program that allows people to be educated to build a stronger community and protect the environment as well. understanding of local importance of hanc and the recycling center, as well as the person who brought up the ecology class, really helping to make sure that our community is hole in many ways. thank you for targeting the people that need to overturn this horrible decision, continuing to organize and build the movement. i will probably support this and i hope that my colleagues to his well. thank you. -- as well. thank you. [applause] supervisor avalos: madam clerk, can we have it roll-call vote? >> this is to send it to the board with recommendation? supervisor avalos: motion to the full board with recommendation.

>> on that motion -- supervisor avalos: i was checking the agenda to see if this was the committee report. >> it does not say that. supervisor avalos: very good. go ahead. >> on the motion, supervisor mar? aye. elsebernd? no. avalos? ay.e e. there are two ayes and one no. supervisor avalos: 80 that it passes. that was our last item -- thank you, then it passes. that was our last item? >> there is no other business before the committee. supervisor avalos: than we are adjourned.

supervisor kim: captioned by the national captioning institute

--www.ncicap.org-- supervisor chu: welcome to the regular meeting of the budget finance committee. today is the first day that we are expanding to our by person committee. today we have two items before us. before we get into those, our clerk is mr. victory young. are there any announcements? >> please turn off all cell phones and pagers. if you wish to submit public comment, please fill out a speaker card in provided to myself. documents for the committee should be duplicated for the file. supervisor chu: thank you very much, mr. young. just a bit of information, the

office has put out a schedule of hearing dates for the upcoming budget season. primarily we will be seeing a number of enterprise departments in the month of may as well as a number of general fund departments in the month of june. i believe that that schedule is posted on the boat -- on the board web site. the two months before june we will be having a number of hearings relevant to understanding the budget that we are seeing before us for 2011- 2012. if we can, please go straight to that. please call items one and two. >> item #one. hearing to receive information regarding budget instructions issued to departments and plans to close the budget deficit for fy2011-2012. item #two. ongoing hearing to receive updates on the state's budget

for fy2011-2012 and its impacts on the city and county of san francisco. supervisor chu: mr. wagner is here from the budget office and the comptroller's office might add a few words. >> thank you very much, madame chair. members of the committee. i will walk you through the high level picture of where things are right now. kate howard from my office is going to talk to the state budget picture. just to kind of frame where we are right now in the process for the last several years it has been an ongoing process, balancing the budget in the budget year.

where we are right now is the apartments have submitted their budgets and have been going through the submission process for the last couple of months. they have submitted their budgets to the mayor's office. i guess that this marks the official starting point of the process of digging into those department proposals and policy implications and what they mean for the budget. right now we are still looking at things at a very high end broad level. the chair had asked if we could summarize what we are receiving in submissions, although i think it is early for me to be able to paint an accurate picture of that for you. we will dig through that as we do our submissions.

we will continue to share information on where we stand. i know that the supervisor has invited the departments to talk more in depth of their proposals. i will walk through what the big picture looks like today and what we will be trying to set in the background for what we will be talking about with you. repeatedly for the next three months. as you know, no surprise, we have to balance the budget. our budget instructions, which we submitted in the winter of 2010 included the mayor's office deficit projection. as you know, it showed a reject -- reduction year-over-year by and revenues and a growth of $293 million in expenditures.

our projected budget deficit has been $380 million for the coming year. since then, a number of things have changed. there are all of these moving pieces. expenditures to grow. revenue that changes. we have had revisions to our estimates. let me go through a couple of those quickly to give you a sense of what is moving. we will have a formal update to the deficit projection and a joint report coming out late in march. in a few weeks we will have all of the pieces put together for a better sense of what the full picture is. also, just very high level and not new information to any of you, but put in perspective, as you know we have a $6.5 billion

city budget. about 45% is in the general fund. within $2.9 billion we have other significant restrictions on our options to take to balance the budget within that period a large and growing contribution to our pension system. an obligation we are required to make. other approved requirements locked in a portion of those expenditures. the big pieces that we are working with, by definition, the chunks of spending in the general fund, they fall into essentially three major categories. the parcel budget, whether it

is discretionary general fund, it is public safety. and then held and to treat human services. primarily the health department. another roughly 45%. not surprisingly, that is where much of the discussion has been in previous years and will be in this year's budget as well. since the deficit projection last winter, a couple of things have changed. you all know that we asked departments to meet their budget reduction target partially in the current year to try to get a jump on next year's problem. in december we received those ideas and about $19.8 million in savings. that was sort of a down payment on the budget instruction targets. as you have heard, since then

this committee had a controllers six month report come out, controlling revenue projections. looks like the new news will be $14 billion in good news in the current year. and then a significant portion of that will annualize into next year. we will look at some portion of that again. another piece of caution out there, deficit projection had assumed that we would be able to withdraw from the rainy day reserve. it is unclear if that will be the case. we are still working on the exact projections. we are near the border in terms of charter formulas about whether we can or cannot withdraw. we had assumed a $17 million

withdraw from the reserves. if we pass that point, it would be a setback in terms of original projections. we have also had losses and projections for the health department revenues in particular. a number of these will be made up by other revenue sources within the health department. it is a step back. projections that you saw in the six month report. some of our projections came in during the current year, so we had to write off those revenues. and we had some movement in our largest expenditures. we got some good news on the health rates. there are still significant cost growths for health insurance.

because of the package adopted by the health services board, there will not be as quick of a rate of growth as we have projected. that will feel like some savings. that has been offset by an evert -- even greater increase in employer pension contributions. there are about $23 million in additional growth. we had already projected that our employer contribution would go from 13.5% of salaries to 16.5% of salaries. the actual figure is 18.1% of salaries. growing faster than we projected. we know that these expenditures are going to continue to grow over the coming years and be one of the fundamental questions that we will need to answer in

the current year's budget and for the long-term. i guess that the point of this is that we have a lot of things moving around. little pieces of news coming and going. the big picture is that we are back where we started after all of these changes. the fundamental picture has not changed. not substantially. we will have a more formal update. we might have some new news in a few weeks, but essentially things are where we thought they would be. nothing has fundamentally changed in terms of the big picture. >> we had a deficit of $379 million. given the changes throughout the six month report, we are netting a bit worse currently? >> correct. supervisor chu: we will see an

update again in the joint report? >> i do not want to overly- suggest that this $383 million number is science. it is a little bit in the back of beyond the globe. but that is essentially the big picture for all of the changes going on. looks like we are right about where we were two months ago. in terms of some of the big cheeses available for us to look at in terms of balancing the step to set, what the committee saw last year was a couple of regular items that we usually consider or use to balance the budget deficit. we projected inflationary growth in the current track of $19.2 million. that is cost of living adjustments to our providers.

so, we do project that we will experience that growth. we do have the option and will likely exercise the option not to fund that growth. meaning that providers will have to adapt to providing services with fewer resources as many of them are experiencing the same crop -- cost growth pressure as the city. under the option to the school district we can defer one quarter of our contribution in a given year. we have exercised that option in the last couple of years and it is likely prudent to do so again. there is the long-term issue of the charter language that requires us to pay back at some point unless prope h is renewed.

something to consider for the future. another big piece of the deficit projection is the capital budget plan that assumes we will be spending $73 million in general fund cash over the coming year. the deficit projection historical the includes that full value for the last two years we have used a combination of reductions to spending and applying other funding sources to reduce general fund costs. it is likely that we will have to do that again. we have been talking about that at capital planning committees for the last couple months. obviously, this is not without its trade-offs. we have a huge backlog in infrastructure means needs.

right now if we make this level of reduction in general fund capital, the street resurfacing budget will decline into the next year and there will be a drop-off. some of those big pieces can get the deficit down substantially. i think that those will in some form or another be a part of the solution. but it still leaves us with about a $300 million projected deficit if we assume that all of those solutions are used. again, as you know, we asked departments to submit targets for reduction. i wanted to talk about how that math works. supervisor chu: could i ask you a quick question about the potential city-wide solutions? the $30 million in capital

budgets rejection, previously we were able to find resurfacing money because of gas taxes. this year is there any chance for offset? >> a good question. conceivably we do have the possibility of using the gas tax to fund the streets further. we are getting to a point where sustainable to keep adding to that debt burden. it is a potential policy decision that we could make. we have used the gas tax for the last two years. we are getting to the point where that will be limited as a solution. the capital plan calls for,

within the next two years, street resurfacing general obligation bonds that have been anticipated in the past. but they have not gone on to the ballot. there was 16 years ago or so, but it did not pass. the idea in the capital plan was that voters would begin to address the gl bond and identified the ongoing, dedicated funding source for street paving so that we could maintain our cash funding going forward. that is a possibility for a funding source. currently in discussions of the timing on that bond, but i do not think it will be an issue. i think it will come before this committee this month. supervisor chu: thank you. >> as i said, this targets the

budget submissions coming into the mayor's office this week. although we have been working with the apartments over the course of the last several months. to give you a sense on the scale of the targets and how they fit into a bigger picture of our $300 million deficit, these are the targets issued by the mayor's office. these of the top five departments in terms of general fund support. it is worth noting that these five departments are at 75% of the city wide general allocated funds support. ones where the bulk of the general fund really is. then there are the departments that have the largest general fund reduction targets.

5% is what we asked for them to submit in december. the next column is the budget that came to us yesterday. we asked for an additional 10% contingency. to give you a scale of what we have asked for or in terms of what that means for a balancing plan. if we received the complete 7.5% target that we asked for and we decide that those are acceptable policy options for balancing the budget, that would generate $81.5 million.

and it was a significant reduction target. a population problem. a state policy change that will increase their staffing requirements, most likely. they will not be evidence to no fault of the sheriff. costs are driven by staffing ratios. that is an example of how there are constraints on the department's ability to meet these targets. supervisor mirkarimi: regarding the realignment in the state, what are the resources that could accompany those efforts back to the city? >> a great question that has

been on all of our minds. >> we got in summation -- information this week about calculations and how they are going to a she administrating instructions about how it is implemented? that is a huge question, and you have pointed out exactly what we will need to grapple with. we know that they're going to shift responsibility for low- level offenders to the county jails. we know that they are one to shift responsibility to all of these from the state and county

probation departments. supervisor mirkarimi: i am concerned about those numbers. who is at the table i think that -- >> i think this is a jail population issue and for the wider criminal justice system. potentially we have capacity issues. i know that we have the capacity issues in the probation department bedroom door. as well as reentry and social services programs. an essential issue on which the level of funding will be critical. in terms of what we are doing,

we have some things going on internally. some things are going on and externally. internally we have the working group for the safety departments who are working regularly to talk about what they are hearing from the state and other counties to try to think about what kind of a criminal justice system are we going to need to design locally. extra lane some of our department heads and state lobbyists, as well as staff from the mayor's office, have been actively trying to work with the department of finance and public safety departments at the state to understand what they are thinking and to try to shape that proposal in a way that will be manageable. i think that you have hit on a critical question for supervisor mirkarimi: us: -- for us.

appear supervisor mirkarimi: is the sheriff's office involved? >> we have spent a lot of time with the sheriff's office. the sheriff and adult probation department are the and the departments of the fis and the mayor's office on what they are hearing and have the city should respond. supervisor mirkarimi: but i mean talking to sacramento. or is that the mayor's office and lobbyists talking to sacramento? >> it is both. absolutely. i know that the sheriff has extensive connections. i know that our department heads have been and to gather information. it is absolutely a team effort. supervisor chu: thank you.

>> again, just to put numbers in perspective, if we were to receive the value of what we have asked for, it is about $81 million. if we got the full 10% contingency that we had asked for, included within and a willingness to put them in the budget, that would be $108.7 million. if they were to be received and put in the budget, it would be buzzed with a remaining $120 million general fund gap. the point is just emphasize that we have a big issue in front of us. we will have a lot of work to do with the department and centrally here at this committee, as well as