to fund the this appropriation, we of course have a corresponding recommendation to reduce the amount from the general fund reserve and we recommend that you approved the ordinance as recommended. supervisor chu: thank you for your report. supervisor kim: seeing as we already have $20 million in the reserve, by am curious to rescue what the thinking is in terms of the amount that we like to maintain in the reserve. a reduction of almost half of what is in the reserve, what will it mean for the city? >> you are referring to the general fund reserve. yes, that is correct, the city has traditionally always started out in past years with a $25

billion general fund reserve. however, it is not unusual during the course of the year that there will be supplemental appropriations coming from that reserve. this is one of them. of course, we would like to have a higher general fund reserve. i believe that their recommendations for the future are a general fund reserve that is going out. however, in this case, the mayor's office as well as the controller and in submitting next year's budget to you, they will have factored in this supplemental appropriation as well as our supplemental appropriation so, the persons involved and responsible are very aware of the situation and that when the budget comes over, as you know, it must be balanced before june the first. they will have considered this

particular supplemental. supervisor kim: is it typical for us to draw down the reserve? and then moving up at the beginning of the next fiscal year with the budget? >> id is not typical for us to end the year with a $4 million general fund reserve. it is more common that that reserve be reduced from 25 tuck 2018, 22 over the last couple of years. the funds at the end of the year in the general fund reserve have a balance and, as indicated by mr. rose, that reserve is replenished. next fiscal year it will be replenished to 25 million. because the general reserve this year has been reduced down to $4

million, only $4 million will be used to balance next year's budget. supervisor chu: what are the three other supplemental appropriations before us? >> $8 million, the core role lawsuit, the sheriff's department, the fourth street bridge. there was a small amount for a number of small programs earlier in the year. we have a spreadsheet that keeps a count of all of that and i can have that brought bell during the course of this meeting. supervisor kim: thank you. this is a question for -- i do not know if it is for dph or the sheriff's department -- could you let us know what happened to be to to this decision

regarding security and why it was determined midway through the year that you could not move forward with the board's recommendation? >> certainly. we actually appeared at a hearing a few weeks ago and i am happy to talk about it. it has been a little bit complicated, but i hope that i can summarize it briefly. for the last eight or nine years we have had a work order with the sheriff's department for all of our security. in the budget proposal last year we included a proposal to contract out hospital security that would have reduced the general time by a significant amount. given the size of the budget deficit that we were facing, it was difficult, presumably, for the board to not support that supplemental.

funding the sheriff's work order was the other alternative. in the late part of the budget discussion there was a proposal to create a civil service security force. the plan was that we would have six months of work order and by january 1 we would have a fully deployed civil security force in san francisco general. when we started working out of plan we discovered to it -- two things. first, there was no way we could make that date, so we had to expand the work order pretty much through the entire year under any scenario. second was that the amount of funding in the civil service option for that six months was significantly understated in comparison to what we need -- we knew we would need to spend. such that the savings that had

been built in with that option worked largely as something that would not be realized. the funding for that option did not include any funding to pay for paid time off, vacations, sick, backfill in an environment where every security person that does not appear to work for any reason has to be backed up by another employee. there was no front-end cost included to do the recruiting. uniforms, weapons of they were going to carry guns. no funding for leadership or management of that operation included in the supervision and management of that work force. there was no funding for the human resources department to do the job recruiting hiring and firing. a lot of time was spent on time lines and projections of what

could be accomplished. we realize that we would not see the savings that were contemplated in the budget. we concluded that the responsible thing to do would be to bring this proposal back and reexamine certainly the sole service option. the contracting out option. and the sheriff work order option as a part of the budget deliberations for the coming year. supervisor chu: i am sure that my colleagues will ask about how we do quality control when we contract out to hospitals. i know that that has been a concern. in terms of when we have had reductions in grants, problems with work orders, has this impacted our ability to serve public health needs here in san francisco? >> we have had reductions in work orders?

supervisor chu: problems and grants that led to the supplemental appropriations request. >> i actually have a slide that shows what happened with hospital fees. it will not be too difficult to take a look at it. can we get the computer display, please? supervisor kim: i cannot read that. >> you cannot read that? supervisor kim: maybe you can pass the information out but talk through it? what's the particular item that is causing a problem -- >> the

particular item causing a problem had been a hospital fee that was not formally approved at the time that the budget was adopted. it was moving to the state legislative process and expected to be approved. there were a number of things that we did not know. we did not know for certain amount of funding that would come to the public hospitals. the way that the legislation was structured was that the hospital fee program was established where most hospitals would pay out to the state with a federal drawdown back to that same group of possibles. it was the same mechanism where funds could be raised to match federal moneys under the federal stimulus bill to fund private hospitals. public hospitals could not participate as funding for

medical services came through separate wavered. there was a component that with a and give public hospitals a grant. at the time that we did the budget, we made assumptions on the effective data and also made some assumptions on whether that brown would be extended through june of 2011. what happened, in fact, as you can see on this next slide, we have budgeted $80 billion for this particular item. $23.5 million was removed in the first quarter of the financial statements, when the effective date of the retroactive was move forward six months in funding. there were also changes that we needed to make to the final six

months of funding in the program. also, the state passed additional legislation that eliminated funding at the public hospitals. that caused us to reduce the projection by another $16 million. this was a very unexpected change, the very final block of payments that we were supposed to receive associated with psychiatry services to malakal beneficiaries -- medical beneficiaries, it was not submitted in terms of fees going to the state. therefore the state could not draw down a federal money. as you can see here, we lost

$56.5 million. clearly, we have overestimated the number. fortunately, we underestimated the money that we would get from the new medicare waiver by a comparable amount. we have been able to cover the vast majority of this ourselves. these funds, we have been able to cover that with other revenues. that last $17 million is the portion that we are short and we are seeking support from the state and budget reserve of the city. this has not had any effect on services or our ability to serve clients. obviously if we were not able to access the funding, we would obviously have a very serious problem in terms of trying to continue to fill out positions. supervisor chu: thank you very much.

to underscore a comment that was made by supervisor kim, just to the increase of reserve levels in the coming years will be important so that we can make sure we have the funds to cover unexpected activity. i think that the second thing that the comptroller's office pointed out was that was not typical to draw down on reserves so significantly. this is what we have to be careful about different supplementals that come through the board. if they are approved, they do reduce the level. with that? supervisor chisupervisor wiener. having drawn down nearly half of our reserve with at this supplemental, that will be back

up to $25 million? >> correct. supervisor wiener: in putting together the mayor's proposed budget, is there a particular policy? in other words, the $8 million in reserve, will that come out of what would have otherwise been a code for next year? i know that it is speculative, in a way. i wondered if there was some kind of practice or policy. >> a good question. in this case there are times when there are supplemental appropriations where we asked for funding of supplementals and

replacement costs. in this case the supplemental appropriation before you is factored into the nine month report. regardless of other news occurring in the general fund, what we are doing in this case is not asking the department to take part in making additional reductions. essentially what we are doing is covering the cost of this lost revenue with other reserves that we had, in this case the money we had set aside for state cuts. there will not be a specific impact in next year's budget.

replenishing the reserves themselves will be done through the general fund process and is a citywide issue. supervisor mirkarimi: $8 million is not -- supervisor chiu: -- supervisor wiener: $8 million is out of the general fund reserve? >> correct. supervisor wiener: that would be happy -- that would have to go back during the 11-12 budget? >> correct. supervisor wiener: where does that money come from? >> the general fund. we will use the larger general fund. supervisor wiener: in doing that, is there any kind of practice where we tell the department that we will have to deal with that part of the budget in the upcoming process? or is the money going to be

back-filled by reducing the parks budget or the roads budget? i am wondering if there is any kind of practice or policy in place to address that. by understand the supplementals are unavoidable when next to supplementals that could have been avoided. >> the short answer is that there is no policy and it is taken case by case. so, i guess there are two ways to look at the first part of your question, which i think is a good question. if we had not had to go forward with this supplemental, we would have an additional $8 million and we'd be able to make fewer expenditure reductions to balance the budget. that is the big picture without affecting the bottom line.

that said, we have other, good, offsetting news that has occurred elsewhere in the budget. property transfer taxes. payroll taxes that we will talk about during the hearing. those have more than offset the loss of possible fee. it does not force us to make additional expenditure reductions over and above those that we had planned. it is overall good news for our budget. that being said, i think that i understand the question. the issue that you are raising about a loss in a particular the -- that particular budgets department, is there accountability attached to a

requiring of drawing from the general fund reserve? that is a case by case question. in this particular case, we budgeted revenues knowing that there was some uncertainty and we kicked back in order to avoid deeper cuts. we decided to take that risk, knowing that there was some uncertainty. because of that, rather than taking a more pessimistic view band making additional cuts last year, because of the collective policy decision i would doubt be inclined to involve the department or call them responsible in the coming year for making additional cuts in the backfield. supervisor wiener: in not

suggesting that they did something wrong, but it is case by case and we have seen some supplementals. >> a great point, and there are cases where we want have some kind of policy tool to give departments an incentive within the appropriated budget. a good point. supervisor chu: thank you. supervisor mirkarimi: i wanted to follow up on the discussion about but trading out on the sheriff's department on the security of the hospital. but was not a fan of this plan, that there would be any kind of reduction of services or contracting out, however it is to be characterized. i was curious at the delayed start on this, which seems to be due to -- one of the reasons is

not for lack of plan, but for lack of accessory funding that would make the plan work. correct democrats >> to the extent that the plan was designed to reduce the general fund as a part of it budget balancing strategy, the fact that it did not achieve the savings that were intended or expected, the question really came up -- should we proceed with a plan that is ultimately, in the end point to cost nearly as much as, if not more than what the current work orders were crossing? without returning savings to the city at all? we go through this entire process that does not the liver the savings that were anticipated or hoped for. supervisor mirkarimi: was there a continuation of tried to make this plan work?

>> again, we brought a chief deputy from the sheriff's department. we ask them to work full-time on the civil service option. that was what she jet -- chief deputy butler did. isolating all of the expenses associated with recruiting and background checks, projecting what the cost of the work force would be. so, we developed an entire implementation plan, working with our own human-resources department. we work done that in a responsible way, but it is clear from that time line that the very earliest implementation of

laguna honda, even longer for san francisco general, would take us an entire year and that might have only been in the last month or two of this year. we would be looking at a work order for the entire year under any scenario. we found ourselves in a position where -- and i think that the conversations with the sheriff's department were in line with ours, that this seemed to be a sensible and reasonable course to take. so, the conclusion, as we approached the budget process, facing another city deficit at the time, a citywide, asking for an augmentation of our budget for a civil service work

force, it did not seem like something that made sense to do in light of the fact that we were facing continuing deficits. supervisor mirkarimi: what can we expect? >> we are proposing that this proposal be change from the way it has been proposed in the past. we are basically willing to take back all of upper formerly hospital lymphoid ipo +. taking them into the budget, deploying them in clinics and administrative offices so that they're no layoffs or staff reductions of any kind, realizing the savings and our hospitals. questions that typically, when you look at this bar seemingly questions of security. i would say two things about

that. a civil service work force is not a sheriff's deputy work force either. compared to the proposal for the full civil service work force by the department of public health , this option for contracted security work force is not more or less secure than the alternative. in addition, we are certainly willing to work with the board and the mayor's office to make certain that we achieve the level of security needed. the entire purpose of security is to have security. it is to keep the hospital safe and secure. why would we do anything other than that? we may find, as we go through

this, that we might want a heightened presence in the emergency department. we might find ourselves looking at modifications to this plan and evaluating security needs in each department. there are of savings in this proposal to do variations on what we're bringing forward. over $300 million in budget reduction savings. supervisor chu: deputies would return to help with overtime? >> denn does exactly. deputies, ipos sergeants, security guards formed nine years ago would come back to us. we would deploy them in non- hospital settings. we do not want this to result in staff reductions or layoffs.

we are simply looking for a less costly way to fund security services as an alternative to fee-for-service cups. supervisor mirkarimi: quickly, please. in the discussion that you that the supervisor wiener, it does begin to feel like a bit of a hit when you talk about the reserves for litigation settlements. talk to me about the question of the affirmative mitigation fund that the city attorney is able to use? but never seems to come up? >> supervisor, the car roll was funding the city attorney costs, not a settlement. we do have a settlement reserve. those monies are used when the

board of supervisors approve the settlement. there is language in that legislation that appropriates a reserve. we do use it over the course of a year but it is proved in a case by case basis. supervisor mirkarimi: where are we in the litigation reserve? >> we face it every year. so, the dollar amount in the litigation reserve is based on consultation with the city attorney an outside auditor as to how much money needs to be set aside. there is a risk analysis that needs to be determined by the city attorney that the accountants take a look at. we budget for an amount that we believe we need to pay out in a given fiscal year. if that money is not used, it is likely they will be needed for the subsequent year. that amount of rolling reserve

that is used every year to some extent, it you can find insufficient money in the reserve with a large settlement. we would consider issuing judgment bonds that will allow us to pay overtime. in smaller increments, if they deserve it. supervisor mirkarimi: i want to make sure that none of that settlement has exceeded the litigation reserve now. >> correct. in the current year we have not used more than what is available. supervisor mirkarimi: and in the current year, isn't that also a reserve that we can technically apply towards the questions of supplemental? >> it's not a prudent thing to do, supervisor mirkarimi, because we have a lot of pending litigation. and, again, we meet with the city attorney a couple of