>> kate howard, mayor's budget director. i have talked to several of you about the mayor's instructions previously, but let me walk you through an overview of those instructions and i'm happy to answer any questions that you may have. i'll plan on being as brief as possible. an overview of the general fund deficit for the next two years, i'll talk to you a little about what the specific instructions were and we can review a timeline that we'll all be experiencing over the next several months. you will remember that we balanced the city's budget just last june together for the coming two fiscal years. that was largely driven by revenue growth, smoothing our fund balance over two years to start from an even place, a

variety of departmental and city-wide solutionses including differing funding for our i-t capital and equipment investment. looking ahead, you'll remember that all of our two-year -- all of our budgetses this year are open. so, we have fixed two-year departments, the puc, the port, the mta, and the airport, and all of our other departments will also be open for the next two years. we'll also be negotiating new labor contracts with all of our bargaining units except for the police and firefighters, and we know that the economy as well as the state and federal government will likely continue to have an impact on how we balance our budget overall this year. this slide gives you a summary of what's changing since we balanced the budget last year,

and what's on the revenue and expenditure side. you'll see tax revenue improvement in both years, changes in our fund balance, and relatively significant changes on the outlook for the health department's revenues. on the expenditure side, the major change is full funding of the prop h set aside which is not pulling the prop h trigger which we did do in the second year of the adopted budget last year. so, the numbers here in front of you is the projection that our office has developed over the last several months working with departments. you can see first it's growing by about 63 million in the first year and 133 million in the second year. while uses grow at a faster pace than that than the sources are growing. those gaps create a shortfall

leaving us a projected $100.7 million in the first year and $118 million in the second year. >> was this when you sent out the budget instructions in december? i know next week we're going to have a sick month update. >> that's right. the numbers you're seeing today are ~ working projection at the time we issued the instructionses. those were issued on december 18th. as you correctly point out, the controller i believe will publishing their six-month report early next week and it will be reporting to you on the results of our current year performance. any under spending or better than expected revenue would generate year-end fund balance that that would -- which could be applied to the circle ~. so, like any projection, this

projection assumes a number of thing. i want to make those explicit to you so you know kind of what's included and what's not. the fiscal '15 budget is -- we have used as our base case the budget that was adopted and signed about -- adopted by this board and signed by the mayor back in august. that means staffing levels remain consistent. funding for capital equipment and i-t are what was adopted by the board and signed by the mayor. we have updated both salary and benefit costs to the best of our knowledge. however, we have not updated -- we haven't made any new projectionses about the results of the city's labor negotiations. because we're just beginning those conversations and those negotiations with our labor unions now. if seems premature to make an assumption about what the results of those will be. since revenues are growing, we won't be eligible for either a

rainy day, budget stabilization withdrawal. and as i mentioned, the major changes that have occurred since we balanced the budget are the health revenue changes which i'll show to you momentarily, funding of the coverage baseline, and smoothing our fund balance over the two years. so, a couple of charts that give you a little more detail on the specific numbers. so, this is our revenue outlook for the next two years. you can see the first line is showing you our revenue -- projection of general fund revenue growth. that's largely our local tax revenue. so, property tax, sales tax, business tax, hotel room tax, real property transfer tax among others. and you can see that that is a healthy revenue growth. as a rule of thumb, i think $100 million is -- that's good revenue growth and we're

exceeding that based on our current projection in both of the next two years. you can see we're smoothing our fund balance again over the next two years. we have slightly less than we previously budgeted available in the first year, but we have that as a starting source in the next year which makes it easier to balance the second year. [speaker not understood] one-time sources, one-time payments or litigation settlements where we might be paid a certain amount of money, those sorts of things. and then finally, the other significant change noted here are changes in our public health revenues. and the largest piece of that is bait r based on a [speaker not understood]. the current year the state is taking back about $17 million from the health department and we're projecting ~ next year

we'll double that which will be offset by positive news at the health department in other areas. so, those are the big pieces on the revenue side. this next slide just highlights for you at a high level what's happening with baseline set asides and our reserves. you can see as our revenues grow, we continue to feed our base lines. things like the children's fund, the library baseline, the open space fund, and certainly the largest line. you can also see at the bottom what we're projecting at this time as the balances that we will budget into our general re serve, our budget stabilization reserve, and our rainy day reserve in the next two years. >> sorry, those are additional funds going in? >> these are total balances that will be appropriated in those areas. so, i don't have the number off

the top of my head, but there's over $100 million, significantly over 100 million dollars in the stabilization reserve today. there will likely be an additional deposit into the budget stabilization reserve in the coming year. >> okay. >> ms. howard, can i ask through the chair, what's the percentage of our general re serve of our total budget? >> so, we have adopted financial policies. this board has adopted those policies which are aiming to grow the reserve to 2%. i believe not by this year but by the subsequent year going to a 1-1/2%, but i can confirm it and circle back with you. the next one is highlighting for you major changes on the city-wide cost side. clearly the largest impact from

a financial perspective is the cost of our salaries and fringe benefits growing about $100 million -- $100 million this year and next year the same staff that we have today. our capital budget growing by 26 million and then 36 million, city-wide order include things like the cost of power that the puc provide, cost of water, those sorts of things. i do want to delve a bit more into the specifics of our labor costs. this slide gives you some greater detail about what's happening both on the salary side as well as benefits. the first two lines are showing you the impact of additional positions that were added in the budget last year. the second line is showing you the impact prior year colas.

so, you will remember that this year in the current year the mass majority of employees are receive the equivalent of a 1.75% raise spread into three payments of 1%, 1%, and 1%. that annualizes to 3%. so, the gaff you're seeing 2% the second year. the impact is retirement and health and dental increases. these are fringe benefits. you can see more than $50 million next year just for those health and dental benefits and the retirement contributions. we are claiming to that final peak year on our retirement contributions and, so, you can see in 15-16 that number begins to decline. and, so, we will be seeing,

though the rates will continue to be high, we'll see gradually decreasing rates as we couped our losses from 2008 and 2009. other mentions of outcomes of our labor negotiations aren't reflected here. for rule of thumb, a 1% increase in salary costs -- a 1% raise would cost the employer about $20 million on the general fund side both wage and benefit. >> and to be clear, none of these projections are baked in? >> that's not included here. to the degree the city comes to agreement with our unions that do include raises, that would make the shortfall worse. this next slide is really just highlighting some major departmental changes these are,

i think, items that you've seen before and i won't spend a lot of time detailing them. but i will note that -- ~ a some of our major capital investments are coming to the conclusion in the construction phase, we're starting to see some of the costs associated with staffing as providing services at them. this is a summary again of what we talked about. i mentioned at the beginning some of the uncertainties that i think remain. certainly economic uncertainty. none of us know when the economy is going to change or if it will change benefit costs continue to create some uncertainty. we had last year a number of conversations at this committee about the impact of health rates and those conversations will continue i think this year. the results of our labor

contract negotiations and then any additional state or federal policy changes or financial changes that could affect us including the implementation is most significant obviously what happensat the implementation of obamacare, the affordable care act. finally, any current year over spending by supplemental appropriations will have an affect on the bottom line because they're our variable fund balance. this one is really just a slide that highlights for all of us the relationship between our economic cycles and the way that the city has chosen to staff services. you can see we hit our peak employment by the city ask county back in 2001 at a little over 20,000 employees. that was the height of the .com cycle of our economy.

you can see the decline of employees as we entered into the recession. then the increase in employees leading up to 2008, 2009, [speaker not understood], and some significant deficits many of us experience together over the last several years, reducing our number of funded employees to about 26,000. and, you know, when i look at it, i think well, we're back, we're essentially to our prior peak. we're nearly at 20,000 employees again. so, i think for the mayor, we both feel cautious about adding significant numbers of new employees, given we are at that peak level employment that we've seen, and we see our ability to fund employees is tied with the economic cycle. this is just a history of kind

of deficit projections and the targets that were associated with them. i won't spend time on that. the mayor did issue instructions in november to departments asking that all general fund departments reduce their fund 2% the next two years, 1-1/2 the first year and an additional 1% the second year. he also asked that departments propose a contingency reduction in the second year 1%. for context, that first 1-1/2% that he directed them to reduce would generate around $21-1/2 on an annual basis. the mayor doesn't believe in across the board cuts. this is a way of developing ideas that could move forward as they are needed.

on the policy side, we're encouraging departments to focus on their core functions and minimize direct service impacts to the public. the mayor is also particularly interested in asking them to review all their fees, to determine if the fees are relevant i necessary and to determine if they are tell at those this year and then this year, government efficiency, the affordability of our sever says to the public, as well as government innovation. and certainly to -- encouraging all departments to conduct outreach with their stakeholders through their commissions or through other community -- community meetings that they may conduct. finally, just a reminder about kind of key dates in the budget process. the dotted line kind of gives you a sense of where we are. so, the mayor has issued his

budget instructionses, the mayor has released his budget proposal. they submitted their i-t plans and budget requests. next you'll hear about the current year performance at the six mark. february 21st, all departments are required to submit their budgets to the controller's office and the mayor. we also will see the joint report being published, the shared work of the budget analyst, our office, and the controller's office. in may you will begin to see departments coming forward with their budget proposals here to this committee. the controller's office will issue their 9-month report which gives us our sort of last look at our current year performance before we put the budget to bed. and the governor will issue his

may revise. the first working day of june, the mayor proposes a proposal may of this year. [speaker not understood] and your review. that is my presentation. i'm happy to answer any questions either now or one on one later if that's preferable. >> colleagues, any questions at this time? okay, thank you very much, ms. howard. we'll open this item up to public comment now if there is anybody in the public who wishes to comment on item number 3. please step forward. good afternoon, supervisors. debby lerman from the san francisco human services network. i wasn't intending to speak, but i just feel compelled to note that the mayor's budget instructions at this point do

not include any cost of doing business increase for nonprofit service providers. we spent this morning in a very educational set of presentation about the homeless services in this city and the city's nonprofit partners are on the front line of every aspect of those services, yet we have a 15 -- 6 or 7 years we had no ip crease, although we do appreciate the increases we've received, lower than the annual cti. so, our service providers are facing a myriad of pressures. [speaker not understood] raising the minimum wage, [speaker not understood], affect our health care costs. the next thing is going to be how our rents are going up and we cannot simply continue to provide services as they are

now unless something is done about the cost of living increase. we asked the mayor to fund the cpi this year. we would prefer to take it out of the annual politicized process and have it be something that the city would ultimately institutional eyes through some mechanism so those increases could happen in a rational way through multi-year contracts and automatic escalators. that is something done in every other kind of contract the city has, whether it's city leases or supply contracts or for-profit contracts erg. there's no reason why nonprofits should be treated differently and we hope the mayor's office come to you before the budget comes to you. we hope to have your support there. >> thank you very much. anybody else wish to comment? thank you, supervisor. my name is richard heasley, i'm on the steering committee on the human services network,

executive director of conard house, a nonprofit provider to the city and county of san francisco since 1960. so, i just want to underscore what debby norman just said. nobody here really wants to hear nonprofit contractors come with hat in hand talking about cost of doing business, but that's what we have to do, that's what we've done, we'll continue to do until this issue is politicized and treated in an automatic way. debby mentioned the three ways to do this. the cpi indexing approach. there are some counties in california that actually tie their contractor cost of doing business to labor negotiation outcomes. we are also capable of submitting five-year budgets with responses to our rfps, which we're always ready to do, but nobody asks us for that. so, you need to consider this in the light of the issues of

what you're expecting us to do, particularly with affordable care act implementation. we're prepared to do as we have always done, extraordinary things to make systems of care work as efficiently and effectively as possible. that when organizations like mine take a 52% turn over among my key billers from federal medi-cal, it affects not just the quality of service, but affects our bottom line and our ability to deliver those serve is he. now is the time when you actually need us. you need us to be helpful. you need us to be healthy. you need our strength and wisdom and experience. so, we would like to see this cost of doing business issue go away. put it in the instructionses and we would be very pleased. >> thank you very much. any other speakers, please, on item number 3? okay, seeing none, public

comment is closed. [gavel] >> thank you very much, ms. howard, and we'll continue these discussions. can i have a motion to table item number 3? >> so moved. >> we can take that without opposition. [gavel] >> okay, like to note i have been joined by board president david chiu and supervisor jane kim. at this point, mr. clerk, will you call item number 4? >> item number 4, ordinance appropriating $2,515,000 to the mayor's office of housing for fiscal year 2013-2014, establishing the nonprofit rent stabilization program. >> okay, thank you very much. this item was sponsored by president chiu and supervisor kim. i will turn it over to first president chiu to speak. >> thank you, colleagues. and appreciate all the work you are doing today. i know today is a long meeting. so, today, colleagues, i am asking along with supervisor kim for your support for a supplemental appropriation before us to assist nonprofits that have been impacted by the rising commercial rents in the mid-market tax exclusion zone. we have all heard the many

stories of the challenges facing the nonprofits that are responsible for our social safety net and this is a supplemental that would be funded directly by the tax increases in our city would be receiving in the zone during -- it is based on revenue growth so it is likely to get bigger as additional construction projects in the area are completed and assessed. this supplemental is one larger piece of a collaborative effort to protect nonprofit organizations that are providing vital services to our residents from displacement. the mayor's office of housing and community development along with supervisor kim have convened a working group to assess and recommend policy solutions and my office has been closely involved with that process. this supplemental will be directed to mohcd to confirm the group's recommendations, [speaker not understood] displacement assistance and tap tal improvements as well as real property acquisition.

now, since the working group will not give its recommendations at least a few months, in agreement with the budget analyst recommendation that we place these funds on reserve and release it after the working group finalizes its report. but i do ask that the budget committee recommend approval of this today so that the working group can be assured of the funding of availability when they deliberate how to use its [speaker not understood] problematickally. there isn't precise and specific data that identifies the need of nonprofit organizationseses in mid-market area. we all know there is very much indeed a very intense need for assistance as the study from october that the budget analyst had put out has documented. and we also know that the working group has been conducting its own surveys to obtain more data on this issue. too many tenants, whether tenants in commercial buildings in affordable rent control housing have been impacted by

affordability rent crisis and that is why i ask for your support. i'd like to turn it over to supervisor kim. >> thank you. thank you, president chiu, and also to the members of the budget committee. i just wanted to take a moment to thank president chiu and his office for working on this budget supplemental along with our budget office and the controller's office. and i'm happy to see this move forward potentially as one solution to support our nonprofit organizations that are facing rising commercial rents. as many of you know that have been working with our offices on this issue, we had set a fielding, called nonprofit organizationseses back in the summer when leases were starting to come up for renewal. and there was an urgent realization that many of our commercial rents were rising by up to 30%, particularly the

mid-market. we were committed not just to the positive outcomes of this legislation, but to control what negative side outcomes might be. one is of course while the city is doing well and creating a lot of jobs and seeing more revenue coming into the city that are funding these services, we are seeing very critical nonprofit services our facing aloe vicktion and faced because the commercial rents are rising so quickly. i want to recognize the budget analyst and legislative office for the report several months ago talking about what this looks like in our data. this is one of the city's response to address the impact fueling the need for more office space. as i said in the past, we cannot leave our nonprofit sector behind as the city continues to thrive as they provide essential services that are needed to continue to stabilize our communities. just a little bit about what

we've done before. this isn't the first time you've seen that, the board of supervisors then approved and appropriated $3 million from general fund reserve to support subsidies and property acquisition. this property acquisition fund was allocated to partnership for affordable nonprofit space and administer that in northern california loan fund. of the 15 organizations that receive funding, 14 still continue to operate and contribute to the cultural and economic value of the city. this is a good investment in the city over ten years ago and many of these organizations that received funding in 2000 are important institutions that contribute to our district. whether it is the presidio, the filipino-american development foundation and 9th street media consortium. or in other development center, [speaker not understood],

portola family connections, wafao house and more. so, this effort is really to be able to support and fund some of these solutions that are coming out of this working group with our nonprofit executive directors, and of course, at the mayor's office of housing. again, looking forward to seeing in. colleagues, again, i ask for your support. i know we have brian here to talk about the activities of the work group. so, through the chair, if we can have mr. zew come up. i thought this item would come up earlier. i had a meeting waiting in my office, but i'll try to come back if i can. thank you. >> thank you, supervisor kim. so, mr. zew. >> good afternoon, supervisors, brian chu [speaker not understood]. as supervisor chiu and kim mentioned, our office has been convening a working group composed of representatives at

city departments as well as members of the community, but not only through our office, it includes the mayor's office of public policy and finance, oewd, hsa, dpr, dcyf real estate division, planning department, controller's office, and about 11 or 12 community based organizations. we've had two formal meetings so far, one in december and the second one in january. we plan to have two more meetings. one in february and one more in march. our hope is to deliver the final report beginning in april to comply with requirements put forth in the working group sponsored by supervisors mar, kim, and cohen. you'll see in the budget analyst report that we did not give a full recommendation as to how the 2.515 will be allocated so far. in speaking with the