supervisor chu: hello and welcome. i am joined by supervisor and joined by supervisor: and supervisor wiener and supervisor kim will be joining us shortly. our clerk is mr. baker young. you have any announcements for us today? >> please silence any bonds or electronic devices. adams acted upon today will appear on the may 22, 2012 board of supervisors agenda unless otherwise stated. >> thank you. also wanted to mention that sfgtv -- we have mike and

jennifer. >> item #one. hearing to receive update from the comptroller's office. item two. hearing to include financial update and information on budget instructions and process. supervisor chu: we havemr mr. rosenfield and howard will talk to us about the edges -- budget. and there are some impact we might expect from the state. where do we begin with mr. -- why don't we begin with mr. rosenfield? >> our office issues periodic updates regarding the current your financial status and this

is our last such report for the fiscal year we are winding down. we can -- we see a continuation of the trend we have seen thus far through the fiscal year which is a continued improvement in the local economy, fueling better than expected tax revenues. and continued savings in departments as they work to plan for next year's budget. as you see on this slide, the bottom line news in the report, we project $172 million ending balance in the general fund. that is a $43 million improvement versus the six month report which we issued three months ago. it can also see on the summary slide and i will talk about the details in more depth. this $43 million is being driven almost in even parts by improvement in our local revenue picture and department told expenditure savings. it is kind of split on both

sides of the ledger. >> off to highlight some of the revenue news, we do see now at the nine-month mark $20.70 million in projected improvements vs. our six month report across most of our general tax fund revenues. we have summarized those on the slide and it is mixed news here. we have very good news in accelerating improvement in our local payroll tax and property transfer taxes which are to of a larger revenue sources in the general fund. that is offset two. or partially offset by some unexpected weakness in property- tax. you continue to see the local employment picture improves in san francisco and that is in terms of the number of jobs, all of which is driving a larger than expected improvement in payroll tax.

we continue to see considerable acceleration in our commercial real-estate market which is driving property transfer tax up. we have seen a number of appeals now awarded by the assessment appeals board in the current fiscal year related to prior years' tax appeals which were worse than expected. that leads us to revise down our thinking about property-tax because we have a number of appeals, we expect the out fund -- the outcome to be worse. that is a mixed revenue picture but generally positive. $20.70 million in revenue improvement versus the six month report. as you are aware, we have a number of different cases where this close to special dedicated uses where the voters have required us to spend a certain

amount of certain dollars on certain services. for the property tax fund set asides that exist in our charter, the weakness i mentioned is -- means we are revising down their estimates of property tax and the children's fund, and the library space -- fund our property based allocations. their revenues will be better than the current year budget. they are revisions down from our expectations of the six-month mark of $1.20 million in the current year for the children's fund and the open space fund and $1 million for the library preservation fund. i should say in all cases each of those departments anticipates ending the current year with available fund balance still. what we're talking about here is weakness in the current year that will not affect spending in those departments are in the current year but will affect the

planning for the next two-year budget which you will see in coming weeks. the other baselines, those that are driven off of overall general fund tax revenues, those are improved. while property tax is down as we talk about, and that overall the general fund revenues are up. that means, among other things, $1.10 million in career of improvement for the mta. that is their baseline and their tax allocation. a small improvement for the baseline portion of the library, half a million dollars. >supervisor chu: with regards to the lowering of the amount in the nine-month projection, because we saw $22 million less in surplus than we had anticipated for the property tax line item, we're seeing a smaller allocation going to their respective children's fund and library preservation fund.

do the department anticipate spending -- to the anticipate using the previous six month mark worth of good news for their budget balancing? >> i think the asnwer -- answer is departments have been using those prior property-tax projections in their budget assumptions. we're working with departments now, we believe there will not be a significant impact in the first year but that we may see some impact in the second year. we're working with them now to revise those projections. supervisor chu: thank you. supervisor avalos. supervisor avalos: just a question on these funds, i thought they all had the same formula for the allocation. how is the children's fund different from the library and

the open space fund? >> same formula but different amounts. the children's fund is larger than the open space fund and a library preservation fund. it was amended eight years ago. and so the amount is bigger. proportionally, it is -- has declined but the dollar value for the children's fund is greater. supervisor avalos: i thought it was the same amount a different formula for the children's fund. >> the formula that drives them up and down is the same but because the children's fund is a bigger base, the percentage reduction of that means a bigger dollar value. and i should say in all cases of these funds and others, the report does include at the end of the report, it is focused on the general fund, pages 17-22 of the report are details regarding each of these funds and their status if you are interested in

more detail. the report includes a more detailed update of operations and we have details department by department, the variances we expect and surpluses to pull it out and highlight it briefly. we are projecting $42.40 million of net departmental operating savings versus the budget adopted last year. last summer. that is a $20 million improvement from the nine -- for the six-month report and the vast majority of this is driven by savings within the human services agency. of the $42.4 million in savings across general fund departments, three-quarters of it or $34 million is savings within a gsa -- within hsa.

the report includes additional detail but it is a mix of savings -- and caseload programs, salary savings resulting from hiring slowdowns, in anticipation of next year's budget deficits. $4.80 million in additional non- county revenue. some of that, the majority of that is a revenue. a lot of which ends up redistributed at the end of the year from counties that under spend their allocations to counties that to match their allocations which we typically do. some of that is good news on the revenue side and other factors. hsa is driving the department told -- department all savings. -- departmental savings. we have $2.9 million in savings across the other departments in

the city. as i mentioned a minute ago, the report does touch on other funds in the city and some of these are listed here. you can see generally speaking, the starting balances in most of our funds at the beginning of this fiscal year are now growing in our estimated ending fund balance is across different funds in the city and that is good news overall. again, a sign of our strengthening economy. the building inspection fund, convention facilities fund, the airport fund, the port fund, the puc are all generally outperforming their current year budget which means there will end the year better than they started it. financially speaking. of note, i will highlight on the page is the mta. the mta had began the year with approximately $25 million in fund balance.

we're expecting them to exceed their budgeted revenue by about $14 million which will mean that the end the year with $39.20 million in fund balance. the department is currently overspending its salary budget, fairly dramatically. this report assumes that that salary over spending will be covered with non-salary liquidation, encumbrances and supplies, professional service contracts and others. the department will need to implement to get themselves back to board approved appropriation levels in the current year. supervisor chu: the assumptions with the mta overspending is there will be managed -- and they will be managing it without tapping into the reserve? >> exactly. it will not require supplemental appropriation which would take approval and review by the board of supervisors.

so just briefly, to highlight our reserve position at the end of the year. the general reserve, the board has approved a $2.70 million appropriation for wage increases which was not anticipated last year at the budget adoption train that leaves the general reserve at a $22.30 million balance. the budget savings and center preserve began the year with $9.60 million. this reserve -- and began with approximately $9 million and we're expecting to contribute another $9 million in it in the next fiscal year. this is a reserve that receives 25% of department operating savings. it has been available for that department subject to approval by the board of supervisors to spend on onetime initiatives, efficiency generating initiatives. this is the result of

legislation passed by the board many years ago and abandoned five years ago. that -- amended maybe five years ago. that -- the rainy day reserve we have talked about after the current year withdrawal for the school district, we project to in the year with a $25 million balance in the rainy day preserve. the city will not be likely either depositing or withdrawing from the reserve in the current year or the next two, given where our revenues are through the triggers. the school will be eligible to withdraw baxter and the year after and it will drop 25% of the balance. we would expect to see this reserve dwindled over the next couple of years should the mayor and the board appropriate the drug to the school district. supervisor chu: there is $25 million. the school is eligible to receive 25% of the $25 million. and 25%.

how far are they -- far off are they of utilizing the reserve? >> -- there is no plausible world where the school district would be eligible to withdraw 25% of the rainy day balance each year for the next decade. supervisor chu: practically, should the board approve it, year after year given that gap between when they are eligible or what level they are eligible to draw down the rainy day, they are at 100 plus million dollars above the trigger level? >> right. supervisor chu: our inspection -- expectation is they will draw down 25%. >> 18, 14, 10, 8. that kind of projection. and lastly, the budget

stabilization reserve has $27 million in it. we do not expect to draw or -- withdraw or deposit. next fiscal year we will talk about this and we did talk about this in the context of a three year budget projection. as -- we do expect transfer tax deposits for this reserve next fiscal year as we exceed our adjusted five-year rolling average. in the current year, no deposit is expected given the projections we outlined in the report. supervisor chu: supervisor avalos. supervisor avalos: thank you. could we go back to the incentive reserve? she said that part of that was left over from the previous year, $9.60 million. combine that with the current $18.30 million. that is available for departments to use on capital projects, is that we said? >> the language in the reserve is much more permissive than capital projects.

it is for generally spending that helps the department official -- efficiently operate is the concept. typically, those preparations occur in the budget so you may well see this as a source in the budget to fund specific uses. sometimes those are capital and sometimes their technology, sometimes they're operating improvements that involve staff. it could be a host of different uses. supervisor avalos: the difference between $18.30 million and 9.69 is what was budgeted? >> it was what was left over from the prior year that was not necessarily spend in the current year budget, correct. so the bottom line, there is more detail in the report itself is a $43 million improvement. as they work to balance the next two years budget. the budget director can provide some greater context for how

this fits into the budget balancing conversation. supervisor chu: think you. -- thank you. >> good afternoon, supervisors. kate howard, mayor's budget director. i have an update budget for you and you have a copy of the hand out in front of you. just a reminder for everyone, a few notes about our overall budget so -- we are combining city and county. the budget is $6.80 billion. about half in the general fund. new this year, for the first time, we will be implementing