it is our hope that by selling longer-term hopes and strategies, we can move in more carefully and gradually implement them. when you are dealing with the annual budget 12 months ahead, often, if you know where you want to get and you have to get there in 12 months, you have to resort to extreme measures. if you know that you want to shift money from one program to another within 12 months, you have to do things like laid-off employees and cut contractors. it is a shift by aware where -- in a way where if you are using attrition and turnover with a more careful in gradual planning process, there is a change that is easier to implement the likelihood of success for the strategies. painting a high level picture of what our hopes are for this

process, this document is really only as meaningful as it is helpful to the mayor and the board in planning our finances. we would all encourage your feedback this first time as we hope that this will become a road map. with that, i will turn it over to mr. wagner to talk through the document itself. >> thank you, supervisors. greg wagoner. so, i will walk through some of the contents of the plan. one thing just to say by way of a starting point, we have been developing this plan and trying to emphasize that there is a

problem statement in this plan as well as a solution statement in this plan. the baseline projection shows that if you look out on the current course of action, we have a significant and growing imbalance between revenues and expenditures. i think that that is not to take away of this report. we have known for a long time when we publish our reports that that imbalance this. i think that what is hopefully new and useful about this document is more on the solution side. to say, look, i know that we have this problem and we will start thinking about the big pieces of addressing that. that being said, this chart here is an illustration of the problem.

blue lines are projected revenues. redlines are expected expenditures. what this represents is sort of taking a look into the future given our current operations, given no policy decisions that have already been made, saying to let the status quo continue without taking subsequent action. what does that tell us about the direction that things are headed? >> the answer to that is the surprising. even though our revenues are looking like it will increase, slowly but steadily over the next five years we will emerge from the downturn. we have a corresponding increase in expenditures, a growing significantly faster than revenues. the way that things are right

now, even as the economy recovers, we will face continuing deficits as long as our expenditures continue to grow at the pace expected. the total value of these projected deficits, we start with the ones that you know what the coming year. if we take no action, it is expected to be over $800 million in the fifth year. so, just a quick high level overview of the big pieces of the solutions in this plan, i will talk about each in more detail. i will be happy to answer questions, if you have them. to emphasize something that the comptroller said, this document is not intended to be a budget document. it is a planning document that

sets up broad categories or a framework that can be used to make specific budget decisions over each of the next five years. we are not trying to prescribe policy decisions in this document. we are trying to set goals that people can use as an order of magnitude planning goals as we make individual budget decisions on ballot measures, other policy choices over the next five years. these other categories of solutions proposed in the plan as required under the charter and each year the windup of balancing out the deficit. of course, this is going to require real policy decisions on each of the five years and i do not think that this is easy as a course of action. but i think it is an achievable course of action, although it

will require some difficult decisions and some discipline to get ourselves back into a place where we are in structural balance within five years. each of these categories reflects one of our major categories of expenditures, proposes a target for savings and revenues that we could try to achieve in each of the year's planned. the last category is a catchall for additional reductions and annual reductions that we will have to make a rule of in the plan. to look at these individually -- >> before you go -- supervisor chu: before you go, the inconsistent number is a base case outlook of $283 million. at the last report we had a

different number that was north of 300 million. how should we interpret this number? did we get good news? has it been accounted for in the balancing picture? supervisor chu: a good question. the deficit that was included in the joint report has been changed in this projection. the reason for that, we have the nine month report that is scheduled to come out early next week. that is the third quarter report where we look at current year's spending and revenues. as we take an additional look at the news, we have got some updates to revenue that are positive. rather than leave this report saying 3 06 and next week, out with new news that changes 6, we try to factor in the nine months news in advance. we want news that will bring the

deficit down somewhat. most of that is revenue. some of that is expenditures. that accounts for the change over the coming fiscal year. >> finally, on the numbers, 283 climbs into a deficit over the fiscal year 2016. this sounds cumulative. 12, 13, 14, 15, each of these years without a fix for a solution, we expect 16 to have a deficit of 829 million, correct? absolutely correct. we are pointing out that the way that this chart is set up is different from how we do but joint report, which in the joint report we do everything with incremental change in general fund. this is total dollars rather than incremental change. supervisor chu: thank you. >> in the first category of

solutions, capital, budget, and that spending. we have talked about apple -- we have talked about it here on various occasions for the last several years. the actual budget appropriations have been less than the amount projected in the capital plan. we have continued to assume the capital plan recommended level of spending in deficit projections, which inflates our deficit projections, even though we have not been meeting those spending goals. what we have tried to do here is reset the assumptions for capital spending. essentially this would be a recommendation to modify goals for capital spending over the next five years and in the short term, bring those levels down to where we have been spending for the last two to three years.

slowly we will roll that spending back up to the capital plan level over five years. it will allow us to have more incremental growth to get back to the plan, instead of having to add $35 million to the budget. if we wanted to get back to recommended spending levels next year. it will also let us put the spending levels back in as other levels of the plan take effect. supervisor chu: supervisor wiener? supervisor wiener: this goes down to $15 million? >> the savings from reducing the assumptions would decline to 15. what that 15 represents is actually debt service assumption. buried in this number is the assumption that in that final

year, we would catch up with capital plan. over five years and increasing capital spending in bank account bubbles. supervisor chsupervisor wiener:e actually spend -- what are we on track to spend? >> the recommended level of spending is about $76 million. so, this would assume that we dropped down to the 35 or 40 range. a bit more, actually, then be spent in the current year, as we had used some gas tax to finance street resurfacing. it will be a little bit of slow and consistent, each year, including next year.

supervisor wiener: in the upcoming fiscal year we may spend more money on the general fund? >> we are more likely to spend incrementally more in 2012 than we did in the current year. >> i know that -- supervisor wiener: i know that in terms of the hospital plan, some of that is just a wish list. not realistic. will adjustments be made to reflect reality? at the capital planning committee we have become conscious of the fact that when the plan was first developed and approved, we were doing a pretty good job but actually funding the budget at the level anticipated in the capital plan.

over the last couple of years as we have gotten out of whack between actual appropriations, people are fairly conscious of that. we did discuss this quite a bit at the capital planning committee. the idea would be to be set the capital plan so that it is really tied to budget reality and does not become a wish list. that is one of the things we want as a strength in the capital plan. we want an actual planning document that reflects our intentions. we sent it for this year knowing that this proposal will -- would be coming forward. the expectation would be that as we adjusted and got there, the budget process over that 10

years stennis -- status. supervisor wiener: for the benefit of the public, general fund in capital spending does not include enterprise departments or bought in spending. for the benefit of the public, can you give some examples of what general fund capital paid for? >> the major things that this portion of the capital budget pays for, and you are right, in the enterprise the part of budget alone we have got about 250 million per year in capital spending appropriated to those budgets. in addition to the major water system, sewer system, there is a lot of other spending. maine, general fund expenditures, like street

resurfacing, are a big part that. part of that strategy would be to use a multi-year approach where we use a different fund or a revenue source back in with a bond. related to the city-owned facilities in the general fish department. occluding rec and park facilities, police stations, health clinics. primarily where they are general fund the department's. so, that proposal was not ideal, but realistic enough to get us back on track with that the original goal. the capital plan. in addition there is also an

assumption that we will take a look at debt service payments and do some refinancing, changing some of the assumptions about our payment schedules and allow us to generate some savings. so, wages and benefits, to go back to the original solutions on the second line, proposing more solutions to be the bigger categories in this plan.

the top line is wages and benefits, we have all been aware of this. faster than revenues, once the economy begins to recover, cost growth and wage benefits are going to wipe out over the course of the five years, where we will have $640 million by and growth, low wages, and benefits. standing still, the deficit is going to be $200 million as opposed to just taking wages and benefits. so, the proposed strategy of the plant is to set some targets for ourselves through a combination

of efforts that we're working on the pension reform. generating savings through labor contracts, contracts that would lower the cost of health care information. all of those are driving factors. we are not proposing a set of specific policies solutions, but the idea is that these financial targets should give us a range to shoot for as we go to the process of developing these proposals. the graph that i have right here is a comparison of the status quo protection as opposed to the proposed solution. the top line is the growth in wages and benefits. if we do nothing, the bottom line shows the increased acceleration in growth if we achieve the targets in this report.

again, to achieve these savings, it will require future decisions and actions by the mayor and the board. is an ambitious target in the realm of realistic targets, but challenging targets that we can set for ourselves. they will still be relevant in employee costs, this will help to offset the impact on future deficits. supervisor chu: interesting. on the board we typically see contracts for labor coming through in any given year as the city has negotiated certain wage increases or changes. this is beginning to inform us that when the contracts and the next year, this would be a good way to gauge whether the contracts we have negotiated,

compensation plus health benefits, if they are falling within the target deadline. for the first time, we really have an ability to say that this is the plan the city is setting forward for us to come into financial solvency and the balance, whether those contracts are meeting expectations in the out years, this is really useful. >> absolutely. that is exactly the hopes. it will also give the city a frame of reference when setting goals for what we are doing in contracts and pension reform, on negotiations, thinking about whether we are achieving our policy goals. so, on revenues, as i said, the

five-year plan assumes about $400 million in growth of revenues over five years, already factored into the deficit projections. about $420 million. the solutions section of the plan assumes that we will be taking additional actions to generate additional revenue over and above that 420 million, starting at $60 million in the coming budget and a growing over time to about 100. as with the other categories, this plan is not prescribing specific policy solutions or options to achieve that revenue, but the goal is that the numbers in this plan will set the

target and they will pursue options. this could involve a fee increases or tax measures on the ballads about to go the voters, drawing down church, state, and federal revenue. the order of magnitude in this plan will require some affirmative action to get to these levels but is within realistic and ambitious levels of magnitude. supervisor chu: thank you. supervisor chiu: can you talk about specific revenue measures at this time? or is that premature? >> the options on the table, for better or worse, the same set of options we have talked about for

quite some time. we have actually spent quite a bit of time thinking about this, thinking about what our options are. as you know, the main constraints are prop 26 being in place, when it as -- when it is our ability to pursue innovative fee of prose -- proposals from last few years. things like the alcohol feed. of course, we need voter approval to increase taxes if we do it in the november election. it would require a two-thirds vote. looking at what those available options are, we cannot raise our taxes.

i know that there has been quite a bit of tax of business tax reform, although the extent to which that changed the underlying structure, we all recognize that this is something meaning that it would need to be considered for 2012. our other big options are what you would expect. we have one quarter of 1% in sales tax our sales tax would drop. sari, when we have three- quarters of a point, the sales tax would drop 51% if the state did not have to extend that tax. other options are potentially

parcel taxes or utility user taxes that we pose on commercial users. but not residential users. so, by and not -- i am not rising for new ideas every year. the same set of options seem to be available, of one of which is not ideal is that not correct? >> i do not know that that is the case. like i said, we have been that some of the open to talking this

through. the mayor has less me some of president collection, options are fewer one of the issues, in addition to a we are proven a of a number -- of the november ballot. half of a year of before it can be implemented. the actual revenue would probably not be that much barris it -- account -- in fiscal year 12-13, helping us to achieve

these targets. i think that that has to be a discussion we are certainly open to that discussion. >> i do not know that i have the answer on that. last year there was there was a of the blunt the drive some -- to in the blacks of all the senate the books show but more history led be able to answer better than me.

so, just to tried close that issue, a chart similar to last one shows project in growth we just talked about the sessions by their nature capella somewhat marginal but we are projecting significant revenue growth as a part of this plan. even without so, now ibm salary inflation and this is heard