amendment to 25 days. supervisor yee, an opportunity to be able to ask the tenant questions directly if you don't mind. >> sure. >> so, i would like to bring up the representative from another planet. >> as you heard from the discussion, supervisor yee has a few concerns about what's proposed before us. >> yes. number one, city days proposed, take into consideration any and all of the graduation for the schools, that does not impact. and they can pull from the calendar the general overall mission we are under to activate

the space as much as possible. so our task is to book as many events as we possibly can to fill the need to activate the neighborhood. so, it was the city's proposal that since they were not using these days, it would make sense to free those up so we would have more opportunities to book more live concerts and other events to activate the area. if there's -- if there's a date the city needs beyond the days that are guaranteed, which are days which the city pays no rent, simply whatever the cost of that event might be and it's a pass through, in that case, the city could request an additional day, and if it's not a day that's booked or a day that's necessary for another event, then it's possible that it's likely that that would then be allowed. so, that's really the way it's

worked and the way it would work in the future. did you have further questions about that? >> when you say allowed, are you saying allowed without the city paying any rent back to you? >> i'm sorry, could you repeat the question, i didn't hear it. >> the agreement right now is 25 days where the city could use the venue and there wouldn't be any rent charged to the city. >> correct. >> and beyond this, go extra days beyond 25, would then your management company charge the city back, i guess, rent to use those two extra days? >> no. >> ok. thank you very much. >> all right. thank you. seeing -- public comment is closed. i am happy to entertain a motion at this time. colleagues. >> i'll go ahead and make a motion to pass this out of committee with positive recommendation to the board.

>> thank you very much. take it without objection. and that is without objection. thank you. madam clerk. please call item five. >> resolution retroactively authorizing the department of public health to accept and expend the grant, public health foundation exercises, august 1, 2017, through july 31, 2018. >> legislative sponsor is supervisor sheehy, but hearing from mr. albert lui from the department of public health. >> good morning. sorry, dr. liu could not be here. >> you don't look like him. >> sorry, he could not be here, something last minute. i'm from the department of public health, budget analyst that supports dr. liu, here to ask for retroactive approval from a grant we received that supports his efforts and manager

eight position. the goal is to develop an app to support youth in taking prep and also to measure the prep adherence, and hiv pills to prevent infection. >> thank you, i think it's simple and straightforward. resolution to accept $174,000 grant from the public health foundation enterprise, and the funds go to study a tool designed to help hiv positive men adhere to their prep medication. so -- what i would like to do now, no discussion with my colleagues, go ahead and move into public comment. public comment is open, item five. any member of the public that would like to speak on item five? seeing none, public comment is closed. thank you very much. thank you, sir. is there a motion on item five? >> motion to send forth item five with positive recommendation. >> thank you, take the motion and pass unanimously.

>> appreciate it. madam clerk. item six. >> item number six, resolution approving lease of parcel 125 bayshore boulevard, w.y.l. orion, for use by the department of homelessness and supportive housing for emergency shelter purposes initial rent of 489,000, 3% annual increases. >> all right. thank you very much. the sponsor of this legislation is the mayor's office. the speakers today are going to be presenting from two departments, first recognize john updike from the department of real estate and is jeff coming, emily will be here presenting on the office of homelessness. and supportive housing. and recognize carolyn guzen also prepared to speak on the item. before we go any further, hear from the supervisor's office

first and then we will hear from real estate. thank you. >> thank you, chair cohen. supervisor could not be here today, my name is carolyn, and she wanted to voice her strong support for this lease, and for the opening of the navigation center at 125 bayshore, and also say thank you very much to supervisor cohen for hosting the site as well as the department of homelessness and supportive housings and the department of real estate for this work on this. the location of this navigation center is in district ten, but the edge of district nine, and the area known as the hairball, often hosts large tent en campments. working on pedestrian and bike safety and hope to transform the area in partnership with supervisor cohen's office. real safety is not possible until the people living in

precariously placed tenting encampmentes can have a place to lay their heads. it will provide people in the unsafe conditions with a place to stay and provide them with services to help them get back on their feet and exit homelessness. supervisor ronen was instrumental to obtain the funding for the lease and special thank you to assembly member phil tang, for leadership and securing the funds used for the site through his role as a chair of the california assembly budget committee. thank you very much. >> thank you very much. colleagues, i would like to add there is no secret there is a shortage of beds and shelters and opening a new navigation center quickly, particularly to close the pedestrian and commuter safety issues in and around the hairball is critical and very essential. i'll be supporting this lease

that we are going to hear presented today and given the emergency ordinance that allows the fast tracking construction of navigation sites, i hope we'll be able to begin to see additional locations outside of district six, outside of district nine and outside of district ten. and with that, i would like to bring up john updike to make a presentation on behalf of the real estate department. >> thank you, director of real estate. having some technical difficulties, we'll do the power point the old fashioned way on the overhead. that would be great. i'm joined as you mentioned by emily cohen from h.s.h. she will go into the programming for the property, i'm going to highlight the points of transaction before you today. so, the property 125 bayshore that is shown, we have located four particular navigation center sites, and this particular one shown at the

bottom center of the map on the screen. that's just south of cesar chavez, bayshore on one side and gerald on the other. entrance off gerald rather than bayshore, pretty busy street. this lease before you is an initial six-month term, five one-year renewal officials. an unusual property, split about 50/50 between office and warehouse. it's on a lot of 31,700 square feet, made it very attractive location for us, geiving us som outdoor space as well as indoor space on the premises. the lease rate as shown in your package, 21.29 a square foot per year. we expect utility and service expenses beyond that of an

approximate $1 per square foot per year. as indicated in the budget and legislative analyst report, the rate is in the range of comparable properties. again, we, this is a blended rate, so it includes office space and warehouse space and we are actually in the warehouse space range. no appraisal is required because of the admin code provisions here. this is a very low lease rate that we are talking about. we completed comprehensive analysis in the bayview prior to negotiating this transaction. so, that helped inform this negotiated rate. that data was shared with the budget and legislative analysts and helped them come to their conclusion on the recommendation here. the rate will increase annually at 3%. we will not commence paying rent until april 1st. we will start construction before that time, so, there is essentially a free rent period. there is an estimated opening

date of may 2018. there are substantial tenant improvements here. emily will highlight the features that are unique to our needs for the property. turn it over to emily, take it from here. >> thank you, emily. nice to see you. >> thank you, good morning supervisors. emily cohen from the department of homelessness and supportive housing. as you all know, homelessness is a crisis impacting san francisco. we have approximately 7500 people experiencing homelessness on any given night in our community, and 4300 of those folks are living unsheltered. we currently do not have the emergency shelter capacity to meet the demand. we have a consistently over 1,000 people on the shelter waiting list. and this past november, mayor ed lee challenged us all to bring

in additional 1,000 people off the streets and navigation center is part of that, our way to respond to that challenge. thank you. we have five navigation centers open for under the department of homelessness and supportive housing, one under department of health, four navigation centers in the pipeline. part-time, low threshold programs serving our most vulnerable folks on the street. intensive social services are available and referral into navigation centers are conducted through the encampment resolution team and the homeless outreach team. and navigation centers are a key component to the success of our ability to resolve encampmeants off the streets. excited for the opportunity to open at 125 bayshore, 125 bed facility, focusings unsheltered people experiencing homelessness

and folks in the immediate area. like other navigation centers, this will have 24-hour staffing and operations. this means there is no line-up outside before curfew time. the 24-hour site activation will improve safety in the neighborhood and every shift will include safety personnel. terms of the facilities, the feature -- features of the facilities certainly include dormitories, bathrooms and showers, laundry, dining and community space, service space and storage. we found these components are essential to a functioning, a well functioning navigation center. the drawing is a little hard to tell, but you can see the layout that public works has proposed for the site. in terms of community engagement, we held a community meeting last week in the neighborhood and had a very positive and warm welcome from the neighborhood. we look forward to continuing the community process and

continuing dialogue with the neighbors. and the last bit of my presentation is just on the timeline as we move forward. we are hoping to execute the lease right away. march to may will be a construction time frame with the estimated opening of may. navigation center, and if you have any questions, happy to take them. >> thank you. for your presentation. let's see if -- colleagues, any other questions that you have? all right. let's go to the budgets legislative analyst for their report. >> in terms of the lease itself, as mr. updike said, this did not require an appraisal, it fell below the threshold by the administrative code. rental rate for the warehouse portion is 1.50 per square foot, in the survey range that the real estate provided us. the cost of the lease over the approximately five and a half years of the term would be to the city, $2.8 million.

i think our one issue with this lease and you'll see it also in future legislation coming forward is the cost of the tenant improvements. the budget we were provided by public works, $3.2 million. we do, for use that would be five years or less under the lease. we did talk to the department of homelessness. their goal for the navigation centers are for a mix of short-term and longer term navigation centers with centers being open at least three years. we actually ended up recommending approval because the tenant improvement costs are consistent with the tenant improvement costs with other navigation center, and because this would add beds to the navigation centers at the same time that two of the other centers will be closing in 2018. so as i said, we do recommend approval. >> you do recommend approval.

supervisor yee has a question. >> what's the term -- how many years is the lease? >> supervisor, your question is how long is the term of the lease, initial six-month term. that's primarily for seqea reasons, and five annual renewals. five and a half year maximum term. >> is, for the other navigation centers, i know, well, what's the length of those leases? >> good question. one that was also posed by the budget and legislative analyst during their review process. the challenge here is most of our others are not leased. the other lease facility we have at 1515 south vanness is a

temporary lease until they move forward with the housing project and that's fairly short-term. that was initial six-month, and we are in a second six-month bridge and then we expect to be vacating that. so, that will only be about a one-year occupancy. these do tend to be fairly short-term. other locations are on owned premises, and the caltrans locations, will be annual self-renewing. they could be for longer term, but run year to year until terminated by either party. >> and when they were asking the questions, maybe i -- maybe my question is directed towards the b.l.a., or whoever could answer this. what's -- just looking at this in isolation, and if it's a

five-year lease, and improvements would be sort of equalize it over five years, 700,000 a year. is that sort of typical that we spend 700,000 for one year worth of usage? >> i don't think there's a typical metric that we can look at. however, there are a number of these improvements that can move to other sites. some improvements that we have already received approval from the landlord to remain on-site, which is great. we don't have a removal requirement, that's a cost savings in the budget as well. so, i think we are being as diligent and thoughtful as we can about the improvements, recognizing we may only enjoy them for five years. >> ok. now, again, one of the situations where we need to do it, i'm just also wanted to make

sure that we know what impact fiscally when, at some point we may question, for instance, if you are going to be able to use something for one year and going to put $2 million for improvement, is that really worth it. thank you. >> thank you. open up public comment at this time. i have two cards here. i've got charles defergus from bicycle coalition and ace on the case. >> good morning, i'm a community organizer on staff at the san francisco bicycle coalition. very happy to be here supporting the proposed lease as the navigation center. promote the bicycle for everyday transportation and 10,000 members supporting that cause. biking does not occur in a vacuum, however, and our

movement moves with others in san francisco is important satisfaction for the work. most clearly demonstrated at the hair ball, a series of paths, where the avenue, boulevard meet behind highway 101. despite being hard to navigate, the home to many who are experiencing homelessness. city officials estimate on any given night at least 7500 people experiencing homelessness, many of whom take shelter at the hairball and surrounding areas. at its worst, 60 people living in encampmentes. those numbers have gone down, but many still remain, including those who remain on nearby streets. the navigation center at 125 bayshore will help those living

nearby need. thank you supervisor cohen for finding real solutions and believe the navigation center will provide opportunities for safe passage for walking and biking at the hairball and addressing homelessness. thank you. >> any other public comments on this item? come on up. >> why did you go to the back? we only called out two names. come on, two minutes. good to see you. >> good seeing you, supervisor. listen, might as well get used to seeing me every time you do the public testimony, whatever it is. i am the creator. one of the creators of government channel and i say this regularly, you are going to hear it more. i don't get the credit for it, i don't want credit, you pay me, pay me some cash. >> before you go any further, i need you to talk on item six, the real property lease. >> i am, hold the time, stop the time. >> no, we are not holding time.

>> why did you stop me, supervisor, i know what i'm supposed to say, you didn't stop that white guy, don't do that to me no more. >> stay on the topic, ace. stay on topic. >> i'm staying on topic. you stopped me. >> now i'm letting you go. property lease. >> say it clear. you are going to hear in your ear, particularly yours as you smoke out, supervisor, from the east side. i'm on your case now. i'm coming out there. and by navigate that don't mean nothing to us we is us, you and me, black folks, we are not -- we are not represented -- listen, in the black population it's down, i'm talking about the homeless. the black homeless. don't have to pull out my race card, let me speak. i'm going to sit down and start over again. i didn't come up here to get upset. i came up here to speak before the people that's looking in the audience, not you, not them, this is being paid by the city and county for public comment.

so, i forgive you, you don't -- i forgive you. don't do it again. please, nobody. i'm going to be longer here than all y'all, and i give respect but damn it, i demand respect. this is government tv, the whole world -- i will speak, when the time is up, i'll stop. that don't stop nothing. it's not stopping us now. you have to understand that, girl. ain't no stopping us. >> just for the record, we are talking about real property lease. >> i know. >> 125 bayshore navigation center. is there anyone else in the public who would like to speak? public comment is closed. thank you, thank you. next item, actually, entertain a motion on this item? >> i'll make a motion to send forth item six to full board with committee report. >> take it without objection. moves forward. thank you.

to the full board, and we are going to go a little out of order, steak with the theme of homelessness and call item nine up. >> resolution authorizing the department of homelessness and supportive housing to accept an expennsylvaniaeded grant in the amount of 10 million, expansion of navigation centers for those experiencing homelessness. >> supervisor ronen and the mayor are sponsors of this, and also office of homelessness and supportive housing, i'll let you explain. go ahead. >> there we go. emily cohen, some power points on the side, the slides are not working. presenting today on a resolution to approve the accept and expend

of $10 million for the funding for navigation centers. allowable uses is acquisition of navigation center sites, construction and repair of navigation centers, operations and service provision in navigation center sites. the proposed use of the funds includes one-time costs for the division circle proposed navigation center and the 125 bayshore navigation center. a proportion, a portion of the lease costs at 125 bayshore, f.y.18 operations at division circle, total $10 million that is available through this funding. a little bit about the two projects that we are committed to using this funding for, 125 bayshore, 125-bed facility that you just heard about and the second project again reiterating the opening of that project will be in estimated to be in may of 2018. the second project that is dedicated under this funding is

another 125-bed facility at division circle. which is where 13th and vanness come together in an existing parking lot. this navigation center, approximately 125 beds, homelessness around the mission area. access to the site is through referral from hot and this is currently a caltrans owned site and projecting opening of the site in april 2018. extend sincere thanks to mayor lee, supervisor ronen, and assembly member tang for their leadership in securing much needed expansion of navigation center beds in the community and happy to take any questions. >> thank you, i don't think we have any questions at this time. any other colleagues, any other questions?

oh, miss ronen -- on behalf of supervisor ronen. >> thank you very much. supervisor ronen was unable to be here, but wanted to voice her strong support for these funds. supervisor ronen was instrumental in getting these funds and working closely with assembly member tang to address the homeless crisis in the mission and throughout our city. and she wanted to extends again a huge thank you for leadership in getting the $10 million from the state to address enca encampments. thank you. >> thank you very much. seeing the colleagues have no other remarks and seeing there is no -- there is no budget legislative analyst report, i have one question for you, miss cohen. i realize the money is not site specific but given the cost of

125 bayshore, the lease, how many additional people do you expect that this money would allow us to house? >> that's a great question. these funds will go to open additional 250 beds and assuming, sorry, i'm bad at math, turnover of 4 to 5 times a year per bed, i think, you know, we can estimate it would help us serve 800, 900 people a year. >> ok. >> while its open. >> another question occurred to me, related to the previous item, do we have a sense about how many money fast tracking navigation centers, fast tracking beds, fast tracking shelters, how much through, how much construction dollars it's going to cost through the emergency ordinance. any kind of expectation on the

cost? particularly paying attention to tenant improvements. >> melissa. >> thank you. mayor's budget director. great question, supervisor. i will have to get back to you on the difference if we had not fast tracked versus fast tracking. what i can tell you, for the two sites, the $10 million covers all the one-time costs of getting the sites ready and covers the current year, almost all the operating costs if the sites are up and running, as fast as we are hoping, and i wanted to thank supervisor ronen's office and the supervisors for moving this forward. pleased to get state funding what otherwise would have been generalized costs. i'll get back to you on that. it's a great question. >> colleagues, no questions and no one on the roster, open up to public comment.

>> y'all call it silly hall. now, i agree with whatever you talked about. i just left your office, to let them know, please don't do that to me again. i support whatever y'all are doing for right now. so therefore, let's talk about, i support it. whatever y'all are talking about. now, i could speak public comment. bottom line, this city and county by the bay, i want all y'all to hear this. policy makers and all of y'all politicians, beware, black history month is coming up in a couple week or so, the shortest month of the year. but my sister over there, i respect, all of that, but until y'all give me my respect, you can sit there and frown all you want. i was here before you came, i'll be here before you go. you are a cute lame duck but i don't give up. now, my name is ace i'm on the case. i'm going to be talking from here on out about the black community where our population

is going down. one last thing before i say this. ♪ what's going down in this town ♪ ♪ the black population is going down ♪ ♪ but i want to know who, who, who, who ♪ ♪ who's in control ♪ right here, ooh, ooh, in san francisco, y'all ♪ ♪ hee hee hee hee, the city by the bay ♪ ♪ hey, hey, did you hear what i had to say ♪ >> now, 20 seconds left. now, let me tell all of y'all, i'm going to respect everyone, i'm a grown man, got kids, got -- a lot of the politicians don't have kids, they act like they are for the community.

my name is ace, and i'm on this case. >> public comment is closed. item seven, please. >> make a motion to pass nine. >> motion made by supervisor yee to be passed. >> positive recommendation to the board. >> thank you. item seven. >> appropriating 1.1 million from the airport, and police training support facility capital project. >> ok. so, we have our friend from the airport, kathy wagner back with us today. happy new year, kathy. i think you are going to be speaking also on item eight as well. so, we'll take seven first and bring you right back up

immediately. the floor is yours. >> thank you, chair cohen, members of the committee. airport is speaking your approval to appropriate $1.1 million in airport asset funds, the airport collects airport forfeiture funds. may be used for capital projects and other expenses related for narcotic -- and 776,000 in asset forfeiture funds, and new amount, for total of 1.1 million

to use towards the replacement for training training facility at the airport. the airport currently maintains an existing police training facility, but it is past the successful life. it passes restrooms and in need of improvements. improvements for indoor simulator room, observation tower, shooting range extension and improved infrastructure for nighttime police training. the airport capital improvement plan does include funding to replace the current facility, at a cost of $7.2 million. and it will be funded with general airport revenue bonds. the total project increase would be $1.6 million, including the 1.1 million in asset forfeiture funds before you and half a million in airport funding.

budget analyst has recommended approval but i will be happy to answer any questions that you have. >> thank you. i see no names on the roster, we'll hear from the budget legislative analyst. >> yes, as miss wagner said, use of asset forfeiture funds for the new training facility, police training facility. the plan includes $7.2 million for the facility. the police department actually asked for additional $1.6 million in improvements, of which 1.1 the asset forfeiture funds and 500,000 other airport revenue funds. on page 16 of our report, table two, a detailing of what the additional 1.1 would be used for. these funds have been approved by the department of justice and the airport commission and we recommend approval. >> thank you very much. appreciate that recommendation. colleagues, any questions? all right. go to public comment.

public comment item seven. >> i have a condition. although i'm patient, i am impatient of the city and county of the health department because of my surgery i had. i support the airport, all that, but we are going to go about what's happening out at the airport. it is discrimination out there at the airport. go back to history with the human rights commission when they had the cross out there, hanging cross. so, history is there. i'm historian. before all y'all was with the airport out there, we had big problems with the blacks. human rights. back there when, may he rest in peace, ed lee was working with the human rights commission. my name is ace, y'all, i'm on the characters i'm not going to waste your time, all i have is a minute or some left. i support the program but the study is still pending. when i get up here and say i support it, i'm doing it for the viewers because everybody is on files. everybody, i have dosiers on

everybody, you better believe that. yeah, i've been thinking i've been wrong, walking around looking like mr. magoo. but this city and county is in the brink of having a lawsuit that will stop everything out there in the southeast. out there in the mission bay. out there in everywhere. because in the fillmore, as i coin it, the feel no more, not around no more, and everybody look at me like i'm not around here. i'm alive and direct. 33 seconds, i support ya, i keep that going. just yesterday i had to have the ambulance come pick me up out of the mayor's office. i was assaulted by one of the details that are supposed to be guarding the mayor. can you believe that? ladies and gentlemen, this is a blues break, they say ace you are not a reporter, you don't have -- when i get up and speak it's for the public and giving them information they don't hear

from the conservative papers that's obsolete. my name is ace, damn it, and i'm on the case. >> are there any other speakers? all right. public comments closed. is there a motion? >> i'll make a motion to send item seven forth to the full board for consideration. >> passes unanimously. >> eight, resolution improving modification of the lease with the united states of america offices occupied by the united states transportation security administration at the international terminal and terminal two at the san francisco international airport to extend the lease term by three years and adjust the annual rent to approximately 2 million. >> thank you, kathy. >> thank you, chair cohen, members of the committee. proposed resolution before you would approve the first

modification to the airport's existing lease with the transportation security administration, and extend the term for three years, through october of 2020. the lease rent is approximately $1.7 million a year for total rent over the entire term of almost $6 billion. t.s.a. is required by statute to oversee at the airport, including airline passenger and baggage screening offices and the airport is also required to offer the t.s.a. the necessary rental space with the fair market value rent. the proposed extension would retroactively approve the first modification to our existing t.s.a. lease, starting retroactively to november 1, 2017. the budget analyst office has reviewed the lease modification and recommends approval and i would be happy to answer questions. >> thank you for being available

to answer questions. we are going to hear from the b.l.a. at this time. i do have a question for the b.l.a. you have noted the city allocates free parking to the government leases. maybe you can talk about that in your analysis. >> yes, in, just sort of repeat what miss wagner said, it's retroactive to october of 2020, the first year rent is almost $2 million and rent is set by the airport and charges. it has 52 parking permits for t.s.a. staff at no cost. our understanding, this is our policy that it's at no cost to airport employees. opportunity cost of the permits is about $1.4 million per year. but because of the revenues to the airport under the extended

lease, we do recommend approval. >> thank you, appreciate that. colleagues, do you have any questions regarding item eight? seeing none, public comment is open. >> where i am, the government, i'm going to be coming up here, let me back in the press room, oh, i support whatever y'all are talking about, off the record. but public comment is mine right now. and i'm using this opportunity, ladies and gentlemen, to express my views, getting close to black history month, talk about everything else. so, black history month, ladies and gentlemen, y'all are going to find out what's going on at silly hall. the black folks from the janitors up to whoever is doing what. a special that i've been trying to do for years, i'm going to do it this year. bottom line, my name is ace i'm on the case, has to be a new

beginning, has to be an uproar from the ground roots and brought up. we as black folks, i'm telling y'all, i'm here at city hall, y'all, over all y'all. i created that, until you find and put some legislation together to stop me from being up here, testimony, and they are going to try it, trust me, i'm going to tell the word until i got what everybody else has. white media, asian media, we do not have black media here at city hall. what's wrong with that y'all, discrimination, y'all, i'm trying to tell you at city hall. my name is ace, i'll give the 45 minutes back to y'all. >> public comment closed. >> motion to pass out of committee with positive recommendation to the full board. >> all right. motion unanimously accepted. thank you.

>> madam clerk. item ten. >> item number ten, hearing on the overview of the budget, projections and instructions requesting the controller's office and mayor's budget office to report. >> melissa and kelly here from the mayor's budget office. be we begin, a couple remarks. so, colleagues, budget season is almost here and the budget subcommittee will be meeting soon beginning in march. we'll be trying to identify specifics the board's highest priority budget issues. this will help us identify the greatest needs across the city and focus our budget presentations on the departments that are most directly intersecting with our policy priorities. i believe this will help us bring the budget discussion more into open. it will allow us to start conversations earlier, and generally provide for a more

transparent process. i look forward to the active participation, not only of the stakeholders, but also colleagues and department heads. and that, transition over to melissa whitehouse from the mayor's budget office. >> on behalf of all three financial office, we look forward to working with this committee to implement the changes noted by the chair. mayor's budget director, and i wanted to introduce kelly kirkpatrick, deputy budget director, and acting budget director when i'm out on maternity leave. and we are joined by others, should you have any questions. this was a joint effort putting

out the joint report. so with that said, we are going to cover the joint report, in the off year of our five-year financial plan this year, that means we are doing a four-year update to last year's five-year plan. we are going to be then looking forward in some of the existing areas of concerns and future risk and uncertainty, and kelly will give a quick overview of the budget instructions we presented with mayor lee in early december. so, first before we jump in, talk about, two summary slides, if everyone leaves today's, what do i want you to take away? short-term, the fiscal picture is similar to this time last year. the committee, here for last year's budget, very familiar. so, we had about a $287 million deficit in the march update last year that we had to balance by june 1st. this year, the upcoming two-year deficit, projected to be about $262 million for the next two

years. so, not, you know, similar to where we were in the spring. but i think the thing, i did talk about with the committee last year and still on my mind, concerns in the medium to long-term. so, existing areas of concerns that show up in the joint report. and that is around a growing employee cost. the cost shift from the state around the in-home support services program and the large and growing number of baselines and set-aside. and future risk and uncertainty, areas that i'm watching and all watching very closely, timing of the economic cycle and a lot of risk from the federal government around tax reform, affordable care act, budget shutdowns, etc. so we are going to go into a lot more detail on all these items, that's the high level, and when i think about knowing that about our fiscal picture, you know, what do we advise policy makers to do, and thinking about this, we need to continue fiscal

responsibility that mayor lee had priced, and the same with this committee in last year's budget process, continuing to grow our reserves, limiting ongoing and funding strategic investment. so the capital budget, i.t., other items to flex up and down if the revenues take a fall and also things that really provide savings over the long-term if we fund them today. instructions to departments, similar to last year. 2.5% revenue or reduction targets in the first year, 5% in the second year. no growth asking departments to absorb cost increases and strong emphasis again on no new f.t.e.s similar to last year. >> kelly kirkpatrick, deputy budget director. published a joint report in early december, and update to that, update the deficit in march. the report published in december, assumptions underlying

the report, it first starts with a base case projection, stating that given current policies as they exist, projecting out expenditure and revenue based on that, should policies change, you know, that would affect the deficit projections, and from there, the revenue assumption, underlying the report, the economy is strong, there is no down turn or assumed in the deficits, that would definitely impact our projections. that revenue growth is slowing in the outer years due to constraints. generally the report assumes growth of benefit costs for employees. notably, health costs are exceeding the rate of inflation, by quite a clip. and pension costs are also growing at rates that we had not anticipated in previous projections. and melissa will dive more into the details of what is driving that. additionally, we do assume

inflationary costs on personnel. again, these are projection assumptions. we are mandated to balance the budget by june 1st, so the deficit is, you know, showing that we must bring those in assignment. additionally, citywide costs assumed nonpersonnel, grants from nonprofits, the costs, we will look into more detail about that, about cost shifts from the state are included. and from a politic perspective, includes funding for the hall of justice exit plan. melissa stated the upcoming two-year deficit is approximately $262 million, where we were about march of last year. but, over the four-year horizon of the report, you'll notice the top line projects out the revenue is expected to grow to about $437 million, expenditures are expected to grow to

$1.1 billion, leaving a four-year deficit in that, sorry, deficit in the fourth year of 709 million, so it's driving that gap, expenditure, the largest are the assumption of salary and benefits, making up nearly half of that deficit. and further, citywide operating costs make up about a quarter of the expenditure growth, and that is again inflationary drivers related to nonpersonnel and grants. and then baseline and set aside as we talked about a lot. you know, rapidly growing. of the 16% of the expenditure growth, nearly three-quarters are tied to the m.t.a. and children's baseline growth. and departmental costs are the smallest pieces of the pie, they are making a bigger percentage than years past. represented 5% of the expenditure growth, and now it's 11%, and that is largely driven by the massive cost from the

state cost shift. >> great. drive into a couple more of those cost drivers. so, one thing i've been thinking about a lot, and talked with the committee last year, we started noticing it, about our structural deficit in the out years. this is what the financial plan has allowed us to do, to look forward into the future and see problems on the horizon. and you can see from the chart, taking the fourth year of every report since 2011 that our offices have issued. and it's showing you that in 2011, the year for projected deficit was above 700 million, and came down several years in a row. and in 2014 when we put out the report, we had halved the structural deficit. brought revenue and expenditure closer in line with each other, which is really great. and then a period of extraordinary growth and the

benefit is back over 700. so we have thought about why is that happening and figure it out. and by and large the biggest answer is around rapid employee cost growth. when you look at what's happened from when we put out the 2014 projection, you can see that pension costs are the most significant change, about 200 million plus of the change and the deficit, and that's as a result of losing the lawsuit, that says in years when we have one time better than expected news, with he have to give an ongoing base building coa to the retire he is. and when -- assume 7.5% return every year, i know very familiar with, and in years when we do not have that, it's phased in over five years. and the reretirement system updated the mortality table, and the employees are living longer, an excellent thing.

paying pensions over a longer time period. the next biggest thing is actually c.p.i. has gone up, so the assumption or report we pay c.p.i. means that it has gone up in our report as well. and the last thing which kelly noted is the health benefit. health benefits, especially due to the uncertainty in the market with the current federal administration and the affordable care act, almost double digit growth for employees in the health benefit, almost three times inflation. that's having a big impact. a slide digging more into the pensions. a sense of looking at the budget what has changed. ten years ago, spending 2.5% of the general fund on the employer contribution on the pensions. today 7% of our general fund. even though the general fund has grown significantly over that time period, the percent of the general fund spent on employer contributions on pensions has

gone up, and you can see correspondingly it has gong up a large amount. and compared to the problem -- projections a couple years ago, hit the peak and then down with the orange line, the costs are going up on the red line. so, higher, already higher than what we thought was going to be the peak in 14-15, almost 100 million above that by 2021, a really significant change from a couple years ago. and then one final point on employee cost growth, and the reason i want the slides in here, i want people to understand why we are saying no new f.t.e. when we add it into the city's budget, it's not that we are not proud of and happy about the service restored after the down turn and the board and mayor lee have added to the budget, we are, but now we need to stop growing and need to maintain as best we can.

because the costs of an employee is going up much faster than our revenue growth or inflation. so that's something that we are thinking a lot about. pt and then i want to thank supervisor tang and supervisor peskins for the hearings they have called and the attention to baselines and set-asides, something a big concern. slides lifted directly out of a controller's office presentation and the only two points on that are similar to pensions, if you look back, many years ago to the mid 1990s, spending about 14% of the general fund on these voter mandated base lines and set-asides and now over 30%, almost a third of the general fund budget. makes it so the mayor and the board are not able to make policy tradeoffs and decisions on how to spend in certain areas. and particular point, how unique in san francisco. statewide, there are 19 baselines and set-asides.

most have non -- i'm sorry, we have 19. across the state there are only ten. so, really very, very san francisco specific issue. and next i know this committee has heard a lot about this, and supplemental that you all supported very recently on the ihss program was the largest part of that. you can see the bottom line on this chart is showing what we projected growth to be, 80 million growing to 96 million. and now what we are projecting is that it's going to be 175 million by the end of the four-year cost shift from the state on this program. so something that is also a very large chain from the report put out even last year. so, now i'm shifting away from things that were in the report to things that i'm, that we are all thinking about that are not reflected in the report. slide 16, to say with he have

seen a lot of growth, eight years in, the third longest economic expansion since 1945, the gray line showing on average growth of about five years. so, we are overdue for, you know, some sort of shift in our economy, and no one sees one on the horizon. i'm not saying that there is one coming, just something that we are mindful of. and this next slide, 17, to really try to put that in context. so, when i say we can have a big economic shift, what would that mean and look like, and for me, the two revenue sources i would look at to think about that most are fund balance and transfer tax. transfer tax, the blue area on this slide. transfer tax is generated 75th% is generated on $10 million and above commercial properties changing hands. so, very, very volatile revenue source. you can imagine a change in the

economy and large commercial properties stop changing hands, that could dry up quickly. and similarly, fund balance, one-time generated benefit, you can see how much that fluctuates over time. it's not an ongoing, stable source of revenue like property taxes or other things. right now in the current 17-18 budget, almost $500 million assumed on these two sources. in some years, in down times, 100 to 150 million. this is where i would look if we were seeing a shift in the economy, to see what's going on with these sources. the last item of note on this, as i said, not a lot to say in the committee. i know it's been great having a state and federal select committee i believe you will hear in february, but so much risk from the federal government. how will the tax reform play out for us, the individual mandate requirement going away in the

tax reform, and then any other larger changes around affordable care impact us. will there be potential future government shutdowns. all of these items are unknown to the city and so i still feel like although we have not seen anything very drastic yet in our city's budget, related to the federal government, i am very concerned about how this year's budget might be impact the by actions taken at the federal level. >> i have a couple questions. >> please. >> you know, there's been discussions of some budget supplementals that colleagues are going to be introducing or, and/or have introduced. and a little concerning about the level of commitment that we are committing ourselves as well as future boards. i don't know if there is any insight you would like to share with us as we continue to move forward, particularly as we go into the hearings about supplementals, and how they have an overall impact. >> that's a great question,

chair cohen, and appreciate the question and share your concern. say to people and policy makers when considering supplementals, asking someone, do you like a certain thing, probably the answer is yes, but i think for me the most important and hardest thing to do is to make these tradeoffs in the largest context. so, if you want more child care spending or more street cleaning or homeless spending, all of those should be considered together when you know how much money you have and what tradeoffs you are making. if you decide to do one thing in ice lake, you are making a choice. you are taking away authority to decide to spend that money on something else at a later date. and any money that gets generated in the current year, from one-time savings, we have assumed that money goes to balance the budget. i always encourage any policy maker that will listen to me to try to maintain making those