played means, you know, where people play you, and, you know, then you sit there and you say, wow, really, i thought they were my friends, you know. and i could remember when you all laughed. you said you all get out there and walk for us, and we going to take care of you. so now i am 63 years old. i'm still strong. but i had to leave because i couldn't do four or five buildings a day. you know what i'm saying. that's hard work, honey. when i started, i started here, at this city hall, with diane feinstein. that was the mayor when i started work. i shined and buffed floors every day. i'm still able to do that, but i knew that my health was going to suffer if i kept that up. you all please help us out. don't leave us unattended. we know everybody. you know the bank, it's always a game. we know that. but i learned something from j. z. he said you can't knock the

hustle if you're not helping nobody. thank you. >> supervisor avalos: thank you very much. next speaker please. >> my name's steve bristow, a business agent with 1021, born in 1949, a little bit older than the last speaker. i'm a married man which means i get an allowance. the other day i parked in front of starbucks, ran in to get my coffee, in there not more than three minutes, i came out, there was a citation on my vehicle for parking. the second thing that occurred to me was, when i opened it up, my god, this is a stiff price to pay for a cup of coffee. being on allowance, i had to go back and plead with the spouse to try to find money to pay for the ticket. the consequences of it is i'm not going to park in front of

starbucks without a bag of quarters anymore, ever again. there is a consequence to that. there's none for the banks right now, absolutely non-, unless people go after them for what they have done. and what they have done 800 -- is it trillion? 800 million to the world, and they're fined a total of what, 20 or 30 billion altogether, it's just not right. there are no consequences. san francisco needs to take a lead in this. thank you. >> supervisor avalos: thank you very much. any other member of the public who would like to comment? and seeing none, we can actually close public comment. i want to thank members of the public for being here, and sharing their concerns. i do believe that this it hearing is really addressing a real issue, a real problem. and i appreciated comments from

supervisor -- former supervisor chris daly, that there have been choices the city makes about where the city puts its resources, and trying to recover money, and makes a lot of sense that where we see a large amount of real fraud and manipulation, the banks, that we actually do our work, our effort, and fulfill our obligations to workers, taxpayers, and the public to recover any losses. and i want to encourage that from our city financial officers, and our city attorney, and i hope to see that come together in the next -- very short period of time. let's see. i would actually like to request that we continue this item to the call of the chair. and also want to encourage support from perhaps the budget

analyst, mr. rose, if there's a scope of work that you might be able to help us with in terms of an analyzing how we might pursue understanding what losses have been to the city, your office might provide extra help to our financial officers in the city, and what ways that we might be able to have any additional recovery as well. that's something that you can provide some help with? >> harvey rose: mr. chair, members of the committee, we would certainly be happy to prepare a scope and submit it to you for approval, absolutely. >> supervisor avalos: how long do you think that would take? >> harvey rose: supervisor, could we defer saying how long it would take at this point, until we take a look at our workload and see when we can do this? >> supervisor avalos: i think that's okay but everyone else -- doesn't make sense that you --

>> harvey rose: it would be before budget, supervisor. >> supervisor avalos: thank you. i'm just joking anyways. okay. so colleagues can we continue this item? >> chair farrell: supervisor mar. >> supervisor mar: i'm supportive of continuing this conversation. i think there was a disparity between ace and others, are saying the hundreds of millions of dollars of losses from bank fraud versus what our department reps are saying about what the losses are given the fixed rate versus variable rate loans and various financial holdings that the city has. so i want to see from the budget our independent budget and legislative analyst kind of what their numbers look like. i think that would have been helpful for today. i also wanted to say that i am also frustrated by the city attorney's response of the wait and see approach. i don't really know what that means. i'd like more specifics on what communications there have been with the other cities from

richmond, to san mateo county and the various other cities and counties. and ideas about, as some from the public testimony said, we can take stronger leadership from our city to recover every single penny as people said. i'm looking forward as it comes back to us that we have stronger numbers to look at, but also that we take a more aggressive approach as our city attorney and our city looks at how we can recover money, especially as we go into the budget season. thank you to supervisor avalos and ace and sciu for bringing this forward as well. >> chair farrell: thank you, supervisor. with that we have a motion to continue this to the call of the chair. can we do that without opposition? so moved. >> supervisor avalos: thank you, colleagues. >> chair farrell: all right, mr. clerk, can you call item 2. >> 2. ordinance appropriating $38,689,454 in the department of public health, including $4,314,849 of general fund

reserves, $8,410,605 of the city reserves for state revenue loss, and $2,600,000 from community mental health services; surplus hospital revenues of $6,504,000 in general hospital, $12,560,000 of laguna honda hospital revenues, and $4,300,000 of laguna honda hospital reserve for debt service (senate bill 1128) revenues are recognized, as well as expenditure reductions of $7,389,546 and additional expenditures of $35,070,000 at san francisco general hospital, and $11,009,000 at laguna honda hospital. >> chair farrell: thank you very much, mr. clerk. we have greg wagner from the chief financial officer from public health to present. >> thank you very much, mr. chair. gregg wagner cfo department of public health.

we are here today to request a supplemental appropriation based on our current year deficit for the department of public health. as you all know, we were here last week, and discussed in some depth the history behind our financial challenges, and some of the issues that we have been working with. so i won't revisit all of that. but i'm happy to discuss it further, if you would like. so we'll go through very briefly where we are on overview of the request to end the budget and legislative analyst recommendation. just as context, we have, in the department of public health, a 1.67 billion dollar annual operating budget. of that budget, about $1.2 billion is revenue brought in by the department through patient

revenues, grants, other funding sources, and the remainder is general fund. our current year general fund deficit is $31.2 million. this is an updated projection, as also discussed last week, compared to the controller's six month report. the major causes of the deficit for the department are several. we have a significant loss revenue. we had about $16.2 million budgeted, assuming we would get an enhanced mental health reimbursement through a program pending with the federal government for several years. that was, once again, delayed. so we have a revenue deficit in our budget. we also have weakness in our patient revenues, primarily due to the transition of seniors and persons with disabilities from a

fee-for-service reimbursement model to a managed care reimbursement. the impact of that is about $19 million. and then of course at the same time we have our historical structural problem, which is the difference between our budgeted and actual expenditures, primarily on salaries. that amount has grown, and we have not been able to keep pace with our revenues to make up the difference. just a brief update on where we are, the number in the controller's six month financial report was 45.9 million. that was the projected deficit. we have been working since the first quarter financial report to try to bring this number down. i can assure you the entire department is very focused on this number it, and i'm trying to bring down the impact of the

general fund, partially through those efforts, and partially through some revisions and our projections. that number is down to about 31.2 million, which we still recognize as is a very large number but i want to assure you that we have been working hard to try to make it smaller. >> chair farrell: a few questions. so the deficit from general hospital on the revenue side, does in a incorporate the mental health -- program? >> the mental health reimbursement actually shows up in the second from the bottom on the mental health line, which is about 11.6 million. that's partially offset by some favorable patient operating revenues. in the san francisco general hospital, that revenue deficit is actually due to -- we had budgeted revenues from another

transfer program. those revenues didn't come in. so it shows a deficit, but that revenue deficit is offset by an expenditure savings. we didn't have to make a transfer to get those revenues. so if you net that out -- i know this is convoluted -- >> chair farrell: the point being if you in netted that out then the surplus -- the expend tier deficit is greater than shown here. >> that's correct. that's correct. >> chair farrell: and then you're talking 31.2 versus 41.8 highlighted below. >> exactly. so the 45.9 million dollar number in the controller's six month report that ties to the controller's six month report are based on our projections for the six month report. we essentially base those on five months worth of actual data. and since that time, in the few

months since we've been able to revise those projections down to about 31.2. the biggest causes of that change since the the six month report are on the next slide. the largest item is on salary and benefit spending. that's from a couple of things. the hospitals have both been very focused on trying to control their costs. but secondarily, we've had our -- when we project out our benefits, based on our last couple of months of actuals, those are coming in at a lower level so we're able to revise that down somewhat. and then -- >> chair farrell: sorry. again, forgive me if i'm dense but we have a -- the supplemental in front of us is for a much greater number. is that correct? >> yes. so just to be clear -- so there are two issues here. there's the general fund

deficit, which is the impact that we have on the general fund bottom line, and then there's the amount that needs to be appropriated, in terms of expenditures. so part of our supplemental appropriation is appropriating revenues from within the department. so those revenues that we're appropriating don't impact the bottom line for the general fund. so we're appropriating, through the supplemental, about 40 -- let's see, 46.1 million in total, that's the total of appropriating general fund reserve, of appropriating state reserve, appropriating revenues in excess of budget, and reappropriating expenditures. so the total appropriation authority that we need is greater than the actual general fund draw that we're asking for. >> chair farrell: okay. so the supplemental's not changing then. >> the supplementa supplementall

changing. the supplemental in front of you reflects the revised number since the six month report. >> chair farrell: okay. thank you. >> so just to go through those numbers, on slide eight, you've got a summary of what's in the supplemental appropriation request. that includes a draw of 4.3 million from the general fund reserve, and $8.4 million from the city reserve for state losses. so both of those pots of money are effectively general fund dollars that had been appropriated to reserves that we would be drawing. the remainder of the sources for the supplemental are revenues in san francisco general hospital, and laguna honda hospital. in the past, we've historically had our revenues come in

somewhat overbudget and used those to cover our expenditure side. we're doing that partially, but not fully this year. in addition to those revenues, we are deappropriating and reappropriating expenditure savings in the general fund to help cover the transfers to the hospitals. and so that bottom line and the number that you see in the legislation in front of you is $46.1 million, including the deappropriation and reappropriation from general fund. i do want to highlight a couple of issues that are out there, potential revenues that are out there, that could come in positively towards the end of the year. we have a couple of major medi-cal prior year settlements that are outstanding. those are audits that reconcile our payments to what we should have been paid.

we believe that we have some potential good news to come from those audits, based on our preliminary data from the state. but the timing of those payments is uncertain and we've actually been waiting for several years for those to come through. they tell us that soon it's conceivable that those could come in before the end of the fiscal year. if so, that would reduce the amount of general fund that we need to draw, we could return those dollars to the general fund to be used for balancing in the budget year. the other item that's out there is a program designed to enhance our reimbursement for the losses that we've taken under the transition of the seniors and persons with disabilities, to managed care. so if that program again goes through, we expect that it will at some point, but it's unclear whether it will be in the current year or in the budget year, or after.

there is potentially some significant revenue upside in those projections. so i'm reporting this to you just because i want you to be aware that there are some potential items of good news on the horizon, that in the nine month report or by year end could reduce the draw on the general fund that we're asking to make in the supplemental appropriation. and if we do receive any of that news, we'll obviously report it to you, and to the controller's office to adjust the draw. >> chair farrell: supervisor wiener. >> supervisor wiener: thank you. thank you for the presentation. just two questions. first of all, in terms of the -- what you call the good news, if we potentially get the say 10 million in medi-cal reimbursement that we hadn't necessarily anticipated, what would be the mechanism by which that would be returned to the general fund? >> so basically, if it we have

any revenue beyond what's required to get us through year end, at the year end, in the year-end close process, the controller will adjust downward the transfer from the general fund into the hospitals. so each year, the general fund is kind of on the margin that comes in and fills the gap. if we can make that gap smaller, they'll just give us less general fund at the end of the year. and that will fall back into the pot of general fund that's available for appropriation through the budget process. >> supervisor wiener: for any use. >> exactly. >> supervisor wiener: presumably had this 10 million let's say come in last week your supplemental, you would be reduced that you're requesting would have been reduced by 10 million. >> that's correct. >> supervisor wiener: and then in terms of the sources for the supplemental, just to be clear -- a bunch of this money

is really internal dph money that we're allocating, right? >> that's correct. so of the $38.7 million of total revenue, all except about $13 million of that is internal dph revenue in excess of budget. >> supervisor wiener: right. so the true give to the department is really from the two reserve funds. that money could have been used for a number of different things. and -- but we're being asked to use leverage for dph. >> that's correct. had that money not -- if that money is not used from the reserves, it would fall to the city -- out of balance anticipated oat theend of the y. >> supervisor wiener: that's about 12.7 million and change. >> i want to make it clear to the committee that we take it seriously, the fact that we're asking for this money. we don't take it lightly at all

and we understand the preciousness of those dollars. >> supervisor wiener: i just want to say that this is sometimes -- and this happened last week. we have a supplemental where the department comes in and they've spent money that they weren't supposed to spend and then we're asked to make up the the difference. this is a very different situation. the department, in addition to being by far the largest department, and one where you can't always predict what the the financial -- you don't have complete control over your budget for a variety of reasons, relating to the way healthcare is delivered. this is a structural problem that we've known about for a long time. it came up in last year's budget process. so this is not in any way a surprise. and -- what was i going to say? and it's something where we really i think kicked the can

down the road. so i think it's appropriate to resolve the issue now. i guess the question i have, in terms of at the beginning you broke down what the causes were, of the need for the supplemental, and in terms of the actual recurring structural imbalance, within the department, do you have -- can you let us know how that's projected to play out in coming years? and i'm hoping that we can deal with that in the two year budget that we're about to adopt. >> yeah, absolutely. the total value of the structural problem at this point is probably right in the neighborhood, if you look at next year, compared to the current year, and evaluate the projected change in cost, it's about $45 million, is the size

of the total problem based on the size of our current operations. so as you point out, we're looking very hard at how we can address this problem over time, including in the budget that you'll be seeing before you in the next couple of months. and the health commission, as part of its budget-planning process, has identified this as one of our largest priorities. so we've got the instruction from them to work on the solutions. part of the challenge in the past, of course, has been that in order to solve this in the budget, it requires either appropriation of revenue, or shifting expenditures from other places within the budget. so we've been working closely with the mayor's office and the controller's office to discuss this issue. we'll be focusing on it in the budget hearings for our

department on our two year budget. but it is our intent to develop a multi-year plan, to bring this structural deficit down so that we don't have to keep coming back before this committee, year after year, asking for a supplemental appropriation of this size. >> supervisor wiener: in terms of the numbers, you indicated about -- i think you said 45 or 46 million. on page -- early in the report, i guess page 4 of the presentation, it states that the current deficit of 341.2 -- 31.2 million is comprised of 16.2 million of delayed approval of reimbursement program. is that a recurring issue, or is that one time? >> that's a one-time revenue. and so there's a portion of it that's ongoing that we do expect to receive. this is retroactive payment for -- that we anticipated for prior years as a catch-up.

so that the bulk of that would be a one-time solution. >> supervisor wiener: and then the second bullet, revenue weakness relating to the transition of seniors and persons with disabilities to manage care reimbursement, 19 million, is that recurring? >> that's a recurring revenue. >> supervisor wiener: so that 19 million is part of the ongoing structural deficit? >> yeah. that is part of the deficit. and i think there are a couple of things -- the way i think about our structural deficit is there are two issues. there's the amount that we're spending overbudget, and that's about $45 million per year, that we're spending over our budget. and then there's how much of that $45 million can we cover r revenues in excess of budget. so the 19 million that we are not receiving as we transition to managed care means that instead of us being able to cover additional portion of that

revenue and perhaps use that revenue to fix it in the budget, we're here asking you for general fund. >> supervisor wiener: of that 45 -- i'm talking after this fiscal year, the ongoing structural defers, 45 million -- deficit, 45 million, how much do you anticipate needing all of that to be filled from the general fund? or are there -- i assume there are other revenues that are going to cover a portion of that. so my fundamental question is the structural deficit, where the general fund may need to step in, year after year after year, what do you anticipate that number to be? >> so a couple of answers to that question. in the five year financial plan for the city, there's a projection that about $38 million of that structural problem is an ongoing issue for the general fund. however, as you suggest, the amount of that, that is required from the general fund, depends on how well we can do in our

revenues. so for example, if we are able to get state and federal approval for enhanced payments for our managed care program, we can offset that amount. if we're able to be successful under the transition to healthcare reform in retaining medi-cal and formerly uninsured individuals, who will now have a -- source with them we can bring that money down. so part of our financial strategy for the coming years is going to be to try to make the investments that we need to ensure that we can get there, and also to have a strategy for making sure that we're successful in the formulas for things like our reimbursements under medi-cal and under healthcare reform. so i think the answer is we're not sure exactly how much of that we will be able to eat into but the solution will likely

require a combination of general fund and revenue that we can appropriate through the -- >> supervisor wiener: do you have a sense if terms of timetable when we'll know how successful we are in accessing those other sources of support that would reduce our general fund? is that need to the general fund to fill in the gap? >> some will be short-term. for example, we could look, depending on what comes in through this $19 million igt source and when it comes in, that could be something that helps offset our problem next fiscal year. so that soon. some of the larger questions are going to be unanswered in terms of the actual impact, until probably fiscal year 1516, which is the first full year that federal healthcare reform will be in place, and will start to be able to see some of our performance. but what we will have is in the budget that comes before you for

the next two fiscal years, we'll have our revenue projections in place, and a proposal for how much of this we wish to fund in each of the two years. >> supervisor wiener: as we budget fiscal year by fiscal year, as we end up overappropriating because some time in that fiscal year you end up getting some of those additional revenues, things go maybe better than we anticipate at the end of the fiscal year that money -- we would get money back into the general fund? >> absolutely. >> supervisor wiener: thank you. >> chair farrell: supervisor mar. >> supervisor mar: thank you, mr. wagner, for the great presentation. i wanted to ask you about the good news in the last slide. could you explain a little more the 19 million that may come into our general fund through the igt program for seniors and people with disabilities transitioning. >> sure. so under the medi-cal waiver, the state's medicaid waiver, there was