supervisor chu: hello. welcome to the regular meeting -- actually, a special meeting of the budget and finance committee. mr. young, do we have any announcements? then i guess. please turn off all cell phones. if you wish to speak during public comment, please fill out a speaker card and turn them in to myself. if you submit documents to the city, please provide copies to the clerk for inclusion in the file. items discussed today will appear on the board of supervisors agenda on june 2,

2011, unless otherwise stated. supervisor chu: thank you. we had a number of items that are not part of the budget process budgetper se, -- part of the budget process, per se, but we would like to dispense with those first. >> item 1, resolution approving the issuance of water revenue bonds and water revenue refunding bonds to be issued by the public utilities commission of the city and county of san francisco, affirming covenants contained in the indenture pursuant to which the water revenue bonds are issued, authorizing the taking of appropriate action in connection therewith and related matters. >item two, ordinance approving the issuance and sale of water revenue bonds by the san francisco public utilities commission, not to exceed $49,100,000 to finance improvements to the cuw260 water

main, the commission's hetch hetchy water and power system, and the treasure island project pursuant to amend its to the charter of the city and county of san francisco. >> good morning. general manager of the sfpuc. if you would like, we can call one through four and discuss the budget because the idea of how we pay off the bonds is part of the budget discussion, and that might make for a complete discussion if that is easier. supervisor chu: if we could, i'd like to keep the budget is separate and apart from the issuance of bonds. we can call item three. >> item 3, ordinance amended the san francisco administrative code to create the public utilities water enterprise environmental enhancement surcharge fund. >> i would be happy to give you a brief overview. on the water revenue bonds, it is an additional $700 million for the bonds. we have been issuing these bonds

for several years now. the water system improvement program is a $4.5 billion program, mostly done by issuing debt, and we retain that over 30 years or so. when there are regional projects involved, 2/3 of the retain and is from wholesale customers. for in-city projects, it is mostly in-city rate payers that pay for that. this is one of a number of charges of bonds we have issued over the past few years. it follows the normal pattern we have given to you before in prior years. approval of -- mr. rose is recommending approval, i believe. item two is for $49 million of non-wsip projects. the big ones are a realigning of a tunnel in the mountains and work on the san joaquin pipeline. there is also a project for treasure island for backed up water and water supplies on

treasure island. again, that follows the same pattern we have had on all of the issues we have done. the third, the environmental enhancement surcharge -- as part of our negotiations with wholesale customers, we limited the amount of water we promised to take off the ptolemy river through the year 2018 -- the tuo9lome -- tuolome river through the year 2018. we had to have encouragement to not take additional water. it is not something where you can simply turn the tap off and not take the water, so we created environmental enhancement surcharge that said that if we collectively use more than 265 million gallons of water per day, we will then start charging a surcharge over the regular cost of water that would encourage people not to take that water off the ruolumne -- the tuolumne. the surcharge is high enough

that it would encourage people to do other things instead of taking water of the rivers. water usage has gone down so much over the past three years that none of our projections show this kicking in. we do not believe the surcharge will ever be charged, and we do not believe anybody will ever be in this fund. we're doing it to be in compliance with the contract, but again, and less water usage changes dramatically from what it has been the last four years, there's no reason to ever believe it will be above 255 million gallons a day. supervisor chu: thank you. with regards to the treasure island project, i wonder if you could expand further on what the project is. >> there are several things we have to do for treasure island, whether there is a new development or not. water for treasure island comes across the bay bridge from san francisco's side, but should that be disrupted that you need a secondary source of water, there's two ways to do that. one, there are some tanks on the

island, on yerba buena island in particular, that are cracking and in need of repair. there is also a pump station on the eastern side under the current bay bridge. when demolished, that station will also be demolished, and that is the back of source for getting water on to treasure island. -- that is the backup source. we have several options for taking care of that, but what is currently in our budget is over the next two years, to put enough money aside to rebuild the pump station. the new bridge has pipes. one of the pipes is for us to provide back up water to the residents of treasure island -- backed up -- backup water to the residents of treasure island. supervisor chu: thank you. mr. rose, i believe part of your report covers this. >> yes. on page 6 of our report, regarding item 1, and i have

some revised numbers on the bottom of page 6 in terms of how these revenue bonds would impact the average single-family residence. the correct numbers are the water bill would be impacted 23 cents per month in 2011-2012. 35 cents per month -- and this is for the average single-family residence, i should say -- 35 cents a month in 2012-2013. 63 cents a month in 2013-2014. and $1.73 per month in fiscal year 2014-2015. we do recommend approval. regarding item two, currently, the puc is permitted to issue commercial paper for the water system improvement project uses.

this file would clarify that the puc has the authority to issue commercial paper to provide financing for non-water system improvement project uses. because of that clarification, since that might be considered an expansion of the puc's debt issuance authority, we consider the file to be a policy matter for the board of supervisors. finally, regarding the new environmental enhancement surcharge fund -- that is item 3, file 110579 -- we have a table in our report on page 7, which does indicate based on past water usage that there would not be a surcharge fee imposed. however, since this is a creation of a new surcharge fund with a potential fee, we consider this ordinance to be a

policy matter for the board of supervisors. supervisor chu: thank you very much. just a clarification -- the numbers that you represented, that is inclusive of both items one as well as item two? >> that just pertains to item -- excuse me. that is just item one, filed 110555 -- file 110555. supervisor chu: do you have similar information for 110554? >> which is item two? no, on item two, as i understand it, what the department is requesting -- the

board of supervisors previously authorized the puc to issue commercial paper for water system improvement projects. as i understand this legislation, it would give them additional authority on an as- needed basis to issue, additional commercial paper -- to issue additional commercial paper for non-water system improvement projects, but this would not directly impact the rates. this is, as i understand it, considered temporary or bridge financing. ultimately, is the bonds -- it is the bonds in item one that would have the impact on the water rates of both commercial and residential users. supervisor chu: if i could ask the puc to clarify. >> certainly. the larger projects we are talking about, the wsip project, we said the rates would go up

dramatically to have a reliable water system. we suggested rates would go from about $40 a month for the regular water bill to about $41 for the wsip program -- from about $14 a month. that is that part of it. $49 million is somewhat in addition to that with the commercial paper. the commercial paper is really just a financing tool. we can borrow money at 1.25%. if we are borrowing for long- term debt, it is 5%. we issue commercial paper while the budget is happening and then we will look into the long-term debt after we stabilize the project, and we hope to get a better market for the bond rates. it is not a separate discussion. it will roll out ultimately into the regular bond issuance. it is a bridging tool to make sure you get the best rate when you do not need to go out and borrow the money long term.

supervisor chu: to be clear, the issuance or item one, the dollar amount that would be raised per month is included as part of the wsip already approved rates that have been communicated? that's absolutely. supervisor chu: in terms of item two, that will be in addition, but because it is currently commercial paper without a bond that is necessarily financing it, you do not have the impact yet? >> our projections on that, we said it would be about $41 per month for water rates based on wsip. if you add in the new meter system we are going in, we project now that the total rates would be about $49. in addition to wsip, all the other replacement work in the city and the meter program and these things would raise the rate by an additional $8 or so. supervisor chu: thank you.

if we do not have any questions on items one through three at this moment, why don't we open up public comment for the first three items? they are not related to the puc's next year's budget, but related to the issuance of water revenue bonds and also the establishment of a water enterprise environment, so enhancements surcharge fund, item three. if there are any members of the public who wish to speak on items one, two, or three, please come on up. seeing none, public comment is closed. can we entertain a motion to -- i believe on item two, our clerk has just indicated to us that there is a document that needs to be amended.

>> yes, i apologize. the city attorney indicated there is an environmental document missing, so i think we are recommending that that portion beat put on reserve until the environmental documents are finalized. supervisor chu: so that i understand correctly, to the city attorney, we need to indicate that the portion related to treasure island -- >> that is appropriate as long as it is sufficient for the controller to understand the amount at work. supervisor chu: thank you. we have a number of items. if we can entertain a motion to send items one and three out with recommendation. supervisor mirkarimi: motion to send items one and three with recommendation. supervisor chu: without

objection. we also send item two forward with recommendation, but we ask that we put a controller's office reserve on the portion related to treasure island. supervisor mirkarimi: so moved. supervisor chu: ok, we take that without objection. mr. clarke, call items four, five, six, and 7. >> item four, hearing to review the mayor's proposed a budget for fiscal year 2011-2012. item five, with and it's appropriate estimated receipts and estimated expenditures for selected parts of the city and county of san francisco for fiscal years ending june 30, 2012, and june 30, 2013. item six, proposed annual salary or and it's in the marine positions in the annual budget appropriation ordinance for selected departments of the city and county of san francisco for fiscal years ending june 30, 2012, and june 30, 2013.

item seven, resolution concurring with the certification the services previously approved can be performed by private contractor for a lower cost than similar work performed by city and county employees. supervisor chu: thank you. before we begin, supervisor mirkarimi would like to say a few words. supervisor mirkarimi: i have to go and chair the public safety committee. i do not expected to be a very long meeting, so i am interested in engaging the department of the environment and department of public utilities commission, and i am interested in renewal programs that i know are coming up for review today. it is extremely important to me. as well as questions about how we might be able to alleviate some of the cost burden to institutions like perhaps city college. i look forward to that discussion. i just wanted to say i will be

back. supervisor chu: thank you. why don't we move forward? there are two departments before us today, but the public utilities commission as well as the department of environment -- both the public utilities commission as well as the department of the environment. i would like to start with the public utilities commission. >> good morning again. what i was hoping to do was to give you a fairly broad overview of the budget. as part of that, talking about the changes from this year to next year, but also the five- year plan look at the puc's budget. i notice there are two issues people have raised concerns about. i was going to give you additional information. and finally wrapped up with a discussion about community benefits and jobs. if that works for everybody, we will start with that. the puc budget is -- it is an infrastructure-rich

organization, as you know. what we spend money on more than anything else is making sure the assets continue to survive. the water system is needed to bring water to 2.5 million customers in the bay area. the waste water system is critical for getting rid of waste water and storm water in san francisco, and the power grid is critical to providing power to san francisco. because of that, we have a long- term view of the world, so typically, we look 30, 40, or 100 years out. so our budget is much more heavily dependent on capital projects and on debt. the budget between the current year and the proposed year is going up by $61 million, and that is the slide you are seeing. you will see that almost all of it is in the water department. i was going to go through water and then with water and then power with a current look and then a five-year low. on the water department, the water department budget is going up $54 million of the $61

million total budget increase for the puc. $41 million is debt service, and that is exactly what we were just talking about. as we issued this debt, we have to pay it back, so the assumption is that we will be going ahead and raising rates to continue to pay that debt service. we know that over time, we have been telling people for years that the rates will be going up, and that is what most of the budget has included in it. you will also see an item for rate stabilization reserves, which means some years we collect a little more money and some years, we spend a little more money. so we avoid rate shock by inadvertently raising rates too much in any given year, and those are for the current year water enterprise. if you look at the side view of that, you will see that over the next five years, our budget is going to grow to a projected $543 million, about $200 million. 85 percent of that is debt load.

that is the story of the water department, issuing debt and paying it off. other than the debt service, you're talking a 50% increase in the other items related to the water department. one of the things you should be aware of and somewhat concerned about is that we are able to issue debt because we have a decent fund balance. it assures people that when the debt is due, we will be paying off. notice in your 2011 -- year 2011 test well, the -- notice in year 2015-2016, the budget is about $50 billion. we need to continue to raise rates and have everything -- a flat budget for everything other than debt to make sure we cover debt and continue to issue it and keep a double a rating. i 2015-2016, $23 million is barely enough to do it, but we do not want to raise rates unnecessarily. i would be happy to answer questions as i go along if you

would like. on waste water, you can see that between the current year and next year, the waste water total budget goes -- capital projects are going up. that services are going down. the big issue is capital and

debt and really nothing else. if you look at the five-year view of that, again, that service is going by about 40% of our total budget. the waste water budget will increase by about $90 million. the sewer system improvement program. we are going to be raising rates over the next five years to start hearing after that, so you notice the fund balance the start to increase, so we do not have rate shock in years five, six, seven. again, it is a rate we believe will be between 5% for the next couple of years going to as much as 9% to be able to move forward with the sewage system in san francisco. on hedgy, the budget is not a big concern in terms of the total budget for this current year. it is going up for $199 million

to $202 million. most of it is in salaries and fringe benefits and some purchasing power. the real issue is the long-term discussion, and that is what i would like to spend a few minutes talking about. most people feel that hetch hetchy has all the money in the world. that is not the case. they only earn about -- a certain amount of revenue based on power sales. subsidizes the general fund to the tune of $25 million a year. so the money pays for everything -- maintaining water, pays for programs like solar and other things. it pays for energy programs in san francisco. so we have been having some difficulties the last few years. last year, we haven't unbalanced

capital plan. this year, we tried to balance it much more closely. you will notice on this slide that even with doing that, by year 2014-2015, we are projecting that had she will run out of money, and if it does, all of this stops. -- that hetch hetchy will run out of money. there is no program for any validation of lighting and emergency things, and the city facilities were general fund apartments because there is no money left. we are trying to make appropriate and decent decision so that the hetch hetchy system continues to survive. this snapshot shows you that even with very low increases in operations and trying to do some revenue funding capital typical on the waterside, we are still running out of money within four years. so let me walk through the cuts

we have already made. if you look at the 10-year capital plan, we looked at city street lights, and we cut those by $18 million over the next 10 years. we look at transmission and distribution systems for hetch hetchy and cut that by $100 million. we look at maintenance of our power houses and cut that by $25 million. if the transmission system fails, if the powerhouses fail, you have no programs, no substantive general fund, no solar program. all of those programs are canceled because there is no money to fund them. at the same time, we look at renewable generation for city facilities, renewable generation for non-city facilities, and energy efficiency conservation programs for city facilities, which is pretty much a direct general fund subsidy by taking care of lighting, hvac and other types of programs.

we cut all three of those programs by a similar amount. in each case, they went from mid-$40 million to about $50 million over the next 10 years. we thought that was judicious. we still think it is. if you look at the non-power side of hetch hetchy, it is basically a flat budget over the next few years. we did not make changes because it was substantially funded through water rates. >> just a question for you, what kind of work would be done for example in the transmission distribution system line? >> we were hoping to upgrade those lines so we could take more power down from the mountains and sell it differently and make more money. we did not leave the money in to upgrade the systems for additional funds and programs in san francisco. supervisor chu: for your powerhouse line, what does the

$69.4 million left allow you to do? >> we have three major power houses. they are aging. they have to be rewound. they have to have a variety of things happening to them. we have put enough money in to hopefully keep them working and in proper condition. if we had more money, again, we would remind those. they would make additional energy, which could be used in the city, or as clean energy and could be sold. the ability to make those powerhouses more efficient and be able to generate more clean energy is what we're giving up there. supervisor chu: i see. you had mentioned the changes in the energy efficiency/a renewable energy portfolio, which is the improvement to city facilities. looks like you have taken a pretty even reduction across the board, so we are taking a wise percentage from renewable generation.

>> that is right. supervisor chu: ok, thank you. >> the next issue i wanted to talk about was the subsidy that hajji -- hetch hetchy provides to city and related parties. supervisor chu: could you actually -- i think this is act like a pretty important slide, and i'm sorry i missed it. the structural shortfall, can you just walk me through the numbers we are seeing here and help me understand what it is that is driving the structural shortfall? >> yes, supervisor. if you go back to slide 6, it should be there. eight is the shortfall on the