supervisor wiener: in terms of the rainy day fund it seems like kind of a perk in the fund -- if our general fund revenues, say, go down by 50% in one year and we can, therefore, draw on the rainy day fund and if the next year it goes back up by 10% so we're still 45% lower than we were before, does that mean we can't withdraw on the rainy day fund at all for the city? >> the rainy day fund can only be withdrawn under certain circumstances when our revenues are less than they have been in prior years. the 10% increase that you're referring to is for the general reserve, general fund reserve. >> general fund revenues. >> i'm sorry? supervisor wiener: not the reserve. the revenues. >> so the rainy day fund, we initially thought when we built this year's budget that we would be withdrawing from the rainy day. because our revenues are higher than anticipated, we will not be

able to withdraw from the rainy day reserve in the current year. so the $33.4 million that was in the reserve in the beginning of the year continues to be available, although we cannot draw upon it. >> so if you have a massive drop in one year and you're able to draw on it, and then you have a small increase in the following year or so, technically your revenues are going up, which is good. but they're still massively below what they were. you would be potentially precluded from touching the rainy day fund reserve. >> and, again, the formula is a little bit complicated, but we do take a look at prior year peaks. supervisor wiener: right. >> and we have to be higher than a peak. so in instances where by our revenues drop severely in one fiscal year and are increased a smaller amount in the second fiscal year does not necessarily preclude us from withdrawing from the rainy day reserve.

>> i presume -- even though i know our revenue picture was better than we thought it would be, i assume that compared to several years ago it's still significantly lower. >> we are approaching catching up in a number of our discussionry revenue, certainly in hotel tax and sales taxes, property taxes. supervisor wiener: thank you. chairwoman chu: thank you, supervisor wiener. just a question that i had to the budget office. when the good news came in from the six-month report and, again, from the nine-month report, it's not enough to solve the entire budget did he ever sit that we're -- budget deficit that we're anticipating. i'm just wondering have you anticipated some of these in your projections? >> chair chu, we have in our budget planning, although in the kind of bottom line numbers that we anticipated, in the joint

report, which was our $306 million deficit projection, we had not been assuming this additional revenue news in those numbers. however, i think as we've talked about at this committee and with many of you individually, i think we had a sense that there was going to be some good news at the nine-month report, particularly looking at the way that property transfer tax revenues were coming in, and just kind of overall strength in some of our indicators out there. so in terms of our internal planning purposes, we had been anticipating that he would get some good news in the nine-month report that we'd be able to use to balance. however, this is better than we had anticipated. so there is some truly good news for us. very good news in terms of our bottom line assumed deficit number. but also some better news than

we had anticipated even in our kind of informal planning. chairwoman chu: thank you. supervisor mirkarimi? supervisor mirkarimi: thank you. it's probably more comment than it is question. it's my fifth year on the committee here, and i have to tell you that in my first year we were in flush times. and then followed by three, almost four, very cold years of us dealing with landmark deficits. these some of the first positive numbers we have seen in literally about four years, it seems. at this time of the season, at this stage, for us to get six and nine miff ho reports -- six and nine-month reports, i'm knocking on wood by making sure we take nothing for granted. but this must portend something larger about san francisco e emerging into a different phase of the economic downturn that's had us engulfed for the last

four years. maybe you could just speak to some of those indicators. >> our barometer for the month of february was released, economic barometer, was released this past week it does show that unemployment is still high, both in san francisco and in the bay area, in excess of 9%. so that's at least three percentage points more than he would like to see in an absolute recovery. but, again, because our business taxes have come in a little higher than estimated, we do see that there is some recovery starting to take hold. we do believe that we are experiencing a modest recovery, starting this year and next year. the issue, supervisor mirkarimi, is that our costs are growing at a greater rate than our revenues are growing. and that's what was indicated in the five-year financial plan. if we take a look at just the

cost of living adjustments for salaries and paying the increased rates for pension and health care benefits, that exceeds the revenue growth by 1 1/2 times. and so although our recovery is taking shape, we suggest the mayor and the board take a look at the expenditures of budget and try to stem some of the growth and expenditures in a number of areas, as indicated in our five-year financial plan. but, yes, the recovery is starting to take hold. we call it at this point a moderate recovery. supervisor mirkarimi: that's the more tempered response i was expecting. so it evens out the discussion, i think, nicely. i think it also speaks to general interest by the citizenry who hears reports from washington, you know, that there

is some light at the end of the tunnel. but then when they hear about statistics, sustained high unemployment, then they wonder how real that those recovery predictions are. could it be more hollow where that is giving false hope potentially, even though that revenue is picking back up, general fund is looking to be much more endowed than it had been in the past. but yet, as you said, our costs and, frankly, unfunded mandates on pensions and everything else that we're facing down the road. this is no time to really celebrate. i mean, this is to be cautious. >> to be cautious and to take the steps that are needed in order to build up our reserves so that when the next downturn occurs, we have sufficient money to stem some of the roller coaster type of cuts and

increases to the cost of county government. supervisor mirkarimi: thank you. chairwoman chu: thank you, supervisor mirkarimi. just a question from me. on the property tax item. it looked like we were pretty much on the same level, 35.2 versus 34.2. it's about a million dollar less than what we expected often property taxes -- on property taxes. i'm just wondering if that has to do with reassessments or if that's a trend we should be expecting to see. >> this is the area write just spoke of where we're looking at additional information just received from the assessor's department. and we do think that there could be up to $15 million of additional money from the working of the backlog. and so there may be about a $15 million increase to that particular line item on the revenue side. in san francisco, we have seen

some foreclosures but nothing like the percentages you would find in other places up and down the state. our assess valuation has held. there has been about a 1% reduction that we had estimated in this year's budget. and it's close to budget. and for the next fiscal year, we are estimating a little bit of growth but not a lot. but again, in compared to a lot of the counties had seen 18%, 20% reductions. and so for us, property tax being flat is good news. >> thank you. there's no budget analyst report on this item. so why don't we open this up to public comment. are there any members of the public who wish to speak on item 4? seeing none, public comment is closed. and we can file this item. without objection. item 5 and 6, please.

>> up 5, hearing to review the mayor's proposed may budget fiscal year 2011-2012. item 6, ordinance appropriating all estimated receipts and all estimated expenditures for selected departments of the city and county of san francisco as of may 2, 2011, for the fiscal years ending june 30, 2012 and june 30, 2013. chairwoman chu: would you also call items 7 and 8. >> item 7, proposed annual salary ordinance enumerating positions in the annual budge eliminate and appropriation ordinance for selected departments of the city and county of san francisco for the fiscal years ending june 30, 2012, and june 30, 2013. item 8, resolution concurring with the controller's certification that services

previously approved can be performed by private contractor for a lower cost than similar work performed by city and county employees for the following services, employee and public parking management services, general security services, information booth services, shuttle bus services, airport, and janitorial services and security services. chairwoman chu: items 5 through 8 pertain to a budget for a few enterprise departments. there are documents being distributed to a i few members f the board. again, item 5 is a hearing. item 6 is the annual appropriation ordinance for the departments. item 7 is a position authority or the salary ordinance for the departments. and, of course, item 8 are the existing prop j's that are part and parcel of those budgets. we've actually broken out the hearing such that we have four departments that will be heard today -- the san francisco international airport, the court, the rent board, appeals court. tomorrow we will hear the

balance of those enterprised departments that are in these documents. in addition to that, the week after we will continue to have hearings on these department budgets again so if there's anything that we don't get to today, we can always continue the conversation in the week after. so with that, i would offer the mayor's budget office any opening comments that you might make. >> madam chair, thank you very much. the budget in front of you is, as you know, our may 1 budget submission. it includes a handful of departments for early consideration. our june 1 budget will include these departments and every other department in the city currently in the process of developing that. so we're happy and available to answer any questions and look forward to getting the budget process underway. chairwoman chu: thank you, mr. wagner. so we do have a number of departments and department heads who are here to present so why

don't we start with the san francisco international airport. colleagues, what i'd like to do is to have and invite the department head to come up to speak a bit about their budget to speak a little bit about their five-year financial outlook and plans. we will then go to the budget analyst's report and recommendations, and have a conversation around those recommendations. thank you. >> madam chair, members of the committee, i'm john martin, airport director. it's a pleasure to be here this morning. i thought i would provide an overview of the airport's business operation. and then a very hollow overview of our budget, five-year financial projections, and then answer any questions. we're continuing to meet our mission to provide an exceptional airport in service to the communities we serve. in support of this, we have developed a new five-year strategic plan that will guide news a very detailed level, including 200 specific action items.

and that will ensure we continue to be a leader among world airports and that we serve our communities in every possible way. our traffic continues to grow. we're seeing a 4% growth in passenger traffic this year. we're expecting a 1% to 2% growth next year so this is consistent with what we'll note are reported in the signs of recovery. we are targeting international growth. we expect to see stronger international growth, much stronger international growth than domestic. probably international traffic will be growing 5% to 6%. that's the kind of growth we want. we want to see oakland and san jose begin to handle more of the domestic traffic in the coming years. the airport is in a very strong financial position. probably the strongest position we've been in in over 12 years. we continue to be one of the best performing airports in the nation, in our concession sales. we rank number one in food and

beverage sales on a per passenger basis. number three in retail sales. and we're off the charts in terminal two in terms of our concession performance. terminal two has been a great success. we remain financially self-sufficient receiving no general fund support. our airline costs are now lower than most of the comparable airports, most comparable international gateway airports such as boston, new york, washington, miami, chicago. l.a.x. is the only major airport lower costs than san francisco. but in the coming two or three years, they will be much more expensive for the airlines. each year we develop detailed five-year financial projections. so we have looked at those financial projections. we expect that our airline costs will continue to be very reasonable and will be lower than other u.s., major gateway airports. we have specific goals to

continue to be a leader on the concession front. and to continue to grow the annual service payment, our contribution to the general fund, we expect 4% annual growth and the annual service payment for each of the next five years. for the next year, for the next budget year, we're projecting actually a 5% growth in the annual service payment, projecting that will grow to 30.3 million. that is calculated as 15% of our 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.