarimi: exactly. so i am wondering what the deduction is from that category from those who have not necessarily undergone the appeal process but are in the queue of foreclosure. that is a suggestion from the larger, that you are speaking to. and i'm talking about commercial as well as private. commercial sectors saw a bit of a sustained delay from the residential sector.

at least from the information coming across our desk, a bit of a delayed hit. i am not sure how much factories of information here before us. >> my guess is most of the high value properties that are going to appeal will appeal. there are consultants out there encouraging them to appeal on the chance they may get an appeal. i do not expect this will bring in a lot of new, major properties that will appeal that would have not otherwise. i think we have seen the kind of scope that is likely. last yeawe sort of know the unif properties and how much they are asking for. we are stunned to see the decisions. it is not just a foreclosure issue but the broader property value issue that we will build met to decide if a connection will be at the same level as there were this year. >> is there a request for your

office? i know the assessor's office would be the key here. but in order to get a better universal understanding of where we are, with both the residential and commercial sector on foreclosures, where we stand and what we can anticipate? more numbers, hard numbers would be helpful. >> the assessor's office -- 2 we wilsupervisor mirkarimi: we will talk to them. supplementals on public health. i am curious, what more is it addressing, the supplementals? >> greg? >> to provided through the chair. there are two main components, need for supplemental at the department of public health. first, as you have seen at this committee over the past couple of years, there has been a pattern with the department, which we are aware of, which we

have been aware of when we make the budget projections, of them overspending salaries, particularly at the hospitals, but also bringing in enough revenue to cover that overspending. so for the past few years, there have been expenditure overruns, but the supplementals are funded with revenues at the hospital. so that is something that we are not surprised by and that the department has been anticipating over the course of the year as a look at what they're spending comes in at. the second piece is what the chair chu asked, some of the revenues in question, in the controller's three month report and revenue letter earlier this year. the biggest one of those is hospital fees, which we had made some assumptions about the level at which we would receive

revenue, and also how far back they would apply retroactively now that we have more information about those assumptions. some of the revenues we had budgeted had not come in. so the supplemental of public health will be a combination of those revenues not coming in and some overspending at the hospitals, which is covered by state and federal. supervisor mirkarimi: is health y san francisco part of the dynamic of extending those who can enlist or enroll in the costs that can be cover that may not have been anticipated? >> i do not think in the supplemental, help the sacramento -- help the san francisco -- healthy san francisco, their primary clinics are at the hospital. so of course, all the economics

of the health-care system are tied together, but the spending issues at the hospitals are an issue, something that we have seen in the health department's budget for the last few years. so i do not think it is attributable to cook the program cost overruns in healthy san francisco, it is the level and frequency of services at hospital is higher than budgeted, and at the same time, it is generating [no audio] care for those people. >> an additional factor we mentioned in the report, security costs that have been higher than budgeted, which is something that has been brought up by the department. supervisor mirkarimi: on the open spaces on the that was mentioned, --