Bust in the 2000s and the recession in the 200810 period but the projection is the dotted line one of moderated and Slower Growth in the forecast. Thank you. I just want to underscore what the controller said and its my struggle to explain this to the public but having revenue not growing as fast in the past is a big problem for me and us because every year the budget has been balanced and revenue helped us do that and why i am feeling less confident than a month ago which i mentioned that and we will talk about with the five year plan so the plan we put out in the fall and high level overview and this plan shows revenue will grow by 560 million in the fiscal year and the expenditures will grow as listed here and this is the challenge. Its not that we have dont have revenue growing but our expenses are growing more quickly. When you say the expenses are projected to grow and can you highlight which expenses . There are assumptions i am making and health care. Youre total right. You can see the largest category is 700 million of salaries and benefits of the employees and the largest driver we make an assumption in the report we will increase Consumer Price index growth and 3 every year so what this says to me chair cohen not that we cant grow but not that quickly and about 440 of the 700 is just the cpi assumption and the next largest number is what you said Health Benefits and growing on the order of eight, 9 a year, much faster than inflation and after that is pension so all of the things combined are really driving this. The first thing was we assume that salaries and benefits will go up by the Consumer Price index, inflation. I want to summarize and Salary Benefits and health care and pension are the top three drives forces. Behind salaries and benefits and 50 of of the overall growth here. Thank you. Yeah. And within citywide operating i would say also inflation on our cbo contracts and non personal costs and departments and capital plan and other planses seven and 10 growth so some of the growth is much faster than the revenues are growing. So all of that and im going to go quickly through the next slides and go into more detail and theres a graphic representation of that and goes into detail on that growth. This slide, slide 12 i will spend a moment on because i think its useful. It basically shows that the black line is the Revenue Growth and says that the dark blue area and the area on top if we just took the employees salaries and benefits and pension and set asides and minimum wage that voter adopted and take up 84 of the projected Revenue Growth so that says we have growth and we made policy choices to spend all of that and its important and something i have been talking about with the mayor. So next slide 13 i will spend a moment on this and go quickly why its happening and at high level were seeing the project the deficits and going down for years and the first five year Financial Plan in may 2011 and the fifth year showed we had deficit of 800 plus million in the last year of the plan and by december 2014 we were actually showing almost half of that in the fifth year we made progress on the structural and the problem between the revenues and expenditures we made progress closing that gap and two years later its popped up again where the fifth year of the plan shows over 800 million and concerning to us when we realized this and we spent a lot of time thinking about why, and the biggest reasons are rising employee costs which is relate to the pension and this is a little different than what i was talking about and pension is the number one driver yet deficits have gone up over time and new bases and set asides and new ongoing obligations and add staff and Health Benefits and pension is growing faster than inflation and the obligations are growing faster than the revenue. A question on slide 14 new baseline and set asides. Yeah. We had a hearing on dignity fund and a set aside and one with rec and park the Previous Year if i am not mistaken we have the slide. If you look at slide 19 and show you all the ones adopted since 2011 so there are others that are off the page detailed in the five year plan these are the new ones and add 2d hundred mill 200 million in those and were doing this before having the revenue and what it says to me. Okay thank you. And the controller will talk about pension. Yes. Just very briefly and we talked about before and we will talk about it again. One of the most notable things in the forecast in november 2 years prior how different the pension and costs look the dark gray line are the projections what we thought would happen two years ago when the forecast was formally adopted by the board and pension and expected when the benefit changed voted by the voters and proposition c took shape and the loss from the last stock market crash took hold and would do that over time. We had setbacks over the years and the forecast has reversed and now talking about not insignificant increases looking ahead over the forecast. The space where we were and where we are today is 170 million in terms of the difference between the lines of the fourth year of the forecast and another way to conceptualize thats almost the equivalent of giving all city workers a 9 raise. Its a significant cast variance and really why . Almost in equal parts the drivers are these three and number one and good news for the retirees and employees. Theyre living longer as is the case everywhere in the nation which also means financially they earn pension benefits for longer and drives up the citys pensions cost. The pension fund is it fully funded . The pension fund is doing better than almost all but not fully funded so its approximately 80 funded which we want to be at 100 but frankly better than most in the country. As the president of the retirement board i am sure you understand that. Very good. You passed. The second is that the city one of the key provisions in proposition c that the voters adopted was a requirement that supplemental colas be paid to retirees when the pension fund was fully funded. The courts partially struck that change down and ruled it was not legal for the voters to take that benefit away from a group of retirees and they earn that benefit and costs more and lastly we had a couple of years that the rate of return which we count on to make the actual math is worth and less than when it said at 7 and in equal parts and the reversal of trend and now seeing rising costs. Thank you. Okay. Im going to go through some of the next slides. On slide 20 the only thing i would note its similar to baselines and set asides for me and details the staff we add over the last five years so over the 20 years you see a boom and bust cycle and add and cut and add and cut and it goes up and down and we have add 5,000 and not just for wonderful things and the largest chunk, the blue chunk is enterprise departments and the 10 increase at mta, the Public Utilities commission, the airport and Public Health and Affordable Care act roll out, opening a new hospital. The yellow is Public Protection and Police Officers and time response up at the Fire Department and act act and hhs and new Homeless Department adding social Services Culture and recreation and even other. There is street cleaning and more people in parks. There are many things we did and just like the baselines and set asides not bad to spend money on but we made the decisions and were at a moment to be thoughtful to add anything else and the worse case for the city and the residents and we add things and one year later we have to cut them and were mindful of that now and we had a lot of growth in the last few years, so the next thing is im going to actually go over quickly but the five year Financial Plan has the mayor propose fiscal strategies to balance the budget and equal share across categories and reduce salary and benefit costs and reduce citywide expenditures, ask target departments every year and try to continue our economy to see better than expected revenue and or go after new revenue on the ballot and those are combined how we could bring them in line. Slide 23 will show budget instructions to departments so i think youre familiar with this but as a reminder we ask departments to propose target of year one of 3 and six in year two and received submission on the 21st and many met the target and the instruction dont grow the fte account based what i mentioned and the growth in the last years and some departments complied and some did not and we sent an email and going to strip out the ftes and were working on that now. For the next months were going to review all of the submission what we got from people and what we propose things to you its a reflection of what the mayor wants in the budget and theres a lot of work that goes into is that and for the rest of the presentation i will turn it over to the controleer. Very briefly one of the things that the five year forecast contains is an estimate of what happened help if and when a recession comes. We have been doing this for the last couple of cycles to give a shout how it would look like and reflect the financial outlook. This chart shows the length of economic expansions in the u. S. Since 1900 and i believe there are 23 expansionos the chart and were the top one and the point is were well pass the period of between recessions in the u. S. And if we were actually to go through the five year forecast period without experiencing recession it would be the by far longest expansion in modern u. S. History and its worth planning for its not likely to occur and likely to see a recession in the country and the city. If we see one how does it change the forecast . Significantly. If we look at the next couple of recessions and how it affects our Revenue Streams here in the city, hotel, property sales, et cetera this is what it would look like. Revenues rather than growing consistently would dip before recovering back by several years later. Obviously every recession is different but this is really a blend of the last two and the difference in forecasted revenue between that five year forecast is bottom a billion dollars so a recession changes the outcome quickly and fundamentally. The city is in better place and the reserves are in a better place and one time programs that have been funded for one time purposes leave us in better position for this but its significant exposure and not sufficient to cover the gap. We provided as the chair mentioned we provided our six month update on the citys Financial Condition a couple of months ago. I wont go into that but the good news in the current here was over 50 million. If that 50 million in the current year applied to the deficit it brings it down to 340 million in the next twoyear period short fall and thats the most fundamental change since we issued the forecast in november. A lot of uncertainty still exists and the mayors budget director talked about this, but things we are watching in the current year heading into the next forecast in march the pace of Economic Growth in the city and particular Revenue Streams in particular. Property transfer tax and business and hotel tax are diverging at the moment. Can you elaborate on that because thats what i get questioned from the Business Community and they feel over taxed and theyre contributing. I believe the property transfer tax has been a significant bump because of the economy so good [inaudible] are bought and sold and the hotel tax and its decreasing and i understand it to be decreasing largely because moscone is under renovation when will it be done and renovated . Good questions. We have two Revenue Streams in the current year and one paced on Property Value in the city are continuing to perform well. Property tax continues to improve assessor is working through a backlog of the assessments and changes in ownership and construction in the receipt period so the property tax rolls are growing and the property theyre growing because were building more units on the market [inaudible] and commercial property is changing hands as well and under prop 13 thats when theyre assessed and the more they change hands the more theyre assessed and all of those things together youre right madam growth, all contribute to this. The one time tax and driven by high hand commercial property worn more than 25 million. The voters adopted another rate increase on that tier of transactions but absent that increase we would see high transfer tax in the current year. In the month of december we received more transfer tax than the entirety of the fiscal 910 to give you a sense how strong it has been in the current year. Supervisor peskin introduced legislation if i am not mistaken i believe excuse me, he introduced a resolution to do what exactly . Sure. We have limitations that the state imposes on what taxes we can have here in the city and county of San Francisco. Two of the taxes not allowed to adopt that only the state the state reserves that right is a personal income tax and a corporate next tax so theyre both taxes that the state assesses on everyone that lives and works in california and that revenue occurs to the state and the state has preempted locals and you cant have that tax structure so we have a property tax that gets to individuals and businesses and a business tax structure, not based on their income but rather on their receipts so not their bottom line but their top line, how much money goes in the door opposed to coma they make and with this tax structure. What the supervisor introduced is like l. A. And charge a personal income tax in San Francisco and would have to be approved by the voters and the discretion of the voters and the mayor and the board could be programmed for new service or new revenue or used to restructure our tax base and eliminate another tax that we currently have in our portfolio. Okay. Lastly you asked about hotel tax madam chair. I did. Yeah, we have seen an unbelievable ride on hotel tax in the last years. Last fiscal year was a new record high for hotel tax in the city and occupancy rates in the city well north of 80 and considered full occupancy for hotels and room rates rising to record levels and obviously our tax is assess said on the revenue theyre receiving so good news for us. In the current were we are seeing the rates high but room rates are declining a bit and a number of factor thats contribute to this but youre right the single most important the construction around the Moscone Center and fewer large convention bookings in the current year and has the effect of not having the short period where convention demand drive prices through the roof so we had softening on rates in the current here. Not a lot. Its down 2 versus the prior year but significant were growing at 7 10 for serf years to see that is shocking. One of the arguments the advocates against Short Term Rentals and have adverse impact on the hotel tax fee that the city would normally be collecting. You have seen any kind of a correlation . We have more short term rental hosts coming on line and getting a balance license . I know theyre paying a tax. Is it balancing or are we coming out short or too soon to make a conclusion . We havent looked at it in great detail so i wouldnt want to comment but its still a comparatively smart part of the picture. Hotel tax as a whole is 500 million in the city. Short term rental the hotel tax attributable to short term rental and 5 of the whole so i dont there is impacts on them and vice versa but at the moment its on the margin of things opposed to fundamentally changing our revenue picture. We are expecting that the Moscone Center is closed for a year and see a bounce back in a couple of years when it resumes and they have a heavily booked Convention Year a couple of years out. Were revising that now as we work on the latest projections but anyway what is going on with the economy is always a key driver of the outlook and its a particularly in flux at the moment. The other significant uncertainties that melissa mentioned earlier are state and federal revenues. About 1 dollar out of five that comes into the general fund originates from the state or the fuds so were dependent particularly as a county providing social services and Health Services what we receive from dc and sacramento. The governor on the state side release a budget that will be reviseed in may and includes a significant cost shift. You heard about this in your hearing this morning of ihsss cost back to county and if its ultimately adopted by the luther and cost 50 million to San Francisco annually and significant item in the budget. The january budget is a rough blueprint and revise in may and that may change and we will be watching that and we have risks from the state and of course the most significant is the federal government. The projected amount of federal cuts is 50 million . 500 million . What is it . We dont know yet and actually you will have a hearing in two weeks, a joint hearing of the Budget Committee and the federal select committee of the board of supervisors and we will provide you with the last est information but the biggest problem with the federal picture there is no certainty. We receive about our budget contains about 1. 2 billion that originate with the feds, the total city budget. We have a president that has indicated high intends to cut off all federal funds to sanctuary cities. If you take that on its face we would lose 1. 2 billion. Of course as the City Attorney a asserted we dont believe that is legal and the ultimate risk from a sanctuary city is much lower but we dont our hands around that. Thank you. I would like to pivot to the deputy City Attorney<