>> good afternoon, commissioners. i am the special projects group. i have been one of the principle authors of this document for the last seven years. this is the seventh iteration of this one done under the direction of the special projects manager. before i go on, i, too, will miss robert bryan. one quick story about some of the things we get into, at the army corps of engineers, the demolition of pier 36, which will appear in the capital plan, they changed the federal boilerplate. the port believe that they changed it for the entire country. it was a long one but we got there at the end and then ultimately sided with robert.

i will start off with some process. section 2.3 of the city's administration code is what drives the city generation of the capital plan every year, at least until last year before they amended it, to have the city administrator bring into the board of supervisors every other year. this year, staff thought it was a good idea to bring it before the commission because there had been a number of big changes. additionally, at the last capital planning committee meeting, members of the board of supervisors had requested a mid cycle update. cpc has requested that port staff present on monday march 5. we will be presenting their with the provision that this is subject to any changes before

final approval. for process, this is the second year we have worked with an integrated process for evaluating process -- projects. the two-year budget and five- year financial, 10-year capital plan. i know this slide is eligible, but think of it more as a graphic. it plans out the funds over the 10 years and the first two years cause of tooth capital plan, and so on. it has been a good process and we're looking forward to that. the evaluation criteria we used to review it capital projects is also integrated, whereas before, there were different processes for the capital budget, a capital plan. now they are the same. we came up with a collaborative

consensus-based process, weighted out of 100 points. the first few, 35, containing liability, 35, the mission, the final balance, considerations. through that process this year there was a fair amount of talk and some consensus that we will be real about the wedding next year to rebalance the criteria based on the apparent need to shift towards more revenue- generating projects. planned context. this is something new this year. to provide some sense of where the plan has been, where it is going. again, this is the seventh iteration. the shortfall, in red, is less

now than it has been in about five years. looking at this graphic down here, there looks to be corresponding peaks in funding and on the need side of things. that is coincidental. the spike in the estimation of need was a result of the port changing its software modeling it uses to estimate overall needs, shifting over to the program the city uses. on the funding side, that is a result of infrastructure legislation. the peace in the foreground, the next slide, is a breakdown of that. the various funding sources that go into that. what jobs out here is how much the proceeds matter in the future. we have good product one year, not so good a couple of years

later, as we have a relative experience with. the static nature of the port's own capital funds. this table here has the data that make up the slide that you just saw before. it is a simplistic way of looking at it graphically. that red diagonal line is where we want to go. as this table expands, we want to add new sources of funding to expand where we are getting funds, not only grow the funds that we have. hopefully, next year we will be adding transferable development rights. that is the larger context. changes to this year's plan. we had a consensus at the staff level -- the way we had previously been display numbers in the report in the 1000's -- conservatively might give a

false sense of specificity with the kind of estimates we are doing. it was to present things in keeping with the america's cup planning the we have been doing. that was a change that had been long coming. the plan context part of the port itself, we will maintain that. that adds a lot of value. this is what happened to our overall estimate for the year. largely driven by the 3.5% cost escalation at the capital planning committee generates. 3.5% his representative of what has been for the last 10 years. last year, 1.5%, in their early years, as high as 10%. i am sorry. this is out of alignment. this is a breakdown of

regionally of the six waterfront areas where we are -- where our need is and how that has changed over time. what jobs out here is the northeast waterfront and south beach has decreased by the potential amount. those are the results of revised estimates, particularly, seismic estimates, where we gained certainty about the use that will be there. for piers 20, 29, the cost had been derived from the potential development there. now we know it will be a cruise terminal, port engineers could look at that and say it was suitable from a suspect point of view. that resulted in a reduction of $40 million in that region. having looked at enough tables, i thought this was easier on is, -- eyes, looking at where our need is.

southern waterfront, probably not a surprise, that is where the bulk of our need it is. an import-wide category of cost, which is home to our dredging cost, which has gone up dramatically as a result of increases in the industry, cost. this explodes the funding sources more, in previous terrorist it showed federal funding in some of the individual agencies. what jumps out, what is worth noting, the exploratory and development projects, $205 million provided to port facilities. next year, that will fall off the ledger, as it were, because the project will be complete. our funding sport -- sources will take a big hit. but we will also take the need off the books because we will have done that repair.

$68 million of that is for maintaining good repair with the balance being an enhancement of that facility. enhancement versus state of repair. this is a breakdown of the $956 million in funding we are programming over the next 10 years. that ratio, 20%, 72%. somewhere between -- between a quarter and a third will go to enhancing assets, a two-thirds going to maintain existing assets. that is keeping with other enterprise assets. we have heard from the capital planning commission, airport, and mta. they reported a similar ballots to how they spend their funding. we feel like we are in keeping good company there. the 31% of the overall need funded comes from the state of good repair. the funded enhancements to not

go to our need. that is above and beyond we need to maintain our facilities. potential new sources for the plan next year, transferable development rights. this would allow us -- this is my seventh iteration of the plan. i did not expect one day we were going to say we are going to sell air to make this plan work. but that is what we are proposing. four historic structures, piers 20, 26, 28, potentially millions of dollars coming out of this to transfer vertically. lastly, we will run through the waterfront quickly to show how the funds are distributed. this is a blow up of the legends. fisherman's wharf is characterized by many longtime tenants with long-term leases.

they are responsible for the maintenance of their facilities. i should have breakfast this report by saying, this presentation matches the report finalized on friday. some of the red that you see here listed from the acea may not be accurate. an important point on this slide is the camouflage color, the federal funding of pier 35. the army corps of engineers is the case study for the long term for that to planning. there process with a two fold authorization process and two fold oprocess, it would take decades to get to that money. the plan is helpful in that respect. ferry building area.

multiple sources at play there. there is an award for most conspicuously out of date slide. this would be a good candidate. the brandon street wharf is a good example of how different sorts of funding come together to complete a project. that is a good success with the corps of engineers there. china basin. that strip of orange, bayfront park, that project has been completed, but i left it in their just to point out the 10- year capital plan as a tool is what made it possible for us to get access to general obligation bonds at all. it was a first for the port. that happened a few years into the generation of this document.

lastly, southern waterfront. i will end with this as part of a trip across the water from with this thing that looks like a doodle on top. that is the queen street -- quinn street lead. that plays an important role in developing a robust export terminal at pier 24. that has been a long time physical impediment and organizational impediment to doing that. while the track is substandard, it is also owned by the railroads. with this $3 million in funding we have to repair this track, it has brought the railroads to the table and has got them engaged with how they will commit to move lots of freight through their by locomotive spirit it has also given the project some profile. that project with a fair vote -- federal railway administration

was the top scoring project nationwide. we're hopeful it will continue -- contribute to this longtime steve chaid -- strategic report. i will conclude with pointing out with this planting is done for the port over the years. guided $95 million in development. non-developer investment, i am sorry, $95 million investment in non-developer investment. to getting access to general access obligation bonds. the 34th america's cup bid. it will continue to evolve as needs demand. i am happy to answer any questions you have got. >> is there any public comment? >> i think i went along. i am sorry. >> commissioners? president woo ho: i just want to compliment the staff on of the work. getting your arms around all of

this and presenting it in a logical, understandable fashion, slicing and dicing it the way you have, makes it very useful. maybe one of these years if you stick with it long enough, you'll come back and the total number will drop some how. [laughter] i have not seen that happen since i have been here and you started the project, which is a little discouraging. i commend you for going out and continuing to find new sources. very well done. >> thank you, commissioner. >> concur. >> ok, thank you. >> item 9b, informational presentation on proposed ports policy, it designating annual operating funds for 10-year capital plan expenses. >> good afternoon. deputy director of administration and finance.

i am going to talk about a proposed policy to designate operating of -- revenue to capital. it ties in closely to the capital plan, which was just presented to you. last time i was here, we talked about the capital budget and how it is not enough to support the requirement that we have to maintain our assets. we also discussed the prior five-year financial trend that showed increasing reductions in capital sources. today, i am going to talk through a policy with you that will help us to stabilize and grow sources for capital. so as we discussed, the public- private partnerships and of these other sources of funding that would just described are really going to be the key of addressing our $2.2 billion dollar problem. that's it, the capital budget is a small and important part of

the overall picture. historically, it has been too low to meet our needs, and we have been spending our funds on emergency needs and repairs, rather than focusing on renewal and the five-year financial forecast showed a difficult trend. this shows you the overall sources in the capital plan, which were just described. $956 million of overall sources, including repair of portfolio. 14% of that is our by the annual capital budget. -- our biennial capital budget. the average budget has been $8.3 million. but as this chart demonstrates, it has gone up and down, depending on prior year operating surplus. the five-year financial plan bank that we produce last year showed a 37% decline ever the

five-year forecast time in capital resources because of a trend of expenditures essentially outpacing revenue. and this chart demonstrates both the historical spending and what the five-year last year showed we would be headed toward without some intervention. the policy objectives are obviously to stabilize and resources that we dedicate to capital, to constrain our operating budget, to require advance to decisions that reflect trade-offs between the operating capital needs and to reduce our credit risks. as you know, our rating agencies have continually pointed out our undefended capital obligations as a credit weakness. although we had a stable and strong rating. how much is enough?

financial step and i spent some time talking about what our targets and goals should be. frankly, we just do not have enough to pay for what we can afford. if we were really setting a target to help us address renewal, every year we would be spending 50% of our operating revenues on the capital budget. and we do not see a near-term way to get to that level of investment, but that does not stop us from setting ago and a target and growing that goal over time. we landed at $20 million required of renewal of our substructures alone. that equates to 25% essentially of our operating revenues dedicated to capital. that 25% is a hard bowl to meet. so we started with the 20% target. a requirement that 20% of our operating revenues be dedicated to the capital budget or designated to our reserves which

funds capital into the next year. that would be a requirement. then we would grow to the 25% goal over a five-year term. with this policy, this is the change in the trend. you see the prior year's allocations. the yellow line is what our prior year financial forecast showed. this demonstrates the 20% requirement being met. resources to capital growing 59% over that time. and you see stable and a continued upward trend in the capital sources. with that, i am available to answer any questions about the proposed policy. and we will be back at the next commission meeting for formal review and adoption. thank you. >> is there any public comment? commissioners? >> ok, i have a couple

questions, comments. first, i want to say, based on the previous presentation, i guess to go on record to recognize that the $2 billion number, which there are definitional things that the lower it with requirements, is not something we should forget in terms of -- given that there's a lot of discussion in san francisco about with the port can develop and the assets that we do have, that there is a real need. development assets are different from the capital budget, which is to help maintain and preserve the existing port structures as they are today. it is not necessarily reflecting all the development assets that we possibly could have. but there is a true gap. as it was said, the number never goes down. we do not want to be known to the fact that there is a tremendous gap. i think the issue that you bring up in terms of trying to address this policy, let's understand a

couple things with the policy. i agree that we want to designate more, but that also assumes that at the end of the day, once you get through the offering revenues to your bottom line surplus, you are still positive. because if you designate your operating revenues on the top line and you're not making it, your expenditures exceed your revenues, then we still have a problem in terms of if the cash is not there. in theory, yes, i think we 100% agreed that we should do that. the second one is that given the way we budget here is really on a cash basis, yet we do have financial statements to take into consideration that are generally accepted, government accounting standards. one of the things that i thought about this -- and i know it is problematic because the way we value as it's on our balance sheet, because historic levels and they are totally undervalued. what about in a normal world, you look at depreciation and how your assets are depreciating and whether your depreciation is a

way -- because of normal accounting, is a way to replenish their capital needs -- i am not asking you to answer the question, because that might be tough to do right now. but think about it. because you have said a goal. that is a target. what we think about the approach of understanding with the number would be if we were using accounting. what would be the annual depreciation number, and how would that compared to the bill we are setting in this policy? so we have a sense of how other models work and an approach to address this issue going forward in terms of what we need and how we can think about the funding sources. and for the record again, as i understand it, when we have a development project, anything that comes on the capital budget that addresses that, that that is totally separate. this is maintenance and preservation of port assets. >> thank you for the questions.

i would like to defer the second question for when we return on march 14. i would like to talk to our accounting staff and fiscal officer about how do think about depreciation in terms of this policy. >> in comparison to see if we are hitting the target. i know it is problematic because of the fact that it is totally understated. that is how accounting policies work. >> i will come back to you. on the first question, we are assuming operating surplus. we are assuming that we will come to you with a budget that has net revenues, that is balanced. the policy will force trade-offs conditions. if labor costs grow beyond what our revenues are growing, the policy will require us to look good budget reductions, to right size revenues to expenses. you have seen in our current proposal, we have met this target of 20% -- well, close.

i think it is 19.8% in the budget year and almost 21% in year two. so we propose to continue bringing budgets that are balanced, essentially. and believe that this target is reasonable. it is a stretch, but it is something we should achieve given the gap and given the extraordinary gap in our resources to fund renewal and to repair and maintain these assets. we feel that it is a good goal and something that we can achieve. >> right. obviously, i guess we would underscore the fact that we're always trying to figure how to increase operating revenues. >> that is right. and the port does have the ability, things like our annual projects and other expenses, to flex depending on our revenue picture. we have some operating expenses that are more discretionary than others.

>> any other comments? thank you. i know you have worked very hard on this. it is the right direction in terms of trying to figure out how we continue to think about the gap. there are different factors at play. we have to keep them all in mind as we go forward. >> ok. >> item 10a, informational presentation on proposed san francisco bay conservation and development commission special area plan amendment for pier 27 cruise terminal and any wharf project and 34th america's cup project. -- and northeast wharf project and 34th america's cup project.

>> good afternoon, president woo ho, members to the i am with the planning and development division. it is actually opprobrious the bread is here kind of pulling the strings behind the presentation. -- that brad is here, pulling the strings. [laughter] i have a briefing on the substantial amount of work that has been under way before and since the city was selected as the host city for the america's cup. vis-a-vis the work that we have to do with bcdc to align these projects with the bcdc san francisco water for a special area plan, which is a prerequisite to being able to get bcdc major permits issued for those projects to be able to move forward. as you can see, the staff report gives a briefing of both the proposed special area plan

eminence for the cruise terminal and northeast wharf project at 27, as well as for the america's cup. with the changes and the scope of the america's cup project, i think that we're going to differ on spending too much time talking about that today. we will be coming back and providing a briefing as to what, if any, changes take place on the america's cup-related special area plan amendments. i am going to try and sort of walk you through this as best i can without the promise here. it is a little bit complicated, because there is a long history of bcdc and the poor working in an integrated way. on planning and orchestrating improvements along the waterfront, ever since the

waterfront plan was being developed. when the waterfront land use plan was being developed in the late 1990's, we started working with bcdc at that time to work on updating bcdc's policies. the current special area plan, which most of it was approved in 2000 by both this commission as well as the bcdc commission, have been the basis for us to be able to do the development projects that we have enjoyed in the last 10 years. prior to this special area plan, there were much different bcdc policies and rules that effectively precluded our ability to take on any of the kinds of projects that are contemplated now. so the goals of the special area plan as they are on the books today, which are embraced in our own waterfront plan, are