the resolution is approved. >> item #10. new business. any public comment on new business? commissioners, any items that you would like to add to new business? item 11, public comment. >> is there any public comment on public comment? seeing no one, we have a motion to adjourn. >> i would also like to offer the commission's best wishes moyer and her family for recovery. with that, i motion of adjournment. >> seconded. >> meeting adjourned at 3:50 p.m.. >> thank you.

[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. again, if we increase some projections, say in the property tax or the payroll tax, that number could shrink, or it could increase,this is really a point. supervisor chu: how much did we have in the rainy day fund? >> 116? somewhere around there. supervisor chu: we have significantly drawn down on that reserve. >> we will get to the other reserve that was created last year by unanimous vote.

because it allows for 75% to be withdrawn, it allows for a very rapid depletion. it leaves you with only a year or two to use this. it could take us through future downturns that might be longer. these other columns -- we would have to get 160 million. that was another concern.

there is a general reserve in each year of the budget. prior to last year, it was not a requirement with budget policy. the had pretty much stayed flat as expectations. it was considered to be a small dollar amount. as part of prop a, the comp troller's office was charged with reviewing the other jurisdictions and recommending revisions to the policies which was done. for the first time, the board itself passed a set amount, and

set a target for the general reserve to rise to 2%. it wouldn't be too much of a budget shock when it first came in. this general reserve is available for any purpose during the year. it doesn't have the same limitations and can be used with limitations or short-term contingencies during the course of the year. it is available for any purpose that the board desires. it rises to 1.2% and will gradually rise. you can see the dollar amounts involved.

this can be changed by the board, but under the terms of the charter provision in general -- supervisor chu: just a quick question for you. beginning in 2013, we start to increase it. >> even in the short run, we could pay our bills. that is part of that concept of

you have a certain number of months. there are those that have higher, but it was in a range that was recommended. >> just to a elaborate a bit, the general recommendations were between 5% and 15% that they be maintained. of a $3 billion budget, we are talking about numbers that are over $200 million. what we reviewed, we have a rainy day reserved. and we have the general fund reserve in aggregate over a longer period of time. they will approach and lead the recommendation. certainly, the stand alone is

2%, a very small reserve. >> i know you have been in conversations, that is particularly important to the extent that we go out to purchase bonds. >> the rating agencies are very concerned with the general reserve practices. they don't so much to look at a single reserve as they looked at what the balances are available. there are some other residual balances. the city intends to grow its reserves going forward.

supervisor mirkarimi: thank you. just a couple quick questions. on the graph, why is it sometimes that we don't include staffing or facilities? >> we include those in the revenue letter each year. it would be directly tied to revenue rebels. that is certainly something that we include in the revenue levels. supervisor mirkarimi: there is something about the discussion about the expenditure question. what about the bass lines that are not on here?

>> there are other expenditure requirements. and the audit function is another percentage of the city's budget. there is also the substance abuse treatment requirement. supervisor mirkarimi: with that same outlook, because of the requirement that supervisor elsbernd and i have been pushing forward, with regard to that same answer, why not include this? >> it is a portion of the baseline. it includes in kind services.

it is required as part of that total. supervisor mirkarimi: it is supposed to be leased on scale or proportion. am i wrong? >> you are correct. it was approximately $2 million of the total money, the school district has agreed to those offsets. i don't think there is any feeling as long as you're within the total value dollar. it is not solely under the discretion of the board to make