total concession revenue so that's why we put such a big emphasis on growing the concession revenue. in addition to that, we will be contributing $82 million to other general fund departments for direct services. so primarily police and fire, but many other departments we pay at costs. and federal law says we can only pay for those services at the actual costs. in order to continue to improve our efficiency and customer service, we are putting a big emphasis on using technology. i think we're really a leader among world airports and using technology to improve efficiency, customer service, safety and security, even marketing. marketing to new airlines. we're able to market successfully to new airlines because we've taken over many of the i.t. functions that they used to perform themselves so we

operate the flight information display system, baggage system, jet bridges, things that the airlines used to maintain to make them much easier for an airline to start operation in san francisco when they don't have to make that investment. and it would also now operate as a telecommunications provider at the airport and realize about $2.5 million in annual revenue from the tenants buying those telecommunication services. just briefly, on service to the communities, we have about 100 interns per year. we really take great pride in our various internship program. we're maxed out in terms of a number of interns we can handle because it does take staff time. but we are very close to 100 interns. in the last year 37% of new concessions awarded went to small, local, and d.b.e.'s in san francisco.

in q2, the hiring of almost 50% was first source hiring so we're see going progress there. and just finally in conclusion to touch on some of the upcoming big projects for the airport. the major capital investments will continue. we need to always continue to reinvest in our facility to serve san francisco. we're starting work on remodeling boarding area e, the old american boarding area. we will also be doing minor remodeling throughout terminal three. and that will be done over the next year, about $50 million to $60 million in expense. we will be starting work on a new air traffic control tower, a project primarily funded by the f.a.a. we will also be starting work in expanding the run way safety areas to meet a new federal requirement. this is about a $200 million project. we're working to obtain at least 50% federal funding in support of that. and we're planning now,

beginning planning work on a new boarding area b and renovating terminal one. this will be a very big project. $750 million to $1 billion. construction work will likely start in three to five years. so these are some of the major projects underway at the airport. our primary increases in the budget this year relate to terminal two. first full year of debt service, $14.5 million. about $2.5 million increase. over 80 new positions, mostly maintenance positions to support terminal two. some additional police officers as well. we added them in the current year and full funding in the next year. i'll be happy to answer any questions in the budget. >> thank you very much. just a question for you on your five-year financial plan going out. what are some of the major expense pressure that you're expecting over the five-year period of time? and what are you counter balancing it with? i know you talked a little bit about some of the major capital construction projects that you

will be embarking on to make sure that the airport is a competitive airport in the region. but also in terms of just your general operating expenses, where are you seeing your biggest cost pressures? how are you working through that? >> i think the two biggest areas of expanse increases will be for debt service for the new facilities. and second, the labor cost increases. the same kind of pressure the general fund is experiencing with increasing costs for retirement and health care. we're feeling those impacts, too. so to mitigate that, we're putting particular emphasis on growing the concession revenue. and the concession revenue includes not only retail and food and beverage but also parking and rental car revenue. we have a general, philosophical management approach of attaining full cost recovery from our tenants for all services provided.

these include costs for light, heat and power, for waste, water treatment, for accessing the roadways, all the commercial vehicles that use the airport. supervisor mirkarimi: thank you. supervisor mirkarimi? supervisor mirkarimi: thank you, madam chair. director martin, i just want to say, and i think president chu would agree with me, that if all the departments were run like the airport -- [laughing] i think without question we have one of the most attractive metropolitan airports anywhere in the country. very inviting. sexy in some ways, i think. all the time that i've spent in airport as cross the country -- airports across the country, i think it has just the right combination of wanting to welcome people and almost becoming unto itself, strangely,

a destination site. i've seen the art exhibits, the memorabilia exhibits. just really strong stuff. i have to say it's very impressive the way that it has evolved. especially over the last five to seven years. so i think it's been very impressive. however, you have one thing that i would like, and that is police officers. i'm wondering if it's possible that in this season that there would be some review about the true assessment of how many officers you really need at s.f.o., and if there was any way that we might be able to negotiator renegotiate the release of those officers back into the interior of san francisco at some of the 10 district stations that are really suffering some staffing

shortages. i know this has come up from time to time. but i've been watching sort of the roster reports of the airport. and you're doing fairly well. especially in the projection of our officers and the adryings rates that i'm looking at -- the attrition rates that i'm looking at. you actually seem to be ahead of the game. so i'm wondering if it's possible that you and the city could have this discussion and just kind of begin what that might look like. >> absolutely. first, thank you, supervisor, for those very kind words. i'll make sure to pass that on to my staff. it's really rewarding to hear that. we want a facility that truly reflects everything that is great about san francisco. i will absolutely take a look at the police staffing levels and plan to return to the committee,

certainly by the time the police budget is heard in june. i just sent late yesterday, you probably haven't seen it yet, but some update on the police staffing levels over the years. but we'll take a closer look. supervisor mirkarimi: and we realize certainly, especially with the expansion of the airport -- it's awesome about terminal two, everything that's been happening -- that of course, the demand and capacity is also enhanced for that level of security and patrol. we get all of that. but it just seems to be now at this juncture what can we do to sort of share resources with the airports since it has its own dedicated force, what we might be able to do to bring some of that back, even just temporarily into the city. >> i understand. supervisor mirkarimi: thank you. chairwoman chu: thank you, supervisor mirkarimi. just a follow-up question to that issue of police staffing at the airport. help me understand a bit if the t.s.a. has any sort of

requirements with regards to our public safety staffing at airports and what we need to consider as we're having this conversation. >> well, we're required by the t.s.a. to maintain a security plan that security plan doesn't designate a specific number of officers. we also do every five years a security assessment. we bring in a firm, an internationally recognized firm to help with that security assessment and take a look at the appropriate level of staffing. so there's always a certain amount of gray area. we want to maintain response times. we want to have a swat team presence at the airport. but i can look around the airports around the nation and see that there are a fair amount of variations between the airports and the staffing levels. chairwoman chu: and then this might be a question either to the mayor's budget office or controller's office, whoever can answer it. but right now i believe that the police officers that are locate

ted airport are paid for -- located at the airport are paid for through the airport's funds so to the extent that we are able to find additional individuals who may or may not be needed at the airport and would return to san francisco city proper in one of our district stations or centralized stations, the general fund would begin to start picking up that expense. correct? >> that's exactly right. and periodically the f.a.a. sends in auditors that came in about six, seven years ago, and endures some expenses that the city general fund had to reimburse the airport for certain police expenses where we hadn't accounted for it properly. so we have to be very careful about that. chairwoman chu: and i guess to the mayor's budget office. if your budget, i believe even though it has not yet been proposed there's not really a plan for additional academy classes. but is there anything budgeted for taking back any officers from the airport? i know that would cost general fund dollars.

>> chair chu, i'll have to take another look at the numbers. but there's not a proposal to pro actively move officers back from the airport on to the streets. as john martin said, they usually give us an anticipated staffing level that's required to make the airport operate and be safe. and we allocate the number of officers needed for that through the airports' fund. and so sometimes there's some movement back and forth in one direction or the other. so there may be a little bit of movement in the total count. but there's not a policy decision to take officers from the airport beyond what they have requested and moved them back into the general fund. chairwoman chu: thank you. supervisor mirkarimi? supervisor mirkarimi: since we're still on the thread of officers, i think just one thing

to footnote is these are seasoned and trained officers. they're not going through the academy. the expense has already been satisfied. so we're talking about not saddling either airports through its own enterprise, budget, or through the city on putting new officers or recruits through at cad my. so -- through the amad my so if the police department would be going through the lateral hiring anyway as they already suggested that might be their strategy for bringing in new hireees, then the best thing we could consider, i think is already officers who are familiar with san francisco, familiar with the whom parameter and protocol what it means to work with the sfpd and the airport, even if we're contracting back within the general fund, they're still our officers. versus in bringing in people from the outside. as long as the minimum staffing requirements are well satisfied based on what director martin

and the police department feels, that -- we get ahead of the game by us being able to bring back some of our own who would already be ready to hit the ground running. and that, to me is where the savings is should this discussion evolve into the question of general fund and what that would mean to a general fund. i don't see any academies happening anytime soon either for the airport or for the city interior. so this is where we actually have some reservoir potential. chairwoman chu: supervisor chiu? supervisor chiu: thank you itch also want to reiterate my colleagues' commence about appreciating the work that you and your staff are doing at the airport, understanding it is a well-run agency. it's a pleasure to have this conversation. i think we wish that, say, the m.t.a., we could say the same for other transit-related agencies at this point. but thank you for being here. the question that i have for you is around i.t.

this is a question not specific to the airport but one that i'll be asking a lot of departments about what your overall budget is for i.t. expend tours what fraction of that -- expenditures, what fraction of that goes specifically to airport-related specific applications, hardware and software that you need. you mentioned some of the things that you're doing that are unique to what we do here in san francisco, vis-a-vis other airports. and then i do know that the airport is helping to shoulder the burden of helping to look at a variety of other enterprise, systemwide issues. and i wanted you to talk about that for a moment. >> our budget for i.t. is about $14 million. i would like to provide a follow-up report to answer your question in more detail on how that breaks down, what are airport unique services and highlight some of those and what are general services, e-mail, data center. so the airport is supporting the

city's efforts to centralize and consolidate efforts where we the city can realize efficiencies. so the airport is building the new city date i can't center -- data center. we work carefully with the controller's office to make sure we meet the federal requirements. our plan is to have that in operation in about 13 months from now. we've also offered to help the city in any way we can with the citywide e-mail system. i think options are still being considered, but if necessary we would be willing to take that on, too. so we want to make sure we're operating consistently with the city and supporting the city in any way we can. supervisor chiu: great. i look forward to that. i certainly appreciate the effort that you and your staff are doing as far as helping to lead different aspects of centralization efforts. i think it's very important that because of that i'm very likely to support what you guys are trying to do in that area from a

budgetary standpoint to make sure that we can continue that effort. thank you. >> thank you. chairwoman chu: thank you, supervisor chiu. why don't we go to the budget analyst report if that's all the questions that we have at the moment. >> madam chair and members of the committee, on page 3 of our report on airport, we state that we recommended -- our recommended reductions to the proposed airport's total budget is the total amount of recommendations is $21,760,068 in fiscal year 2011-2012. i would note that these recommendations still allow an increase of 5.8 million or 8/10 of a percent in the department's 2012 budget and $68.2 million or 9% in the department's 2011 --

the 2012-2013 budget. our detailed recommendations are shown, supervisors, on pages 4 through 13. we are still working with the airport on these recommendations. and we will report back to you next week. so, madam chair, if you want, i can go over any one of these recommendations, or given the fact that we are still working with the airport, we can report back to you next week. whatever your pleasure is. chairwoman chu: thank you very much, mr. rose. just so i can understand from the department's point of view, there's a number of recommendations that the budget analyst has put forward. are there any at the moment where the department is in agreement with the budget analyst? >> madam chair, my budget manager has been working with the staff i think there's some areas of agreement. but i think there are some areas of disagreement. i'm very confident that within the next week we will get everything resolved. i think probably 19 of the last

20 years we've been able to reach agreement with the staff. chairwoman chu: thank you so we can continue this item until next week when we do hear your budget again. in the meantime, if would you work with the budget analyst to come to an agreement with some of the proposals would be helpful. i think also to the extend that there's further conversations around the police staff and i.t. questioning, if would you distribute that, that would be helpful as well. thank you. why don't we move on to the san francisco port.

>> good morning, chair chu, president chu, supervisor mirkarimi and members of the audience. the port of san francisco. i have a couple of slides here which i will go through very, very quickly just to give a little background. but i want to start by saying that we have in the audience with us today, we have the port c.f.o. and a couple of our financial analysts, nate cruz and marilyn ya who are both terrific. i wand to comment debra newman for all of her help, as well as the budget staff, megan wallace and greg wagner so it's been a very collaborative process. i'll just say from the outset that we agreed with the budget analyst's recommendations. and we thank them for helping us to put a finer point on our

budget. very quickly, by way of background, i think it's always important to review the port's mission. and that is encoded and embedded in state law and in the appendix of the charter. but very quickly, our primary mission is to support maritime commerce, transportation, recreation, personal activities, and public access. and we do that in a way that, frankly no other port in the state, let alone the entire united states does. as you know, the port of san francisco is one of the very few that is not hidden behind fences. and so one of our primary goals is to bring people to the water front. our budget is balanced, i'm happy to say with some help from the board earlier on m.o.u. with respect to the america's cup, anticipated revenues and expenditures. it is extremely flat. we have been fortunate enough to be able to absorb our increases in fringe benefits and other such things. and we are moving forward to

continue to fund some very significant capital projects. it's important, i think to see where we are today, where we think we'll go. as you can see, we think we'll still be fairly flat. the majority of our revenues are derived from our real estate commercial operations. the port manages approximately 21 million square feet of actual building space. to give you some perspective about that, i believe the airport square footage is about 14 million square feet of buildings. they obviously have much more anchorage because of their runways. but that 21 million square feet is leased out to approximately 400 different tenants both on the commercial real estate and the maritime side. we have approximately 60 restaurants which operate on port property. the bulk of our revenues actually come from our real estate leases which are primarily retail restaurant and class b and c officers.

there's very little of that and industrial and warehouse. as we look forward, though, for our five-year outlook, it is pretty much the same as looking back to the challenges of the last five years, which is that our revenues grow at a lower rate than our expenses grow. and so beginning as early as fiscal year 2013-2014 without action by the court, we see that we could start to run some deficits on our overall budget. and so we will continue to have that as our highest priority which is to continue to manage a structural balance of our operating budget. to do that, what will happen is we will likely have to reduce our spending on capital repair, operating capital repair. annually we strive to get somewhere between $8 million and $10 million available for reinvestment in our 21 million square feet. and that comes from anything that we were able to make above our expenses. and so looking forward without

any intervention on our part, we'll probably have to reduce that significantly. at about $8 million a square foot, that's approximately $1 million a mile to reinvest in the port's assets. and as you well know, our asse assets, most of them, are well over 100 years old so they need continuous investment. to that end, we have a number of goals with respect to how we prioritize our investment and our capital assets. our goal is obviously to keep as much of our assets and revenue functioning standards -- i guess is the best way to put it. most of these piers were built over 100 years ago. we were built with the utilities underneath the pier. they have done an amazing job in this climate and in these waterways. and we are trying to prioritize some very significant utility improvements in the five-year forecast. but as you know, since the 1970's, the port transferred

back to the city of san francisco in 1969. prior to that it was a state agency. we have lost 15 piers already in what we call the central and northern water front. and every time that we lose a pier or it goes out of revenue service it doesn't necessarily mean that the pier comes out of the water. but it goes out of revenue service. that has an impact on the economic impact and jobs that we can provide to the city as a whole. and so just briefly about that i apologize. the handout, something happened to the verbage at the bottom of the slide. but in 2006 we commissioned an economic impact report. that was back when our operating budge eliminate was about -- budget was about $58 million. the results were that we would provide approximately 9,500 jobs throughout our 21 million square feet. our operating budge eliminate has grown. so that would mean the amount of jobs -- if you just did a straight line map which is probably inaccurate --

nonetheless, if you were to do some straight line map, it would grow that number to about 11,300. and so we think that these are very important jobs. they're obviously, as you know with the adoption of the eastern neighborhoods plan, the port is where the city's p.d.r., production distribution repair businesses are located, as well as of the 400 tenants i told you, the vast majority of them are very small businesses, as well as nonprofits. so to meet our goals looking ahead, again, we need to make sure that our budget is stabilized. and with your assistance we have some help for the america's cup. look forward to that for the next year or two. we really envision the america's cup as a macroeconomic engine for the entire city of which the court can benefit. and you may recall that with the m.a.u. that you adopt, for each dollar that the port earns it offsets the amount of money that the general fund would need to support us with. so our goal would to be minimize

that general fund support as well as to have other enhancements that come from the america's cup. already we have a lot of tenants talking about making improvements to their facilities. they're able to talk with their banks about loans for those facilities. and we see all kinds of organizations, public and private, throughout the city, getting ready for the america's cup. so we see that as a very big impact. to just the tenants that we have already as well as to the infrastructure. but one of them is our pier 27 cruiseship terminal. you may recall that the port and a number of enterprises that are here today did a five-year projection last year. and our cruise terminal was one of our most prized programmed policies in that five-year look. and it is -- it continues to be. and the america's cup helps us close the gap, but also to get

that facility fast tracked. as you may recall, we want the cruiseship terminal to be an event space. and we already have our very first tenant of that event space booked which is the host facility for the america's cup. we're very excited about that. supervisor chiu: before we move on, could you talk about how the america cup's budget -- or how the america's cup success, if we end up winning in in 2013 what have you built into your five-year plan as far as assuming what may or may not happen? >> well, assuming that the winner brings it back to san francisco? is that your question, supervisor? we have built nothing into our budget for that. supervisor chiu: so we lose the cup after -- >> it's a one-time event only. and partially the reason for that is because he would have to renegotiate the host city agreement. we'll see how we do with that. rumor is that if it is won and brought back here no matter who wins it and chooses to bring it back to san francisco, it could

come back as early as 2015 so definitely in that early horizon. this is a very quick rendering of the cruiseship terminal that would be pier 27. i've talked about that. another aspect of our five-year forecast is to complete the wharf. we are very close to finishing the environmental impact report on that. we have demolition slated to begin at the end of this calendar year. again, that's a very key at beauty for the public to be able to enjoy the america's cup, as well as a key amenity for the neighborhood that is long overdue. and then, as you know, particularly you, president chu, the goal of the america's cup is to also have a long-term redevelopment of some significant and fallow areas of our water front. so we could conceivably in this five-year start to see some changes in repairs in tho