need to balance those interest with the economics of the development of the retail. >> it seems you will get younger people in transition looking for long term. >> probably so. also empty nesters and people who want to move back to the city. we think we're going to have to have offerings. >> you may want days it car center in your parking garage. -- have a zipcar center at. >> we have seen cars that smashed together -- this whole area is evolving as the world is getting greener and more creative. >> with the office building, if there are large enough anchor tenant, will they be able to do corporate with those buildings

or with someone have a so and so company building? >> one of the appeals to locating here is they will have the sign of their enterprise on the building, especially given a visibility of the ballpark. that will be important to some central tenants and this is an issue that will have to work out with the community and stakeholders. but i suspect an anchor tenant will want to have a visual presence to say that we are here. >> to continue with housing, the affordability component, will there be a percentage of affordable units are how're you going to address that? >> we have had conversations about the issue of affordable housing, whether it is to pay a

fee in lieu of other affordable housing projects that don't have the finances to get done or whether they have inclusion rehousing. i don't know if we are prepared to say what the outcome will be. i think we know what the preferences at the moment. there's a lot of interest in generating some revenue to get affordable housing that has been stalled built. we will take the guidance of the city on this issue. >> there is about a 9000 unit housing stock that has not been addressed from a capital equity standpoint. the city the former administration both has a preference today for being out. not a social preference, just that they do not have the money to build the housing stock that have. we're in the middle of the ongoing conversation -- positive conversation -- but the city

needs to find the right path, working with the port to establish their affordable housing policy as well. >> any more questions? otherwise, thank you. we booked for 2 updates as we go forward. >>item 10a. informational presentation on the port's 5-year financial plan, fiscal year 2012/13 fiscal year 2016/17. >> good afternoon, commissioners. deputy director of the ministration and finance. i am going to go ahead and put the power point on

>> the reason i'm here this afternoon is to give you all a high level summary of the port's budget projections so that you can guide financial decisions over the next five-year term. consistent with proposition a, which the voters approved on november 3, 2009, the city and county now prepares a five-year financial forecast on every of fiscal year. is it prepared its first plan last year. this is an even year, so the city is now preparing an updated financial forecast, but i wanted to bring you what it looks like with an update, given the changes we have had with the america's cup agreement, the recent c.o.p. decision, etc.

i thought it would be helpful to see an update today. the plan we produced last year, as you may recall, had trends verisimilitude the city general fund overall with revenues growing at its lower rate than operating expenditures, unfortunately. 3% on the revenue side on average, 4% with operating expenditures. this resulted in two problems. operating budget deficits that we were facing to avoid blowing into a fund balance and declining resources for the capital budget. as you may recall, this last plan ended the projected period where the capital budget is as low as $8.3 million. the revised financial forecast actually reflects much of the same trends we saw in the last

update. we have growing operating expenditures that are similar in size. we also see budget deficits in the same year, years three through five, and declining capital resources allocated -- allocated to capital. the prior forecast ended with 8.3. this projection ends with $8.6 million. we see those similar trends in the forecast. this forecast does show some changes, notably, much improved revenue projections. we also see within the forecast we have met many substantial one-time needs associated with the america's cup project, we have been able to support our c.o.p. obligation, and we have made some really great investments to the race. given all of those investments, it is notable to see the capital

and operating budget is not declining further. why are revenues looking so positive? as the port -- one of its key strengths is its diversity in our revenue base. even in the financial downturn over the last four years, we have seen actual revenue growth at 4% a year. this forecast shows a 5% growth every year. part of it is general enhancements and others are initiatives. revenues will increase by $17 million over the five-year forecast, from $61.9 million to $81.9 million. some of the key drivers are commercial and industrial rent, which will increase by 8.7

million over the five-year period. much of this increase reflects the improvement in the economy, mostly in the first two years of the forecast. parking revenues are projected to increase 4.4 million over the five-year term, and that is largely due to the expansion of the meters along the terry a. francois boulevard. crews increased capacity. we are projecting $1.3 million increase. also, ship repair is projecting to show substantial growth of 34%. the key development assumption is driving this revenue growth include leasing up our america's cup sites right after the event. cruise terminals, special event revenue, we are projecting $800,000 a year beginning in

2014-15. we have included the one time land payment from the sea wall lot 337 project, should it be approved. you will see from this chart, our revenue profile in the final year of the forecast period. you would see our real estate at 57% parking -- 57%, parking at 21%. maritime, 19%. other operating revenues at 3%. in terms of expenditures, the port is projected to increase expenditures by 14.8 million, from 91.2000002 106 million. the biggest driver is salary and fringe costs.

-- 91 million to 106 million. the second is not personal inflation which is reflecting cpi. and then debt service for our co.o.o.p. payments. from the first plan the city produced, at the port should this trend of rework concerned about with this reducing allocation for our capital, falling 37% over the five-year forecast. the new policy for capital funding, which you approved in february, requires 27% of revenue be allocated to capital. the budget i brought to you in february. we met that goal. we did need to make some trade- off decisions with the america's cup cruise terminal financing.

so we used fund balance that would have otherwise accrue to the repair and replacement budget. so the revised budget that you will be seeing, after the board of supervisors process, will likely not meet the capital years policy for years one and two, but years three, four, and five we continue to meet the policy. i told you the policy would require trade of decisions between capital and operating budgets. we did not realize how quickly we would face that. it also requires trade-offs decisions for larger capital projects and pulling funding together for larger improvements and ongoing repair and replacement requirements. the policy that you have adopted will result in an average capital budget of $9.6 million over the five-year period, which is significantly better than we would have done had we not had

this policy in place. you will notice we are budgeting and showing necessary operating expenditure reductions to meet that policy in years three through five. $1 million in 14-15, point to it in 15-16. this is early, advance information for the finance team and for the division to start looking for those reductions, or hopefully expansions in revenues. we know what we need to do to meet the minimum policy, at this point. this graphic shows what we looked like before you adopt the policy. this is the adjustment. you see a 7% growth over the term of the forecast period. the policy is stabilizing those capital allocations. in terms of the port's financial

strength and weaknesses, i cannot emphasize enough the diversity in the revenue stream and business lines. that has helped us weather downturns and will help us recover. we have growing revenue. the financial policies are very strong. 15% operating reserves, debt service coverage, and now the new capital policy that forces us to make trade-offs to that we can adequately fund capital, and our ability to invest in to the living resources for the america's cup and cruise terminal project. it was notable that we were able to reallocate based on those needs. in terms of witnesses, we have limited sources for pack the capital repair and replacement. -- capital repair and replacement. the port has not grown much relative to its obligations. we do not have a lot of

discretionary programs that we can consider. finding operating reductions to offset staff cost and work order cost is difficult to find. in this forecast period, we have some live on one-time sources, and our development risks associated with doors sources. for example, the sea wall law 331 project. in terms of opportunities, i think we have a great opportunity to target our investment in port assets at a law that maintains or expands our financial performance. in the report, we looked at three potential development projects. considering our 2014 debt issuance, to see what the debt impacts on the revenue would be and what would be the result of the port's capacity? we discussed see what 337, pier

38 reteneting. there was one year when it became worse than your three because the debt was in place and revenues were not quite there. by fiscal year 2016-17, the result was a net increase of $3.8 million. we had no more requirement for a budget reduction, and we met the 25% target. so it will really be careful review of our development opportunities and guidance on that 2014 issuance planned as a key opportunity for us to enhance our capacity to invest in capital. as for next steps, director moyer already discussed the board hearings coming up. we are in the process of finalizing the budget submission. we will return in july to present a final budget and then

we will show you what the result is and all aspects, including capital and policy. we will be participating in a much more detailed review of the update to our connection forecast in preparation for the city's plan to be issued next year. i am here with the port budget manager. she put together many of these tables -- the five-year. i am also with a thin, md., and jamie, any financial analysts. we can answer any question that you have. >> is there any public comment on this item? commissioners? comments, questions? i have some questions. first of all, in your write-up -- actually, i think a bit more as a cash flow projection.

your accounting ifd is a revenue, which is an obligation overtime to be paid. the cash flow projection more than it is a pnl. >> this is a budget projection based on revenues. ifd is not included in this projection. >> in terms of your general terminology, so i'm clear. >> we used the payment obligation for the bond or for the obligation for c.o.p. -- it is an expense. >> i know you are all conscious and have done a great job to be diligent about the capital needs, which we are all aware of, which we are going to see in the next presentation.

i have some questions about understanding more about what is driving how you come up with the revenue projections. then i have a couple of questions on the cost side as well. your average increase is the same in terms of -- you have -- i wonder if you are using an average increase or whether you are doing a bottoms up -- looking at what is coming up for renewal, what the market rate is. i wonder if there is a way for us to get a picture of what are the major leases coming up in the next five years, those between five and 10 and those above 10. >> we do a bottoms up approach where we look at the entire portfolio to see what opportunities are coming up. for example, the releasing of

the america's cup facility. we also just assume average cpi as well. i think this question is best answer by nathan from our real estate division. he prepares the financial projections for the leases. >> my other question related to that is, that if we know about the leases coming up in the next five years, versus using a cpi increase, if we compared with the actual rents are today versus our rental rate parameters, and with the difference be? i and just trying to figure out whether there would be more opportunity in terms of how we look at revenue over time, and whether we are looking at it as the difference between actual rents and perimeter rents, that we would charge a market today, and what that differential would be, so we understand the difference. that is just something -- of course, the third question would be, when they come up for

renewal, whether we would have the ability to adjust parameter rents. so we understand the opportunity versus the actual lease today. >> commissioners. the budget projections are based conservatively on current rent terms and current leases. as those expire, there is the opportunity to bring those back up to whatever the market might bear. for budget projection purposes, we assume the leases in place, even if they terminate, are replaced with like-term fleeces. >> so we have to incur. i understand you could present this as a budget. if we could understand what your opportunity is, going forward, in terms if you were to do and analytical presentation, rather than a budget presentation. that helps us to understand what

we need to fund on capital and what the actual trend line is on the revenue side versus the cost side. the other question i have on the real-estate side is, you are looking at what is the vacancy factor you are using in your projections here, versus the rate increase? we talk about the improving economy. i am assuming that means the vacancy factor -- which we have talked about before -- was higher. is it going down? what is the projection you are using in your budget presentation? >> again, using the bottom up construction of the budget, we typically look at each least that is expiring, assumed it would be replaced with a like- term lease, except in places where we know there is a larger opportunity to be releasing. for example, the america's cup

will be handing over a large parcel that we will have to release. we have to factor that in on an individual basis. >> so if we have something big vacant today, not least that could be leased, that is not in your projections as an opportunity because you are basing it on the actual leases in place, assuming they will be released, which is a valid assumption. i'm just looking at where the opportunities are for us to -- i believe the last time i heard, a 15% vacancy factor? maybe it is over today. >> is lower over all, but depending on the type -- >> so there is an opportunity but the vacancy factor goes down. >> you are correct in describing the assumption of the vacancy rate. however, it is not that specific for an individual leasehold. even if we clear up one space, perhaps one other could be available later.

>> generally speaking, the vacancy factor could go down with a better economy. >> yes. >> those are two areas -- i understand when you're presenting to the city. you are going to get pressure. we want to understand where the opportunities are. >> i would suggest that be a separate item. it is important to understand, what is presented to you, to create those opportunities relies on the port making investments to create those opportunities. some of the vacancies is non- leasable space until the investment is made. that is a different conversation. i would propose that we handle that separately. >> as an example, we are looking at pier 38. at the moment, we are trying to upgrade that so that it can be leased again. i do not know what assumptions you have made here. >> it was mentioned in the staff

report. >> pier 38 is a good example of what we're talking about. i put it in the staff report to show potential revenue opportunity from that side, should it be leased out. we have not issued and are found a plan of finance for the facility improvements yet. so, we are planning a 29.5 issuance in 2014. if the project is included, pier 38 will generate revenues that will improve our overall look. but we would need to make the trade-off -- you would need to make that decision between potential investments to see which are the most beneficial to our assets and balance sheet. >> on the cost side, in your assumptions, unless there are changes that the city would like to look at, in terms of the benefits side -- obviously, you could only look and what you

know will change -- but you are using current assumptions, which is high on the benefits side. >> that is correct. we have used the control of projections, which are very conservative. basically, it is assuming the growth rate that would assume no labor givebacks in the five-year projection, natural wage increases, and growth rates in our benefits and pensions that are similar and consistent with prior years. the comptroller's office spends a good amount of time looking at the agreement for our pensions and health care. the projections they use are conservative because -- >> meaning they are higher. double digit increases more likely than single digit? >> they are more -- there are double digit increases, but a

smaller double-digit increase is more likely outcome. >> so base salary is probably in the low single digits. >> i need to put on my glasses. just a moment. yes. over the entire five-year period we have a base salary at 17% increase, but benefits going up 30%, per the controllers estimate. for the 11 years i have been in the city, i have been consistently surprised at how quickly benefits have gone up. there has recently been a ballot measure supported by the voters that help us with pension costs, but health care benefits continue to rise. hopefully, this 30% is near 26%,

but i would not imagine it being in the single digits, given my experience. wages, 7% could be 11% with the results of bargaining. >> my point is, i think you are very focused on the right things in terms of the capital needs in terms of controlling the operating expenses. the one area that hopefully we can continue to work on is the revenue enhancement side. i think there are some opportunities there. >> absolutely. i agree completely with that assessment. that is where i see the most opportunity within our control to improve our capacities by targeting investment and resources that generate good revenue for us. >> with so many projects in the pipeline, we want to make sure we have the management and in for shelter in place to do this

-- to do those products well. we would not want to cut in the areas that we should not cut. >> exactly. that is the other point i was trying to make. it is hard for us to find operating cost reduction that will not meet our plan of enriching sources of capital. we have not run much and we have new obligations. we have held the lid down on a resource request that we maybe should have made -- >> hopefully, we can get the revenue increase to match the expense increase, so we do not do the wrong thing in terms of how we manage our ability to execute on both our execs and, -- existing, as well as new developments. i am sorry. i made a statement here. any other commissioner comments? thank you.

>>item 10b. request approval of the port's 10-year capital plan, fy 2013- 22. >> good afternoon, commissioners. i am here to request your approval of the 10-year capital plan as revised. i will be relatively brief here and look forward to q&a the 10- year capital plan was originally presented 10 weeks ago february 23.