. >> good afternoon.

all right. ladies and gentlemen, good afternoon. i want to welcome you back to the budget and finance commit r -- committee, the second installment of the day. before we get started i want to recognize linda wong who is assisting us with today's meeting. also at sfgovtv, we've got jessie and lawrence. and my colleagues. to my far left, we have supervisor norman yee, and to my right we have supervisor sandy fewer. madam clerk, are there any announcements for today? [ agenda item read ] >> supervisor cohen: okay. thank you, madam clerk. do we need to take a vote to -- >> clerk: would you like to take a vote to excuse

supervisor self aknee? >> supervisor cohen: yes, i would. to colleagues, i will put a motion out there to excuse supervisor stefani. thank you. that's been seconded by supervisor yee, and we'll take that without objection. thank you very much. [ gavel ]. >> supervisor cohen: and madam clerk, would you please call item one. >> clerk: yes. [ agenda item read ] >> supervisor cohen: all right. ladies and gentlemen, i cannot believe we don't have a full house on this one because today, we're hearing from the mayor's budget office and the controller's office regarding the fiscal health of our city, and i can't think of a better place to be than here. so kudos to all of you who made it out here today. just to give you a backdrop, the controller projected a shortfall fo shortfall for the fiscal two years. this report is indicating that the shortfall is decreasing, now at only $140 million for

the next two years. however, these increased revenues a revenu revenues are largely one time in nature. the deficit is still projected to increase to $652 million by fiscal year 21-22, and this is driven been a increased projection in salaries and benefits, projected to increase 500% by 2021, and this will also makeup nearly 50% of the budget, so these are very important conversations that we are beginning today, and they will continue into the future. i think it's important that we think about these cost drivers as we head into the next fiscal season, particularly if we were to add new full-time employees across all departments. with that, i want to bring up miss kelly kilpatrick from the

mayor's office of budget who will be leading the presentation today. thank you. >> good afternoon, supervisors. kelly kirkpatrick, acting budget director for the mayor. i also have michelle allersma from the controller's office to answer any questions that you may have during the presentation. the five year update, called the joint report that we put out in december, we have come out with a march revise to that, and as supervisor cohen did a great job of priming everyone for, we must balance the up coming budget by $137 million. the joint report and joint report update with a joint publication between the mayor's budget office, the controller's office, as well as the budget and legislative analyst's office. as a reminder, both in the

december report and this march update, we utilize a base case projection, meaning we take policies as they currently stand. no big swings in either funding or federal kind of policy changes? federal's just an example, and make our projections based on that. another large assumption is that there is no downturn assumed, so we just continue to assume status quo more or less? and where will we land knowing that status quo given some other cost drivers that are known entities. and in that realm includes revenue, so the december report as well as march report assume that the economy is strong, but revenue growth is slowing and there's signs of growth constraints? for our projection purposes, you know, to forecast the deficit for the next four years, we do assume inflationary cost increases for personnel utilizing an average from moody's and the california department of finance for open

contracts so we can anticipate some salary growth? additionally, we assume inflationary pressures on our knob personnel which assumes contracts in these assumptions, including the big ihss, inhome support services worker's cost increases from the state that we've been talking with the board for over a year now. we keep getting refined information as the state develops their policies and procedures related to that. they shift, and also in the december report and this report is funding for the hall of justice exit plan. so this is the updated deficit for the next four years. as supervisor cohen mentioned, it's $137 million in the first two years, but as you'll notice there's still a really significant deficit in years three and four, reaching nearly over $600 million? and i would say that, you know, the december numbers were marginally higher in those two

years, and it's really this structural difference between the rising cost of our expenditures and the slower rate of growth of our revenues? the structural deficit is driven in some part as supervisor cohen said, reliance on our one time sources. that's our biggest driver. it's over a $400 million difference between years two and three. we have ongoing pension obligations contributing to those out year deficit growth, again e escalating ihss costs and revenue constraints. changing from the december report highlighted in our march numbers and driving kind of that two year decrease, the largest is the addition of over $60 million of one-time fund balance as reported in the controller's six month report for the current year fiscal year '17-'18.

additionally when the controller's office put out the current year -- we say savings, but it could also be additional revenue, 'cause that contributes to that, they also revised their revenue projections for the next four years, given current year actuals. they've revised it for the current year outputs. they've also received information from financial experts in the city to drive these assumptions? so there's higher than anticipated projected ongoing revenue, driven by property tax, business tax, and hotel tax offset by some weakness in sales tax and parking tax? in emergency roterms of salary benefits, our average of moody's and department of finance has been revised down modestly, so there are some savings related to that because we include those in our salary and benefit projections.

the largest safer other than kind of the drivers related to our revenue are pension assumptions? so in december, the revenue board updated some revenue assumptions as well as modelling, and that has realized a safer for us. then in terms of citywide costs, some highlights in terms of new costs that we're incorporating include repl replenishment of the compain fund, given that we have a june mayoral election to meet the funding levels outlined in the ordinance. we are anticipating we will need to refill the election campaign fund given increased use of public funding for elections. additionally, for ihss, we have received more concrete, and i believe in january , correct n correction -- direction from the state about how that will

be implemented, so that's growing our ihss cost, bringing just the two year increase in 18-19 and 19-20 to nearly $100 million more than we had anticipated last december at our five-year ---ed wor the wo escaping me, the title of this entire word -- five year financial plan. and then finally we do incorporate the annualization of current year models that have passed since december, so that includes federal funding for dph that were funded through the federal, as well as $5.5 million of annual cost that went both to the public defender as well as the mayor's office of community housing and development to fund cbo legal defense? and just some reminders what's

still really present on our minds and what we think about, we look at these numbers from a financial perspective, the one time sources, bringing down that $137 million deficit? you know, we still have significant structural deficit in those out years. again, these numbers are predicated on no downturn or recession? it would be a historic anomaly if there would be no downturn on the four year horizon of this projection? we're in the third longest expansion since 1945. >> supervisor cohen: the third longest expansion of -- >> the economic expansion since 1945. >> supervisor cohen: so when you say economic expansion, you mean we have a really robust budget. >> meaning that the u.s. economy and the california economy has experienced growth since 2009-2010. >> supervisor cohen: okay.

thank you for the clarification. >> you bet. and then we face state and federal uncertainty that we'd be facing over $100 million from ihss cost shifts? you know, we wouldn't have been able to predict that, and it's a really big and significant cost to us. other pressures we're feeling or seeing on the horizon, we talked about in the federal select committee, affordable care act. any changes to that could affect the city on a large front. we are a large purchaser of health care for all of our employees and retirees, so any shift in the city would be a cost we'd have to take on. additionally as it relates to our department of health expansion of medi-cal or medicaid, as well as covered california, and california has helped 133,000 san franciscans? if that were to be pulled from

our residents, we might face additional costs as people would be looking to the city to provide health care, and even the department of health themselves have received quite a significant revenue stream through the revised medicaid program? and then, also something top of our minds is potential repeal of sb-1, which is the state gas tax? the department of -- department of public works has -- has budgeted $23 million for road repaving? that doesn't even speak to the mta's allocations of sb-1 for state of good repair which exceed over $30 million in their anticipated budget. >> supervisor cohen: i have a question about sb-1. i'm curious to know if you've heard from our lobbyists in sacramento. is there a report or update, and if i'm not mistaken, that's going to the ballot in november . >> correct. the last that i'd heard there are signature gatherings still going on for that? the last i heard, people thought it was likely that it would make it on the ballot?

so we will keep, especially on the federal select -- we're growing it a little state, and we will keep you updated on that, as well. >> supervisor cohen: should this be successful in passing in november novembethat means decrease. how much -- >> $23 million in 19-20. there's partial budgeted in 18-19. i'll have to fact check that and get back to you, but fully funded by the department of public works for road repaving. >> supervisor cohen: all right. thank you. >> and that concludes my presentation. if you have any other questions. >> supervisor cohen: yes. i think we do have a couple questions, supervisor fewer and then we'll get to supervisor yee. >> supervisor fewer: thank you very much. since you mentioned that we have revised employer pension contributions, and what is that amount? >> i don't have that offhand. we can get back to you on the projected changes. i think i might have a chart,

but -- hold on. so pension rates were the largest driver of the changes, so -- but in total, our report, there's about $20 million rolled up into salary and benefit savings in the first year of the plan and 29 million in the second year of the plan. it's not all pension, but that's all rolled up, the cpi changes, as well. >> supervisor fewer: thank you very much. >> supervisor cohen: supervisor yee, did you have any questions? >> supervisor yee: yeah. can you go back to page three? >> yes. >> supervisor yee: just to get a better understanding of the numbers that are presented. so if i look at the sources and revenues, and it's an increase of 235 next year, and then 510 following, and then, it dips down again to 360 --

>> yep. >> supervisor yee: what's causing it to go up and down like that? >> yeah, so that drop in the third year is related to the one-time sources, as well as perhaps some downward trend in the controller's ongoing revenue projections, but i would say the largest driver is one-time sources? yeah, it's fund balance going away. >> supervisor yee: oh, okay. and then in regards to the expenses, i guess, it looks like there's a decrease for all four years, and that's built into the budget. is that why there's a decrease? >> sorry. didn't follow the question exactly. >> supervisor yee: i guess when you look at salaries and benefits, for instance, each year, there's a decrease. is that correct? >> it's an increasing cost.

>> supervisor yee: okay. >> sorry. that's -- the parentheses means it's a cost, so it's an increasing cost. >> supervisor yee: yeah. i just looked at the top where it says in parentheses sources, and then decreased. >> supervisor cohen: i have a couple questions. so what are the one-time sources that have decreased our deficit. >> so it's the fund balance, which is current year, either revenue better than budgeted or departmental savings, and that has accrued over the last fiscal year -- and it's mostly revenue, better than budgeted revenue contributing to that. >> supervisor cohen: and where's the revenue stream coming from? is this property taxes? >> a large portion is revenue heath. i'll let michelle allersma speak to that. >> so in the six-month report, we reported on the three driver's of the good news in that report are property tax, business tax, and department of public health revenue. property tax is largely the

assessor continuing to work through their backlogs faster than we thought they would at the beginning of the year, so they're enrolling -- enrolling higher values of properties that have transacted more quickly than we thought they would. that brings in supplemental and escape assessments in the short-term. in addition, business tax, this is kind of base building good news from the year that just ended, so we -- we published our annual financial report in the fall, showing where we had ended the prior year. we incorporate those findings into our current year forecast, and so we ended last year better than we had projected, so that kind of bumps up the -- all the subsequent years, and then, department of public health is really patient rate revenue, and just continued -- i believe it's just continued

faster than expected change between fee fore servi service kind of like cavitated rates. >> supervisor cohen: so is this year unique in having these three drivers in terms of revenue? no? i didn't think so. >> i think the thing that's interesting right now is that what's causing it, so for property tax, it's less a function of just the value of property changing as it is the pace as which the assessor is enrolling new values, so it has a lot to do with our operational administrative function in the assessor's office becoming more efficient and doing things differently and capturing the value that's available legally for us to capture. so that's kind of different in the past couple of years than it has been over, say, the past

decade or two. so that's a little bit different. the other thing that's different that you don't really see on this list is that we have real anemic growth and sales tax, which is kind of a bellwether revenue source for us because it's kind of the most immediate reflection of what people are feeling in their own lives and how they're choosing to spend, and that's very, very flat. so i think those two things are a little bit different this time around. >> supervisor cohen: so i guess what i'm trying to understand is that, is that unique or is that kind of like -- you've been working on budgets for a very long time now. is this a common occurrence, these drivers, that you're talking about. >> i mean it's not surprising because these are our two biggest general fund tax revenues. it's probably not surprising they're driving the growth that we're seeing. >> supervisor cohen: okay. okay. and so i guess my next

question, i think it's going to be for you, can you explain the second to last line of the march update projection table, if you can. >> slide three? >> supervisor cohen: yeah, i think it's on slide three, exactly. if there is 's a shortfall ver last year, how does that reconcile? how does that reconcile with the improvements of the $124 million that you've highlighted? >> can you state, sorry, your question again. >> supervisor cohen: sure. if you look at, on page -- on slide three, and you look at the second to last line -- >> the growth in cost expend -- >> supervisor cohen: exactly, the projected -- whatever it is, the projected shortfalls versus the prior year, see that line? mm-hmm. >> supervisor cohen: okay. so if there is a shortfall

versus last year, how does that reconcile with the improvements of the $124 million that you highlighted. >> so you're saying last year at this time, where were we? >> supervisor cohen: yeah. >> i believe last year, we were at about 260 million? and so i think the big changes this year from last year are the two big drivers that we've highlighted are the increasing revenue, one-time fund balance, as well as the pension reduction since december has been a pretty significant cost savings for us as really -- as compared to of the compared to last year. >> supervisor cohen: so hoe is tis -- how is the projected health improving? i understand it is, but i want to understand why it is improving. >> i think it's a comparison from the previous year, so we had anticipated very high cost drivers for pension driven by three main factors related to

supplement c supplemental cola, less than budget returns at 7.5% for pensions, as well as revising of our actuarial tables, as well as those adjustment costs, and those changed made in december good the actuarial compared to previously feel better, but it's still a significant cost. >> supervisor cohen: okay. so i want to talk a little bit about the project waiver agreement. i see that it's -- the costs have increased permanently and pretty dramatically in fiscal year 2019-20. i was wondering if you could just talk a little bit about why that is the case. >> the 260 million? >> supervisor cohen: yes. >> so we assume for projection

purposes cpi increases for open labor contracts, and so seiu and the majority of our labor unions will be open in that year, so we assume that inflationary costs. other drivers are pensions still, and what i haven't really talked about but it's still really important with our health care costs for employees. this report assumes nearly double digit cost increases for both active employees and 8% year over year growth just to pay for our current employees' health care, and i think nearly 9% for retirees, and that's a big benefit for that salary and benefits line as well. >> supervisor cohen: okay. that was my next question, what accounts for the variances in the employee and retiree pension rates? but we have to adjust that at the retirement board. people are living longer, the

retirement costs are exponentially growing, and then what else? >> some wage increases, projected growth. >> supervisor cohen: and then, i think my last question, if you could talk about what's the cap it will expenditure rate in fiscal year 2019 and 20. >> so last year, the mayor's budget included full funding for the capital year both in 17-18 as well as 18-19, so i think it was a combined almost -- over $300 million that year, and so we do -- we will have to figure out how much room we have in the budget, whether or not we're able to fully fund in the second year of this, so 19-20 in this capital plan, and we'll work through it with a capital planning committee to figure out that funding level, but that would exceed 300 million, as well, if we were able to fully fund that. >> supervisor cohen: thank you. i'm going to see, colleagues, do either of you have questions, if not, we're going to go ahead and pivot to the

bla. nothing? okay. perfect. thank you. thank you for this -- for the memo. you and mr. rosenfeld did a great job. we're going to hear from public comment. is there any member of the public that would like to comment on this item? please come on up. please come on up to the podium. you'll have two minutes. hi. welcome. >> hi. one suggestion. i believe you can increase consumer spending by reducing public transit fares, offsetting the increased transit revenue with increased sales tax revenue, and you can survey the riders did on the amounts they're spending depending on the time of day. also, 60% of the public is in federal employment and they are absorbing 50% of the budget, and i was wondering if there's now a 2.2% unemployment rate if

it would be better to eliminate under performance while there are so many job opportunities. also, i was wondering how accurate and reliable our department budget numbers can department heads depend on the figures they are receiving from their insubordinates, and yeah, the longest running economic expansion in recent modern history has led to global concerns in rising spending with -- [ inaudible ] >> -- russia creating satellites in neighboring territories, and germany seeking to establish a european class of satellites independent of nato and the u.s. >> supervisor cohen: thank you for your comments, are there any other members of the public

wishing to comment on the five year plan? seeing no further public comment, public comment is closed. colleagues, if there are no further questions orment coulds, i will make a motion to continue this to the call of the chair. supervisor yee has seconded that motion, and we will take that without objection. thank you very much. madam clerk, is there anything further on the agenda? >> clerk: no, madam chair, there is not. >> supervisor cohen: thank you, friends. we are adjourned.

- working for the city and county of san francisco will immerse you in a vibrant and dynamic city that's on the forefront of economic growth, the arts, and social change. our city has always been on the edge of progress and innovation. after all, we're at the meeting of land and sea. - our city is famous for its iconic scenery, historic designs, and world-class style. it's the birthplace of blue jeans, and where "the rock" holds court over the largest natural harbor on the west coast. - our 28,000 city and county employees play an important role in making san francisco what it is today. - we provide residents and visitors with a wide array of services, such as improving city streets and parks, keeping communities safe, and driving buses and cable cars. - our employees enjoy competitive salaries, as well as generous benefits programs. but most importantly,

working for the city and county of san francisco gives employees an opportunity to contribute their ideas, energy, and commitment to shape the city's future. - thank you for considering a career with the city and county of san francisco. ♪ ♪ ♪ >> the san francisco playground's hitsvery dates back to 1927 when the area where the present playground and center is today was purchased by the city for

$27,000. in the 1950s, the sen consider was expanded by then mayor robinson and the old gym was built. thanks to the passage of the 2008 clean and safe neighborhood parks bond, the sunset playground has undergone extensive renovation to its four acres of fields, courts, play grounds, community rooms, and historic gymnasium. >> here we are. 60 years and $14 million later, and we have got this beautiful, brand-new rec center completely accessible to the entire neighborhood. >> the new rec center houses multi-purpose rooms for all kinds of activities including basketball, line dancing, playing ping-pong and arts can crafts. >> you can use it for whatever you want to do, you can do it here. >> on friday, november 16, the dedication and ribbon cutting took place at the sunset playground and recreation

center, celebrating its renovation. it was raining, but the rain clearly did not dampen the spirits of the dignitaries, community members and children in attendance. [cheering and applauding] ♪ ♪