the primary treatment modality for medical management. over time we've seen increases in utilization of medications along with the introduction of some novel therapeutic treatments. we expect that this will continue over time as well. recently claims have been increasing by about 3% annually. we are hoping to substantially increase the number of pharmacy options available to our patients. this would not only improve access to pharmacies for these people, but it also may improve adherence if for some reason they're not currently getting a prescription filled, it will be more convenient for them and hopefully this will continue. * if you have any questions i'd be happy to answer them. >> thank you very much. why don't we go to the budget analyst report. >> madam chair, supervisor avalos, as shown on page 5 of our report, table 4, the

proposed not to exceed amount of 18.7 million includes a 12% contingency of over $2 million which was calculated using the total actual as well as proposed contract expenditures of 16,700,000, the six year term from july 1st, 2008, to june 30, 2014. so, that includes 9.4 million which has already been expended on the contract, and clearly that should not be included in the contingency calculation. a 12% contingency should be calculated on the proposed expenditures for fiscal year 12-13 and 13-14 of 7,2 92,0 48, not on the prior actual expenditures. so, that would result in a

contingency amount of 8,075,092 rather than [speaker not understood]. that contingency they calculated would equal 27.5% of the proposed 12-13 -- 12-13 and 13-14 expenditures. a 12% contingency would result in a total reduction of a million 128,94 2. so, our recommendation, supervisors, on page 7 of our report, we recommend that you amendedth proposed resolution to reduce the ton exceed contract amount by a million,128,0 92 [speaker not understood] to a total not to exceed amount of 17.6 million. that you also amend the proposed resolution to require any expenditures under the third amendment of the contract between dph and med impact that exceed 10% of the third amendment's board committeevv of 7 92,4 28 be submitted to the health commission for approval and that you approve the proposed ordinance as amended.

>> thank you. and, mr. rose, with regards to the second recommendation to amend the resolution to require that any expenditures in the third amendment that exceed 10% go back to the health commission for approval, is this current policy with the health commission? >> that is consistent with their current policy, that is correct, madam chair, supervisor avalos. >> thank you very much. to the department, those two recommendations, wanted to hear from you. one sounds like it is a policy that is already dictated by the health commission, your department. second one we've actually seen a previous item like this at the department of health that came before on contingency for prospective expenses versus things that we've already done. we took that recommendation previously. any comments on these two recommendations? >> we concur with the first recommendation. on the second one we bring every contract to the health commission prior to coming to the board. so, we actually met that requirement of the second recommendation.

>> we have somewhat of a disagreement with dph on this in our audit that we recently completed on professional services contracts. we actually did recommend that they limit the contingency to 10% so it was consistent with health commission policy. and we thought that in this instance it was important for them, since there's changes in the pharmacy benefit level, that having them come back at 10% to give health commission more information on the changes in the pharmacy benefit level would be consistent with health commission policy. >> the department disagrees with the policy that's in place? >> well, the contracts that all go to the commission do actually have the 12% in it. and the commission did approve the contract -- every contract prior to coming to the board with a 12% contingency. on the report we did concur on the recommendation that we review the contingency policy with the health commission. and once the board hearing on that report is completed we'll go to commission and we'll

review all these policies. if necessary, we can certainly give feedback to the board on the status of the health commission's review of those policies. >> so, if i understand it, the budget analyst is saying a contingency of 10% because that was sort of an audit recommendation, the health department's current policy is a contingency of 12%. is the disagreement the 2%? >> that's correct. >> and currently in terms of the approval at your commission, they have understood that the department has the ability to expend up to a certain level with a 12% contingency, and you will be planning to go back to your commission to review any sort of contingency policies at the moment at 12%? >> correct. >> okay, thank you. why don't we go to public comment on this item. are there members of the public who wish to speak on item number 3? seeing none, public policy -- sorry. seeing none, public comment is closed. and then on the item, then,

what i would recommend is that we accept the budget analyst's first recommendation to reduce the contingency level for prospective expenses as opposed to things that have already passed. and on item number 2 or on the recommendation number 2, what i might suggest perhaps is that we ask that -- require the expenditures under the third amendment to the contract between dph and med impact, that basically exceeds the health commission's current policy or existing policy, basically the department has to go back for approval at the health commission if it exceeds the policy that is in place. so, i want it make sure that our -- what we put in place in our legislation is consistent with what you are doing at the commission. and, so, i might suggest that amendment. supervisor avalos? >> just to be clear, right now what i'm hearing is dph policy is 12% and the -- under the audit recommendation from the

budget analyst, it would be 10%? >> right. >> and you're proposing that to be -- allowed to have the 12% as what is the policy for dph and if ever exceeded there will be additional review by the dph commission? >> what i'm hearing from the budget analyst is that their audit recommend istion a 10% contingency. the public health commission itself has not acted to change its own policies or contingency policies to a 10% from a 12% level yet. but that the department plans to go back and review that policy with the health commission. and, so, what i would think is probably a better thing to do is allow for the same kind of language so that if the department actually exceeds what the health policies or the health commission's policy is on contingency, then they have to go back for approval. if the health department or the health commission policy should change to 10 considertion, then it should be at 10% level. so, i want to make sure we allow for the health commission to exercise sort of their jurisdiction over the health department's policy on contingency before we sort of

say a different level. >> madam chair and supervisor avalos, we concur with what the chair just stated. that seems reasonable. >> okay, thank you. do we have that motion? >> moved. >> we have a motion to accept the budget analyst's first recommendation and then to amend the budget analyst's second recommendation so that it is consistent with the department of public health's policy in terms of contingency levels, and to authorize the clerk to be able to make these amendments to the legislation. and so we've got that amendment. and to approve the underlying item as amended. so, we've got that motion. we'll do that without objection. thank you. >> i just want to let the department know i will need to work with them to get a new signature on [speaker not understood]. >> thank you. the department will work to make sure that our clerk gets that information as quickly as possible so that we don't have any delays, that would be great. thank you. item 4, please. >> item number 4, resolution approving amendment number one to contract no. sfmta-2013-08

with new flyer of america, incorporated to purchase 17 additional 40-foot low floor diesel hybrid buses through the cooperative purchasing venture established by the state of minnesota materials management division for an additional amount of $11,7 80,00 5, and a total contract amount of $48,6 69,369. >> thank you very much. on this item we have [speaker not understood] from mta. >> good morning. my name is [speaker not understood], sfmta. when we went before this committee in october last month october, we asked for your authorization to approve a contract with new flyer to purchase 35 hybrid buses.

even though we have enough funds at that time, we did not have enough local matching funds to complete the project. recently we were able to identify additional local funds to match the federal funds available for this project. that's why we're coming back to you, to amend the contract to increase the number of buses to be purchased by 17 buses. >> thank you. why don't we go to the budget analyst report on this item. >> madam chair, members of the committee, as shown in table 1 that's on page 3 of our report, the budget for the proposed amended contract for the 62 new buses with new flyer would be 48.7 million dollars. and as shown in table 2, which is on page 4 of our report, if

you include the associated costs of 6.7 million, the total estimated project cost would be 55.4 million. we do recommend that you approve this resolution. >> thank you, mr. rose. why don't we open this item up for public comment. are there members of the public who wish to speak on item number 4? seeing none, public comment is closed. >> motion to approve. with recommendation. >> we have a motion to send the item forward with recommendation and we'll do that without objection. thank you. item 5, please. >> item number 5, resolution authorizing the extension of a lease of 79,950 square feet of office space at 1380 howard street for use by the department of public health community behavioral health services division for a term of an additional five years from january 1st, 2013 through december 31st, 2017 at a monthly rate of $118,259.38 for the first six months of the

extended term and then $131,5 84.38 per month for the remainder of the extended term. >> thank you. would you call item number 6 as well? >> item number 6, resolution retroactively authorizing the extension of a lease of real property at 760 harrison street for the department of public health with the cort family living trust for a term of an additional five years from july 1, 2012 to june 30, 2017 at a monthly rate of $25,350. >> thank you. we have john update. -- updike. >> thank you. john updike, [speaker not understood]. i'll start with 1380 howard which is a request for five-year extension for a high-rise. the building has 79,550 square feet and is owned by the cort family trust. we have several programs administered from this location

so it is primarily an office function. those uses include community oriented primary care, business and contracts office, their information technology management system. [speaker not understood] client relations. there is a client interaction area of the billion which involves a pharmacy, addiction treatment, behavioral health, and substance abuse prevention. so, we've been leasing portions of this site since 1988 fairly recently increased the site footprint to include the whole building. the current rent has been flat, unchanged since 2006. the rent for the first six months will be $17.25 per square foot per year as the base rate. that's a 1.4% increase from the current rent. the rent increases to $19.75 square foot per year after that first six month year period. that sounds like a lot, but keep in mind this current rate

that we're in today has been fixed for the last five years. so, when we have an adjustment to market rate, we expect a jump at that point. and here it is. this term of 19.75 a square foot per year is fixed for the remainder 4-1/2 years of this second and final five-year option period. to give you a sense of the comparables of the marketplace, if we can go to the overhead. and this information really applies to both of the items before you i'll speak to. but you see the range on the low end, we have -- we're providing highlighted in yellow for you is the full cost to the city. so, that's comparable, then, to the numbers i'm going to speak to here. a low of $29 per square foot, and then we have several in the 40s to 48.50 a square foot. so, those are the comparable rentals. again, it's refleck i have of

the discussions we've had previously, particularly for properties in south of market, that their rates are moving very fast. so, this particular instance, in addition to the base rent we're responsible for costs that are outlined in the budget analyst's report accurately on page 4, and that brings our total cost of occupancy to $27.24 per square foot per year over the course of the next calendar year. so, again, in comparison to the market, we believe that's less than fair market rent. if you like, i'll give the presentation on 760 harrison. >> that would be great. >> all right. so, this particular request is retroactive acceptance of the second of two five-year options for renewal. this property is located between third and fourth on harrison. i have a map to get you oriented. this is dph's south of market

mental health services clinic that occupies the whole 13,000 square feet of the property. this particular lease rate would be $23.40 a square foot per year. and in addition to that base rate, we would pay janitorial and utility services. so, the cost for the fiscal year 12-13 are shown in the budget analyst's report in this case on page 3. and they total, then, $26.89 a square foot per year. again, considerably under those comparables that i showed you earlier. this, again, reflects what we believe is a negotiated rate that's below fair market rent. there was a considerable back and forth between the ownership and the city on this particular item, thus the retroactivity. the rate is like the previous item, fixed for the five-year term at that rate. the other increases will be for what's called pass throughs to essentially costs related to the facilities management,

taxes, insurance that might go up per year, percentage share of that is passed on to the city. but the base rate remains the same for the five-year term. happy to answer any questions you might have about either one of these. >> thank you very much. why don't we go to the budget analyst's report for these two items. >> madam chair, on item 5 the real estate department has a reported to us that rent for the last 54 months of 141,5 84 is equivalent to 95% of the prevailing market rate rentals. and as shown in table 3 on page 4 of our report, the rent and operating expenses total 2,177,043, that will be paid from general fund monies included in the dph's 12-13 and 13-14 budgets as previously approved by the board of supervisors. we recommend that you do approve that resolution.

and regarding item 6, we point out on page 3 of our report that that -- the monthly base rent of 25,350 for all five years of the extension is actually the same as the current monthly rent. and as shown in table 2 on page 3 of our report, the first year turning rent operating costs of 349,516, that's displayed as i say in table 2. we recommend that you approve the resolution. >> thank you, mr. rose. why don't we go to public comment on these two items. are there members of the public who wish to speak on item number 5 or item number 6? seeing none, public comment is closed. >> motion to approve both [speaker not understood]. >> we have a motion for item 5 and item 6 with recommendation and we'll do that without objection. thank you very much. >> item 7.

>> item 7, resolution finding the proposed rehabilitation of the 20th street hiss pork buildings on or near 20th street, east of illinois street, fiscally feasible pursuant to administrative code chapter 29 and endorsing the term sheet between orton development, inc. and the san francisco port commission. >> thank you. we have [speaker not understood] on this item. wait one second so he can switch over the microphones. >> good morning, kathleen [speaker not understood], planning and development group. and i'm here today to talk to you about what we believe is an incredibly exciting project and opportunity to bring back to life some of the oldest buildings in san francisco. quickly, these are at pier 70

located in the city at pier 70, which is south of mission bay, east of potrero hill. and then what we're talking about specifically at pier 70 is the historic court that's shown in red in the locator map. we're here to ask for today are two specific actions which help begin the process and get your concurrence that we're on the right track. we're requesting endorsement of the term sheet with orton development for the rehab of these buildings. and then the finding of fiscal feasibility so we can begin environmental review. very similar to what's done on the arena a week or two ago. so you understand the [speaker not understood], we've draft and had negotiated at this point is five pages, conceptual meeting of the minds how the business terms of what the project will be. by getting your, port commission concurrence, your concurrence, we know we're on the right track when we come

back later in 2013 with a stack of documents that will be the final lease and project approval. at this point we're asking for that endorsement and the direction to go forward with c-e-q-a review. this came out of the port did a three-year long master planning process working with the community for pier 70 as a whole, the 70 acres. this is why we have shipping pier going back 150 years. we have extraordinary historic buildings and barricaded off waterfront. our goals were to create parks and we also have a lot of, just asphalt. this is where the intel yard is now that will be moving. our goals were to create parks, save these buildings, bring the shore lines back to use and sustain ship repair. after we did the planning, we decided how do we move forward and started off with several different implementation efforts. we continue to work with our ship repair, crane [speaker not understood] circled in green is

included in the 28. and the 2012 park bonds. so, that project is moving forward as the city and funded and for the sponsor public project. the waterfront site, which is the area circled in black, is a major site for major new development. it's a chance for new buildings. here we did a competitive process and selected a master developer before the city. we will be coming forward in 2013 with plans for that site. and then the fourth initiative we undertook was what we call the 20th street historic buildings. the part circled in red where we went looking for the right use, the right developer to save these buildings. the buildings date back to 1885. they are extraordinary [speaker not understood] pictures to show you rather than tell you some of these. orton development is the partner we've brought forward. we chose them through a competitive process. they have extensive experience in doing just this, bringing

obsolete buildings back to life. their proposal met or exceeded our objectives in the rfp and we're excited to bring this project forward. let's walk through the buildings. this is the office building at 1 illinois and 20th street. next to that we have this extraordinary power house that actually has power running through it right now, and we need to figure out how did we do that. on that, we have another -- whats was the union iron office building built before the turn of the last century. and [speaker not understood] building. across the street we have the massive [speaker not understood] iron works machine shop, over 100,000 square feet. this is that stunning brick building we've seen on 20th street. behind that are these warehouses dating back, reusable. the goal here is identify particularly for these industrial buildings is they can bring them back to use for light industrial use. not shipbuilding as in past, but more the types of uses we

see in the dogpatch, in the american can, the makers and uses of today's boutique industrial. and again, a warehouse building from the world war ii era. our goals here are to bring these buildings to use, get them safe, keep them from falling down. and then we'll also be creating open space and jobs. we expect this business to employ 400 to 500 people. why do we think we can work -- we have a good project now and why this can come forward? this isn't the first time the port's been in contract with a project to save some of these buildings. this time i think we've fully got a contract and a possibility to go forward. the capital costs [speaker not understood] at 58 million is less. what we are carrying and the port's capital plan is 106 million for these projects. in our statement of the $2 billion of unfunded need. by moving forward, bringing a partner on, we take that back

off our ledger, bring it on the developer. with that cost us less because, one, we're not changing the buildings as much as we thought we would do. rather than adjusting these industrial buildings to new uses, we're using them for their historic uses. and secondly, this is what they do. the orton team comes forward, fix the buildings, know how to value engineer it. they're thinking seismic for the building machine shop, third to a half of what the port's engineering and cost estimates were because they dug in and did further investigations. [speaker not understood] odi has -- >> i'm actually pretty excited about the possibility of these buildings being restored. i have been looking at them for probably 20 years in san francisco. since i've been here, i go look at those buildings. they're amazing. what was originally $106

million the port estimate to $58 million. is there a change of usage in those two different estimates? is it more than just the engineering? how is that change in revenue [speaker not understood]? >> it's a different more value engineered lease hub. it's a setting for the industrial buildings. they're building them to a cold shell standard. so, the tenant that comes in and brings in their next use will have some build out. it will be an additional cost, but something the intenant would intend to build in, their customized uses. >> do we see that as realistic, we'll be able to attract or we'll be able to attract at thection ants that will be able to do other part of the work that needs to get done renovating these buildings and making them usable? >> that's my next point here. we've got strong market interest. there's a lot of users out there.

there really aren't this scale of light industrial spaces for -- it's the boutique manufacturing. it's the sf made. it's the kinds of uses that wanna be san francisco, want to be in dogpatch. we've heard from the orton team. i'll have eddie orton speak to you at the end of this. [speaker not understood]. this is being pro formaed at realistic [speaker not understood]. the next piece, we've structured this deal that orton has offered, willing to commit up to 14 million. also because of their credit, their ability and their experience, able to bring tax credit investor, equity investment which is a 20% of the project cost as another equity partner into this. and strong debt. so, because of that and the rent, we can draw the capital needed. it's managing the costs is

going to be the challenge here, but we think we have the skills and the partner to move forward. as i said, this is the term sheet. this is laying out the framework that we dive into next is really digging into all the costs. really working through the engineering. and when we're back here next year, we're going to know more on answering that and showing you exactly where the numbers are coming from and how we're going to verify and control the costs. and then the last piece i'm about to step to is the structure of the deal here. this is a partnership deal. the port gets no revenue from these buildings now. in fact, we are a liability. we have problems out there. we could possibly document the loss of capital we've had from metal theft. but we are not asking for a guaranteed rent from these buildings until 20 years out. so, because of that it puts the developer in a situation they can bring more debt into the project, lowering the average cost of capital because we can bring other people's money into funding and doing the project.

the key business terms is that odi will invest up to 14 million. the port is contributing a million and a half. that's funds that we have been carrying -- and we had budgeted in our capital budget because we were so concerned about these buildings, we had budgeted and funded a temporary shoring project that was designed to make sure that no one would die if the brick collapsed. instead of spending a million and a half to prop the buildings up, we're now contributing a million and a half to the long-term solution. so, we felt that had already done. we're also on a waiting list for a grant that would also help with that, hoping that comes through. it's a small amount. the structure -- >> i'm sorry, a grant to do what? >> to contribute to the seismic rehab from the california cultural -- >> that would be a contribution above and beyond the 1.5? >> it would be 258,000. we applied for that