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tv   [untitled]    October 30, 2011 2:30pm-3:00pm PDT

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the enterprise departments that we have been piloting on a rowling basis, to shift them to two-year fixed budgets during this coming cycle. the first policy relates in nonrecurring revenue. the principle here is a common sense one, where -- and is a recommended practice by gfoa and other financial appears we look to for recommendations regarding our financial policies. but the concept is that we want to avoid using non-recurring revenues to support ongoing expenses, because when the nonrecurring revenue falls away, it leads to potential program disruptions for the ongoing expenses supported by that revenue. the legislation specifically defines certain revenue types of nonrecurring, so we tried to be very tailored here in the definition we brought forward. it specifically defines the sale of assets, prepayments of
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multi-year revenue contracts, or abnormally high fund balance as non-recurring revenues, and it stipulates that those revenues can only be spent on nonrecurring expenditures. to make sure we keep that alignment of ongoing expenditures supported by ongoing revenues one-time or non-recurring expenses. the legislation specifically outlines a series of eligible nonrecurring uses or expenditures that would be eligible -- things like the development of affordable housing, investment in infrastructure or i.t., funding of reserves, or a couple of other things. the new legislation leaves open additional definition of nonrecurring expenditures as certified by our office for circumstances we cannot anticipate today, that are not specifically on the list, but
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that would be an appropriate use of nonrecurring revenue. this chart gets to one of the nonrecurring revenue sources we have identified, and it is proposed to limit it in legislation. this is showing you, of the total general fund budget for a given year, how much of it was supported by the expectation of a starting balance in our savings account from the prior year. you can see the volatility here and the challenges this creates in the city's budget process. summer between 1% and 5% of our budget has been supported our -- supported by a prior year fund balance. you can see in the circled area, the year-over-year planning challenges this creates. we can go quickly from large fund balances, typically developed in better times where
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revenues exceed expectations, to troughs where fund balances decline, so it can lead to very dramatic swings year-over-year in our budget planning process. the proposal before you create a five-year rolling average and the fines prior year fund balance above and beyond that five-year average as unlikely to recur, and restricts that for non recurring use. this illustrates when we would have triggered that five-year rolling average during the last 10 years but you can see that the most recently adopted budget assumes $159 million in fund balance. that would restrict $43 million. we have restricted their -- $43 million in revenue for non recurring use in the current year budget. the budget, the board, and the
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mayor recently adopted him this. while there was reliance to balance the budget, there was also sufficient one-time expenses in the budget, so that the match of nonrecurring revenue and expense is maintained. the mayor and the board would have been able to adopt a budget that was ultimately adopted a couple months ago. supervisor chu: based on this sheet you have shown us, the policy would reflect restricted amount if the policy had been in place, if it exceeds a five-year prior fund balance average, and what we are seeing is that our five-year rolling average has been to the north of $100 million really? >> right. the policy does not restrict fund balance at or below the five-year average. it is only when we have an abnormal peak that the policy would kick in. supervisor chu: what you're saying is that with a five-year
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prior year average, we would have had at least $100 million in unrestricted funds to be used. the mention of this policy had been in place in the last budget we adopted, it still would not have impacted this necessarily, because we had more than enough one-time expenditures that it would have made this complication match. >> right, right. but last 10 years, taking in account all of the nonrecurring revenues in the legislation, the targeted ones that are defined, on average during this 10-year time span it has been about $13 million annually. that would be the subject of this restriction. the challenge, from a planning perspective, is that that is an average over a 10-year time span, and it is very dramatically on the horizon. and this policy is getting at smoothing out the volatility. the second part of legislation
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deals limitations on the city's issuance of general fund-backed debt, it typically certificates of participation or commercial paper. the policy formalizes, as an official financial policy of the city, the longstanding assumption in the city's 10-year capital plan that the board has adopted over the last five years. it creates a limitation were by 3.25% of the city's discretionary revenue can be used to secure general fund- backed debt. and if a mayor or board wishes to issue debt that will drive that percentage higher anne craig operating budget pressure for the city, you can do that, it just takes a two-thirds vote of the board of supervisors to issue that debt. the goal is to ensure that in the bigger picture, our general fund debt service remains manageable within the overall context of our operating budget. to give you the counterpoint to
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what we're after here, if we look at the state of california during recent years, the percentage and the california state budget in the general fund -- in their general fund that has been spent on debt service and debt-related costs as increased from a long-term historical average of about 3%. the long-term practice historically had been about at the level we're proposing here. but as that issue new bonds and issue new debt over the past 10 years, that percentage has increased from 3% to 6% and is scheduled to increase 3% in the next couple of years. fundamentally, that is one of the challenges. with more debt service heating up a greater percentage of state revenues, and it is greeting operating budget pressures for the state. that is the situation this policy is designed to avoid. supervisor chu: one of the concerns i had on the debt management policy was how we deal with things like infrastructure, financing
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districts, redevelopment agency said there should be major ships are changes. >> the policy is tailored and specific to the general fund itself. it does not restrict in any way the mayor, board, or other agencies and their ability to issue what is otherwise authorized by the voters of their commissions. the policy we bring you this year does not create limitations for the puc, the airport, the redevelopment agencies, or in the case for the board or supervisors would authorize the establishment of an infrastructure district, that would be outside of the fund. the policies tailored simply to the general fund. as in the previous financial policy, either of these items can be suspended on an annual basis by the board of supervisors with a two-thirds vote. and they can be amended in future years, as proposed by our office, and then adopted by the
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mayor and the board by a two- thirds vote. one of the things we talked about at the time that proposition a was going forward was, do we want to codify these policies explicitly in the city's charter? i think our collective decision at that point was, no, let's create a mechanism where we can adopt financial policies as a city. the mayor and the board can adopt them. but if we find ourselves needing to change them, we have a mechanism to change them without having to go back to the voters. this is brought to you in that vein. the third piece of legislation deals with coordinated planning timelines. as we have talked about a little bit here today, the city has been engaging in a host of new financial planning activities and budgeting activities and furniture policies over the last two and half years since proposition a was passed. this legislation conforms all of the admin code requirements that
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existed in the past with these new procedures. specifically, it ships are multi-year planning efforts as a city to a single calendar on and every other year basis. our capital plan, five-year technology plan, city-wide financial plan would be prepared and brought to the board of supervisors for consideration at the same time every other year. second, it harmonizes the three- year budget projection for the city with the five-year financial plan. during this last year, we produced both the five-year financial plan, then a five-year financial forecasts, and under separate cover, we produced the joint report, a three-year projection. this would allow us to meet the three-year planning requirement within the context of the five- year financial plan. lastly, there is a host of other cleanup of administrative language and other process seized in the code that we conformed to car practice here.
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those are explained in the report. the fourth piece of legislation is a resolution whereby the board would establish for the coming cycle, the coming fiscal year and the fiscal year after, allow the free enterprise departments that had been piloting the last two cycles on a rowling basis, and it would allow those addressed departments to prepare a two- year budgets. a two-year appropriation would be adopted by the board of supervisors, with the process in place to drew up the second year of the budget. this is to reduce the administrative burden, and it frees up policymaker time for the bigger picture conversation
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about the goals and strategies that departments are employing to reach the folks that need their services. we believe that this legislation maintains appropriator board oversight and policy-setting role. we're hoping to use the enterprise departments as a pilot to see whether the mayor and the board are comfortable with the two-year budget for the city as a whole. it allows us the opportunity to experiment. this two-year fixed budget would apply specifically with your approval to the puc, the airport, and the port. it moves them to a two-year fixed budget. it establishes triggers whereby if revenues or expenditures increase or decrease by more than 5% during the second year, the mayor would be required to bring forward an adjustment to
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that adopted two-year budget for the board's consideration. it maintains the board's policy- setting role as circumstances change without the need for a full budget review. that was a very quick run through these four pieces. i do have an amendment for your consideration today. they are largely clerical cleanup changes to the legislation for the nonrecurring revenue policy. it clarifies the interaction of nonrecurring revenue with the rainy day reserve in the budget stabilization reserve, so we do not end up in a funny circumstance where a budget was adopted that assume, for example, the use of the rainy day reserve, and after the budgets adoption we received a nonrecurring revenue source that suddenly makes us an eligible to withdraw from the rainy day reserve. it allows you to use that nonrecurring revenue source to plug that whole.
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it also clarifies the effective date to make it clear that this policy does not apply before the coming fiscal year's budget, but begins as of june 1, related to the fy 2012-2013 budget. supervisor kim: so this would allow a rainy day fund to be used for recurring expenditures or not? >> it would allow us to use nonrecurring revenues to replace the rainy day reserve. this is an unlikely circumstance, but it is one of these scenarios here. let's say the mayor and board adopted a budget that assumed $10 million from the rainy day reserve, because revenues declined to a level that you were eligible to withdraw $10 million from reserves. this circumstance we are imagining here is that the mayor and board about that budget and six months later, let's say we
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receive a nonrecurring revenue source as defined by this legislation, at the rainy day reserve accounts that towards the revenue targets. so it might squeeze the revenue to a place where you're no longer eligible to withdraw from the reserve. so in order to ensure that the policy does not restrict that nonrecurring revenue source to a nonrecurring expense, even though it has now created a hole in the budget, this allows no the use of that non-recurring revenue to plug at all. supervisor kim: is this considered a one-time non- recurring revenue stream? >> you would have the policy explicitly allow the mayor and the board, as an eligible nonrecurring expense, allows you to make deposits to reserves. if we have non-recurring revenue, as the board of supervisors, you can choose those nonrecurring revenues and fund reserves.
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i do not know if that gets to your question. supervisor kim: kenny redefines be used to back fill ongoing expenditures? >> in years were the rainy day reserve is triggered, which is revenue is declining versus the prior year or versus the prior year peak, it allows the mayor and the board to appropriate money from the rainy day reserve equal to half the ballots in the reserve, and that money is explicitly intended to be for any purpose, including operating budget costs. supervisor kim: ok, thank you. >> this defines what discretionary revenue is. we tried that out to the charter. secondly, it excludes that that results in general fund savings or is backed by non description area revenue sources.
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we did not want to find ourselves in a place where you would be forced to make a poor business decision as a city because of the 3.25% cap. if we had a cabin in the city but had the opportunity to buy an office building where the debt service we incurred from the debt would actually be cheaper than what we're currently paying to the private landlord, we did not want to close the door on that artificially with the policy. we believe this exclusion avoids that circumstance. we talked to supervisor farrell about this, and he is working with our office on the legislation. he is comfortable with it. that concludes my brief presentation. i would be happy to take questions. supervisor chu: thank you. it's good to the budget analyst report. >> on page 9 of our report, we noted file a 11-0999 would
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codify in respect the expenditure of nonrecurring revenue is only for nonrecurring expenditures, which we fully support, resulting in -- for example, that will mean expenditures upon capital improvements and equipment, but this would result in a demolition of the board of supervisors options for three appropriating savings achieved by the board of supervisors. i am talking about during the annual budget process for addax and restorations. we do support the principle of the expenditures of nonrecurring revenues to be applied to non- recurring expenditures. on page 11 of our report, continuing on that same file, while file a 11-0999 provides a precise definition of selected
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nonrecurring revenues, the ordinance provides an open-ended definition of nonrecurring expenditures, leaving room to interpret the proposed future expenditures that would qualify as a nonrecurring expenditures. in addition, the proposed ordinance does not provide the board of supervisors with an opportunity to dispute the interpretation of what is and what is not a nonrecurring expenditure. in the event that the board of supervisors wish to object to the classification of certain nonrecurring expenditures would be to make a one-time suspension of the provisions of file 11- 0999. and that would be on a two- thirds vote. of the board of supervisors. our recommendations are on page 12. as i stated, at the controller's definition of nonrecurring expenditures are open-ended. therefore, we recommend that you requested the controller to
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amend the file to find nonrecurrent expenditures as the six expenses listed in the proposed ordinance. by striking other uses that do not create liability or expectation of substantial ongoing cost, including but not limited to. that would be page seven, and lines 8 and 9. the controller disagrees because it is possible they will identify additional nonrecurring expenditure is besides the six included in the proposed ordinance. we consider approval of filed a 11-109, we proposed changes in from the existing rolling two- year budgets. the board of supervisor reviews the budgets every year to a fixed two-year budget would reduce by the board of
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supervisors every two years of the policy decision by the board of supervisors. the trigger threshold for reviewing the second year of the fixed two-year budget, the file has been proposed its budget costs or revenues are projected to change by more than 5% the second year and that we also consider approval of that 5% trigger to be a policy matter for the board of supervisors. let me emphasize that in general, we're fully supportive of the controllers financial policies. however, since there are different -- there are significant changes to the whole process, we consider approval of the three pros to ordinances as amended with our suggested recommendations to you. and the others and the proposed resolution as amended to be policy matters to the board of supervisors.
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supervisor chu: thank you. to clarify with the city attorney, with the amendment as a whole be substantive or not? it would not be substantive. ok, thank you. let's open this up for public comment. if there are members of the public who wish to speak on items nine, 10, 11, or 12. please come forward. >> right at the onset, for those or at home, on matters like this, we need three minutes. but as has been the custom recently, some despicable chairs just give us two minutes, and that is uncalled for, especially in san francisco. having said that, i have listened to the narrative that the controller gave and shed some light on, and what i would like to say is that in the last five years, we see an erosion of
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the legislative branch. we know that in 1996, when willie brown was the mayor, he clipped the wings of the city administrators. so right now, for all practical purposes, we have the legislative branch and executive branch. our only saving grace is the budget analyst and the comptroller's office. and hopefully the mayor's office and the budget office will somehow help the constituents of san francisco. was it pains me is that in our shelters, we do not give our people, not even a bed to sleep. we have poor people that are given a sheet, while the so- called representatives are talking about a rainy day fund. if the san francisco unified school district has a problem,
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do not rely and our city every year for a rainy day fund. that is not called for. what we really need to do is to be compassionate and not allow our indigent population, our poor population, to be sitting on a chair day in and day out, for months, when we need to give them a bath. i have two seconds, may i have it? [bell rings] supervisor chu: thank you. next speaker, please. >> good morning, supervisors. [unintelligible] i think that certificates of
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participation should not be used to pay for maintenance. i also think that attaching cop's to the discretionary budget is wise. however, the funds are designated for health purposes, and money for this fund should not be used for other unintended purposes. please continue to use the tobacco fund for public health purposes for which it was originally intended. while the 3.25% spending cap is theoretically a very good idea, the city will continue to fill a discretionary fund with principal and interest payments will be on 3.25%. the 10-year capital planning committee reports evidence of the 3.25% being maintained, and it clearly shows that from 2017-
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2018, 2021-2020, the percentage will go as high as 4.1%. the discretionary fund is variable. departments are seeking to change the amount. a two-thirds vote of the board of supervisors will allow this, but i also believe the current board history will show that the board of supervisors will use cop's to replace general obligation bonds and it will prove to be irresistible to san francisco's financial community. i've received 85% or 6%. thank you. supervisor chu: thank you. >> hello. my name is debbie with the san francisco command services
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network peter i am here to speak against the proposal for nonrecurring revenue policy. this represents yet another set aside that will hamstring the city's ability to maintain import and services during difficult economic times. the city has already taken steps to restrict the use of one-time funds with the budget stabilization reserves and the rainy day fund. there's no reason to tie the city's hands further. this is predicated on the idea that key services might be disrupted in future years. if we use one-time funds this year. but that ignores that one-time funds have prevented disruption every year by saving safety net services during the recession, a time of greatest need. today's child care discussion was a perfect example of how the process can work without this kind of policy. we have a need. we have some one-time funds. we have an honest discussion about it. then we decided we're going to support it, even though we are reluctant because there may not
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be money tomorrow. in past years, we have seen $43 million in restorations. this current year, we do not need to pass the policy to be able to do those kinds of restorations. we had $16 million restored a few years ago. that was the last time nonprofits got accustomed doing business increases. it has been flat-funded ever since. for health and human services funding, how can we argue that one-time revenue should not be used when we're talking about saving lives? a starving man does not turn down a bowl of soup because there might not be sued tomorrow. there's nothing wrong with using one-time funds to maintain service for the vulnerable san franciscans during difficult times. the save money, and would be more costly to the city of we close them and try to rebuild them later. in essence, all money is one- time money. we take grants all the time. then we talk later about back filling when it expires. that is fine. we do not need a policy. i urge you to reject this as it
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-- recommendation. it is knack for san francisco. supervisor chu: thank you. are there other members of the public who wish to speak on these items? seeing none, public comment is closed. if i can ask the controller to come up again. you have got the amendment as a whole. did we get copies of that? >> i believe so. you should have copies in front of you. supervisor chu: yes. so these are not substantive in nature that the city attorney has confirmed -- they clarified the interaction between the rainy day reserve in the budget stabilization reserve, clarified the effective date, and for the debt management policy, defense discretionary revenue but also excludes debt that results in general fund cost savings. colleagues, can we take those amendments without objection? that will be the case. colleagues, on the underlying items

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