iod we are talking about in the 4cast takes us to 96 months och continuous economic expansion mptd you see the avrchblg period of economic recovery is about 46 month. if we goat through this 2 year period with continued growth which we expect is roughly twice the period of expansion the u.s. has seen since 1900 and said this would mark the third largest period of economic expansion that woo have seen in the 115 years. just a caution as we enter into this. with that, i would be happy to take questions on the report or any other items the committee has >> thank you. colleagues any questions at this point? >> i did have that historical question. what was the period of growth, 115 years,

what was that? >> i was not around for that one, so can't speak well to it supervisor. you had a series of panics in the early part of the 20th century leading to the great recession and if you look that chart since ward war 2 we have seen stable economic growth than 1900-1930's. >> okay. colleagues any further questions at this time? >> thank you mr. rosen field. we'll head back to items 3 and 4 and get moving with our departmental hearings. [inaudible] mrs. carmen chew, former chair of the budget committee a few years ago >> i'll get started and say thank you for having me. we'll put our presentation

on the cull puter. i do want to say thank you for budget and finance committee for your approval of the items not only the transfer tax item sponsored to supervisor farrell that helps bing transparency and our expansion for mlsa tool we think will be helpful to our office. i want to a moment to introduce 2 individuals here woo me today. by deputy director over administration gg whitly as well as doug less [inaudible] i will direct the hardest questions to them. i do want to say there are a few things we'll cover in the presentation. we'll provide a summary of the market update and production status in the office. we'll speak about some of where wree headed as well as how the budget investment connect tooz that. a picture of key

investments forward as well as year to year changes experienced in the office. to start i want to say how fitting we are falloge our controller mrs. rosen field. we are proceed to be of service to support the general fund. let me talk about the market conditions that drive our work. i know that the board has been keenly aware of the real estate market as well as the policy decisions on how to address housing meads and space needs. for a moment i want to speak how the real estate market and your land use decision drive your revenue picture as well as our work load in the office. as you bow every sale, construction project and appeal as a potential to increase or kcrease property tax base that helps support

the city and also one thoof primary source thofz general fund operations. we have seen in the market place a strong demand for real estate. as uknow which is driving case load up [inaudible] you know the transfer tax is a at a 10 year high. we are estimated to come in about 300 plus million dollars by thend of the month. we have seen markee [inaudible] room key value of 500 to 900 thousand dollars. that is a reflection of increase and chaimpging we see in the market place. we are seeing construction projects happening, a road construction. we are seeing barriers to moving through the city and that is relate today the good econally with

regards to construction of buildsingsism in the pipeline base odthen q 3 reports from the planning department about 958 project in the pipeline. 508 of those are entitled with 215 under construction. the city is moving forward can significant project like transbay terminant and subway which is impacting [inaudible] bay view hunters point is moving to development. the midmarket space is leading to ren ovation. look that triple a building and you see a building that is transformed how it is used. not only do we have to address new construction we see in the market place but have to address and work on the workload generated by every

sale and every subsquents renovation on all those units in the city. speak about the work load it is imcomplete if we don't speak about the [inaudible] last year we 2600 appeals filed. we have pending appeal cases worth 258 million dollar in tax revenue as of may 21, 2015. we want to give you here a smap shot of the case load over time from our office. you will take a look and see the bars represent the different fiscal years, red being fiscal year 13, gold being fiscal year 14, and the blue being the current year as the beginning of june. we still have a couple week

tooz go. it brakez into different categories. we work on change in ownership case new construction case, appeal and partial management casesism you take a look and see over time what we experience is good progress in terms of working down existing case load and change in ownership and assessment appeals cases but where we are not doing quite as well where the number of cases are exceeding our cupeace to work caseicize new construction and parcel management. that isn't a surprise given we have seen so much construction and parcel management is tied to construction. however, if there would beically slide to pay attention to, this would be the slide. this is where we expect to be in terms of

outstanding case load will be over time t. is a pretty stark picture. it shows the kats quo, what is our existing budget and the blue line shows you what the budget request would allow us to do. this reflects new construction work as well as changes in ownership in the office. it assumes the 3 year average in terms of number of nigh cases coming in the doors qu assuming the current year in terms of staffing and being able to work on different cases. what you see are a number of things, one is even with the investment we requested by the time we hit june of 2018 we expect to see hardly any movement in terms of outstanding cases we can work. this is significant for a number of reasons, one we think it create detrimental effects on the city. if we owe a refend we accrue interest in paying the taxpayers back and the

longer we take the most interest. we are providing interest free loans to those that can pay earlier and a burden who can see a tax bill 3 years later with a very high number. the longer we take the longer the property will change hands and all is a new owner in place so that requires the tax collector and crorels office have to do more work to prorate a bill and chase owners who moved on. that is to say even with the current budget request we look like we will hardly make a dent into the 24 future. this assumes a number of different market conditions as well as factors in termoffs resources for our ocean and we'll work to refine this as we have clarity around the budget and conditions as they change. i want to just speak about-we spoke about the outstanding case loads in the office and how we expect to be somewhere in the range of having 14

thousand outstanding cases by the end of the fissile deyear. i want make the point that is not the norm. if you take a look otoert counties across the state of california, many or offices don't have this high level of assessment back log. we know that isn't the place we want to be and know that isn't the place san francisco should deserve in terms of quick and timely assessment. one thing that campicates san francisco picture is the facktd we are a unique and great city. #234r reason we love san francisco it also creates complexity in how we do our work. if you can imagine we have more interesting buildsings and a lrj share of commercial buildsings different flaumthe counter part organizations. this is interesting slides for a number of reezb. it shows how complex or work is. if you lookt the blew rrb

square in the bar charts san francisco share of single family homes what people say is easy to value, but there are complexities there as well, we have 48 percent of the properties being single families homes. compared to the peer counties that have over 66 percent single families home. san francisco has a higher number of multifamilies units, compodeed with san francisco and residence have been creative in how we use property, we use tic to be able to afford praurnts much more prevalent than other counies, that also comicates the multifamily picture. in addition we have a higher pirtage share of commercial i industrial space. there are not good compareable sales in the market place to mark our values, so what happenicize our office takes a look at a

lot of data and have to do more research on income generated by the assets and the cap rates and do analysis that is unique and different for our commercial and industrial properties. so, what is our approach and what do with all this information? i think our approach is pretty simple. we came to you last year with the same approach which is take the long view and get back to the fundamentals. we want to make investment that do good work in the long run. we are finally hiring into those position squz make sure they are put to work to work on the back log. there is also critical investment in the administrative function that serve as the backbone for the organization. we asked for continuance orphthe

[inaudible] and resource tooz address the capac tee manage. these investments have paid off and want to show in the ways it has mpt our office was able to fill 36 positions in the fiscal year, that is about 25 percent of the work force. that is no small #2350e9 rr for a organization. we filled 80 percent of the organizations funded in the budget. a know a critdicism orphour auchs and others in the past is we give you positions but don't fill them. frankly i think we made incredible progress to hire in into those positions because of the hr and adminl strative funchgzs you were able to address in the laest year. wie have it staff to support the organization and have also hired finance staff to support the work of contracting and other things we need to run the operation smoothly. the next 4 items are frankly things that really help to improve what it is we are doing for the

taxpayers mpt we were able through your help in terms of the assessment appeals team to be able to reduce the pending wait for appeals to be heard. that is significant to the taxpayer squz city. we expanded city recording of the key documentsism more than 60 percent of the 200 thousand plus documents now come in electronly. we no longer have to scan them and mail them to the owners. we also have e filing work flow for the business property statements. rather than receiving applications and having to key this information into the system by hand we have a automated way of having what is directly submitted on line transfer into the system. we launched a website to expand the taxpayers understanding of the office and have the resources to nishiate the preserveivation and

conversion of 205 thousand property files that don't have any other backup. in terms of what we are asking for this year boils down to a few things t. is the same strategy to inves in the long term and what makes the organization stronger. we are asking number 1, for flexibility. being able to restructure the organization to respond to the all real estate market. we talked about the impact of the down turn of the market and increase of appeals, however we are also similarly impacted by the surge of new construction activity happening noumpt rathder than pigeon holing the office to only dedicate staff to 1 purpose squu sissment we ask for the city to be flexible to have it staff to work on assessment appeal squz new construction as we see the surge in construction continue. number tworks we are continuing to invest in our people. we are creating number un, a path way to

staff to grow prfessionally that introduce the training program that helps the clerical staff to train for auditor position. this helps create a career ladder for individuals to stay in the office. we want to inivist in training. property tax law is not easy so we want to make sure we are up to date with the training required to do our job. fooinally, we are investing in our data. as you know the data is only as good as you put in the system so we want to take a look of the property cairbtistics and make sure they rup dated as much as possible. fine el, we want to continue to support our administrative functions so we are stable to do the apperations we need to. one area want to point your attention to is this picture, it is a picture of what is your fwo billion dollar

property tax system. it is a screen shot of oo old green screen computer based in col bault based language no longer taught in the school and that is the backbone of the property tax system. our budget is actually making a investment in something we call, no longer kicking the can down the road. we have requested and received funding for 360 thousand dollar to be able to move forward on real statanies and solution for this system what to do moving forward. there are a comal things that are a problem. if you look that screen it isn't completely user friendsly. amadgeen file upon file of this same screen filed one after aort, dependent on parcel and date and that is xhaut had the system looks like. if you want to know the sequence of events happening you can't do it with 10 or 20 pages. if

you want to find specific information you have to yeas these things. below is a menu, change in ownership, 2, change in ownership, function 3, [inaudible] something we want to change and improve given we have so much of the cities revenue riding on it. we don't want to see the system fail and this is a initiative shared by our aufsh as well as the controllers auchs as well as the tax collectors office. i should note the quoit committee identified this project as the top 3 #23r the city right after the replacement of the financial system and after the public safety radio project, so we truly are moving this project forward and trying to find long term solution where what wie do with this system. transitioning and want to indicate rks we respect the

budget analyst report, we do want to make sure we take a moment to clarify what the changes are in our budget. i'll say wree not in agreement with the report and the recommended reduction. this is a quick smapshot of the ft rks changes inl our department. if you take a look at the changes to fiscal year queen, 16 and 16, 17, it looks we are gaining 18 new positions. i want to break that down because it is poncht to kis tinguish where that comes from. 7.6 are new positions in the budget, positions we didn't have before. 5 positions are actually included from last years as you recall in the midyear cycle we accepted a grant from the state to hire new positions so this is truly the budget chewing up those 5 position put in the budget midway through. 4 of the positions are ree assignment tooz a on budget.

they were actually off budget position funded last years budget but moving on budget so it reflects and looks as if we are increasing by 4, but they are reassignment for off budget positions. there is 2.07 positions related to simp lal annualizing what was added the year before. here is also just a quick summary for you in terms of general fund support coming to our organization. you know, there are a few things that drive it-the increases to revenue in term thofz level of transfer tax, property tax coming in, it doesn't ever reflect in the budget. it is budgeted in the different parlt thofe cities overall picture. however, there is-we do have a few other revenues in the budget that help to increase or bring down the general fund support. if you take a look

the changes from 18, 15 are about 600 thousand dollars in general fund chaimpgs. our expenses have gone up about 700 thousand and recovered 100 thousand dollars to offset it. one sthof largest pieces of the budget is trully a revenue back fill because of reduction in the fees we anticipate next year. a few places happened in the market place, as you know we have fewerer recorded documents than we had previously. it is a reflection of a few things, one the fact there are fewer banks who are now recording thijs like reconveyance because simply fewer people refinances fwhau interest rate environment is low. more people are paying all cash for their property and so fewer bank leans and loanerize recorded on properties, so these are a reflection of why we see drop off in recorder revenue.

this is something we sooseen coming and reflecting the fact the revenues are dropping and can no longer support the level of operation we have. in a net shell, 40 percent is really just back fill thg recorder fees that dropped off. 37 percent of the 600 thousand is simply because we saw annualized position squz the city had overall wage and benefit increases that helped drive it and really only 23 percent are new investments in the organization. i would say this is a relatively modest increase for the type of benefit we bring to the city. with that we are happy to answer question. i want to take a moment to thank my staff for the hard work many who are working at this moment to [inaudible] deliver revenue aurmd in your budget >> thank you [inaudible] supervisor yee

>> thank you. madam [inaudible] recorder chew. just a quick question, in regards to the the caizs utalk about, i see there are decreases in 2 categories and increases in the development , i believe. i just-can you talk a little about the complexity of the type of cases and also whether or not as we are projecting a plsh down turn on the economy and whether or not those construction cases will go down or not and would it become a reassessment [inaudible] or assessment [inaudible] will go up? >> that you can for visor for the question. if i understand the question, a few things, you asked me to

explain the complexy of the different categories and assessments we do. chaimpgs in ownership, clearly these are instances where people buy and sell property. we see a number of large transactions happening whether it is purchase and sale of hotels or large commercial biltdsings that drive thiz transfer tax value. any time you have those kinds of properties transacting in the market place the work is more complx. if you take a look at-let's just say that 555 california is selling, there is no like comperable building selling in the market around the same time, so the way our office proceeds with that valuing of that property is work with the property owner to understand whault their income stream will look like, to understand the expenses they incur and understand

what the market places acceptable cap rate or rate of investment rorn is on the property. in termoffs compeace we see complexity in the types of ownership driving the eon caem. new construction, taking a look at what is developed across the city isn't easy. wree see properties developed sometimes on redevelopment land that has a number of different factors associated with it including remediation and other things more complex. we are also seeing that market place isn't building single family homes. they are building complex and mixed use that have not only the residential compoint and retail and office space component associate would it. [inaudible] our new construction work is also i think scaling towards the

more complex compared to where we may have been years ago. assessment appeals cases, we are glad we are seeing the number come down. wlee are not seeing as much single family homes appeal, their value than in the past but we still see commercial property appealing. if you have single parcels splitting it will be more complex and more work than in the past. that speak tooz the complexy of the different categories. i think your other question is how we make the swings in the eon caem. the way the rmt code work squz californias property 13 works we have to value the property at the time of sale. if a property is being purchased at a time when the real

estate market is hot and the prices are high, we have to value at that level. we caept value at a lower level anticipated we need to weather the storm, we have to value at the value the market requires as of that time. same scenario in 2008 when the market crashed we saw a ton of properties that lost value. in bay views and hunters point and excelural wu see single family homes lose value and had to grant temporary reduction and increased ringe. it is a complex picture and married with the market conditions >> just part of why i ask is when i look at the line graph that you put with the red line and green line >> yep >> i was just kierious in terms of the thinking behind

it because the complexity of these cases is a big factor and the type of cases you get changes the complexity >> sloutly. how do you account for it >> there is also that difference >> that is a fantastic question, thank you for asking it. the level of complexity is smck we need to take into account when we ask fl types of position. we may ask for more senior appraisers as opposed to entry level appraiser tooz deal with the chemeplex property we see. that may be something we ask for going down the line. the line you are talking about in terms of the-this slide here,-can you see it? yeah. the shride

you are seeing here is actually not even take into account the complex osthf work. it says if we assume how productive we are now and assume the last 3 years achberage in terms of new cases coming in, here is where we be if we had the stots quo budget or the budget we request td. you are asking a great question. this is saying giving the assumption about the level of work coming in and where we expect the office to be able to produce, this is where we think we'll be. in terms of the complxly question, we are going to take more time on a normal case than we have now because they are more complex properties and think that will influence the position in terms of the types of positions we ask going forward >> thank you >> any further questions? supervisor tang >> thank you. i do appreciate the long term

view that you have taken with the department budget. one question is regardsing the appeals. i know that portion comes out och inboards budget and we added a new team i think in the last budget process so wonder how that is going and if there is thought in the future adding teams for assessment appeals >> thank you for that question. as you know supervisor the assessment appeals board is a division of the san francisco board of supervisors. in some of the other counties the board actually hears assessment appeals caizs but in san francisco you delegated that responsibility to your appointed board members. we over the past year worked with your clerk of the board to be able to seat additional positions and board members to hear cases so we seated a third board. something i urge you to do as you see applicants come in is pay attention to