22, 2015 will begin shortly. the city of san francisco sfgtv meeting of the budget and finance committee occurring on april 22, 2015 will begin shortly.

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>> good afternoon everybody. welcome to the san francisco board of supervisors budget and finance committee meeting for wednesday april 22, 2015. i am mark farrell and i will chair this committee and joined by supervisor tang and eric mar and norman yee. i want to thank the clerk of the committee linda wong as well as members of sfgtv covering this meeting. madam clerk do we have any announcements? >> yes mr. chair. please silent all cell phones and electronic devices and speaker cards and items part the file should be submitted to the clerk and items will be on the april 28 board of supervisors agenda unless otherwise stated. >> thank you madam clerk. so

colleagues today we have two hearings and the first is by supervisor mar and we will ask him to do that. madam clerk can you call number one. >> item 1 is a establishing a permanent annualized non-profit cost-of-doing business increase and having the office of the controller to report. >> supervisor mar. >> thank you mr. chairman. i made a commitment to move through the first hearing as quickly as possible. i know we have a controller's report and lots of speakers from the city so colleagues last year we passed a resolution at the board to prioritize approval of a submittal appropriation for non-profit organizations up to the amount of $3.4 million during the fiscal year 2014-15 to fund a very small cost-of-doing business alidation for companies that contract with the city and county of san francisco. we did this because from the years 2008 and 2009 to

2012 non-profits received flat funding from the city despite the huge housing and affordability crisis and the growing costs and also despite having to absorb the rising cost of health care and rent and other inflationary increases and this flat funding amounted to what i call a reduction for the hardest working and most effective organizations in the non-profit sector and i wanted to frame this as i worked as a non-profit worker for many years and a seiu shop steward as well. from my days 30 years ago with the chinatown youth center and now the youth center and to a receptionist running the california cho ligz of human rights and ran a committee for [inaudible] and most of the work is about supporting the human

service sector and san francisco's unique and creative safety net that man of the non-profit represent. i think with recent studies from the san francisco foundation's recent equity profile of the bay area to the association of bay area governments and the transportation commissions and economic prosperity strategy it's really critical that the non-profit sector, the safety net of our cities be supported, be a stable and supported as possible. also i was going to add that supervisors campos and i along with supervisor avalos last year or a few months ago introduced an ordinance that would have appropriated these funds to fund a supplemental allocation to pay for the increasing cost of doing business for non-profits and though it didn't pass at the board a fews ago many of our colleagues felt that the funding

through this request through a supplemental -- they felt that it wasn't appropriate at the time. it should go through the regular budget process but they importantly acknowledged also that i think unanimously from my memory that we all want to come up with a comprehensive approach to address the need to adequate compensate to allow non-profits to stay in the city and stay up with the rising costs and the affordability crisis in the city and this is the beginning of the process and i think we will have a opportunity to dialogue with city departments how san francisco can fund the non-profit sector adequately so there is stability and strength in the non-profit sector, strengthening of the non-profit sector and i think the hearing will look at where the money comes from to fund the non-profit sector and the

critical safety net and how we fund those in the city and we will hear from the non-profit workers and heads and the need to increase the funding on a yearly basis. i wanted to ask if my colleagues have any opening remarks before we go to the controller? and i see no one stepping forward now. i wanted to acknowledge supervisor avalos couldn't be here because of another meeting but he is a cosponsor of this hearing so colleagues i wanted to ask if our controller ben rosenfeld could come up and i know there is a lot of work into the presentation and we will have questions after. >> good afternoon. thanks for having us here today. i thought for the purposes of today's hearing which i know supervisor mar you see as a beginning of a conversation on this issue we would provide some general background information on the dollars and cents regarding who contracts with non-profits in the city department and what

they look like and today end with a couple of questions more than answers so i can briefly run through this presentation. as way of background and here we're looking at actual spending for the city in fiscal year 13-14. as you're all away the city provides a vast array of services in a number of city departments through a broad network of organizations in the city or non-profit organizations. this slide is showing you that allocation by the city department that holds the contract. the total spend in 13-14 through non-profit service providers on services totaled approximately $675 million so we're talking about a very large base providing as you can see here services through a number of city departments. over 70% of the services though are really provided in our human and health service departments and public health makes up half of the

non-profit contracts in the city and hsa and dcyf and the first 5 commission accounting for a 12% of different children and youth services. of course those contracts are supported by a vast array of different colors of money given the way the budget works but again the majority of spending is occurring in health and hsa and they're general fund funded departments most of the spending occurs out of the general fund itself at about 50% of the total or out of the hospital fund so we have two hospital funds for laguna honda and san francisco general hospital. the largest contract is with ucsf to provide services at the general hospital so that is a fund subsidized by the general fund so between the general fund and the hospital really about 80% of the spending

on non-profit services comes from the general fund or its related funds. of course we have about 25% of spending here comes out of other special revenue funds and i think the best example here is the childrens fund which supports a vast array of services, a are provided by non-profit organizations and sits outside the general fund. i thought this would be helpful because of course one of the things we're talking about here is things that prevent funding at levels that folks may deem ideal and of course the general fund itself is usually financially more strapped than other funds so for a bit of context. this reflects our total spending on non-profit organizations or through non-profit organizations on services they provide. over the last six year period for which we have actual information, and you can see that as you indicated supervisor mar

spending on non-profit organizations was really relatively flat and even declined in a year following the great recession, and then has been on a gradual march mod modestly upwards but this creates a picture of relatively stable funding. during this period of time with modest decreases and increases over this period. cumulative growth over the period if you look at annual average growth since the recession you're talking about spending growing by just over 2% annually on non-profit service providers in the city which comes to about -- which is about equal to what inflation has been in the bay area until very recently and of course inflation has been pushing up faster so total spending on non-profit organizations and inflation in the city has tracked during this period but there is an important distinction to talk about and we can talk about later and when

we're increasing contract spending is it for the purposes of a e -- acknowledging increased costs for the organizational infrastructure? or is it to provide additional services? and there is tension there. the city in the last three budget cycles the mayor and the board authorized 5% cumulative cola over those three years for non-profit organizations to address organizational cost increases whether wages, benefits or non salary increases so the difference between the 13% growth that you see here over this six year period and the 5% cola -- one way to think about it that increased investment represents increased services that the city is asked of them during the period. as i indicated earlier this is a very diverse group of providers of course, not just the services they provide and not just the

departments they contract with, but also just in terms of the makeup of the organizations. one of the variances is the size of the different non-profit organizations so we often talk about them in one breath but they're a varied group. this chart is showing the bars here reflect total spending by the city on contracts in these different tiers so you can see we spend $102 million on contracts of less than a million dollars in 13-14 whereas we spent 174 million on contracts of more than 25 million. the line here represents the number of organizations that those bars reflect, and so you can see we have relatively smaller organizations, 805 organizations contracting with the city for

$102 million or a little over $10,000 on one end of the spuk rem. >> >> $100,000 on one end and you have contracts for 175 million. >> actually what are the two largest nonprofits? do you know? >> the single largest non-profit contract we have if you consider it a non-profit and not government is the ucsf contract itself at the general hospital. >> mr. rosen field in terms of the chart would you characterize this is consistent as years past as well, this break down? >> i haven't looked at the detail of past years as we did this year but i expect to see the shame shape and we have large organizations providing contracts and relatively smaller organizations having lower number contract services. >> in terms of whether it's

programmatic or this and are they subject to the same requirements or is there differences? >> there are differences. a pot of the programmatic monitoring is at the level level so the department that holds the primary contract is conducting monitoring of the department. on the financial side or the fiscal monitoring if a department -- if we have multiple departments holding contracts with the given agency, which does happen pretty frequently there is a process in the city to coordinate that fiscal monitoring. that tends to be fairly standard for folks in that pool. one of the things we're actually talking about as part of our updates to our monitoring for the year ahead do we want to do more to acknowledge that there are different risks associated with different contracts of different sizes in terms of the standards that we hold non-profits to when it relates to the fiscal

monitors? >> supervisor yee. >> so a couple of questions here. the 674 million represented here -- is that only city funding or does it include state and federal flow throughs? just like human services -- they get a lot of money from the state and the fed and it becomes city contracts? >> exactly. so to the extent that money flows into the state coffers from the state or the fed we contract with an organization that will include that state and federal money. to the extent though you have a number of examples where a non-profit organization might hold a direct contract with the state itself or the federal government itself. that wouldn't be here, so to the extent of the state and federal money is flowing through the city it is here. to the extent

it's flowing directly to the organization, it wouldn't be. >> so is it possible -- the increase that we're seeing year to year do you know whether the increase is coming from the flow through money from the state and fed, or is it actually real city money? >> i couldn't tell you. it's not one of the things we looked at up to this point but we certainly could. >> i think it's important to look at because otherwise we're finding out it's indeed the flow through money then we're kidding ourselves and saying we're supporting non-profits in a bigger way through the city money. >> i agree. it's something certainly we can look at follow up to this. in a number of cases the money flowing into the city the city has a choice how we want to spend it, so even with those funds we still do have discretion in many cases whether we're using non-profit providers, city providers or

making other choices but i dond your point. >> so you mentioned that you didn't look in details in terms of what this increase whether -- actually. >> >> cost of living or services and the other question is a subset of that is to -- if most -- let's say even -- that's probably not true. how are we looking at the different contracts? my guess -- maybe i am wrong, is that certain contracts -- in particular i would say like ucsf would get big chunks of cola and the small ones will get nothing. i don't know if it's true but i think we

need to challenge that. >> this is certainly aggregate level information. beneath this hood there is a hot going on i am sure. the review for today is summary level. i know during the time we have seen larger increases in the uc contract for example as the regular base as a whole. i think you will see different funding things by organizations by departments during this period. the only global thing applied to the base is are the three colas provided by the mayor and the board in the budget process over the last three cycles and those three together account for a five account cola for the entire base except for ucsf which has negotiated separate contracts with public health. >> are you finished? >> i can hit a couple of other points if it's helpful. >> yes, please continue. >> i thought it would be

helpful -- i know you realize this supervisors but some of the things that drive costs for non-profit organizations just to mention as examples and of course each organization feels thee pressures differently. you can many in the crowd that can speak to more experience and more compelling than i can and cost of living rises just like for the city itself and employment costs and benefits cost increase over time and wages to retain workers and health and retirement costs increase faster than the rate of inflation and in recent years the minimum wage that was passed on this last november's ballot has direct and indirect pressures on specific non-profits, so this indirectly the wage compaction it may create within a given organization, and then of

course you have changes in the regulatory environment in which we all operate so changes in state and federal law for example that might change and staffing ratio requirements in the health program but all things that affect employee and benefit costs as examples and the non salary side on the ledger, facility rental or ownership cost are a significant issue in the city at the moment. the city faces those pressures as do non-profit organizations and all other supplies of contract and non salary cost and in terms of the city's subsidy to the programs and the revenue streams going into a fit fit organization matter as well to your point supervisor yee so direct of allocation of state or federal revenue to the programs impact the amount of money required from the city to operate the program and we have seen in the early part of this

recent period reductions in state and federal money available to the programs as to the city itself and obviously fundraising and philanthropy and this results in request by the city itself. they're all felt differently in differences -- organizations. >> i have another question. >> supervisor yee. >> often we think of nonprofit will understand it they provide critical services in terms of safety net and other services, and in some places it could be just the government doing this, and a lesser role for the non-profit. have you looked at in terp terms of the cost

savings when non-profits do this work versus not contracting out this type of work? >> i haven't explicitly in a number -- i don't think our office has in a number of years but generally speaking a non-profit organization is going to operate at a lower cost than the city itself would provide such services. >> yeah, i wanted to point that out because as we move forward with our thinking we need to look at things from that lens that what do you mean we're spending more money? we're spending more money but we're saving money. >> to elaborate further on the point and the cost difference between a city program and a non-profit organization some of it is improved flexibility and being more arm's length from the city and a lot is going to be felt in terms of just different wage and benefit scales between city employees and non-profit

employees. that's just true. so a couple of questions to consider as we move forward on this. one, how do you and the mayor balance the tension between funding organizational infrastructure and inflationary costs and demands for new services? the analogy here like physical infrastructure. we talk about neglecting to maintain roads and fit pot holes while focusing building new and the same thing is city departments and non-profit organizations and there is the tendency wanting to expand services but not looking at the underlying costs and pressures and it's something we all feel during the budget cycle. when do we consider inflationary impacts and during the process and should it happen during the rfp process or the contracting process between the

organization and the department or should it be born during the budget process and discussed during that process? and i think there tr pros and cons to both of those approaches. what are the drawbacks to seeking a global answer and the cost-of-doing business for this broad diverse base versus acknowledging more variance in the group in terms of services and pressures they face? is there means of addressing this that can minimize city costs? and then lastly which i know supervisor mar is really a key part of your focus here is are there means to increase predictability and certainty for providers and the workers and the city itself? and i know some of the ideas on the list for discussion here might include contract mechanisms and terms. since i was at last