about what some of those potential impacts are. in the currently adopted budget, there are several significant impacts of the past three years, we have had literally hundreds of millions of dollars in reduced revenue from the state government. of course, those include basic social safety nets that provide health and social safety services for our residents. a lot of the employees of businesses small and large. child care adoption's which were a significant issue this year and are of a very significant economic issue for the city. then we have some significant changes coming both in the current year's budget and in the next year's budget that will have a real impact on our city's operations and the services that we see on the streets. the biggest ones that we are grappling with his public safety

realignment. under that proposal which has been approved by the legislature and governor, the state prisoners from the people who are currently in state prisons will now be sentenced to county jail. we will have a large increase in our county jail population. people that would otherwise be going to state prison. secondly, people on the state parole will be transferred to the jurisdiction of the local probation department. again, we will see hundreds of former state parolees under the jurisdiction of the city and county of san francisco and our adult probation department. that will put a significant strain on our criminal justice resources and on our public safety and we're working on how we will have the resources to try to keep ourselves in a stable position so that we don't see an impact on the streets of our city and on the clements

that small businesses are operating. the state will transfer services to state governments and local governments. to city and local governments. we have the legislature's proposal to eliminate or condition the redevelopment agencies which is not directly addressed by this measure. there is an overlap. a lot of the economic activities have an impact on our economic climate in the city. within the current state budget, there are a number of figures in the budget and what the state did to balance this budget as i am sure you have heard is rather than actually does make all the cuts that it

needed to get to balance, the state made an aggressive assumption about the revenue that will be coming in over the next year but essentially said that if that revenue does not command, there will be triggered some place said that if we don't see the revenue, these cuts will go into effect. despite the fact that the state has passed a budget, we are potentially going to see additional cuts to public safety, child care, other services in the city. i know that the issues of government service are certainly relevant to this body, i want to put this in perspective in terms of why we took this approach and how the impact on businesses in the city is going to be felt relative to other people who are sharing the solutions of this budget.

the mayor as he was developing his budget was very concerned about not trying to put a proposal in the budget that was going to inhibit the recovery of our economy and he understands that it is critical and you cannot generate a little bit of revenue at the expense of killing the businesses and the economic activity that supports our budget and that supports our economy. he is very mindful of the implications of any revenue proposal that he is making. within our current approach to the city budget, the mayor introduced the city's first five-year financial plan and as a result of this, there was an approval by the borders which requiring us to do and look at the physical condition and proposed policies for how we will address any budgetary

shortfalls. in that five-year plan, we project that over the next five years, if we do nothing, even as the economy recovers, we are going to see our general fund budget deficit grow to $829 million. this is a big number, but of course that is if we do nothing. in response, the mayor has also proposed several financial strategies as part of that plan. those financial strategies include one piece of those financial strategies and revenue. those opposed to be about 12% of the solutions to that problem in the five-year financial plan. this proposal that is before you is an attempt to provide a solution to that piece of our problem. the rest of the solution was

coming from the expenditure side which means reducing city costs and pension reform, which the mayor has been working very hard to implement. it means reducing the size of our work force and the cost of doing business as city departments and reductions to the amount that we're able to allocate to the contractors, a wide range of policy approach is designed to close that gap and bring this back into sound basic structural financial balance over the next five years. the approach that the mayor has tried to take is to spread those -- the burden of those solutions out over multiple participants in our cities government and our budget. the idea is that we know there will be sacrifice in order to bring the budget back into

balance and the idea is to have an approach that depends on shared sacrifice where we are asking to have revenues be part of the component of that shot agee and we're asking labor to participate in that strategy. we're asking our city departments to participate in- energy. it will not be easy but i think it is a balanced proposal and three court proposals -- core proposals. i think another point that i want to make sure that i can indicate to on behalf of the mayor is that he does not take any tax proposal lightly and he would like to be conscious the impact this has on our economy.

that said, we think we have chosen very carefully here in that we know that there are multiple revenue proposals that were floated around the city hall that could have ended up on the ballot. many of which could potentially have been significantly -- could have proposed a significant hardship on the city. we thought that this was an appropriate and measured approach. this allows our sales tax to still be lower than it has been over the past several years by half of a point and it will allow us to protect some of those basic services that we rely on to provide the economic climate that attract tourists.

this will provide us as i said with some more stability and uncertain about what our financial condition looks like. we are trying to take a long- term approach and i think this will allow us to distance ourselves from being constantly at the whim of the policy decisions that are happening in sacramento. this will give us a revenue source that we can use to make some of the decisions about our budget and our services more independently and help us do a better job and predict what our finances are and respond appropriately. i am happy to answer any questions and i really appreciate your time and i think you on behalf of the mayor. >> thank you. we definitely have some questions for you beginning with commissioner --

>> i have two questions. do you know what the other bay area cities are doing right now? are there proposals to raise their sales tax also? >> that is a great question. i have heard talk about proposals, people floating the idea of the proposals. my expectation would be that we will see more concrete proposals start to emerge over the next couple of months in anticipation of next november's elections. november 12th is an election where there are two issues. the first is the timing of the state budget, by the point that the budget was finalized and it became clear that the governor would not able to get republican support for the tax extensions. it was late for a lot of local boards to get the measure on the ballot.

we would have been out of time to place this measure on the ballot in time for the elections. we submitted our measure with the mayor's budget not knowing what is going to happen at the state and that is why we have a trigger to allow for this measure to either go into effect or not going to affect -- not go into effect. we are waiting for that contingency. by the time that they have a final outcome, it was too late. in addition for a lot of governments, this will not be the freedom to place a general tax measures on the ballot. a general tax measure is a 50% threshold as opposed to the 2/3 threshold.

i would expect that you would be more likely to see other governments propose a general tax. this is a non answer to the question. the real question is we don't know what everyone is going to do. >> this makes you wonder if this would expire if this goes up to the state. >> we have had a lot of discussions with other business community stakeholders about

that. we would like to hear your thoughts on this. the policy reason for having a point and time in which that link with the state budget is that we don't want to have that level of uncertainty and our city budget tied to a set future policy decisions set by -- if we keep these over the horizon of the ballot measure, you can imagine a scenario where seven years from now we have gone through another business cycle and have had a boon. we have had a new set of policy makers.

they have made an adjustment for entirely different reasons. we have seen changes in tax rates and financing strategies even as part of the democrats budget proposal that was vetoed by the governor. there's a proposal to end the triple flip which is a swath of sales tax and property tax revenues which is complicated. the effect of that to have a 2.5% increase to the local sales tax rate would would have been validated. you can see a lot of different scenarios for the reasons that the state is swapping these rates. the thought was from a policy perspective that we don't want

to be connected over the long term to this state once we have gone beyond the foreseeable time horizon where we know with the incentives are and a set of decisions behind them. we will have 8 different administration. we're concerned about creating a measure that would tie their hands together in the future. those are some of the reasons. this is a good question. there is no science behind the one year.

>> i had the same question about the one-year limit. i guess after the first year, if the state decides to increase the sales tax by 1%, then we will still have to pay a half% -- pay half of a percent. >> if this date increases the sales tax, hours remain intact. to the extent that the commission is concerned about that, i am happy to bring the feedback to the mayor. the other issue is that i think that we have some more certainty about this within the next year. the legislature, some of democrats in the legislature have after their inability to get the tax extensions approved or at least before the voters

for a vote have suggested that they might push to put the tax extensions on the november 12th ballot. to the extent that we are going to see a ballot measure, this is likely to happen. that was still be within the time horizon that we have included in this legislation. i certainly hear your concern and understand it and i would be more than happy to bring that back to the mayor and share that with my discussions with the others. i appreciate that. >> are there any other questions from the commissioners? >> can you tell me what percent of the 12% solution revenue solution this tax represents? >> the 12% revenue is about in

year five of the five-year financial plan is about $100 million. the annual value of this tax is estimated to max out at about $60 million. this is about 60% of that solution. the rest have to come from other sources. >> did you discuss their residential utility user's tax in your discussion? >> yes, that is certainly one of the ideas that comes back and forth into play. i think the issue with that has frankly been the feasibility of getting voter approval of that tax. it would be a new tax. i'm sure you know that's come on and off of the books. but for a recent memory, that

tax hasn't existed. there are good arguments on policy grounds for that revenue source as opposed to others, and that it would potentially provide a price incentive for people to alter their consumption of resources, but i think it would be truly a hard lift to get that type of a measure passed by the voters. the second response to that in terms of why we went with the sales tax versus the residential u.u.t. or the other options that were out there, we did think that this provided something of a unique opportunity, and i think there are also concerns with the sales tax on policy grounds to a certain extent, brothe in terms of the impact potentially on spending and the impact on to what extent the burden is shared on different

income groups within the city. but we did think this was a pretty unique opportunity where you had the rate declining by a percentage point and we could place this measure on the ballot and generate that revenue that we had committed to in the five-year financial plan, but also have a tax rate reduction at the same time. and so that, seemed compared to where we were two weeks ago. and so that seemed like a unique opportunity. and even though there are some other revenue sources that are probably good potential sources to have a policy discussion about, it seemed like because of this unique opportunity that the chance presented itself and we could go forward with something and still be able to say to businesses, to residents that you're actually going to see -- even once this passes, your tax rate reduced as opposed to some of the other possibilities where

we would have had to have a rate increase or a new tax altogether. >> my final question is did you have discussions about it being dedicated to these specific items and why did you decide to keep it in this form as opposed to let it be discretionary in the general fund? >> yeah, that's a great question. so there are two answers. there's the legal answer and the policy answer. the legal answer is that under the state constitution, you can only put a general tax on the ballot, and general tax means just a revenue source that's available for any general governmental purpose and can be allocated at the discretion of the mayor and the board of supervisors. you can only place that type of pressure on a ballot where local legislators are up for election, and that is in the state constitution as approved by

voters. so since in november 2011 there are no seats on the board of supervisors that are on the ballot, we can't place a general tax on the ballot. we can only place a special tax on the ballot and that requires it to be dedicated to a specific use. there's one exception to that where a city can declare fiscal emergency with unanimous approval of the board of supervisors to place a general tax on the ballot, but we didn't think that that was an appropriate course. so in terms of why we chose these specific items, i think there are a couple of reasons. the first is that a lot of these are very kind of core public services that people depend on and value. and we could have chosen from a lot of good services, but we know that each of these are both

reasonable services, the public safety and the social safety net, they're reasonable services. nare not going to just go to waste. and we also know that these services are potential subjects for state reductions. they're kind of usual suspects. when the state balances its budget, it has limited option, just like we do in san francisco. and as a result, it kind of naturally happens that they are forced to reduce certain services and local governments. and we've seen it year after year where we see cuts to the social safety net to health care, services affecting homeless individuals, and in this year in particular, we're seeing a lot of changes in public safety. so we thought that those were good policy reasons and also thought that these would be services that people depend on and that have a big impact and kind of the overall quality of

our neighborhoods and the services that people see in the city. commissioner o'brien: commissioner kasselman? commissioner kasselman: i have a personal anecdote that is pertinent to this situation. about two weeks ago i had a friend walking in the mission district and attacked in a gang-related incident. a whole group of people that i know are now going to avoid the mission. i thank the mayor for addressing the situation. and having grown up in san francisco, it saddens me that now i know a bunch of people who won't go there. as a business owner, those businesses in that vicinity are going to lose, you know, 50 customers. if that happens elsewhere in the city, that could affect us one way or the other. i just wanted to sort of thank that from that perspective. >> thank you for that. i think that excellent reflects

the mayor's thoughts on this as well that he's really interested in making sure that we have the services on the street that make san francisco our commercial districts inviting and welcoming and free of crime and with the services we need for homeless individuals, and all of those considerations. thank you. commissioner o'brien: no other questions from the commissioners, except i'd like to ask a question myself. most of mine were covered by everybody already, but getting back to commissioner clyde's, where you've allocated specifically these funds. so this money exists -- it already exists in the budget and this tax rate we're about to lose. so we come back up by half a percent. is the money going to these services already clearly tracked and that's how we know what's spent on those services? or are we now introducing some

new measures in the budget that allows us to see and verify that this is the money that's being spent and put into these services? and is there a way for people to do that in a public domain to see that that's what's happening to it? >> yeah, absolutely. the revenue from this half cent sales tax will be deposited into a newly created special fund. so we're going to create a fund specifically for that purpose to hold these revenues, and so that there will be a very clear accounting of what they're being used for. so that fund will be created, revenues deposited and expenditures made. so you'll be able to look very clearly into the budget at what's going into and out of that fund to track how those funds are spent. the fund will be administered by the controller under the city's financial policies and it will have all the controls and safeguards that we're required to have and that we want to have

when we establish a special fund and a special tax. it will be very clearly tracked and it will be very easy to determine what these funds are being used for and what they're achieving. president o'baseline: so -- president o'brien: so it's a new level of tracking that doesn't exist today. >> that's correct. >> i like that. i'd like to now open it up for public comment. chris, you want to give them their times. >> members of the public will have three minutes to address the commission. please state your name clearly. >> good afternoon. i'm leslie landhart, i'm the executive director of the union street association. i'm really not speaking with that hat on today. my members did not send me down here to discuss this. they're pretty disgusted about

everything that happens anyhow with raising taxes. with the 1% -- i'm speaking from my own business. i have a small business. i've been in business for 33 years in san francisco on the same street, on union street, and i have seen nothing but -- especially since in 10 years, especially with rates of taxes going up, sales tax in particular. i've seen my business go down, down, down. i was thrilled to see 1% come off the state. that made it 8 1/2 percent rather than 9 1/2 percent. it's subliminal when people go buying. you might own a retail type business where you have goods to sell. people say they have much lovelier shops there and it's 2% cheaper. it's cumulative.

i think san francisco has a very bad image with a visitor. i'm sorry to say it. that we are expensive. you can't park. all in all, you've heard it before, i know you have. i won't belabor the point. i would like to respectfully say this unique opportunity can be negative. and i would ask you to think about that, and as a small business commission, to support a small retailer. you know, there's a lot of tax out there that isn't getting collected. look at people who buy and sell on e-bay. look at people who buy and sell on craigslist. what about the internet? we're starting to see some forward movement there, but you see what's happened with amazon. they don't care. so i would just respectfully say think about it. maybe we shouldn't do that. maybe that would send a very good message to people, that you have to live within your means. i'm trying to. i think the city needs to as well. thank you. >> thank you.