tv Government Access Programming SFGTV March 13, 2019 1:00pm-2:01pm PDT
[gavel] >> okay. meting will -- meeting will come to order. i'm sandra lee fewer chair of the budget and finance committee our clerk is ms. linda wong. do you have any announcements? >> please silence all cell phones and electronic devices. thank you. >> chair fewer: thank you very much. please call item number three.
[agenda item read] >> chair fewer: thank you. colleagues welcome to the first meeting of the expanding budget and finance committee. it is truly an honor to serve as the chair of the budget and finance committee alongside all of you. thank you again to president yee for entrusting me in this role. the city budget the most important piece of legislation that the board of supervisors passes every year and it is an opportunity for the city and county to invest financial resources in the programs and services that are priorities of the san francisco residents. san francisco's budget now totalings more than $11 billion nearing doubling in size in the last decade. with that increase have come expanded increased services and programs for city resident, small businesses and community organizations. at the same time, our city
budget is increasing, so is our population and needs to the city continues to grow. city hall legislative branch, it is the board of supervisors's responsibility to work the mayor to balance the budget while responding to those shifting needs. as a chair of the board budget and finance committee, it is my responsibility to lead a work work on budget with great care and precision while being inclusive of not only each of my colleague on this committee and the full board you a also inclusive of the public. the dollars spent as part of the city budget are taxpayers dollars, generated on the backs of hard working san franciscans. i do not take this responsibility lightly decision we make about how we prioritize the funds. i want to share how the budget process work for new committee memberships. this is a process that chair cohen in place with tweaks and modifications.
the expanded five-member budget finance committee is going it meet to prepare for the budget planning physical fiscal year 2019 and 2020 and 2020 and 2021. we are hear from the b.l.a. shortly. in may the committee had opportunity to hold additional hearing to hear discussion about the key aspects of the budget. all of these hearings will include public comment. once the mayor proposed budget is released, the budget and finance will have the opportunity to wit review, ideny cost saving and reprioritize
those funds. any funds that this committee cuts from the mayor's proposed budget accumulate into a pot of funds then available for the board to add back to the budget for priorities that they've identified. the add-back process for the budget and finance committee when conclude june 26, 2019 and committee will vote to forward to the full board of supervisors who are vote on the budget in july. i wanted to introduce some key principles to guide our budget process. one, transparency. i'm committed to publicly releasing budgets documents regularly updating the budget caliber and making the budget process as accessible as possible to the public. two, public unput, members of the public will have the opportunity to comment during each day of committee hearings as well as traditional public comment day that takes place in
june. public comment will include two minutes per speaker and accommodations we made for senior and people with disabilities and parents. additionally my office will be meeting with stakeholders who reach out with the budget request and accepting submissions regarding budget request as well as suggestions for departmental cost savings on the budget web page. three, equity. it is critical that as a city we aim to create opportunities for those who have hickl hickly -- historically denied opportunit opportunities thrive. four, geographic balance, we must consider a balance both between citywide budget and policy priorities as well as district priorities. we should have a balance between neighborhoods to take into consideration community need as well as access to services and programs.
five, accountability. finally it is a responsibility of the budget and finance committee to ensure accountability for the budget as well. so that funds set aside for a particular purpose are used for that purpose. a caliber der reason made public this week on the board website under budget information. i want to thank you all and now introduce dan guncher from the budget and legislative analyst office who will present on the priority process. >> good afternoon chair fewer and members was committee. i'm here to provide a brief overview of the budget process for 2019. as you may recall in the spring of 2017, chair cohen requested
that the budget and legislative analyst office review the budget process and identify recommendations for improvement. our report was released in november of 2017, provided three recommendations for improvement. the first was for the board to produce a list of annual policy priorities to submit to the mayor for incorporation into the proposed budget. we also recommended that the budget and legislative also provide additional analysis to the board during the budget process in the form of citywide overview report. which our office initiated last year in june. finally we recommended that the board revised the admin code to lengthen the amount of time for legislative review. last year, through an informal survey, supervisors we identified four broad policy priorities that held the most consensus. the committee held hearings on each of these areas including on clean streets, homelessness and
affordable housing which were discussed in single hearing and public safety. the committee also held separate hearing for prioritie prioritied less consensus. last year's budget priorities process culminated in the passage of three resolutions urging the mayor to fund priorities in the proposed budget. he included resolution 12518 which urge street cleaning priorities, resolution 13418, which urge specific citywide homelessness priorities and resolution 150-18 which urge specific across departmentable priorities. over the past few weeks we so solicited the top three priorities including homelessness andousing, public safety and mental health and substance abuse. we're still at an early stage in this process and we've begun
reviewing and analyzing these priorities. we will be in touch with board alwayses over the next few weeks to follow up and further refine these priority areas as necessary. as we move forward, our office will conduct in-depth research on each priority including on the status of established programs, on historical spending, performance measures and other quantitative measures of progress as well as identification of funding impact opportunities. in april we'll provide an in-depth written report to the board on each of these priority areas on april 10th, i believe will be presenting on public safety. april 17th on homelessness and housing and april 24th on mental health and substance abuse services. the goals of this process is to synthesize budget priorities to guide in the preparation of the proposed two-year budget.
to enable the budget and legislative analyst to provide more analysis to the board to assist unctionin -- understandig the city performance. this is the second year that the board utilizing a budget priority process and we do encourage feedback in order to make improvements for the current and future budget cycles. that concludes my presentation. thank you and we're available to answer any questions you might have. >> chair fewer: colleagues any questions or comments? >> president yee: in regards to the three categories, one is
going health also? again, i'm looking at mental health and physical health as the category. there are different things. seems like there's some connection also to that. when it comes to certain categories of classes of ages, we have to pay more attention to some of the health issues, physical health issues that we have in the past. i'm just throwing out threat -- i don't know if my colleagues agree. >> chair fewer: thank you. president yee is this something that you would like to formally add on to the priorities of item number 3 i believe?
>> president yee: yes. >> sorry to interrupt, there were a number of other issues that were mentioned that -- some were closely related to these issues that had had the most consensus. others were little bit farther off. i believe that the committee is going hold fourth hearing to discuss those issues. i don't know if the question whether he'll be able to include that in the report. >> chair fewer: thank you. i think we can include this topic under our other issues and other categories. would that suffice? we can have a discussion. >> president yee: okay. >> chair fewer: thank you president yee.
>> supervisor stefani: on moving forward slide where it says you'll conduct research on each priority. i'm wondering -- i really like that. will you prepare a report on all of this in it? >> yes. >> supervisor stefani: on performance measures what specific performance measures will you be looking at? >> there are official performance measures that's recorded by the city services auditors. there are those that are included in the mayor's proposed budget in the mayor's budget book. that will be our first go to and then if there are other measures that the departments might have that are not necessarily put into an official document by the comptroller office, we will try to include those. >> supervisor stefani: what about funding impact opportunities?
>> funding impact opportunities we'll be discussing those with the departments. we'll be looking for practical opportunities that could be accomplished within the second year of the two-year budget. we're looking at just some practical changes there. >> supervisor stefani: okay. with historical spending, i envision, pass audits on each subject to be included in the report or at least mentioned. i'm thinking about these three issues, homelessness, housing, public safety, mental health and substance abuse. i know there's been pass audits and b.l.a. reports that you've done. to have a thorough understanding to include as much information as possible. especially prior audits or any
other reports that you've done that may impact. >> absolutely. last year we just finished audit mental health services and we also did finish an audit on homelessness couple of years ago. we definitely will include the findings as much as they are relevant. >> supervisor stefani: also one public safety one that we're all talking about? >> yes. , thank you. >> supervisor stefani: thank you. >> supervisor ronen: just following up on supervisor s's question. you'll be providing input for additional alternative performance measures? >> i think that would be healthy discussion at the hearing. >> supervisor ronen: okay. for me it would be helpful to
review them before you actually prepare the report because for example, in the recent homelessness hearing that supervisor mandelman held, the performance measures that the office of homelessness and supportive housing used to decide whether or not they were succeeding in their job, they were not the performance measures that some of us on the board of supervisors would use to evaluate. that can be very subjective and the chance to be able to weigh in on what performance measures we love to understand it and get you to review it. it would be great if we had an opportunity. >> i believe we'll be checking in with the committee over the next few weeks and that is something that we can bring forward as part of the update about what we're proposing to include in the report for feedback. >> chair fewer: i wanted to also chime in, i was going to request
recommended audits that the committee should read in preparation before the department presentations. if you can recommend some of the audits that we should be reading so we can refer to them in the findings while we're actually questioning the departments on their budgets. that would be great. >> i will follow up on that. >> supervisor ronen: i will make one more comment through the chair supervisor yee for me, it would be important to separate mental health and substance abuse from physical health. while they should require equal attention and physical health gets more attention than mental health and brain diseases and
substance abuse, the way city deals with them is very separately. i have a lot of questions about how the city is dealing with mental health and substance abuse issues and for me it would be really helpful to have one hearing focused on that issue. i wanted to mention that. >> chair fewer: supervisor mandelman. >> supervisor mandelman: thank you. i want to figure out what the consensus interest of the members of the board are. president yee, i'm concerned that -- this maybe something we can solve through the fourth hearing. sort of -- we do have -- report came out this year from the long-term about our tsunami
problems. that does require some digestion and thought by this committee and focus on that problem which includes physical health and actually there's weird overlap between that and then sort of homelessness mental health issues. i tend to agree with supervisor ronen those are best handled in separate hearings. what i'm saying is, i do think the given the intensity and interest around mental health in the city, the opportunities around pushing for treatment on demand, the desperate need for additional resources and for additional slots for folks coming out of treatment, it's very useful and important to have a separate mental health and substance abuse conversation. there needs to be a conversation about what we're going to do with all these seniors will need
homes or need to stay in their homes and need services and help to stay there. i'm hoping that we can figure out a way to deal with both of those. >> chair fewer: president yee. >> president yee: it's my way to figure out the discussion. i totally agree with the issue of seniors. i'm seeing seniors probably be part of each one of these discussions. you look at that article that was in the sunday paper about homeless. this is probably question to the
chair. there should be two reports that's coming up from police. one of them was introduced last year in terms of trying to figure out the civilianization, the staffing. that one has not been completed. it was supposed to be completed in november. it's taking little bit more time than what the comptroller thought. i'm pretty sure the timing will be perfect to probably have it there so we didn't have to have a separate hearing. the other piece, some of you know, i asked for a task force almost two years ago. it finally got up and running in terms of the police department and the commission. according t to the staff, they'e saying that the process will
take probably run into the summer. most of the bulk of the work would have been done. there's a good break around april where if you -- i ask them to bring it back to the board at that point. they would have enough information. instead of having a separate hearing, i'm thinking maybe it could be part of the discussion here. >> chair fewer: okay. noted. >> president yee: other thing would be, i'm curious when we talk about public safety, we also talking about safety measures? >> chair fewer: i agree. okay. that's great. i think these categories are fairly broad and within these categories, actually i think there's much more detail.
when we want drill down about seniors and housing su -- noted. i have my legislative aid here and she is taking notes on this. any more comments or questions? >> supervisor mandelman mentioned senior housing. we did hear through informal survey about specialized housing. for seniors, veterans, workforce, we will definitely be addressing that in the affordable housing report. >> chair fewer: that's great. thank you very much. seeing no more comment. this is a great first discussion. do i file this discussion?
>> clerk: would you like to have public comment? >> chair fewer: let's open it up for public comment. anyone like to comment on item 3. seeing none, public comment is now closed. madam would i continue this? i would continue this. i make a motion to continue this. can i have a second please? supervisor mandelman. completes out objection. thank you very much. please call items 1, 2 and 4 together. [agenda item read]
>> chair fewer: thank you very much. we have the budget director someone from the comptroller's office. thank you. >> thank you chair fewer and members of the committee. i'm the mayor budget director. we will alternate between the presentation on various elements of the five-year financial plan that was issued in january. i will note that the three offices that jointly published that financial report will be publishing an update to it within the next week. we have time in your april schedule to bring a presentation. i wanted to orient everyone to the january document and the projections within that. i'll also speak to the budget introductioinstructions that the to the department.
i will do high-level overhave you just of the time line of the state and federal budget and how they journally interact. then the comptroller office will speak to their six-month report. i'll move to slide 3. the five-year financial plan, mayor's budget instructions in summary demonstrated that in terms of our projected deficits in the short-term, we're in a similar place to where we were last year with the deficit. i'll walk you through that short. the cost pressure within the near term and causes for future uncertainty that are our radar including growing cost of employees particularly the pension and healthcare costs that are included in our financial projections.
the cost shift of the home support program from the state has added significant cost to the city in the last two years. additionally, the large number of baseline set aside about third of the general fund is spoken for due to voter mandated baselines. what i mean by that, it prescribes how they are located to various departments and uses. they do limit flexibility for decision makers. we also see not necessarily included within the deficit projections themselves but some uncertainty related to labor negotiations where negotiating over tweet m.o.u.s this spring. the housing authority, financial obligation, those are not
included in the deficit as details of those come to light and become clearer. they will have to factor into the balancing of the budget. additionally the five-year financial plan does not assume a recession. should recession occur, i think it is very likely to occur in the next five years, that would exeexacerbate and make the defit higher . there's potential legislative risk from the state and federal government. eraf windfall fund which supplemental was just passed by the board. future eraf ri revenues are not included in the deficit given the uncertainty of actions around the state budget process. the state budget process does not come into clear picture
until the middle of may. if any changes to educational funding that may impact eraf, if those were to come to pass, we wouldn't know potentially until may or june. we have not included those in the projections. some of the guiding principles that the mayor -- >> supervisor ronen: i have a question about that. >> chair fewer: supervisor ronen. >> supervisor ronen: does that mean that the mayor won't be programming eraf as soon as we get the eraf funds for 19-20 in the budget that we receive in june? >> we're still working through the mayor's budget. i think we'll have a better sense in may as to what state action or may not occur. hopefully by june 1st when
we'll have a better clarity. >> supervisor ronen: what level of clarity are you looking for? my understanding of risk around eraf and the likelihood that we will be receiving an additional to the tune of $180 million, is that likelihood it's pretty high? i'm curious from your perspective what is the certainty you're looking for? >> for the may revised budget to come out and let it's know if there's legislation that contains the specific provisions that will alter our unking of understanding of the eraf. >> supervisor ronen: do you know the date of the may -- >> it's may 15th. which is also the date that labor agreements must be
presented to the board of supervisors. may 15th is a big day. >> chair fewer: supervisor mandelman. >> supervisor mandelman: on the -- the amount that we would possibly anticipate if state does not do something, would be roughly half what the first eraf windfall was? or is it the same? >> i don't believe it's that simple. the comptroller's office is working on projections. we'll include some more concrete numbers the five-year financial plan which we'll put out next week. i don't know if michelle wants to say anything to that now. we'll have those numbers for the next week. >> supervisor mandelman: my sense it will be less than what we had. maybe i'm wrong. >> sorry. excess eraf windfall that you had supplemental for was about
$415 million which was two years worth of assess eraf. presumably one year would be somewhere within that range of half of that. exact numbers we'll determine. it's noit going to be $415 million. that was two years worth of eraf. >> supervisor ronen: that was not what i was told from the comptroller. please weigh in here. >> we are looking at what we think excess eraf will be worth in the budget year. it depends on what our local projections and growth are as well as what the state funding formulas for schools will be. we can take -- we can draw. we're going to along the lines what kelly was saying in the update to the five-year plan next week, we're going to be report something close to about $140 million after baseline.
>> supervisor ronen: that's just for one year. it's not half of the program amount. that's because we're not required to make the rainy day deposit because the budget hadn't grown by 5%. that is pretty different what i initially expected. that's good news. >> chair fewer: that it is the concern of the committee that the additional eraf money that come in wouldn't be part of the mayor's proposed budget. that would be dealt with separately. i think this is just what i'm gathering is this is why we're having this discussion. this is brought up today. >> that will be to be determined. >> chair fewer: i think that we can state as a committee that is a concern. we would like it to be separate
than mayor's proposed budget through a separate deliberation process. please continue. >> some of the guiding principles for the mayor's budget and instruction to the departments was also focusing on physically responsible policies regarding building our reserves, both having an eye to limiting ongoing cost, giving the structural devastat deficits. mayor feels strongly that we need to make sure every dollar we spend counts. that will be reflected in the budget. the five-year financial plan, some assumptions, we considered it to be a base-case projections. we take services and staffing levels as they currently exist and project out cost pressures and cost growth from there. we don't assume large policy shifts unless otherwise noted in
the report. revenue, the comptroller office is projecting strong revenue growth however tapering growth in the outer years due to constraints to growth. the report assumes -- michelle can answer questions about revenue specifically -- salary and benefits assumed in the report, benefit cost increases related to pension and healthcare. the report assumes healthcare costs are growing at a rate of 6% each year over the horizon. which is twice the rate of inflation. we'll demonstrate the significant pension growth due to multitude of factors. we also assume inflationary increases on personnel costs on wages. the c.p.i. number that we utilize is a number calculated by the comptroller utilizing combination of moody's and the
california department of finance over the horizon of the report, it hovers around 3%. for citywide costs we consume the cost of the ihss cost shift from the state back in 2016 under governor brown. this state decided to change the cost sharing model for ihss and last year's budget alone fiscal year 18-19 and 19-20 that cost shift added $100 million of additional cost to the city by the fifth year of this report under the m.o.e., that's the memorandum shared kind of agreement. that cost shift will will cost us $100 million door than we anticipated. i will speak to the state budget and changes to that and later in the presentation. then inflation on nonpersonnel.
we assume for nonpersonnel costs contracts and c.b.o. contract costs. it is cp.i. >> chair fewer: i wanted to mention, i think our shortfall isn't bad for 19-20 and 20-21. i'm pleasantly surprised. thanks. >> shortfall is the two-year shortfall for fiscal year 19-20 and 20-21. it's $270 million. as of the general projection that will change when you put out the march update in a week taking into account the six-month report and other revenue changes that are cost changes we had since january. this is 3rd period to the january time last year, we were about $260 million when we put out the five-year financial plan
last year. i will note that it is a five-year horizon and that we do have a persistent and growing deficit meaning the costs are growing at a rate that is far eclipsing that of revenue. expenditures, this group of four kind of high-level category that we have under uses. those growing at 25% over the five-year horizon. all revenues are projected to grow at 14% over the same time horizon resulting in fifth year deficit $44 million. we do want to note that underlying revenues in the budget have included significantly higher levels of fund balance that is prior year either revenue better than budgeted or unspent funding and
left over at the end of the year. we applied that to the next year's budget to help balance it. we have a significantly growing balance of pink line and that is revenues largely coming in higher than budgeted. also, transfer tax, which is one of the volatile property tax sources has helped support the growing expenditures in revenue helping the budget. i wanted to note some trends within the projected expenditure growth that i noted for you earlier. of that $1.4 billion of expenditure growth expected over the five-year horizon, salary and benefits make up about 43% of that including pensions and health.
>> supervisor safai: i think s.f. gov tv need to load the slides. >> salary and benefit growth makes up about 43% of the expenditure growth and that made primarily of wages, pension and healthcare costs for citywide operating cost which make up about 29% of that expenditure growth, 40% of that is driven by inflation and nonpersonnel expenditures and grants to nonprofits. other citywide operating costs include the minimum wage, minimum compensation growth, our citywide capital equipment and technology budget as well as various other debt services in real estate needs. the inflationary costs are nonpersonnel grant make up the biggest percentage change. for the baselines that make up
17% of the expenditure growth, 66% of that alone is made of the m.t.a. and baseline for peace. 12% of the pie almost 60% of that is related to that ihss cost shift. i will hand it over to michelle to walk you through the fiscal outlook. >> as you know, we update our forecast annually. this chart here is just looking at in past five reports that we published, what is the last year of the difference between revenues and expenditures look like? in the report that we just published, we're saying in fiscal year 24, difference between revenue and expenditures of $600 million. i think the take away from this slide is that this number was getting shorter as we expanded
rapidly after the financial crises and revenues were recovered quickly. that trend sort of changed after 2014 when we were seeing our out-year shortfall growing. it's largely because of the underlying cost pressures we've talked about so far. it has come down a little bit in our past two reports given strength of revenue growth. spend little bit of time on employee pension cost growth because this is something that affecting all governments frankly in the country. it's not really unique to san francisco. the reasons for the cost growth and the pressure that it's putting on governments. you'll see that if you could read the finally number -- tinyr
numbers it's about $50 million in fiscal year to projected 430 in fiscal year 22. if we kind of start at the beginning and we see the rapidly growing costs and the early part of the expansion, some of that growth is really the asset losses experienced by the pension system during the financial crises. we get over that hump after about five years and at that point, about four years ago when we were doing this report, we were expecting and projecting pension release. that's what that little red bubble there showing. we wanted to show remind ourselves we had overcome, we reached that peak, and voters
approved changes to pension plans including new lower cost tier for new employees that would help make a difference in the pension liability. we were looking forward to little bit of relief. number ever factors, many are not unique. due to some familiar factors, we haven't experienced that relief. we're looking forward to growing rates for a couple of years. it's the main reason for that, some of it's great news that we are living longer and our pension actuaries taken that into account. it does increase costs. our pension system assumes 7.5% rate of return which they have recently knocked down to 7.4% rate of return, the pension return system board approved that decline in the discount
rate in november. we'll see slight uptick in the rate to pay for that shortly. the return are volatile. in the current year to date, we're about 1.3. we consider that a short fall from our expected 7.5. we'll paying for that as well. just some other more obscure depending on your level of familiarity with pension. supplemental costs which the city is in litigation over. this chart really is kind of folding together a lot of the factors that ms. kirkpatrick talked about. the bottom line here is the growth in c.p.i. of inflation.
it's about 3% a year. it really depends. on top of it, the red line is showing the city's per f.t.e. cost of compensation. it's growing guy as fast as inflation. mainly because of pension and health. also underlying wage increases. it's folding together all the things that the employer pays for. significantly, it's much more than wage increases. pension and health growing faster than inflation that really drives this. not necessarily unfamiliar to other jurisdictions. we've mentioned the city is negotiating with all the miscellaneous labor organizations. that's 28 agreements that will be effective on july 1st.
that will depending on the outcome of the negotiations that could change our forecast. we've assumed as discussed just as a placeholder for planning purposes a number forecast c.p.i. for the bay area. any variance from that increase or decreases are projected in the shortfall. ms. kirkpatrick mentioned the forecast is assuming the recession. it's pretty hard to time one. there's no forecaster that does it. we forecast continued economic growth and the reason we don't do it, we don't know the timing of it. we do want to be mindful just looking back at our economic history in the u.s. if we look back 75 years, expansions usually about 4.5 to 5 years long.
we're coming up on 9.5. just being mindful of that. economic expansion will not last forever. with this far out so far, almost the longest expansion since world war ii. we wouldn't really expect to go without a slow down during the forecast period since we can't predict the timing, -- we can't predict timing of the slow down, we just project continued growth. that said, there are few things that we're looking at that most folks are looking at to kind of get a sense what's coming. lot of discussion about interest rates. last year the fed increased benchmark rate four times. they kind of pulled back. less worried about inflation and more worried about continued economic growth on their part.
folks are looking to the fed to see what they'll do for interest rates. we're looking at the yield curves. this is another common indicator for folks who look at. as you go out in time you'll earn more money on your investment. inverted yield curve is the things people are looking for. they want to see investors so concerned, they're only willing to invest now. finally, there's a lot of we like everybody else, there's lot of uncertainty with federal trade policy and federal economic policy generally. we are looking at that. that's all you can really do. these four forecast that were issued by the mayor in december
which i will let kelly discuss. >> two key themes that the mayor really highlighted for departments in mid-december when she gave instructions. two things that chair fewer mentioned earlier, first thing is accountability. making sure that departmentable budgets, ensure that every dollar count. we need to demonstrate executive use in existing city funding. setting measurable metrics as well as achieving outcomes. we also wanted to make sure department had a eye to equitable outcomes. really prioritizing communities or groups with the greatest need.
that included -- this is an example. obviously not limited to areas of unemployment, on house and homeless individuals, people lacking economic mobility, justice involved and lgbt. just couple of examples to help people think. for balancing to help balance the budget, the structural deficit that we noted, we look to departments to help provide us with ideas and proposals about reducing general fund support. one thing, the deficit projections are just for the general fund which is $5.5 billion half of the city's $11 billion budget. this is 2% of general fund support growing to 4% in the second year of the budget. we do ask the department share with us what this service or operational