be a surplus of 16.6 million >> does that include the 7% decrease? >> it does. what we see is both a revenues and expenditure, to account for the fact that we have a significant surplus situation. this is just the visual the graphic form of the information you just saw. if you think of it in terms of, the top line is dbi's revenue over the six year period and the bottom like is expenditures the surplus is the space between the two lines so we do have the surplus that is built up and acomeulated over the past five years. as part of trying to understand and provide solutions for how to deal with this surplus, mgt america hired

a firm based out of sacramento california, to do a pee study, that is completed at this point, you should have it within your packetses in front of you. the industry standard, a note on methodology, the industry standards for the fee studies in terms of buildingspections is they're done as a snapshot usually one year at a time. san francisco, is unique in terms of construction activity you see in terms of the revenues growth over the past five years, it's difficult to say what a typical year is for us we're in a boom bust cycle. is a 79 million revenue a typical year or a 36 million year? that hard to say.

that is the thinking behind the big picture, what the fee study does is take a snapshot that has to be a consideration in terms of they were looking at mostly fy 14 data, which as you know was a high year for construction activity their findings? overall dbi cost of service is less than the overall fee's revenue, creating that surplus. large projects which are $5 million inspection and above, are a key of that surplus. other fees, interest and so forth account for $5.7 million in revenue, that was an fy 14 figure. there is not much associated cost in terms of administrative time ewed for the fees that is almost all $5.7 million, is

almost all just revenue. the next slide gives you a snapshot of what our large project picture has been over the past five years this is fy 10-14, to give us more context to the study. as you can see, the volume over five year period is two year projects most fell into the 5-50 million category, there was a significant number. that fell into a 50 million evaluation or above category as one, we know was significant at 330 million in the past five years, you also can see the average valuations for these for further context. yes? >> does this aggregate project?

or do you combine them for one project. >> it's each project. >> the low on this again, sort of squaring what we know about the construction activity the low year was fy ten of this grouping. where there were 19 large projects and the higher the last two years, fy 13 and 14, was approximately 16. it goes to show, when the activity is up, more large projects more revenue. fee study recommendations are listed on this slide. given, again, the volatility of san francisco's construction activity the previous fee study had been performed in fy 07 and fy 08. this is currently fy 15 almost to the end. the notion is we should be doing this more often, because we do have quite

a bit of volatility in our market, every 3-5 years, the control's office is conducting one fy 17 to implement into fy 18 >> commissioner melgar has a question. >> i'm curious as to how we calculate the cost of service. so is it just that, you know, that individual permit provided to the owner, or project sponsor, or is it you know the cost of the department? i guess my question is, because there are portions of our department that don't generate revenue, like inspection, are the costs of that included when we figure out what the costs are? >> sure. in the fee study their methodology would consider costs to the department. so salaries benefits, all of that would be.

>> overall -- >> so the cost for providing that particular service. >> just that particular service or all of the services? like she's saying, we do a lot of activity related to housing inspection, that are effected by the number of people that live here. so each building that gets built, kind of contributes to our need to do that work so. is it like our full administrative -- >> with the exception of what i mentioned before what we call the other revenues which are things like interest fees and surcharges i believe it was what the fee study consultant fount is 61-$62 million in cost for fy 14, that does include the activities you are describing. >> thank you. >> commissioner? >> this is a follow up question, maybe this is included the fund

balance does that include -- we continue to have vacancies, so not enough inspectors let's say, we're not fully staffed up in housing, so does it account for those aspects? there is areas, we should be doing that we're not doing. >> right so expend chers, were planned to be spent but not actually spent, that rolls into the fund balance as well. that is one reason the recommendation and fy 13, was to ramp up spending, to get the vacancies, filled it would help to draw down some of that as the revenue continues to flow in. but at the end of the year the capper the financial city records, can aaccount for what the actual number of revenueses are, so yes. the second recommendation here by the fee consultant is staff track projects over

$50 million, we're talking about staff projects based in a five year window we can expect a handful at a minimum. we believe this will be more accurate than the time estimate spent, there are economy scale to be found the bigger projects get, so tracking will help with that in the future right sizes, what should the fees cost for these really large projects. further more they added more inspections to the dib, plan revenue, i will show you what that looks like in terms of four fee categories essentially, what we have a $5 million and above category. the new categories would split that up, based on the fact that we have a lot of project that are over $5 million, we showed rite sizing those, tearing those

better, help with economies of scale, decrease with the revenue, especially at the higher end. finally, review the revenues, undirect to the provision of services, we talk about fees, surcharges penalties, and fy 13, that was $6 million of revenues, that didn't have a lot of associated costs with them. the summary proposed changes slide, this is based on taking the fee study recommendations from the consultant recommendation that it is a snapshot in time view discussions with the director the staff the controller and his staff, that would make the most sense to draw down the surplus, while putting dbi in a position where they're not scrambling to find funds, like they have had to do so far. so really three recommendations for changes here. the first is a 7%

reduction, expending the 7% reduction, and making that permanent, so a one year revenue impact would be $3.3 million, again, this is based on fy 14 numbers and volume but you could probably expect it wouldn't be too much different from that going forward. additionally, i mentioned the fee categories at the high end, we are suggesting four of though, 50 to 100, 100 to 200, and 200 +. what this would do in terms of impact would be 5-$6 million a year it achieves economies of scale, we don't currently have in our system finally, there is a 2% charge. it's just tacked on and the estimated impact there is 1.8-2 million there a year, the

department would be willing to eliminate that permanently going forward to help with the issues. the combine impact is in the neighborhood of $12 million, with further increased spending by the department as well as an expected plateauing of the construction market and activity this will help over the next several years, for the fund balance. so the next slide shows a picture of that. and these are based on the previous changes going into effect as well as what we know is true for the existing fund balance. so one of the ideas that came out of the discussions and something the city is basing within autoof it's departments is how to fund it's other postemployment benefits, health liabilities and such in the future. the

controllers office did an aanalysis of what that would cost and came up with $31.6 million, which can be set aside with an oped liability one time, from the balance i believe the only other department that has done this fully is the airport, and they have set it aside, and they have made it to cover future liabilities with ope d. it's something that the controller's office is recommending, all departments do, because it's out there, we know it's coming. and we want to make sure as much as possible, we will have this covered for health care and other liabilities in the future, that is one piece of that that is line item 31.6, that goes across. the rest is used as a contingency stable reserve, in fy fir teen it's $31 million, with the new changes in effect

which again, i was around total million dollars, in decreased revenue, increased spending, we get closer to the flat line. we would draw down to the contingency substantialzation reserve, to the point where fy 18, based on the projections, we have approximately, the four month operating cost reserve for operations. >> commissioner melgar. question? >> what does oped stand for? >> other post employment ben you fits, this is liability health care in the future this is something that the city has a large liability looking forward, so each department we're trying to -- >> thank you. >> thank you. >> commissioner? >> one other question on the fund balance, i know the department looking down the road is thinking about relocating or the city is thinking of

relocating us, so there is going to be a lot of i guess infrastructure cost in terms of renting or paying for reconstruction of different offices, and the other thing that's come before the commission is because a lot of our staff drive, we constantly have to struggle with replacing older vehicles because we want to get more fuel efficient and greener vehicles which is a lot of cost. but we can kind of deferred some of that because of our budget in the past so is that also part of the fund balance? how many vehicles we have every year, moving into new offices, expanding or offices because of staff things like that. >> i'm sorry, is it included in the fund balance? >> yes. >> i'm not sure i would be able to answer that that would be a question for the department, i'm not sure -- are you suggesting it's projected into these.

>> right. >> in other words, we cut back on those yearses, when we were in a recession, on upgrading expanding, in some ways. so now we get penalized for it because we didn't spend it so we have to -- >> good morning, -- department building inspection, yes, it's part of it now, because we had expenditure savings moving forward, because of the last physical year we're doing vehicle replacement, so with the budget included ten new cars and replacement in the budget that has been taken into consideration, in doing the vehicle replacements on the actual move side we know we are going to try to move into a new permit center. at this point, we don't have a cost of what that is going to be shg so that is

not budgeted yet, but we have a fund balance, when we get to that point, that's when the fund balance will be used to cover some of those things. >> i just have one -- forgive me you probably answered it but the 31 million. >> yes. >> when it's moved over, can any other department -- >> no this is a dbi fund. obviously, we would hope it would never be touched until needed, there say flexibility in case offage emergency where it could be used. >> by another -- >> no by dbi. >> just db i.? >> that is correct. >> just when you move funds around. >> it would be a dbi fund. >> okay. >> and the interest? >> i'm sorry? >> the interest on 31 million? >> i would have to get back to

you on that [laughter]. so what we have on this slide is where are we now? today, first line item is the discussion of findings and recommendations made to you what we are also simultaneously moving forward on is trying to get these changes, implemented as a rider to the next physical year's budget. so dbi's staff, with the help of taras taras, and tom, which is in your packet, so you can review it and the city attorney's office is currently working with dbi staff is to get that ready for the june 1st deadline to present as part of the budget then you can sort of see how it goes there july 1st for the mayor, it may not be august 1st, when the

mayor signs 30 days after that it would go into effect for most of fiscal year 16. so that ends the presentation. i do want to thank a couple dbi's taras, and her staff, for providing a great deal of detail and back and forth with us to understand the financial picture of this department as well as controller staff room deel, and our auditor division to try to answer your questions, i know also the dbi staff can help with the specific departmental question questions as well. >> commissioner question for you. >> do they recognize publicicly funded versus privately funded? >> could you explain that. >> if you have a $3 million

private enter rise versus a 300 million public, is there fee structure or the same. >> there was no distinction between those maybe taras, has something to say. >> we have one fee table so it's the same fees. >> so it's kind of related. my question to commissioner clinch's question about one fee for all of the types of construction because as part of the fee structure, i read briefly, the city can take account, different projects for the public good versus projects that solely benefit the builder or the own r, for instance i was thinking about, we're trying to save older buildings, especially rent controlled residential buildings, so why

would we not structure the fees for a remodel or tenant improvement, that would control under the rent control, versus new construction which is exempt from rent control whether new sold or rental buildings, i don't understand why we didn't take that into consideration. >> taras, madison, department of building inspection basically, the fee table has been established forever, we're amending the 2008 fee table, when you charge fees the fees have to be as randy sunday before cost covering if you make a fee project, in essence, someone else is subsidizing that, that is not supposed to

happen -- in some wayses you can do a deferral at the beginning of the project, but you have to pay because at the end of the day commissioner walker's fees are supposed to pay for your fees pretty much. that's why the fee table is completely the same for the project, there have been discussions about waving fees, there is i think there is legislation right now, possibly waving fees for some of the apartment, and a plan review fee, there have been discussions about that. the overall fee table, you will see this any department inspengs there is one fee table to cover the cost of the service, the cost of the service doesn't change for a public or private or affordable housing, or nonaffordable housing project. >> commissioner walker please. >> what you are saying as we

reduce fees for things that are public benefits like affordable house why, they end up saying the same rate at the end, it's just a deferral? >> i'm not aware of us reducing fees for affordable housing it's the same fee table. it wasn't aware we actually reduced fees, for affordable housing, there is discussion now about waving fees for certain projects, at this point, all of the projects that come in they're using the same table, the table is one -- >> didn't we reduce fees for like a second unit program, was there a fee deferral. >> commissioner walker? >> department building inspection, that is the discussion of the waving of the fee, for the unit or [inaudible]

but that is still in discussion by the board of supervisors, i think. >> but my question is, they can be -- reduced or waved by legislation? >> yeah. >> does that factor into the bottom line? if we give enough wavers that it would actually bring our overage into balance more is that okay to do? >> a waver yes, i thought i was asking a generic question of, would you have different fee tables for different reasons, no, there is one fee table, then if there is something that the city, as a policy determined that, we want to do this, they would look at different ways to doing it. it wouldn't be a fee, it would be a waver okay these fees will not apply for a certain amount of time that would not happen yet, but that is the way to do it.

>> that would be okay to reduce our -- not as a to reduce the overage or fund balance, would the fund balance be reduced if the fees are waved? >> we have to look at each fee in particular. i guess it would be but the fund balance right now is going to be reduced. because just based on reducing the fees at this .7% because these tears, we are projected to collect more than we expect we would have to use fund balance -- i forgot what slide that was -- but that is the slide that shows you at x dollars every three years, you need 17 million to balance. in essence, we're doing that extending a 7% to

everyone and we're also lowering though four tier it's general, not for a specific -- >> deputy attorney this may get to the question you are asking we can only collect fees that are cost recovery based. so we couldn't continue to collect fees in excess of what our cost recovery is and wave other fees we still have to recalibrate our fees on a continual basis. >> like category or accumulate? >> it's my understanding, any fee we have should have targeted towards a cost recovery for that specific type of fee, and specific work, it can't be an overall accumulative basis.

>> commissioner? >> i wanted to clarify i want to thank staff, they did answer my question, which is different than commission walker's question i wasn't asking about fee waver, i was asking yes directly, do we have two different types of fees? if you are rent controlled tenant improvement remodel, i just want to clarify, my question is do we charge different fees for different types of projects and the answer was no. so thank you for the clear answer. [laughter] my follow up then is a policy question not to the staff or this controller's office my reading of the fee set is actually, the city can do this. because if we decide because my reading of the fees is that if the city reads the fact that your project or let's say a

project is to the public good that benefits many citizens, and our legislators, and the mayor, talking about the need to save rent control and residential unit, to me i'm asking that question, is that a public good versus a brand new apartment building condo the rental for sale that is totally market rate 100%. so i obviously, we're not doing it now. my follow up, i don't know if it goes to the city attorney or legislaturers, i will ask them, yes, we can have different fees for different types of projects is it under the preview of the bic, or is it under the per view of the board of supervisors shg we're not doing it now, i understand that was a clear answer, but can we do it? and

who gets to make that decision, if we can do it? >> is that a question to me? (overlapping speakers). >> i will defer to the city attorney on that. >> please run to the hills on that. >> deputy attorney marliny, burns, the board of supervisor sets the fees, and the body makeses a recommendation to the board about those fees. >> i'm fine with that love to talk to them. >> that is another conversation for another day, but as a priority, we do have policy in place to get the plan check but to the fees no. okay? >> thank you very much. >> i would like to make a correction to the tables in front of you, if you are taking an action for voting on this. if you look at table one p

apartment license fee, that is a 7% for reduction, but that is not charge for services rereduced the charge for services, that is a fee attached to the owner of the building for property bill, so we would say that we would keep it as it. >> what page is that on? >> that is actually you would have to look at item six. it's the red line of the actual fee schedule. >> sorry taras. >> i think it's table one p.. >> let me get it for you. >> i got it. >> this is the fee table that would change now it would include the 7% it will include

eliminating technology surcharge. >> when my industry askses me we're talking about 7% with the possibility of two more percent with the technology? is that the way you would sell it? >> well we're talking about 7% generally, with the 2% for the technology surcharge, if you look at the tiers it's going to adjusted slightly more. >> do we have it at 10%? or it's difficult to say because the only place it fluctuates is the building and plan review those are the two based on evaluation the others are strictly 7%. >> commissioner walker. >> i want to be clear, in the next few years, we're going to be losing money to get