Okay, good morning, everybody welcome to the final 2016, meeting of the San Francisco board of supervisors budget and finance committee meeting. My name is mark farrell and i will be chairing this committee and i am joined by supervisor norman yee and joined momentarily with tang and i want to thank, lindy wong and sfgtv for covering the meeting. Do you have any announcements . Silence all cell phones and devices completed cards and documented to be included as part of the file should subm submitted to td clerk. Call item one. Hearing on the recent updates regarding the citys financial position, including the mayors budget instructions to departments for the physical year, 17, 18, and 18, to 19. And requesting the mayors budget director and the controller to report. Thank you very much, supervisor tang has joined us, and this is an item that we called and i want to thank the budget dreker for being here and i thought that it was the end of the year here and the mayors instructions that came out last week and it would be a good idea to get the up date as a board and a city hall and thank you for being here and i know that you have a presentation to go through. Great. Thank you chair farle and so im melissa the director and i am joined by the controller, and we will be going through this presentation for about the next 20 minutes. Feel free to stop me if you have any questions. Talk about three things today, the first thing is the post election rebalancing plan, the citys five year plan that will be publicly released later today. And budget instructions for Department Heads which we actually delivered last thursday. So this first slide is just telling you we want to make sure that we said to people right away, what are the few things that we want you to leave the room understanding. At the very highest level with this presentation covers is the fact that the mayor felt it was really important after the election to rebalance the budget. And i am going to talk about that in more detail. We look at the up coming two years that were charter mandated to balance by june first, we are seeing a 400 million deficit, over those two years. This is not significantly worse than about a year ago today when that two year deficit was 350 million, but i will say that today compared to a year ago we feel a lot more unserpt, especially as a result of the federal election and on our timing of our Economic Cycle where we are at. We are mindful of these numbers and paying a lot of attention to them. Another thing that i will talk about is that the deficits were on the rise. Why this was happening and why it is happening you will see is employee is largely around the employee cost are the largest drivers are both the deficit projection and why our deficits are increasing and really another thing is just on revenue which the controller will talk about and we have seen in the past few years that revenue is the thing that has allowed us to balance the budget every i couldnter for the last few years, and add a lot of new service to the public that the public was demanding and they were good things to the mayor and the board partnered on many of them. And we are not anticipating that we are going to see the high Revenue Growth in the up coming years. What does all of this mean . What this means that we are not in a recession, the mayors instructions are not to cut or do layoffs or not for people to panic. Just for people to be mindful that we need to be disciplined and make trade offs if we are going to add new programs, we need to be figuring out what in our budget is not as important as the new things and try to fund things in our existing budget. So we need to grow at a lower rate. The targets that we issued were 3 percent in each year and we have a very strong, in fte growth which i will talk about later. Could i ask a question . Please. As we talk about the federal impact and the new president elect coming on board, in terms of our exposure, what i understood to be generally about north of 400 million in direct federal funding to our city and about a billion state pass throughs. I just want to make sure that we are all thinking along the same lines. Supervisor that is correct. We received just about 400 million from the federal government as a city and county. We received billion from the state of that billion that we received from the state, a significant portion is also federal pass throughs for predominantly Public Health and entitlement programs. So we have been estimating at a high level approximately a billion dollars in money that originally comes from the State Government here locally. We are doing a lot of work with the mayors Budget Office and departments to kind of tease those numbers apart and put them in different buckets to understand the Revenue Streams. Okay, thanks very much. Great. So really quickly i am not going to spend a very long time on this because i know i believe that the supervisors are some what familiar with this plan but feel free to ask me any questions. The budget included 37. 5 in 16, 17, the current year and 155 in 17, 18, related to propositions jand k on the ballot. And the mayor terminated proposition j, in early november, after k did not pass, and this is just showing you the category that the funding was planned and which was largely transportation of 100 million and homeless around 50 million and other things that the mayor was paying attention to was part of the rebalancing plan was the college street trees and it was not on the november ballot, but as a result of the federal election, the mayor was really concerned about legal representation for our immigrant community and so that was something that he asked me very early on after the election to also pay a lot of attention to and to make sure that was if the additional funding whats need to fund that as part of this plan, on slide five, you will see a high level of the rebalancing plan and what this says is that in the current year and the up coming two budget years that we are going to have to balance by june first, that we rebalance between our expenditures and our revenues and so you can see the expenditures here are homelessness, street trees and, Free City College and Legal Services and the revenues are transfer tax and whole person care, and our Department Head from the new department of homelessness in support of housing is here today right after this item to ask for this 6. 5 million in this balancing plan, related to homelessness to be removed from the reserve, and consistent with this plan. So i am going to move on from this unless you have additional questions. Colleagues . No, we are good. Thanks. Office our works with the Controllers Office and the burg team and the budget and analyst. And our three offices come together to really do a look at our base Case Projection of the up coming five years, when we say base case, what we mean is if we take all existing policies to date, and we just move them into the future and do nothing, what would our revenue and expenditures be . And so, obviously that cant be the world that we live in because it shows a deficit and so we need to take action to close those deficits. But that is with the base Case Projection means, it also assumes that the budget is rebalanced after the election and it is how we rebalance that since this is a report being put out by all three office and it just assumes that revenues and expenditures are equal. It is not saying what it is spent on. As far as revenue and the controller will talk about this but the revenue projection and the report is that it is still strong but that we are seeing the signs of slowing growth and constraints on our growth and so we talk about that in the report. Also some assumptions that we make so we fund all benefit Cost Increases on health and pension for employees, and also, there is an assumption for planning purposes in the report that we fund consumer priced index increases on all of the personnel and nonpersonnel costs and it is an average of the moody and the California Department of finance. And that is just a planning assumption and then later on, i am going to talk about why i actually think that we need to not grow as quickly and we cant afford those Cost Increases but i think that it is a reasonable thing to assume and a financial projection moving forward. We assume the full funding of the capitol it plans in the out years of this plan. Very briefly, a high level of interview of the Revenue Growth assumptions that sit under the 5 year projections and many more details specific to specific Revenue Streams, it will be included in the five year Financial Plan base case, when we release it in the incoming days, but generally speaking what our office is seeing at the moment indicates continued but slowing growth. Here in San Francisco for revenue and just Economic Activity and that is the assumption that sits under the revenue proejections include thanksgiving plan. We have included a couple of key take aways on this chart regarding the economy. Again we are continuing to see growth here in the city and private sector employ employment but that is slowing in most recent august, to august, data, year over year you see that 15. 4, growth rate in the Technology Sector in the city, slowed to under, 5 percent for the first time during this recovery. And similar we see a slowing grow rate in the employment here in the city from 5. 3 percent to under 2. 4. During this most recent period. This month, does not a trend make. But we have seen kind of this downward trending in terms of growth over the last several months. And generally, speaking we are projecting it to continue into the future. And this is likely, frankly due to the fact that we are nearing capacity here in the city and county of San Francisco, in terms of capacity to house jobs and Available Office spags and to houseworkers and available housing, and that we are reaching the limits for our capacity for transportation infrastructure to bring the people to and out of the city and that is given to how fully we are and we will expect those constraints to lead to more normalized growth rates that we have seen for the majority of this recovery. Translating that at a high level, into general Fund Projections this is a summary of all revenues and what we have seen in the recent past and what we are projecting in this document looking ahead into the five year period, and you see really the tremendous growth rates we have had during this recent period. With growth rates above, 7 percent during this recovery, topping over 12 percent a couple of years ago. But again, in what we just released regarding our physical results for 15, 16, you can see the growth rate slowing. And so still very hel yth and strong growth in over all general revenues of 5 percent for the most recent audited period but that is the lowest growth rate of any year during this recovery, and we are expecting that moderation to continue into the future. And settling in to a Going Forward growth rate of really between 3 and 4, 4 and a half percent, in a given physical year, and so these are fundamentally the growth rate assumptions that sit under what we are talking about today. So if you will look at this Revenue Growth in the last two recessions, it looks like there is basically two years of declining revenue, is it generally twoyear, slumps when you look at it from a percentage basis . Yeah, each of the last two recessions felt a little bit different. The dot com bust was more acute here in San Francisco, likewise the bounce back was sharp, kind of what we called a vshaped recession, and the most recent one was a little bit more of a u, but again, a very sharp snap back after really a couple of downed years and the different recessions are going to feel different in how they impact our revenue and these are probably relatively quick recoveries but on average, i think that we generally say two to three year recovery. During a given recession. Okay. And i guess, as i think about it, it is obviously revenue but it is also smoothing out a pension and what that does from our general fund perspective. And one of the things that we started doing in the Financial Plan and we did this in the last document as a city is including a recession, scenario. And so we are not projecting a recession to occur during this period in these assumptions. But if one does occur, how it will effect revenue and we will touch on that later in the presentation, to give you a sense as policy makers of what that case might look like and how it effect revenue. But you are right, it effects both revenue and pension contributions. Okay. So slide nine, this is telling you the high level of what the five year Financial Plan is showing and so i will spend a minute on this slide, and so it is the source as it changes from the current year, so what this is saying is that by the fifth year of this plan, we are projecting additional 560 million in revenue that will be available for the mayor and the board to appropriate ate and if you look at the uses line, this is saying, that if we do nothing, the expenditures are expected to grow by 1. 4 billion, and this is the issue, growth of 29 percent and eleven percent and you can see on the expenditure side, 50 percent of that, is driven by increases in salaries and benefit and i will get into that with more detail, 32 percent on city wide operating costs and, and then three percent on departmental costs. And by the end of this time period, it is around, 440 million of that 700 Million Dollar projected increase thank you, so speaking of salaries and benefits, and again, just to reiterate that you project that 85 percent of the projected growth is wage increases and heling benefits. So how are we addressing that and i know that in light of the various actually many of the labor contracts that will be negotiated how are we going to deal with this . I know that we put this information out there, but i dont know how we are getting a handle on this. They were such a big driver of the deficit and then of the increasing deficits that we spent a lot of time thinking about that and making sure that we can explain it to people and we met with labor yesterday, and presented all of this information to them, you are correct, that we are going into negotiations this spring, with all of our labor unions except for the police and fire, that we will be negotiating with next year and it is a big driver and it is something that we have to pay a lot of tension to and later in the presentation, the mayor is required to put out strategy to balance these deficits in the report. And so we will talk about that later on. Designs each year with each of the three Major Health Plan providers and in the recent years, the Service System has done a good job of developing new and lower cost alternative to benefit plans and they have been able to hold those rates down but we have seen the cost pressure in the recent past, but it is for the heling benefits it is a mix of collective bargaining, and the work that influences and contains some of those costs. Pension costs are a function of the charter and have restrictions on those but to change those involves the voter action and then of course, the employee wage cost is strictly a function of the collective bargaining. We are also asking for know ftes this year. When looking at the salaries that will go up as the natural factors that is one way to look at the how to control that. But i guess, when supervisor tang was asking questions, partly, the other piece would be to look at, the number of staff members. Yes. And we will be looking at that through the budget process as well. So another way to think about this cost growth, if it is helpful is that this top blank line is showing our Revenue Growth over the five years, the dark blue section here is showing the voter adopted base lines and set asides and the light blue is showing our employee cost and the health and pension only, and does not assume any cpi, and nothing else, and 84 percent of the revenue that we projecting is taken up by those two things alone, that leaves, 16 percent to fund all of the other things, so i just think that this is a helpful way to think about this. That is something that i have been talking about it is an important thing to keep in mind. The voters, you meant . Yes. Well, yes. You are correct. Okay. And so another thing that we think is important to Pay Attention to and that i talked a lot about with the mayor, is the historical deficit projections so when i started in the city in 1011, our project was over 800 million and we made a lot of progress in the years since then, i remember being freaked out about that large number and we brought it down to half when we put down the plan two years ago and now here we are putting it up and we are back above 800 and we did not come out of a recession and i think that this is a big deal, we spent a lot of time thinking about why. In regards to when you look at the projections for the deficits, and you are you need to compare it with what was a budget at the time. Because the budget has grown so much that you are comparing 800 million, over the period. But it is a smaller percentage of the budget. You are correct. Yeah, that is definitely true and we can get that for you. That is a good question. So, why are these deficits on the rise again though . Because we see that they are on the rise from two years ago. And so there is three main things and so the first thing is rising employee cost and the controller will talk about that and that are is largery related to pension, and new base lines and set asides for the last few years and then an increase in services of the positions and the ongoing point to your p