payments. that has resulted in a significant level of savings. in the current year, the biggest part is the decision not to prepay some debt service on bonds. the next line, this is an inflationary increase. this is a projected increase to keep pace with inflation and contracts, materials, and supplies. we have not funded that increase in the budget. the biggest impact of that, i would argue, the short term, is on our cbo, partners who will not receive an inflationary increase. i believe this is the fourth year that we have not provided that increase. again, that is discussed as part of the five-year financial plan. prop h trigger, a plan deferral of 25% of our obligations.

also anticipated in the five- year financial plan. on the state budget reserve, i think this is something that is going to be an active discussion over the next couple of months. it looks like the state is moving down a path where we could start to get a little bit of certainty about what its budget is going to look like. we had originally anticipated in our deficit projection holding a $30 million general fund reserves against state reductions. in this budget submission, we reduced that to $15 million, leaving as $15 million worth of general fund that we can use to balance the budget. the rationale for doing that is that the mayor, along with several members of the board of supervisors, are proposing a sales-tax proposal that would go into affect that -- if the state allows its tax rate to drop.

at the sales tax rate drops 1% at the state level, this proposal would impose a half cent sales-tax locally, so that we would still see a half cent drop in sales tax rate. but that would provide as a backstop against the actions that the state is going to take to balance this budget. the value of that in fy 2011- 2012 is about it be million dollars, so that has allowed us to take on some of our general fund reserve and use the sales tax backstop as a reserve against the cuts. other items on this list are relatively small, so i will not go into detail, but you can feel free to ask questions about those. in terms of department reductions and revenues, this is a list of some of our bigger departments and what the value

of their share of the balancing plan is. at the public health department, our largest department, in terms of total size, and as always, they're asked to play a significant role in helping balance the general fund budget. of this $31.7 million, a significant portion of that is revenue, federal revenue, as part of a new program associated with planning for health care reform. we have been able to leverage those revenues to offset a general fund that also includes a planned expansion. so some of that revenue is used for expenditures to expand our capacity at clinics. and to prepare for new requirements imposed as part of the waiver. additionally, within the health department, you heard last night about some expenditure reductions. those include about $3.4 million of reductions to non-

residential mental health and substance abuse services. it is dramatically down from was it had been originally contemplated in the department's 20% proposal, but there are some expenditure reductions remaining. lastly, this figure also includes a proposal to change the way that we use staff security at the hospitals, which would allow us to reassign sheriff's deputies back to the jail, a savings of2 about of million at the health -- a savings of about $2 million. at the police department, this is another one of our largest general fund departments and a very significant contribution to how we balance the general fund deficit. there are a couple of key parts in this number. the two largest our decision to not fund additional academy

class is for the coming year. so there are no academy class is -- classes anticipated for the budget in the coming year. that saves as the cost of administering those classes, and it will result in some salary savings within the department, as we have retirement and attrition. of course, the flat side of this is that it means as officers retire, our ranks are thinning of the police department. but that is about $11 million worth of savings included in the budget. additionally, this figure includes a request that we have made to employees at the police department to defer or renegotiate a wage that is contemplated -- wage increases contemplated in the contract. that is about another $10 million that is assumed in the mayor's budget, and we're optimistic and working closely

with our employee organizations to talk through how we can make that work. the human services agency, this is also a combination of revenues and expenditure reductions. i think there are a couple of pieces that are significant in this $14 million value that are noncontroversial and some that are tougher decisions to make. the department has been able to identify some savings in its operations and some revenues that are associated with drawing down federal revenues as part of the safety net programs. but there are some remaining expenditure reductions in programs that i am sure you have been and will be hearing about, including some remaining reductions in the department of aging and adult services, some of our homeless housing contracts, and other expenditure

reductions. the fire department, two components to this number of note. number one, this assumes that the continued closure of one fire station, closed due to renovations. that is about a $2.5 million savings that is anticipated to come back on line in the following fiscal year. that is a one-time savings. that is a significant dollar value. additionally, we have also assumed that a planned wage increase for firefighters and will not occur in this budget. on the other items on this list, i will not go into detail on all of them. those four departments at the top are significant share of our general fund budget. that is why they have a significant share of the solutions. again, if you have questions or particular is that you would like to discuss about any of these departments, more than

happy to do so now, and of course we will have them starting on monday, coming to talk in detail with you before this committee. just a note about how this budget submission it lines up with our five-year financial plan, which we have been talking about at this committee over the last month and a half and which was recently finally approved by the board of supervisors. we are, i would say, pretty close to where we had planned to be in the five-year financial plan. i think that is partially because we designed the plan with a sense of how we would be balancing the budget, but i think that is good news and that we're making a real effort to try to make that plan a document that is going to guide budget decisions in the this year and in future years. the biggest of variations,

compared to what we had adopted in the plan, is the last item on going, department revenues and savings. we had anticipated that we would need about $63 million of those initiatives, and the actual budget includes about $53 million. that category, expenditures savings, was kind of the catch- all for the remaining reductions that we would need to get our budget balanced. and we are able to avoid some of those reductions through the third and fourth categories, some additional savings on capital spending and de restructuring. that is primarily in the debt restructuring category and on wage and benefit expenditures. all-in-all, i think we have made a real effort to try to submit a budget that is consistent with the five-year financial plan, and i hope that will be the

trend and the guiding principle that we use over the next five years to try to follow that road map that was adopted by the board. just in terms of where we are, we have got a $6.8 billion budget. as has been the case in the past, a little less than half of that is in our general fund. a little bit more than half is outside the general fund. the total budget is about $266 million increase, compared to the current year. one of the things that we have discussed quite a bit here and elsewhere is why the budget is growing when we are also cutting, and i think that that is both expected but also a theme of some of the analysis that we have been doing about our city's finances over the past couple of years. the trend that we have seen in the five-year financial plan is

that we have our costs outpacing our revenues. so we can anticipate this to occur into the future as our budget is growing and our revenues are recovering. we're still going to have a lot of tension in the budget, and we're going to have continuing budget deficits because our expenditure growth so far outpaces our revenues. but other pieces that are included in the growth, there is a little bit of a list here, but a couple of notable items. the health department's budget is increasing by over $100 million. there are a couple of big pieces to that. the two largest are, as i mentioned before, there are some new expenditures associated with the new medical waiver that requires us to increase capacity at the clinics and elsewhere in order to prepare for federal health care reform. additionally, there is about $40 million worth of expenditures that are associated with

transfers to the federal government that are then matched with federal dollars that come back to us in revenue. public utilities budget is increasing by about $62 million as associated with their infrastructure investments. that is also planned in the five-year financial plan. then we also have about $30 million at other non-general fund departments of growth. a couple of notable pieces, the department of building inspection's budget is starting to recover after the last few dismal years, and that is a sign of something good happening in the economy. and lastly, the airport's budget has grown as part of the opening of terminal two and the first before it -- the airport the budget has grown as part of the opening of terminal two. in terms of positions, we have a slight increase in the number of

positions compared to last year. however, looking back historically, we're still at a very low position cannot compared to where the city has been for the past decade or so. of our 164 fte increase in the budget compared to the current year, the bulk of that is in a couple of categories. it is in a non-general fund departments. the puc and the airport are the two larger increases associated with the capital investment and the opening of terminal two. we also have a significant increase of the health department associated with the medical waiver. overall, we're still at a relatively lean that level by historical standards. i will not go through each of these charts, but they are there for your reference to just give

you a sense of where our funds come from and where our expenditures are used. these will show up in the mayor's budget book. it is to try to give you sense of where we are now compared to where we have been over the last few years. one thing i will note on these charts, and it was no surprise, if you look at our city budget, we're still at about 50% of our budget in personnel costs. salaries and benefits. so almost half of government spending is in direct operating personnel expenditures. that is the reason that those costs for such a significant factor in our future financial planning. over the last couple of months, i know you guys are all aware and have been participating actively in this process, but we

have spent a significant amount of time -- the mayor has spent a significant amount of time having public discussions about what is going to be included in this budget. we have had town halls with each of you at this committee and with your colleagues to hear from the public about the budget. we have gone through a two-month long process, working with our cbo service providers to discuss how we can minimize the impact of health and human service reductions, and we have had countless, at least california list by me, meetings with various stakeholders from the community, with our employee organizations, with our commissioners, and with members of the public. ultimately, i think the hope has been, going into this budget, that we would be able to make a lot of the changes that we need to make up front and avoid doing

it at the last minute. we have made a really serious effort, along with all of you, to try to do that. compared to where we started, in terms of reduction proposals, we have about $28 million worth of changes that have been made in the budget to reflect the information that we have received and the thoughts that we received through that public process. lastly, i think as we go through this budget process, my hope would certainly be that we continue to kind of look at our decisions through the lens of our five-year financial plan. starting next year, we're going to have to actually adopt a two- year budget city-wide. i think we have got some real challenges ahead. i hope the five-year financial plan helps give us a little bit of a road map and provides us with some guidelines about how

we can make our decisions. but again, we have, despite getting through this budget, the future looks like if we do not take correction acts -- corrective action, our budget deficits are going to grow, even if the economy recovers, unless we take corrective action. the most significant driver, of course, is in our wage and benefit growth. over the next five years, we have projected that if the economy recovers, our general fund revenues are going to grow by $416 million, which is good news, and that is a sign that we think the economy is going to slowly began to recover. but over that same time, wage and benefit costs alone are going to grow by $648 million, unless we take corrective action. that is going to be an ongoing issue that we are all going to have to tackle over the coming months and years. so that is all i have got.

i am happy to answer questions. i know you'll have plenty of time with the department of the next couple of weeks to get into the details. supervisor chu: thank you very much. why don't we move on, because we have got a revenue letter as well.

>> good morning. i am the controller. as you're likely york, the charter and administration code requires the controller to provide an estimate on the reasonableness of their revenue assumptions proposed by the mayor. to meet that requirement yesterday, we issued what we call our revenue letter. it provides some summary about revenue assumptions underpinning the mayor's proposed budget, and also comments on a number of other items on the mayor's budget. i can briefly walk through that. i have copies available on the podium next to me. it is always available on our website. generally speaking, we find the revenue estimates assumed in the mayor's proposed budget to be reasonable, given current thinking about the state of the local and national economies. a couple of caveat to add, the

first, of course, is that the city's general fund relies heavily on the state of california for revenues to support both city and county functions. the mayor's proposed budget includes a $17.5 million allowance for future and, as of now, unknown state budget cuts, and to the extent that final state actions are less than or more than that $17.5 million, it may require later corrections by the mayor and board of supervisors. it would appear that we're going to actually have an adopted state budget today. at the legislative level, we will work with the mayor's budget office as to get more details about what the final budget holds and provide an update to the committee in the coming week about how that reconciles to the budget you have before you. it would appear that the state is likely to adopt a budget later today. that will provide some certainty on planning going forward that we have not always benefited

from at this time of year. secondly, the fy 2012, fy 2013 shortfall remains a significant challenge. looking ahead to the year beyond the one in front of us, we do project persistent deficits. our base expectation would be that we would start next fiscal year with approximately a $350 million shortfall, with a couple big buckets of solutions available to begin working that down. the first in the five-year financial plan proposed by the mayor and adopted by the board, multi-year strategies were outlined that would continue to have a certain amount of capital, suspend nonprofit colas, and some other actions that are within the authority of the mayor and board to implement. but those actions adopted in the five-year financial plan are taken, that would shave about $100 million of the three and $50 million.

the mayor has proposed two ballot measures for this november's ballot that would reduce that by about another $100 million. a charter amendment would serve to reduce costs. there would be some sales-tax increase to provide about $60 million in that year. depending on what happens with these items, you can see that the city has the opportunity to make significant progress toward meeting its structural imbalance. and potentially leaving us with a preliminary estimate and shortfall for next year of just under $150 million, which would be significant progress towards structural balance in the city's budget. >> what specifically from the five-year plan? >> it is $115 million in solutions adopted for the 2012-

2013 fiscal years. the single most significant one of those is the continued retracing of our capital spending. so the budget you had before you reduces the planned spending level on capitol significantly from that adopted in the 10-year capital plan. continuing that action next year is the single largest piece of this $115 million. other significant pieces included suspending colas for nonprofit providers for the next several years. that is approximately $20 million. capping hotel tax allocations and taking all of the growth from the hotel tax and to the general fund is about another $10 million. lastly, suspending the prop h for this goal set-aside trigger. >> maybe this is a question for the capital group. i am not sure. i think it is $35 million that we cut from the capital budget

this year. i assume that that is part of this $115 million. >> that is correct. i am the mayor's budget director. the reduction in the deficit that the comptroller is discussing, part of that would be from the reduction in the capital budget contemplated in the five-year financial plan. $35 million in the 2011-2012 budget. going for, it will decrease to $25 million in 2015. over five years, it will catch us back up with the original capital plan assumption. >> has there been analysis done about the long-term costs will be of these reductions in the capital budget? are we sort of borrowing money, in a way, because it causes deterioration of assets and it

is more expensive to fix it in the future? >> it is a great question. there has been some analysis on an asset-by-asset bases, and i think the general thought is correct, that it would probably be more cost-effective over the long term to be adequately maintaining our facilities. the issue has been and continues to be that, even at the capital plan funded level, we're having to make decisions, because the actual need is greater than even at the level that we had contemplated in the capital plan. i know that is not a satisfying answer. it is essentially saying that we are deferring an even greater amount than we would like to. but the reality is that it is a job for us and for the capital planning committee to try to make decisions about where the highest return on our investments is in the short

term. and if we have additional funding that is available to be allocated to capital projects, that would probably be cost- effective use of general fund dollars, and we could probably plan to find projects that would have a high return in terms of savings on future reconstruction or other costs. supervisor wiener: thank you. >> returning to the next slide. it was already noted, the total all fund budget included the enterprises is growing. it is just over 4%. the general fund budget is growing at a greater rate than that, about 9% year-over-year increase in the general fund budget. that is predominantly driven by the continued expectation of revenue growth next year, but then also, the significant good news in the current year. so those two things stacked on top of each other and lead to a

pretty significant year-over- year growth in the general fund budget. you see the largest increases in terms of projected revenues for the coming fiscal year are driven by transfer tax, property tax, and business tax. and then the largest decreases, the most significant being almost a $30 million year-over- year loss of federal exemptions. that is the result of the expiration of federal stimulus funds and the loss of the hospital fee waiver that was used to balance the current year budget. the report itself goes into great detail about each of the major revenue streams. for those interested, it has more information on each of these and others. their proposed budget does rely on just over $200 million in one-timer nonrecurring sources to bring the city's revenues and expenses into balance. the most significant of these is the accreditation that we will end the current fiscal year in

the general fund with about $153 million as an ending balance. other one-time revenues appropriated in this budget include $18.5 million in at the mental health state plan amendment revenues. almost $12 million in one-time savings for the department of public health. and in the facilities fund. and the first of the acoc's payments for city reimbursements is assumed in this budget at approximately $12 million, with offsetting expenditures. as you know, we provided periodic updates to the board on our projections for ending fund balance. the nine-month -- the balance proposed in the mayor's budget is modestly higher than the nine-month report ending balance, by about $17.3 million.

that is driven by slightly better news on property transfer tax in the current year and better news in the current year on the supplemental party tax bills processed by the assessor. again, some good news from that that has assisted with the balancing of the budget. page six is a summary, and this is a detailed more in the report itself. a summary of all the different revenue and staffing and expenditure-driven baselines or fodder requirements that sit in our charter. -- or voter requirements is that in our charter. generally, it is showing that the mayor's proposed budget meets or exceeds the baseline requirements in the majority of cases. one exception with the budget provides more funding than is required is the children