3 to the north terminal bookstore, lease number 00-0176, between books inc. and the city and county of san francisco. supervisor chu: thank you for these items. we have kathy here from the airport. >> good morning. i am with the san francisco airport. the airport is seeking your approval for two short term lease amendments with pacific gateway concessions, llc, as well as the lease renewal with books, inc, for a series of construction projects related to seismic changes in security changes throughout the terminal. the first ad requests the approval of amendment number 1 with pacific gateway concessions, llc, for two newsstands locations in terminal 3, to retroactively extend the existing leases on those locations on a month-by-month basis through march 13, 2012. the second at the request

approval of a fourth amendment with pacific gateway concessions, llc, for four newsstands locations in terminal one. this would renew the existing leases for two years, from june 18, 2012 through june 17, 2014. the final item before your requests the approval of a third amendment to the lease with bucks, inc., to extend it for an additional 18 months to march 15, 2012 through september 14, 2014. under the proposed lease amendments, all the tenants will continue to pay either a percentage of their gross revenues or a minimum annual guarantee in a grant to the airport, whichever is greater, for all of the locations. this rent structure was set up as part of the competitive bid process of the original leases before you and will remain the same with these amendments to

the amendments will allow the airports to have a little bit of flexibility during these construction that is going on in these terminals, as well as providing an ongoing passenger service while we're trying to have some construction throughout the terminals. the construction consists of some seismic upgrades that will need to happen in two different sections of the airport, as well as the adjustment and moving of security lanes. in terminal two, all of these things are taking place right alongside of existing leases. that is why we're proposing these changes today, rather than go out with a new rfp that would require some tenant improvements and things we do not feel would be attractive in the market right now given the uncertainty we have with construction going on. airport revenue staff -- revenue development staff does anticipate and expect a total rent revenue of $6,480,985

during the time span for these extensions and renewals. the budget analyst has recommended approval, but i would be happy to answer specific questions if you have them. supervisor chu: thank you. let's go to the budget analyst report. >> on page 3 of our report in the table, it shows that the estimated revenues if you approve these lease extension renewals would result in over $6 million to the airport in rental revenues. on page four, we recommend you minnesota file 11-0986 provides for retroactivity in europe prove that file as amended, as well as the approving the other two files. thank you. -- supervisor chu: thank you. let's open this up to the public. is there anybody who would like to speak on items five, six, or

seven? seeing none, public comment is closed. colleagues, can we take a motion to amend item number five to allow for retroactivity? we will do that without objection. on the items, can we take a motion to approve and send item number 5 as amended to the full board and to send items 6 and 7 also forward? ok, we have that motion by supervisor mirkarimi. we can do that without objection. thank you very much. item number eight, please. >> item 8, ordinance adopting and implementing amendment number 4 to the 2007-2013 memorandum of understanding between the city and county of san francisco and the service employees international union, local 1021, h-1 fire rescue paramedics, by extending its term to june 30, 2015 and implementing specific terms and conditions of employment. supervisor chu: thank you.

we have a member from the department of human resources. >> good morning. i am from human resources and employee relations division. today's item is a contract for our h-1 paramedics group. this class represents the employees that originally came over from the department of public health and our paramedic program by the mid-1990s. it has about six active employees. this contract mirrors the firefighters' contract with wages for the h-1 paramedic's linked to the fully cross- trained firefighter-paramedic class. in the previous contract, the firefighters did a relatively small wage deferral. but more significantly, they started an early employee contribution, and an additional employee contribution to the city's retirement system, in an

amount of 3% for two years. these two years would be years the would not be subject to this contribution based on their existing contracts. so this particular contract before you includes a wage concession that the firefighters gave, which was part of a bigger package which included a two- year wage extension and a two- year wage freeze. that is what is before you. if you have any questions, we would be happy to answer it. siu is here as well. supervisor chu: it looks like this will result in savings of roughly $43,000 in the current year and $44,000 in the next year? >> that is correct. supervisor chu: thank you. i do not believe we have a budget analyst report on an item, do we? >> no. supervisor chu: are there

members of the public who wish to speak on item number eight? seeing none, public comment is closed. ok, we have got a motion by supervisor mirkarimi to send item number 8 forward with recommendations. we can do that without objection. thank you very much. can we call items number nine, 10, 11, and 12? >> item number 9, ordinance amending the san francisco and minister ago -- administrative code by adding section 10.61 to adopt a binding financial policy under charter section 9.120. number 10, and ending administrative code section 10.60, adding it to adopt a binding financial policy. item number 11, ordinance amending the san francisco and minister of code to accommodate two-year budget cycles and five- year financial planning requirements and eliminate

outdated and duplicative reporting requirements. item number 12, resident -- resolution adopting a fixed two- year budgetary cycle for the airport, the port, and the public utilities commission, defining terms and setting deadlines. supervisor chu: thank you very much. we have a number of folks here to present today. i know that supervisor farrell wanted to be here for a number of the items, particularly the cop policy. he might be here later. i know that supervisor chiu wanted to be here as well, and some members of his office are here. we will also have a presentation by our controller. >> i am from president david chiu's office. i do not have a presentation, but i did want to make brief comments on president chiu's behalf, since it was the lead legislative sponsor on proposition a in 2009, which led

to the city's adoption of long- term and financial planning measures of which today's ordinances and resolutions are the next step. president chiu very much appreciate the work of the comptroller, the budget analyst, and all of the city staff who have been working so that we can actually plan better for the roller-coaster ride of our city budget and economy. without getting into the specifics too much, i know you have the ordinance arawn nonrecurring expenditures and revenues. there are printed -- certificates of participation, which is sponsored by the mayor. and then some cleanup on reporting and a two-year budget financial policy. without preempting some of what i am sure will be robust discussion around nonrecurring expenditures, president chiu does support the controller having the flexibility and discretion to add an additional

nonrecurring expenditures. i am happy to be here for the discussion. i wanted to make sure to lay that out, not to preempt what is likely to be a discussion here at the committee. thank you very much. supervisor chu: thank you. mr. rosenfield. >> good morning. controller. unfortunately, i am not going to spare you a presentation today. i have a brief overview of the four pieces of legislation before you. i have copies on the's next to me for members of the public who are interested. at a high level, this chart is an illustration of one of the indicators that we have been working as a city to try to improve in recent years. improved financial planning policies and practices can lead to the city, from my perspective, doing a better job of managing long-term trends in our budget. so we have a percocet -- a

perfect record as a city of adopting in maintaining balanced budgets, but that often comes at a pretty dramatic effort year- over-year. you can see that on this chart, which provides a high-level summary of changes year-over- year and the city's budget and a general fund positions. this looks like economic cycles over the last 13 years in this city, where during times of growth, we grow very quickly. only to find ourselves in the inevitable downturn putting very quickly. growing in again during the next uptick, and then again having to shrink very quickly. this has been an unfortunate story for the city's budget for the last 10 + years. we have faced projected deficits in all but one year within the last 13. this requires a pretty significant effort by the mayor and board of supervisors to bring the annual budget into balance. it requires an almost perpetual budget process in the city with

impacts on all the folks that provide our services, whether city employees or nonprofit contractors. and most importantly, those that rely on city services. on this roller coaster during this last deadly -- sadecki, it is important that we end this decade with about the same size work force as we started with two we have grown enshrine fairly dramatically several times over the course of the decade. unfortunately, this chart also indicates that we're spending more as a city during this past decade. at moments in time where the demand for most of our services or less, because we tend to grow during times of economic prosperity and ensuring in harder economic times when demand and services for the city increases. we have errors alignment of expenses and demand. -- we have reversed alignment of

expenses and a man. this is a challenge that the city has been working to improve in recent years. in 2009, the voters approved proposition a, which put a host of new planning procedures in place. a lot of us worked on that measure. my shop, president chiu, supervisor mirkarimi, supervisor avalos, several members of the prior board, and the prior mayor worked on that measure, which did a couple of things. and we are in the process of implementing different provisions of proposition a. in 2010, the board of supervisors adopted the reserve policy that we proposed that will serve to buffer the city in future economic downturns by saving some of the volatile revenues that occurred during bling times. in 2010, the city for the first time piloted two-year budgets for our enterprise departments. and earlier this year, the board

of supervisors and the mayor adopted, for the first time, a five-year financial plan for the city, which was another requirement of proposition a. going forward, that will be a requirement every two years. and you see here in italics, the second set of financial policies that our office is bringing forward under the terms of proposition a. as we discussed a little bit earlier, the city will go through a shift to a full two- year budget for all of our funds, including the general fund, this coming spring and summer. very quickly, to run through the different components to the legislation. you have four pieces of legislation in front of you. the proposed nonrecurring revenue policy, proposed policy regarding limitations on the use of general fund-backed debt. third, a series of changes to budget calendars and our planning process is to bring

them into alignment. given some of the new experiments we have had in place over the past couple of years but alas, a proposal to shift the enterprise departments that we have been piloting on a rowling basis, to shift them to two-year fixed budgets during this coming cycle. the first policy relates in nonrecurring revenue. the principle here is a common sense one, where -- and is a recommended practice by gfoa and other financial appears we look to for recommendations regarding our financial policies. but the concept is that we want to avoid using non-recurring revenues to support ongoing expenses, because when the nonrecurring revenue falls away, it leads to potential program disruptions for the ongoing expenses supported by that revenue. the legislation specifically defines certain revenue types of nonrecurring, so we tried to be very tailored here in the definition we brought forward. it specifically defines the sale

of assets, prepayments of multi-year revenue contracts, or abnormally high fund balance as non-recurring revenues, and it stipulates that those revenues can only be spent on nonrecurring expenditures. to make sure we keep that alignment of ongoing expenditures supported by ongoing revenues one-time or non-recurring expenses. the legislation specifically outlines a series of eligible nonrecurring uses or expenditures that would be eligible -- things like the development of affordable housing, investment in infrastructure or i.t., funding of reserves, or a couple of other things. the new legislation leaves open additional definition of nonrecurring expenditures as

certified by our office for circumstances we cannot anticipate today, that are not specifically on the list, but that would be an appropriate use of nonrecurring revenue. this chart gets to one of the nonrecurring revenue sources we have identified, and it is proposed to limit it in legislation. this is showing you, of the total general fund budget for a given year, how much of it was supported by the expectation of a starting balance in our savings account from the prior year. you can see the volatility here and the challenges this creates in the city's budget process. summer between 1% and 5% of our budget has been supported our -- supported by a prior year fund balance. you can see in the circled area, the year-over-year planning

challenges this creates. we can go quickly from large fund balances, typically developed in better times where revenues exceed expectations, to troughs where fund balances decline, so it can lead to very dramatic swings year-over-year in our budget planning process. the proposal before you create a five-year rolling average and the fines prior year fund balance above and beyond that five-year average as unlikely to recur, and restricts that for non recurring use. this illustrates when we would have triggered that five-year rolling average during the last 10 years but you can see that the most recently adopted budget assumes $159 million in fund balance. that would restrict $43 million. we have restricted their -- $43 million in revenue for non

recurring use in the current year budget. the budget, the board, and the mayor recently adopted him this. while there was reliance to balance the budget, there was also sufficient one-time expenses in the budget, so that the match of nonrecurring revenue and expense is maintained. the mayor and the board would have been able to adopt a budget that was ultimately adopted a couple months ago. supervisor chu: based on this sheet you have shown us, the policy would reflect restricted amount if the policy had been in place, if it exceeds a five-year prior fund balance average, and what we are seeing is that our five-year rolling average has been to the north of $100 million really? >> right. the policy does not restrict fund balance at or below the five-year average.

it is only when we have an abnormal peak that the policy would kick in. supervisor chu: what you're saying is that with a five-year prior year average, we would have had at least $100 million in unrestricted funds to be used. the mention of this policy had been in place in the last budget we adopted, it still would not have impacted this necessarily, because we had more than enough one-time expenditures that it would have made this complication match. >> right, right. but last 10 years, taking in account all of the nonrecurring revenues in the legislation, the targeted ones that are defined, on average during this 10-year time span it has been about $13 million annually. that would be the subject of this restriction. the challenge, from a planning perspective, is that that is an average over a 10-year time span, and it is very dramatically on the horizon. and this policy is getting at smoothing out the volatility.

the second part of legislation deals limitations on the city's issuance of general fund-backed debt, it typically certificates of participation or commercial paper. the policy formalizes, as an official financial policy of the city, the longstanding assumption in the city's 10-year capital plan that the board has adopted over the last five years. it creates a limitation were by 3.25% of the city's discretionary revenue can be used to secure general fund- backed debt. and if a mayor or board wishes to issue debt that will drive that percentage higher anne craig operating budget pressure for the city, you can do that, it just takes a two-thirds vote of the board of supervisors to issue that debt. the goal is to ensure that in the bigger picture, our general

fund debt service remains manageable within the overall context of our operating budget. to give you the counterpoint to what we're after here, if we look at the state of california during recent years, the percentage and the california state budget in the general fund -- in their general fund that has been spent on debt service and debt-related costs as increased from a long-term historical average of about 3%. the long-term practice historically had been about at the level we're proposing here. but as that issue new bonds and issue new debt over the past 10 years, that percentage has increased from 3% to 6% and is scheduled to increase 3% in the next couple of years. fundamentally, that is one of the challenges. with more debt service heating up a greater percentage of state revenues, and it is greeting operating budget pressures for the state. that is the situation this policy is designed to avoid. supervisor chu: one of the

concerns i had on the debt management policy was how we deal with things like infrastructure, financing districts, redevelopment agency said there should be major ships are changes. >> the policy is tailored and specific to the general fund itself. it does not restrict in any way the mayor, board, or other agencies and their ability to issue what is otherwise authorized by the voters of their commissions. the policy we bring you this year does not create limitations for the puc, the airport, the redevelopment agencies, or in the case for the board or supervisors would authorize the establishment of an infrastructure district, that would be outside of the fund. the policies tailored simply to the general fund. as in the previous financial policy, either of these items can be suspended on an annual basis by the board of supervisors with a two-thirds vote. and they can be amended in

future years, as proposed by our office, and then adopted by the mayor and the board by a two- thirds vote. one of the things we talked about at the time that proposition a was going forward was, do we want to codify these policies explicitly in the city's charter? i think our collective decision at that point was, no, let's create a mechanism where we can adopt financial policies as a city. the mayor and the board can adopt them. but if we find ourselves needing to change them, we have a mechanism to change them without having to go back to the voters. this is brought to you in that vein. the third piece of legislation deals with coordinated planning timelines. as we have talked about a little bit here today, the city has been engaging in a host of new financial planning activities and budgeting activities and furniture policies over the last two and half years since proposition a was passed.

this legislation conforms all of the admin code requirements that existed in the past with these new procedures. specifically, it ships are multi-year planning efforts as a city to a single calendar on and every other year basis. our capital plan, five-year technology plan, city-wide financial plan would be prepared and brought to the board of supervisors for consideration at the same time every other year. second, it harmonizes the three- year budget projection for the city with the five-year financial plan. during this last year, we produced both the five-year financial plan, then a five-year financial forecasts, and under separate cover, we produced the joint report, a three-year projection. this would allow us to meet the three-year planning requirement within the context of the five- year financial plan. lastly, there is a host of

other cleanup of administrative language and other process seized in the code that we conformed to car practice here. those are explained in the report. the fourth piece of legislation is a resolution whereby the board would establish for the coming cycle, the coming fiscal year and the fiscal year after, allow the free enterprise departments that had been piloting the last two cycles on a rowling basis, and it would allow those addressed departments to prepare a two- year budgets. a two-year appropriation would be adopted by the board of supervisors, with the process in place to drew up the second year of the budget. this is to reduce the

administrative burden, and it frees up policymaker time for the bigger picture conversation about the goals and strategies that departments are employing to reach the folks that need their services. we believe that this legislation maintains appropriator board oversight and policy-setting role. we're hoping to use the enterprise departments as a pilot to see whether the mayor and the board are comfortable with the two-year budget for the city as a whole. it allows us the opportunity to experiment. this two-year fixed budget would apply specifically with your approval to the puc, the airport, and the port. it moves them to a two-year fixed budget. it establishes triggers whereby if revenues or expenditures increase or decrease by more than 5% during the second year,

the mayor would be required to bring forward an adjustment to that adopted two-year budget for the board's consideration. it maintains the board's policy- setting role as circumstances change without the need for a full budget review. that was a very quick run through these four pieces. i do have an amendment for your consideration today. they are largely clerical cleanup changes to the legislation for the nonrecurring revenue policy. it clarifies the interaction of nonrecurring revenue with the rainy day reserve in the budget stabilization reserve, so we do not end up in a funny circumstance where a budget was adopted that assume, for example, the use of the rainy day reserve, and after the budgets adoption we received a nonrecurring revenue source that suddenly makes us an eligible to

withdraw from the rainy day reserve. it allows you to use that nonrecurring revenue source to plug that whole. it also clarifies the effective date to make it clear that this policy does not apply before the coming fiscal year's budget, but begins as of june 1, related to the fy 2012-2013 budget. supervisor kim: so this would allow a rainy day fund to be used for recurring expenditures or not? >> it would allow us to use nonrecurring revenues to replace the rainy day reserve. this is an unlikely circumstance, but it is one of these scenarios here. let's say the mayor and board adopted a budget that assumed $10 million from the rainy day reserve, because revenues reserve, because revenues declined to a level that you