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 two-year budgeting for the entire, for all city departments, and we have some increase in reserve requirements that we will be funding in our budget. we are making good progress in reducing our structural budget shortfalls. that is both due to some of the ways we balanced the budget last year, due prop c reform, but also due to the improved economy and better than expected revenues. as you know, at the six-month report, we projected as a result from the controller's office a $170 million shortfall in fiscal 2012 to 2013, and more in 2013 to 2014.

so the comptroller went over this information for you, just a moment ago. again, highlighting the current year, better than expected news on fund balance, and compared to where we were at the six-month. so what does that mean for our city budget shortfall? so we started at the joint report with a $170 million shortfall in the first year and a $312 million shortfall in the second year. we will use that fund balance to spread it over both years. that brings down both years' shortfalls, so we will then have an updated shortfall of $140 million in 2012 to 2013 and another in 2012 -- 2013 to 2014.

i wanted to update you in the kind of budgeting being done in this fiscal year. as you know, we connected some town halls, where we partnered with all of the members of the board to hear from the public about their budget priorities. the mayor just completed a web- based town hall this past week, and we also conducted a number of other issue-based stakeholder meetings, focusing on things like recreation and parks, health and human services, public-safety issues, and arts and culture. chairman chu: just a second. supervisor cohen? supervisor cohen: it sounds interesting. how did to facilitate the web- based lb paul -- town hall?

>> i would give you a brief overview -- i will give you a brief overview. we worked with google+. there is a technology that google has called the google hangout, and the mayor was on camera. there was a moderator in a different location, and then there were three other stations, where people came and posed questions and interacted with the mayor and the moderator online, and so it was a real time, almost like a video conference, with participants mostly from the i.t. sector, focusing on innovation and the budget and the opportunities for the city to be more innovative in the way that we conduct our own business. supervisor cohen: thank you. thank you very much. >> also this year, we try to

have different ideas about where we can be more efficient and effective in the way that we do business. you will remember that this year, we have also been negotiating with our employees. we had 27 open labor contracts this year, and yesterday, we introduced to the board of supervisors updated contracts for all of those labor unions except for the nurses. generally, the pattern on those contracts that are coming before you are that there is a 0% rate increase in the first year, a phased-in 3% increase in the second year. that feels like about a 1.75% cost. on benefits, i think we're

feeling very pleased with the kinds of conversations we are having with our employees around wellness and cost sharing on health benefits. supervisor chu asked about where we are with the state budget, and as you off the record earlier this week, the governor issued his new, revised -- which grew the size of the state budget shortfall to almost $17 billion. the table here shows you his proposal about how to solve that shortfall. it would rely heavily on reductions to health and human services programs, so that is the first number year, $2.50 billion in reductions on health and human services -- so that is the first number here. reductions to education. that is k-12 as well as community colleges and u.c.'s,

and there are fund balances from the redevelopment agencies, and then the other half of the solutions are related to revenues. the $5.90 billion are primarily the tax measures that the governor is proposing for the ballot this november. he has indicated that if those members -- measures do not pass, he has additional trigger cuts that he will impose, which are almost entirely education cuts. we are currently working on tallying up what the impacts of these proposed reductions would be on san francisco. in the current year, and in recent years, the mayor's budget and the budget that the board has adopted as included a reserve for state reduction, and i would expect that we would include a similar reserve this year, given the uncertainty

associated with this. i think the programs that are most likely to be affected by state cuts are the in home supportive services program, which provides services to older adults and disabled individuals, as well as the calworks program, child care programs, and then some metical -- meddical -- medical programs. chairman chu: you talked about the reserve for the state in packs in the upcoming year budget -- reserved for the state -- you talked about the reserve for the state impacts the upcoming budget. >> this is something we were discussing before i came over here.

i would not expect it would be smaller than the $15 million we have in the current year's budget. in addition, we have talked with you about another $15 million in cuts that we know we are going to face related to the laguna honda hospital reimbursement rates, so we will include debt reduction in state funds in our budget, but i would not expect the state reserve to be less than $15 million. chairman chu: ok, so that is something that is still in the works right now. >> yes, and i just had a meeting today with folks on their initial thinking about what these potential impacts are, so we are just getting a sense of what that might look like in terms of dollars. chairman chu: ok, and just going back to your previous slide that we were looking at, colleagues, those items will not be coming

before the budget and finance committee. they actually go to gao, so that committee will be forwarding them to the full committee, so i am wondering if you will be able to speak, kate, on what this means for the coming years? >> the first year, there is no additional cost, so it does not increase our budget shortfall, but it does not reduce it either. the second year, a projection had assumed cpi on wages, which was about 3.3%, and so there is savings and the second year of about $20 million to $25 million, related to the agreements that we came to with our employees. chairman chu: ok, so, year one, when you put forth a budget deficit, it pretty much came to be no increase in labor costs

but also no savings associated with it >> that is right. all of the furloughed dates -- but also in a savings associated with it? >> that is right. all of the furlough dates would be there. chairman chu: and then in year two, this is coming in at 1.75, comparatively, based on what we were expecting at that time, it is a $20 million to $25 million in year two? >> that is correct. chairman chu: and then there are the health care expenses. is that factored into >> it is. what you are referring to is we have come to an agreement for the medically single employees that the city will pay 90% of

either the kaiser or the blueshield premium, and employees will pay the remaining 10% of that premium, and so, currently, for medically single employees, there is no employee pickup. so that savings is factored into our overall savings, and that will not be implemented until the second year, in january, so we only get a very small amount of savings during this two-year budget winter, but i think structurally this is a really positive step -- the amount of savings during this two-year budget window. we can afford to reduce our help desk your costs. chairman chu: so the bottom line with the labor negotiations, the expenses are not going up as much as we thought or as