source, business registration fees generate about $400 million for the city. we are seeing clear signs that several things are happening better driving payroll. all good news. more people are employed, more people that had their hours produced or wages reduced, are likely having their wages restored or their power is restored. all of which is taxable. all of that is driving their payroll taxes up. expected growth of almost $46 million. supervisor chu: can you speak about the areas and sectors you are seeing increases in growth? it was kind of interesting at the meeting. >> by industry? we clearly have bigger picture professional services, accounting for the third of our payroll tax collections. that includes everything from ttech to law and professional services. those high weight service jobs -- high-wage service jobs have been relatively constant. we have been replacing low-wage jobs with higher wage jobs. that is what is driving this. you see that in our payroll tax numbers. you also see it in our vacancy rates. we have very different vacancy rates in different parts of the cities. there is almost a tale of two cities north and south of market street. it has been true throughout this recession. high-wage professional service jobs south of markets, that are typically located south of market, they are driving our recovery. we have seen traditional professional service firms finance accountants, lawyers, those have been relatively static. you see that in san francisco and everywhere else in the state. the sector providing the most drag is government. this is to statewide and it is true in the city. job losses in the city and the other government employers in the city are the worst news. supervisor kim: i want to follow up on that question. we do have a more micro view of what types of jobs are growing? >> most of the data we get in real time comes from the euro of labor statistics. it is not a real time, it is a lagging quarter. that data has information for us on what is growing. >> you said there might be a decrease in lower wage jobs in san francisco? >> it has been -- i meant that to be a long-term short trend. the city's economy is moving towards high-wage professional services. that has been a 30-year trend and the city. our relative employment basis remains almost dead flat during the last 30 years. -- supervisor kim: could you give me some examples of what these low-wage industries are in san francisco? >> service jobs, for the most part. we're talking about the service industry as a whole in san francisco. as part of our business tax work, we have data that we can provide you. generally, that is the shift. it is away from service jobs. supervisor kim: thank you. >> we hit a three high-level revenue sources. we also see revenue growth in almost all of our major tax revenues. sales tax, hotel tax, parking? tax. there are detailed projections in the report. of course, given voter mandates, that we spend a portion of property tax dollars on other uses. we have about 29 million of this revenue growth transferred to our baseline. those are predominately the mta, the library, and the other base lines. that news is what has been driving the revision of the mta budget. >> how much is going to the mta? >> $23 million. that is the muni component, dpt component. >> thank you. >> the report asssumes full funding for prop age. -- prop h. in the years where the deficit exceeds $100 million, the mayor and the board can pull a trigger that reduces this funding level by 25%. to restore it back to the full level requires a one-time bump up of $22.8 million. you have a choice whether you want to pull that trigger again. that is a policy choice we have left out of the productions. -- projections. we talked a little bit about state and federal impacts. we have just listed some of the major categories of cuts that a been adopted or eric -- or are in the process of being implemented, or are blocked by the courts, or are completely unknown to us at this point. redevelopment, hiv funding from the federal government, we have a significant reduction to our reimbursement rate. we have cuts to this supported service program. we have cuts in the last year's federal budget and in the proposed budget for the coming fiscal year. we have the impact of public safety and social service realignment that a been partially adopted by the state in the current year would additional realignment of social service programs planned for next fiscal year. everything else that we do not know, of course. >> on the laguna honda, it is temporarily stayed by the court, but would this be retroactive? >> that is a good question that i do not know the answer to. supervisor avalos: just on the loss of state and federal funding, would it be possible or very difficult to be able to track what that has been and what services we have continued despite the loss? would that be hard to summarize that? >> i think we could pull something together. supervisor avalos: that would be good to see. talk about some of the choices we have made and whether we can continue to make those choices. >> absolutely. that completes the revenue side. i will turn it over to kate to talk about the expense. >> good afternoon, supervisors. kate howard. i will walk through a couple of the expense issues in the report. the largest cost contributing to our shortfall that are projected here are our salary and benefit costs associated with the city's employees. what i would point out to you are a couple of lines. on a salary side, you can see that we have identified two major costs on our labor agreement. the second line, projected cost of labor agreements, that reflects the expiration of bark furlough days -- of our furlough days. that will expire, and we had assumed for that here. police, fire, nurses, and the deputy sheriffs. the line below that, it makes some assumptions about cpi on open labor contact -- contracts. it is for planning purposes only and does not reflect any agreements we have come to with our unions. it does reflect potential cost that the city may incur. below that, you will see the cost of our health and dental and other benefit costs. the one thing -- i will point out to you that the cost of our medical benefits continued to grow. $12 million a year going forward. the other thing i would point out to you and highlight is focusing on retirement benefits. this is the employer contribution rate. this does assam the impact of prop c -- assume the impact of prop c. in 13-14, we hit higher peaks of contributions into the retirement system. that is a result of this moving -- smoothing we have in the pension system. the retirement board has recently adopted. this does not, however, include the auction of the calpers board yesterday to change their investment return rate. we are working now to analyze what the impact of that will be to the city if they reduce their investment return assumption from 8% to 7.5%. i think. supervisor chu: is there a large number of employees under the calpers system? >> it is about 1000. out of the total of 26,000 employees. the bottom line here shows you the overall assumptions and best projections on salary and benefit costs over the coming four years. as you saw earlier, we have a projected shortfall that has been revised to approximately $170 million in year one. about $300 million in year two. $111 million is related to our employees wage and benefit costs. on the next slide, these are some highlighted departmental and city-wide cost that the report of sam's. -- assumes. it will cost the city of $32 million increase in fiscal year 12-13. that is a choice for the mayor and for this board. those bodies have made a different choice in prior years. it also assumes inflation on non salary items. contracts, grants this is where the conversation about non- profit, where we assume the cost associated with that and make a choice about whether we're able to find that cpi or not. we also see projected in this shortfall some significant new cost associated with the capital investment. our public safety building as well as the san francisco general hospital. you can see $18 million over two years for the public safety building and $170 million for the general. $65 million is expected to come through private fund-raising. i would also point out to you one of the other things that is included in this is the cost of implementing federal health care reform. that is a disclaimer. the district electronic medical records implementation, those sorts of things. that is costing the city $12.9 million. the next slide addresses reserves. overall, there is $11.2 million change to our reserves for fiscal year 12-13. that is due to a couple of things. we will be making an increased deposits into the budget stabilization reserve of about $21.4 million. we also will be increasing our deposits into our general reserves. as you recall, as part of our financial policies, increased the deposit into the general fund reserve. it has been at a level of $25 million. next year, we anticipate finding adds approximately $31.5 million. -- funding at approximately $31.5 million. we do not expect we will need to spend all of its and we will not need to appropriate that the $31.5 million to fund the general reserve next year. supervisor avalos: i am sorry, kate. on page 9, there is 11.9 increase for subsidies. it seems like a big amount. can you explain that? >> of course. i apologize. in prior years, we have been able to read knife -- refinance certain debt. that has allowed us to decrease the transfer. last year, we brought able to offset that transfer by $11.9 million. we're not assuming that this year. supervisor avalos: ok. >> finally, last year in the budget, we used all little over $4 million of the park reserve for onetime capital expenses. this production does not assume the use of any of those. -- this projection does not assume the use of any of those. the final page is a summary of what the controller went over at the beginning, showing you the projected deficits for the next four years. starting at $170 million and increasing of to a possible five under million dollars. -- $500 million. the mayor issued budget instructions to department back in december, requesting 5% reductions. 5% is worth $58 million. if we were to receive all of those reduction targets, that would make a dent in those deficits. year two remains challenging. at this point, my office is working for the proposals from departments. i will say that while some departments have submitted proposals that meet those targets, there are many departments that are proposing significant increases to their service levels, to funding levels. there is more work to be done on that issue. either of us are happy to answer any questions you may have. supervisor kim: i have a quick question on slide 10. i was curious on the background. what is that? why was there a decrease? >> the city has a policy that was passed as part of prop c several years ago, which requires that any funds that are on spent by the park department are deposited into a reserve. that reserve has been available for the department through the budget process. last year, there were funds available in that preserved -- reserve. supervisor kim: when you say a decrease, that is $4.4 million, it was used in the reserve last year? do we know what they were used for? >> i do not have a list of the top of my head, but we can provide that to you. supervisor kim: thank you. supervisor chu: thank you. colleagues, if there are no questions, why don't we open the item up for public comment? >> supervisors, we are lucky to have a controller who i have observed for many years who has the best interests of this city. having said that, the controller and others cannot describe in detail the disparities that we find all over the city and county of san francisco. they may say unemployment rate is around nine, eight, or whatever. in the southeast sector, we have hot spots where we have 50% unemployment. that affects the whole budget. in this city, we have the filthy rich, the 1%, and the 99%. at one time, you supervisors made $38,000. today, 116 +. in a way, you are part of the filthy rich. so, in all this budget talk, we need to find compassion. we need to find ways to think outside the box to help those who are suffering daily. thank you very much. supervisor chu: thank you. are there other members of the public who wish to speak? public comment is closed. before we move on, i should offer our budget analyst any opportunity to speak. this is a report that was done jointly. is there anything you would add to it? >> we did work with the mayor and budget office and we do concur with these numbers. we will be monitoring the budget and presenting recommendations in the main engine budget review. supervisor chu: thank you very much. do we have a motion to continue item one to the call of the chair? [inaudible] item 2. we have a motion to do that. and a second and we can do that without objection. thank you. item three, please. >> item #3, hearing to receive update on the department of children, youth, and their families. supervisor chu: thank you very much. last, we have the department of public health who came before us and a hearing on the status of the ryan white finding. -- funding. it provided us an opportunity to provide feedback. this is a series of departments coming forward to us about we can provide that early feedback. today, we have ccyf. i will turn it over to you. >> good afternoon. i am the director for the department of children, youth, and their families. it is my pleasure to be here today to share with you the budget that our department submitted to the mayor's office in late february. as you already heard from the mayor's budget director, the mayor and mandated that all of our department submit a 5% ongoing general fund production for fiscal year 12-13 and 13-14. in addition to all that, the department needed to also propose a 2.5% contingency plan that could be matched -- met any time over the two-year budget cycle. are 5% general fund reductions equates to $1.4 million. once again, for our general fund budget reduction, it equates to $1.4 million. for fiscal year 13-14, it equates to $2.4 million. that is because we are supposing to use one time savings to meet the target for 12-13. as a result, in 13-14, we would need to -- to meet the fiscal year 12-13 target, we are proposing to use savings because we do not feel that it makes sense to reduce our contracts at this moment in time. all the contracts are in their last year of a three-year contract cycle. we believe that we will be able to meet the 1.4 reduction through savings based on historic fiscal year's spending patterns of our department will work orders. there are usually of moneys that remain in each one of the grants or work order accounts. as a result, we are proposing to use those funds to meet the 12- 13 target. using these funds will allow us to continue to focus -- supervisor wiener: in the past, the department has proposed to eliminate all of the add backs. are you not doing that this year? >> we are not proposing to eliminate any funding toward services this year. we are proposing to meet our 12- 13 budget target through savings left in grants as well grants, as well as department work orders. supervisor wiener: is it your sense that the department has moved away from that philosophy, or is it just happenstance? >> we are fortunate that the target is so low. it is sad to say that $1.4 million is low, but in comparison to previous years where we had to make budget cuts of up to $6 million to $10 million, this seems doable. in terms of a policy conversation for restorations or augmentations for budgets, we can definitely engaged in that conversation. i think that within the charter mandate there is a three-year planning process. we set out our funding priorities and, as a result, we really rely on