budgets have been cut or their equipment budgets have been cut, and they are perhaps working on pc's that are five or seven years old that are frequently failing or they do not have the money to replace. we actually have the data center consolidation projects already made a lot of those initial investments. it is the same technology we use to virtualize servers. it is looking at an opportunity to leverage technology we have already invested in. we are trying to look at smaller, underserved departments that have come to us begging for use computers, whenever they could get to improve their usage, and see if perhaps this supervisor kim: i do not want to discourage looking into that. those are just some of the concerns i had about moving in that direction. i am happy looking at that direction. the last question i have is not an area i am super familiar with, but looking at open source

software. i know for a lot of the software we by there is often a free alternatives. worrying about security and all of that, -- >> we actually passed a policy encouraging departments that any time they do and rfp for a solution, that they consider open source software for their solution and hope we can save the city money. we have had some limited success and there is concern about the sustainability of that model, there is a concern it will adopt a big critical to the operation and maybe the people whose support will go away, but we are continuing to look at those opportunities to see if there is perhaps an expensive commercial version or free open source version. i know we use a number of open

source solution for getting our work done. supervisor chu: i think a number of people would be interested in the wifi rollout. if you could distribute at two members of the committee and members of the board, i think people would be interested in where those sites would be. the plan in itself is more in general and sort of an overview of the technology programs that are happening. to be used more as a general planning document. one of the programs i am concerned about is the justice project. this may not be that tied to do about i would like to bring folks afford to give us an update about what is happening. this has been with the city for a long time and i think it is about time we get a debate about what is happening. supervisor chiu: i have a

hearing request that has been with the mayor's office for quite some time. i know there has been some transition in leadership but i have been told that the justice group, the newly formed justice team is ready to present. if we can have that with public safety. supervisor mirkarimi: we also had a preliminary with public safety. supervisor chu: why don't we go to public comment on this item? are there any members of the public who wish to speak on an item #8? seeing the, public, it is closed. -- the seeing none, public comment is closed. why don't we move this item.

do we have a motion? supervisor chiu: motion to move it with recommendations. supervisor chu: can we do that without recommendation? item #9. >> a motion extending the deferred retirement option program. supervisor chu: this is an item we have a number of people here to present. i know they will be providing the primary presentation from the comptroller's office and i want to recognize other individuals in the room today -- [reading names]

>> hello, supervisors. i'm from the comptroller's office. there are couple of slides i might be referring to. there are copies for the public here. i am going to go briefly through the summary findings. i'm happy to take questions after. after me, the actuaries, a city may be wishing i had talked longer. just a brief bit of background, in 2008, this was proposition 8 -- a voluntary program to encourage police officers to continue working beyond the date

they would have retired and reduce the need to recruit, hire and train new officers. there is an admonition that the program because neutral to the city. that is the phrasing that is used. the comptroller office has asked to make a finding on the subject at this point. the eligibility requirements, just briefly by way of background, to being dropped to 25 years of service and 50 years of age and then one or three years depending on your rank and eligibility. while someone is in drop, base receive their pay and benefits and make pension contributions. their pension benefit level is frozen at the point which they enter the drop but would have gotten if they retired at that point. pension payments, i including cost of living increases are placed in a tax-deferred account and they get a lump-sum pay off when they leave drop. that is the basic description.

a very quick look at the demographics of people in the drop program. we will speak more to this as well. the data that we looked at, by january, when the report was issued, from the beginning of the drop until january, to under 52 officers had retired. 169 of those, 67% for to is updated and 33% did not. here is the breakdown by rank. police officers have a three- year time frame of eligibility. lt. and captains have one year. gary has more recent numbers for what has happened since january, but that is a brief look at the demographics. if you look at what has

happened within drop -- that is what has happened since dropped, this is a very quick view of the retention in the program. just to explain it a little bit -- here are the first group of police officers who entered. this is a useful member to explain what has gone on. the median eligibility use -- a police officer could stay in the program for three years. how long did they stay? the people who retired used 37 present site of their eligibility or about one year, the same ordeal -- same order of magnitude as sergeants and lieutenants. i will come back to that a little bit later.

in summary, on the cost neutrality finding, in the simplest of terms, is drop encourages officers to work longer than they would have the outcome of the potential for cost savings are realized. the savings come from deferred training and deferred a health benefit costs. cost comes from changes in the retirement benefits. if it encourages them to work longer than they would have without it, the cost savings potential are realized. if it is other than that, they are not realized as well. our analysis hinged on what was the behavior when people enter drop?

in general, if you look at the fact we drew attention to in the front of the report, prior to drop, 12% of officers age 55 with 25 years of service would have been predicted to retire. this is based on many years of behavior in their retirement system. since the drop, 33% of officers have retired or enter drop. there are only a few years of data in that probability but that is what has happened and the retirement system can talk more about that. you can turn to the question of what happened -- understanding the change in behavior and linking it to the police department's actual cost -- a

couple of things can happen to a member's behavior. those who entered drop before they plan to retire may work longer than without. others may be retiring as they would have without drop. if you look at the last slide, the probability so far is members entered the drop before they would have retired without it. during the time they're in the drop, workers may exit after a day otherwise would have retired. too few members have retired to determine the actual additional service the city gained from the drop. taking together the effects of a change in retirement behavior,

the summary costs were if you take those two graphics together and if the program were made permanent, this is the scenario described in the report, the change in actuarial assumptions the consulting actuary would recommend to the retiring board would be to amortize the $52 million cost over the normal amortization time for the change in their benefit levels. we translated that into the standard way retirement cost increases are viewed over 20 years -- over a 2.5% change in payroll right now. that's the cost model for the retirement system. we look at taking every year of service demonstrated from the drop. over 30 months, there has been approximately 169 drop officers

with an average of 12 months of services. over 30 months, if you look at the record and training and benefit costs that are deferred, we calculate that to be $55,100 per deferred year. if you assume every year served in the drop was an actual credit and deferred cost savings to the city, take those 68 times 55,000, you come to 3.7 $5 million in savings to the city. -- $3.7 5 million in savings to the city. the cost is significantly larger -- significantly larger. we made the finding, it is summarized in the front of our report that as of this time, the

program is not demonstrating its cost neutrality admonition that was in the original charter amendment. gary will speak to some of the more recent demographics we have mentioned. those are the summary findings and i will leave it to them to walk you through this and areas bst to model that got us there. >> we have a few questions. supervisor mirkarimi: thank you. i supported proposition b like a number of our colleagues because we wanted to help create whatever contingencies to meet the attrition realities the city is confronted by. with some lessons learned, what i am hearing from the comptroller's office is that the hope of proposition b realizing

a certain savings or some cost neutrality is not there. but i'm trying to understand how we arrived at some of these conclusions, starting from what do we define as cost neutrality in this city? >> the charter amendment asks us to look specifically at a couple of items, so i can refer to those. i am looking for the language in the charter amendment so i can

be specific on that front. this section is 88909 and as specifies taking into cost of payroll, expenditures for training police officers and cost of recruits and trainees and field officer training costs, contributions made by members participating in drop in

the city's share on drop funds and and the cost related to the implementations of the program. >> i understand that through that prism, but does the city itself have a definition of costa neutrality? do we on our own operating plane -- definition of cost of neutrality? does that give us a margin of error say 1% above or below whenever the baseline determination is once we enter into these kind of contracts. that is what i am trying to understand. >> in this summary front section to the charter amendment, it refers to a simpler view of it -- shall not impose new costs as a result of the participation of police officers in the drop.

supervisor mirkarimi: it is a little vague to me only because i'm trying to catch up and understand our yardstick compared to other cities who are experiencing the same debate. it seems our controller would like to weigh in. >> we do not have a single definition of costs neutrality we apply to all circumstances in this city. generally speaking, absent other direction, our office would apply an absolute rule to take it at its face. i know there has been conversation in other jurisdictions about drop program analysis. is it within a reasonable margin of error that the cost or savings are within a band and in some places, folks have stood on that to authorize continuing the program, specifically in our

program and i think the retiring -- the retirement system can speak to this -- the ballot system that tracks office to complete the study is absolute in its terms and does not imply or allow leeway in our report to you to say this results in a cost increase. but the cost increase is marginal and simply says the comptroller shall provide a report indicating -- whether it achieves cost neutrality in absolute terms. >> is that a consequence of how the ballot measure was written as opposed to how we made ourselves assess -- does it present a different scenario that may be does a disservice to itself or maybe not as opposed to weed -- as opposed to how we may actually gauge the efficacy of this program? >> i do not read anything in the

ballot language it self that gives the comptroller's office leeway in terms of how we produce this report as far as placing an incredible cost in a larger context. it speaks of absolute terms in terms of our reporting requirement. supervisor mirkarimi: i'm going to reserve the rest of my questions for the actuaries. supervisor wiener: this may be a combination answer between you and the actuaries, but i assume you have seen the response to the comptroller's report and actuarial analysis. i just want to know what the controllers responses to that response. >> at the outset of this analysis, i think this goes to

the question -- part of the difficulty is what scenario you would use to analyze. we participated in asking for the models that underlay the report. the scenario is the range of possible savings using data as of january 1st, 2011. what would happen if the program were stopped as of that date and the cost that would run into the retirement system? then we asked for a second scenario, which was the program sunsets as of june 30th and everyone who was eligible enters it. scenario no. 3 was what with the program cost if it were continued, if there was a decision made to extend it and

became a permanent feature of the retirement system? in the letter and the correspondence back and forth, it had to do with if you assume different counterfactual said buzz. those -- different counterfactual attacks than those. i will let the actuaries comment, but i just wanted to say at the outset that we did try to take a fair look at the range of possible outcomes for the program and those flow into the actuarial assumptions. supervisor wiener: i would ask that the actuaries respond to

the analysis. was there anything in the response that caused the comptroller to question your conclusions or change any of the calculations or anything like that? >> there really was not. these are fairly big numbers. the demonstrated savings to the operating cost of the police department are very small. even if you give complete credit assuming every year of service in drop is and avoided cost for the police department, which is also questionable, that is a relatively small savings. under the range of possible costs to the retirement system, if you think of the retirement behavior creating a range of savings to cost, there is a table and our report that talks about that. the actual behavior of officers

is somewhere in the middle. what we see in terms of officer behavior is pointing to the idea that behavior is going to bring us down on the cost side and not the savings side. those numbers are so much significantly larger than the savings to the police department that minor changes in the view of the actuarial data would not make a material difference. supervisor chu: thank you for your presentation. >> thank you, supervisors. i'm with the retirement system and i just passed out a handout. i only have two purposes and a very brief overview.

what is to give you a quick summation of the overall demographics of the drop program. the other is to introduce the retirement systems consulting actuary. under the charter, the report submitted in april was in two parts. one the city comptroller provided a cost report to the board with overall numbers. the second piece was not from the retirement system itself, but from the resulting actuary and i will be introducing the actuary who authored and provided that report in a month. i just want to run through a brief summation through this drop program. 560 officers of the various eligible ranks are eligible to collect in the drop. what you can see in the middle of the page are those to have

already taken some action. they are eligible for drop but have elected to retire through service or disability. that's 17% of the overall universe. to leonard 66 officers have already elected in the drop, that's 47% -- 27 officers have completed their full drop time, either the one, too, or three year timeframe depending on their rank which is out their maximum eligibility is concluded. 49 officers, 9% elected in and chose to leave early. a drop election is a revocable. once they are in, it cannot be waived off. they would leave the service. that leaves 190 officers

currently participated -- currently participating in drop. the numbers at the bottom are of more interest to the retirement board so we can service the officers and insure those who want to elect in will indeed be able to be processed and right now there are 204 remaining officers on the force to have the ability to elect drop if they so desire. that would have to occur by the end of june unless the program would be extended. the next two lines are those who have received personal counseling from the retirement system or will receive counseling, which we strongly recommend they do before they submit their drop election. the last number are those who are eligible but have not contacted the retirement system indicating they wish a counseling session. i would like to introduce bill

hallmark, and enrolled actuaries. it is an independent actuarial firm hired to perform our services and they prepared the comptroller's cost report. he will speak to the actuarial report and presumably address some of the questions you have already asked as well as the remaining questions you may have. i'm not going to steal his thunder when i tell you, because we told you what we received the report, the message he will be delivering is that based upon the limited time span drop was available and the limited universe of individuals who are eligible, they basically determined the question of cost or savings was indeterminable as the report was filed. with that, i will introduce bill

hall -- a bill called mark. >> thank you. -- i will introduce a bill hallmark. >> the cost or savings due to drop cannot be determined with certainty. there are couple of factors that lead to that. the first is the limited experience timeframe at two and half years and the fact that was the initial time in behavior in the initial time maybe somewhat different than the program that is ongoing. the second issue is not dependent of the time. in order to determine the cost or savings, we need to compare what actually happened to what would have happened if the drought program did not exist. it is impossible to determine