>> transbay would have rental payments as well. we do not know what those would be at this time. we had a site tentatively identified. we have been in very preliminary talks with transbay, but that space in the terminal has since been reallocated to other uses since the separation of the two planning have, so if we were in the future to go back to transbay,would have to be identified. we are not sure that there is appropriate space, and we would have to renegotiate. we did not know what that cost would be. supervisor kim: just another quick question -- why is it that you would only begin construction after transbay had been fully billed out? -- build out? >> basically, we do not have any funding to do it. we are pursuing one project at a

time. i do not think the agency is really in a position to build two control centers simultaneously. we will have a lot to do -- supervisor chu: i agree with that. supervisor kim: ok, thank you. >> anything else? supervisor chu: know, your completed with your presentation? in terms of the capital funding, you had talked about the $32 million being fully funded. that is something you have a dinner by funding completely for, correct? >> yes, that is completely funded. supervisor chu: with regard to the parallel system improvements you talk about, how was that funded at the moment? >> the last piece of funding for that is going before the sfcta in the next couple of months. that had been fully funded, and then there is a swap for central subway of funds, so we are going through that -- it was fully

funded, so we are going through the final fund swap approval to get that completed. we did finish that for the $32 million. supervisor chu: at least the $32 million is completely funded, and the $82 million is well on its way? >> correct. supervisor chu: i think that is it for me. unless we have any questions, why don't we go to mr. rose's report? >> madame chair, members of the committee, we have a summer of our report on 2-14. we point out that over the initial 10-year lease term, rent would total $13,508,921, plus operating costs, would be $2,670,677, so there's a total new cost of 16,179,600 it be $8. the proposed lease would

commence upon lee's of tenant improvements. -- new cost of $16,179,678. the landlord would pay $1.7 million -- that was negotiated as to how that was determined. again, the mta $9.5 million. the landlord, $1.7 million, for a total of $11.2 million. the improvements are to be completed by june 2012. we point out about this -- about the options, however, as i understand it, mr. updike concurs with our recommendation that the options should be subject to board of supervisors approval, which is our recommendation. towards the bottom of page 214, we state that the sfmta currently occupies a total of

16,524 square feet of space across 256,237. the reason that they appear low is because a lot of this is city-owned or part-owned space, and this is operate the m.t.a.'s command and control functions dispersed among five locations in the city. if the proposed 39,573 square feet for the new lease is approved, sfmta's total cost for all five facilities would increase to $1,569,944 during the first year of the proposed lease, so the new lease would go up by $1,313,707 per year, an increase of 513% more than the $256,000 annual cost, which the mta is currently paying.

in addition, if the proposed lease is approved, the m.t.a. would only eliminate 3824 square feet at 25 then ness avenue, of their existing space. as a result, sfmta's integrated command and control function would require a total of 52,273 square feet, an increase of 35,749 square feet, a 216% increase over the existing 16,000 square feet of space. we had been previously advised, and we say this on the bottom of page 14, that the proposed lease would be an interim facility until the new transbay terminals completed in 27. the sfmta would then decide whether to continue to lease the 1455 market street as a primary site and develop the transbay terminal as a secondary site or whether to develop the terminal as a primary side and convert

1455 market to its secondary site. that was the information that the sfmta has given us today. given the existing and projected financial and budgetary concerns, including an estimated budgetary shortfall of $22 million in 2011-2012, the budget and legislative analyst questions the propriety at this time of the sfmta to incur such additional expenses. for all of those reasons, we cannot recommend approval of the proposed new lease, and we say on page 15, the first recommendation, which as i stated, - danny is that mr. updike concurs, that you delete the provision -- my understanding, that you delete the provision so that each of the options would be subject to board of supervisors approval, and i would be glad to answer any questions. supervisor chu: thank you. questions for the real-estate

department quickly, with regards to when the leases actually began, the commence, is that when the facility is delivered to the city with the tenant improvements that have been completed by the property owner? then, what is the difference between that when it gets delivered when we start paying rent to when we start becoming operational at the new location? >> substantial completion is tied to be commencement date. we anticipate that being about june of 2012. with regard to the two months of updated ranch, that began in june, so we would have two months of additional slack, essentially, provided so that the actual rent commencement would not then start until six days after. if we remain on schedule, the idea is we are able to become -- complete the transition and aftertime is fully operational,

full rent would kick in. we tried to align the two events. supervisor chu: ok. the other thing for the real- estate department -- there are a number of spaces, as mr. rose rightly pointed out, that are currently occupied by the different divisions of the mta that would be moved to this consolidated location, but the plans do not really reflect a shrinking of the use of those spaces in particular. there is a little bit of space that will be given up at once of venice, but other than that, there is not a lot of change. have you fully evaluated whether or not there's an ability to give up that space or perhaps make available for other departments that might be looking for additional places, or for rent? >> with regard to 25 then s, that is something that would be released for other departments to use. the other location, really is an operational issue. there is some redundancy.

the lenox facility remains available as a back up, so it is not something that then becomes available for new tendency -- tenancy, nor is it really suited for any other city use. it is a very specific facility. that is the bulk of the square footage involved. the other square footage is also tied with other areas of the mta, so it would be difficult to create demise in walls and separate occupancy of non-empty use, so it is difficult to recapture that. i think would just be repurchased for mta's purposes. -- repurchased -- repurposed for nt 8's purposes. supervisor kim: [inaudible] >> good afternoon. sfmta real estate.

505 seventh street is our enforcement dispatch office, and they actually dispatched the traffic control and parking control officers from that location so that they walk to their vehicles at sixth and townsend streets, which is about 300 go for, the three- wheeled vehicles. two people will be moved from the enforcement division to 1455 market street. and that it is lease. mta will be doing a request of proposals for a strategic plan to look at all our facilities for the next several decades, and we will be looking for real- estate to combine our enforcement divisions which are right now at five different locations.

that it had just been mentioned that 41 south van ness, we would be opening up other space for other departments. >> it is about 2500 square feet on the corner of the eighth floor so that other mta functions would move into that. >> i'm sorry, for 25 van ness? >> 25 then as would be given up for the city real-estate to look for uses by other departments. >> did we talk seriously about city-owned facilities for what 505 seventh street is being used for currently? >> yes, and mta is what i would say real-estate challenged. because of the location of the facilities for the vehicles, it is convenient right now to walk from 5 05 seventh to sixth and townsend, but we would like to

consolidate our enforcement divisions from five into one facility, and we will be looking for real-estate to do that. >> if i could add to that, too, in terms of the city's real- estate, approximately 2 million square feet under the ownership of the city and used by various city departments of both the civic center and what we call the public safety campus around the hall of justice, 2 million square feet, plus, we have less than 5000 square feet available. that is a vacancy rate of about 0.25%. our real estate dynamic is far different than the marketplace itself. we are fully utilizing everything we own and at a point where we may need more. >> i just want to say that i

appreciate the points of us consolidating and building -- developing the transportation management center. however, i would feel more comfortable supporting a proposal that is as expensive as this if i felt like there was a more serious concerted effort to let go of existing space or find room within existing city facilities for some of these uses prior to approving this new real estate contract. supervisor chiu: back -- supervisor chu: thank you. what we open this item up for public comment? are there any members of the public that wish to speak on this item? seeing none, public comment is closed. i could make a suggestion, in terms of the budget analyst recommendation, i would suggest that we accept that recommendation to -- or the first recommendation, which is to delete the provision that allows for the exercise of the 10-year option. that is something that sounds like the department of real estate has agreed to, and i think we should take that recommendation.

the second thing -- at the supervisor kim's reservations -- i echo supervisor kim's reservations. whether we could trade off some of these bases to make them available for other city departments or look at other alternatives. i wonder if we could make an amendment that would require that the real-estate department and mta report back to us in three months about the specific plans for each of these locations and whether or not they can actually be given up or not occupied by the mta for these functions. can we make those amendments without objection? supervisor kim: given the last bit of discussion we have had around the apartment technology and asking them to come back to us with a plan of reducing their expenditures or raising revenue, one of the difficult parts is when they came back to us with a plan because we did

not give them some guidelines or standards to meet. it was difficult to determine whether we should release the reserve funds. i would prefer setting some kind of standards in terms of what we expect. i really want to look at how -- if we are increasing as much space for the mta, actually setting some goals in terms of reducing some of the existing facilities, instead of just asking an open-ended question of looking at potentially letting go of sites -- i do not know if that is possible. supervisor chu: i think perhaps what we could do is if we do have -- i want to be sure that we are thinking -- we can set a goal and say we want them to release 25%, but it is not based on operational realities, that would be an unrealistic goal to me. also, if there are certain lease provisions or other things to the existing contract that we have to see through, so i could ask the real-estate department to report back to us.

and we could have a hearing, and we could at that point in time see what would be a realistic goal. ok, so, we have got a motion to accept the budget analyst's recommendation and require that the real-estate department in conjunction with the mta come back in three months with plans on the existing space that is being occupied by these uses. do we have any objections to that motion? ok, we'll take that without objection. and then on the item itself, as amended, do we need a roll call, or can we do it -- roll call, please. >> on that motion to recommend as amended, supervisor mirkarimi? supervisor mirkarimi: no. kim no. -- >> kim no.

wiener aye. chiu aye. chu aye. the motion passes. thank you very much. if you could call item four please. -- supervisor chu: thank you very much. >> hearing regarding the city's five-year financial plan. item five, resolution adopting the city's five-of financial plan for fiscal years 2011-2012. supervisor chu: thank you. could you call item 5 as well? >> i have already called item five. supervisor chu: you called four and five? >> yes. supervisor chu: we did ask the

controller's office to go back and take a look at additional questions that we had and refined for the the plan. these had to do with items relating to one-time uses, had to do with scenarios -- better case scenarios or worst-case scenarios, so with that, i will let mr. rosenfield begin his presentation. >> thank you, supervisors. we have just a couple of follow- ups to the presentation from last time, given the questions of the committee, which we will talk to briefly. we had questions last time regarding what a better and worse case scenario might look like as we look out over the coming five years, and when we talk about projections over this time, there is obviously uncertainty. the further we go, the more likely our projected estimates are today, are likely to diverge from what will ultimately happen.

for an order of magnitude sense for how revenue projections might dip -- differentiate from the base case we might discuss, this is a simple illustration showing what would happen where the blue line in the middle is the projected based revenue, general fund revenue. what with the world look like in a slightly more optimistic scenario and a slightly more pessimistic one? this is taking -- if revenues depicted in the red line grow at about 1.5% more than we anticipate, which would be a more robust economic recovery, what with the world look like? the bottom line is a slow one, and more pessimistic view where revenues grow at about 1.5% less. given the horizon we're talking about, that is different. it becomes significant, in particular in years three, four, and 5. in american terms, the base

case grows from its current $2.8 million up to about $3.2 billion over this time. if in a more optimistic world, we may well see an additional $120 million in revenue growth or thereabouts, given this more optimistic scenario, and a more pessimistic view, revenues may well be short by approximately $120 million, given the different scenarios. obviously, in a constrained world where annual operating budgets need to be balanced, in a better world, $120 million in better news on revenue means $120 million in ongoing reductions or other revenue changes that would not need to occur to balance the budget. supervisor chu: in this situation if we were at a more optimistic scenario where we had 1.5% revenue growth higher than what we are assuming in the base case, we would see in year five

revenues that were positive to the tune of about $124 million, which would basically relieve pressure to make cuts or other changes in our expenditure? >> exactly. if we were to go back to the bottom line expenditure reductions or the revenue changes required to bring the budget into balance during this time, and this table is somewhat complicated, so i apologize, but just as a reminder, the five- year base case plan indicates that by year five, the city will cumulatively over this time have to have made -- would have to make approximately just short of $400 million ongoing, either reductions or revenue changes, to bring the budget into balance. in a more optimistic view, that $400 million or just short of $400 million could be reduced by as much as 25% or about $124

million. in a more pessimistic view, additional reductions would be required to balance, so i hope this is somewhat helpful to provide just an order of magnitude since as we work through this as to what the range of possibilities really does look like. it is a fair one that obviously what we think will happen today will not be what ultimately happens, and this will probably provide some more realistic views as a there is uncertainty the father out we go. there were also some questions of the committee regarding reserve levels and reserve status. as of july 1, our two major reserves, the rainy day reserve and general fund reserve -- will total just north of $58 million. that obviously during the past five years represents a pretty significant drawdown in reserves

as we work for this current downtrend. in 2008, the navy reserve had a balance of just under $120 million, and the purpose is to draw on it when it is raining, and we have drawn on it during the last downturn, with $50 million in draws allocated by the mayor and board in recent years to the school district and $34 million to the city. that reserve, we hope, will be replenished in future years if we have years of extraordinary growth. we do not anticipate those in our base projections, though, so we really will need to see a year of revenue growth outside of the norms we're talking about in a five-year financial plan. supervisor chu: this is interesting. our draw on the rainy day reserve looks like -- you said $50 million that went to the school district, $34 million that went to the city, but the actual calculation or formula is that for the rainy day reserve,

we can draw down up to 50% for city uses and 25% of what is there for the school district? so the numbers are kind of not what i would expect. i would have expected the city share of revenue for the drawdown to be higher. can you explain why it is not? >> the threshold that determine when we can draw from the rainy day reserve are different from the city and school district. for the school district, it is based on an inflation-adjusted indicated, inflation-adjusted per pupil spending. with that declines, the school district is eligible to withdraw if approved by the mayor and the board. the city posey does not have an inflation adjustment. because it has a more stringent withdrawal requirement, even though we are eligible to withdraw 50% if we ever did it, we will make it less often. the school district has been eligible to withdraw more frequently and larger amounts.

the board last year did adopt a financial policy and will go into effect during this horizon assumed in the base case where the general fund will grow during this time until it equals 2% of general fund revenues in 2015-2016. the amount of money appropriated on an annual basis in the general fund reserve will grow during this time, and we would hope that over this horizon, that we hope to see an economic recovery that is more robust than we have talked about here. we do have two reserves in place now to catch extraordinary growth. so we have a rainy day reserve we have talked about. we also have the budget stabilization reserve, again, that the board adopted. financial policy that in years of extraordinary tax growth for a couple of other volatile revenues will be the reserves, but it is certainly -- i think the point the committee made last week, which is certainly true, is that we into this coming five-year financial time having largely depleted reserves

that we had built up during prior ones. we had hoped to see some rebuilding of reserves during the next upswing prior to the next downturn. supervisor kim had had some questions regarding different growth rate assumptions in the plan, which are on page 13 of the plan document. i believe you noted some interesting fluctuations in interest and investment income over this time where we should 50% loss of interest and investment income in year one and then some growth and another decrease. the significant loss in the first year is predominantly related -- well, it is really driven by two factors. one is the our rate of return on the funds that we have invested has declined significantly in the current year's come just given the interest rate

environment, so it is under 1%. additionally, the balance of cash we have available has been largely spent through in the last several years, so that a relatively -- and this is a relatively small dollar value, in the $3 billion general fund budget, about $10 billion, but we do anticipate a rather significant drop-off in investment income next year in the city. supervisor kim: just to clarify that again, so the -51% is due to that, our spending down of the general fund, and some losses that we are experiencing? and then the following year, we expected a 2% increase? >> yes. supervisor kim: then it comes up to 34% increase? >> these are the treasures assumptions about how they expect our short-term interest rates to move on their investment portfolio over this time, so you can see that is pretty wide. they are expecting the world has

to recover from its incredibly low return rate that we are experiencing in the current year of under 1%, so, yes, i agree that there is some significant variance. you see a quick bounce back, and another cycle down in the years after. these are the treasurer's assumptions. because of the revenue source we are applying, the rates are small, it does not have a material effect on the bottom- line numbers, but it is a good point, and it is a curious trend. supervisor kim: the other question i had was undermanned and concessions, why there is such a drop. it is pretty steady. then, just for that one year, it is -13.9%. >> that is up on some further research after your question last time -- there is a specific revenue source coming into the recreation and park department

that is scheduled to expire. it is a prepayment of some parking garage spaces, so once the one-time benefit expires, it causes a one-time loss which is then more steady growth going forward. supervisor chu: thank you. >> we are back to it to answer some of the questions that the board have had, and, of course, happy to take any additional questions you may have. supervisor chu: why don't we open these two items up for public comment? are there any members of the public who wish to speak on four or five? seeing none, public comment is closed. for this item, i've reticulate item five, supervisor chiu and i both have some amendments reflecting additional analysis that the office provided to us