these are department specific costs but also the department of public health's share of wage increases, benefit increases, as well as inflationary cost increases. the department of public health is our biggest general fund department and it's also our biggest city department, and so it seems reasonable to assume that the department of public health should be allocated a share of general fund growth, so if we were to allocate their share of general fund growth, which in the first year would be 85 million dollars, we would still see shortfalls in the department of public health after allocating that new revenue. so, the plan is proposing that the department -- so -- >> ms. howard, supervisor breed again. >> sorry, so from my understanding, there's a proposed 50 million dollar

budget deficit from the department of public health, how does this proposed increase impact that because i'm assuming this is something based on what's been communicated to me around the department of public health, this is a consistent issue and so when we look at potential growth, are we looking at the fact that we're also absorbing the deficit or we will maybe need to absorb the deficit of the department? >> that's an excellent question, so included in that first number on the page, the 141.9 million dollars is our best projection of what that supplemental will cost the city next year, so that number includes the operating shortfall that they're experiencing this dwraoer and how that affects next year, so it's reflected here on the -- in the shortfall projection.

>> so, which is why there's still -- >> 57 million dollar shortfall to start with. >> thank you. >> i think what's important to think about the health department, the department will be before you in two weeks to talk about this in more depth along with issues related to the supplemental, is that the projection that underlies this assumes very significant costs associated with opening a new san francisco general hospital, and so i think to the degree that -- i think there are a number of solutions which probably look quite similar to our citywide solution but the department of public health needs to work towards including how can we manage those one-time costs associated with moving into a new general hospital, so in any case,

excuse me, since we've allocated to the department their share of citywide costs, we also allocated to them their share of citywide solutions, so you can see the impact of those rolling forward. if the city is able to accomplish significant savings in our labor cost, if the city is able to accomplish unreduced inflationary costs in our non-profit contracts, other contracts and other non-personnel costs, those savings help the department of public health, but even with that, the department has a projected shortfall and we'll be needing to work with them carefully to figure out how do they address this and how does the city balance the needs of the health department with all of the other departments.

so, this is just a high level again reminder of how these strategies fit together and i think the next slide actually is for me is helpful because i think it demonstrates that we're trying to put together a balanced approach to addressing what is a structural imbalance in our budget, so this just shows you the sort of share of what each solution's share is towards reducing that shortfall, so you can see ongoing departmental savings initiatives, about a quarter of the overall approach, employee benefits, employee salary and benefit costs, about 20%, revenue, about 18%, and then all these other smaller pieces.

i'm happy to take any questions. i think today before you, there's no action item. my understanding is that the item for action will be coming back before you at the same time as the capital plan and the it plan, and certainly i'm happy to take any feedback or recommendations that you would have for me about this plan. the other thing i would just mention is that this plan also gives you an early sense of the kinds of solutions that will be necessary to balance the next two year budge so to the degree that you would like to give me feedback about that, that would be helpful as well. >> thank you, ms. howard, supervisor breed? >> thank you, what are we talking about in terms of the amount of money we're looking at if we were to absorb the increase in hotel tax revenue into the general fund?

>> i don't know if i have that number off the top of my head. i do have it at my table. can i get it for you in a moment? >> yes, thank you. >> okay, colleagues? any other questions at this time? supervisor mar? >> thank you, ms. howard, i was going to ask you, i know that we're going to talk about set-asides in a moment, so the five year plan assumes the reauthorization of proposition h or the public education enrichment fund and the children's fund, is that right? >> that's correct, supervisor. we certainly discussed what made the most sense to assume, but given the significant interest and the importance of both of those funds, we assumed

that both of them would be reauthorized and to the degree that they were -- if they were not to be reauthorized, that would change the projection. >> and given how voters of overwhelmingly supported the children's fund and prop h over the years, hopefully that's a good assumption. there is an amount of money that as the trigger has been pulled for the public education enrichment funds that i think is over 100 million and i know a couple of my colleagues said that amount should be paid back to the school district, but can you explain how prop h operates and if it's recuperates, we don't have to pay that back to the school district. >> so, the way the charter works is if proposition h were

not renewed or reauthorized, then the city would owe -- would be required to repay all of the amounts that it had deferred over the last several years and would have three years in which to do that. if it is renewed, then that's not required. >> do you know off the top of your head how much that is? >> i do not, but it is i believe in the neighborhood of 70 million dollars. >> colleagues, any other questions at this time, supervisor wiener? >> thank you, ms. howard, just one question. on slide 15 where it talks about fiscal strategies, additional tax fees and other revenues, is that -- does that include the 55 million for the vls? >> it includes an amount that is equal to that, whether or not it would be the vls, i

don't know, but it does assume that effective in the 15-16 fiscal year, there would be significant additional revenue of about 55 million dollars. >> okay, and so if you look at the bulk of the increase and the growth in the years, a majority of that is that 55 million, whether it's vls or something else? >> that's correct. >> and so my understanding of the state legislation that senator leno was thankfully able to get there will you, it would be a general tax that goes into the general fund, right? >> that's right, so if the measure were to be -- if a measure related to the vlf would be placed on the ballot in november of 14, it would be available to the city in the subsequent year and would be a general revenue to the city unless it were a measure

accompanied it to dedicate it in some way. >> right, so i know -- obviously it's a general tax and it cannot be a legally dedicated tax, but i know that there are many, myself included, and i imagine a majority of san franciscans based on polling i've seen who wlao*ef that the vlf revenue should be dedicated exclusively to transit and road resurfacing, and in fact i think st voters lacked confidence in that, i think it would almost certainly fail, so i think it's important for all of us to keep in mind that if we look at this projected possible increase, that 55 million of that, if that's the vlf and if we have either the discipline or an accompanying set-aside, then that 55 million may be dedicated to transit and road resurfacing. >> i think it's an excellent

point, supervisor. the -- as i think some of you know, the city's capital plan this year includes some recommendations related to additional funding for streets and transit and our overall transportation system which are included, those costs are include ined the five-year financial plan outlook, and the plan -- the capital plan does make recommendations about matching a vlf to those kinds of uses. >> and as you know, the prop b resurfacing money trails off, we're going to be in trouble if we don't have something replacing it. the voters i think accepted our argument that prop b would be a bridge and we would then have time to find more sustainable funding so we can keep up the road resurfacing and i think it's important that we don't

slip back into our negligent past ways of underfunding roads, i think the same is true of muni when you look at the level of deferred maintenance and our consistent underfunding of transit in the city and i do have concerns with the vlf funding if we put it on the ballot and if it passes, there could be a budget free-for-all, including some worthy policy objectives would try to take a piece of that when it should be dedicated to transit and road resurfacing and i think there's a lot of us that would have trouble supporting it if we didn't have that confidence. >> thank you for stating that. i know you as well as supervisor avalos and supervisor chu have been -- and will be working with the mayor closely on the transportation task force and my hope is that through that process, there

will be an opportunity to discuss these kinds of issues in a more robust way. >> i look forward to that. i think we've had an ongoing discussion recently about transit money and how they're to be used. >> colleagues, any other questions? supervisor breed? >> so, are we going the get the number today or probably later? >> i'll get it for you when i get back to my little desk over there. >> okay, so i just wanted to in regards to -- it would help me to understand how i would make any recommendations if i knew what that amount potentially is and what the impacts have been over the course of the past few years. my recommendation is that we look at increasing the allocation to the arts community and what that would mean in terms of numbers, i'm not certain, but that's

something i would like to see if at all possible for the current fiscal year and to not continue to defer in the next two fiscal years based on the plan. thank you. >> okay, colleagues, any other questions? seeing none, thank you, ms. howard. i would like to open this up to the members of the public. i have one speaker card by debbie vermin. >> good afternoon, supervisors, debbie ler m*in from the san francisco human services network. this five-year plan is to some degree divorced from discussion of our values and priorities in the sense that what we need is a plan for how san francisco will maintain sustainable health and human services for all of our residents including the most as a result -- vulnerable, there are two issues, one, there is no cpi

assumed for dpis cal year 13 mf 14 for non-profits and two, there is no reduced or cost of doing business increases as a balance strategy throughout this report. the assumption that there is no cpi to non-profits this coming year was made because it wasn't part of the last budget. that's a fantasy, we never had a conversation about this second fiscal year in the two year budget and non-profits are facing the same cost pressures the city is facing, health care costs and inability to give raises, the issues are all the same, we have said repeatedly, if we are part of the solution, then we want to be part of the problem, we need to be in this deficit, secondly, the assumption that there won't be any cost of doing business increases, it costs around 20%. years of double digit health care costs, no raises, the city keeps paying lip service to

this issue you tell us we're important, let's do something about it in good faith, let's have the conversation and not shut the door. >> any members of the public who wish to comment on item number 1? okay, seeing none, public comment is closed. colleagues, at this point, i would like to make a motion to continue this item to the call of the chair. >> second. >> okay, second, we can do that without opposition. so moved. >> mr. clerk, can you please call item number 2. >> item number 2 is a hearing of city's reserve and set aside policy for fiscal year 2013-2014 and fiscal year 2014-2015. >> thank you, mr. clerk, the colleagues called for this hearing to try to get a sense of what we're facing in this upcoming budget cycle, i thought this would be a good

topic to move forward and we have monique from the controller's office. >> mon naoek moody, deputy controller. so, what we'll be addressing this afternoon, members, is the various reserves within the general fund, the baselines and the set asides that are required by charter or other legislation within san francisco. so, i'll speak to the general reserve of general fund money, the rainy day reserve which was passed by the charter, in the charter a number of years ago, the budget stabilization reserve which is an additional reserve that was passed by ordinance in a financial policy by the board of supervisors in order to augment the rainy day reserve because it's very unlikely and difficult to withdraw from the rainy day reserve and then we have a

couple of incentive reserves, both a citywide one and one specific to the recreation and park department, and then on the expenditure side, there are a number of voter approved expenditure requirements, index to either general fund revenues or other tax revenues or specific service or staffing requirements. with respect to the city's general reserve, it was the reserve policy was passed by the board in april of 2010, and that was subsequent to a charter amendment that we refer to as budget reform that also brought us the two year budget financial policies as well as additional reserves, and the purpose of this general fund reserve is to absorb a year-end revenue or expenditure problems that occur that are not known

when the budget is originally passed by the mayor and the board of supervisors, those dollars if used would need to be appropriated by the mayor and the board of supervisors in order to spend them. the increases -- the policy requires increases to the general reserve in the current year 12-13, the level that is required by our policy is 1% of general fund revenues equivalent to approximately 32 million dollars, and that amount will grow to 2% by fiscal year 16-17, and that has a dollar value of approximately 74 million dollars. and if the extent to which the general reserve is used during the year, then the amount that is used is then appropriated in the next fiscal year to

replenish it. this requirement of allotting this reserve at these amounts may be suspended by the board of supervisors in any given year by a two-thirds vote. and this table shows you year by year how our general reserve will grow. >> sorry, supervisor avalos? >> just a question, not that i would want to do this, but how is it that we can make an ordinance for if you want to overturn an ordinance, you would require two-thirds majority with a new ordinance, it doesn't make sense to me, so if you want to suspend the reserve or the amount of money that goes into the reserve, you would need a two-thirds vote from the board of supervisors, couldn't you pass an ordinance saying the reserve would be different? >> that is a financial policy,

supervisor avalos, and the policies, the financial policies that are recommended by the controller need to be approved by a two-thirds vote. >> that's by charter? >> the charter specifies a process by which the city will adopt policies and it does specify in the charter that those policies need to be adopted by a two-thirds vote. >> i wanted to make sure we had a true backstop on that. >> yes, that's a good question. a couple of years ago, the 25 million dollar reserve, i started with the budget analyst office in 1996, and our general fund reserve at that time was 25 million dollars, so fast forward to fiscal year 2011, it was still 25 million dollars, and thinking that the budget grew by 400 % or more during that period of time, we still

had that level of reserve, it gives you an example of how important it is for us to be able to build our reserves, so during that period, it was .85%, less than 1% of our general revenue and as you see, it will grow to a total of 2% at approximately 76 million dollars over time, and these are projected numbers, assuming the kinds of growths that we've assumed in the five-year plan. so, now the rainy day reserve was approved by the charter. the rainy day reserve require us that we deposit to this reserve when our growth exceeds 5%, that's a lot of money in any given year and 5% of the growth over this value would go into the economic stabilization reserve and a quarter of it, 25% would go into a one-time

spending, the remainder could go into the city's general fund. so, it is a very difficult threshold because generally because property taxes are single largest revenue source even in the worst years in this past recession, our property tax, the worst it was, it was a little bit over flat, just a little bit of an increase, less than 1%, but because property taxes is our largest revenue, it's infrequent that our revenues in one year would be less than the actual amount received in the prior year. the budget may drop to 50% of what's left in the rainy day reserve but no more than the shortfall of general day revenue and additional withdrawal allowance to up to

25% of the reserve is -- can be done by the san francisco unified school district and it's based on an inflation adjusted per pupil revenue, so as ms. howard said earlier, we're not sure, we're assuming the school district will be able to draw from the rainy day reserve but they're getting a bump from the reserve from the state, but this particular formula is quite generous, and therefore, it's likely that they will still not be up to the level that's required by formula and they can withdraw, so they withdraw 25% of whatever's left each year so that amount gets smaller and smaller because we haven't been depositing into the reserve nor have we been with drawing over the next couple of years, it's like the school district will continue to withdraw until it's completed. >> supervisor mar?

>> thank you, the school district faces i think it's a march 15 deadline for may not renew notices or layoff notices for teachers and i'm wondering, when do you think we'll know for sure whether the school district will be able to draw from the rainy day reserve? >> we are aware of that march 15th deadline and we are in discussions with the school district. we're going on the assumption now that the school district will be able to withdraw from the reserve and if not, then we will make that determination as soon as we know. it will depend on exactly how much money they get from the state. >> will it be before march 15th that that determination's made. >> we will do our best estimate so they are aware before those pink slips have to go out. >> so, where do we have in terms of -- what's our balance

in the rainy day reserve now? i was looking, maybe i missed it. >> we haven't gotten to it yet, it is on a subsequent page. the budget stabilization reserve is our side by side reserve that was created dlu the financial policies through the board of supervisors and it was crafted so that we can continue to put away money in a reserve and be able to withdraw it a little more flexibly than a rainy day reserve allows, we cannot make changes to the rin nee day reserve without going to voters whereas this is locally sponsored and with two-thirds vote, we can make changes to the rules of this particular reserve. again, it augments the rainy day reserve, and its's a designated, mitigates some negative effects of down-turns or service requirements, 75 -- so, the deposit rules are that 75% of certain revenues

including property transfer taxes above the average of the last five years are deposited into this reserve, so if we have a very, very high year of property transfer tax, you hear the controller tell you year after year that these are volatile, we can't dountbacker count on them continuing, so 75% of that growth would be deposited into the stabilization reserve. withdrawals from the reserve are triggered in similar way as the rainy day reserve but they're spread over a three year horizon, we can withdraw up to one-third for each one of three consecutive years and the policy could be suspended for any given year by a two-thirds vote of the board, so here is the chart that you were looking for, supervisor farrell, in each of the years, we show what the balance is in the

stabilization reserve, so you see that in the last three years, we have accumulated approximately 95 million dollars is projected, and then you can also see the rainy day reserve, the amounts that are left, so what is left in the rainy day reserve from the economic stabilization fund is the 23 million, so the school district can withdraw 25% of this number. >> and based upon our five-year plan and so forth, is there any projection that we will add to the rainy day reserve? >> no. >> alright. >> so, as i said earlier, we have two incentive reserves and these are codified in the administrative code that up to 25% of departments year-end savings can be carried forward and to use the funding, the cost savings strategies are other one-time expenses, and in this instance, the controller

can suspend the use of this reserve for these purposes if we determine na the city's financial condition cannot support na. over the last number of years, the mayor's office has opted to use this reserve for a number of one-time uses including it and capital. and by year-end, we're anticipating about 19 million dollars will be left in this particular reserve to be used for next fiscal year one-time purposes. the recreation and park department is lucky enough to have an administrative code section, rather it's in the charter that allows them any excess revenue or expenditure savings can be carried forward within their own budget, again, to be used on one-time and we're anticipating about 7 million will remain in that particular reserve for recreation an