, of these of the employees, it was fairly close -- through the employee's it was fairly close. it will also see that the largest amount of growth in the fund comes from investments. all of our expenses are paid from the pension trust for the pension plan. expenses through the 457 plan, no employer dollars go there. this is completely voluntary contributions and earnings. the only exception in the entire budget that is general fund allocated is a small number for defense that i only mention because there are no general fund dollars that is one small line item that is there. we collect no revenue. either we collect the growth, interest, and dividends on the

assets, but otherwise they were not. we are not enterprise of like the airport as we do not charge people for monday -- money. respect to the budget, there is before you the figures. slightly different from what you receive from mr. rose's department induces a cut from the position on the mayor's staff that we did not realize when this was printed. it is not the numbers from the controller, we have made moderate increases in the requests. drilling down a little bit 65% of the systems are personnel

related. we are a people oriented system. other things like mailing out newsletters and checks to the numbers. one thing, just to show you that we are small and running lean, 65% of the budget is personnel costs. within the overall city budget you can see how lean and small these numbers are. i would like to conclude by touching on the five-year financial outlook. i know that it is becoming new and important to the city and it is not something that the system itself has done before. i have listed five areas fat i think will require significant attention from the system --

areas that i think will require significant attention from the system. we have general demands and a need for additional space to accommodate members services. we are in the process of implementation in terms of moving from a one year business plan to long-term strategic plan outlook. like every other business entity in the world, we need to continue to update i.t. equipment to speed and security purposes. we are transitioning member services model. right now we are almost exclusively humanistic. our members telephoned in and they come to get a personal visit. they are working on upgrading the web and telephone response system. in terms of transactional

abilities for the members, they will have more 24-7 exposure and the ability to do things from their homes or wherever they choose to do it. we are not really planning on taking that humanistic cut away, we just want to give more options to the members. we are an aging department. we have always had less than 100 employees and we will be looking at excessively high retirement numbers over the next several years. finally the industry is ever- changing, as you are painfully aware. pension reform and other things, we need to invest in training our staff, as well as getting information to the members through the services that we

provide. in conclusion, if you have any questions i would like to say deaf mr. rose's office has provided the changes to the budget that we set forward. i am hopeful to save the committee's time as well as everyone else's, agreeing, provided that we have a full meeting of the lines, understanding that we are getting full or partial restoration. if we could confirm those figures it would save us from having to come back again. >> thank you very much -- supervisor chu: thank you very much. regarding the pension plan trust, i know that we had seen significant drops in the value of pension funds over the past few years and i would imagine that we have made gains over the past year. can you give us a quick update

as to where we are with the pension fund and how it compares to where we were? >> thank you for that question. i appreciate the way the to worded it. the retirement system at its high water mark prior to 2008 was around $16.5 billion. to be honest, it trickled over $17 billion for a very brief time, but we gauge our financial numbers and after the major market declines in 2008, the pension-fund decrease to below $11 billion mark. i am very emphatic when i say this. the system did not lose money, it is simply that the value of the assets declined. as with most principles and the

laws of gravity, the pension fund has been moving nicely. two weeks ago we thought $15 billion -- topic -- topped $15 billion. we are just short of the high water mark, or we were before the major market decline. this year the books do not close until 6:30 and the number that i will give you now has not been audited. a 20% return is astronomical. knocking on your wooden podium. that will have a significant positive impact on the actuarial reports when they are done later this year. >> if we take a look at where we were with the high water mark,

$16.5 billion, and where we are now, one would say that we are $1 billion short. still not quite there yet. for how should we think about where the lost opportunities are? in the past few years we have not been earning what we thought we would because we had a low value. >> yes, the earning rates were lower, but the way that most investment professionals look at is is we have take advantage of great opportunities as the market went down. we were able to make great opportunities as the market went down and those acquisitions continued to grow. which is why we have been able to rebound so nicely over two years. the only part of our portfolio that has not come back is real

estate. we were 8% under way. i would submit that if real estate had come back as quickly as everything else, we would be over the high water mark again. i am pleased to say that we have not had to write off any real estate assets. is that their values were being sluggish. supervisor chu: we will get to that in a bit, but let me turn the floor over to my colleagues. supervisor kim: i know the two are still negotiating this, but i was hoping that you could address the need for security analysts and some of the reasons there have been vacancies for so many positions. >> we have a number of open positions in the investment department. this is the most sophisticated, though i would never say the most important part of our

system. the amount invested primarily on the private equity side, transactions and investments that are not publicly traded like stocks and bonds, rather they are things like venture capital real-estate and long- term investments that require significantly more individual analysis then we would need on the publicly traded side. the board has made a longtime commitment to increasing internal expertise to bolstering consultant expertise in this area. that is why the positions have been in there. by the way, the system brought in independent consultants some years ago, before i arrived, and did a study. that is how these positions

were actually flushed out. that is what we are basing them on. fortunate now, given the economy, that we were able to find the talent at a more affordable level because of what is going on in the outside industry. supervisor chu: thank you. supervisor mirkarimi: good morning. i am curious about what is on the radar for sfers and the members that are a part of purrs in san francisco. is there a plan to change those relationships? in thinking about the environment? >> we simply administer the existing system and members that

were not in ssers because they were in purrs. that would be a message -- now be a decision made by the body. >> you are not aware of policy actions being taken by the administration? >> mine understanding is that basically there may be issues being looked at but i would have to deflect -- defer that to the department of resources, rather. supervisor mirkarimi: any of the staff in your department, as it is being asked, are they not being used for that endeavor, potentially? have any changes or enhancements come to those that are already in purrs that you are aware? >> we might be asked to look at other financial matters. supervisor mirkarimi: ok.

we will talk to a chart. -- hr. supervisor chu: mr. rose. >> just for clarification, on the security analysts position, our does -- department does not agree with that reduction. the details for the committee, our recommended reductions with that those changes detailed on pages 3 and 4, instead of the 577862 that we cited on page 2 of the report, there is also $1,962 of general fund reductions of the general fund monies. therefore, if they commit except

recommendations, that would wipe out the return to general fund. on page 3 of the report the changes that the department has referred to, i am withdrawing the recommendation on page 3 for air travel, $2,000 given to us by the department. the department has given a sufficient justification. similarly in professional and specialized services, instead of recommending the reduction of $100,000 i am recommending the reduction of only $50,000. from $350,000 to $15,000 in reductions. those are the only changes, as i say. as i understand it the

department is in concurrence with the recommendations resulting in $490,862. as you know, this is not a general fund as indicated by the department. but it would result in general fund reductions. supervisor chu: to clarify it sounds like it would be reducing the specialized services and you are suggesting the $15,000 reduction? >> correct. supervisor chu: the department is in agreement with remaining components? >> we are. supervisor chu: can we accept those recommendations? we will do that without objection. thank you for your presentation. let's move on to katharine dog with the health service system.

>> thank you for the foresight of requesting that the department look at challenges in the pressures we will face over the next five years. i would like to a knowledge the health service board chair in the audience. looking at the health service budget over the last five years , the budget was less than $6.1 million. two of those fte's were added to the hss department in 2009

without additional funding. during the last five years with every line item not in control to emerge in all of the constant salaries, they have increased. hss has provided more complex function programs for essentially the same that we had in 2006, 2007. we have successfully begun to standardize and document employee retiree health benefit administration procedure is not just for the city and county but for the college district and superior court. we have put into place labor- intensive eligibility schedules per your conservative estimates with basic eligibility for $1.5 million savings. i have authorized the use of substantial time for staff to complete the first ever medicare

compliant and roman enforcement. the average age is only 59. it was completed yesterday and hss will have a new role as of the 31st. to whom we were previously pay and non-medicare premiums. estimated savings for the next year are thought to be $1.1 million until these numbers -- members turn 65 and would have been eligible for medicare anyways. administration health benefits have become far more complex. along with anticipated state changes and a possible local changes. to successfully navigate these changes we must educate and train staff as well as the board of trustees to enhance and develop statutory compliance

with information technology. the health service system manages close to $700 million per year for nearly 109,000 covered lives with an administrative budget of less than 1%. requiring the administration costs be paid for by the district. 51% of the budget is paid for by enterprise departments and by school districts and community college districts. the costs for retirees is 64% of the typical expenditures but most companies make for health benefits administration. our top priority has been maintaining day to day operations that make sure benefits are accurately administered through health coverage. streamlining initiatives over the last 18 months that have

saved the city $16 million, not including the audit that we just completed. over the next five years we have identified three primary areas, including the implementation of day-to-day operations. including management focus and staff development. let me outline some of those areas. to maintain statutory compliance, we must institute care acts that have a role in decisions through plan year 2018. if they are not implemented there are significant finds. we must update health insurance affordability and accountability x, policies and procedures as we implement the system. we must implement the success of local ballot propositions that will affect public employee retirement benefits.

the second key area is providing cost of health care and it clearly is our greatest challenge as an employer. in order to do that we have to continue the eligibility bought it. we must commit management, time, and resources to the implementation of those organizations that began on july 1 of this year and a pilot program designed to mitigate the city's rising premium costs and improve patient care. we must begin to develop fund- driven and data-driven well as programs designed to reduce and manage the cost of a chronic disease burden within the population. we must improve data gathering and analysis capabilities around care utilization predicting target areas to reduce cost savings. we need to strengthen vendor management and performance guarantees including financial

penalties to those lenders regarding a workers compensation and disability benefits administration. we must also focus on the baby by key challenges ahead of us. that -- big it challenges ahead of us. becoming components of the new health system we will need to build a communications program to assist members as they transition to online enrollment to access aspects of our benefits situation, including engagement in the benefits program. we must establish and begin to establish and maintain a digital records system through storage and staff training transferring over 50 years of paper records, which we will continue to maintain this year.

the effective use of financial resources has always been a priority in our department. initiatives listed must be undertaken and they are not optional in terms of administration. this year after the budget process the mayor's process was $6.5 million. in six years the budget will have grown. the budget analyst is proposing additional cuts that are primarily onetime reductions that will jeopardize our ability to maintain compliance and respond to the rapidly changing health care environment. we have had discussions with budget analyst staff and we plan to continue those conversations. to summarize, priorities for next year address the rising costs of health care in transition to emerge. we appreciate your thoughtful assessment of the challenges that the city will be facing and

thank you for your consideration. supervisor chu: can you speak a little bit about the efforts being made with regards to the and it -- the account care organization? >> these are not the same animal. they require coordination between hospitals, physicians, and the pair. blue shield's when we look for a new in -- hmo, blue shield was the only hmo that responded to that end agreed to establish accountable for their organizations. allowing patients to know when patients are being discharge and it will require electronic health record communication for the blue shield members.

it is really the second and third public sector organization in the state. in san francisco we will be doing with other hospitals. the goal, they came in with a 0% labor increase this year. the goal is to reduce costs by better coordinating care. all eyes are on the city and county of san francisco in terms of being successful when it was announced. it begins on july 1. we were working closely with blue shield to stay on top of those utilization numbers. >> do you expect we will be seeing that in the upcoming budget year or the year after? >> i hope to see savings

associated with that in the form of it lowered ratings increase and negotiations are scheduled to begin in september or october. remember, they are just beginning this process in july. they will be basing rates on utilization this year. both physicians realize they will not be able to grow in terms of the health budget rate as realize. health-care costs continue per person on health care benefits. for that you could hire a computer programmer in india. controlling health-care costs is key to keeping jobs here in san francisco. we have to control those costs can be sure that the doctors are on the same page with us.

>> the last question that i have pertains to one of the items pulled out by the budget analyst. the plan analysis of the city planned, currently we have blue shield, kaiser, and an option for city plant. can you speak about the expectation for when that process will begin? >> completely funding the professional service line, the analysis needs to be done tomorrow. only 8% of the membership are enrolled in the plan. the primary payer is medicare. early retirees and active employees. what you have is a group of employees staying in a plan where they can go to any doctor that they want within the health-care network but it is still a much broader network.

there is no management of their care. what are our options in terms of that? i am hoping that there are many. probably only two or three, but it needs to be done with recommendations to the health services board. otherwise it will continue to become more and more expensive. supervisor mirkarimi: just curious -- is there any conversion of service being provided through the health service system for people that are being asked to supplant that level of service in alabama >> not that i am aware of. are there employees being asked to enroll, is that the question? >> yes. >> and not continuing to be

enrolled in the programs now. >> not that i am aware of. when employees are laid off they get help subsidize benefits for five years and have cobra for 18 months. many of them, when we call and say we have terminated benefits, even though they have paid for dependents, they are desperate. >> it can be very region supervisor mirkarimi: cobra can be read supervisor mirkarimi: jaycee -- supervisor mirkarimi: cobra can be very expensive. >> and we refer them to help the san francisco so that they can enroll and so that their kids can enroll. the local public health insurance programs. supervisor mirkarimi: do we