fiscal year 2012 and 2013. supervisor chu: this item as an item that we typically bring forward in order to get a budget of eight for the year. we wanted to make sure that we had the mayor's budget office come forward to talk briefly about budget instructions since we haven't yet heard those instructions. given the department are already submitted those budgets to the mayor's budget office. but we wanted to touch upon the six-month report that would come out and get an update on revenues, states news, changes and deficits, supplementals. we have a number of people presenting today. kate howard from the mayor's budget office as well as someone from the comptroller's office. >> i'm from the comptroller's office. i will quickly walk through the salient points of the comptroller six month report that was issued on february 22.

essentially, it is good news. the projected general fund and in balance for the current year is estimated at $129 million. this is $129 million more than we anticipated for the current year. revenues have improved by $122 million compared to what is projected in the budget. fortunately, it is due to economic activity increasing, improved outlook for all of our property taxes, transfer taxes, sales taxes, hotel and business taxes. we do have some uncertainty, still. the impact of the dissolution of the redevelopment agency into the city assuming the successor agency, appeals are still backlogged and the value of the

refunds are not known. there is still potential for fluctuation in general tax revenue, but we hope that future fluctuation will be to the positive. the outcome of the state's ability to investigate the in- from services program and the medical rates are pending in a lawsuit. it we might see reductions from the state in this fiscal year that we are not certain about. looking at this $129 million fund balance, we see that the city wide revenue surplus is $122 million of that amount. we need to provide a certain percentage to the baseline, including mta, parking, traffic, so forth. it is almost $60 million. under department of operations, these are the pluses and minuses

in looking at department spending, a possible $10.6 million. and changes to our reserves of $4.9 million. there was a supplemental appropriation when we issued this report pending, and it was reduced from the available balance. supervisor chu: in terms of the $15.8 million that goes from the general fund to different baselines, how much of that was themt mta portion? >> if you bear with me one moment, that is one slide further and we will show you those numbers. these are discretionary revenues, qc practically everything on this table is in the plus. almost $20 million of additional payroll taxes and sales taxes cut by $12 million. hotel room taxes are up by almost $12 million.

we have had two very positive quarters and we are back to peak hotel tax revenue. if you look at the bottom of this table, a property transfer tax, we are up to the peak of transfer tax collections. $162 million, almost $44 million more than budgeted. supervisor avalos: thank you. monique, can you talk about the real estate transfer tax change , the trends? is it the highest and property, where are we seeing the change? >> this is the highest year we are projecting. we have had fluctuations of $100 million over the last three years, it is a very volatile revenue. increasing the rate of four properties over $5 million, we have had a number of commercial

transactions tax that the higher rates. that makes up a large portion of the net increase. the recent adjustment has added, i believe it is in the order of magnitude of $30 million more. supervisor avalos: the adjustment has not presented the sale of commercial properties? >> it has definitely continued. we initially projected that there would be a lot of activity toward december of 2010, when the old rate was being changd. ed. and there was a lot of activity in december, there was much more activity in january and february when the new rate came into effect. supervisor avalos: looking at retail rates, it looks like that space is being occupied as well? got to the payroll tax and unemployment figures are higher than we would like -- >> the

payroll tax and unemployment figures are higher than we would like. the payroll tax has been increasing. the number of vacancies has also declined. you are correct that a lot of these large, commercial properties are beginning to fill up again. supervisor chu: just a quick question, in terms of the negative trends -- do we believe that these are trends that will continue to see a negative outlook? is this a momentary issue? >> the utility user's tax has been lower than projected for the third year in a row. we will need to adjust that down a little bit. i think it is relatively flat. the motor vehicle in lieu -- i can't recall how we did in the last couple of years, but it is such a small amount of money

that it is minimal to us. here is the spreadsheet and the table that shows the base line transfers, supervisor chu. then, at the lower part of the chart, 80% of parking tax being transferred to the mta with an additional $2.7 million, a total of $13 million allocation to the mta above and beyond what they expected. library baseline its $2.5 million and public education gets $300,000. supervisor chu: on the mta baseline, that will be extra $10.2 million transferred over as a result of the better than expected news? is there a building component for the budget -- >> exactly. the property tax estimate for the budget year 12-13 will

increase because of this increased space. it will grow from there. the mta will get a double bond. a bunt in the current year and additional money in the budget year as well. the department productions, this is the $10.6 million i referred to earlier -- projections, this is the $10.6 million are referred to earlier. public health is suffering significant deficits. they do have additional revenue from san francisco general and the amount of approximately $28 million. on the expenditure side, both hospitals have significant spending deficits amounting to $34 million. we expect a supplemental appropriation to be submitted to the committee. we prefer that the health department, for the mayor and the board of supervisors to get authorization to continue to spend beyond their budget.

this will be an approximate hit to the general fund of about $6.5 million if the current numbers hold. we spoke with these departments and will be meeting with them tomorrow to go over in detail. the mayor's office is working with them as well to see if there is any way of reducing the general fund allocation to the health department. this is beyond additional funding that might be proposed, that is another piece of legislation in the pipeline. the city attorney has a $3.2 million shortfall largely based on work that is being done for general fund apartments above and beyond what they had budgeted. this year, we don't believe that the city attorney will be able to close that. of the mayor's office and the comptroller's office are working closely with the city attorney to see if there are reductions that can occur or if they can

shift some of their work to the enterprise departments that have the ability to pay. supervisor avalos: when the budget was set last year, was very believe that this could have happened to the city attorney? that they were right on the cusp of viability? >> no, we did not anticipate this overage. the police department has a small revenue shortfall as does the recreation and parks department. we believe that those two may be closed over the course of the year, but we are counting teh net -- the net surplus. supervisor chu: on the city attorney, were there large cases or issues that led to the $3.2 million over spending? >> i know a lot of it is land use issues. in the planning department, there was a significant overage in city attorney use. i don't necessarily think it

represents legal cases, but rather legal advice and assistance that the city attorney is providing to departments. the departments that have a significant surplus, the human services agency has the largest surplus, almost $16 million. this is largely due to state cuts that were anticipated that did not come through to the extent that we had estimated. they had mroe general fund -- a more general fund allocation that was anticipn was anticipat. the assessor-controller probation share of also have some small surpluses -- share sharesheriff also had some small surpluses. just some final notes here, the

supplemental appropriations that are pending -- supervisor avalos: just on the surpluses for the sheriff, thos e seem rare? is that because of the alignment or something we have gotten from the state a route of the light in -- around the alignment? >> the sheriff's department has not seen as many inmates as was projected and they were not transferred from the state prison, but as people get arrested, rather than going to the state prison, they come to the county jail. those numbers have been less than what was anticipated. also, if you recall the census, it has come way down. in prior periods, we had 21,000 inmates, and it went down to a

little under 1500. they made significant overtime -- they have been able to live with than that. we are not certain they will have a surplus, -- within that. we are not certain they will have a surplus, but we are anticipating the year and balance. the loan fund before the committee, we included that as a future expenditure in the current year. public health 6.5 million, the city attorney $3.2 million. these costs might be absorbed through other savings. we are also expecting every appropriation ordnance for police and fire to move around some of their overtime and salary dollars. if you recall the board of supervisors, last year they passed an ordinance that requires every appropriation

ordnaninance in the event they e spending more so that it would be a conscious decision on the part of the department, mayor, and the board to increase the overtime budget. police and fire is likely given the trend that they will be the real appropriation. we won't be spending any more money, but we would be spending it in different buckets. this slide is a little bit hard to see because there is a lot of information, but what it provides is the projected fund balance for those funds not in the general fund. this part of the chart identifies the building inspection that you have seen a is a healthy balance of almost $19 million. that is good news. if you recall, three years ago, the building inspection department had to lay off a significant number of inspectors and so forth.

the permits have come back, the revenue has come back, and the building inspection department is rebuilding the staff. supervisor avalos: is that part of dpi as well? the commercials -sideside? >> i don't have those figures, but i can get them for you. the convention facilities, $18 million. the library preservation fund, $19 million. those special funds have balances that they can use to fund next year's budget or they can keep for other purposes in future years. the traditional enterprise funds are in the lower part of that chart with the operating fund having nearly and $80 million fund balance. the npa was $44 million, and they will be using some of that to balance next year's budget. an thd the port and puc.

the bottom line is that there was significant improvement in the first six months of this fiscal year. the majority of the $129 million general fund surplusage, we will update the estimates -- surplus, we will update the estimates in the subsequent three fiscal years. we will issue with the mayor's budget office and with the budget analyst. additional uncertainty remains as the state and federal budgets are not balanced. i will be happy to answer any additional questions or turn it over to kate. supervisor chu: if there are no questions at this time? supervisor avalos: the airport operating fund is $80 million. how does that get programmed? >> what the airport generally does is it uses a portion of that as a beginning fund balance

for the next fiscal year. it is less money that they need to charge the airlines for the landing fees. they also need to maintain a fund balance so that in the event of emergency or unexpected expense -- so i would imagine they would use up to $20 million or more of this fund balance has a revenue source for next year. in the last couple of years, the airport has done so well that they did not need to use some of their fund balance. the budget did it, but they did not require it because of additional revenue. -- they budgeted it, but they did not require it because of additional revenue. it took a lot of the market share away from those regional airports and has maintained and sustained its passenger load compared to other airports during the downturn.

the economy is picking up at the airport continues to grow. they have not needed to cut back a tremendous amount like the other airlines have. terminal 2 with revenue has also assisted the airport quite a bit. and assisting the general fund because we got a portion of their concession revenue. supervisor chu: think you for the presentation. -- thank you for the presentation. >> good afternoon members of the committee. kate howard, mayor's budget director. thank you for asking me here today. what the six-month report means for the budget balancing -- you have a more detailed presentation, but i will hit the high points.

if you have questions, i will be happy to answer those. the 11-12 budget was about half in the general fund and half in the 11 -- enterprise department. public health, social services, the airport ,mta, mta, puc, and others. this is a new year and we have a slightly different context than before. it is the first time the city will be balancing a two-year budget. we also have policies that require us to generate a general fund reserve as well as placing limits on the use of one-time revenues. last year, you adopted a five- year financial plan that set forth goals on how we can approach creating structural balance in the city's budget. we have labor contracts expiring this year, so the city will be negotiating with all of the police and fire unions on wage

is. supervisor chu: nurses, too? >> nurseess, too. the big picture, the shortfall for 2012 and 2013, the local tax revenues are improving. but that is offset by the loss of local -- and some federal and state revenue. our personnel costs continue to increase, and we are losing some one-time savings we had last year that we used to balance. when the mayor issued his budget instructions in september, we projected a shortfall of $263 million in the first year and $375 million in the second year. those shortfall numbers assume current staffing levels. they assume five-year financial plan assumptions around our costs related to personnel.

they reflect the passage of the pension reform measure that saved the city nearly $40 million in the first year and nearly $60 million in the second year. we assume that we will lead to fund the $30 million in state and federal budget reserve that we would not be eligible for rainy day withdrawal because the revenues are increasing. the next slide shows you what the assumptions were in december on the major revenues. those will be updated at the joint report. in the next several weeks. you can sete the high point i would draw your eye to is the revenues. improved revenues in the first year, $265 million of growth from the current year in year two. we have smaller but not insignificant projected losses,

mostly on the federal and state side on the revenue. what expenditures, -- on expenditures, i wanted to point out $112 million of new costs projected for 12-13 at $205 million for 13-14 on personnel expenditures. the salary line does include the expiration of the furlough days that employees are giving this year that is worth $45 million to the city. that is included as well as anticipated mlu negotiated salary increases. supervisor chu: a question on page eight, you went to the revenues quickly. i want to make sure i understand. the projected deficit that was over $200 million in year one and over $300 million a year to, it assumes revenue growth of the 166 and 265?

>> the deficit projections included assumption of $165 million of growth in the first year at $265 million in the second year. supervisor chu: these will be adjusted based on the new information from the six-month report? >> that is right. slide 11 shows you some of the other things that contribute to our shortfall and are part of how we make our projection. you can see that we include fully funding the capital budget, that is something that the mayor and previous boards have chosen not to do. it assumes inflation on contracts, materials, and supplies. both of those things are things that are five-year financial plan offers a solution to solving. so you can see, when you take all of those increased expenditure costs and changes in the revenue, we come up with a

projected shortfall of $263,000,000.370 $5 million. -- $263 million and $375 million. they took action a month ago to change the rate of return on the pension fund. what that means to the city's general fund is in the second year, a $31 million in new cost new cost. the second change is that the six-month news that the deputy comptroller reported on a few minutes ago, we assumed in the budget deficit reductiprojectioa starting balance of $49 million, so we have $80 billion better than expected in fund balance. when you take into consideration the changes of retirement, we

can have an estimated shortfall of about $229 million in year one and $366 million in year two. in the second year, retirement assumptions offset tehe six-month news. on the mayor's budget instructions, you may remember that the mayor issued a budget instructions requiring departments to submit proposals for 5% reductions for each of the next two years. in addition, he requested a 1% reduction in positions. 5% savings equates to $58 million in general fund support. you can see the impact of receiving end accepting all of those department of targets on the shortfall. leaving us with still a

significant gap to fill of $171 million in year one at $250 million in year two. after receiving a 5% target as well as the good news of the six-month mark. supervisor chu: that is coming this week? >> apartments are submitting this week to the comptroller and the comptroller will submit to the mayor's office next week. supervisor chu: it looks like you are requesting 5% ongoing reduction that will carry through to 2014 as well as an additional 5% in the second year? >> that's correct. we have already spoken about these uncertainties that exist, so the economic recovery continues to be an uncertainty. what happens with the state and federal budget with realignment and other reductions that are proposed. as well as our pension and

health benefit costs. as i mentioned, we are negotiating with 27 of the 29 labour unions. that will be an uncertainty for us. supervisor chu: on the health side, typically we have had health rates set for the entire year. this year, we had a short years so we had the negotiations? >> we will have certainty with the first six months of the year, but for the second half, we will be making our best assumption of what the cost will look like. as i mentioned, the 27 labor agreements are up for negotiation and we will be negotiating with employees of the redevelopment agency. the furloughs that were part of a previous negotiated agreement with our unions are expiring. that is in effect, 4.62 salary increase and $45 million cost to

the city. the benefit costs continue to increase and we have a new requirement that all labor agreements come to this body by the fifteenth of may. those negotiations will lead to be concluded by that point. supervisor chu: the nurses, i thought they were up last year? did they only do on a one-year contract? >> i believe that is correct, but i will make sure i have the right information for you. we talked about the calendar already, but you remember the have -- we have the joint report coming up. the community process comes out marched through the end of may. -- up march through the end of may. i will be happy to take questions you may have a supervisor chu:. colleagues, this item as an informational -- you may have. supervisor chu: colleagues, this is an informational peace.

i believe the mayor's office is working with different supervisors to figure out town halls that will be happening. you folks should definitely reach out on that issue. aside from that, we have the committee hearings and meetings that are on linline on the website. why don't we open this item up for public comment? are there any members of the public that wish to speak on item number three? they have switchover. >> good afternoon, supervisors. i have lived in san francisco for 60 years. i found two presentations of informative and i would like to mention a few