k thank you very much

>> good afternoon, everyone.

welcome to the to the first meeting of san francisco budget & finance sub-committee meeting for march 11, 2015, with our full 5 person budget combhe i'm mark farrell and joined by supervisor katie tang as well as commissioner eric mar supervisor scott wiener and supervisor norman yee i want to thank jennifer lowe and charles kremenak madam clerk, any announcements? >> yes. electronic devices. completed speaker cards and documents to be included should be submitted to the clerk. items acted upon today will appear on the march 17 board of supervisors agenda unless otherwise stated okay. thank you madam clerk colleagues two agenda items one substantive a 5 year budget plan want to thank everyone for this and looking at looking forward

to a fruitful next month. >> number one the finalized plan for 2015 through 2020 and requesting a mayor's office. >> and to speak on item number one. >> good afternoon, supervisors it's a pleasure to you here with you, we kickoff the budget season i'm here to talk to you about the city's proposed 5 year financial plan not an action item in front of you by will be in the next several weeks once we complete on update to the plan would also want to point out i have the gentleman from the controller's office that answer revenue questions and want to thank thank you to harvey rose and mr. campbell if the boards

budget and analyst office in the shared budget plan 0 produced to show the shared trends over the next 5 years so i thought today i would talk about the key assumptions workplace the 5 year explain and go over the general fund case essential the cost to operate our government the government we have today over the next 5 years and share fiscal strategies how to bridge the gaps between revenues and expenditures and thinking about what might happy in a recession scenario with our 5 year financial plan against to help us think through 0 the impact of on economic downturn should that occur and finally i'll talk about the mayors budget that was issued at the same time with the 5 year

financial plan all our offices should have a copy you if don't feel you've seen the yellow document we'll be sure to get you one i'm sure you're aware of the city over the last several years has worked out diligently to strengthen our long term financial management and to try to reduce volatility in our budgeting process 2 year budget is part of that reserve policies are part of that codifying the debt lemgsz and debt policies and some of the alleged policies that the board has adopted like the reserve policies and the limitations on use of one time sources this year for the first time we had 7, 620 two year budgets these budgets will remain fixed

for the 2014-2015 and 2015-2016 budget years including mta and the board retirement and support services and the library we've also done a configured for the long term and developing those plans and regularly updating them the six year financial plan you see before you today but includes our ic plan and the 10 year capital plan both the ic t plan will be coming before the committee for your review and adaptation the 5 year financial plan is a shared frontals made by the 3 financial offices this required under prop a passes by the voter in 2009 a

couple of key purposes to highlight major financial issues that the city is facing on the revenue and expenditure side to monitor how we're doing on the structural deficit in every year i've worked in this office we projected a gap between revenues and the expenditures and try to close that gap and finally the prop a required that the plan make recommendations or proposals how the city can reduce the gap between revenues and expenditures as i mentioned that was in early december at the same time the mayor issued his budget instructions so this next slide is really

providing a high-level 0 overview of what's happening in or revenue and expenditure the top section is the revenue our projections over the next 5 years those revenues are growing every year and the second half the table it showing you what's going on the use does the salaries and benefits being a large portion portion of our citywide expenditure and show you the costs in the other xuchlz while the revenue will growth is strong our expenditures growth is prolonged to out pace that revenue growth leading to the shortfalls you'll see at the bottom of the page $60 million growing to 4 hundred and 18 over the 5 year period. >> looking at it a different way you can - another way to

think about that the top line our expenditures are expected to grow 23 percent over the next 5 years and the bottom line growing 13 percent over the next 5 years and the difference between those expenditures is really the problem statement that the challenge we're trying to solve through the budget process i want to make sure that i highlight kind of some of the key assumptions in the five hundred year base case i mentioned the 5 year base case scenarios is really looking at was it - how much money would we need to be able to cover the costs of government based on our

plans and no cost increases over the next 5 years and what will happy with revenue so this plan assumptions on the revenue side the economy continues to recover there's no economic recession to the pace is slower in the last 3 years of the plan than the first 2 the recovery depended on the national economic as well as local destroy and no major changes to the service levels or the number of employees unless we specifically call that out examples where we would, huh? our projecting increases in the employees the opening of the new san francisco general hospital or the staff increases associated with our public

safety hiring plan plan also assumes the package from november of the increases in the mta baseline the city's minimum wage and the renewal of the children's fund so those restraining order incorporated into the projections and finally we assume that in the first year of the budget which was the second year of last year's budget the funding for capital and it are based on what was actually opportunity by i did mayor and the board so i'm going to go into revenues and talk about expenditures. >> ms. howard just so our community is clear and members of the public those numbers were compiled a few moose good this is to get an action item on the full 5 year plan in the next few

weeks. >> that's correct three weeks is what we're talking about i expect updated numbers in the next week this is the because of the 5 year financial plan and we'll talk about the update in a couple of weeks on the revenue does the revenue growth is strong throughout the 5 year frontals assuming there is no economic downturn 13 percent growth over the next 5 years as i mentioned the higher growth rates are higher in the 3 years of the plan because we want to make sure that we're accounting for potential risk of economic changes over the last years of the plan the top like that t is

what we're projecting with our revenue fined resources to $210 million in growth compared to the first years and another one hundred a strong revenue growth i think we're looking across you know all our major tax revenue growth 4 5 and 6 percent and slower in the last part of the plan i'll highlight the second line is noting changes in growths this is regretting the use of one 7, 8, 9 fund balance to balance the budget over the first years and the expiation of that one time source in the

third year that is $10 million in each of of the two years of 2015-2016 and 2016-2017 that's a significant contributor to the gap in the third year on the expenditure side we category them into baseline and reserve and the departmental costs on the salary and benefit side this numbers you see here assume the negotiated labor agreements we've agreed to those are in effect for most employees there 2016-2017 and for public safety through 17 18

we assume what we've negotiated in the first 3 years and the remaining years the dp i. >> we're also seeing in those numbers the increases being offset by savings from our pension fund our returned are improving and climbed - we've recovered the losses after the economic downturn on the letters you'll see them growing particularly really all years but particularly in the first year that is largely due to the package of the ballot measures this is continuing to deposit

into our citywide reserve citywide operating costs are equipment and other tools and departmental costs is a summary category for various changes in the department like opening the new public safety building and the 19 new san francisco general hospital and funding for the mta as the new central subway comes online and our public safety hiring so we're in a very strong economic time but we are continuing to see our expenditures grow more quickly than the revenues are growing our fiscal strategy is really you're not to cut programs and services but to grow at a slower

rate instead of growing the cost of government by 23 percent grow at 18 percent that is closer to cip and identify the revenues solutions that what about part of that package so we propose in the plan a number of fiscal strategies to solve the gaps in every year including reviewing capital spending and restructuring some of the debt and generating savings and manage the benefit costs the contract we negotiate with the employees as well as the good work both the retirement and health services to manage city costs as they generate returns in the pension system

we assume some new ref revenue over and above what is in the plan as a portion of the solving the gap here managing our non-personnel costs this is again not making reductions but growing more slowly than the base case it assumes inflation and slightly less increase and then looking at to departments for part of the solution this is that line reflects if we were to assume about a one percent solution from departments in each of the last 4 years of the plan what we're trying to do t is come up with a balanced approach to solving the gap relying on

revenues for part of it and also looking at the departments one of the one time spending categories and working hard to insure our employee costs are affordable so we think we've put forwards an approach that maintenance similar to the 5 year financial plan but we think this is a reasonable and balanced approach of course, with any projection there's uncertainty and all sorts of factors that effect this we are kind of watching closely how the city and population grows that's an important thing that the city needs to be paying attention as population grows and demands for services are

likely to grow those increased demand for services are not in the projection here poor to the degree new budgetary commitments are made by the board or mayor those will change it out look and we're monitoring the state and federal government the governor's proposed budget has effects on the city we're watching that but won't have final information revised physician in may and finally in june was happens with the affordable health care act and the federal excise tax the tax an cadillac health plans which some of our health plans fall into as supervisor farrell is aware two other notes to highlight to the degree that the mayor or the

board or departments so the departments overspend their appropriations or should there be supplemental proimgsdz and finally if and when the economy changes that will have a significant impact on the forecast so for that reason we decided to include a recession scenario. >> yes ms. howard genetically we're still the same things how do the budget look on a tax basis. >> we're expecting about probably about $6 million to the good on a one-time basis so there's part of governs plan to repay

the wall of debt and counties are one the entities to which we owe money we'll benefit modesty from that at the same time there are changes to the workers' compensation that costs us $3 million and in addition we've expecting that the gas tax is going to decline by $8 million and that's largely due to the low gas prices we're all experiencing the combination of that plus reduced gas sales are less revenue the gas tax is a source of benefits for the streetsy paving program in the city. >> thank you. >> so i've use this slide a lot i can't remember if i've shown it to you before but i may have

this slide is really trying to express visually kind of what is happened in the past related to the expansions and recreations we can draw our conclusion since 19 hundred you know the long time economic expansion was one hundred and 20 months during the clinton administration of administration in the 90s and today, we're anothers 69 months we're well into the economic recovery it seems possible certainly within the next 5 years the economy will change significantly how it is performing today so the controller's office the budget analyst and our office really