see 74.3 million dollars which is robust. >> [speaker not understood] will give you an update on this in a moev. but the number today is even stronger than what it was at budget instruction time because we've now closed our book for the end of the year. so, this is just a reminder about kind of looking ahead. we've got, again, two-year fixed budgets for enterprise departments, the controller's office will be reporting to you about whether there is a need to reopen their budgets. my expectation is that that's very unlikely. it's also significant planning year for the city so you'll be seeing here in this committee a five-year ict plan on information and communications technology, a ten-year capital plan, and then a five-year financial plan which is a -- will be a combination report, a both joint report and five-year financial plan.

you'll also remember that we have closed labor contracts in the first year of this budget and they do open up again in the second year. we also, as part of the election in november, had some changes that affect our outlook due to proposition c [speaker not understood] passing. so, overall this number will not be new to you. we have projected shortfall in the first year of $129 million and in the second year $263 million. largely driven by expenditures outpacing revenue growth. >> and ms. howard, just within that context with the expenditure growth, within that can you tell us a little bit more about what, what those line items are underneath that that contribute greatly to those numbers? >> sure. i think i'll answer that in the next two slides. and if i don't get it, then we can talk a little bit more about it. >> got it. >> so, the next slide just provides a high level of our

revenue picture. so, in our -- in the assumptions that i've made in our budget deficit projection, we're assuming we will want to have a state reserve so that costs us money those years. we assume that some of the one-time sources that we may have used to balance the budget last year are not available and then we have revenue growth in the general fund. and i have assumed that there will be about $50 million of revenue growth and -- in the first year and 128 million in the second year. on the expenditure side, what you can see is that our costs are growing largely because of personnel related costs. so, this is slide 9. the first line, so, $8.8 million of costs greater than what we -- what you adopted in the budget last year.

but recall that the budget we adopted for the second year already had $90 million of wage and benefit growth for our existing employees on the general fund. so, essentially what that means is that in 13-14 it will cost us $100 million to have the same employees that we have this year and the subsequent year it will cost another $100 million. so, $200 million in growth in wage and benefits. and that's largely driven by our benefit costs, approximately two-thirds on benefits less than wage. below this you'll see baseline funding increases. so, this is the effective prop h being fully funded. as we always project in our deficit number, and then a new baseline being created, the health and trust fund which cost $20 million. * in the first year and growing to 22.8 million in the second year.

lots of one time solutions. to the extent we didn't fully fund our capital plan, it investment, that's showing up in the second year, and changes to our reserves, and other departmental changes. so, that's where we are at the high level end uses >> quick question. you said two third benefit. mostly health care in that or are there other significant kind of health benefits is this >> it's [speaker not understood] pension. you'll recall that we saw some losses in our pension fund compared to the rates of return that we expected. and that we need to -- the way that we manage that is we smooth the rates over five-year period. and, so, the numbers that you're seeing here reflect increasing refund pension through the fiscal '15. following that's correct you'll see what's in the five-year plan, the cost to the city will go down on pensions. but our trends are on health care continue to be really

significant. >> okay. >> this side basically just recaps what we just talked about. just to highlight the assumptionses that under line these projections, we're assuming -- we're assuming in these projections adopted staffing levels. we're not assuming major changes to operations or lots of new staffing added. we have updated salary and benefit costs and the projections do reflect the november election. and then we're also assuming a state budget reserve which we didn't include in the fiscal '14 budget that was adopted last year and full funding of the city's capital plan. the second year it's important to remember that in the second year of the budget that we're talking about now, all of the costs of street resurfacing goes back onto the city's capital plan and that's more than $40 million a year because

the geo bond would have been fully spended. as you can see, we have significant revenue growth in both years that we would not be eligible for a rainy day withdrawal. in terms of remaining uncertainties, the economy of course is always -- there's some uncertainty, though, our revenues appear to be relatively healthy. benefit cost growth is a significant issue for us as well as our unfunded retiree health care liability which, as you'll recall, is $4.4 billion. our labor contracts, as i mentioned, will be open the second year of the budget. this budget -- the projection before you assumes no wage increase in the second year of the budget, but we will be negotiating with the majority of our labor unions not police and fire in the second year. we also, as you all have heard

and i think this will continue to be an issue that comes up at this committee and in other places, the effects of federal health care reform are really uncertain. the way that the department receives revenue is changing dramatically. the people who will be covered, it's a whole new expanded pool of people. they have choices about where to -- where to consume health care. do he they want to be a dph client, do they want to go somewhere else. there is a lot of uncertainty around that. the governor has made proposals about potentially shifting those responsibilities entirely to the counties which would have significant and -- significant costs and operational issues if that were to happen. finally, this projection does not make any assumptions about any current year supplemental appropriations. so, based on the actions of the board thus far, we have the

domestic violence supplemental which is about $1.9 million in annualized costs and the supplemental that we discussed today, the state supplemental. together those would add approximately $7.7 million to the shortfall. people always want to know where have we been and how do the targets or the instructions that the mayor have given compare in prior years. this table lays that out. you'll recall that 2009-10 was a really banner year for us in terms of shortfalls. we projected a $5 76 million deficit. i think it's notable, to me it's notable about this table is that this is the -- this year with $129 million shortfall is really the best budget outlook we've had since fiscal 2007 and 2008. and it's -- we have climbed out of a significant hole. the mayor in december gave

instructions to departments, asking them to reduce their ongoing general fund support by 3% over the next two years. so, 1-1/2% in each year. it's important to remember that 1-1/2% is only about $19 million. so, department solutionseses will always be a part of how the city balances its budget, but it certainly will not be the only way that we balance our budget. these are just more policy oriented instructions focusing on core functions, minimizing surface impacts. one of the things we're really interested in looking at is how are departments utilizing data to find opportunities for greater efficiency and to democrat on stray the effectiveness of their programs. and then of course to engage with their stakeholders. the last slide is the calendar of key dates and next steps. i think the ones that are notable for you are the capital plan, the it plan and the five-year financial plan.

the deputy controller will talk to you momentarily about the six-month support which has some behring -- bearing on this deficit projection. the first time we'll produce deficit number will be on march 1st with the five-year financial plan. happy to answer any questions you may have. >> thank you, ms. howard. colleagues, any questions at this time? okay. much appreciated. now to our six-month update.

>> good afternoon, mr. chairman, members of the committee. monique zamuda, deputy controller. i will be speaking from the powerpoint. i've also distributed another copy of the full report to the members of the committee and to the clerk's office. and if anybody from the public is needing copies of the report, they're available right here.

as we do every year, we advise the mayor and the board of supervisors of the status of the current year budget and this helps inform both the mayor's office, additional information regarding the balancing plan for next year and as well as the mayor and the board of supervisors for current year actions that may be required. in general, we are reporting that at the end of this fiscal year with the assumptions given in the report, we will end the year with a surplus of $38.3 million. largely because of city-wide revenue growth that has improved over the original budget projections. you may recall, supervisors, at the end of the budget process in june before you approved the budget, we did see some significant gains in city tax revenue. and that city tax revenue carried forward into the current year.

so, we are p projecting [speaker not understood]. beyond that the dollars we need to provide toward our baseline contributions, the results of the revenue shortages and increases and expenditure deficits and surpluses in departments and actions of the board of supervisors to impact -- to appropriate some of these funds will also impact this projection. so, the table on this page gives you a snapshot of both the starting balance in the current year and what the assumptions are over the course of the year resulting in an estimated fund balance of $38.3 million. we started the year with a balance of 220 million.

104 million of that was used to balance this year's budget. as you recall in a two-year budget, we were appropriating for two fiscal years. this year and next year. so, 104 million was appropriated in year one. and then if you see under column d another 103 million was appropriated for year two. so, the mayor's office policy which was adopted by the board, [speaker not understood] take that starting balance and allocate it for each of the two fiscal years. >> does that include where we allocated -- when we send the budget stabilization reserve, [speaker not understood] fund balance? >> that's right. so, current year -- >> [speaker not understood]. >> right. so, we have $116 million available. much of that is going to be counted for next fiscal year.

$72 million of current revenue. and in the next slide we'll show you exactly what sources that 72 million comes from. baseline contributions, that is, we have to pay $9.5 million to get to our base lines. department of operations, if you take all of the revenue, gains and losses, all the expenditures, deficits and surpluses, we end up with a net of almost $19 million short. the pending supplementals, both approved and pending before the board of supervisors amount to 6.4 million to the general fund. and then the use of the general re serve of 32.2 million. we are assuming you will need to use all of that reserve in order to balance the budget. and then the deposits to reserves, because of our increases to revenue, amount to 11 million. so, that brings us to a

projected fund balance estimate of 174 million. as i mentioned before, 103 million of that was already committed to the year two. and the replenishment of the general re serve that we will be using this year needs to be incorporated in next year's budget, leaving us with a projected surplus of $38 million. so, the next slide provides you with a summary of our major tax revenue in the city and it shows you where the bulk of that surplus 72 million come from. and that is property transfer taxes, about $21 million over the budget as we are taking a look at the cash we've received thus far and estimating how much additional property tax revenue we will get for the reminder of the year.

our second-largest is -- yes. >> if we can go back to the previous slide, the projected surplus, 38.3 million, how does that relate to the 129 million that was set as our projected shortfall for the next fiscal year? >> i think kate can respond to that question either now or at the end. >> at the end. >> i'll be happy to answer it now, supervisor. kate howard. so, the $38 million reflected in the controller's six-month report essentially is good news to the city's deficit number. the way that i would interpret it is that as we did last year, we've spread our fund balance over two years. so, this would bring down the overall deficit by about $19 million in each year. that's offset l, however, by the supplementals that we talked about.

so, a little to the good here about $19 million each year, a little to the bad, $8 million to the bad on supplementals that we talked about so far. so, i would say it's modest good news in each year. >> thank you. >> and to be clear, ms. howard, the supplementals we've discussed thus far, not others that may come down the pike this year? >> that's correct. >> and we have assumed in our projection of 38 million that you will need the general re serve because of the various deficits that we have and the number of departments that i'll go over with you in just a moment. okay, so both property taxes and realignment taxes coming in from the state are -- both are projected to have an additional 14 million over what we have budgeted. and i think that the addition

that you see are payroll and business registration tax is estimated to be 7.7 million over budget and that does not yet assume any increases related to the change to the gross receipts taxes next year. so, this is good news. our economy continues to grow at a steady pace. this past week the controller's office hosted a meeting of economists and other economic experts throughout the state to take a look at our projections for next year. and we will be assuming in the five-year financial plan that our economy particularly in these areas of property tax, sales tax, hotel tax will continue to be strong. aggregate discretionary revenues, a is up set of the revenues within the general fund and we have baseline requirements as identified in the charter.

as you know, mta receives a significant amount of money from the general fund and with the additional good news, we will be depositing another $5.2 million to the mta in this year. additionally the library baseline will receive an additional 1.3 million, and the public education fund baseline will receive another 200,000. so, this is above and beyond the amount that was budgeted for each of these three areas. and then above and beyond that, mta receives a, an amount that's similar to the parking tax and, so, they will receive another 2.7 million. so, mta together will be receiving 7.9 million. it's the 5.2 for the baseline and the 2.7 in the parking tax. so, the total amounts that we need to deposit into these various base lines amount to $9-1/2 million in the current year.

so, in part of the exercise and analysis we do for the six-month market to take a look at all of the major departments in detail in terms of how much revenue they're bringing in as compared to their budget, and then also the expenditures for each of those departments. and the public health in the current year is projecting and we agree with this projection of a major problem, both in their revenue shortfalls and in their expenses. the public health department hospitals will likely need about $35 million of additional general fund subsidy beyond what's been budgeted and a couple of the public health positions as well are running a deficit on their expense side. so, we are estimating at this six-month mark that the health

department is out of balance by about $46 million. about 15 to 20 million of that represents prior years settlements that were anticipate today come in for the health department that have not yet come in and it's been a number of years. and, so, at this juncture the controller's office is assuming that those dollars will not come in. they represent retroactive payments that the state has never made to the department and, therefore, we are estimating that money will not come in. if it does, that will be -- that will represent some improvements to this financial situation. the mayor's office and the controller's office have met with the health department over a couple instances the last couple of weeks to take a look at what does health care reform

do to their revenue estimates as well as their additional expenses. are there any programs that can be suspended or reduced, are there efficiencies that might be able to be made to reduce their costs. and then also to see whether there's any additional revenue that can be borne. so, the department, as they stand right now, are spending more than their appropriation and, so, we'll need a decision by the mayor and the board as to whether or not additional general funds should be allocated to the department. and i do estimate that within the next couple of months we'll know a little bit more about the state revenue and there should be a correction appropriation to this department. >> so, ms. zamuda, we'll be calling for a hearing on that next week at the board and we'll do that as soon as possible. could you shed a little bit more light, though, on the 45 million deficit in terms of is it head count?

is it other expenses? and if you don't have that information, i don't want to put you on the spot here. >> i do. if you take a look at the full report, supervisors, on page 15, we devote about a page and a half to this particular problem. the health department is broken down into three separate funds. san francisco general has its own fund, laguna honda has its own fund and the rest of the department is part of the general fund. and, so, this is how we have to account for both our revenue examine expenses. so, the public health part of the budget has a deficit on the revenue side of 15.6 million. and that represents the money that had been expected over the last three years associated with they call medicaid pm amendment. there was an application to the state to the federal government to increase reimbursement for

mental health. and although the federal government agreed to that increase going forward, it has never paid the amount that's retroactive to the time of application. so, that is a significant part of the general fund public health deficit. they do have some savings of 4.7 million on the expense side, but they have this big deficit on the revenue amounting to a net shortfall in public health of 10.8 million. laguna honda hospital has additional revenue because the state has recently increased the per diem rates that they pay for hospital stays. clearly 90, 95% of the patients at laguna honda are medicaid eligible, therefore the state pays a significant portion of that care. and those rates have been increased. so, that will represent an increase to the revenue to the hospital.

however, laguna honda is over spending in salaries and in pharmaceuticals. and, so, their net conditions, they will have 5.8 million of a surplus. so, what we will do is we will reduce their general fund subsidy by 5.8 million and move that money into other places in the department to have a deficit. and then lastly, san francisco general hospital is estimating a big shortfall of $24 million. they are also over spending by 16.8 million. that is where their huge deficit lies, 42.8 million. so, taken together all three of these funds amount to the estimated deficit of 45.9 million. the sheriff's department has a bit of a problem on the revenue

side, but then they also have increased about $3-1/2 million over on the overtime. and some of the other expenses. they have some saving in their regular salaries, but we're estimating their net shortfall is about 1.9 million. and although for some departments that might have a small variance, the mayor's office generally works with the departments to reduce their costs. we don't believe that the sheriff's department at this late date will be able to reduce their costs enough in order to balance this budget within this department. so, you will likely see a supplemental appropriation. the mayor's office and the controller will continue to work with the sheriff's department to see if we can get these numbers down. before you see a supplemental, but it is likely that they will need increased general fund subsidy. * >> could you explain again what the rising costs can be attributed to? the census is down, i believe. >> the census continues to be

down and the sheriff's department has more deputies than -- they have not had an academy class for sometime. they have -- the staff that have to be assigned to various shifts various posts, and they are running overtime to considerably over budget. >> hard to staff those posts? >> they're almost entire deficit is within their personnel. >> supervisor mar. >> yeah, i just had a question whether the state level criminal realignment had any impact in the failure of the state to adequately compensate the county for its expenses?

>> there is a shortfall of 400,000 due to the realignment, that those individual were not transferred to the county jail, but that's only 400,000 out of the $1.9 million deficit. the next department is the city attorney. the city attorney estimates the amount of money they will collect from the various departments in terms of recoveries and sometimes what occurs what has been happening in the last few years is that the city attorney's work lies more on the general fund side than on the enterprise departments and therefore they are miss alignsed in terms of how much money they will recover from departments. the city attorney will continue to take a look at the staffing for the general