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 quickly, but in regards to the employees because of retirement benefits or health-care expenses, those expenses are still going up, right? >> that is right. this is reducing the pace of the growth. it is not actually that the growth, that there is a decline. it is just slowing it down. chairman chu: ok. supervisor avalos? supervisor avalos: for the labor

unions that are not in the negotiations this year, police and fire? and nurses? >> nurses are currently negotiating with the city. we have not come to an agreement with the nurses. supervisor avalos: and so police and fire, their contract expires? >> it is in two years. supervisor avalos: when we are working on the budget again, a whole new budget in two years, that is when the contracts will be over? and then, does the city in terms of negotiating those contracts, are there plans to align them with all of the rest of them, or do you think there is a policy reason to have those on a separate track? >> i think that the city has preferred to not have all of our labor contracts opened at one time, partly for workload reasons -- opened at one time --

open at one time, partly for workload reasons. chairman chu: thank you. just another question. when the police department came to us with an update about the budget, one man from being poa had spoken -- one man from being -- from the poa, their contract is not open, but it sounded like that was something they might be willing to do to help the city. is there an update on that? >> i do not have an update on that. we are still talking on that issue. chairman chu: ok. thank you. >> finally, i just wanted to remind you and others about the timeline that we are on, so coming before the committee in the next couple of weeks will be

all of the enterprise department budgets. the mayor will introduce the two-year balanced budget followed by hearings in front of this committee about all of the department budgets. at the end of june, this committee will approve a budget, and finally at the end of july, the board will adopt a two-year balanced budget, which will be signed in early august by the mayor. i will be happy to answer any other questions you may have. chairman chu: ok, thank you very much for your presentation. just a note to colleagues. this is sort of the last of the meetings that we will have to do a preview of the budget. we will be starting our full budget session for hearings starting next week, so we will be hearing the enterprise department in the last two weeks in may, just a note, we will not be meeting in subcommittee in this week's, and we will have the meetings and the last two weeks in may. in the first week of june, june

6, we will have won a subcommittee meeting, but other than that, there will be no other subcommittee meetings in june -- we will have one subcommittee meeting on june 6. so, colleagues, just look out for meeting dates. our office is also in the process of scheduling a meeting with nonprofit providers beginning in the first two weeks of june. if you're interested in attending, we will definitely send that information out to you to make sure we get feedback. if you are interested in attending, we will definitely share that information with you, so other than that, if there are no other questions, why do we not open these two items up to the public? are there any members of the public who wish to speak on item one or item two? seeing none, public comment is closed. [gavel]

colleagues, without objection? thank you. item three, please. clerk young: item number three, the policy and budget priorities for the fiscal year 2012 to 2013 and for 2013 to 2014. chairman chu: thank you very much. this item is brought to us by a number of sponsors. we cannot have more than five individuals from the board of supervisors here at any given time, so we will have to swap out. i think supervisor winer -- weiner will be swapping out. when you like to say a few words -- supervisor wiener will be swapping out. would you like to say a few words? supervisor wiener: since she is my appointee, i would like to

stay for that, and then we can swap out after that. i joined president chu and supervisor kim because we want to have the opportunity to formally present to the budget committee the priorities for the fiscal year. i think we are all committed to supporting our youth in the city, including in the budget process, and they have many needs, so we want to engage in a dialogue, and when i do leave here, i will be watching on tv, so i will hear everything that is going on. thank you. chairman chu: thank you, supervisor wiener.

i believe there is a number of presenters, at least as we have seen from the list, to provide a presentation about some of the priorities that the utah commission has come forward with, so as i understand, -- some of the priorities that the youth commission has come forward with, so as i understand it, some of the speakers are [reading names], so why do i not let you guys decide the order? >> side for that little

technical thing going on there. hello, supervisors -- sorry for that little technical thing going on there. hello, supervisors. i am here with the vice chair and the members who are also serving as chairs of committees and who have been really taking lead. as you know, especially being on the budget and finance committee, the budget reflects the city's core values. you know, when you look at them, you have to make tough decisions throughout the year, as you all know, and we really wanted to make sure that the populations that we hold most dear are prioritized, especially as their needs are met while we also balance the budget and provide services and make sure that we give people paychecks and things of that nature, so the budget policies are our core values.

we take just as much heart and soul when we think about them and draft them and come up with them, as i am sure you guys do when you develop a budget, so i just want to say that this is a very big day for us. one of our chartered duties is to advise the mayor and the board of supervisors, and we also have programming for youth, and this year, we also had a youth to a town hall, where we engage young people and taught them about the process, as well as getting recommendations on priorities. this way, it was a really good learning experience. we heard from people in city hall. we were in our meeting room, 416, and it was a really good thing. so many of our priorities may sound similar to you. they are based on the work we

have done throughout the year. you will hear about muni and about juvenile hall, summer jobs, things of that nature, and, yes, a lot of the things are things that you guys brought to the board, and we also worked on them, so i wanted to give you some stats, which out of the 10 resolutions, five have had action from the board, and two have had other action. seven out of 10 resolutions, that is pretty good. so we understand that the city also has to make some tough decisions with respect to the budget, especially facing a deficit of $120 million next year and with the situation we are facing with the governor and mayor lee. the city in a vulnerable situation. young people are very vulnerable, even without all of the other budget things going

on, and so we ask that you as members of the board of supervisors, when any of them touch your heart, and you want to bring them to the board of supervisors and really championed that, we would like to see that you do, because we want to -- and really champion that, and we would like to see you do that because we want to. i would turn this over, and then we will go to our priorities. -- i will turn this over. president chiu: before you speak, i want to say thank you. to hearing about the budget priorities that we adopt, this was a hearing item that i requested all along with several of my colleagues in large part because we have under our city charter in power the use the commission under our city

charter -- because we have, under our city charter, empowered our youth commission. it is important to get your feedback. we thank you for putting to get your priorities, and we look forward to the presentation. -- we thank you for putting together your priorities. chairman chu: i want to appreciate one person who has come to listen. sorry, supervisor cohen? supervisor cohen: thank you, madam chair. supervisor, always good to see you. i also want to thank me -- the youth commission. the plans and programs,

advocating for the free muni for youth. i, unfortunate, have to step out, but i want to go on record with a firming my support for you -- i, unfortunately, have to step out. good job, mario. ok. i am done. chairman chu: thank you, supervisor. >> thank you for your acknowledgment. the priorities. my name is -- i am buys chair of the commission and am also a senior at balboa high school. i will attend harvard university in the fall. i am appointed by supervisor john avalos. i just wanted to mention s supervisor -- as supervisor scott wi