[gave;] supervisor chu: hello, and welcome to the meeting of the budget and finance committee.

i am joined by supervisor mirkarimi and supervisor wiener. mr. clerk, do we have any announcements? madam clerk -- clerk: yes, please turn off any devices. items will appear on the march 15, 2011, board of supervisors' agenda unless otherwise noted. chair chu: next item. clerk youn: hearing the city's policies on set-asides in reserves. chair chu: i thought we would have a quick update on revenue

numbers for the coming year and then to have lunch into the set- aside policies. >> at your request, madam chair, someone from our office will briefly walk through the presentation we have and provide hopefully some useful background as you begin working through this coming year's budget cycle. a bit of an overview of what revenues make up our budget, how those compared to others, and then get into some of the nuances about the baselines and how our various reserves function. we hope you find this helpful, and i know we are in the process of getting this on the overhead screen as we speak.

chair chu: we do have copies, but maybe we can put them somewhere for the public to take, if they like. >> i would just get started. supervisors, i am from the controller's office and the city wide revenue manager, and as requested, we just wanted to give you an overview of some of the revenue sources that are contained in the city budget and then talk a little bit about the set-asides and other restrictions that we have on the use of those revenues and some of the reserves that get funded from those revenues. the first chart, this is the deal if you look at the city's entire budget during the current

year. $6.50 billion, approximately. the largest funding source is fees for services, and that is because it includes things like airport landing fees, et -- feees, water, puc. this is the largest. approximately $3 billion constitutes the general fund. the largest one becomes property tax. almost $1 billion out of the total $3 billion. followed closely by state revenue. also, business taxes, payroll tax, in a tiny amount of business-registration tax -- and a tiny amount of business- registration tax. this next slide is mostly for your reference. the top row shows the local tax

rates in san francisco for hotels, utility users, parking, and others. for certain of our revenue sources, there are portions that are set aside for particular purposes, largely due to voter- approved consent to this. -- approved incentives. the largest we have is property tax. voters have approved allocating part of the property tax to the children's fund, the library preservation fund, and the open space funds. this fiscal year, this is money not being deposited into the general fund but rather to a special fund for those particular purposes, and those are voter-approved mandates that have expiration dates between the six years from now and in

fiscal year '31. there is also a slight amount that goes to the symphony. for the parking tax, as you know, an amount equivalent to 80% of the parking tax is dedicated to the mta, so it is deposited into the general fund, and then we transfer that over to the mta, and that is about $52 million per year, and there is no expiration on that, that set aside. there is a small set aside of payroll tax some taxpayers can elect to have a small portion of their tax bill set aside for essentially graffiti abatement and other neighborhood beautification projects, and then, finally, the hotel tax. according to local code, it is allocated to a variety of

cultural and housing and convention-related activities. every year, i would just kind of said way into this next slide, which shows in more detail -- i would just kind of segue into this next slide, which shows in more detail -- chair chu: revenues that come in, and majority of that being services, puc, water, airport, and about $3 billion, almost half of that is general fund revenues that come in. what would you say is the percentage of that amount that is restricted? >> the $216 in tax set asides,

and in addition to that, we have about 380 that go to baseline, so the total is $600 million, i guess. also, there are a few other expenditure requirements that have nothing to do with the amount of revenue that we get the things like fire station staffing, minimum staffing levels, the requirement of the office of economic analysis, another few hundred million dollars. the ones we are looking at just here, about 600. >> just to briefly add to that, as well, the part of the fund that is discretionary, we have set asides and the baseline that michelle just alluded to, and we also have other areas where general fund money is restricted by either our charter or federal or state law, and we have cost payments which are, for example, required, and that is a portion

of the general fund budget, and additionally, we have certain kinds of federal and state revenue that are coming into our general fund budget that are required to be expanded, so you can kill these numbers in different ways in terms of what we call discretionary -- are required to be expended, so you can count to these numbers in different ways it, what we call discretionary. somewhere between $1 billion and $1.5 billion. chair chu: ok. so just for your reference, we have a slide showing how the hotel tax is allocated. chair chu: i think this slide

does not correspond. it says "tax set-asides." >> what we are talking about is just the hotel tax. about $133 is for any general fund purpose, and the remainder is allocated for specific programs within budget. >> mr. levinson from the comptroller's office, and i will just continue on the baselines that are in our chart, which are a part of our aggregate discretionary revenue. that is count deleted as the general fund revenue net of transfers, fees -- that is not counted as the general fund

revenue, net of transfers, fees. this is another way of looking at what supervisor chu asked about before. it was about $1.90 billion out of the general fund, so about 70% in that case. even the so-called discretionary revenue, there are different ways of looking at what is extorted, as was mentioned. that will find things like police department staff and benefits that we may have limited discretion over, but that is our baseline. but that $1.90 billion number. -- it is that $1.90 billion number. this was originally set up as two separate. it is really fungible from the perspective of the mta, that together add up to 1.96% of discretionary revenue, and you

can see the numbers, about $175 million from the budget. and then the library has the other base line, -- baseline, $44 million. we see what actually comes in, and we will transfer these as a final percentage to those agencies. the other requirements in the charter are the children to baseline, of which -- are the children's baseline. this would be $95 million in fiscal year 2010-2011. part of that funding has included the board's decision to provide rainy day money to the school district, which is a children's baseline eligible item.

the public education in richmond fund -- education enrichment fund, known as prop h, and i have another slide of that coming up. they also have a baseline which is point to 9% of annual discretionary revenue. -- which is 2.9% of annual discretionary revenue. this is out of the $1.90 billion of the aggregate discretionary income. and here is some more discussion, just a little bit of history on the requirement on the public " -- public enrichment. $60 million in 2009 to 2010, and after that point, like the muni

base line and the school base line -- and library baseline, it varies. that has a provision in the charter that allows the mayor and the board to reduce this amount by 25%, basically differ it, because it is still owed. that is if the projected shortfall is at a certain number. the actual amount, instead of being $60 million, it was over $40 million. so we have now been accruing that amount of money owed back to the school district. it must be repaid between 2015 and 2018, unless there is an extension of the baseline, so

there is a potential to be forgiven what we have expended is the baseline is extended. now, moving on to the reserves, contingency reserves, we have the rainy day reserve, which was approved back in november 2003, and in this, deposits were made in years when the general fund growth exceeded 5%. it is nice to think back to that time. it actually rose to be over $100 million before the latest downturn. we project that the general fund revenues will be less than the previous year, and, by the way, this looks at total general fund revenues, not just the discretionary that we looked at in the past, so there is an impact here in terms of what we are able to withdraw, with federal and state, and they also

have an impact elsewhere. it triggers a deposit. so under the terms of that reserve, the budget may appropriate up to 50% of the balance but no more than the shortfall compared to the prior year to the general fund of the city and up to 25% to the school district, which is discretionary on the part of the board. the school district does not automatically have the right to withdraw that. that is a decision by the board. the school district actually started to be able to withdraw before others, and that was withdrawn in the last year. chair chu: can you just describe what the triggers are in order for the school district to withdraw? i think they are different than ours. >> less than the previous time -- i forget the exact.

there is a provision for an adjustment from the previous high. for example, if we were still below our high but above last year, we still might be able to trigger. there is the inflation adjustment for what the school district receives, and we reviewed the school districts and numbers. they present us with their own report that distinguish discretionary revenues, and their calculation, average daily attendance figures that they show the state to show what is happening with their inflation- adjusted per pupil revenues. chair chu: so what this slide is telling us is at the beginning of the next fiscal year -- actually, in the current fiscal year, what is the current balance? there is a starting balance? >> that is right. we adjusted it after we closed the books last year and did not

withdraw as much last year because the revenues in the end came in a little higher than expected. chair chu: walk me through this. >> sure. chair chu: we withdrew 6.1 for the school district. that leaves us with 33.4. and we anticipate, in the current budget year, should the board approve the school district's request, that would be 8.4 potentially, and do we expect the city to withdraw also or to be in a position to withdraw? >> this is a preliminary number. our current revenue tracking, and we will be coming out with a more formal report in the joint report later this month, so we do not consider this to be the official projection, but based on our current projections, the city would be able to withdraw $16.70 million next year.