brief introduction to the budget? if we can, right after your brief introduction, we might go right into the revenue letter. after that, we will come back for a quick overview on redevelopment agency, given that the overview will have bits and pieces of the reconfiguration within. >> thank you. happy to be with you this morning to talk about and provide an overview to you of our first ever two year budget. so, if i could have the overhead, victor? i would briefly walk through what is happening in fiscal 12, 13, and 14, talked a bit about what is driving the growth.

share some highlights of our budget with you. and then talk a bit about how we balance. so, at the highest level, our fiscal 1213 budget is for the whole city $7 billion, of which $3.5 billion is in the general fund. the number of employees in the city is willing to 26,878. we came to agreement with our labor unions and from the general pattern in the first year, the furlough day that had previously been agreed to expired. that was worth about 4.62% of wage. that did contribute significantly to our costs going up.

this side is showing you buy service area how we are proposing to spend the city's money this year. you can see a significant amount in public transportation and commerce. public health, 19%. in fiscal 14, the budget grows slightly from the proposed budget to 7.5 $5 billion, with a general fund up to -- up to $3.6 billion. we offer a couple of other hundred positions growing into 50,000. in the second year, the general pattern was 1.75% increase. reflecting changes in the employee participation only

health care. that would increase annual access to 3% in the second year. this slide shows you, again, what is happening by service area in the proposed budget. not significantly different than the prior period i have been asked a number of times about why our budget is growing. i think that there are a few main drivers i would want to point out to you. the first, as i mentioned a moment ago, is that employee wage costs are increasing due to expiration of furlough days. as well as the increasing costs of our health and pension benefits. secondly, the city is absorbing the entire budget of the redevelopment agency into our own budget. you will see that the majority of the increase, as well as some

of the increase in the mayor's budget office, is due to that absorption of that function. we are also increasing the costs related to capital services, related to the implementation of federal health care reform, and other growth in the enterprise apartment. notably the puc and airport. in general, the city's proposed two year budget has service reductions, which i think you are aware of. it also includes public safety hiring for police and fire. the police department in one class with the fire department in each year, we include the quota for nonprofit organizations in this city, as well as the $95 million in general fund capital for the

next few years. i would like to point out that our reserve position is strong and improving in this budget. our general reserve, which has historically been $25 million, annually rose to 32 million in this budget. in the first year of the budget we have included a state reserve and in the second year we have not included that allowance. finally, the budget stabilization reserve, similar to the rainy day reserve in terms of when it is available, is also growing. up to $45 million in the first year. now, to provide a brief overview to you about how we balance the city's budget this year and next. as you will recall, the joint report projected $170 million a shortfall.

subsequently, there were some additional costs that were not assumed. things like a loss of certain public health revenues, which increased the deficit that we were balancing around. on the solution side, this first chart shows you the revenue and fund balance solutions we have included. a little over 140 million in each year. we have split the current year fund balance equally over the next few years. we have assumed that the growth in the hotel path accrued to the general fund. we have also been fortunate in advocacy of the state level related to realignment, receiving an increased allocation from public safety realignment.

finally, we have some one time revenues included in the budget. $90 million for the first year contributed to balancing the budget. on the city-wide savings side, we have a number of items that will seem familiar to you. they are similar solutions to those prepared in the plan, including controlling the benefit costs, which are a reflection of the negotiations that we did. the only thing we are funding is the nonprofit contractors. we are not fully funding the transfer to the school district. we have also reduced the state

reserve. as you will recall, we have a budget incentive savings reserve when the department faces funds in the current year. beguin be used for one time costs going forward. finally, we have debt restructuring and i.t. spending. those solutions in the first year are about another 90 million. in the second year, about 206 million. on the department will side -- departmental side, the majority of these are regimented with additional revenue. primarily metical belated. there are some small savings proposals with a significant amount of revenue related to the community options.

the juvenile probation department has additional revenue. rec and park also have its revenue -- has revenue to keep it little jail clothes. that will generate savings. then there is a variety of other changes in the departments. those of departmental specific solutions -- those departmental specific solutions are included in this budget, along with funding and restorations. you can see the costs to the right. we have included additional funding for the bayview and central market redevelopment activities in those areas.

we have fully restored introductions in the first year. we are moving forward with the mayor is investing neighborhoods approach as well as funding the reviving loan fund. the budget also includes funding for the annual cost of the program at the human services agency. it implode -- it employs low- income individuals. there's also additional revenue being received on the alignment side, making the investment services primarily for individuals returning from prison. we are also including funding for jobs readiness in the budget. other investments in the budget are spread across many departments, like the fire academy and funding for the --

for certain programs in immigrant affairs and other important programs. so, this is just finally a high level summary of how we balance. you can see a split between revenues and expenditure savings. more on the revenue side. i am happy to answer any questions that you have. i would like to say thank you to my staff, who has a work hard over the last month. thank you to the budget analyst for their hard work on this as well. i look forward to working with you over the next couple of

weeks. supervisor chu: could you please quickly touch upon the [unintelligible] is one of the items before us, items number 10. >> certainly, the bisser is comprised of funds saved by the department, which allows the department to retain those funds and they can be spent on certain onetime costs. primarily capital i.t. or equipment. i believe that you have before you a letter that describes the uses. primarily, but you will see is that their funding capital expenditures. >> thank you very much. supervisor chu: jig thank you -- supervisor chu: thank you very

much. if i can ask, before the comptroller's office turns to the revenue before us, items 8 and 9, prop jay, if you could speak quickly to that, i believe that they are all continuing. >> madam chair, did you want us to present it at this time? supervisor avalos: -- supervisor chu: perhaps just now, since we are doing the introduction to the budget. waxed so, what is before the committee is the resolution incurring that it is less costly to provide selective services.

all of the requests are for services that have been contacted after many years. there are two items. for this particular service, we have found that there is a particular service saving with a rush to the general fund. there are a number of requests for a number of departments. for the board of supervisors' budget analysts and the voter ballots distribution, the city administrator office security shop the convention facility management within security services at the department of

technology mainframe system support. security services at the human security services agency and that the sheriff's department. in each of these, we have identified the savings as outlined in the resolution. none of these instances have the contracts resulted in service editions. again, many of these have been contracted out for more than one decade. i am available to answer any specific questions the committee may have. supervisor chu: items 8 and 9, these are continuing, they are not new prop j's? >> that is correct. supervisor chu: ok, thank you. let's turn to our controller.

>> hello, supervisors. on the reasonable moments in the assumptions proposed to the board each year, it is available on our website. there are copies, four members of the public who are interested. generally speaking, i will walk you quickly through the report. we find the revenue assumptions in the mayor's proposed budget to be reasonable. for the first time, you have a two year budget before you. we find that that framework is balanced on one time sources. these are unexpected challenges as you work through this process. two notable factors that we will

be monitoring through this cycle, the first is the pace of economic recovery. assumed in the budget before you in a way that we can talk about in more detail, lastly the wild card, again, for local governments in california has to do with state and budget uncertainties. one out of every $5 in the budget, given the ones at other levels of government. that is the most uncertainty in the budget before you. so, first, local tax revenue projections assume healthy growth during this period. a slower, $109 million in the second year. this is largely driven by our

economic output and the effect on tax revenues, which we will continue to monitor and issue updates through this cycle. related specifically to state and federal budget uncertainty, there are unknown reductions contained in the second year. >> just a question? >> supervisor? >>supervisor avalos: in the past we have not taken out of the reserve very much for state and federal issues.

in terms of the past and assessing what it is looking like -- >> our office in the mayor's office are reviewing the budget from friday. very little information is available at this point. we will continue to spend one week reviewing the details of it as information gets pushed out. a lot of the details in terms of how that impacts san francisco and clients, most of those are client driven. a lot of those details are in the trailer bills. as this week rose a long and into next week, there will be greater clarity, but we do not have much more than we did two weeks ago. >> at the capitol this is based

on past revenue as well? does that create any uncertainty about the size of reserve? >> there is very little hinged in the facebook -- in the budget before you. there is no assumption. supervisor avalos: state ballot measures? >> i apologize. the single largest bloc remains the governor an alternative revenue. even when we have clarity regarding what has been adopted by the state for the year ahead, there will be continued uncertainty through the end of november. supervisor avalos: we are

looking at -- we do not have the details of the current capital budget yet, but we have another variable from possible revenue passed in a member. >> it is very hard to guess. we have $50 million adopted. ultimately, the city withdrew the majority of those funds. in the current year we have budget cuts adopted last summer. a lot of these reductions would have had a severe impact on the

city and county. some of it may be resolved in the year ahead. it is very difficult to guess what the future might hold, given the wild card of a revenue measure on the ballot, given their recent history of having cuts adopted and blocked. it really is anyone's guess. i will say that the second year did not contain state reserve, of course. almost certainly we will have a reduction in year two. there will be choices in the second year, you will be reviewing it again next year.

do you want to add money to that reserve in the second year? do you want to manage cuts as they come? if the city's finances are not otherwise able to absorb them? supervisor avalos: do we have that choice about the first year as well? we have had larger state reserves. it just needs to be considered overall. let's given the magnitude of the state budget cuts in terms of our local health and welfare services, set aside it will increase flexibility. supervisor chu: thank you. i know that we had a state reserved in the past, and i think that as miss rosenfeld spoke to, it is difficult to

find the subsidies, for child care a loan i think that hsa has worked with different providers to see what the impact would be. so, if the state budget came to be as it was when they did that analysis, we intend to recover that. that does not include in home potential service cuts, amongst other things. i think that we should think about that issue. child care is obviously part of it. i do not know that it is adequate, but i do not know that we have a better number, either. sueprvisor kim: can you go over what we were down this year from the state measured reserves?

>> certainly. let me grab the report. so, of the $50 million allocated in the current year, just over $10 million has been allocated by the board for other services. including health programs, restored for the current year. it was a major source of funding for the department of public health appropriation issue with

state cuts that were approved several weeks ago. those were last lead to draw from ryan white. all told, after those, there was a balance available that was soon closed into the general fund as of the nine month report and has been real appropriated, largely to fund the new 15 million. sueprvisor kim: thank you. >> flipping to the general fund, quickly, the revenues are expected to improve by $280 million. about $130 million in the second year. this is being driven heavily by

large growth taxes. transfer, payroll, and registration fees. each of which is growing in each of which is now above a pre- recession level. for transfer tax in particular, we have set a record in the current fiscal year for collection and are expecting the real-estate market to run hot in this city for the first year, setting a new record in the current -- in the fiscal year. that is a largely high-end commercial property. the budget again does assume continued economic growth and recovery during this period of time. this slide shows you the growth rates in the last projection. you can see very healthy growth

rates for the majority of our taxes, payroll, sales, hotel, assumed in both years of the budget, part of it covering the recession from the last couple of years, the pressing lee's beyond long-term norms. property taxes, we assumed, crethad growth above meaningful levels, with lower growth rates on other parts taxes. you can see that we are expecting the level of property transfer taxes to be modestly higher than the future. so, we do not see that overheated level continuing, approximately 10% of of that piece in the second year budget. supervisor chu: supervisor avalos? supervisor avalos: i thought

that we had seen a dip from the six month report to the nine month report. >> so, these are -- we actually, at the nine month mark, we expected growth related to property taxes in the fiscal year. this is really driven by a handful of factors. number one, prop. 13 does not contain inflation factors where in any year the property tax rolls rose by 2%. for the last several years, inflation has been under 2%. for the coming two years, we will have our usual 2% automatic adjustment for the currently assessed properties in the city.