>> would you like to add anything? i know you have thoughts about possible amendments. >> yes, supervisor. i was unable to get those by the end of this meeting. i would argue that this is a friendly amendment to create a level playing field. i am still working, i was hoping that this is not a substantive amendment. >> as i understand them, it seems like they would be very process-oriented. >> madame chair, if the committee would adopt the amendment, this would be from the beginning. >> motion to adopt the amendment. >> thank you, supervisor mirkarimi. >> what i would ask is that the

committee continue this item to january 4th budget committee meeting which i believe is the next one. we will work with the departments and the nonprofits that came out today to try to see what the common grounds we can find. we will work with ms. kelley on her amendments and we will continue to work with local 261 to see if we can include that work in this legislation or if we need to find legislation. we would come forward with additional amendments which may or may not require an additional one week continuance. >> we have a couple of questions. >> actually, i will take the liberty of this opportunity that this will be my last budget committee meeting where i would

be able to co-sponsor something. this is an apt response to what i believe is overdue in assigning the prevailing wage for this segment of our work force. i would like to be identified as a co-sponsor. >> thank you. >> no questions. it just some general comments. i would like to appreciate supervisor wiener and his office for taking on this issue. this is overdue. i appreciate a lot of the work that went into cleaning out the ordinance and making consistent the penalty for violating the wage. also, extending new contracts. i think that we saw it is really crucial in terms of making insistence for those that are

employed. i'm looking forward to some of the discussions. we did talk to some of the nonprofits. i am interested to see if there is any feedback on ways to narrow the profit exemption. i am very supportive of the rest of the ordinance. thank you, supervisor wiener. >> thank you, madam chair. i am here on a different item and i wanted to take an opportunity to say a couple of things. thank you too supervisor wiener and his office for the work they have done, and to our labor partners that have worked to identify this as an issue for quite some time. i am proud to be a sponsor of this legislation and i am glad to see there is work in terms of figuring out whether a narrow exemption is appropriate. i do hope that to the extent that there is an exemption that

it is as narrow as possible. it is a roddick to see some nonprofits talk about not having to pay prevailing wage. i think that we have to be very careful in how we craft any exception. i think that prevailing wage is something that we should try to aspire to as much as possible and that should be the norm, not the exception. >> we have made to the motion. just a couple of follow ups. in terms of department feedback, i appreciate the opportunity to work with the department to make sure that we're not adversely affecting some of the nonprofits and the other contract in work they do. i would ask supervisor wiener if he would reach out to the other departments to make sure we have covered at our bases, whether there are other folks want to consider, and in regards to the

financial impact, i and stand the argument that there is not too much we can assume in terms of how bidders will come in within the prevailing wage rate. it is very difficult to estimate what the impact would be on the city. give us some thought on how we can provide more impact us information about what the impact would be. i think that the report did not have too much of the financial information that we would like to consider. finally, we have worked very very hard. and a stand of this will impact these efforts. "we will have time to consider those impacts. we have a motion to continue the item to january 4th and we can

do that without objection. thank you. now, if we can call item number nine and 10. >> hearing to include financial update and information on budget instructions and process for fiscal year 2012-2013. item number 10, hearing too examine the current san francisco public utility commission rates and cost of service before city departments and other customers and consider impact of change in rates to cover cost of service. >> thank you very much. for this item, we're joined by supervisor campos. i want to make sure that we are hearing this in conjunction with budget updates.

i would offer to the supervisor opening comments for the power rates. >> the staff has been diligently working on this issue. this is an item that we ask for a hearing on because it raises some very important issues about how the san francisco public utilities commission is charging city departments, the cost of providing electricity. this is important for us to understand that there are long- term implications on the puc.

the p c is a very important asset to the city and candy of san francisco 10 too want to make sure how this is properly handled. we will be hearing from the public commission today. some of the numbers are so sick with that practice and some thoughts about moving forward to. what happens, there will be a budgetary impact on city agencies and city departments which is why i think it makes a great deal of sense that this is happening in the context of a larger budget discussion. i look forward to the presentation, the discussion.

i apologize that i must about 4 part of the meeting but i have a previously scheduled meeting that i cannot change at this point. i would like to thank the puc, the general manager, and his staff, for the good work on this issue. >> did you very much. i will ask the mayor's budget director to come forward. >> good morning, supervisors. i'm here to represent the mayor's budget instructions for the next fiscal years. i will start off with a little bit of context.

let's get the context. i will present the general fund. this will be labor negotiations. this will be a factor in our negotiations. by way of context, i think the most important thing is that this is the first year that the city will be adopting a budget for all the departments. this is the first time that forward general, we will be adopting a general budget and to have to balance both years and that means that we will not be able to rely as much as the past. still leave a deficit in the following year.

the mayor has been focused on implementing more long term planning with our five-year financial plan and this is a big step in those efforts. for the enterprise department, this will be the first time that we will have a fix to the the would-year budget, so the budget that is adopted for the next year would only be reopened in the second year if their revenues and expenditures vary by more than 5%. we are not quite there on the general fund side. it will still be a role in fund budget for the total departments, but for their pride departments, it will be a fixed two-year budget. hopefully, eventually will be applicable enough to buy the same thing on the enterprise side. we have new adoption that will be impacted our budget. the first is increasing our general fund reserve. we funded a $25 million fund research. we will be wrapping that to $39

million, which provides additional cushion turn the fiscal year to whether any unexpected budgetary impact, for example, state or federal cuts, revenue losses. again, that is a proven and sound fiscal policy. we also have limits on our use of our abilities one-time revenue for ongoing expenses. again, hopefully, we will address some of the structural problem we have seen in our budget over the past several years. we have our five-year financial plan adopted unanimously by the board earlier this year that will provide guidance and our balance in efforts. again, emphasizes the need to implement ongoing reforms, structural changes to our budget. we have 27 labor contracts expiring at the end of the year. essentially, all unions except for police officers and firefighters will be up for negotiation. that will have a big impact. about 50% of our budget which

will have an impact. the mayor, like last year, is focused on having a great deal of engagement and involvement from the community and nonprofit partners. he has already begun the process of meeting with bob crawford rather than the lives to get feedback into the budget process. at very high level, next fiscal year, predictions -- projections, on the revenue side, as the seven previous meetings, we continue to see local tax revenue improvement in all our tax revenue sources. that is being offset by the loss of on the ballot that we use in the current year budget, other one-time revenues, as well as reductions in state and federal funding. on the expenditure side, we continue to see increases in our personnel-related costs. we are assuming the loss of one

time savings, reductions in our capital budget that were used in the current year to balance the budget. at the high level, good news on the revenue side of 75 loss of one time revenue. the big problem continues to be on the expenditure side. this is the bottom line for fy12, 13. predicting $52.7 million shortfall. for the following year, 13, 14, a shortfall of three of $75.3 million. this is the first time we're doing a two-year projections. the second year number is a cumulative number. this is a change from where we are right now in the current budget. to the extent we saw that for the first year with ongoing solution that brings down that second year deficit, which emphasizes the boards of taking on going action to balance the first year. >> with " -- supervisor chu: does the general fund deficit

assume any power increases, given our current topic? >> yes, based on conversations with busey, there is an assumption of the one-cent increase over the year. to the extent we can work with the puc to bring that down, we can talk about that in the next item and next meeting. that would help to offset the deficit. we it knowledge the need for something at the puc, but we also are not in the best financial position ourselves to be observing cost increases. supervisor chu: thanks. >> some key assumptions to give some context to our projections. we assume every year current staffing levels and service levels, except for known changes, like implementation of health care reform. this does not represent new policy initiatives or increasing the city workforce. we are using our five-year plan assumptions as far as salary increases and health benefits.

you want to be consistent with prior projections, with the report will come out in march. this includes the passage of prop. see, that i will talk more about it a minute. it assumed that we increase our state reserve back to $30 million from the $15 million that was included in the past budget. was included when we decided to move forward with proposition d. -- g. because our revenues are growing, we are assuming we will not be able to withdraw from the ring in david reserve -- rainy day reserves. while we start with our lost up on balance we assumed in the current year budget, we have healthy growth and our tax revenues. $165.9 million next year.

the year after, that is a good sign of our economic recovery, something that the mayor has talked about that he wants to make even more robust and speed up even more with his economic plan. it is a good sign, a sign that we are out of the recession in the city. however, we do have a revenue loss is projected. particularly from the state. as i have talked about in previous meetings, reductions in the metical rate at a good hospital, cuts in laguna honda. other states, particularly at the human resources agency, other reductions at mental health, one-time revenue, various other changes. all in all, from this year to

next year, the prediction is we will see a net change of $20 million in revenues, and the following year, $105 million in revenues. the problem in our deficit is not a revenue problem is more -- problem, it is more a deficit problem. driving personnel changes, predicting $94 million in salary increases next year with expiration of our labor agreements. approximately 12 furlough days with the concession that was made in most labor agreement that are expiring. the assumption is if those go away, that will feel like a 4.6% year over year change in the cellar cost. we continue to see increases in health and dental benefits costs. this is not based on any actual information from the health services. you have not enacted on those

rates yet. there are some kid is going on that health services from changing to a calendar year plan. we continue to see cost increases there. on the retirement side, contributions are expended to grow by $33 million this year, 7 $6 million the year after. however, we will be seeing savings from proposition c, as well as from the agreement that we negotiate with police and firefighters, largely offset the next year, division costs. other changes result in a total personal cost of $112 million this year, $105 million next year. other city-wide cost increases include baseline funding increases, capital budget based on the 10-year capital plan. we assume inflation there pressures on our non-personal cost. assumptions about adequate

funding, debt service cost increases, and our new general cost requirement that i mentioned earlier. on the department of side, a ton of things changing in the department's operations. some of the big ones are the convention facilities on, debt service costs, public health implementing an electronic records to comply with health care reform, county aid needs, and other costs that other departments as well. these are all projections and estimates. obviously, there are uncertainties early in the budget process. we are all concerned about the continued economic recovery and with what is happening internationally and that the state level, we want to keep a close eye on the economy. our benefit cost growth, editor all estimates and projections. we will know the true increase in health and dental and retirement costs in the upcoming months.

the state budget continue to be an area of great uncertainty with changes to the redevelopment agency, public safety, health and welfare realignment. we make no assumptions about current year's spending or even that supplemental spending, the single biggest uncertainty being the outcome of labor negotiations, which we will not know about until the spring. to provide history and our projections, the point of this slide is to show that over the past six months we have seen continued improvement in our finances. at the time we issue our joint report, we were projecting a $480 million deficit for next year, $642 million the year after. we issued are five-year financial plan, it went down to 458. it just shows that we are seeing this ongoing revenue improvement but it is also because we have

implemented on going measures in the current budget, particularly with the passage of prop. see, ongoing savings which have brought those projections down. things are looking up, but that is still a significant deficit to overcome. to move on to the final piece, what we have instructed the department to submit -- supervisor chu: what i would like is for us to cut over to the puc rates. and we have a context where the budget projections are, maybe we can have a conversation around the rates, given the time constraints of the general manager, and then come back with instructions. >> good morning, supervisors. thank you for letting us speak about the water -- our rates for the public utilities commission. it is great it is in the context

of the entire city works as well. if we could turn the overhead on and shrink it. the supervisors, as you'll notice, since the year 2002, we have not raised our power rates for municipal bond department at all. the power rates that were in effect in 2002, 3.7 5 cents per kilowatt hour are still in effect. at the same time, gasoline has gone up 140%, month adult passes, 177%. the residential tuition at city college has gone up to 111%. it is unsustainable to think that we can continue to run our system with no rate increases for ever, so it is time to deal with that.

we have had this discussion repeatedly over the years. in 1989, there was a discussion about the need to set targets that would approach the cost of service. we did a study and said we were not doing that. in 2001, 2002, we raised the rates a bit and have not raised them since. but since then, the board of supervisors has repeatedly passed ordinances and policy statements saying we should be charging the cost of service, but we have been tailored to that as part of the budget process. recently, in 2010, 11, the cost of delivering power to general fund department is about 8 cents to 9 cents per kilowatt hour. we are currently charging 3.7 5 cent per kilowatt hour. what that means is we are being very good to general fund apartments, which is great. one of the reasons we have the system is so we do not have to pay pg&e rates. you will notice one of the largest users of our power is committed to real way.

muni pays us under $500 million for their power. the cost to deliver that power is closer to $11 million. if we did not exist, hisham muni had to pay pg&e, it would be closer to $80 million. that is repeated through general fund department. this building pays no power rates at all for electrical power. it is time for that to change. the subsidy of $22 million a year is not sustainable for our organization. in the last year's budget, looking forward to the 10-year capital program, we have to start making cuts. over the years, we have built up a great reserve and has allowed us to keep the right flat. it allows us to do different programs, conservation programs in the city, but with no additional money, those programs are in jeopardy. in this last year's budget, looking for for the next 10 years, we may cut over $220 million.

some of the programs i just mentioned, energy efficiency, and nobles, in most cases, those budgets have been about $45 million over the next 10 years. in all 10 cases, we dropped by about two-thirds. our working assumption is we will need to cut those positions and cut those budgets unless something changes. we also looked at up-country transmission. we had hoped to transform some of our power facilities. we dropped that by $120 million because we are going to maintain the power lines we have, maintain the facilities, but we're not planning upgrades. so we have cut about $220 million from our budget, a tenure-objection. even doing that, we are doing -- showing falling off and having a negative fund balance in two years. within the framework of the two- year budget you're talking about, we would go negative. when the reason for that, we found all of our capital on a cash basis. since we have the rates in

effect that are stable and set, but goes to the budget process every year, we are unable to have a rating and issue debt the way it currently exists. we are coming to you today with the idea that it is time to have a regular rate setting process that goes through the process we use for water and waste water, bring that to the board of supervisors to the commission and set rates, and then we will be able to issue debt, to long- term financing for the long-term capital needs of your organization. that is what we're here to talk about. i will turn it over to our cfo to propose what we're talking about. supervisor chu: in terms of a fund balance slide, slide 6, you talked about some of the reductions that the puc had proposed. on the up-country transmission assumption, $119.2 million reduction, that assumes he will continue to maintain transmission assets but will not work on any upgrades to those

transmission assets? >> correct. in the last couple of years, we had to pay $50 million penalty selling a lawsuit from the forest service because we were not maintaining our live properly, according to their standards. they believe we cost two of the fires and the stanislaus national forest. we are clearly putting enough money into making sure we maintain those lines, keeping them up to speed. we are also part of power grid for the country and state. there are additional regulations that require us to be much tighter in how we manage our power delivery, manage our power houses, and transmission lines. supervisor chu: in terms of all other power siepi cuts and deferrals, are these things that the puc believes it is not necessarily mission critical in terms of keeping operations running? >> correct. what we have in there is a street light maintenance, working on our facilities.

we manage hundreds of miles of transmission lines, but we also have our own roads in the sierra nevada. it leaves money to maintain those roads. supervisor chu: in terms of the projections you have with the amount dipping below what we expect, the use of fund balance, item seven, page 7, what kind of capital projects to resume in these projections? >> those assume those that are left, the one from page 6. they assume exactly what we're talking about. they assume we continue with up- country maintenance, taking care of the facilities. we have been spending quite a bit of money in the past few years maintaining and somewhat upgrading our actual power generation facilities. the power plants that actually make the money and generate power. power. there is a little bit of that to